Pitt & Anor v Holt & Anor

An exercise of a fiduciary dispositive power outside the scope of that power is void. An exercise within the power is valid unless set aside for breach of fiduciary duty. A failure to consider a relevant matter, including tax, makes an intra vires disposition voidable only if it constitutes such a breach. Proper reliance on apparently competent professional advice ordinarily precludes that conclusion, even where the advice is wrong.

Equity may set aside a voluntary disposition for a sufficiently grave mistake about its legal effect or an existing fact basic to the transaction. Unforeseen fiscal liabilities are consequences of a disposition, rather than its legal effect, and do not suffice.

These conjoined appeals concerned dispositions made on professional advice which produced unintended tax liabilities. In Pitt v Holt, a Court of Protection receiver settled compensation received for her incapacitated husband on discretionary trusts which failed to qualify for favourable inheritance tax treatment. The deputy judge set aside the settlement under the developed rule in Re Hastings-Bass: [2010] EWHC 45 (Ch).

In Futter v Futter, trustees made appointments intended to use beneficiaries’ capital losses against stockpiled gains. Their solicitors overlooked a statutory restriction. Norris J set aside the appointments: [2010] EWHC 449 (Ch).

HMRC appealed both orders. The central issues were the proper scope of the rule attributed to Re Hastings-Bass and, in Pitt, whether the settlement could alternatively be rescinded for mistake.

1. Both appeals were allowed. The first-instance rule derived from Mettoy and later cases was not a correct statement of the law. Re Hastings-Bass did not establish that every dispositive decision affected by a failure to consider a relevant matter was void.

2. A purported exercise outside the scope of a fiduciary power is void. This includes an appointment to a non-object or an advancement whose surviving provisions cannot reasonably be regarded as benefiting the intended advancee. By contrast, an intra vires disposition affected by a flawed decision-making process is valid unless and until avoided.

3. An intra vires disposition is voidable only where the fiduciary acted in breach of duty. The duty to consider relevant matters and exclude irrelevant matters is fiduciary. Fiscal consequences may be relevant. Any remedy remains discretionary, is subject to equitable defences and will ordinarily be sought by an adversely affected beneficiary.

4. Trustees or other fiduciaries who obtain and act upon advice from apparently competent professional advisers do not, without another ground of challenge, breach their fiduciary duty merely because the advice is materially wrong. The Futter trustees had properly sought tax advice. Their appointments were therefore neither void nor voidable. Mrs Pitt had likewise discharged her duty by obtaining appropriate professional advice.

5. Equity may set aside a voluntary disposition for mistake where the donor was mistaken about its legal effect or about an existing fact basic to the transaction. The mistake must also be sufficiently grave to make it unjust for the recipient to retain the property.

6. Mrs Pitt mistakenly believed that the settlement would have no adverse tax consequences, and the mistake was sufficiently grave. Nevertheless, inheritance tax was a consequence of the settlement rather than part of its legal effect. The immediate statutory charge on the trust property did not change that characterisation. The alternative claim for rescission therefore failed.

7. Per Longmore and Mummery LJJ, agreeing with Lloyd LJ, the orders in Pitt v Holt and Futter v Futter were set aside.

1. Court of Appeal (Civil Division): HMRC’s appeals in Pitt v Holt and Futter v Futter were allowed unanimously, and both orders below were set aside: [2011] EWCA Civ 197 .
2. High Court, Chancery Division — Pitt v Holt: Robert Englehart QC set aside the settlement and assignment under the developed Hastings-Bass rule, but would have rejected relief for mistake: [2010] EWHC 45 (Ch) .
3. High Court, Chancery Division — Futter v Futter: Norris J held that the advancements were void under the developed Hastings-Bass rule and set them aside: [2010] EWHC 449 (Ch) .