Jonathan Speck and Damian Evans of Mourant Ozannes chart the tumultuous life-span of the Hastings-Bass rule in Jersey.
"In forging its own path, the amendment to the legislation will confirm an existing jurisdiction of the Jersey Court to supervise the administration of trusts which is the bedrock of the Jersey finance industry."
The rule in Re Hastings-Bass, in Jersey, in its present form, is as follows.
Where trustees act under a discretion given to them by the terms of the trust, and they act within the parameters of that discretionary power, but their exercise of discretion has effects other than those which they intended, the Court will set it aside if it is clear that those trustees would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account.
It is not a prerequisite that there has been a breach of duty by the trustees (or by their advisers or agents).
Unintended fiscal consequences are among the matters which may be relevant for the purposes of the principle.
This is the same formulation of the rule as set out in the English case of Sieff v Fox  3 ALL ER 693 and has been the approach in Jersey since at least the decision in In the matter of the Green GLG Trust  JLR 571, where Birt, Deputy Bailiff (as he then was) said:
The principle in Hastings-Bass... is but a manifestation of the general principle that a trustee must act in good faith, responsibly and reasonably.
In our judgment the Hastings-Bass decision merely elaborated the position by making it clear that a decision of a trustee was similarly liable to be quashed where the trustee has taken account of irrelevant factors or has ignored relevant ones.
The Hastings-Bass principle is entirely consistent with precedent and principle. The Trusts (Jersey) Law 1984 draws substantially on general principles of English trust law and we see nothing in the decisions that we have described which is inconsistent with Jersey law. On the contrary they seem entirely consistent and accordingly we hold that, what is described as the Hastings-Bass principle, is equally a principle of Jersey law.
Generally, therefore, the Jersey Court has, at least until now, considered the rule as nothing more than a label for that part of its jurisdiction to intervene in the administration of trusts for the protection of beneficiaries, in particular those that cannot speak for themselves. As a matter of policy the Jersey Court considers the alternative of expensive litigation against professional advisers as less than desirable.
The beginning of the end of Hastings-Bass principle in Jersey?
On 9 March 2011, the Court of Appeal of England and Wales gave its judgment in the well-known cases of Pitt v Holt and Futter v Futter. It clearly felt that the Hastings-Bass principle had been allowed to go too far. The Court of Appeal looked in detail at what issues trustees of discretionary trusts ought to take into account when exercising their discretionary powers. It had no doubt that fiscal consequences may be relevant considerations which the trustees ought to take into account. And where tax matters are relevant (as they often will be), the trustees should take proper advice. The Court of Appeal considered that if the trustees do take advice from appropriate and reputable advisers so as to mitigate tax liabilities and then follow that advice, but the advice turns out to have been wrong, then the trustees have acted properly. Whilst it could be said that the trustees had failed to take into account a relevant matter (ie, the true fiscal consequences of their action), could it really be said that those trustees were acting in breach of trust when, on that advice, they made the particular advancement or appointment? The Court of Appeal’s view was that the answer was no (unless the process of taking and acting on the advice was itself open to challenge in some way). Thus, if trustees act within their powers, but it is said that the act is vitiated by a breach of trust so as to be voidable on the basis that the trustees failed to have regard to a relevant matter, namely they obtained and acted on advice from apparently competent advisers, which turned out to be incorrect, there will have been no breach of trust. And this in turn means that the act concerned will not be set aside by the court.
In In the matter of The B Life Interest Settlement  JRC 229, in obiter comments that appear prescient, Bailhache, Deputy Bailiff saw the formulation of the principle as set out in, for instance, the Green GLG Trust case as a charter for sloppy trusteeship. Indeed, he considered previous Jersey decisions under Hastings-Bass as being clearly wrong. Part of his reasoning was that he saw there to be no reason in principle why a person should be in any better position as a beneficiary of a trust where the trustees have taken a particular step, than he would have been had he taken the same step personally in relation to his own legal interests. Ultimately, the Royal Court found in the B Settlement that even under its existing formulation under Jersey law the Hastings-Bass principle simply did not apply to the facts.
Hastings Bass is confirmed dead in England and Wales by the Supreme Court
In a long-awaited post mortem, the Supreme Court confirmed in its judgment in Pitt v Holt and Futter v Futter of 9 May 2013, that the rule in Re Hastings-Bass under English trust law as practitioners had understood it for a number of years, is now truly dead and buried. In essence, the Court will only have jurisdiction to intervene in a matter concerning a trustee’s flawed decision, where that decision was within the parameters of a power held by it, if the trustee has acted in breach of fiduciary duty in taking that decision. This therefore rules out bad decisions that result from the trustee having obtained professional advice which advice turned out to be wrong: the principle simply does not apply there since the trustee will not have committed a breach of duty. It also rules out any other decisions that transpire to be disadvantageous but where the trustee did not breach its duties.
