Sieff v Fox

Where trustees voluntarily exercise a discretionary power, the Re Hastings-Bass principle may apply if the exercise has an effect different from that intended, the trustees failed to consider matters they ought to have considered, and it is clear that they would have acted differently with the correct information. Fiscal consequences may be relevant considerations, particularly in substantial private trusts, although trustees need not anticipate every subtle or unforeseeable tax consequence. The lower “might have acted differently” threshold applies where trustees are obliged to act, not where they merely have a discretion. Matters arising solely under a later settlement may fall outside the first trustees’ duty, but may remain relevant to a beneficiary’s consent. The appointment was set aside because of the trustees’ mistake and the mistaken consent to it.

The claim concerned a 2001 appointment by trustees of a 1971 family settlement. The appointment transferred valuable chattels and a reversionary lease contingently to Lord Howland, who assigned his contingent interest to trustees of a 1987 settlement.

The transaction was intended to reduce future inheritance tax exposure and permit a wider class of family beneficiaries to benefit. The trustees and consenting parties were advised incorrectly about capital gains tax and were not fully advised about inheritance tax and the effect of the 1987 settlement’s exclusion clause. The issue was whether the appointment was valid and effective, or should be set aside under the Re Hastings-Bass principle, mistake, or both.

1. The appointment was set aside and declared to be of no effect. The trustees had exercised a discretionary power voluntarily. Its actual fiscal effect differed materially from the effect they intended. They had failed to take proper account of the capital gains tax consequences, and it was clear that, had they known the true position, they would not have made the appointment.
2. The applicable test was the reformulated Re Hastings-Bass principle: where trustees are free to decide whether to exercise a discretion, and the effect of the exercise differs from that intended, the court may interfere if the trustees failed to consider matters they ought to have considered, or considered matters they ought not to have considered, and would not have acted as they did had they known the true position.
3. The court distinguished cases such as Kerr v British Leyland (Staff) Trustees Ltd and Stannard v Fisons Ltd. Those cases concerned trustees subject to an obligation to act. In that context, it is sufficient that the omitted consideration might have materially affected the decision. The “would” test governs voluntary exercises of discretion.
4. Fiscal consequences may be relevant considerations. The 1971 trustees were required to consider the capital gains tax consequences because those consequences materially affected whether the appointment would benefit the relevant beneficiaries. However, matters arising solely from the terms of the 1987 settlement and Lord Howland’s intended occupation of the Abbey were outside the proper ambit of the 1971 trustees’ deliberations as such.
5. Lord Howland’s consent was separately vitiated by material mistake. He misunderstood the capital gains tax and inheritance tax consequences, the effect of the 1987 settlement’s exclusion clause, and the consequences of occupying parts of the Abbey containing the chattels. His consent was therefore given on a false basis. The same reasoning applied to the consent of the Marquess of Tavistock.
6. The court did not decide whether an appointment affected by the principle is void or voidable, whether breach of duty is required, or the full scope of mistake-based relief for individuals disposing of their own property. Those questions remained open.

First-instance decision. No prior appellate decision was stated in the judgment.