B e f o r e :
LORD JUSTICE LLOYD
(sitting as a judge of the Chancery Division)
|| (1) THE HONOURABLE
SIR DAVID DANIEL SIEFF
(2) THE RIGHT HONOURABLE DAVID BARON WOLFSON OF SUNNINGDALE
(3) THE HONOURABLE CHARLES CAYZER
||- and -
||(1) DAVID HAMILTON FOX
(2) THE MOST NOBLE ANDREW IAN HENRY DUKE OF BEDFORD
(3) JOHN BENJAMIN AGNEW WALLACE
(4) KATYA SCOTT-BARRETT (a child by KAREN DIANA SCOTT-BARRETT
her litigation friend)
Simon Taube Q.C. (instructed by Herbert Smith) for the Claimants
Francis Barlow (instructed by Herbert Smith) for the Second Defendant
Mark Herbert Q.C. (instructed by RadcliffesLeBrasseur) for the Fourth Defendant
The First and Third Defendants were not represented
Hearing dates: 21 to 23 March 2005 (in Manchester)
HTML VERSION OF JUDGMENT
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Lord Justice Lloyd:
- This case concerns an appointment made in 2001 under the trusts of a settlement dated 23 August 1971 and made by the late Marquess of Tavistock, who afterwards became the Fourteenth Duke of Bedford. By the combined effect of the appointment and an assignment made a few days later by the Marquess' son, Lord Howland, on the face of them, the property which was the subject of the appointment is now held on the trusts of a later settlement, dated 26 March 1987, made by the present Duke, the Fifteenth, then Lord Howland, who is the Second Defendant in these proceedings. The property affected by the appointment, if it was valid, is a valuable collection of chattels at Woburn Abbey and a reversionary lease of the Woburn Estate. The question is whether the appointment was valid and effective or not. If it was not, then nothing passed by the assignment. It is not suggested that the appointment could be valid and the assignment invalid.
- The present trustees of the 1971 settlement are the Claimants. At the time of the 2001 appointment, the Third Defendant was also a trustee. The present trustees of the 1987 settlement are the Claimants and the First Defendant. The Fourth Defendant is a beneficiary of the 1987 settlement and cannot benefit under the 1971 settlement. She is joined to represent the interests of those who would benefit if the 2001 appointment and the assignment are valid and effective.
- The trusts arising under the 1971 settlement are complex, as is their history. Not all of this needs to be considered for the purposes of this claim. I will first set out what needs to be said about the family. The Thirteenth Duke held the title from 1953 until his death on 25 October 2002. The Duke's heir is known by courtesy as the Marquess of Tavistock, and the Marquess' heir as Lord Howland. On the death of the Thirteenth Duke in 2002, his son succeeded to the title, but he died on 13 June 2003. In turn his son inherited, and holds, the title as the Fifteenth Duke. At the time of all relevant dealings, the present Duke was Lord Howland and his father was the Marquess of Tavistock. They are respectively so referred to in the trust documents of the time. For that reason, I will refer to them by those titles in this judgment. The Fourth Defendant is a daughter of a daughter of Lord Hugh Russell, a younger brother of the Thirteenth Duke. She was born on 4 May 1991 and is therefore not of full age.
- The 1971 settlement, made by the Marquess of Tavistock, created separate trusts of several different funds, among them the Peerage Fund and the Chattels Fund. The Peerage Fund is governed by clauses 11 to 13, of which clause 11 confers on the trustees a general discretionary power of appointment, but the class for whose benefit the power may be exercised is exclusively male. Similar, but not identical, provisions govern the Chattels Fund, under clause 19. The Peerage Fund included the Woburn Estate (including Woburn Abbey), the London Estate and some chattels. The Chattels Fund included the rest of the settled chattels. Some but not all of the relevant chattels were subject to conditional exemption from estate duty or exempted from capital gains tax. The non-exempt chattels are of great value. The power under clause 11 is exercisable only with the written consent of the Marquess of Tavistock and Lord Howland during their lives.
- Between 1971 and 1987 the trustees of the 1971 settlement exercised their powers of appointment on a number of occasions. In 1982 they executed a long lease of the Woburn estate in favour of a nominee of theirs, and then made an appointment of the benefit of the lease on accumulation and maintenance trusts for the male issue of the Marquess of Tavistock.
- Lord Howland was due to attain the age of 25 on 30 March 1987. Under the trusts then in effect, he would have attained an interest in possession on that date. If he had died thereafter, while entitled to an interest in possession, there would have been a very large charge to inheritance tax. In order to prevent this risk arising, a series of transactions were undertaken.
i) Lord Howland first created the 1987 settlement, on 26 March 1987.
ii) On the following day the trustees of the 1971 settlement advanced substantial assets to Lord Howland, including the 1982 lease.
iii) He then created a sub-lease of the private apartments of Woburn Abbey in favour of his parents, the Marquess and Marchioness of Tavistock, for a term of 55 years. This is known as the Abbey Sub-lease. It demises to the tenants not only the private apartments, for their exclusive use, but also other parts of the Abbey, known as the shared areas, in respect of which the landlord reserves rights of access, which are in fact used to allow access for the public as part of the business of opening the Abbey to the public.
iv) On 6 April 1987 Lord Howland then resettled a substantial part of the property which had been advanced to him, on the terms of the 1987 settlement. The property so resettled included the 1982 lease, and some chattels.
- The 1987 settlement confers on its trustees a wide power of appointment, exercisable with the consent of Lord Howland while he is alive. The class of objects of this power is wider than under the 1971 settlement, not least because it is not limited to males. It includes all grandchildren and remoter issue of the Marquess of Tavistock, and all other issue of the Twelfth Duke living at or born after the date of the settlement, except the Thirteenth Duke, the Marquess of Tavistock and Lord Howland, and also spouses or former spouses of any such issue, other than spouses of the Thirteenth Duke, the Marquess of Tavistock and Lord Howland. Subject to any such appointment, the settlement declares trusts for the first or only son of Lord Howland or of other male members of the family, and then for other descendants of the Marquess of Tavistock. At clause 47(c) it has a provision excluding Lord Howland and his wife from any benefit from the settled funds. This is a provision relevant both to income tax and to the then new rules (under the Finance Act 1986) in respect of inheritance tax as regards potentially exempt transfers and reservation of benefit. Clause 1(k) defines "the excluded persons" as Lord Howland and his wife for the time being. Clause 47(c) is in the following terms:
"Notwithstanding anything to the contrary herein expressed or implied:
(c) No discretion or power conferred on the trustees or any other person by this settlement and no provision of this settlement shall operate so as to cause or permit any part of the income or capital of the trust fund to be lent to or become payable to or applicable for the benefit of any of the excluded persons."
- By virtue of the exercise by the trustees of their powers, the 1987 settlement trust funds are now held on accumulation and maintenance trusts for a class of beneficiaries which includes all descendants of the Marquess of Tavistock born after a given date, and other members of the family, but these trusts are revocable.
- So far as concerns the relevant assets which remained in the 1971 settlement after the 1987 operations, most of them were still held on discretionary trusts in 2001. Earlier in 1987 the trustees had appointed the whole body of chattels (those originally held in the Chattels Fund and in the Peerage Fund) on discretionary trusts, but subject to a power to revoke the appointment. In 1992, when the accumulation period under the 1971 settlement was about to expire, the trustees made a revocable appointment of the reversion to the 1982 lease on discretionary trusts.
- In the period 1997 to 2000 three outlying parcels of land on the Woburn Estate were appointed out of the 1971 settlement and transferred into the 1987 settlement. The method by which this was done was this. The 1971 trustees made an appointment to Lord Howland contingently on his being alive on a date some weeks in the future. Then Lord Howland, before that date, assigned to the 1987 trustees his contingent interest in the relevant property. Nothing turns on these transactions, but they provided a precedent for what was done later.
- Lord Howland married in 2000. It was then decided that his parents should move out of Woburn Abbey and that he and Lady Howland should move in, he buying from his parents, for full value, the residue of the Abbey Sub-lease. This came to pass in 2002, having been the subject of a good deal of planning both from the practical point of view and as regards the necessary legal arrangements. By the end of 2000 the family's advisers were aware of this being intended.
- Many of the chattels on display to the public at the Abbey are non-exempt chattels, both in the public areas and in the shared areas. Other non-exempt chattels are kept in the private apartments. Before 2001 the chattels were owned by the 1971 trustees but those that were on display to the public were the subject of a licence, for value, to the 1987 trustees who carried on the business of opening the Abbey to the public.
