Hastings-Bass Before The Jersey Court - Again Seaton Trustees Limited v Morgan (2007) JRC 206

Facts

The settlor of a Jersey discretionary trust (the

"Trust") had transferred to the Trust certain rights

which he had in respect of a deferred compensation package offered

by his employer. In doing so he had taken advice from his

accountants as to the UK tax implications of such a course of

action. The addition to the trust fund was accepted by the trustees

and they resolved to execute two agreements (governed by Manx law)

by which the settlor assigned his interest in the compensation

package (the "Agreements").

It became clear that a substantial inheritance tax liability had

arisen on the transfer, as the accountant's advice had failed

to take into account inheritance tax implications. The trustee

applied to Court to have the agreements set aside under the

Hastings-Bass principle. The Court considered a number of

preliminary issues and held as follows:

Applicable Law

Although the Agreements were governed by Isle of Man law, the

Trust was governed by Jersey law and as the Hastings-Bass principle

relates to the way in which a trustee exercises its discretion in

relation to a trust it was therefore appropriate to apply Jersey

law.

Application of the Hastings-Bass Principle

Although the Hastings-Bass principle formed part of Jersey law

(In the matter of the Green GLG Trust [2002] JLR 571) it was

necessary to ask whether the principle applied where the trustee

was accepting additional funds into the trust rather than

exercising its discretion. In the present case the trustee had

determined to enter into agreements in relation to the addition

and, as such, there was an exercise of discretion and Hastings-Bass

could apply.

Application of Hastings-Bass to administrative discretions

It was also necessary to ask whether the principle applied to

administrative, as well as dispositive, discretions. In an English

case cited before the Court, the judge at first instance had

declined to apply Hastings-Bass to an administrative discretion.

However the Court was of the opinion that there was no reason in

principle to distinguish between administrative and dispositive

discretions - the principle is dependent upon the trustee acting

under a discretion; the nature of that discretion is

irrelevant.

'Might' or 'Would'

The Court did not consider whether it would be sufficient that

the trustees 'might' or 'would' have acted

differently had they taken the relevant factor into consideration

because, as had been the case in the Green GLG case, the higher

test had...