10 practical points arising out of the Supreme Court judgement in Pitt v Holt and Re Futter [2013] UKSC 26

 In Gill's Blog

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Lord Walker, in giving judgement in the recent Supreme Court judgement in the two cases of Pitt v Holt and Re Futter, has clarified the true nature of the rule in Hastings-Bass and removed the confusing distinction in the law of mistake between ‘effect’ and ‘consequence’. His judgement was approved by his six fellow judges making it a strong summary of the law relating to the mistaken decisions taken by trustees. It has reduced the ability of trustees to be absolved from the practical consequences of making a mistake.

As a result of this appeal:

  1. We know that decisions made by trustees which are outside their powers will be void and can be set aside by any person – the trustees included.
  2. If the trustees act within their powers but fail to take into account all relevant circumstances that will result in a breach by them of their fiduciary duty and will make their act voidable. Therefore equitable defences may apply and the Court has discretion as to whether or not relief should be granted. However, only those affected by the result can apply to court to have it vitiated, not the trustees. Trustees may apply for directions. Trustees should not regard themselves as able to challenge their own exercises of discretion and should certainly not expect to recover their cost out of the trust fund.
  3. Decisions made by trustees within their powers, which have taken into account all relevant matters but which are based on apparently competent but incorrect advice from reputable advisers will mean the trustees acted properly and so neither the trustees nor the beneficiaries will be able to apply to the court to have the decision set aside, unless they acted beyond the scope of their powers or contrary to the general law.
  4.  Negligent advice by advisers who are also trustees is going to give rise to all sorts of practical difficulties for beneficiaries – as in the Re Futter case – not least with the application or otherwise of Limitation Act 1980 time limits.
  5.  The wording of trustee exoneration clauses will also become important in cases where the trustee is also a partner in the firm advising the trustees.
  6.  Tax consequences are relevant considerations but not the only considerations and trustees must take care not to allow tax and tax avoidance to ‘drive out’ consideration of other relevant matters.
  7.  As far as mistake is concerned mere ignorance, forgetfulness or inadvertence or a misprediction will not as such be a mistake which the law will recognise as such.
  8.  The true test for whether a transaction should be set aside on the basis of mistake is whether there is a causative mistake of sufficient gravity which will usually only be satisfied when there is a mistake as to the legal character or nature of a transaction or as to some matter of law or fact which is basic to the transaction.
  9.  The court must now look at matters as a whole and assess whether it is ‘unjust or unconscionable’ to leave a mistake uncorrected.
  10.  Trustees may in future look to the doctrine of mistake to redress mistakes which result in adverse tax consequences rather than the Hastings-Bass rule. Courts may grant relief if it is just in all the circumstances.

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