- On 30 November 2000 Mr Fox, the First Defendant, who is described as the executive trustee of the Bedford trusts, wrote to Miss Howe of Boodle Hatfield about the need to consider reservation of benefit issues which might arise from Lord Howland moving into Woburn Abbey. She replied on 23 January 2001. In a postscript she asked whether it was necessary to think about the chattels, which Mr Fox had not mentioned. She said that if the chattels were to remain leased to the 1987 trustees when Lord Howland took over the private apartments, and some of the chattels were housed there, this might constitute a reservation of benefit, and that a licence of any such chattels to Lord Howland might be required. Mr Fox replied on 30 January but did not refer to the chattels, and they were not mentioned again in the dealings between the two, or at all in the preparation for what was done later in the year.
- Because the reversion and the non-exempt chattels were held on discretionary trusts, they were prospectively subject to the periodic charge to inheritance tax on 23 August 2001, and would be so at ten-year intervals thereafter. This was not particularly significant as regards the reversion in 2001, because of the low rent payable under the 1982 lease until 2032. It might become more so on later occasions as 2032 approached. The value of the non-exempt chattels, on the other hand, was such that this would be a significant liability in 2001. The trustees and their advisers gave thought to whether anything could and if so should be done to avoid the periodic charge arising. They concluded that nothing should be done before 23 August 2001, but that thought should be given to mitigating the problem for the future. The trustees met on 5 June 2001, Lord Howland being present as usual, and considered the possibility of an appointment of the non-exempt chattels and the reversion to the 1982 lease being made within 3 months after 23 August 2001 on accumulation and maintenance trusts. If made within that three month period, no charge to inheritance tax would arise on the property ceasing to be held on the discretionary trusts, and periodic charges would not arise in the future.
- Lady Howland was then expecting her first child, Alexandra, who was born on 9 July 2001. She cannot easily benefit from the 1971 settlement, whereas she can under the 1987 settlement. In these circumstances, Lord Howland found the idea of an appointment attractive. The trustees' advisers, Kate Howe of Boodle Hatfield and the First Defendant, were asked to consider and advise how best this might be done.
- Having considered the problem and the possible courses of action with the First Defendant, Kate Howe advised the trustees in a memorandum dated 18 September 2001 of three possible choices, one being to do nothing and to accept the future periodic charges. One course was for the 1971 trustees to use their discretionary powers to create accumulation and maintenance trusts themselves. This would have the disadvantage that Lord Howland's only child then in existence could not benefit, nor could any other granddaughter of the Marquess of Tavistock. If no grandson was born, the trust property would have to go elsewhere in the family. The alternative action was to appoint to Lord Howland, contingently on his being alive at some date in the near future, and for him to resettle the assets before that date to be held on the more flexible accumulation and maintenance trusts of the 1987 settlement, under which his daughter and future granddaughters of the Marquess of Tavistock could benefit. The trustees were advised that, if this were done, there would be a disposal for capital gains tax purposes when the property passed from the 1971 settlement to the 1987 settlement, when Lord Howland survived to the stipulated date, but that hold-over relief would be available, so that capital gains tax would not need to be paid, and that so long as the property passed out of the 1971 settlement within 3 months of the date on which the periodic charge arose, there would be no inheritance tax charge at that stage.
- As a further refinement, Miss Howe also suggested the creation of a new reversionary lease of the Woburn Estate, to redistribute the value of the estate between the 1971 trustees, holding the ultimate reversion, and the 1987 trustees holding the new intermediate lease.
- On 25 September 2001, on Miss Howe's instructions, Counsel advised in conference that the course proposed for getting the relevant trust property into the 1987 settlement was valid, sensible and desirable.
- On 26 September 2001 the trustees met. Miss Howe and Mr Fox explained the various possible courses of action, but did not propose any others than the three already outlined. The 1971 trustees decided to accept Miss Howe's advice to create a new reversionary lease and to appoint that lease and the non-exempt chattels to Lord Howland absolutely, subject only to his surviving a short specified period. He would then be able to assign his interest to the 1987 trustees.
- As a result, on 8 November 2001, the trustees executed the new reversionary lease, and, with the consent of the Marquess of Tavistock and Lord Howland, also appointed the benefit of the lease and the non-exempt chattels to Lord Howland absolutely, subject to his living until 21 November 2001. On 20 November 2001 he assigned his contingent interest to the trustees of the 1987 settlement. Accordingly, on 21 November they became entitled to the appointed assets. The terms of the appointment (clause 5) and, in turn, the assignment (clause 2) subjected the appointed assets to any inheritance tax or capital gains tax which arose on Lord Howland living to the specified date.
- Unfortunately, Miss Howe's advice referred to in paragraph 16 was incorrect as to capital gains tax. She also overlooked two other consequences of the proposed transaction.
- As regards capital gains tax, in principle the occasion on which a person becomes absolutely entitled to settled property as against the trustees is one which gives rise to a deemed disposal of the trust property for capital gains tax purposes: see Taxation of Chargeable Gains Act 1992 (TCGA) section 71. As between the trustees of the 1987 settlement and those of the 1971 settlement, that is what happened on 21 November 2001. Miss Howe had in mind the provisions as regards hold-over relief under TCGA section 260. These apply if (relevantly) trustees of a settlement make a disposal within section 260(2). That sub-section applies (again, relevantly) if a disposal is made otherwise than under a bargain at arm's length and is a chargeable transfer within the meaning of the Inheritance Tax Act 1984 (IHTA).
- The provisions of the inheritance tax regime which are relevant for present purposes are those applying to "relevant property" which means, essentially, property held on discretionary trusts with some exceptions, such as accumulation and maintenance trusts. The non-exempt chattels and the new reversionary lease of the Woburn estate were relevant property for this purpose immediately before the making of the 2001 appointment, which is why they had been subject to the periodic charge under IHTA section 64. In addition to the periodic charge, applicable if the property was held on discretionary trusts at a ten-year anniversary, the property would be subject to what is known as an exit charge, if and when it ceased to be relevant property, for example because it was appointed to an individual absolutely or for an interest in possession: see IHTA section 65(1). The exit charge is charged at a fraction of the rate at which the property was last charged under section 64, the fraction increasing according to how many quarters have elapsed since the last periodic charge. However, by section 65(4), sub-section (1) does not apply if the event in question occurs in a quarter beginning with the day on which the settlement commenced or with a ten-year anniversary. Accordingly, there is no charge to inheritance tax on property ceasing to be relevant property within 3 months after the date on which a periodic charge arose. Of course, Miss Howe was aware of that; it was the basis on which she advised that there would be no charge to inheritance tax. What she overlooked was that, as a consequence of the event not being a chargeable transfer for inheritance tax, the provisions of section 260 were not satisfied and hold-over relief for capital gains tax was not available.
- There may not have been much of a capital gain in respect of the reversion to the Woburn Lease, but the evidence shows that there was a very substantial accrued capital gain in respect of the non-exempt chattels. According to the evidence, those chattels are worth of the order of £8 million, and the capital gains tax may amount to around £1 million.
- The other unforeseen consequence arose when Lord Howland moved into Woburn Abbey in 2002, having acquired the Abbey Sub-lease from his parents. Occupying the private apartments and the shared areas, he then had many of the non-exempt chattels around him. They belonged to the 1987 trustees. In those circumstances it could be said that clause 47(c) of the settlement was infringed, because of the benefit derived by Lord Howland and his wife from the use or enjoyment of the non-exempt chattels. More seriously even than this, Lord Howland's assignment of his contingent interest under the 2001 appointment to the 1987 trustees was a gift of property which was a reversionary interest, therefore excluded property, and not a transfer of value. If, however, it was a gift with reservation the provisions of the Finance Act 1986 which introduced potentially exempt transfers would be relevant. Under section 102, if an individual disposes of property by way of gift and, at any time in the relevant period (seven years back from the donor's death, or if less the period between the gift and the death) the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise, then, in effect, the running of the seven year period is postponed while the benefit is enjoyed. If the reserved benefit comes to an end before the donor's death, a potentially exempt transfer is treated as occurring at that time, so that all is well if he survives for seven years after that. If it does not come to an end before his death, the property is treated as still part of his estate for inheritance tax purposes. Under Schedule 20, paragraph 6, what would otherwise count as a reserved benefit in relation to land or a chattel, by way of retention or assumption of actual possession of a chattel, is to be disregarded if it is for full consideration in money or money's worth. Accordingly, in order to avoid the risk of a charge to inheritance tax on Lord Howland's death arising on the non-exempt chattels, it would be necessary for him to pay the 1987 trustees full consideration for his possession of the non-exempt chattels in the private apartments and the shared areas. It has been suggested that the annual amount which would have to be paid in order to satisfy this test would be of the order of £40,000, which would of course have to come out of Lord Howland's taxed income. Alternatively, either Lord Howland would have to move out of Woburn Abbey or the non-exempt chattels would have to be moved out of the private apartments and the shared areas. The latter course may not be practicable, and the former is not readily acceptable to the family.
