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Part Two: Hastings-Bass and Mistake, Should the BVI follow Jersey’s example?

In part one of this two-part article, Harneys Associate, Will Burnell, reviewed the statutory provisions recently introduced in Jersey’s recent actions regarding the Hastings-Bass principle and the doctrine of mistake. In part two, he considers whether the BVI should introduce similar statutory provisions

Should the BVI follow suit?

Setting aside the legal arguments surrounding whether the widely drawn Hastings-Bass and mistake tests in the Jersey’s statutory provisions are justified, Indeed, the Jersey legislators were arguably influenced by strong economic factors which, in light of its prominent trust industry, are also relevant in the BVI.

It is difficult to imagine why settlors and trustees of BVI trusts would not find the opportunity to reverse unforeseen and harmful consequences, especially tax consequences, of their actions equally as attractive as their Jersey counterparts; the reality is that a significant number of BVI trusts are implemented and administered as part of tax planning and other fiscal strategies. Equally, reducing the risks associated with mistake and Hastings-Bass style errors would no doubt enhance potential settlors’ confidence in the BVI as a jurisdiction, just as it has in Jersey.

If the BVI follows Jersey’s example then one might expect trustees to become more bullish and perhaps less conscientious. However, the stigma attached to being involved Hastings-Bass and mistake proceedings, especially those which find a trustee to have acted in error, would arguably act as a sufficient deterrent, particularly to corporate trustees.

The likely increase in Hastings-Bass and mistake proceedings would probably be counterbalanced by a corresponding diminution in the number of professional negligence claims brought by BVI trustees and settlors against their professional advisors. This would shed a positive light on the jurisdiction as a whole. The benefit to the professionals is obvious, but settlors and trustees will also benefit from reduced exposure to the vagaries of mounting professional negligence actions; the chance to directly overturn the mistaken exercise of powers offers a much more direct remedy. Contrast this with the confused position under English law (which the BVI courts might feel obliged to follow in the absence of statutory rules to the contrary) in which a trustee who fails to take advice may have a remedy under Hastings-Bass whereas a trustee who takes advice which turns out to be wrong will not.[2]

As things stand, while the new statutory provisions introduce an element of certainty in this area of Jersey law, the BVI and other offshore jurisdictions will have to wait for relevant cases to come before their courts in order to see which way their laws will develop. In the meantime, Jersey practitioners will be able to predict with greater clarity than their counterparts in rival offshore jurisdictions (and indeed England) the costs and prospects of success of potential Hastings-Bass and mistake proceedings. This, combined with the fact that other jurisdictions such as Guernsey are considering implementing similar statutory provisions, will increase the pressure on the BVI to do the same.

The final aspect to consider is the VISTA regime which, among other things, disengages a trustee of a BVI trust which owns BVI company shares (and to which VISTA applies) from the duties he would usually be under to monitor the investments held by his trust. One of the results of this is that the directors of the BVI company, not the trustee, are responsible for all decisions concerning how the assets held by the BVI company are invested. The introduction of statutory Hastings-Bass and mistake provisions would have to address this issue if they are to be as well received as their Jersey counterparts.

[1] Chief among which are questions surrounding (a) whether it is right for trustees (especially professional trustees) and settlors to be able to set right the mistakes they make when the man in the street cannot, (b) whether the Hastings-Bass principle is inconsistent with other analogous legal principles such as contractual mistake and equitable rectification, and (c) the extent to which the new statutory provisions have departed from the original formulation of the Hastings-Bass principle in the Hastings-Bass case itself.

[2] This seems palpably unfair and begs the flippant question: “Should English trustees ever take advice as to the consequences of their actions?”

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