The Guernsey Court of Appeal recently handed down its long-awaited judgment in M v St Anne's Trustees.
On appeal, neither party challenged the Guernsey Royal Court's decision that Guernsey law should follow Pitt v Holt. Instead, they focused on arguing that there had been a breach of fiduciary duty and that the Royal Court should have exercised its discretion to grant relief.
The Court of Appeal proceeded on the assumption (but without expressly deciding) that Guernsey law was as Pitt v Holt. It noted that although there were differences in view as to whether the duty of adequate deliberation by a trustee (which encompassed a duty to exercise reasonable skill and care) was a fiduciary duty, the Court of Appeal and Supreme Court in Pitt v Holt were clearly of the view that the duty was a fiduciary duty, such that a breach of duty would be a breach of fiduciary duty. This was consistent with Section 22 of the Trusts (Guernsey) Law 2007.
Given that nothing turned on the distinction for the purpose of the application of the Hastings-Bass principle, the court did not decide the point. However, it proceeded on the basis that the duty of adequate deliberation was a fiduciary duty.
The Court of Appeal disagreed with the Royal Court that there must be a causal connection between the breach of duty and the actual transaction, because once a breach of trust was established, the court had jurisdiction to avoid the transaction if it felt that this was the appropriate form of relief.
While the court might decide that there was no need to avoid a transaction if no prejudice or loss had been caused, that would be a matter pertaining to the discretion of the court in deciding whether to grant relief and not a precondition for its jurisdiction to be engaged.
The Court of Appeal found that the Royal Court had erred in holding that a transaction which was voidable because of a breach of trust may be set aside only when unconscionable not to do so because:
- there was no previous decision in any jurisdiction suggesting that unconscionability was the test;
- there was no suggestion in Pitt v Holt that this was the test;
- there was good reason to differentiate between the Hastings-Bass principle and the equitable law of mistake, referring to the example of a gift of property; and
- the Hastings-Bass jurisdiction had a very different foundation as it arose only on a breach of trust – a prejudiced beneficiary should not have to additionally show unconscionability.
Thus, the Court of Appeal declined to import the test of unconscionability into the principle.
The Court of Appeal further held that:
- once a breach of trust (by breach of duty) was established, the court had discretion to grant relief by setting aside with no 'extra hurdle' required;
- there was no requirement for an 'extreme' case before the court would exercise its discretion (the Royal Court had read too much into "aberrant");
- when deciding how to exercise its discretion, the Royal Court should not have considered the four policy grounds identified in Pitt v Holt, because this took the observations out of context. While the existence of the Hastings-Bass jurisdiction inevitably meant that a beneficiary might be in a better position than an ordinary individual, this had already been fully taken into account and the principle reined in by imposing the requirement for breach of duty;
- the court should not revisit the seriousness of the breach when deciding whether to exercise its discretion; and
- it would be a very rare case where the court, when considering the exercise of its discretion, should consider the possibility of a claim against professional advisers. Even in such a case, it should be given little weight.
The Court of Appeal ultimately exercised a new discretion to set the transaction aside.
The Court of Appeal emphasised that in the absence of any adversarial argument, it had not decided that Guernsey law should follow Pitt v Holt. This effectively means that it is still open to the Royal Court to find, in another case, that Guernsey law does not follow Pitt v Holt.
However, this possibility is remote due to the decisions in HCS Trustees Limited v Camperio Legal and Fiduciary Services Plc (unreported, 30 June 2015) and Re The Aylesford Trust (27 February 2018). Instead, the Court of Appeal has clarified the law as set out by Pitt v Holt on the basis that each case is to be determined on its own facts and it is up to the court to decide, in the exercise of its discretion (without guidelines as to how that discretion should be exercised), whether relief should be granted.
For further information on this topic please contact Mathew Newman or Abby Lund at Ogier by telephone (+441481 721 672) or email (firstname.lastname@example.org or email@example.com). The Ogier website can be accessed at www.ogier.com.
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