Pitt and Another v Holt and Another Futter and Another v Futter and Others
| Jurisdiction | England & Wales |
| Judge | Lord Walker,Lord Neuberger,Lady Hale,Lord Mance,Lord Clarke,Lord Sumption,Lord Carnwath |
| Judgment Date | 09 May 2013 |
| Neutral Citation | [2013] UKSC 26 |
| Date | 09 May 2013 |
| Court | Supreme Court |
[2013] UKSC 26
Lord Neuberger, President
Lord Walker
Lady Hale
Lord Mance
Lord Clarke
Lord Sumption
Lord Carnwath
Appellant (Futter)
Robert Ham QC
Richard Wilson
Jennifer Seaman
(Instructed by Withers LLP)
Respondent
Philip Jones QC
Ruth Jordan
(Instructed by HMRC Solicitors Office)
Appellant (Pitt)
Christopher Nugee QC
William Henderson
(Instructed by Bolitho Way and Belcher Frost)
Respondent
Philip Jones QC
Ruth Jordan
(Instructed by HMRC Solicitors Office)
Heard on 12, 13 and 14 March 2013
Lord Walker (with whom Lord Neuberger, Lady Hale, Lord Mance, Lord Clarke, Lord SumptionandLord Carnwathagree)
These appeals raise important and difficult issues in the field of equity and trust law. Both appeals raise issues about the so-called rule in Hastings-Bass. One appeal ( Pitt) also raises issues as to the court's jurisdiction to set aside a voluntary disposition on the ground of mistake. It is now generally recognized that the label "the rule in Hastings-Bass" is a misnomer. The decision of the Court of Appeal in In re Hastings-Bass, decd [1975] Ch 25 can be seen, on analysis, to be concerned with a different category of the techniques by which trust law controls the exercise of fiduciary powers. That decision is concerned with the scope of the power itself, rather than with the nature of the decision-making process which led to its being exercised in a particular way (see R C Nolan, Controlling Fiduciary Power [2009] CLJ 293, especially pp 294–295 and 306–309). The rule would be more aptly called "the rule in Mettoy", from the decision of Warner J in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587. But the misnomer is by now so familiar that it is best to continue to use it, inapposite though it is.
As Mettoy illustrates, the rule is concerned with trustees who make decisions without having given proper consideration to relevant matters which they ought to have taken into consideration. It has also been applied to other fiduciaries (in Pitt Mrs Pitt was acting as a receiver appointed by the Court of Protection). Mettoy was concerned with the rules of an occupational pension scheme, as are some other cases on the rule. But since the turn of the century there have been several cases concerned with family trusts, and in particular with tax–planning arrangements involving trusts, where the arrangements have for one reason or another proved unexpectedly disadvantageous, and the court has been asked to restore the status quo ante under the Hastings-Bass rule.
Futter is such a case, as Norris J pointed out in blunt terms at the beginning of his judgment, [2010] EWHC 449 Ch, [2010] STC 982, para 2:
"This is another application by trustees who wish to assert that they have acted in an un-trustee-like fashion and so have failed properly to exercise a power vested in them. The trustees wish to take advantage of this failure to perform their duties in order to enable the beneficiaries to avoid paying the tax liability consequent upon the trustees' decision. Put like that (and I am conscious that that is not the only way in which the situation may be described) the possibility is raised that the development of the rule may have been diverted from its true course."
These appeals are the first cases on the Hastings-Bass rule in which the Commissioners of HM Revenue and Customs ("the Revenue", so as to include their predecessors, the Commissioners of Inland Revenue) have been joined as parties in the proceedings. It is the Revenue that has taken on the task of challenging, if not the existence, at least the limits of the Hastings-Bass rule. It is no coincidence that the judgment of the Court of Appeal in these two appeals (which were heard together in that court also) is the first fully considered judgment above first-instance level, and the first to come on further appeal to the Supreme Court ( Mettoy was not cited to the Court of Appeal in Stannard v Fisons Pension Trust Ltd [1991] Pen LR 225, discussed in para 34 below).
