It Was All A Mistake!

A recent judgment of the Royal Court of Jersey demonstrates its approach to an application to set aside a trust and certain gifts made under it on the grounds of mistake. It also provides some useful guidance on the approach to be taken to convening parties on trust related applications.

In The Matter of the R Remuneration Trust [2009] JRC164A, the applicant and settlor, acting on professional advice, had settled an English law discretionary trust with a Jersey trustee. The trust deed's terms excluded him and "connected" persons (as defined under the Income and Corporation Taxes Act 1988) from being beneficiaries. The settlor was subsequently advised that, contrary to his understanding at the time of the trust's establishment, loans could not be made to him by the trust as he envisaged they would be and, in addition, there was some uncertainty as to whether his wife and children could be added as beneficiaries of the trust upon his death.

The Settlor contended that, had he been aware of these facts, he would never have established the trust. He sought to set aside the trust and historical transfers made into it and out of it on the grounds of mistake.

Law of mistake In this case the trust in question was expressed to be English law governed. The court received opinions from English QCs on the English law of mistake which is summarised within Millett J's judgment in Gibbon v Mitchell [1990] 1 WLR 1304: 'wherever there is a voluntary transaction by which one party intends to confer bounty to another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it....'

The court found that the factual scenario here did indeed constitute a mistake of fact and a mistake as to the effect of the transaction. The mistake was the understanding that the trustee had the power under the terms of the trust to make loans to the settlor on terms more favourable than commercial loans, as regards rolling up on interest, no need to provide security, and ability to extend the terms of the loan indefinitely.

The court declined to make a finding as to whether a mere uncertainty as to the possibility of the settlor's wife and children becoming...