UK Supreme Court Clarifies Grounds for Setting Aside Trustee Decisions

The United Kingdom Supreme Court has clarified in a historicjudgment that a court may set aside trustee decisions under the principle ofthe Hastings-Bass rule or, alternatively, under the equitable remedy ofmistake.  This judgment covers the casesof Futter v. HMRC and Pitt v. HMRC, both of which involvetrustees seeking to set aside trustee decsions.

The Hastings-Bass rule “has been used by trustees to undodecisions which have led to unexpected, adverse tax consequences.”  The Supreme Court judgment provided circumstancesclarifying how the rule operates.  Iftrustees act outside of their powers or commit a fraud within their powers, thetrustee decision is void.  If thetrustees consider all relevant factors or act on legal advice leading to afailure to consider all relevant factors, then a court cannot intervene.  However, if a trustee fails to consider allrelevant factors and this is serious enough to constitute a breach of duty, thetrustee decision is voidable at the court’s discretion.

In order to set aside a trustee decision on the ground ofmistake, the trustee must establish that the mistake concerned the legal natureof the transaction and that it would be unconscionable to leave the mistakeuncorrected.

This judgment serves to limit the scope of the Hastings-Bassrule while relaxing the requirements of the remedy of mistake.

See United Kingdom Supreme Court Rules onSetting Aside Trustee Decisions, Dentons, May 16, 2013.