In re Hastings-Bass, decd (Hastings-Bass v Inland Revenue Comrs)

A trustee’s good-faith exercise of a discretionary power is not invalid merely because it has less than its intended legal effect. The court will intervene only where the achieved result was outside the power, or where it is clear that the trustee would have acted differently but for taking an irrelevant matter into account or failing to consider a relevant one.

Where an advancement by sub-settlement is partly void for perpetuity, the valid part may take effect if it remains a reasonable benefit to the person advanced. The benefit may comprise distinct elements rather than a single indivisible benefit.

The trustees of a 1947 settlement transferred investments worth £50,000 to trustees of an existing 1957 settlement for William, a beneficiary, under the statutory power of advancement. The arrangement was intended to reduce prospective estate duty and to give William an immediate interest.

Following the later decision in Re Pilkington's Will Trusts [1964] AC 612, all beneficial trusts and powers over the advanced fund after William’s life interest were accepted to be void for perpetuity. Mr Justice Plowman, following Re Abrahams' Will Trust [1969] 1 Ch 463, held that the trustees had never validly exercised their power and that estate duty was payable.

The trustees appealed. The central issue was whether the surviving life interest and the transfer itself remained effective despite the failure of the ulterior trusts.

Appeal allowed. Lord Justice Megaw stated that Lord Justice Buckley’s reasons were the judgment of the court. The court substituted a declaration that estate duty was not payable on Captain Hastings-Bass’s death in respect of the advanced fund.

1. The statutory power of advancement was fiduciary. Trustees must consider whether the proposed arrangement benefits the person advanced and weigh that benefit against affected interests under the head settlement. However, a court does not invalidate a good-faith exercise merely because it falls short of its intended legal effect. Intervention is justified only if the result was unauthorised, or if it is clear that the trustees would have acted differently without an irrelevant consideration or with a relevant consideration which they omitted.

2. The trustees had made a valid exercise of discretion. The immediate and indefeasible life interest, coupled with the saving of estate duty, was a substantial direct benefit to William. Failure of the ulterior trusts did not reduce that benefit. It also left William’s contingent capital interest under the 1947 settlement intact and affected the expectant interests of others less adversely than the intended arrangement would have done.

3. The court distinguished Re Abrahams' Will Trust [1969] 1 Ch 463. That decision did not establish that every partial failure of a sub-settlement prevents a valid exercise of the power. It was confined to a case where the perpetuity rule so radically changed the intended transaction that the trustees could not reasonably be supposed to have considered its true effect. The court was determining the validity of the trustees’ discretion, not exercising a new discretion for them.

4. The transfer was an application of capital within the statutory power in the Trustee Act 1925. It remained such an application although the sub-settlement created no effective new beneficial interest in capital. The trustees had parted with the legal ownership of the assets, which were thereafter held subject to the surviving life interest and the interests under the head settlement.

Costs were awarded to the appellants in the Court of Appeal and below. Leave to appeal to the House of Lords was granted on the stated condition concerning costs.

• Court of Appeal — allowed the trustees’ appeal and substituted a declaration that estate duty was not payable on the advanced fund: [1974] EWCA Civ 13; [1975] Ch 25.
• Chancery Division — Mr Justice Plowman held that the purported advancement had not validly exercised the trustees’ power and that estate duty was payable. His order was dated 2 November 1972.