Abacus Trust Company (Isle of Man) & Anor v Barr & Ors

The rule in Hastings-Bass applies only where trustees fail to perform their fiduciary duty in exercising a discretion. A decision cannot be impugned merely because information obtained with proper care later proves incomplete or incorrect.

The omitted consideration need not be fundamental. It is enough that the consideration would, or possibly might, have affected the decision. Where trustees exercise their discretion but breach their duty by considering irrelevant matters or omitting relevant ones, their decision is voidable, not void. The court may therefore consider delay, acquiescence, intervening events and the justice of granting relief.

The trustee and protector sought the court's determination of the validity of an appointment of 60% of a trust fund to discretionary trusts for the settlor's sons. The settlor had intended an appointment of only 40%, but an adviser acting between the settlor and the trustee had misunderstood and incorrectly communicated his wishes.

The mistake was discovered in 1992, but no proceedings were commenced until 2002. Meanwhile, the trust had been administered on the footing that the appointment was valid and substantial distributions had been made to the sons.

The central issues were whether the rule in Hastings-Bass required a breach of fiduciary duty, whether the mistake was sufficiently material, whether the trustee was responsible for the incorrect communication, and whether the appointment was void or merely voidable.

1. The appointment was voidable, not void. The trustee had exercised the power conferred by the settlement, but its decision was flawed by a breach of fiduciary duty. The question whether the appointment should actually be avoided, and on what terms, was adjourned for further evidence and submissions.

2. The rule in Hastings-Bass protects beneficiaries by requiring trustees to perform their fiduciary duties when exercising discretionary powers. Trustees must identify relevant considerations, obtain relevant information and advice with proper care and diligence, consider all relevant matters and exclude irrelevant ones. A decision is not impeachable merely because properly obtained information later proves incomplete or incorrect, or because the decision produces unforeseen or unwelcome consequences.

3. The omitted consideration need not produce a fundamental difference between the facts as understood and the true facts. It is sufficient that the consideration would, or possibly might, have affected the decision. The choice between the “would” criterion in Re Hastings-Bass and the “might” criterion in Stannard remained open. It did not affect this case because the trustee would have appointed only 40% had it known the settlor's true wishes.

4. The trustee was responsible for the failure to ascertain those wishes. The intermediary was the practical representative of the professional organisations providing the trust structure and acted as the trustee's agent when instructing the solicitors and procuring execution. Because the appointment was intended to implement the wishes of the life tenant whose interest would be overridden, the trustee had a fiduciary duty to ascertain those wishes accurately. It failed to take adequate measures to do so.

5. An exercise of discretion affected by a failure to consider a relevant matter remains a decision. It differs from a case in which trustees merely sign documents without understanding that they have any discretion. Consistently with ordinary equitable principles governing breach of fiduciary duty, a flawed decision is voidable. This classification permits the court to consider delay, acquiescence, intervening transactions and the position of affected beneficiaries when deciding whether relief should be granted.

This was a first-instance application issued on 7 March 2002. Representation orders had been made by Master Price on 12 September 2002. The Attorney General and the Inland Revenue were invited to participate but declined.