Traditionally, the rule meant a trustee could unscramble certain decisions on the basis they had unintended outcomes, in particular adverse financial consequences related to tax.
However, there had been uncertainty as to how the rule should be applied by crown dependencies and British Overseas Territories since an England and Wales Court decision on Hastings Bass in 2011.
Now, according to a statement by international law firm Appleby which acted for the appellant, the Guernsey Court of Appeal has clarified the island’s position through a case ruling.
“The judgement has clarified the legal test, which will in turn allow advisers to more precisely determine the circumstances in which an application for Hastings Bass relief may be made prior to incurring the significant costs of doing so,” the Appleby statement said.
It found that the rule can only apply where the trustee’s failure to take account of relevant matters is serious enough to amount to a breach of the highest standard of care, being a fiduciary duty.
Only if this condition is established, can a court use its discretion to correct the decision.
However, the Guernsey court stopped short of setting out an exact test for the exercise of discretion under the Hastings Bass principle on the basis that each case is likely to be fact specific.
Seven years of uncertainty
The Hasting Bass rule was uncontroversial until 2011, when the England & Wales Court of Appeal decided it had been too widely interpreted in two cases and it was restricted to very limited circumstances.
However, as the 2011 decisions were in made in England and Wales; jurisdictions such as the crown dependencies and British Overseas Territories have had to develop their own interpretation of the rule, either by statute or case law.