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a law unto itself The Man The courts On occasion the Manx courts take a different stance on English law. Appleby assesses how this looks in practice. Erin Trimble-Cregeen Ruth Costain Associate, trainee, Appleby Global Appleby Global he recent judgement of His Honour Deemster Doyle in the case of AB v CD highlighted an area of uncertainty in Manx trust law by questioning under what circumstances would the Manx courts be willing to interfere T with a trustee’s decision which has given rise to unintended consequences, including unintended tax consequences. AB v CD AB v CD concerned an application for an order to set aside a number of call options (Options) granted by the Defendant over the assets of eight discretionary trusts established under Manx law (Trusts). The order was applied for under the rule as established by the case of Hastings-Bass (the 16 Isle of Man Report | www.eprivateclient.com a law unto itself Hastings-Bass Rule) (also referred to as consequences the Options would not the effect of that decision later turned the proper deliberation rule) or, in the have been granted. out to be different from that which was alternative, on the grounds of mistake. During the course of the hearing, intended in the circumstances, where it The Claimant was the settlor and Deemster Doyle asked the question was clear that the action would not have primary beneficiary of the Trusts and as to whether or not the recent ruling been taken if the trustees had taken the Defendant was the trustee. by the Supreme Court in Pitt v Holt into account a relevant consideration When the trustee granted the Options and Futter v Futter (Pitt v Holt) on or not taken into account an irrelevant in 2012 he had been aware that careful the Hastings-Bass Rule and equitable consideration. consideration was required to be mistake should be applied in Manx law. However, in 2013 the Hastings-Bass given as to any potential adverse tax Rule, as it applied in England and consequences. However, no tax advice The Hastings-Bass/proper Wales, was refined by Pitt v Holt which was received by the trustee who granted deliberation rule concerned an appeal against a decision the call options anyway. The Options It had previously been understood that that the Hastings-Bass rule could not subsequently gave rise to adverse capital the Hastings-Bass Rule formed part be used to unwind transactions that had gains tax consequences for the Claimant of trust law in both the Isle of Man attracted unforeseen tax disadvantages and other beneficiaries resident in the and England and Wales. Under the owing to inaccurate professional advice. United Kingdom. Hastings-Bass Rule the court was able In this case it was held by the Supreme It was claimed that if the trustee to interfere with a trustee’s decision if Court that the key principle of the had known of the potential tax Hastings-Bass Rule is centred on the decision making function of the trustees and as such, it would only operate if the trustees’ failure to perform this function was sufficiently serious so as to amount to a breach of their fiduciary duty. By narrowing its scope, Pitt v Holt effectively reduced the ability of trustees Funds under management/Administration to rely on the Hastings-Bass Rule in England and Wales. The decision (in £ billions) was largely based on reasons of public policy following the increased hostility End of March 2012 - 22.6 EndEn d of MarchM ar ch 20132 01 - 21.7 in the UK to tax avoidance. The feeling appears to have been that, in circumstances where professional advice Facts had led to unforeseen tax consequences, the appropriate defendant would be the adviser that had provided the incorrect advice and that the revenue should not have to suffer as a result. Mistake Under Manx law the court may exercise its equitable jurisdiction to set aside a End of Marchch 2016 - 22.2 voluntary disposition on the grounds of mistake of fact or law if it finds that the “mistake was so serious as to render it unfair for the done to retain EndEn d of March 2014 - 21.8 the property regardless of the nature of the mistake” the main test for which is End of March 2015 - 20.7 whether or not the payment would have been made but for the mistake. Source: Isle of Man Financial Services Authority Likewise, the Supreme Court in 17 Isle of Man Report | www.eprivateclient.com Pitt v Holt held that the test for setting aside a voluntary disposition for mistake whilst re-iterating that decisions of Bass Rule and mistake, as set out in Pitt in England and Wales centred on the the English courts are not binding v Holt, will not be applied in the Isle gravity of the mistake, its consequences on the Manx courts, Deemster Doyle of Man will likely have to pursue their and the injustice of leaving it suggested that it is a matter which may claim to appeal in order to be certain uncorrected. need to be considered by the appeal that this is the case. This process is However, it was also observed courts in due course. likely to be both lengthy and costly. that in cases where unintended tax This leaves the Isle of Man in the In circumstances where the island’s consequences stem from “artificial tax unusual position that, even where ultimate appeal court is the Privy avoidance” the courts of England and Tynwald (the island’s parliament) has Council and is made up of the same Wales may in future find it appropriate not seen fit to change the legislation judges as the Supreme Court, it will be to refuse discretionary relief on the in response to Pitt v Holt (as the interesting to see how this particular grounds of public policy. legislators in Jersey and Bermuda story ends. have), that the Manx appeal court However, whilst it may now be AB v CD Decision may nevertheless make a decision on uncertain under what circumstances On the facts of this case, it was which issue which may take Manx the Manx courts will interfere with a unnecessary to determine whether or law out of line with that of the UK. trustee’s decision, AB v CD does serve not Pitt v Holt was good Manx law as The practical result of this statement to highlight the importance trustees the Defendant’s mistake had been such made by the most senior member of obtaining and considering appropriate that the court held it had the power the Isle of Man’s judiciary is that any professional legal and tax advice when to set aside the Options regardless potential claimant hoping that the more contemplating the exercise of their as to which test it applied. However, restricted approach to the Hastings- discretionary powers. 18 Isle of Man Report | www.eprivateclient.com.

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