Bermuda's Statutory Hastings Bass - If I Could Turn Back Time

IMAGINE YOUR CLIENT IS A BENEFICIARY OF A TRUST which provides the trustee wide discretionary powers over trust distributions. Your client requests the trustee to make a large distribution to him or her after receiving tax advice that minimal tax will be payable on the distribution. The trustee receives confirmation of the tax advice and makes the distribution as requested. What could possible go wrong?

Unfortunately, after the distribution was made, your client discovers that the tax advice was incorrect and that he or she has actually incurred a significant tax liability. Had your client and the trustee known that the tax liability would have been incurred or was as significant as it was, the trustee never would have made the distribution.

Your client's lawyer writes to the tax adviser outlining your client's claim for damages but it is clear the tax adviser is not going to admit liability in a hurry, nor will his insurer allow it. Perhaps the best your client can hope for is to pay the tax liability and, after a long, expensive and stressful court case, recover from the tax adviser or perhaps the trustee damages representing some of the unanticipated tax.

Aside from engaging in hostile litigation with their advisers and trustees, there have been two main equitable remedies available for those seeking to set aside transactions where there have been unexpected adverse consequences:

Firstly, the so-called rule in Re Hastings Bass, which had been the remedy most successfully relied upon by trustees and other fiduciaries in the United Kingdom (UK) and its Overseas Territories and Crown Dependencies until the UK Court of Appeal decision and, subsequently, the UK Supreme Court's decision in Pitt v Holt and Futter v Futter1; and Secondly, the doctrine of mistake which may be regarded as a more difficult basis upon which to set aside a decision, albeit unlike the Re Hastings Bass remedy, may be utlised by nonfiduciaries as well as fiduciaries. The So Called Rule in Re Hastings Bass

The rule in Re Hastings Bass had been construed as providing the court the power to set aside, not just trustees' but other fiduciaries' exercise of discretions if:

the effect of the exercise was different from that which the fiduciary had intended; and it was clear the fiduciary would not have acted as it did had it not failed to take into account relevant considerations or had it not taken into account irrelevant considerations. The rule in Re Hastings Bass had been used to great effect to in essence, rewrite history, to treat distributions and other exercise of powers by fiduciaries as though they had never occurred. As a result the beneficiary and the trustee...