In the first quarter of this year the Royal Court has had to consider two cases concerning the application of the "Hastings-Bass" principle in Guernsey. Both cases involved trusts which were set up for succession planning purposes and which, owing to negligent tax advice in the first case and the trustee's failure to take tax advice in the second case, resulted in serious negative tax consequences. Both applicants attempted to rely on the Hastings-Bass principle to set aside the transactions so as to avoid paying the hefty tax bills.
These are thought to be the first Guernsey judgments to consider the application of the Hastings-Bass principle in Guernsey and the effect of the leading English case of Pitt v Holt which has significantly narrowed the circumstances in which Hastings-Bass can be invoked. The Supreme Court in Pitt v Holt established that the principle could only be invoked if there had been a breach of duty by the trustees.
The Royal Court expressly held in both cases that Guernsey law should follow Pitt v Holt. This position should be seen in contrast to other offshore jurisdictions (including Jersey) who have enacted express litigation to circumvent the effect of the decision in Pitt v Holt and preserve the Hastings Bass principle, a move which it is argued in this article should be followed by the Guernsey legislature.