Futter and another v The Commissioners for Her Majesty's Revenue and Customs

An exercise of a fiduciary power within its scope is voidable only where inadequate deliberation amounts to a breach of fiduciary duty. Trustees who conscientiously obtain and follow apparently competent professional advice are not in breach merely because the advice is wrong. A vitiated exercise is voidable, rather than void, and relief remains discretionary.

A voluntary disposition may be rescinded for a causative mistake of sufficient gravity. The court assesses objectively whether leaving the mistake uncorrected would be unconscionable, considering its centrality and consequences. The mistake will normally concern the transaction’s legal nature or a basic matter of fact or law. Mere ignorance and misprediction are insufficient. A mistake about tax may qualify, although relief for artificial tax avoidance may be refused.

These conjoined appeals concerned unsuccessful tax planning involving trusts. In Futter, trustees made distributions after receiving incorrect advice about capital gains tax. Norris J declared the dispositions void under the rule associated with In re Hastings-Bass, decd. In Pitt, a receiver established a special needs trust for her incapacitated husband without appreciating its inheritance tax consequences. The deputy judge set the trust aside under the same rule but rejected relief for mistake.

The Court of Appeal, [2011] EWCA Civ 197, [2012] Ch 132, allowed the Revenue’s appeals. It held that an exercise within the scope of a fiduciary power was voidable only for breach of fiduciary duty. It rejected both Hastings-Bass claims and declined to set aside the special needs trust for mistake.

The Supreme Court considered the proper scope and consequences of inadequate fiduciary deliberation. It also considered whether a voluntary disposition could be rescinded for a serious mistake about tax.

1. Disposition. Lord Walker delivered the judgment, with which Lord Neuberger, Lady Hale, Lord Mance, Lord Clarke, Lord Sumption and Lord Carnwath agreed. The Futter appeal was dismissed. The Pitt appeal failed under the Hastings-Bass principle but was allowed on the ground of mistake. The special needs trust was set aside.

2. The decision in In re Hastings-Bass, decd [1975] Ch 25 concerned the scope of a fiduciary power and the partial validity of an excessive execution. It did not establish the wider rule subsequently derived from Buckley LJ’s summary. That wider rule was principally associated with Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587.

3. Where an act is within the scope of a fiduciary power, inadequate consideration of relevant matters permits intervention only if it amounts to a breach of fiduciary duty. Fiscal consequences may be relevant. The court supervises the honesty, integrity and fairness of the deliberative process, rather than the accuracy of the conclusion. Trustees who conscientiously obtain and follow apparently competent professional advice do not breach their duty merely because that advice proves wrong. An adviser’s error is not ordinarily attributed to trustees as their own fiduciary fault.

4. An exercise within the power but affected by breach of duty is not void. It is voidable at the suit of an adversely affected beneficiary, subject to equitable defences and the court’s discretion. The position differs where an act exceeds the power, infringes the general law or constitutes a fraud on the power. The court’s response is flexible, and no rigid would-not or might-not causation formula governs relief.

5. The Futter trustees considered capital gains tax and acted on advice directed to the correct issue. Their error was that the advice overlooked section 2(4) of the Taxation of Chargeable Gains Act 1992. Mrs Pitt likewise obtained and followed specialist advice and acted with the authority of the Court of Protection. Neither case established a personal breach of fiduciary duty.

6. A voluntary disposition may be set aside for a distinct causative mistake of sufficient gravity. The mistake will normally concern the legal character or nature of the transaction, or a basic matter of fact or law. Mere ignorance, even if causative, is insufficient, although the court may infer an incorrect conscious belief or tacit assumption from the evidence. A misprediction about a future event is also insufficient.

7. The ultimate assessment is objective and fact-sensitive. The court considers the existence of the mistake, its centrality and the seriousness of its consequences, and decides whether leaving it uncorrected would be unconscionable. The strict distinction between a transaction’s effect and its consequences stated in Gibbon v Mitchell [1990] 1 WLR 1304 was not adopted.

8. A mistake exclusively concerning tax is not categorically excluded. Section 150 of the Inheritance Tax Act 1984 expressly recognises the tax consequences of setting aside a voidable transfer. Mrs Pitt mistakenly assumed that the trust would have no adverse tax effects. The loss of the intended section 89 protection was serious, and the trust was an appropriate vehicle for that statutory relief. It was therefore unconscionable to leave the mistake uncorrected.

• United Kingdom Supreme Court: Dismissed the Futter appeal. Dismissed the Hastings-Bass ground in Pitt but allowed the Pitt appeal on mistake and set aside the special needs trust: [2013] UKSC 26.
• Court of Appeal: Allowed the Revenue’s appeals, rejected relief in both cases under the Hastings-Bass principle and rejected the Pitt mistake claim: [2011] EWCA Civ 197, [2012] Ch 132.
• High Court — Futter: Norris J declared the deeds of enlargement and advancement void under the Hastings-Bass principle: [2010] EWHC 449 Ch, [2010] STC 982.
• High Court — Pitt: The deputy judge set aside the special needs trust under the Hastings-Bass principle but rejected rescission for mistake: [2010] 1 WLR 1199.