Trustees' Errors Of Judgment And Setting Aside A Voluntary Disposition On The Grounds Of Mistake

The rule in Re Hastings-Bass, [1975] Ch. 25 (CA), has been understood to permit the court to declare void and set aside the exercise of a discretionary power under a trust, either because the trustees considered factors they ought not to have considered or because they failed to consider factors they ought to have considered. The typical case concerns unforeseen tax consequences. As Lloyd LJ points out in the combined appeals in Pitt v Holt and Futter v Futter, [2011] EWCA Civ 197, Hastings-Bass did not turn on the this sort of fact pattern and the ratio of the case is actually much narrower than the rule that subsequently developed.

Lord Justice Lloyd, in the Court of Appeal, held that cases in which the acts of trustees are found to be void should be kept to a minimum. In his judgment, 'the principled and correct approach to these cases is, first, that the trustees' act is not void, but that it may be voidable. It will be voidable if, and only if, it can be shown to have been done in breach of fiduciary duty on the part of the trustees. If it is voidable, then it may be capable of being set aside at the suit of a beneficiary, but this would be subject to equitable defences and to the court's discretion. The trustees' duty to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable [not void]'. In effect, a kind of business judgment rule for trustees, under which trustees may fulfil their duties by seeking professional advice -- even if that advice turns later out to be incorrect. In both appeals, there was no breach of fiduciary duty because there was entirely proper reliance on professional tax advice, even if that advice was misunderstood and misapplied by the fiduciary.

The appellants in Pitt also sought to set aside the transactions on the grounds of mistake. Lloyd LJ held that relief for mistake is confined to narrow circumstances: 'a mistake on the part of the donor either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction'. Unforeseen tax liabilities do not fit the bill, being a consequence but not the 'legal effect' of the transaction.

The UKSC has affirmed the Court of Appeal's...