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The Hastings-Bass principle

This article provides an overview of the “Hastings-Bass” principle.

Where the principle began

The name of the principle comes from the case of Re Hastings-Bass deceased [1975] Ch 25 (Hastings-Bass). It has long been established that generally courts will not interfere in discretionary decisions made by trustees. However, Buckley LJ in Hastings-Bass set out the following exceptions to the general rule in circumstances where:

  1. "what [the trustee] has achieved is unauthorised by the power conferred on him, or
  2. it is clear that [the trustee] would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account consideration which he ought to have taken into account."

The latter exception has been used by trustees to reverse decisions they had taken following on from professional advice which had resulted in unintended consequences, usually involving taxation. Clearly this has been of benefit to both advisers and trustees as it has meant a trustee’s decision could be reversed without the need for a lengthy litigation process against the adviser.

Development of this principle

This principle was developed in the cases of Pitt v Holt and Futter v Futter [2011] EWCA Civ 197 which were both heard together on 9 March 2011.

On re-examining the Hastings-Bass principle in these cases, the Court of Appeal had to consider in what circumstances the court can set aside a discretionary decision made by a trustee. It concluded that the decision in Hastings-Bass had been misunderstood and misapplied. Instead, 2 rules arose from what has previously been known as the Hastings-Bass principle.

  1. An exercise of the trustees’ power will be void and ineffective where there is a fraud or the exercise of the power is not within the scope of the power granted.
  2. An exercise of the trustee power that is within the scope of the power granted, but where the trustee has failed to take into account relevant considerations or has had regard to irrelevant considerations will be voidable. However, it must be shown to be in breach of a fiduciary duty and cannot be set aside under the rule in Hastings-Bass.

This is because the obligation to take into account matters such as taxation consequences, is a fiduciary duty of the trustee. If the power is exercised for fiscal advantage the trustee will generally not be liable for breach of trust if advice has been taken from a suitable adviser. In that case the remedy is likely to be against the adviser for providing incorrect advice.

Supreme Court decision following appeal

The cases were referred to the Supreme Court and a judgement was published on 9 May 2013 upholding the decisions made by the Court of Appeal. i.e. the Hastings-Bass principle.

The effect of these decisions is that in order to rely on the 'Hastings-Bass rule' the applicant will need to evidence a breach of fiduciary duty, which is unlikely where they have obtained professional advice.

On the issue of mistake, it is not the nature, but the seriousness that should be taken into account.

Summary

It is important for trustees to ensure that they are fully informed and aware of the implications of their decisions, especially when concerning tax implications. It will no longer be the case that trustees can simply rely on the court to apply the Hastings-Bass principle to set aside a decision. 

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth's interpretation of the relevant law and is correct at the date shown at the top of this article. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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