Wong Vanessa G17T4 PDF

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Tutorial 4 Assignment

Name: WONG Man Yu Vanessa Student number: 3035389625 Tutor: Jiang Zixin Tutorial Group: 17 Word Count: 750

To avoid the HK$1 million tax, the beneficiaries may apply to court for an impugnment of the trustee’s exercise of discretion. Issue: Whether the resettlement can be set aside on the rule in Hastings-Bass or on the grounds of mistake. Hastings-Bass Pitt and Futter have limited the scope of the rule in Hastings-Bass, the court will only declare the transaction voidable if these 3 criteria are satisfied: (i)

Tony failed to give proper consideration to relevant matters The beneficiaries can establish that Tony had failed to consider the additional 1 million tax payment upon resettlement.

(ii)

Failure amounted to a breach of duty Prima facie, trustees who have obtained and relied on “apparently competent professional advice” in the decision-making process would not be regarded as having breached his duty, even if it turned out to be wrong ( Pitt). The court’s rejected “duty to act on advice only if it is correct” because requiring trustees to demonstrate infallibility of judgment is unrealistic. The court did not state clearly whether reliance on obviously wrong professional advice amounts to a breach of duty. The statutory duty of care under s3A of Trustee Ordinance is not applicable because Tony was not exercising the power of investment. The common law duty applies, meaning Tony should manage the trust in the same manner as an ordinary man of business would conduct his (Speight). The beneficiaries may argue that Tony breached his duty to exercise reasonable prudence by relying on Sloppy’s advice, which no reasonable trustee would consider correct. The beneficiaries may further argue that Tony should be subject to a higher professional trustee standard as in Barlett, given his substantial experience in tax matters. But this may not be necessary, as he would likely fail the Speight test anyway and the facts do not mention whether he is being paid.

(iii)

Tony would or might have acted differently had he considered the matter. There is no definite answer as to whether trustees have to show that they would have acted differently or simply might have acted differently. Whilst Lord Walker recognized that the “would” test may be appropriate for family trusts, Graham Virgo suggested that the “might” test should apply to all types of trust. However, arguably, Tony can satisfy either test as HK$1 million is a large sum that may even offset the benefits of resettlement. It is reasonable to say that Tony would (applying the higher threshold) have acted differently had he considered this tax liability.

In conclusion, the resettlement is likely voidable at the court’s discretion and subject to equitable bars. Mistake A recission may be ordered if the mistake: (i) Is an actual mistake as opposed to ignorance, misprediction or reckless decision The beneficiaries can argue that this was a mistake as Tony had the incorrect conscious belief that no tax would be payable upon resettlement of the trust, it would not matter that Tony did not exercise care when adopting Sloppy’s advice, ie. being careless. It would be hard for Tony to argue that he was ignorant or consciously running the risk, as it appears that he totally relied on Sloppy’s advice, showing he had a positive belief that there is no tax liability. (ii)

Satisfies the but-for test The mistake is causative. If Tony had known the HK$1 million tax liability, he would not have resettled the trust assets as his intention was clearly to avoid tax liability by enquiring Sloppy about tax reduction.

(iii)

Is sufficiently grave Lord Walker was unwilling to define what is a ‘sufficiently grave’ mistake, the surrounding circumstances would be important. However generally, the mistake must either go to the legal effect of the disposition or to an existing fact which is basic to the transaction (Pitt), which makes it unconscionable to not rescind the transaction. A HK$1 million tax is a large sum, and would pose a grave injustice to the beneficiaries. However, the court may refuse to rescind the transaction as it was an artificial tax avoidance, given Tony adopted a resettlement instead of a distribution to avoid tax liability. The trustee and beneficiaries may be expected to accept that such a scheme may backfire. As it is the court’s discretion to rescind based on mistake, we cannot draw a definite answer in this case.

If the beneficiaries cannot set aside the transaction on either grounds, they can still sue Tony for breach of trust and claim damages on the basis that he has failed to exercise reasonable prudence in organizing the trust, hence breaching his fiduciary duty....