Futter v HMRC And Pitt v HMRC: An Offshore Perspective

On 9 May 2013 the Supreme Court of England and Wales handed down its judgment in the jointly heard appeals of Futter v HMRC and Pitt v HMRC [2013] UKSC 26. The judgment has provided the courts of England and Wales with certainty on the so-called "rule in Hastings-Bass" and on the setting aside of voluntary dispositions on the grounds of mistake.

The judgment does not have a direct impact upon offshore jurisdictions, but those working in the fiduciary industry will inevitably wish to take note of the Supreme Court's decision, of the potential for offshore courts to follow suit and of the possible legislative responses. This article seeks to explain the key findings of the Supreme Court and what they may mean for those working offshore.

Pitt v HMRC, Futter v HMRC and the rule in Hastings-Bass

In essence, the rule in Hastings-Bass is concerned with the unpicking of decisions made by trustees without giving proper consideration to matters which ought to have been taken into account. The leading decision until now was given in the case of Sieff v Fox [2005] 1 WLR 3811, and was thought by HMRC to be too lenient on trustees who had taken tax advice that turned out to be defective.

It is now clear that for the Hastings-Bass rule to apply under English law, trustees' inadequate deliberations must have been "sufficiently serious as to amount to a breach of fiduciary duty". Without such a breach, the Court will not be entitled to intervene. Trustees that act in reliance upon professional advice (including tax advice that ultimately proves to be incorrect) will not, without having gone beyond the scope of their powers, be deemed to have acted in breach of duty.

Whilst tax consequences are relevant considerations for trustees to take into account, the Supreme Court warned that the "greater danger is not of trustees thinking too little about tax, but of tax and tax avoidance driving out consideration of other relevant matters."

Offshore

The reformulated rule in Hastings-Bass will make it harder under English law for trustees to have decisions set aside on the basis that relevant considerations, and in particular negative tax consequences, were overlooked. In such circumstances, it is easy to foresee beneficiaries focusing sharply upon trustees and professional advisors in seeking to recover their losses. Whilst the Supreme Court's decision is likely to be persuasive in offshore jurisdictions, the courts are not bound to follow it and it is particularly...