The Supreme Court has given judgment in the cases of Pitt and Futter concerning the rule in Hastings-Bass. This decision gives courts very wide scope for giving relief in future where trustees have made an error in the exercise of their powers or where they have made a fundamental mistake in their understanding of the situation.

The rule in Hastings-Bass (pre-Pitt and Futter)

Where a trustee acts under a discretion given to him by the terms of the trust, but the effect of the exercise is different from that which he intended, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account (Lloyd LJ in Sieff v Fox [2005] 1 WLR 3811).

The main issue is whether the court can set aside decisions of trustees where they have not properly exercised a power vested in them, specifically where they have failed to take into account considerations which they ought to have taken into account. Recent cases on Hastings-Bass have tended to concern situations where trustees have acted on the basis of incorrect tax advice – and have subsequently sought to have their decisions reversed by the court – but it has also been widely used in pensions cases where trustees or members have sought to reverse a decision of the trustees. The court also considered the doctrine of mistake in relation to Pitt.

The judgment was given by Lord Walker. After an extensive review of the case law, he held that in order for the rule in Hastings-Bass to apply, there must be a breach of duty by the trustees – but they must still have been acting within their powers. In those circumstances, the court will have flexibility in the orders it can make – "as a matter of principle there must be a high degree of flexibility in the range of the court's possible responses. .... To lay down a rigid rule ... would inhibit the court in seeking the best practical solution in the application of the Hastings-Bass rule in a variety of different factual situations".

The rule in Hastings-Bass (post-Pitt and Futter)

If an exercise by trustees of a discretionary power is within the terms of the power, but the trustees have in some way breached their duties in respect of that exercise, then (unless it is a case of a fraud on the power) the trustees' act is not void but it may be voidable at the instance of a beneficiary who is adversely affected.

In both Pitt and Futter there had been no breach of duty by the trustees as they had relied on professional advice (which turned out to be wrong) – this meant that their decisions would not be set aside by the court.

Lord Walker then went on to consider (in Pitt only) whether the trustees' decision should be rescinded on the ground of mistake. He concluded that:

"the true requirement is simply for there to be a causative mistake of sufficient gravity; normally ... only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction"

In order for the court to order rescission where there has been a mistake (as described above), it must also be unjust or unconscionable for it not to be set aside.

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.