Jiggens & Anor v Low & Anor

Where trustees exercise a discretionary power and the result differs from what they intended because they failed to consider relevant matters, the court may intervene if it is clear that they would have acted differently had they considered those matters. Relevant fiscal consequences may include capital gains tax and the loss of tax relief. A significant risk that an appointment will produce an unintended tax consequence may suffice; the court need not finally determine the underlying construction issue. The resulting transaction is void where the principle concerns an invalid exercise of the trustees’ power. Rectification is unnecessary where the appointment is void.

The claimants were the surviving trustees of a family settlement. They sought a declaration that a deed appointing all trust income equally to the settlor’s two children was void under the Hastings-Bass principle. The deed had been executed shortly before one beneficiary’s twenty-fifth birthday. The trustees intended a temporary income arrangement, but had not appreciated the possible capital gains tax consequences of the irrevocable appointment or its effect on the availability of holdover relief for the other beneficiary.

Alternatively, the trustees sought rectification or a declaration as to the deed’s effect. The defendants supported the application. The central issue was whether the trustees’ failure to consider the relevant tax consequences justified setting the deed aside.

1. Application of the Hastings-Bass principle. The formulation in Sieff v Fox [2005] EWHC 1312 (Ch), [2005] 1 WLR 3811 was adopted. The court may intervene where trustees exercise a discretion, the effect differs from what they intended, and it is clear that they would have acted differently had they considered matters which ought to have been considered. Fiscal consequences are capable of being relevant matters.
2. The trustees had not considered that the deed might amount to a disposal of capital because of its irrevocable terms, or that it might prevent holdover relief on a later capital disposal to Katie. The evidence established that they would not have executed the deed had they understood those consequences.
3. It was unnecessary to decide whether the deed, properly construed, was an absolute appointment of capital. A significant risk that it would have that effect was sufficient. The adverse effect on holdover relief was an independent ground.
4. The principle rendered the deed void from the outset. The court followed the reasoning in Re Futter [2010] EWHC 449 (Ch), [2010] WTLR 609. The repayment difficulties considered in Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409 did not arise because the beneficiaries would have received, or could have received, the relevant income under the settlement in any event.
5. The alternative claims for rectification and construction therefore did not arise. The court declared the deed void.