Extending the Scope of the Rule

The analysis and discussion of the Re Hastings-Bass rule set out in the previous chapters has primarily addressed the situation in which the rule has typically been applied: the exercise of a dispositive power or discretion by a trustee. But stating the paradigmatic Re Hastings-Bass situation in that way makes clear the possibility of extending the rule’s application beyond those boundaries. First, a trustee may exercise a power which is of an administrative rather than dispositive character. Secondly, a power may be vested in a person as an individual, rather than in an office-holder such as a trustee. Thirdly, powers may be vested in fiduciaries other than trustees, and indeed Pitt v Holt itself was concerned with the actions of a receiver appointed under the Mental Health Act 1983. This chapter addresses in turn each of these three possibilities.

The Origins of the Re Hastings-Bass Rule

The present state of the law must now be treated as authoritatively set out by Lord Walker in Pitt v Holt, and to a lesser but still important extent by the earlier judgment of Lloyd LJ in the Court of Appeal in the same case. This chapter, however, is concerned with the earlier development of the Re Hastings-Bass doctrine. Its purpose is to establish the doctrinal legitimacy of the rule in Re Hastings-Bass as an aspect of the English law of trusts. Whilst this is primarily of academic and theoretical concern, in view of the Supreme Court’s reformulation of the law into its present shape, it is also of practical importance. In particular, the future application of the doctrine to novel situations will depend upon understanding the precise nature and scope of the rule propounded by the Supreme Court. That decision cannot simply be divorced from the many decided cases which preceded it, and from its place in the wider compass of the law of trusts.

The Nature of the Re Hastings-Bass Duty

Lord Walker’s analysis in Pitt v Holt in the Supreme Court accords in all essential respects with the reasons put forward in Chapter 3 to prefer a duty (‘weak’) rather than results-oriented (‘strong’) account of the Re Hastings-Bass rule, as does the approach adopted by Lloyd LJ in the Court of Appeal, which Lord Walker expressly endorses. Yet Lord Walker’s judgment does not yet provide a wholly comprehensive basis for the future development of the law. There remain a number of loose ends, arising predominantly from issues not specifically before the court in Pitt, but which have been matters of concern in earlier Re Hastings-Bass cases, including: how a ‘relevant consideration’ is defined; the significance of establishing that the trustees ‘would’ or ‘might’ have acted differently, in view of Lord Walker’s refusal to choose between these two alternatives; the specific problems arising from the use of professional advisers, and in cases concerning tax liability and pension trusts. These matters are addressed in detail in chapters 5 to 8. But in order to do this it is first necessary to clarify the juridical nature of the ‘duty of consideration’ upon which Lord Walker’s analysis depends.

Void or Voidable?

For almost as long as the existence of the Re Hastings-Bass rule has been acknowledged, there has been uncertainty as to the consequences of the rule being successfully invoked in respect of the exercise of a power or discretion. Three principal possibilities have been put forward: first, that the trustee or fiduciary exercising the power may incur personal liability, but the exercise is nevertheless valid and effective; secondly, that the exercise of the power is voidable, and so is effective until set aside; and thirdly, that the purported exercise is wholly void and ineffective. The first of these has attracted no judicial support, and in any case Pitt v Holt puts beyond doubt that the validity of trustees’ decision can be called into question by the Re Hastings-Bass rule, with Lord Walker in the Supreme Court giving a clear endorsement of Lloyd LJ’s judgment to this effect in the Court of Appeal. As between the second and third options, though, the question of ‘void’ versus ‘voidable’ has been hard-fought.

Introduction

In 1958 the trustees of a settlement, established in 1947 by Sir William Bass for the benefit of Captain Hastings-Bass and his issue, exercised the statutory power of advancement to transfer £50 000 from that settlement to the trustees of another trust fund created in 1957 for the benefit of Captain Hastings-Bass’s son, William, and William’s issue. What the trustees could not then foresee was that the later decision of the House of Lords in Re Pilkington’s Will Trusts would render some of the 1957 trusts perpetuitous and void. The Commissioners of Inland Revenue argued that this oversight rendered the purported exercise of the power of advancement void, and that in consequence they were entitled to claim estate duty on the £50 000 when Captain Hastings-Bass died in 1964. In 1974 the Court of Appeal rejected this argument, holding that the 1957 trusts created a life interest vested in William Hastings-Bass, and that this life interest survived even though the remoter interests were void for perpetuity.

