Levers J
```markdown # IN CHAMBERS ## IN THE GRAND COURT OF THE CAYMAN ISLANDS **CAUSE NO:** 475 OF 2004 **BETWEEN:** - **BARCLAYS PRIVATE BANK & TRUST (CAYMAN) LIMITED** *Plaintiff* **AND:** - (1) BENN THOMAS CHAMBERLAIN - (2) FLEUR ELIZABETH CHAMBERLAIN - (3) ALDERLEY HOLDINGS LIMITED *Defendants* **BEFORE:** The Honourable Madam Justice Levers **APPEARANCES:** - **Counsel for the Plaintiff:** Mr. Robert Ham, Q.C. instructed by Ms. Sara Collins and Mr. Nigel Sanders of Walkers - **Counsel for the Defendants:** Mr. Kenneth Farrow of Quin & Hampson **HEARD:** May 3, 2005 --- ## RULING **Livers J.** This is an application by the Trustee of a Settlement dated 26 May 1994 made by a Mr. Chamberlain. The Settlement was created for UK Capital Gains Tax ("CGT") reasons and the Settlor, Mr. Chamberlain is a resident in the UK for tax purposes. He is also the principal beneficiary and his wife and children are also beneficiaries. At the material times this Trust was governed by the British Virgin Islands law. ```
```markdown On 18 February 2005, I directed that the Plaintiff serve Notice of these proceedings on the UK Inland Revenue Commissioners. Mr. Ham, Q.C. instructed by Ms. Sara Collins and Mr. Sanders of Walkers informs this Court that the attorneys have heard from the Commissioners advising them that they did not wish to take part in these proceedings. In 1999, PriceWaterhouseCoopers advised the Settlor and the then Trustee that there would be advantages in investing in an overseas non-close investment company. In January and May 2000, it was decided to make two investments of £10,000 and £750,000 in a Guernsey protected cell company, Westbourne Growth Fund PCC Limited. The purpose of this was to defer CGT on chargeable gains on the underlying investments held in the Settlement's cell within Westbourne. In March 2000, there was a change in the UK legislation, and the Trustee was not informed of the change in UK tax law before deciding to make the second investment in Westbourne in May 2000, after the changes had been announced. The essential facts with regard to the May transaction are that: - **Alders Alderley Holdings Limited**, an investment company controlled by the Trustee, paid the Trustee a sum of £712,500. - The Trustee applied that sum: - (a) as to £712,500 in a loan to Westbourne; ```
```markdown and (b) as to the remaining £37,500 in a subscription for shares. Under the new UK law, the consequences of this would be a substantial tax liability on the settlor. This application is made on two limbs. First, that the money was not in fact loaned by Alderley to the Trustee and alternatively, that the Trustee's decision to accept a loan is void or voidable under the rule in *Re Hastings-Bass* [1975] Ch 25 and if voidable should be avoided *ab initio*. The application is supported by an affidavit of Ron E. Stoll of Barclays Private Bank and Trust Limited. He confirms that the objective of this investment, the subject matter of these proceedings, was to enable UK capital gains tax on the underlying investments to be deferred. He states that as a result of a change in the UK legislation with effect from the 21 March 2000, the effect of the purported loan from Alderley for the purposes of the investment in Westbourne in 2000 was to give rise to a charge to CGT on the Settlor. He submits on behalf of Barclays that the change in UK law was a relevant consideration since the whole purpose of the investment in Westbourne was to defer CGT and that it is plain that the Trustee would not have taken the purported loan if it had been informed of it. He submits that on the basis of the above, if and so far as there was a loan from Alderley, it was either void or voidable and if the latter that it should be avoided. ```
```markdown It is clear from his affidavit that if the Court grants the relief sought Barclays have been advised by PriceWaterhouseCoopers, the tax advisors to the Settlor and Barclays, that the adverse fiscal consequences to the settlor Mr. Chamberlain should be avoided. Under the terms of a Deed dated 16 November 2000, the proper law of the Settlement was changed with effect from the 16 November 2000 from the law of the BVI to that of the Cayman Islands. However, the Court is advised that at the time of the transaction in question, the Settlement was governed by BVI law. There is evidence before the Court from a BVI law firm of Farara George-Creque & Kerins which confirmed that the BVI Court would be guided by the decisions of the English Courts in the absence of any local legislation or decision pertaining to this particular aspect of trust law. I am therefore