This case, in the Jersey Royal Court, related to a Jersey law discretionary trust which had been set up by the non-UK resident or domiciled settlors (referred to here as the Representors) to benefit themselves, three adult children, grandchildren and future issue.
A number of transfers were made into the trust, including four transfers to BVI companies within the trust structure from UK bank accounts held in the settlors' joint names.
The Court heard that the settlors did not contemplate that they would be exposed to any UK tax liability from the transfers, nor had the trustees or the bank alerted them to the fact that there may have been a UK tax liability.
The evidence was clear that had the settlors been aware of the potential exposure, expert advice would have been sought and the transfers structured in a different way.
The Representors therefore made an application to the court seeking that the transfers were made by mistake and should be set aside.
The court therefore had to decide, under Article 47E of the Trusts (Jersey) Law 1984 (as amended):
- Whether the Representors made a mistake in relation to the transfers?
- Whether the Transfers would have been made "but for" the mistake?
- Whether the mistake was of so serious a character as to render it just to make a declaration?
The Court found that the Representors had made a mistake in making the transfers and that, but for the mistake, they would not have made the transfers. The Court held that the mistake was so serious (given the amount of tax liability) so as to require it to exercise its discretion and declare the transfers voidable.
While this may appear to be a straightforward case, it is important in that the court distinguished the Jersey law rule of mistake to the English law rules. Under English law, the rules of mistake are governed by the Supreme Court's decision in Pitt v Holt. This distinguished between three occurrences of mistake:
- incorrect conscious belief
- incorrect tacit assumptions
- mere causative ignorance.
In England, the Supreme Court held that the Court has no power to grant relief for a claimant who has acted as a result of the third occurrence, mere causative ignorance.
The Jersey Court found that as the rule of mistake is enshrined in statute (Article 47E), the reason for the mistake is irrelevant and it therefore does not recognise the distinctions under English law.
