Trusts: Mistake, Art 47E/G, Tainting Under UK Tax Law, Interest Non-Payment
Representation of Altum Trustees Ltd (formerly LGL Trustees Ltd) and VG Trustees Ltd re Andha Trust [2023] JRC 080 – This application to set aside a decision by a trustee as a mistake under Article 47E and/or on the ground of inadequate deliberation under Article 47G arose out of a failure by the trustee to pay interest on the due dates in respect of a loan from another trust settled by the same settlor. The omission to pay interest on the due dates potentially caused the trust to be ‘tainted’ for the purposes of the UK Income (Trading and Other Income) Act 2005 with the consequence that protections under UK tax law could be lost. The Court agreed with advice received by the trustee that the failure to pay interest was not a qualifying mistake for the purpose of Article 47E as it was not a mistake in the exercise of a power by the trustee but a mistake in the performance of its contractual obligations.
The trustee accordingly had to formulate the mistake as one of entering into the loan agreement on the terms that it was. On the facts, although it had made a qualifying mistake, the trustee failed the “but for” test under Article 47G. As to the last part of the test, the Court also indicated that, although it would have been satisfied that the mistake was sufficiently “serious” as to make it “just” to make an order, it nevertheless had a discretion to grant the relief and would have in any event declined to grant the relief as a matter of its discretion in this case. The Court therefore has, in addition to considering whether the mistake is so serious as to make it just to grant the relief sought, has a further residual discretion. The application under Article 47H also failed on the “but for” test; and the Court indicated that, had it been necessary to decide the point, the relief would have been refused as well as a matter of the Court’s discretion, the Court having little sympathy with the trustee.
Bridgeford A, WDJL 29 May to 4 June 2023