Factual and Procedural Background
The judgment consolidates two appeals before the Supreme Court. In Futter v Futter the trustees of two family settlements (the “No 3” and “No 5” trusts) acted, on solicitors’ advice, to enlarge and advance trust property. The advice overlooked an amendment to section 2(4) Taxation of Chargeable Gains Act 1992, triggering unexpected capital gains tax for the beneficiaries. At first instance the deeds were declared void under the so-called “rule in Hastings-Bass,” but the Court of Appeal reversed that decision. In Pitt v Holt Mrs Pitt, acting as receiver for her catastrophically injured husband, settled his damages in a discretionary “Special Needs Trust” (“SNT”). Professional advisers and the Court of Protection failed to identify an immediate inheritance-tax charge, later exceeding £100,000. The first-instance court set the SNT aside under the Hastings-Bass rule; the Court of Appeal reversed on that point and also rejected a rescission claim based on mistake. Both sets of appellants sought further review in the Supreme Court; HM Revenue & Customs (“the Revenue”) was an active respondent.
Legal Issues Presented
- Whether a fiduciary decision can be set aside under the Hastings-Bass jurisdiction unless the decision involved a breach of fiduciary duty.
- Whether reliance on erroneous professional tax advice, without more, constitutes such a breach.
- Whether and when the court may rescind a voluntary disposition on the ground of mistake, particularly a mistake about tax consequences.
- Whether relief is barred where setting aside the transaction would serve no purpose other than removal of a tax liability.
Arguments of the Parties
Appellants’ Arguments
- The Hastings-Bass rule should remain available even absent breach of duty; mere failure to achieve the trustees’ intended fiscal objective ought to suffice.
- Fault by professional advisers should be attributed to the trustees so that any resulting decision is voidable.
- In Pitt, the SNT should also be rescinded for mistake: Mrs Pitt mistakenly believed there would be no inheritance-tax liability.
Revenue’s Arguments
- The jurisdiction arises only where trustees breach fiduciary duty; conscientious reliance on apparently competent advice is not enough.
- Mistake relief should be narrowly confined; an error limited to tax consequences is insufficient.
- Equity should not act where rescission would achieve nothing beyond tax avoidance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| In re Hastings-Bass [1975] Ch 25 | Original statement of jurisdiction to intervene in trustee decisions | Re-examined; Court confines its true ratio to cases of excessive execution of powers |
| Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 | Expanded Hastings-Bass to inadequate deliberation | Held to have taken the law down a “wrong turn” |
| Ogilvie v Littleboy (1897) 13 TLR 399 / Ogilvie v Allen (1899) 15 TLR 294 | Rescission of gifts for serious causative mistake | Adopted as the correct test for mistake jurisdiction |
| Gibbon v Mitchell [1990] 1 WLR 1304 | Distinction between mistake as to “effect” and “consequences” | Court limits but does not abandon this distinction |
| Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409 | Need for breach of duty in Hastings-Bass applications | Approved |
| Edge v Pensions Ombudsman [2000] Ch 602 | Public-law analogy rejected; breach required | Approved |
| Stannard v Fisons Pension Trust Ltd [1991] Pen LR 225 | “Would” vs “might” test | Flexibility preferred; no rigid rule |
| Turner v Turner [1984] Ch 100 | Non est factum where trustees never exercise judgment | Contrasted with present cases |
| Cloutte v Storey [1911] 1 Ch 18 | Fraud on a power renders appointment void | Distinguished; fraudulent appointments set aside as void |
| Great Peace Shipping Ltd v Tsavliris [2003] QB 679 | Contractual mistake doctrine | Held not to govern voluntary dispositions |
| WT Ramsay Ltd v IRC [1982] AC 300 | Judicial hostility to artificial tax avoidance | Referenced as background policy |
