In a recent decision of the English High Court (Rogge v Rogge), which will be of interest and relevance in the Cayman Islands, the plaintiffs sought orders to set aside transfers to a Disabled Persons Trust (the Trust) and a declaration that other sums were held on resulting trust, on the basis of mistake. The plaintiffs relied on the principle authoritatively expounded by the Supreme Court in Pitt v Holt [2013] under which the Court may set aside a voluntary transaction for mistake where the transaction has been effected pursuant to a causative mistake of such gravity as to make it unconscionable for the donee to retain the property.

The background was that the settlors established the Trust after their son suffered a serious brain injury and they were concerned as to how his needs might be met after they were no longer there to assist him (and to also make provision for their other siblings in a tax efficient manner). The Trust was used to purchase a property and to spend money improving it and they transferred some £15 million to the Trust. However, they had not appreciated the effect of the gifts with reservation of benefit rules and the inheritance tax treatment of disabled trusts and therefore sought to set aside the transfers to the Trust.

The case is a good example of how the Court applies the various aspects of the test in Pitt v Holt which required analysing the facts to see whether the elements of mistake were established in relation to each transfer. The Court made plain among other matters that (a) a negative way of putting a plaintiff’s belief that “he did not understand this charge would apply”, in contrast to a positive “I believed this would give rise to a charge” would not give rise to a mistake within the rule in Pitt, and (b) any terms and conditions imposed on an order for recission should at least so far as possible be aimed at putting the parties against whom recission is ordered substantially into the positions they would have been in if the mistaken transaction had not taken place.

The case is also an important reminder for professional advisors to be clear on their clients’ aims in order to avoid mistakes before creating trust structures which do not meet those aims.