When can flawed tax planning be set aside?

For the first time, the Royal Court of Guernsey has delivered a public judgment considering the scope of the Hastings-Bass jurisdiction in Guernsey. In two cases this year it was asked to do so to reverse transactions which gave rise to unwelcome tax consequences.

Hastings-Bass was originally established in a 1974 judgment of the Court of Appeal in England & Wales. It gives courts the power to intervene in or set aside an act made by a trustee in breach of trust, and is based on the need to protect beneficiaries against aberrant conduct by their trustees.

A 2013 Supreme Court judgment, Pitt v Holt, had narrowed where Hastings-Bass could be applied. Until recently it had not been confirmed whether this would be followed in Guernsey.

Now the two judgments handed down have given important clarity on how the Guernsey court might deal with an argument relying on Hastings-Bass – as the court said it would apply the narrowed Pitt v Holt version of the test.

But the court also noted that it should determine each case based on its own specific facts. Indeed, in one of the cases the court granted the application to set aside the transaction, but in the other it refused.

Importantly, the court has said it is not bound by Pitt v Holt, as Guernsey is free to develop its own law in this area. The cases are a reminder that the outcome will often come down to subtle nuances in presentation and emphasis, so it is vital to obtain advice at the earliest opportunity.