Undoing Trustee Errors - An Update On The Hastings-Bass Principle And The Law Of Mistake

The principle established in 1974 in the case of Hastings-Bass ([1975] Ch 25 (CA)) has in the past allowed a Court to set aside an action taken by Trustees who have failed to take some important factor (such as tax considerations) into account when deciding to take the action. Effectively, it has allowed Trustees to undo something they have done where the effect is different from that which they intended.

In March, the English Court of Appeal ("CoA") handed down its much anticipated decision in Pitt v Holt and Futter v Futter ([2011] EWCA Civ 197), both of which concerned the Hastings-Bass principle ("the Principle"), and this has resulted in a re-examination of the Principle and its application.

The Background to the Principle

In order to analyse the consequences of the CoA's judgement, one must briefly look at the development of the Principle, its technical basis and how it was applied by the English High Court in their first instance decisions in the two recent cases.

To many minds, the Principle was best summarised by Lloyd LJ in the case of Sieff v Fox ([2005] EWHC 1312 (Ch)) as follows: "Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the Court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to...