UK: Trustees, Mistakes And Unintended Consequences: The Supreme Court Calls Time On Hastings Bass

Last Updated: 30 May 2013
Article by Tamasin Perkins and Roberta Harvey

The progress through the courts of Pitt v HMRC and Futter v HMRC has been followed closely by trustees and those advising them. The decision of the Supreme Court, handed down on 9 May 2013 gives us the final chapter.

The two cases, both contested by HMRC, related to the scope of the so-called "rule in Hastings Bass" (which concerns trustees who have made a decision without having properly considered relevant matters). Pitt also considered the law of equity surrounding the court's jurisdiction to set aside a voluntary disposition on the ground of mistake, in both cases, the trustees of the respective trusts sought to have decisions set aside which had given rise to unintended tax consequences. HMRC argued that the decisions should stand.

In 2011 the Court of Appeal's decision in Pitt v Holt and Futter v Futter limited the scope of the rule in Hastings Bass. Lloyd LJ gave the lead judgment and held that where trustees have relied on professional advice (even negligent advice) they are unlikely to have been acting in breach of trust and therefore their decision cannot be said to be void or voidable. The effect of this was that, unless made in breach of trust, such a decision would stand regardless of any unpalatable or unforeseen tax consequences. The Court of Appeal's decision effectively put a stop to the relatively common practice of trustees who had made a mistake as to the tax consequences of their actions, bringing successful applications to the lower courts to have their decisions set aside as voidable under the rule in Hastings Bass.

Following the Court of Appeal's decision, both of the unsuccessful parties appealed to the Supreme Court. Their appeals were contested by HMRC. The matter was heard in March 2013. The Supreme Court, with a lead judgment from Lord Walker, dismissed both appeals insofar as they related to the rule in Hastings Bass. It allowed the appeal in Pitt on the issue of mistake.

The effect of the decision regarding the rule in Hastings Bass is that, in order to rely on the rule, an applicant will need to show a breach of fiduciary duty or breach of trust on the part of the fiduciary or trustee. The Supreme Court confirmed the judgment given by the Court of Appeal, that there is unlikely to be a breach of fiduciary duty where that fiduciary has obtained and followed professional advice. The effect of this ruling will be to limit the use of the rule in Hastings Bass in the English courts and particularly to deter trustees from making applications under this rule. The judgment was also critical of trustees in part, suggesting that the rule had been too heavily relied on and trustees too willing to confess their failings to the extent that applications under the rule were generally regarded as uncontroversial.

Lord Walker's judgment also provided detailed guidance on the court's jurisdiction to set aside a voluntary disposition on the grounds of mistake. Broadly it is not the nature of the mistake that will be considered (for example any distinction between a mistake as to effect or as to consequence) but the seriousness of the mistake. Although it is too early to tell at present, with time we may see more trustees' applications being brought in mistake as an alternative or an addition to reliance on the rule in Hastings Bass.

In more detail

Although the cases were joined on appeal, their facts are quite different. The differences are relevant here as ultimately one applicant (Mrs Pitt) succeeded in having the trust in question set aside, whereas that other did not.


Here the claim was brought by the personal representatives of Derek Pitt. Mr Pitt had incurred serious injuries in a road accident in 1990 and lost mental capacity in that accident. He died in 2007. The facts are unusual for Hastings Bass claims in that they related to a decision made by Mrs Pitt in her capacity as her husband's receiver, rather than as trustee. Mr Pitt, through his receiver had brought a claim in damages for his injuries and this claim was compromised by a structured settlement. Mrs Pitt had sought advice in a written report from solicitors as to the form of that settlement. This advised that damages should be paid into a discretionary settlement and this was done with the approval of the Court of Protection. The report however, failed to address the issue of inheritance tax. The effect of this omission was that although the trust could easily have been set up as a special kind of "disabled" trust with advantageous inheritance tax treatment, this was not done. There was an immediate charge to IHT and the possibility of a further charge on the tenth anniversary of the trust.