The Present Law

The starting point for any consideration of the Re Hastings-Bass rule must now be the Pitt v Holt and Futter v Futter litigation, which culminated in the 2013 decision of the Supreme Court in both cases. The judgment of Lord Walker is the leading exposition of the rule, and is likely to remain so for some time. However, it is not helpful to read Lord Walker’s judgment in isolation. At first instance both Pitt v Holt and Futter v Futter were decided on the basis of law which seemed then to be well settled and entirely orthodox. However, unlike in any of the Re Hastings-Bass rule cases which preceded them, Her Majesty’s Revenue and Customs played an active role in the proceedings, and after the taxpayer succeeded at first instance in each case, obtained permission to appeal to the Court of Appeal. The present state of the law owes its shape largely to the judgment in that court of Lloyd LJ, in the first appellate decision on the Re Hastings-Bass rule, which reformulated the rule so as to accord with important principles of English equity and trusts concerning the relationship between trustees and beneficiaries, and the supervision of the court.

Looking Ahead

The Supreme Court’s decision in Pitt v Holt and Futter v Futter is now the crucial landmark in the life of the Re Hastings-Bass doctrine. Lord Walker’s judgment, together with Lloyd LJ’s in the Court of Appeal, will continue to be the subject of debate and criticism, and there certainly remain detailed technical questions which will require close judicial attention in future. But it has achieved an enormous amount in reformulating the Re Hastings-Bass rule so as to accord with the essential principles of English trusts law: it has now been put beyond doubt that it is a duty- (rather than results-) oriented rule, which can be invoked only on proof of the trustees’ breach of duty, and the consequence of which is to render the impugned exercise of power or discretion voidable. The tangled case law of the 1990s and 2000s has been swept away by the Supreme Court, and as yet it has not been replaced by an extensive body of case law applying that decision and filling in the gaps—although that will doubtless follow. As such, this is an opportune moment at which to look at the Re Hastings-Bass rule more broadly, to examine the processes through which it has been, and will continue to be, moulded and refined, and to consider likely future developments. In this respect it is also useful to look beyond the English courts to see how the Re Hastings-Bass rule has fared offshore, and the extent to which it has taken on an independent life, divergent from the English experience.

Fraud on a Power

Like the rule in Re Hastings-Bass, the doctrine of fraud on a power is among the controls imposed by equity on the exercise of powers. At first glance they may appear to have little else in common. Where the latter addresses the purpose for which a power is exercised, the former is concerned with duty to take relevant matters into account in exercising a power. The Re Hastings-Bass rule applies only to trustees and those in analogous fiduciary positions whereas fraud on a power applies equally to powers held in a purely personal capacity. Fraud on a power has a long history stretching back to at least the mid-eighteenth century whereas the Re Hastings-Bass rule first appeared in anything approaching its present form in 1989.

Mistake

The equitable doctrine of mistake as the basis for setting aside a voluntary disposition, such as a gift, is of much longer standing than the rule in Re Hastings-Bass, and is of much broader application. It is concerned essentially with the impairment of the disponor’s intention: he or she would not, for example, have made a gift, or settled property on trust, or exercised a power of appointment, or consented to the exercise of a power, but for some mistake. It is not limited in its application to trustees or fiduciaries, and indeed is most commonly seen in the context of individuals dealing with their own beneficially owned property. It has obvious affinities, though is not wholly aligned, with other instances of mistake in the law of obligations: most obviously common mistake as a ground for treating a contract as void, and causative mistake as an ‘unjust factor’ in the law of unjust enrichment. However, it also raises questions which are relevant to any analysis of the Re Hastings-Bass rule, not least since both principles may be engaged in the same factual scenario.

Applying the Re Hastings-Bass Rule

The Supreme Court’s decision in Pitt v Holt has brought welcome clarity to the Re Hastings-Bass rule, by endorsing the Court of Appeal’s reformulation of the rule as based on flawed decision making by trustees and other fiduciaries. The court’s power to intervene is now explicitly dependent on trustees breaching their duty to give reasonable and responsible consideration to the exercise of their powers and discretions. Such a breach will often also be coupled with a breach of the duty of care owed by trustees to beneficiaries.