Where does that leave the Hastings-Bass principle in Jersey?
There is now a very significant division between the analysis set out in Lord Walker’s judgment in Pitt v Holt and Futter v Futter and the free-standing principle as articulated in In the matter of the Green GLG Trust, itself informed by English authorities the Supreme Court has now declared were simply wrong in their analytical foundations. This is not so much a potential divergence of policy between Jersey and England, as a statement by the Supreme Court that there is no legally rational basis for the previous articulation of the principle. In these circumstances, the question arises as to how Jersey will react to what the Supreme Court has determined is a mistaken articulation of legal principle. As Bailhache, Deputy Bailiff said in the B Settlement case:
Decisions of the English courts in matters of this kind are always likely to be of considerable interest to the Royal Court and will frequently be treated as highly persuasive. Nonetheless, it remains the case that the Royal Court is not subordinate to the English Court of Appeal. The Island of Jersey has its own separate legal jurisdiction and it remains open to the Royal Court, subject to any authority from the Jersey Court of Appeal or the Privy Council, to reach its own conclusions on the law. It may be that from time to time an issue will arise for determination where the Court’s decision will be much influenced by issues of domestic policy and the relevant circumstances affecting that policy are quite different in Jersey from those which may appertain in the United Kingdom. The freedom of the Royal Court in this respect to follow the line it considers appropriate is one which has been long and firmly established in the constitutional rights of the Island and its citizens.
Reincarnation of Hastings-Bass in Jersey
Jersey is at a crossroads but has decided to forge its own path. On 16 July 2013 the States of Jersey passed an amendment to the Trusts (Jersey) Law 1984 which will, subject to Privy Council consent, give statutory force to the rule in Re Hastings Bass.
The new statutory provisions will have the effect of reversing that change in so far as Jersey law trusts are concerned. This will be highly desirable for trustees, settlors and beneficiaries in situations where the alternative would be expensive and potentially risky litigation against professional advisers.
The salient points of the new provisions are as follows.
The statutory provisions cover the remedy of setting aside an exercise of a fiduciary power in relation to a transfer into trust on grounds falling within the rule in Hastings-Bass and the remedy of setting aside an exercise of a power in relation to a trust on grounds falling within the rule in Hastings-Bass.
The requirements will be that the trustee or person exercising a power: failed to take into account any relevant considerations or took into account irrelevant considerations; and would not have exercised the power, or would not have exercised the power in the way it was so exercised, but for that failure to take into account relevant considerations, or but for that taking into account of irrelevant considerations.
It will not matter, in applying the statutory Hastings Bass principles, whether the grounds occurred as a result of fault on the part of the trustee or person exercising the power or on the part of any adviser in relation to the exercise. This is different to the position in English law following the Pitt v Holt and Futter v Futter decisions.
Where the necessary requirements can be demonstrated in relation to the statutory Hastings Bass principles, the court will have wide remedial powers. Specifically, it will have power to declare that a transfer of property to a trust or the exercise of a power is voidable and has such effect as the court may determine; or is of no effect from the time of its exercise.
Protections are included to ensure that the court’s power to make orders may not prejudice a bona fide purchaser for value of trust property without notice of the matters which render the transfer or exercise of power voidable.
The new statutory provisions apply only to Jersey law governed trusts.
The amendment, which is contained in the Trusts (Amendment No.6) (Jersey) Law 201, is subject to the sanction of the Privy Council which, it is hoped, will be granted later in 2013, but will have effect in relation to transfers of property to trusts and exercises of power which occur both before or after it comes into force.
Hastings-Bass: Alive and well in Jersey?
In forging its own path, the amendment to the legislation will confirm an existing jurisdiction of the Jersey Court to supervise the administration of trusts which is the bedrock of the Jersey finance industry. When there are circumstances where it should intervene, the relevant facts should be brought to the Court’s attention as soon as possible. It is not a rubber-stamp exercise: no application to the Court ever is. The trustee will expose itself to criticism and costs and residual breach of trust and third-party claims will always be an issue. As it is a discretionary remedy, in any event the applicant will still have all the usual evidential hurdles experienced by the trustee in the B Settlement case to satisfy the Court that intervention is necessary and equitable in all of the circumstances.