Court of Appeal brands so-called rule in Hastings-Bass ‘a seriously wrong turn’

The Court of Appeal outlined two broad categories of case in which the so-called rule in Re Hastings-Bass can be applied:

1. “on the one hand there may be a case in which, for example, because of an inadvertent misunderstanding of the provision, an act done by trustees in the exercise of a positive discretion is not within the scope of the relevant power”;

and

1. “on the other hand, the case may be one in which the trustees’ act in exercise of their discretion is within the terms of their power, but is said to have been vitiated by their failure to take into account a relevant matter, or their taking something irrelevant into account, when deciding to exercise, and exercising, the discretion”.

The actual decision in Re Hastings-Bass simply spoke to the first category of case. It established only (and unobjectionably) that, where trustees acted outside their power, the resulting act would be void. In such a case a court simply had to ask itself “whether that which was done, with all its defects and consequent limitations, is capable of being regarded as beneficial to the intended object, or not. If it is so capable, then it satisfies the requirement of the power that it should be for that person’s benefit. Otherwise it does not satisfy that requirement. In the latter case it would follow that it is outside the scope of the power, it is not an exercise of the power at all, and it cannot take effect under that power“.

In the second category of cases (to which the line of authority following Mettoy Pension Trustees had sought to extend the so-called rule in Re Hastings-Bass) the trustee’s act was not void but may be voidable – and importantly it would only be voidable where the act had “been done in breach of the fiduciary duty of the trustees. The duty to take relevant, and no irrelevant, matters into account is a fiduciary duty. However, if the trustees fulfil their duty of skill and care by seeking professional advice…. from a proper source, and act on the advice so obtained, then … they do not commit a breach of trust even if, because of inadequacies of the advice given, they act under a mistake as to a relevant matter, such as tax consequences. In the absence of a breach of the trust, the trustees’ act is not voidable.” The decisions which had sought to extend the principle any further than this were wrongly decided.

The judgment can be found at http://www.bailii.org/ew/cases/EWCA/Civ/2011/197.html

Edward Cumming