Rescission of a voluntary disposition on the ground of mistake is, by contrast, a topic on which there is a good deal of authority, including a decision of the House of Lords, Ogilvie v Allen (1899) 15 TLR 294. But some of the authorities are quite old, and others are debatable. There has been much discussion of the distinction drawn by Millett J in Gibbon v Mitchell [1990] 1 WLR 1304, 1309, between a relevant mistake having to be "as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it." So here too review by the Supreme Court is appropriate.
This court has therefore had to consider a large volume of case-law, culminating in the judgment of Lloyd LJ in the Court of Appeal in these appeals: [2011] EWCA Civ 197, [2012] Ch 132. That judgment, described by Longmore LJ, para 227, as "remarkable", and by Mummery LJ, para 230, as a "very fine comprehensive and clarifying judgment", runs to 226 paragraphs. I share their admiration, and I agree with Lloyd LJ's main conclusions as to the scope of the Hastings-Bass rule, and the outcome of the appeals on that issue. But I will say at once that I take a different view of the disposal of the appeal in Pitt on the mistake issue.
Before any detailed consideration of the case-law it may be helpful to identify, in general terms, some of the principal topics in the appeals. It has often been said (for instance, by Norris J in Futter, para 21) that the rule in Hastings-Bass is not founded in the law of mistake, and in his judgment Lloyd LJ dealt with them as almost completely separate topics. They do cover different areas, in that the Hastings-Bass rule is restricted to decisions by trustees and other fiduciaries, and does not necessarily require the decision-maker to be under a positive misapprehension: mere absence of thought may be sufficient. The court's wider jurisdiction to rescind a transaction on the ground of mistake is not limited to transactions entered into by fiduciaries, and does generally require there to have been something that can be identified as an operative mistake. The significance of fault in the error or inadvertence is a further point of distinction.
Nevertheless there is a degree of overlap between the two principles in their practical application. In some of the first-instance cases on the Hastings-Bass rule judges have drawn attention, with evident surprise, to the absence of any alternative claim for relief by way of rectification or rescission on the ground of mistake. In some of the cases (such as Abacus Trust Co (Isle of Man) v Barr [2003] EWHC 114 (Ch), [2003] Ch 409, the facts of which are summarized at paras 36 and 37 below) rescission on the ground of mistake would seem to have been the natural remedy for the trustees to seek. There must be some suspicion that reliance on the Hastings-Bass rule has come to be seen as something of a soft option, or at any rate as a safer option, at a time when it was supposed, wrongly, that the application of the rule did not require the granting of a remedy which was discretionary in the sense that it might be withheld because some equitable defence was established.
The way in which the law seemed to be developing, especially in cases concerned with unsuccessful tax-planning arrangements, led one legal scholar (Professor Charles Mitchell, Reining in the rule in In Re Hastings-Bass, (2006) 122 LQR 35, 41–42) to ask:
"Why should a beneficiary be placed in a stronger position than the outright legal owner of property if he wishes to unwind a transaction to which he has given his consent, but which turns out to have unforeseen tax disadvantages?"
Professor Mitchell went on to comment, presciently:
"The courts will have to look elsewhere for the means of reining in the rule in Re Hastings-Bass, most probably to the equitable bars to unwinding a transaction that would come into play if it were decisively recognised that the rule renders transactions voidable rather than void."
This court now has the opportunity of confirming the Court of Appeal's recognition of that essential point.
In the Court of Appeal [2012] Ch 132, para 227 Longmore LJ described the appeals as
"… examples of that comparatively rare instance of the law taking a seriously wrong turn, of that wrong turn being not infrequently acted on over a 20-year period but this court being able to reverse that error and put the law back on the right course."
If the law did take a seriously wrong turning it was because a number of first-instance judges were persuaded that three separate strands of legal doctrine, all largely associated with practice in the Chancery Division, should be spun or plaited together so as to produce a new rule.
The first strand of legal doctrine starts with the entirely familiar proposition that trustees, in the exercise of their fiduciary discretions, are under constraints which do not apply to adult individuals disposing of their own property. I made some uncontroversial observations about this in Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705, 717:
"Certain points are clear beyond argument. Trustees must act in good faith, responsibly and reasonably. They must inform themselves, before making a decision, of matters which are relevant to the decision. These matters may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice...
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