Further Application Of Hastings-Bass Before The Jersey Court: Leumi Overseas Trust Corporation Limited V Howe (2007) JRC 248

FACTS

The trustees of a Jersey discretionary trust (the

"Trust") had proposed to make an

investment and sought UK tax advice about how to do so without

generating a UK Capital Gains tax charge. The UK accountants

advised that the investment should be made through the Trust rather

than through a private investment company (the

"Company") which was owned by the trust

and two other connected family trusts as had initially been

proposed. As such, the Company provided loans to the trustees of

the Trust to enable the investment.

Unfortunately, as a result of changes to UK tax law after tax

advice had been obtained, the manner in which the investments had

been made triggered a UK tax liability. The trustee thus applied to

have the decision set aside under the Hastings-Bass principle.

HELD

Application of the Hastings-Bass

principle

Once again the Court confirmed that the Hastings-Bass

principle is as much a principle of Jersey law as it is of English

law, as was made clear in In Green GLG Trust [2002] JLR

571 ("Green GLG").

In considering the application of Hastings-Bass, the Court asked

itself the three questions laid down in Mettoy Pensions

Trustees Limited v Evans [1991] WLR 158:

What were the trustees under a duty to

consider? In Sieff v Fox [2005] EWHC 1312 ("Sieff v

Fox"), it was held that tax consequences were in general

relevant. Here, the purpose of investing in the manner adopted by

the trustees was to defer UK tax, and as such it must have been

relevant for the trustees to consider the UK tax consequences of

their decision.

Did they fail to consider it? The trustee was

unaware of and so failed to consider the true UK tax position in

relation to the investments.

If so what would they have done if they had considered

it? The trustee would have proceeded differently had it

appreciated the true UK tax position. There was no need for the

Court to consider the issue of whether 'would' or

'might' is the correct test for the application of

Hastings-Bass as in this case the higher threshold was met. The

Court again avoided the question of whether the decision should be

regarded as void ab initio (from the beginning) or voidable by

setting aside the decision and declaring it to be of no

effect.

Requirement for Fault

The Court declined to find fault on the part of the trustee and

as such it was relevant to consider whether fault is a requisite

part of an application under Hastings-Bass. The Court accepted the

criticisms of the English case of...