Pitt v. Holt in the Isle of Man

AB v CD, unreported, June 30, 2016 (I.o.M. High Court), considers the remedies available under Manx law when a trustee of some Manx trusts had ineptly granted call options over assets of the trusts in favour of the primary beneficiary. The trustee took no tax advice itself and did not ask to see any tax advice that the beneficiary might have obtained, though he was moving to the U.K. The grant of the options turned out to have potential adverse C.G.T. consequences and the beneficiary sought to have them set aside.

The Deemster made the order. He had “serious doubts” whether Pitt v. Holt was good law in the Isle of Man insofar as it required the trustee to be in breach of duty before the exercise of a power could be set aside. In that jurisdiction it may well be that the more relaxed approach taken before Pitt v. Holt still applies. But even if not, he held that the trustee was in breach of duty in failing to deal with the tax issue properly. So the exercise could be set aside for lack of proper deliberation. He also considered that it could be set aside for mistake, the trustee having had a false belief that the grant of the options would have no adverse tax consequences. If as a matter of Manx law it was also necessary to show that it would be unconscionable to refuse relief - another requirement imposed in English law by Pitt v. Holt - that requirement was satisfied too.

Both Jersey and Bermuda have legislated to reject the tightening of English law in Pitt v. Holt; here is another jurisdiction expressing a lack of enthusiasm for it. Anyone concerned with Manx trusts will need to be on top of this judgment. In addition, it provides a wide review of the authorities both in England and offshore and will be a useful source of references.

Nicholas Le Poidevin, Q.C.
New Square Chambers