| Deutsche Morgan Grenfell v IRC [2007] 1 AC 558 | Mistake of law and tax repayments | Used to rebut Revenue’s “tax mistakes never relieved” argument |
| Attorney-General v Guardian Newspapers [1987] 1 WLR 1248 | “Equity does not act in vain” maxim | Revenue relied; Court distinguished |
| Racal Group Services Ltd v Ashmore [1995] STC 1151 | Rectification where only fiscal benefit sought | Court held rescission test less restrictive |
| In re Pilkington’s Will Trusts [1964] AC 612 | Perpetuities in resettlements | Historical background |
| In re Abrahams’ Will Trusts [1969] 1 Ch 463 | Advancement exceeding power scope | Illustrates excessive execution |
| In re Vestey’s Settlement [1951] Ch 209 | Tax-driven income allocations | Early authority pre-Hastings-Bass |
| Kerr v British Leyland (Staff) Trustees Ltd [2001] WTLR 1071 | Trustees’ failure to consider medical evidence | Cited on standard of deliberation |
| Perrins v Bellamy [1899] 1 Ch 797 | Trustee liability despite professional advice | Illustrates strict liability for ultra vires acts |
| Director of Public Prosecutions v Hutchinson [1990] 2 AC 783 | Severance of ultra vires by-laws | Analogy for partial invalidity |
| Scott v National Trust [1998] 2 All ER 705 | Trustees’ duty to inform themselves | Guides deliberation standard |
Court's Reasoning and Analysis
1. The Supreme Court separated two distinct doctrines:
- Excessive execution – where trustees act outside the scope of a power; dispositions are void.
- Inadequate deliberation – where trustees act within power but fail in duty; dispositions are voidable, and may be set aside only if the failure amounts to a breach of fiduciary duty.
2. Applying that distinction, the Court endorsed Lightman J’s view in Barr: breach of duty is an essential pre-condition. Mere reliance on competent professional advice, later shown to be wrong, does not amount to breach.
3. On that basis, the deeds in Futter could not be impugned: the trustees considered tax, obtained advice, and acted within their powers—hence no breach.
4. In Pitt, Mrs Pitt, likewise, obtained and relied on professional advice; therefore the Hastings-Bass claim also failed.
5. Turning to mistake, the Court reformulated the test: a disposition may be rescinded where there is a causative mistake of sufficient gravity, typically a mistake as to the transaction’s legal nature or a basic fact/law, making it unconscionable to leave the disposition uncorrected. The traditional “effect versus consequences” dichotomy from Gibbon v Mitchell was narrowed; serious tax mistakes can qualify.
6. The Court rejected the Revenue’s contention that tax mistakes are never releasable and that equity “acts in vain” where only fiscal relief is achieved. Section 150 Inheritance Tax Act 1984 expressly contemplates undoing transactions set aside “by enactment or rule of law.”
7. Applying the reformulated test, Mrs Pitt’s SNT was created under an operative mistake—her firm belief that no inheritance-tax charge would arise. The mistake was basic and its fiscal impact severe; rescission was therefore granted. Undertakings provided by Mrs Pitt ensured no collateral claims against third parties, satisfying equitable discretion.
Holding and Implications
FUTTER APPEAL DISMISSED. The deeds of enlargement and advancement remain effective; capital gains tax liabilities stand.
PITT APPEAL ALLOWED. The Special Needs Trust is rescinded ab initio; inheritance tax becomes repayable under section 150 IHTA 1984.
Implications: The decision confines the Hastings-Bass jurisdiction to cases involving breach of fiduciary duty, re-establishes that affected acts are voidable (not void), and clarifies that serious operative mistakes—including tax mistakes—can justify rescission of voluntary dispositions. Trustees must now assess decisions with diligence; beneficiaries must rely on mistake or professional-negligence claims where no breach of duty exists. No new statutory reform was required, but the ruling materially narrows previous first-instance expansions of Hastings-Bass and signals judicial reluctance to unwind transactions merely to avoid unforeseen tax.