persuaded that the rule in *Re Hastings – Bass* would be the law applied in the BVI. Turning to the rule in *Re Hastings – Bass*, the main statement of principle in that case is: > “where by the terms of a trust (as under section 32 [of the English Trust Act 1925 – the statutory power of advancement]) a trustee is given a discretion as to some matter under which he acts in good faith, the Court should not interfere with his action (1): power under a standing that have the full effect of the trust has achieved (2) unless it is clear that he would not have acted as he did which he unless (a) it is clear that he would not have acted as he did had he not taken into account considerations which he should not have taken into account, or (b) had he ```
```markdown not failed to take into account considerations which he ought to have taken into account." Reinforcing this principle, Warner J made this explicit when he restated the principle in positive terms in *Mettay Pension Trustees Ltd v Evans* [1990] 1WLR 1587, 1621H: > "where a trustee acts under a discretion given to him > by the terms of the trust, the court will interfere with > his action if it is clear that he would not have acted > as he did had he not failed to take into account > considerations which he ought to have taken into > account." The two cases quoted above make it incumbent on the trustees to have taken into consideration those matters that they should have taken into consideration. However, Justice Lightman went a little further in *Abacus Trust Company v* *Barr* [2003] Ch 409: > "it is not sufficient to bring the rule into play that the > trustee made a mistake or by reason of ignorance or > a mistake did not take into account a relevant > consideration or took into account an irrelevant > consideration. What has to be established is that the > trustee in making his decision has, in the language of > Warner J in *Mettay Pension Trustees Ltd. v Evans* > [1990] 1 WLR 1587, 1625, failed to consider what he > or a duty to consider. If the trustee has in irrelevant > and diligent accordance with his duty to consider all > relevant considerations, there is no breach of duty and its decision cannot be > impugned merely because in fact that information > turns out to be partial or incorrect." ```
```markdown Justice Lightman requires the need to establish a breach of duty. All the above principles have been reconfirmed in the case of *Burrell v Burrell* [2005] EWHC 245 Ch. In the Burrell case, the applicant sought to set aside part of a deed of appointment on the footing that they failed to appreciate, consider, and take into account, the fact that the appointment generated very considerable inheritance tax liabilities. They invoked what is known as the principle in *Hasting-Bass*. The relief sought was granted after a careful review of cases in which the Hastings-Bass principle had been invoked. The decision reaffirmed the proposition that Trustees must consider the fiscal consideration of their acts and that a failure to do so is capable of leading to the application of the Hastings-Bass principle if it is clear that they would not have acted as they did if they had appreciated the true fiscal position. The case at hand, in my view, falls within the Hastings-Bass principle for the following reasons:
The whole purpose of the investments in Westbourne was to defer CGT.
The changes in the UK legislation were therefore plainly a relevant consideration, requiring the Trustees to go further than the basic test of fiduciary duty to require the establishment of a breach of duty. ```
```markdown is satisfied because up-to-date tax advice from the UK was not obtained before carrying out the transaction. In my view it is clear that the Trustees would not have acted as they did if they had taken the proposed change in the law into account and in those circumstances I hold that the loan is voidable under the rule in *Re Hastings-Bass* and should be avoided *ab initio*. Mr. Farrow appeared for the Defendants in this matter and submitted that if the Court was of the view that this was a proper application to be made under the Hastings-Bass rule then the Defendants would leave the matter in the hands of the court. The Order therefore is that the loan is void *ab initio*. Costs of all the parties to be paid out of the Trust Fund on an indemnity basis. Dated this 5 th day of May, 2005 Judge of the Grand Court ``` The document includes a signature and a seal of the Grand Court of the Cayman Islands, which are not transcribed but are visually represented in the image. The page number "7" is also present at the bottom right corner.