J-P -v- Atlas Trust

Lloyd LJ went on to summarise his understanding of the position as follows at para 106:-

Lloyd LJ did not need to resolve which was the correct test or whether there was in fact a difference between them, although he pointed out that there was no decided case where a disposal by an individual of his own property had been set aside on the basis of a mistake as to tax consequences. He accepted that, if the test were limited in the way described by Millett J, there was a difference in approach between those cases where there was a disposal by an individual of his own property and those where there was an appointment by trustees (where the Hastings-Bass principle allows a mistake as to the fiscal consequences of a decision as a ground for setting aside that decision). He considered that such a difference was justifiable.

For the reasons set out below, we also do not need to resolve whether the test for setting aside a voluntary transaction on the ground of mistake is limited to where the mistake is as to the effect of the disposition (as stated by Millett J in Gibbon v Mitchell ) or whether the test is more general, namely whether the donor or settlor was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him. We simply record that the matter remains open for decision in a future case where the point arises directly.

Before leaving the law, we should mention one point only to dispose of it. Mr MacRae very properly raised the question of whether the reference to 'mistake' in the Law, without any definition, required the Court to consider the concept of 'erreur', derived originally from French law. 'Erreur' may be relevant when considering a contract governed by Jersey law but it cannot possibly, in our judgment, have any relevance in a case governed by equitable principles. The concept should be confined to matters governed by the law of contract. It would be quite wrong in principle and highly undesirable to muddy the waters by importing into cases concerning equitable principles a concept derived from a jurisdiction which does not recognise or apply such principles.

We find that Mr and Mrs P were mistaken as to the effect of the scheme which they had been advised to enter into. The key mistake was that they were advised and believed that they would have ready access to their funds by means of discounted loans from the Trust. In fact, because of the way in which the Trust and the annuity contracts were established, the trustee cannot make any such loans as it would then be unable to perform the annuity contracts because it would have insufficient funds to be sure that it was able to meet its obligations under those contracts.

There is another possible aspect in which Mr and Mrs P were mistaken. They were advised and believed that the funds which remained after their death could be appointed by the trustee for the benefit of their children and remoter issue. However, because of the way in which the trust deed is written, Atlas has been advised by its advocates that it may not be able to make any such appointments because of the need to fulfil the Primary Purpose of writing Authorised Contracts so long as this is possible. The Court is not entirely convinced that the trustee has been correctly advised in this respect but, in view of our finding on the mistake referred to in the preceding paragraph, it is not necessary for us to consider this aspect further. There is certainty at least a concern that the trustee will not be able to make appointments to the children as anticipated by Mr and Mrs P.

We are quite satisfied that, if Mr and Mrs P had known that they would not be able to receive any monies from the Trust until the commencement of the payments under the annuity contracts, they would never have contributed their funds to the Trust. They made it clear from the outset that they needed to have access to these funds because they were all that they had to live on. Their present situation is disastrous in that their life savings are frozen until commencement of the payments under the annuity contracts, which is many years away.

The question then arises as to exactly what is to be set aside. The representation and Miss Robinson's skeleton referred to setting aside the Trust. If this was intended to refer to the trust deed itself that would be incorrect. The deed was executed by Holwell as Founder and Continental as trustee. Holwell presumably contributed the initial fund of £10. There is no evidence before us that Holwell was acting under any mistake nor is it a party to these proceedings.

However, during the course of the hearing, it was agreed that what was really sought was an order that the Trust should be set aside insofar as it related to the sums of £870,000 and £130,000 contributed to the Trust by Mr and Mrs P by the two instruments of addition. In practice this comes to the same thing as, there being no suggestion that the initial property of £10 remains in existence, the Trust's sole assets are those representing the aggregate contribution of £1 million made by Mr and Mrs P.

It is clear from the affidavit of Mrs P that she supports the application. However, she is not technically a party to the representation. It occurred to the Court during the preparation of this judgment that she should be, because it is the contributions by Mr and Mrs P jointly to the Trust which are to be set aside. Miss Robinson has confirmed that Mrs P agrees to be joined as a party and accordingly we join her as a co-representor in the proceedings.

As the authorities make clear, the Court has a discretion as to whether to set aside a transaction on the grounds of mistake. In this case there is no arguable reason for not doing so. The Trust is a purpose trust and accordingly there are no beneficiaries who might be prejudiced by setting the Trust aside; nor are there any third parties whose position would be prejudiced.

Accordingly, for the reasons given, we set aside the Trust insofar as it relates to the property transferred by Mr and Mrs P by the two instruments of addition. As there are no other assets in the Trust this means that the Trust as a whole will come to an end.

As the Trust has come to an end and as the consideration for the annuity contracts will have wholly failed, we also declare those contracts to be of no effect.

Finally, we consider the question of Atlas' costs. It is quite clear that both Continental and Atlas acted in good faith throughout. They were at no stage aware that Mr and Mrs P had been advised erroneously in the manner described above. Indeed, it was the legal advisers to Atlas who first brought the difficulties in the scheme to the attention of Mr and Mrs P. In the circumstances, Atlas is clearly entitled to be indemnified out of the trust fund both as to its remuneration and its legal and other costs.