SETTING ASIDE DISTRIBUTIONS MADE AS A RESULT OF A UK TAX MISTAKE – WHETHER VOIDING A TAX-DRIVEN SCHEME ENTERED INTO BY MISTAKE IS “JUST” – WHETHER THE COURT’S POWER TO MAKE CONSEQUENTIAL ORDERS IN SUCH APPLICATIONS EXTENDS TO ALLOWING THE TRUST TO FOLLOW THE PROCEEDS OF A VOIDED DISTRIBUTION INTO OTHER HANDS AND/OR TRACE THE PROCEEDS INTO OTHER PROPERTY INTO WHICH IT HAS BEEN PLACED AND TO ASSERT A LIEN OVER THAT PROPERTY

Representation of RBC Trustees (Jersey) Limited re the L M Will Trust [2024] JRC 107

The Royal Court discussed the requirement under Article 47G of the Trusts (Jersey) Law 1984 that setting aside a trustee’s mistake is “just” in relation to a mistaken distribution by a trustee made as part of a UK tax plan based on wrong advice. The Court noted a difference drawn by Lord Goff in the case of Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655 between “tax mitigation” and “unacceptable tax avoidance”. The Court agreed with the opinion of UK Counsel that the present case fell clearly within the category of acceptable tax mitigation. The “just” test and other parts of the statutory test under Article 47G of the Trusts (Jersey) Law 1984 were satisfied.

The distributions in this case had been given in large part by the beneficiary to her children and then invested by them in UK domestic properties. A novel part of the application was an application by the trustee for specific orders consequential on voiding the distributions allowing it to follow the distributions into third party hands (other than any bona fide purchase for value without notice) and to trace the proceeds into other assets if they had been converted into other property, together with a lien over those asserts in the trustee’s favour under the law of tracing. The Court did not doubt that it had such powers but in this case it was not satisfied that the beneficiaries and other parties affected had consented to the relief sought by the trustee. It would not make these consequential orders in the absence of hearing from those parties.

A Bridgeford WDJL 27 May – 2 June 2024