The facts of Futter were more typical of the kinds of cases brought to the courts to have a decision set aside under the rule in Hastings Bass. The case related to a private family trust and, again, to inadvertent tax consequences. Mark Futter created two settlements in 1985. Initially both settlements had non-resident trustees, but in 2004, two UK residents were appointed as trustees. One of these trustees was a partner in the firm of solicitors acting for the trustees and gave tax advice to the settlements. Acting on his advice, in 2008 the trustees exercised a power of enlargement, distributing the entire trust capital of one settlement to Mr Futter; and a power of advancement, distributing monies from the other settlement to Mr Futter's children. In doing so the trustees (or in effect the professional advice they obtained) had not considered recent legislation with the result that Mr Futter and his children ended up with unexpected capital gains tax liabilities.

Hastings Bass decision

These two cases were the first applications under the rule in Hastings Bass to be contested by HMRC for many years. Lord Walker's judgment indicated that HMRC had previously been invited to join similar cases and had declined. Here they opposed both appeals on the grounds of public policy.

In his judgment dismissing both appeals, Lord Walker confirmed his general agreement with Lloyd LJ's judgment in the Court of Appeal insofar as it related to Hastings Bass. For a full analysis of this judgment, please click here. This had held that the most recent statements of the rule in Hastings Bass were wider than the true principle expressed in the original decision. Lord Walker agreed with Lloyd LJ that a distinction should be drawn between an error made by trustees who fail to give proper consideration to relevant matters but where the decision is within the scope of a trustee's power ("inadequate deliberation") and an error made by trustees which goes beyond the scope of their power, "excessive execution." He also flagged a further category of decision, where a fraudulent appointment has been made for an improper purpose. The rule in Hastings Bass applies to the first of these categories.

He also endorsed the key aspect of Lloyd LJ's judgment: that in order to be able to set aside the transaction under the rule in Hastings Bass, the inadequacy of the decision must be sufficiently serious as to amount to a breach of duty (for example a breach of fiduciary duty or a breach of trust). He stated:

"It would set the bar too high (or too low depending upon the spectator's point of view) to apply the Hastings-Bass rule whenever trustees fall short of the highest standards of mature deliberation and judgment."

Similarly Lord Walker found that it would not be enough for a court to look at a transaction and decide that it would have acted in a different way. Save in exceptional circumstances, a breach is necessary. This is because without a breach the court generally does not have the jurisdiction to step in and intervene.

Lord Walker also agreed that when considering inadequate deliberation and the matters which a trustee ought to take into account, such considerations must include the fiscal consequences of a transaction. This should not, however, be to the exclusion of other considerations. He described tax considerations as a "constant preoccupation" of trustees. The judgment also looked at the role of professional advice obtained by the trustees. Broadly, to have obtained incorrect advice is "no excuse" as regards the applicability of the rule in Hastings Bass. Solicitors and other professionals may act as agents of the trustees in some circumstances but they do not act as agents in the exercise of the trustees' fiduciary discretion. Such decisions can only be exercised by the trustees or fiduciaries. Lord Walker also summarily rejected a submission that the trustees' duty to take into account relevant considerations should be interpreted as a duty only to follow correct advice. There is no requirement for trustees to be infallible.

This decision both gives and takes away from trustees. Where advice is wrong and has been followed the trustees are left in the positive position that there is no strict liability against them, no automatic breach. This protects them in terms of actions for breach of fiduciary duty but does mean that they will not then be able to apply under the rule in Hastings Bass to correct the error. Recourse would have to be found in a negligence claim against the advisors, although the Court acknowledged that there would be no certainty of success in such an action. Where there has been a breach of duty, the Court will still have a discretion as to whether to grant relief.

Lord Walker also commented that it had become a striking feature of the development of the rule in Hastings Bass that trustees appeared to be happy to seek the assistance of the court and to rely and assert their own failings (or those of their advisors) in doing so, rather than the beneficiaries leading such an application. He made it clear that he agreed with Lloyd LJ that in general "it would be inappropriate for trustees to take the initiative in commencing proceedings... they should not regard them as uncontroversial proceedings in which they can confidently expect to recover their own costs out of the trust fund."

Decision in mistake

In allowing Mrs Pitt's appeal on this ground, the Court provided a detailed judgment on the applicability of the jurisdiction for setting aside a voluntary decision on the grounds of mistake. In essence to be able to set aside such a decision, the applicant must be able to show that there has been a mistake of sufficient gravity. Here the Court took the view that there was sufficient gravity and the test was satisfied.

