Trust Parties’ Uniquely Easy Access to Rescission: Analysis, Critique and Reform

Date01 September 2019
DOIhttp://doi.org/10.1111/1468-2230.12427
Published date01 September 2019
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Modern Law Review
DOI: 10.1111/1468-2230.12427
THE
MODERN LAW REVIEW
Volume 82 September 2019 No. 5
Trust Parties’ Uniquely Easy Access to Rescission:
Analysis, Critique and Reform
Adam Hofri-Winogradow and Gadi Weiss
Parties to trusts currently enjoy easier access to judicial avoidance of voluntary dispositions
resulting from mistakes and inadequate decision-making than other persons. The principal
doctrinal basis for this advantage has shifted from the rule in Re Hastings-Bass to rescission
in equity. The article argues that this advantage is normatively unjustified, and recommends
a uniform legal framework to govern the avoidance of voluntary dispositions resulting from
mistakes or inadequate decision-making, whether or not a trust was involved. Under this
framework, dispositions resulting from laypersons’ mistakes and inadequate decision-making
should be avoided, subject to appropriate defences, whenever that causative nexus is present,
while dispositions resulting from professionals’ mistakesand inadequate decision-making should
only be avoided wherethe mistake or deliberative flaw was so serious as to render the transferee’s
retention of property transferred unjust.
INTRODUCTION
As every law student knows, trust law is complex. So is tax law. As a result, not
only students, but even well-paid professionals specialised in these very fields,
make mistakes in understanding and applying the law. Such mistakes often
lead to inadequate decision-making. Persons who commit mistakes outside
the trusts context often have to bear the costs of their mistakes, which acts
as a powerful prod to exercising prudence and care. In the trusts context,
however, a complex knot of partly overlapping doctrines provides surprisingly
easy relief1from the consequences of mistakes: actions resulting from mistakes
Montesquieu Chair in Comparative Law, Hebrew University of Jerusalem Faculty of Law, and As-
sociate, Pearl Cohen Zedek Latzer Baratz. We are grateful for comments by Ilan Benshalom, Hanoch
Dagan, Paul Davies, Joshua Getzler, Birke H¨
acker, Raya Hofri-Winogradow, Charles Mitchell,
Richard Nolan, Gideon Parchomovsky, Peter Turner, and other sage commentators, as well as from
the two anonymous MLR reviewers. All remaining mistakes and instances of inadequate decision-
making are ours.
1 In order not to confine our discussion to a specific remedy, we use the term ‘relief’ for all court
orders holding dispositions void or voidable. Relief could be granted by way of rescission, the
Rule in Re Hastings-Bass or other remedies, as available and as appropriate to each case.
C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited. (2019)82(5) MLR 777–799
Trust Parties’ Uniquely Easy Access to Rescission
or inadequate decision-making are held void or avoided, with the persons
responsible for the mistakes and inadequate decision-making released from the
prospect of a personal liability action. As many mistakes made in the trusts
context relate to tax planning, the law’s generous provision of relief comes at a
cost to the public purse: the authors of failed tax planning schemes are allowed
to have those schemes retroactively withdrawn and to put others in their place,
with the courts helpfully pointing the way to more successful tax minimisation.
As Jessica Palmer put it, ‘it is not clear what makes a trust transaction more
special than non-trust transactions that have also incurred unexpected fiscal
consequences but which cannot be set aside’.2
In this article, we describe and criticise the law governing relief from the con-
sequences of mistakes and inadequate decision-making in the trusts context. A
large literature engages with different parts of the variety of doctrines facilitat-
ing relief from the consequences of mistake and inadequate decision-making.3
Key contributions include, for example, Tang’s analysis of restitution for mis-
taken gifts4and H¨
acker’s more recent examination of mistaken gifts after Pitt
vHolt.5Both authors provided sophisticated discussions of the law governing
restitution and rescission for mistake. Neither addressed the special treatment
given to mistakes in the trusts context, or the line of cases focused on inade-
quate trustee decision-making, developing and applying the so-called Rule in
Re Hastings-Bass6(the Rule). The latter topic was the subject of a recent book
by Ashdown.7Building on the existing literature, the present article innovates
in directly addressing the underlying policy question: whether special treatment
of mistakes and inadequate decision-making in the trusts context is justifiable.
We conclude that it is not. Three key policy considerations drive our conclu-
sion. One is that the current ease of obtaining relief from the consequences of
mistakes and inadequate decision-making in the trusts context permits profes-
sionals providing services in that context to have their mistakes and inadequate
decision-making avoided at no cost to themselves. This situation may have a
role in facilitating a standard of professional service that is not always as careful
as it should be. Given that professional trust ser vice providers are generously
compensated for their services, the law should encourage them to offer a better
service. The second policy consideration in point is that easy access to rescission
is likely to impinge on beneficiaries’ ability to rely on trust dispositions. The
third animating consideration is that the law governing relief from the con-
sequences of mistakes and inadequate decision-making should be coordinated
and simplified.
Because the existing preferential treatment of mistakes and inadequate
decision-making in the trusts context is unjustifiable, law reform is necessary.
We propose a uniform legal framework to govern the avoidance of voluntary
dispositions – including gifts, settlements on trust, appointments of trust prop-
erty to beneficiaries and other unilateral transfers – resulting from mistakes or
2 J. Palmer, ‘Review: Equity and Trusts’ (2015) New Zealand Law Review 141, 147.
3 Citing every contribution would be impossible. Many are cited in the footnotes following.
4 H. W. Tang, ‘Restitution for Mistaken Gifts’ (2002) 20 Journal of Contract Law 1.
5B.H
¨
acker, ‘Mistaken Gifts after Pitt vHolt’ (2014) 67 Current Legal Problems 333.
7M.J.Ashdown,Trustee Decision Making: The Rule in Re Hastings-Bass (Oxford: OUP, 2015).
778 C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited.
(2019) 82(5) MLR 777–799

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