- The true position as regards capital gains tax was discovered early in 2002. The 1971 trustees were advised to, and did, seek advice from other solicitors. Their review of the position led to the realisation that there was also the reservation of benefit problem.
- Each of the 1971 trustees (including the Third Defendant who was a trustee at the time of the 2001 appointment but is not now) has made a witness statement in which he says that he was not aware of either the capital gains tax liability or the reservation of benefit problems at the time of the 2001 appointment, and that he would not have concluded that the proposals were for the benefit of Lord Howland, or have executed the appointment, if he had been aware of these problems. Lord Howland himself as he then was (now the Fifteenth Duke, the Second Defendant) has also made a witness statement in which he says that if he had been aware of the problems, as he was not, he would not have given his consent to the 2001 appointment, and he is sure that his late father would not have done either. None of the witnesses was cross-examined, and I have no difficulty in accepting that evidence. What would have been done instead is a different matter, and not straightforward, but it is clear that the position of the relevant individuals – the trustees, the Marquess of Tavistock and Lord Howland – is that they would not have made, or consented to, the 2001 appointment.
- Mr Taube Q.C., for the Claimants, submits that the 2001 appointment was not effective, on the basis of a principle sometimes described as the rule in Re Hastings-Bass deceased which is derived from the Court of Appeal decision in the case of that name,  Ch 25, or alternatively because it was made and consented to under a fundamental misapprehension. Mr Barlow, for Lord Howland, supports those submissions. Mr Herbert Q.C., for the Fourth Defendant, submits that neither of these propositions justifies setting the appointment aside.
- The Inland Revenue declined the opportunity to be a party to these proceedings.
The Re Hastings-Bass principle
- Put in general terms, Mr Taube's first proposition is that an exercise by trustees of a discretionary power, for example a power of appointment, is void (or at least voidable) if the trustees failed to take into account considerations that they ought to have taken into account, which may include the fiscal consequences of the appointment, and, if they had taken those considerations fully and properly into account, they would not have made the appointment. Specifically, he submits that:
i) the 1971 trustees failed to take into account (i) the capital gains tax charge on the non-exempt chattels and (ii) the impact on Lord Howland, following the expected assignment, of clause 47(c) of the 1987 settlement and the rules about gifts of property subject to reservation of benefit in relation to inheritance tax;
ii) they were under a duty to consider all those matters because they had a major impact on the appointed property and on the beneficiaries of the 1971 settlement, in particular Lord Howland;
iii) if they had been aware of these matters they would not have executed the appointment; and
iv) if this is relevant, the trustees' advisers were at fault in not making the trustees aware of these consequences of the proposed course of action.
- Mr Herbert submits that, for the Re Hastings-Bass principle to apply, the appointment must have an effect different from that which was intended by the trustees, and that this is limited to the substantive effect under the settlement, and does not extend to consequential matters such as fiscal charges. He also submits that the 1971 trustees were only under a duty in relation to the trusts and the beneficiaries of the 1971 settlement, and were not bound to consider the position under the 1987 settlement, which only became relevant (however foreseeably) because of the independent act of Lord Howland assigning his contingent interest to the 1987 trustees.
- He also submitted that Re Hastings-Bass has to be seen in its context, that it is related both to earlier decisions and to cases on equitable relief from the consequences of mistake (the alternative ground relied on by Mr Taube and Mr Barlow) and that the Court of Appeal did not lay down a brand new proposition in that case, unrelated to decisions on other aspects of the law concerning the exercise of powers by trustees.
- As a general proposition, English law affords relief against the consequences of a mistake on the part of a person who executes a document as to the nature, terms or effect of that document, but only in circumstances which are quite strictly limited. At common law the defence of non est factum, if established, results in the document being void, and for this reason the doctrine is strictly limited: see Gallie v. Lee  AC 1004. In that case the document was held to be voidable, having been obtained by fraud, but that meant that the innocent mortgagee's interest in the property was effective despite the fraud; the plaintiff's attempt to recover the property free from the mortgage failed.
- In equity, rectification or rescission may be available in cases of mistake, but these are discretionary remedies, granted only on equitable principles, which enable the court to ensure that relief is not granted in circumstances in which it would lead to injustice. Moreover the courts have developed principles which limit the availability of the remedy.
- Voluntary dispositions by an individual may be set aside for mistake, or may be rectified, in appropriate circumstances. Rectification of a unilateral instrument may be available if it is shown that, by mistake, it does not accord with the intention of the party making it. The mistake must be either as to the words used or as to their legal effect.
- Rescission for mistake is the alternative basis of challenge to the 2001 appointment. Mr Taube and Mr Barlow rely particularly on Gibbon v. Mitchell  1 W.L.R. 1304. In that case a man entitled to a protected life interest under a trust executed a deed by which he was expressed to surrender his life interest in favour of his children, with a view to accelerating their entitlement to capital. Because his life interest was protected, not absolute, this did not have the intended effect, but resulted in a forfeiture and brought discretionary trusts into place. Millett J held that the deed ought to be set aside for mistake. He set out the relevant principle as follows:
"In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it."
I will consider the authorities relevant to that proposition later in this judgment.
- So far as acts by trustees in the exercise of a discretionary power are concerned, traditionally the courts are reluctant to interfere. It has been said that, when a power has been exercised in good faith and within its terms, the court will not interfere: see Gisborne v. Gisborne (1877) 2 App Cas 300. This judicial reticence is further emphasised by the well-established entitlement of trustees not to give reasons for their exercise of discretionary distributive powers. That has not been a feature of the recent cases from Re Hastings-Bass onwards, as the trustees have been open with the court and the beneficiaries about the circumstances of the appointment or other relevant act. Nevertheless, if the trustees do not vouchsafe their reasons it is the more difficult for a beneficiary to challenge the exercise of their discretions unless a defect is apparent from the documents. In Tempest v. Lord Camoys (1882) 21 Ch D 571 the court would not override the refusal of one of two trustees to agree with a course of action proposed by the other involving the purchase of particular land and the raising of some of the purchase money on mortgage. Conversely, in Klug v. Klug  2 Ch 67 the refusal of one of two trustees (the mother of the relevant beneficiary) to agree to an advance to a beneficiary to provide funds for the payment of legacy duty, which the other trustee, the Public Trustee, considered would be a proper exercise of a power, was overridden where it appeared that the mother's refusal to agree was due to the daughter having married without her consent. The mother's refusal to exercise the power in her daughter's favour was disregarded because of her irrelevant motivation.
- There are several different categories of case where an exercise by trustees of a discretionary power may be held to be invalid.
i) There may be a formal or procedural defect, such as the failure to use the stipulated form of document, for example a document under hand instead of a deed, or to obtain a necessary prior consent. (In some such cases, and for the benefit of some interested persons, equity may relieve against such a formal or procedural defect.)
ii) The power may have been exercised in a way which it does not authorise, for example with an unauthorised delegation, or by the inclusion of beneficiaries who are not objects of the power.
iii) The exercise may infringe some rule of the general law, such as the rule against perpetuities.
iv) The trustees may have exercised the power for an improper purpose, in cases known as fraud on the power. Cloutte v. Storey  1 Ch 18, among the cases cited to me, is an example of this, where the power was exercised in favour of one of the objects, but under a private arrangement whereby he passed the benefit back to his parents, who had made the appointment. Another example, in a different context, was Hillsdown Holdings plc v. Pensions Ombudsman  1 All ER 862. I take it that references, for example in Gisborne v. Gisborne, cited above (and in Re Hastings-Bass itself, see paragraph 44 below), to good faith are to be understood in this context, so that an exercise which is not in good faith is, or at any rate includes, a case where the exercise is a fraud on the power.
v) The trustees may have been unaware that they had any discretion to exercise: see Turner v. Turner  Ch 100, an extreme and highly unusual case on the facts, which has been described as equitable non est factum.
vi) To these categories, of which the first four are clear and well-established, the rule or principle in Re Hastings-Bass is said to add a further class of case, namely where the trustees have failed to have regard to some relevant consideration which they ought to have taken into account.
