Pitt & Anor v Holt & Anor

The rule in Hastings-Bass may apply where a receiver exercises a discretionary fiduciary power for a patient, even though the decision-maker is not a trustee acting under a trust instrument. The court must ask what considerations were material, whether they were disregarded, and whether the fiduciary would have acted differently if they had been considered. Tax consequences may be material. A voluntary transaction is not ordinarily set aside for mistake merely because its tax consequences were unforeseen, where the transaction achieved its intended legal effect and the mistake concerned only consequences or advantages.

Mrs Pitt, acting as receiver for her seriously brain-damaged husband, established a discretionary settlement and assigned his annuity to it. The arrangements were authorised by the Court of Protection. The inheritance tax consequences were overlooked, although the settlement could readily have qualified for exemption under section 89 of the Inheritance Tax Act 1984.

Mrs Pitt and the trustees sought declarations setting aside the Settlement and Assignment under the rule in Hastings-Bass or, alternatively, for mistake. HMRC resisted both grounds. The central issues were whether Hastings-Bass could apply to a receiver’s fiduciary exercise of power, whether the relevant conditions were satisfied, and whether the overlooked tax consequences constituted an operative mistake.

1. Claim upheld under Hastings-Bass. The Settlement and Assignment were ineffective and could be set aside. Declaratory relief was granted, subject to ancillary matters.
2. A receiver exercising a discretionary power for a patient under the Mental Health Act 1983 acts in a fiduciary capacity. The receiver’s decision is not, for all purposes, to be treated as the patient’s own decision. The rule in Hastings-Bass is capable of applying to such an exercise of power, although its application does not automatically extend to every fiduciary relationship.
3. The applicable inquiry was whether the fiduciary failed to take into account a relevant consideration and, if so, whether it was clear that the fiduciary would not have acted as she did had the consideration been taken into account. The court rejected an approach confining the rule to cases where the immediate purpose of the transaction had failed, or excluding fiscal consequences altogether.
4. Inheritance tax was a material consideration. It was particularly important because the trust fund was needed for the patient’s care, the parties had limited resources, and exemption could have been obtained by complying with section 89 of the Inheritance Tax Act 1984. The tax issue had not been considered by the advisers or Mrs Pitt. The evidence established that she would not have entered into the Settlement and Assignment in their existing form had she appreciated the liability.
5. The alternative mistake claim failed. The transaction achieved its intended legal effect, and the overlooked inheritance tax was an unforeseen consequence or disadvantage rather than a mistake about the effect of the transaction. The court applied the distinction stated in Gibbon v Mitchell and rejected the contrary approach in Re Betsam Trust as inconsistent with English law.