The 1974 case, Re Hastings Bass established a principle that allowed the courts in England and Wales, in certain circumstances, to set aside actions taken by trustees which had unintended results, including tax consequences. Put simply, the principle was intended to protect beneficiaries by allowing the courts to turn back the clock and unpick erroneous decisions made by trustees, and it has been relied upon by trustees in England and Wales and also in Jersey and Guernsey ever since.
Trustees in England and Wales had a rude awakening however in 2013 following the Supreme Court decision in the case of Pitt v Holt, which restricted the ability of trustees to rely on the rule in Hastings-Bass.
The Supreme Court held that if the trustees relied upon professional advice, even when that advice turned out to have been wrong in some way, then the Hastings-Bass rule would afford no relief. However, the court did accept that where trustees were in breach of their own fiduciary duty, or there was a causative mistake of "sufficient gravity", the trustees may still seek to set aside the disposition. The result of this decision was that trustees are unable to unwind decisions which had led to unintended results and frequently large tax bills. The court said that in such circumstances the proper recourse was to bring a negligence claim against the professional adviser and, indeed in reaching this conclusion, the court appreciated that inevitably there would be an increase in such claims. Anyone acting in this area will be aware that this has in fact happened.
Jersey, however, chose to ignore Pitt v Holt and took an alternative course, first in the Court's decision of the Onorati Settlement  JR 182 and more robustly in the swift introduction in October 2013 of the Trust Amendment No. 6 (Jersey) 2013. This gave a statutory footing to the rule in Hastings-Bass with full retrospective effect. Since then, the big question has been which way will Guernsey go? Would it follow the more generous Jersey approach or adopt the harsher rationale in Pitt v Holt?
We now know, following an unreported decision publicised by Guernsey advocates, Appleby, who acted in the matter that the Guernsey court is prepared to entertain the Hastings-Bass principle and follow the Jersey line. The court permitted Guernsey based trustees of a Guernsey trust to utilise the Hastings-Bass principle to set aside a transaction which had unintended tax consequences. It appears that HMRC did not object and did not seek to be a party to the matter. Whilst a published judgment would have been welcomed by all practitioners, the fact that the Guernsey court has finally decided a case supporting its large professional trustee community is positive news.
Further guidance in this area may be forthcoming in the near future, as it is understood that the long running case of HMRC v Gresh and RBC Trust Company (Guernsey) Limited may be back before the Guernsey courts later in the year. This case concerns a Hastings-Bass application involving a non-Guernsey trust and non-Guernsey beneficiaries (under a pension scheme) and HMRC has been granted leave to join the proceedings. It is hoped that this recent unreported decision will pave the way for a successful outcome for the trustees in the case. Whatever the result, we will be watching with interest.