The Law Of Mistake: In B -v- C, D And E In The Matter Of The A Trust [2009] JRC 245

In B -v- C, D and E in the matter of the A Trust the Royal Court took the opportunity to fully review the law of mistake in Jersey concerning the disposal of personal property by an individual into a trust following recent decisions by the English courts.

Following the decision, the Court has confirmed that it may take into account the fiscal consequences of a transaction when dealing with applications of mistake with respect to the disposal of personal property by an individual.

The case of the A Trust (the "Trust") concerned mistake in respect of personal property disposed of by an individual, Mrs B, to the trust. It does not concern a Hastings Bass application where the trustee has by mistake disposed of assets. The court clearly noted that a mistake involving the disposal of personal property by an individual into a trust required a higher test than the "might have" test in Hastings Bass. The justification for this differing approach emanates from case law and in particular the principle that gifts cannot be revoked simply because the donors wish they had not made them and would like to have back the property given.

The Facts

Mrs B was born in 1957 in Kenya. Her parents moved with her to England in 1967 where she still resides. On 26 August 1984, she married Mr F and they had one child, E.

Following the dissolution of her marriage, her advisor, Mr G of H, practising from offices in London advised Mrs B to confirm her non domiciled status and to place assets in an offshore trust. Accordingly Mrs B instructed Mr G to set up the Trust. The Royal Court noted that Mr G never fully explained the terms of the declaration of trust to Mrs B. In fact, Mrs B was not a party to any of the deeds (other than the letter of wishes). Mr G essentially set up the A Trust for Mrs B.

Before setting up the Trust, Mr G gave advice on the UK tax implications. However, in 2007 and 2008 following the appointment of new accountants, Mrs B learned that Mr G had failed to advise that whilst Mrs B had non domiciled status for Income and Capital Gains Tax purposes, she did not have that status for Inheritance Tax purposes ("IHT"). This meant that her entire world-wide estate was subject to IHT, meaning that the disposition into the Trust was immediately chargeable to IHT at lifetime rates, which gave rise to a liability for Mrs B.

Mrs B applied to the court under Article 11 (2) of the Trusts (Jersey) Law 1984 ("the Trusts Law") for a declaration that the Trust...