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22 Sep 2020

Strong Foundations

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Mark Lindley View profile
2 min read

The Jersey Royal Court held recently that it had no power to set aside the establishment of a Jersey Foundation on the grounds of mistake. 

The regime governing Jersey Foundations is contained in the Foundations (Jersey) Law 2009.   

In the matter of B and C v D, E, F and Others [2020] JRC 169, the Representors (the claimants, in English terminology) had established a Jersey Foundation and endowed it with substantial funds.  

It transpired that these actions gave rise to significant potential UK inheritance tax liabilities for the Representors. They applied to the Royal Court to set aside both the establishment of the Foundation and the endowments, on the grounds of mistake.

Jersey has codified into statute a version of the English law principles relating to rescission of voluntary dispositions into trusts on the grounds of equitable mistake (for more clarity on that word soup, see this article). It has not done so in relation to Foundations.  

In summary, the Royal Court held that the Foundations Law was a self-contained regime and it could not import into that regime a doctrine of mistake which could be used to set aside the establishment of the Foundation ab initio. For the further reasons explained in the judgment, even if such power were available, the Court would not have exercised it.  

However, the dispositions in favour of the Foundation in this case could be set aside on orthodox mistake principles. The Foundation therefore remained in existence, but without the endowments it had received.  

The outcome will likely be a generally welcome one to the Representors who were otherwise facing substantial UK tax liabilities, with the only means of redress a potential claim in negligence against apparently insolvent tax advisers.   

It follows that if the Court has the power to set aside a foundation on the grounds of mistake, it must look to the Foundations Law for the source of that power.  No such express power is contained in the Foundations Law, in particular under Part 5 which is headed “Powers of the Royal Court” where such a power might be expected to be found.

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