- In Re Hastings-Bass itself the appointment was held to be valid, despite the fact that it was partly void for perpetuity. In that respect the result differed from the rather similar case of Re Abrahams' Will Trusts  1 Ch 463, the difference being accounted for by factual differences as regards what was left of the appointment once that which was void had been eliminated.
- The earliest case of this kind cited to me was Re Vestey's Settlement  Ch 209. In that case trustees held property on trust to pay or apply the income to or for the benefit or support of a number of beneficiaries, some of whom were not of full age. The trustees allocated part of the income by declaring it to belong to minor beneficiaries, then stated that none of it was required for their maintenance, and resolved that it should be accumulated under section 31 of the Trustee Act 1925. The Court of Appeal held that section 31 did not apply to these sums, so that they were not to be accumulated. They held that the allocations were validly made as applications of income for the benefit of the minor beneficiaries, and that this was not vitiated by the fact that the trustees had supposed that section 31 would apply so as to enable the income to be accumulated. Lord Evershed MR said, at  Ch 220-1:
"I do not think it can or ought to be said that if, as I hold, the trustees wrongly thought that section 31 would operate, then a result is produced which is substantially or essentially different from that which was intended."
- In Re Pilkington's Will Trusts trustees asked the court whether it was open to them to exercise a power of advancement for the benefit of a very young child beneficiary by transferring part of the fund to the trustees of a separate settlement, at that stage only in draft, to be held on the trusts of that settlement, which contained trusts for her benefit but also for others, and which would delay the moment at which capital would vest in her (if at all) until a later date than would be the position under the original settlement. In the Chancery Division, Danckwerts J held that the proposed advancement would be a proper exercise of the trustees' power:  Ch 699. In the Court of Appeal, the Inland Revenue, who had obtained permission to intervene, persuaded the court that the proposed advancement was illegitimate, both because a resettlement was not legitimate in itself and because the trusts of the proposed settlement would infringe the rule against perpetuities in relation to property transferred from the original settlement:  Ch 466. The first ruling was reversed by the House of Lords and the second affirmed:  AC 612. Because the trustees had not yet exercised the power of advancement, and the new settlement had not even been created, it remained possible for the perpetuity point to be overcome by suitable redrafting of the proposed settlement. Upjohn LJ referred to the fact that the trustees had not considered whether to exercise their powers in relation to a settlement which would not pose the perpetuity problem, but since they had not yet acted at all, this was a different kind of question from that which arises in cases where the trustees have already acted.
- The decision on the perpetuity point caused problems for trustees of other settlements. In Re Abrahams' Will Trusts  1 Ch 463, trustees of a 1948 settlement had advanced funds in 1957 by way of a new settlement, the terms of which did not comply with the rule against perpetuities as explained by Pilkington. Not all the terms of the 1957 settlement would infringe the rule against perpetuities, but the effect of the rule was extensive. For example a child had a life interest subject to protective trusts. The effect of the rule was that the life interest was valid but that the discretionary trusts arising on forfeiture would be invalid, so that, upon a forfeiture, the property would be held on the trusts of the original 1948 settlement. The argument in favour of holding the advancement wholly void was advanced by the Inland Revenue. Cross J upheld that argument, saying this at page 485:
"Of course, it may well be that, if the invalidity caused by the operation of the rule against perpetuities is quite small as compared with the parts of the settlement which are unaffected by the rule, the court might be prepared to say that the valid parts of the settlement would survive intact. Thus Lord Evershed M.R. held in the Vestey case that the exercise of the discretion there could be upheld notwithstanding the fact that the trustees were to some extent under a misapprehension as to what its effect would be. But here there is no doubt that the effect of the operation of the rule is wholly to alter the character of the settlement. In my judgment the result of that must be that there never was a valid exercise by the trustees of the power of advancement."
- Re Hastings-Bass arose from the same problem, but had a different result. Under a settlement created in 1947 property was settled on Captain Hastings-Bass for life and then for such son of his as should first attain the age of 25 within 21 years after his death. His eldest son, William, was born in 1948. By a further settlement made in 1957 property was settled on William for his life, and then for his children at 21. In 1958 Captain Hastings-Bass exercised a power of appointment under the 1947 settlement in favour of William subject to his attaining the age of 25. Later in 1958 the trustees of the 1947 settlement exercised their statutory power of advancement in favour of William by transferring the fund to the trustees of the 1957 settlement, to be held on the trusts of the latter settlement. Captain Hastings-Bass died in 1964. The decision of the House of Lords in Pilkington showed that, contrary to the position as it had previously been assumed, the advancement in 1958 on the trusts of the 1957 settlement was void for perpetuity as regards interests arising on or after the death of William, because he was not a life in being at the date of the 1947 settlement. The question arose, for estate duty purposes, whether this meant that not even a life interest had been created in favour of William. The trustees of the 1947 settlement brought proceedings against the Commissioners of Inland Revenue to have the question decided. Plowman J held that the trustees' act was substantially or essentially different in its result from that which the trustees had intended, and, following the decision of Cross J in Re Abrahams' Will Trusts  1 Ch 463, that the relevant power had therefore not been effectively exercised, not even to the extent of a life interest. The trustees appealed.
- The Court of Appeal found that the object of saving estate duty was a primary consideration in the minds of the trustees when they exercised the power of advancement, and that to the extent that the advancement could be effective, notwithstanding the rule against perpetuities, it was so plainly for William's benefit that the trustees, if they had realised the effect of the rule, could not have thought that the invalidity of the ulterior trusts would render the exercise something that was other than for William's benefit. They held that the trustees believed themselves to be exercising, of their own choice, a discretion under section 32 of the Trustee Act 1925, and doing it because they considered that to do so would benefit William. They observed that, if trustees intend to make an advancement by way of sub-settlement, they must apply their minds to the question whether the sub-settlement as a whole will be for the benefit of the person to be advanced. If the true effect of the exercise were such that it could not reasonably be regarded as beneficial to the person to be advanced, then the exercise cannot stand, because it would not be within the powers under section 32. "In any other case", they said, "the advancement should … be permitted to take effect in the manner and to the extent that it is capable of doing so": see  Ch at 41C. They distinguished Re Abrahams' Will Trusts on the basis that the attenuated benefits that could have taken effect in that case might not have been capable of being regarded as beneficial to the beneficiary to be advanced. They summarised their conclusion on this aspect of the case in the following terms, at  Ch 41F:
"Where by the terms of a trust (as under section 32) a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended unless (1) what he achieved is unauthorised by the power conferred upon him or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account or (b) had he not failed to take into account considerations which he ought to have taken into account."
- They held that the advancement was effective, even though limited to the life interest in favour of William.
- The statement set out at paragraph 44 is in negative form. A positive formulation was first put forward by Warner J in Mettoy Pension Trustees Ltd v. Evans  1 W.L.R. 1587. That case concerned the exercise by pension trustees of a power to amend the rules applying to the pension scheme. In most respects no issue arose as to the terms of the amended rules, but the amendments did change the position as regards the allocation of any surplus in a winding-up, which had been at the disposition of the trustees, but which, after the amendments, was to be decided on by the company. The evidence was that the trustees were unaware of this particular point in the new rules. The judge held that the discretion conferred on the company was fiduciary. Nevertheless, the representatives of employees and pensioners argued that the power of amendment had not been validly exercised to the extent of the change in the power over any surplus, and relied on Re Hastings-Bass as authority for this. At the outset of the passage in his judgment in which he deals with the submissions on this point, Warner J set out the proposition as the positive converse of what the Court of Appeal had said in Re Hastings-Bass itself, as follows at  1 W.L.R. 1621H:
"Where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account."
- He then considered the submissions made to him, as to whether there was any such rule, and if so what it amounted to. He held that such a rule did exist, and was not limited to cases of invalidity for, so to speak, external reasons (such as the rule against perpetuities), and that it could invalidate part only of a disposition in an appropriate case. He then said this, at 1624B:
"I have come to the conclusion that there is a principle which may be labelled the rule in Hastings-Bass. I do not think that the application of that principle is confined, as Mr Nugee suggested, to cases where an exercise by trustees of a discretion vested in them is partially ineffective because of some rule of law or because of some limit on their discretion which they overlooked. If, as I believe, the reason for the application of the principle is the failure of the trustees to take into account considerations that they ought to have taken into account, it cannot matter whether that failure is due to their having overlooked (or to their legal advisers having overlooked) some relevant rule of law or limit on their discretion, or is due to some other cause.
