Thursday, May 23, 2013
The United Kingdom Supreme Court has clarified in a historic judgment that a court may set aside trustee decisions under the principle of the Hastings-Bass rule or, alternatively, under the equitable remedy of mistake. This judgment covers the cases of Futter v. HMRC and Pitt v. HMRC, both of which involve trustees seeking to set aside trustee decsions.
The Hastings-Bass rule “has been used by trustees to undo decisions which have led to unexpected, adverse tax consequences.” The Supreme Court judgment provided circumstances clarifying how the rule operates. If trustees act outside of their powers or commit a fraud within their powers, the trustee decision is void. If the trustees consider all relevant factors or act on legal advice leading to a failure to consider all relevant factors, then a court cannot intervene. However, if a trustee fails to consider all relevant factors and this is serious enough to constitute a breach of duty, the trustee decision is voidable at the court’s discretion.
In order to set aside a trustee decision on the ground of mistake, the trustee must establish that the mistake concerned the legal nature of the transaction and that it would be unconscionable to leave the mistake uncorrected.
This judgment serves to limit the scope of the Hastings-Bass rule while relaxing the requirements of the remedy of mistake.
See United Kingdom Supreme Court Rules on Setting Aside Trustee Decisions, Dentons, May 16, 2013.