TRUSTS; SETTING ASIDE MISTAKE BY TRUSTEE; ARTICLE 47G; DISCRETIONARY BARS; NO DELAY OR AGGRESSIVE TAX EVASION IN THIS CASE

Representation of Equiom (CI) Limited re The Capital Trust [2025] JRC 020

This was an application under Article 47G of the Trusts (Jersey) Law 1984 for the setting aside of a mistaken decision by a former trustee. The Court had no difficulty in granting the application on the particular facts, applying the well-known statutory tests. With regard to the Court’s determination as to whether it is just to make the declaration sought, the Court alluded to cases where it has been said that the Court may have difficulty in that respect if the circumstances show that the creation of the trust or the decision sought to be set aside was motivated by aggressive tax avoidance. Commissioner Birt referred to these suggestions as obiter and noted that, “even if” the Court might refuse to make the order in such circumstances, the present application was not such a case.

The Representor, as trustee, applied under Article 47G(2) of the Trusts (Jersey) Law 1984 for a declaration that a deed of appointment made by a former trustee in 2009 was voidable on the ground of a significant UK tax mistake and that it be set aside and of no effect since the time of its execution. It was mated that the 2009 Appointment caused IHT charges, including immediate and 10-year charges together with penalties and interest amounting to almost £14m greater than if the 2009 Appointment had not been executed at all. HMRC were notified of the proceedings but chose not to intervene or make any representations.

Held, granting the orders sought:

(1) Article 47G.

(a) As was well established, the court was required to consider three questions in an application by a trustee under Article 47G in relation to the exercise of a power. These were (i) Has the trustee made a mistake in relation to the exercise of its power? (ii) Would the trustee not have exercised the power, or would it not have exercised the power in the way it was exercised, but for that mistake? (iii) Is the mistake of “so serious a character” as to “render it just” for the court to make a declaration under the Article?

(b) What constitutes a “mistake” for the purposes of Article 47(G) is set out in Article 47(B)(2). This includes a mistake as to consequences as well as the “effect”; and it was well established that a mistake as to such effects, consequences or advantages may relate to the tax consequences of the exercise of a power: see for example Re J Settlement [2019] JRC 111 at [19]; Re L M Will Trust [2024] JRC 107 at [43].

(2) Mistake. As to first question, in the present case, the former trustee had made a mistake as to the tax consequences of exercising its power under Clause 2(a) of the Trust in accordance with the terms of the 2009 Appointment.

(3) The “but for” test. As to the second question, there as no direct evidence from an officer of the former trustee because that company no longer existed. However, it was perfectly obvious that it would not have executed the 2009 Appointment in the form of the deed made but for the mistake.

(4) Seriousness of mistake. As to the third question, the Court was satisfied in the first place that the mistake in question is serious. The existing and future liabilities were likely to exceed by some £13m the amount of IHT which would otherwise have become payable. Given that the value of the Trust was some £40m, the mistake was clearly a serious one with very significant adverse consequences for the beneficiaries.

(5) Justice of order sought. On the question whether it was just to make the declaration sought and avoid the 2009 Appointment, the Court has a discretion as to whether to exercise the power conferred on it by Article 47G(2). The Court had no hesitation in concluding that it was just to grant the application:

(a) The serious consequences to the trust would ultimately be suffered by the beneficiaries who were not at fault. The only reason that the adverse IHT consequences had resulted was erroneous tax advice which was acted upon by the former trustee.

(b) Even if, as had been suggested obiter in some cases, the court may in its discretion refuse to grant relief in the case of aggressive tax avoidance, this was clearly not such a case. It was intended to be a simple exercise of a power of appointment conferred by the terms of the trust which, if the deed had been properly drafted, would have had the effect of deferring IHT but not of avoiding it.

(c) If the declaration were refused, the only alternative remedy for the Representor and the beneficiaries would be to bring an action for negligence against the tax adviser. Given that the advice was proffered as long ago as 2008, that might not be straightforward. Repeating observations made in Re Onorati Settlement [2013] (2) JLR 324 at [44], in Re J Settlement (supra) at [28] and Re E Settlement [2018] JRC 143 at [22], the Court was not attracted by the proposition that, despite the existence of Article 47G which specifically allows the Court to set aside the exercise of a power made under mistake, the Court should nevertheless refuse to exercise that power and force a trustee and/or beneficiaries to incur further expense in what may well be uncertain litigation.

(d) In some circumstances, the Court might choose to refuse to grant relief on the ground that there has been excessive delay in bringing the application. The mistake in this case was made as long ago as 2008. However, it was only discovered in November 2022 and detailed investigations then had to be carried out in order to ascertain the facts before the Representation was brought in October 2024. There was in these circumstances no reason to refuse relief on the ground of delay.