For the principle to apply, however, it is not enough that it should be shown that the trustees did not have a proper understanding of the effect of their act. It must also be clear that, had they had a proper understanding of it, they would not have acted as they did."
- Applying these principles to the facts, the judge said that three questions arose: (1) What were the trustees under a duty to consider? (2) Did they fail to consider it? (3) If so, what would they have done if they had considered it? Having reviewed the evidence, and in the light of his finding that the company's power over surplus was fiduciary, he held that the new rules were not in any respect invalidated under the rule in Hastings-Bass.
- Mr Herbert pointed out that Warner J's positive formulation in Mettoy omitted one element in the principle, namely that which the Court of Appeal in Re Hastings-Bass expressed in the words "notwithstanding that it does not have the full effect which he intended". He submitted that, accepting that there is a positive principle established by Mettoy, its expression ought to include words corresponding to those. Of course, those words referred to the invalidating effect of the rule against perpetuities, which cut down to the life interest in favour of William the effect which the advancement could have. There is no difficulty in principle in adapting that phrase to the facts of other types of case. In Mettoy itself, for example, where the trustees did not appreciate that the amended rules would alter the powers of distribution in relation to surplus, the phrase used in the Court of Appeal does not fit literally. It could easily be adapted to cover that sort of case as well as a Re Hastings-Bass type of case, for example, using words such as "notwithstanding that its effect is different from that which he intended". In the light of that, (and expanding it to cover expressly a point which would no doubt be implied) what one might call the Mettoy formulation of the principle could be fully expressed as follows:
"Where a trustee acts under a discretion given to him by the terms of the trust, but the effect of the exercise is different from that which he intended, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account."
- Warner J delivered that judgment in December 1989. In July 1990 he gave judgment in another case in which Re Hastings-Bass, and what he had said about it in Mettoy, were relied on: Stannard v. Fisons Ltd  1 PLR 179. That case concerned the amount to be transferred from one pension scheme to another upon the sale by Fisons of part of its business to a third party. The purchaser (in effect) claimed that the amount which had been paid was inadequate. One of the arguments in favour of not ordering an additional payment was based on the Re Hastings-Bass principle, to the extent of submitting that unless that principle were satisfied, the trustees' decision as to the amount to be transferred should not be disturbed. The judge distinguished Re Hastings-Bass and Mettoy on a number of grounds. In particular (at paragraph 183) he pointed out that those cases had concerned the voluntary exercise by trustees of a discretion, whereas in Stannard the trustees were under an obligation to exercise their discretion at a particular time and after fulfilling a given condition, and he had found that they had not complied with that obligation, so that the question was how their failure to perform that obligation should be remedied.
- Fisons appealed unsuccessfully to the Court of Appeal. Dillon LJ, with whom Ralph Gibson LJ agreed, decided the case on the basis of legal principles set out in another Court of Appeal case: Kerr v. British Leyland (Staff) Trustees Ltd (1986) which is now reported at  WTLR 1071. He held that the trustees' decision was vitiated by the fact that they were not, at the relevant moment, properly informed as to the value of the fund and the implications of its value in relation to future contributions, and that if they had been properly informed as to those matters it might materially have affected their decision. He also said that he had no difficulty reconciling the judgment in Kerr with that in Re Hastings-Bass but he did not elaborate on that point. Staughton LJ agreed in the result but for somewhat different reasons, and did not find it necessary to refer to either Kerr or Re Hastings-Bass.
- Mr Herbert submitted to me that Kerr and Stannard are in a different and distinct line of authority from Re Hastings-Bass, because they are concerned with circumstances in which the trustees are under an obligation to act, whereas Re Hastings-Bass concerned a voluntary exercise of a discretion, as did Mettoy. Other cases in the same line as Kerr and Stannard include Mihlenstedt v. Barclays Bank International Ltd  IRLR 522 and Harris v. Lord Shuttleworth  ICR 991. He submitted, on this basis, that the proposition that the matter overlooked "might" have led the trustees to act differently cannot properly be transferred from the Kerr line of cases to the Re Hastings-Bass principle, both because of this distinction and because it is inconsistent with the Court of Appeal's judgment in Re Hastings-Bass itself.
- The issue in Kerr was whether a member of a pension scheme was entitled to an incapacity payment or, more exactly, whether the trustees' decision that he was not so entitled was valid and effective. The judge had held that the decision made by the trustees was based on inadequate and misleading information as to Mr Kerr's state of health, due to failures of communication and misunderstandings. The Court of Appeal agreed that this vitiated the decision. Fox LJ said:
"If the board had appreciated that aspect of the case I think that it might materially have affected their decision and that they might well have concluded that the proper course was to defer a decision until more was known about the effect which the remedial steps were having upon Mr Kerr."
- The Court of Appeal allowed the appeal, but only because the judge had considered that the court could itself decide that Mr Kerr was entitled to the incapacity payment. The Court of Appeal upheld his order that the decision taken was of no effect, and directed the trustee board to reconsider the claim.
- Kerr is thus a rather different kind of case, where the trustees are the arbiters of a beneficiary's entitlement to a particular benefit under the rules of the pension scheme, and that entitlement is derived not from pure bounty, as would be the case in a family trust, but from the contract of employment. In those circumstances, and given the inadequate information provided to the trustees on which to take their decision, it seems to me logical that a relatively low threshold of relevance ("might") should have been adopted by the court as the test of whether the deficiency of information entitles the beneficiary to have his case, in effect, reconsidered. Mihlenstedt was a similar case, though there the decision lay with the employer, not the trustees, and the claim failed on the facts. Harris was also a similar type of case.
- Likewise in Stannard the trustees were under an obligation to act, by appropriating an amount to be applied for the benefit of the transferring employees, though they had to decide, after consulting the actuary, what amount should be appropriated, as being the amount which they decided to be just and equitable. Although on its facts Stannard is a different kind of case from Kerr, it seems to me that the analogy is fair. Both were pension cases, so that the rights of the members or beneficiaries arose in the context of the contract of employment. Both were cases in which the trustees were under a duty to act, though with some freedom as to how they proceeded. It is true that even outside this type of case, if trustees have a discretionary power, they are under obligations in relation to it, including to consider from time to time whether to exercise it, and if they do decide to exercise it they are under duties in respect of that process, but it seems to me that there is a real distinction between such a case (which Re Abrahams' Will Trusts, Re Hastings-Bass and the present case are) and cases such as Kerr and Stannard where the trustees are under a duty to act, not merely a duty to consider from time to time whether to act. I consider, therefore, that Mr Herbert's submissions in this respect are well founded.
- Since the decisions in Mettoy and Stannard, the Re Hastings-Bass principle has been applied in a number of cases, especially in the last five years, in which the principle has been stated in different terms. Some disquiet has been expressed both judicially (by Park J in Breadner v. Granville-Grossman  Ch 523, at page 543, paragraph 61) and extra-judicially (see Sir Robert Walker (as he then was), The Limits of the Principle in Re Hastings-Bass  Private Client Business 226, and see also Underhill & Hayton, Law of Trusts and Trustees, 16th edition, 694-9) as to the ease with which the principle may allow the court to set aside what appear to be valid exercises of a trustee's discretion.
- The precise formulation of the principle may be of greater significance in cases other than this one. Mr Herbert submits that the right version is that set out at paragraph 49 above. For his part Mr Taube is content to proceed on that basis, the evidence showing, as he submits, that it is satisfied if put in that way. Nevertheless Mr Taube relies on some of the recent cases as showing that among the relevant considerations to which trustees must have regard are the tax consequences of the exercise of their discretion.