The law in this area previously had drawn a distinction between a mistake as to effect (which could be set aside on the grounds of mistake) and mistakes as to consequences (which could not). This distinction will no longer apply and the focus must be on the gravity of a mistake rather than any classification as to the type of mistake. Equity should be fluid and should not be bound by rigid classifications as to type. In some situations errors can be just as serious in their consequences as in effect.

Lord Walker's judgment also stated that when considering whether a mistake is of sufficient gravity this should be assessed by a close examination of all the facts - regardless of whether or not these facts have been tested by cross-examination. The relevant facts will include the circumstances of the mistake and its consequences for any person who made the vitiated disposition. It does not matter if the mistake is due to carelessness on the part of the person making the voluntary disposition, unless that person deliberately ran the risk (or must be taken to have run the risk) of being wrong. The mistake does not have to be known by the person or persons taking a benefit under the disposition and can be unilateral.

HMRC argued that a mistake which relates exclusively to tax cannot be relieved by the Court in these circumstances. They argued that mistakes leading to tax consequences should be treated as being in a different category. The Court did not accept this argument. It held that consequences, including situations where there are only tax consequences, can be relevant to the gravity of a decision. In Pitt, the loss of the inheritance tax advantage was a serious one for Mrs Pitt as her husband's receiver, as well as for her as his wife, carer and ultimately a beneficiary of his estate.

When looking at the facts of Pitt, the Court found that the transaction was not artificial or an abuse of a statutory relief - section 89 had been designed to grant relief in relation to exactly this sort of trust. There would be nothing artificial or abusive in Mrs Pitt establishing the trust so as to obtain protection under section 8 Inheritance Tax Act 1984.

The Court did not have to decide on the issue of mistake in the Futter case, as Mr Futter had not originally put his case in terms of mistake and was not given permission to do so. When considering whether a transaction should be deemed artificial or an abuse, Lord Walker provided some commentary as to whether the position would have been the same if mistake had been pleaded in Futter or to arrangements more extreme than that of Futter in terms of their artificiality. Lord Walker questioned whether the court should assist people who wished to extricate themselves from a tax avoidance scheme gone wrong using the jurisdiction to set aside on the grounds of mistake. He also commented that a court might think it right to refuse relief either on the grounds of public policy or because claimants acting on expert advice must be deemed to have accepted the risk that a proposed tax avoidance scheme might prove ineffective. He suggested that there is an increasingly strong and general recognition that tax avoidance is a "social evil" and this may influence a court's decision as to whether equity should be engaged to set aside a decision on the grounds of mistake.

HMRC also argued that relief should not be granted because it serves no other practical purpose than saving inheritance tax and "equity does not act in vain." Again this was not accepted. The court held that there were other contestable issues between HMRC and persons who had received distributions from the SNT other than as purchasers for value without notice.

An argument was also made that a deed which transfers property for no consideration can be set aside only for a mistake of a fundamental nature such as would render a contract void. This was not accepted. It was held it was not acceptable to treat a voluntary disposition in the same way as a commercial bargain just because it has been made in the form of a deed.

How will it affect trustees?

The previous understanding of the rule in Hastings Bass has been limited and the need for a breach of trust by the trustees as a condition of the court's intervention has been confirmed. Any applications made under the rule in Hastings Bass are more likely to be made by beneficiaries in the future and only where a breach of trust can be found. Trustees will be reluctant to bring such applications as to do so would be to necessarily admit their own breach of trust. Such trustees are unlikely to recover their costs.

The decision may also affect the way in which trustees choose to take professional advice. Ultimately trustees cannot simply point to errors in that advice to absolve themselves and this may make them more careful in the advisors they instruct. Similarly, solicitors and other advisors may be more alert to these issues as they may be facing a negligence action rather than the comfort offered by Hastings Bass.

Applications in the future may also look to characterise decisions within the equitable remit of mistake rather than under the rule in Hastings Bass.

It is also worth bearing in mind that Pitt and Futter are decisions of the English court and may not necessarily be mirrored by offshore jurisdictions.

Lord Walker did comment, however, that Pitt and Futter are fact sensitive. In the future there may be "cases in which small variations in the facts lead to surprisingly different outcomes." So the Supreme Court decision may not necessarily be the end to this story - we may see a sequel in the courts in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.