What is the applicable test where it is alleged that a Jersey trust is established by mistake? Are voluntary dispositions conferred under a mistake void or voidable?
The Royal Court considered an application by the representor (Mrs B) seeking an order setting aside her dispositions into trust on the ground of mistake as to (i) her domicile for UK IHT purposes and (ii) the legal effect of the terms of the trust. As a result of the mistake as to her domicile, Mrs B was liable to a substantial and immediate IHT tax charge of some £1 million to £1.2 million, namely 20% of the disposition. She sought a declaration under Article 11(2) of the Trusts (Jersey) Law 1984 that the trust was established by mistake and therefore invalid to the extent and insofar as it related to Mrs B's voluntary disposition into the Trust.
The court had to determine which of the two sets of principles were applicable, namely (a) the limited test expressed in Gibbon v Mitchell (1991) WLR 1304 which requires a mistake relating to the legal effect of the transaction and not merely its consequences; or (b) the broader principle of injustice determining whether it is just for the donee to retain the property given to them in the light of the donor's serious mistake as set out by the Court of Appeal in Ogilvie v Littleboy (1897) (subsequently affirmed in 1899 by the House of Lords). While the court was satisfied that relief could be granted to Mrs B under both tests, it held that the wider test of injustice in Ogilvie applied.
Accordingly the applicable test when seeking to set aside a voluntary disposition on grounds of mistake in Jersey is: (i) 'but for' the mistake would the disponer have effected the transaction; and (ii) was the donor acting under a serious mistake which rendered it unjust for the trust to retain the funds donated. The court has jurisdiction to grant this discretionary relief whether the donor's error is one of law or one of fact. The court heard submissions on the question of whether the trust be declared void ab initio or voidable, which was of some significance as a result of reporting obligations to the Inland Revenue.
The court held that the very language of the applicable test presupposes that the original disposition had some legal effect, accordingly a voluntary disposition is voidable, standing unless and until it was set aside by the court.