- The first of the recent cases is Green v. Cobham  WTLR 1101, decided by Jonathan Parker J, as he then was. This concerned a trust created under the will of a resident of the British Virgin Islands. Among the trust assets were the whole of the issued shares in a company with substantial reserves of retained profits, which the trustees wished to distribute to the beneficiaries in a tax-efficient way. They decided to do this by way of, first, an appointment on the trusts of the will trust, and then the creation by the will trustees of two sub-settlements for different beneficiaries. Deeds of appointment were executed to this effect on 12 November 1990. The effect of these dispositions, under UK capital gains tax law, was that the trusts of the will and the two sub-settlements constituted a single composite settlement with a single body of trustees, consisting of all the trustees of each of the three trusts, numbering ten in all. No thought had been given to this point by anyone concerned (see page 1107D). At the time of the appointments, six of these ten were, or fell to be treated as, resident in the BVI, and the other four were resident in the UK. On that basis the body of the trustees of the composite settlement was deemed not to be resident or ordinarily resident in the UK: TCGA section 69(1). Three of the trustees were only treated as BVI resident because they were solicitors or accountants who were carrying on a business which included the management of trusts and were trustees of the relevant trust in the course of that business: see TCGA section 69(2). One of these trustees, M, a solicitor, (one of the trustees of a sub-settlement for a particular minor beneficiary, C) retired from practice on 31 December 1990 but did not retire as trustee at the same time, nor was any other trustee appointed at that time to whom this special treatment applied. The consequence was that there was no longer a majority of trustees of the composite settlement who were, or were treated as, non-resident, and the UK resident trustees of each settlement became liable for capital gains tax on disposals by the will trustees and by the company.
- The trustees sought to have the appointment by the will trustees on the sub-settlement for the benefit of C declared void on the Re Hastings-Bass principle, on the basis that the will trustees had given no thought to the capital gains tax consequences of the appointments. All parties supported the application though Counsel for C presented arguments to the contrary to assist the court. Applying the formulation used by the Court of Appeal in Re Hastings-Bass itself, the judge held that the appointment by the will trustees on the trusts of the sub-settlement for C was void. He held that the will trustees ought to have directed their minds to the capital gains tax consequences of the proposed appointment, and that if they had done so, they would not have made an appointment which gave rise to any significant risk that the will trust might thereafter become a UK resident trust for capital gains tax purposes. It had been submitted to him that the problem arose not from the terms of the appointment itself but from the failure to replace M as a trustee on his retirement from practice. He rejected that distinction, holding that the feature of the appointment which the trustees should have been aware of and which, if they had known of it, would have led them to act otherwise, was that the status of the will trust as an off-shore settlement became dependent on the composition of the body of trustees of the sub-settlements, over which the will trustees had no control.
- The judge did not use Warner J's formulation in Mettoy, though he referred to the passage which I have quoted at paragraph 47 above. He used instead the Court of Appeal's negative formulation from Re Hastings-Bass itself. He did not, in applying it, expressly pose the question whether the exercise of the discretion did "not have the full effect which he intended". It was not suggested that there was any mistake or unintended feature of the terms of the trusts themselves. Plainly there was an unintended effect as regards the fiscal effects of the operation on the will trust itself. It seems to me clear that the judge had this aspect of the principle well in mind in his judgment. He was satisfied that the principle did apply on the facts and he therefore declared the deed of appointment by the will trustees to be void.
- The principle was next considered by Park J in Breadner v. Granville-Grossman  Ch 523. In that case the exercise of a power of appointment by deed in 1989 was invalid because it was made one day too late. The judge declined to extend the principle so as to treat the appointment as having been made on the previous day, when it would have been effective. The principle was also relied on (unsuccessfully) with a view to having set aside the exercise of a power of appointment in 1976, by which the power which had been exercised, albeit ineffectively, in 1989, was created. The deed of appointment in 1976 created a power of appointment and set up trusts in default of appointment. The latter trusts went beyond the terms of the power which was then being exercised in one respect, by including as beneficiaries children of the settlor or his brother adopted before a closing date. Adopted children were not within the terms of the original power, and it was accepted that if any child had been adopted by either man, that child could not have taken any benefit under the default trusts. In fact no such adoption took place. Park J held that the mere inclusion of adopted children did not invalidate the exercise of the power in 1976. If such a child had been adopted, that event would have reduced the shares of the other children who were entitled to take, but the share which would otherwise have gone to the adopted child would instead have been held on the discretionary trusts of the original settlement.
- On that basis, a further argument was mounted, to the effect that the 1976 appointment had not been effective for inheritance tax purposes as it had been intended, despite the fact that no-one had spotted the point for more than 20 years and the Inland Revenue had accepted the 1976 deed as effective at the time, and that therefore the appointment should be declared void under the Re Hastings-Bass principle. The judge rejected the submission. He said this about it:
"94. I am not prepared to conclude that the Hastings-Bass principle can have such an extreme and surprising result. The argument that, because of the reference to future adopted children, the appointment was not a paragraph 15 appointment might be seen now to have had some technical force, but it had no merits of a more general nature. It was certainly abstruse and recondite. Those who advised on the 1976 appointment when it was made certainly did not think of the argument, nor did the revenue when the documents were presented to them. Twenty-two years went by without anyone suggesting that there was anything wrong with the appointment and I cannot put out of my mind the difficulties which would arise at this late stage if the argument were to be raised and acted upon. I referred earlier to the analogy between the principle in In re Hastings-Bass and the law concerning judicial review of exercises by public bodies of statutory powers. In judicial review there are tight time limits within which a challenge to some action by a public body must be brought. It would be astonishing, and to my mind unacceptable, for the emergent Hastings-Bass principle to be capable of being invoked in an attempt to upset some action by trustees which may have been taken decades ago (as in this case), and on the basis of which many intervening decisions and actions have been taken.
95. Mr Warren refers to the decision of Jonathan Parker J in Green v Cobham …, the recent case in which an apparently valid appointment of new trustees of a sub-trust was held to have been ineffective because of the unappreciated capital gains tax consequences which it would have had. I do not say that I disagree with the decision, but I would accept Mr Green's comment to the effect that, despite Green v Cobham, there must be limits to how far the courts will allow the principle in In re Hastings-Bass to rescue trustees from the consequences of their tax-planning misjudgments. I do not feel impelled to suggest precisely where the dividing line lies between a case like Green v Cobham, where the court will hold an appointment by trustees to have been invalid, and a case like this one, where in my judgment the court will not. I point out, however, that in Green v Cobham the capital gains tax consequences of the appointment, if it stood, were most serious, and were appreciated at an early date after the appointment had been made. In this case, even if it had occurred to the advisers of the trustees in 1976, rather than in 1998 (when Mr Warren and his colleague wrote their opinion), that the 1976 appointment, once executed, might not have been a valid paragraph 15 appointment after all, no serious CTT consequences would have followed. It is true that the trust fund would still have been potentially subject to the CTT rules for discretionary trusts, not the more favourable rules applicable to accumulation and maintenance trusts within paragraph 15. But no CTT liability would have been incurred yet, and the appointment could have been modified so as to comply with paragraph 15 thereafter. This could have been done before April 1997 at the cost of an exit charge only marginally greater than that which the trustees had expected to pay (and on the actual facts did pay) by reason of the 1976 appointment itself."
- He rejected the submission that the 1976 appointment should be declared invalid.
- In point of time the next case in which Re Hastings-Bass was cited was a pension case, AMP (UK) plc v. Barker  PLR 77. Pension fund trustees had amended the rules of the scheme so as to increase the benefits of those who left service early as a result of incapacity. They overlooked that fact that the scheme rules linked the benefit of early leavers generally to those of members retiring early on grounds of incapacity. When this was realised, less than two years after the amendment, a further amendment was effected, removing the link for the future, but proceedings were nevertheless brought to eliminate the link altogether. The claim relied on rectification, alternatively on the proposition that the employer's consent was vitiated by mistake and thirdly on the Re Hastings-Bass principle. Lawrence Collins J upheld the claim to rectification. He dealt shortly with the other arguments which were not necessary to his decision. He said that he would, if necessary, have set the employer's consent aside for mistake or have held the exercise of the trustees' power of amendment void on the Re Hastings-Bass principle. He reviewed a number of the cases on the Re Hastings-Bass principle, and also Kerr. He did not draw the distinction which Mr Herbert submits should be drawn, between cases of a voluntary exercise of a discretion and cases where the trustees are obliged to act. Perhaps for that reason he indicated that he would have been bound to apply the "might", rather than the "would", test, though either would have been satisfied on the facts before him.
- Green v. Cobham was followed by Patten J in Abacus Trust Company (Isle of Man) Ltd v. NSPCC  WTLR 953, another case concerning a family trust. In that case trustees had had advice as to a scheme for avoiding a substantial charge to capital gains tax on underlying trust assets, which required certain steps to be taken before the end of the current tax year, and others not until after the beginning of the next. Despite clear advice as to the timing, the trustees took all the relevant steps before the end of the tax year, thereby giving rise to a large charge to capital gains tax on the settlor, with a possible right of recovery against the trust property. The judge was satisfied that, if the trustees had been aware of the fiscal consequences of what they were doing, they would not have taken one of the steps in the sequence until on or after 6 April, instead of doing everything on 3 April. He held, on the basis of Green v. Cobham, that trustees when exercising powers of appointment are bound to have regard to the fiscal consequences of their actions, and that if it can be shown that, had they considered those consequences properly, they would not have proceeded as they did, the appointment should be declared void as an invalid exercise of the power of appointment. He observed that the time might come when the limits of the Re Hastings-Bass principle fall to be determined by a higher court, but as regards the relevance of fiscal consequences he said this (see page 964):
"The financial consequences for the beneficiaries of any intended exercise of a fiduciary power cannot be assessed without reference to their fiscal implications. The two seem to me inseparable. Therefore if the effect of an intended appointment is likely to be to expose the fund or the beneficiaries to a significant charge to tax that is something which the trustees have an obligation to consider when deciding whether it is proper to proceed with the appointment. Once relevance is established then a failure to take those matters into account must vitiate the exercise of the power unless (as in Hastings-Bass itself) it is clear that on a proper consideration of all relevant matters the decision would still have been the same."
- The Re Hastings-Bass principle next fell to be considered in another pensions case, Hearn v. Younger,  EWHC Ch 963,  WTLR 1317. In that case, as in AMP (UK) Ltd v. Barker, the discussion of Re Hastings-Bass was unnecessary for the decision, in this instance because the judge held that the rules had not been changed in the way that was said, if it had been done, to have been void under Re Hastings-Bass. Etherton J nevertheless discussed Re Hastings-Bass in the light of subsequent authority. He summarised the principle, on the basis of Stannard and AMP (UK) Ltd v. Barker, as being that a decision of trustees to exercise a discretion will be void if (a) the trustees have failed to take into account a material consideration, and (b) that consideration might materially have affected their decision. It seems to me that this is not a correct formulation of the principle.
- Next in time came a family trust case, in which the Re Hastings-Bass principle was the basis of the judge's decision: Abacus Trust Co (Isle of Man) v. Barr  EWHC Ch 114,  Ch 409. In this case, a settlor had created a trust in the Isle of Man under which he had a life interest subject to an overriding power of appointment. He expressed the wish that the trustees should exercise that power in respect of 40% of the trust property to create discretionary trusts for the benefit of his two sons, to the exclusion of any benefit for himself and his wife. By some mistake or misunderstanding, the trustees thought that his wish was that the trusts should be created in respect of 60% of the fund. They acted accordingly in April 1992. The error was soon discovered but the settlor, without legal advice, decided at that time not to do anything about it. Again in 1994 he thought about it but did not take legal advice and took no further steps. In 2001 the trustees received legal advice that the appointment was open to challenge, and the settlor decided that the point should be tested in proceedings.
- Lightman J had cited to him all the cases that I have mentioned, and Sir Robert Walker's article mentioned at paragraph 57 above. He held that the principle did apply to the exercise of the power of appointment, but that it rendered the appointment voidable, not void. He left over for further argument the question whether it should be avoided. One of the striking consequences, if he had held the appointment void, would have been that any sums distributed pursuant to the discretionary trusts in favour of the sons since the appointment would have been repayable (subject to possible defences of change of position) even though the grounds for challenging the appointment had been known since August 1992, and decisions had been taken in 1992 and 1994 not to do anything about it. It is understandable that the judge should have been attracted by an argument which gave the court a degree of control over whether, and perhaps if so on what basis or terms, the appointment should be set aside. He took it that none of that would be possible if the appointment were void: see paragraph 23 of his judgment.
- The judge said that the principle had only been changed significantly in one respect in the course of the sequence of judicial decisions, namely by the use of the "might" test in Stannard, but that it was unnecessary to consider which test was correct, since on the facts of the case the "would" test would be satisfied. He rejected the submission that the mistake must have been as to something fundamental, in favour of the conventional test, that the unconsidered relevant consideration would (or might) have affected the trustees' decision.
- He did hold that it is relevant to consider how the mistake arose. The settlor's contention was that the fact of a mistake was enough, regardless of how it came to be made. The judge held that the principle is based on the proposition that the trustees have acted in breach of duty by failing to take into account a relevant consideration, or taking into account an irrelevant consideration. Accordingly, if they have acted without any breach of duty, having identified the relevant considerations and used all proper care and diligence in obtaining the relevant information and advice relating to those considerations, the decision cannot be impugned merely because, without any fault on the part of the trustees (or of any person acting on behalf of the trustees), some information relied on turns out to be inaccurate.
- His decision that the defective appointment was voidable rather than void is consistent with this last point; he said that it accorded with ordinary principles of equity that a decision challenged on grounds of breach of fiduciary duty is voidable, not void.
- The next, and most recent, case in which the Re Hastings-Bass principle has been considered is Burrell v. Burrell  EWHC Ch 245, again a family trust case, and one where the mistake was as to the fiscal consequences of the appointment. Trustees held property on trusts under which a young man had an interest in possession but they had an overriding power of appointment exercisable on or after his 19th birthday. They were asked to consider exercising it before the declaration of a dividend by a company some of whose shares were comprised in the trust property, which was expected to happen three days after the birthday. They exercised the power by appointing the shares in the company on discretionary trusts. The shares were of a nature such as to qualify for business property relief for inheritance tax. However, a condition of the application of that relief was overlooked, namely that the transferor (in this case, the person entitled to the interest in possession) had to have held the shares for at least two years before the transfer, whereas he had only held them for one year. Accordingly, the appointment gave rise to a substantial charge to inheritance tax.
- The trustees brought the proceedings to have the appointment set aside. They said, and Mann J accepted, that they had executed the appointment under a mistaken belief as to its tax consequences, and that if they had known what those consequences would be they would not have executed it. All parties before the court supported the application. As in the present case the Inland Revenue had declined the invitation to take part in the proceedings. Most, if not all, of the cases which I have mentioned were cited to the judge. He held that the trustees ought to have borne the fiscal consequences of the appointment in mind, that they did not give full and proper consideration to those consequences, and that if they had done so they would not have acted as they did. Because of Lightman J's decision in Abacus v. Barr the judge considered whether the trustees or their advisers or agents were in breach of duty, and held that both the trustees and their solicitors were. Accordingly he held that the deed should be set aside, it being unnecessary for him to decide between "would" and "might", and between void and voidable.
- It is apparent from this survey that the cases have come a long way from the propositions discussed in Vestey and Abrahams. In those cases the criterion was said to be whether the partial invalidity imposed externally by the rule against perpetuities, as explained in Pilkington, or by the non-application of section 31 in Vestey, rendered the effect of the trustees' act substantially or essentially different from that which was intended. Re Hastings-Bass was the same kind of case. I have already suggested, at paragraph 49 above, a reframing of the Mettoy version of the Re Hastings-Bass statement of principle. The question whether the difference in effect has to be substantial in order for the principle to apply comes into the test as part of the process of answering the question whether, if the trustees had been aware of the true position, they would not have acted as they did.
- One element introduced in the Re Hastings-Bass formulation is whether the trustees took into account matters which they ought not to have done, or failed to take into account matters which they ought to have. This is reminiscent of public law and the Wednesbury test (Associated Provincial Picture Houses Ltd v. Wednesbury Corporation  1 KB 223), though that case does not seem to have been cited in Re Hastings-Bass itself. That is now established as a relevant test in relation to the exercise of a discretion by trustees, as a result of Edge v. Pensions Ombudsman  Ch 602. In that case the Court of Appeal, affirming the decision of Sir Richard Scott, V-C,  Ch 512, and following earlier decisions of the Court of Appeal including Harris v. Lord Shuttleworth (cited above, at paragraph 52), held that trustees to whom the exercise of a discretionary power is entrusted were under a duty to exercise that power (if they chose to exercise it) only for the purpose for which it is given, giving proper consideration to the matters which are relevant and excluding from consideration matters which are irrelevant (see  Ch 627E). The introduction into trust law of what might seem to be a public law concept has been criticised, at any rate in relation to private family trusts as distinct from pension funds (see Underhill & Hayton, Law of Trusts and Trustees 16th ed. page 696), but it seems to me that this formulation respects the traditional view, that it is for the trustees to exercise the power, and to decide whether or not to do so (unless they have an obligation to do so, as in Kerr or Stannard type cases), and is at the same time consistent with the cases about fraud on the power or other examples of caprice or bad faith, such as Cloutte v. Storey or Klug v. Klug. In those cases the defaulting trustee was motivated by irrelevant considerations in deciding whether or not to exercise the power, and if so how: the advantage of a non-object in cases such as Cloutte v. Storey (or Hillsdown Holdings) or an irrelevant consideration in relation to an object in Klug.
- It seems to me that, for the purposes of a case where the trustees are not under a duty to act, the relevant test is still that stated in Re Hastings-Bass, namely whether, if they had not misunderstood the effect that their actual exercise of the discretionary power would have, they would have acted differently. In my judgment that is correct both on authority, starting with Re Hastings-Bass itself, and on principle. Only in a case where the beneficiary is entitled to require the trustees to act, such as Kerr or Stannard, should it suffice to vitiate the trustees' decision to show that they might have acted differently. The word "might" has been used, as matter of decision, only in those two cases. In two cases it has been said (not as a matter of decision) that the "might" test applies to a voluntary exercise of a power: AMP (UK) Ltd v. Barker and Hearn v. Younger. I respectfully disagree with those observations, having had the benefit of what may have been fuller, and were no doubt different, submissions on the point. If an act by trustees is set aside, where the trustees have acted under an obligation, then the beneficiaries can require the trustees to start again, on the correct basis. It seems to me that the lower test of "might" is appropriate in such cases (see paragraph 55 above). If the trustees' act was voluntary, so that they cannot be compelled to act again if the act is set aside, the more demanding test of "would" is justified in order to decide whether the trustees' act can be set aside. (Vestey was a case where the trustees were under a duty to act, but the test applied there was expressed in different and more general terms.)
- Another unresolved question on the cases is whether, if the trustees' exercise is vitiated on this principle, the result is that the trustees' act is void or voidable. Lightman J in Abacus v. Barr held that it was voidable, and adjourned the question whether it should be avoided. In Abrahams Cross J held that the defective appointment in that case was void. Since it was the Inland Revenue that sought this result, it was only on the basis of it being void that the submission could have been accepted. That body would not have standing to seek to have a voidable act set aside. If the exercise of a power is vitiated by the doctrine of fraud on a power, the result appears to be that the exercise is declared void: see Topham v. Duke of Portland (1869) LR 5 Ch App 40, and the form of order made in that case, printed in Seton's Judgments and Orders, 7th ed. vol. 3 at page 1672, and see also Cloutte v. Storey. This may be because the appointment is treated as having been, in effect, to a non-object, and plainly a direct appointment to such a person would be void. On the other hand, if, as Warner J held in Mettoy, the principle could result in part of a document being set aside but not the rest, the process would come close to rectification, and it would be difficult to say that a part of it was altogether void. He did not have to consider that aspect, since on the facts he held that no part was to be set aside.
- Lightman J held that the exercise was voidable, rather than void, because its being set aside resulted from a breach of the trustees' duty. Some acts of trustees which are set aside for breach of duty are voidable; they will not be set aside if no-one with the right to do so applies for that remedy, and such an application may be defeated on discretionary and equitable grounds which would not be available if the disposition was void, such as affirmation or laches. It is also fair to say (as Lightman J clearly bore in mind, and as Park J mentioned in Breadner) that if the consequence of the doctrine is that the exercise is void, this might have dramatic and potentially unfair disruptive consequences for the trustees and the beneficiaries. To hold that the defect makes the appointment voidable, rather than void, is therefore attractive.
- Nevertheless it seems to be questionable whether the application of the doctrine should be regarded as depending on a breach of duty, and whether its consequences should be aligned with those of a breach of trust. It seems to me that it would have been hard to say that the trustees who made the advancement which was held to be completely ineffective in Abrahams acted in breach of their duty. What was wrong with their act was the application of the rule against perpetuities in a way quite different from that which seems to have been regarded as normal and legitimate at the time, and which was held valid by Danckwerts J at first instance in Pilkington.
- Taking together, first, the fact that only if the exercise was void could the Inland Revenue have succeeded in having the advancement set aside in Abrahams (and, at first instance, in Re Hastings-Bass itself) and, secondly, the difficulty of showing that in either of those cases there was any breach of the trustees' duty, it seems to me that Lightman J's conclusion that the appointment was voidable is open to doubt, as also is his introduction of a factor, not previously mentioned in the cases, that the trustees or their advisers or agents must have been at fault in some way for the principle to apply. I respectfully agree with him that the application of the principle is of potentially worrying breadth if it cannot be confined or controlled by reference to equitable principles, and that it would be more satisfactory if substantial delay in raising the point, with knowledge of the problem (as in the case before him), could be treated as relevant to the grant or withholding of relief. Mr Taube submitted that, because the remedy lay in equity, and the grant of a declaration is discretionary, matters affecting the conscience of the parties, including laches or acquiescence, could be taken into account by the court in deciding what, if any, relief to grant, even if, on the true analysis, an appointment which is vitiated by the Re Hastings-Bass principle is void, not merely voidable.
- I do not need to decide between "void" and "voidable" in order to decide this case: all Counsel agreed that nothing turned on that distinction in this instance. It seems to me, however, that on authority, the main ways at present open to the court to control the application of the principle are: (a) to insist on a stringent application of the tests as they have been laid down, (b) to take a reasonable and not over-exigent view of what it is that the trustees ought to have taken into account, and (c) to adopt a critical approach to contentions that the trustees would have acted differently if they had realised the true position, perhaps especially so in cases (unlike the present) where it is in the interests of all who are before the court that the appointment should be set aside. As Park J said in Breadner,  Ch at 543, in paragraph 61:
"It cannot be right that whenever trustees do something which they later regret and think that they ought not to have done, they can say that they never did it in the first place."
- The position would also be more flexible if equitable considerations can be taken into account in deciding whether or not to grant any and if so what relief. The court's task might be easier in some cases if the Inland Revenue did not always decline the invitation to take part in cases of this kind, but there are no doubt policy reasons of one kind or another for that attitude, of which the court is not aware.
- Mr Herbert submits that it is not enough to bring the principle into play that the trustees be mistaken as to the fiscal effects of the transaction, and that the mistake must be as to the substantive legal effect of the appointment or other act, as in Abrahams, Re Hastings-Bass and Mettoy, or as to a matter of fact, such as the true nature of the settlor's wishes in Abacus v. Barr. He submits that this follows from the formulation of the rule by reference to the effect of the exercise being different from that which the trustees intended. He says that the "effect" in this context excludes consequential matters such as tax liabilities. He relies for this on an analogy with Gibbon v. Mitchell and other cases about mistake by an individual donor.
- He submits that, in cases concerning the setting aside of dispositions by individuals for mistake, fiscal consequences have never been held to be a sufficient or relevant reason. I will deal with those cases later in this judgment, but it seems to me that there are at least two significant differences. First, trustees are dealing with assets which are not their own, and in relation to which they owe duties to beneficiaries, whereas individual beneficial owners owe no legal duty to anyone else as to how they deal with their own assets. Secondly, the fiscal treatment of trust property is much more complex than that applying to disposals by individuals. I do not accept that, even if fiscal consequences are irrelevant as regards cases of mistakes by individual donors, that is a sufficient reason for regarding them as irrelevant to the application of the Re Hastings-Bass principle.
- Mr Herbert's submission has to be seen in context with the question what are the considerations which trustees ought to take into account. It seems to me that, for this submission to be right, logically he would have to submit that an accurate appreciation of fiscal consequences is not among them. This would be a very difficult proposition to advance, at any rate in relation to a private trust: pension trusts or charitable trusts may be different in this respect, being largely tax-exempt. I agree with the passage quoted at paragraph 66 above from the judgment of Patten J in Abacus v. NSPCC. In the circumstances of a substantial private trust such as the 1971 settlement, the fact is that trustees do have regard to the fiscal treatment of the trust property, as it is or would be according to whether they do nothing, or act in one or another of various ways that may be open to them, and they are right to do so. It does not follow that they need to know every detail of the tax consequences of acting as they propose, or, by comparison, of not taking that action, or taking other action that may be open to them. Being unaware of some subtle, and perhaps unforeseeable, detail of the tax consequences may not result in their decision being held to be vitiated by the Re Hastings-Bass principle. There might be scope for argument as to whether the provisions of UK capital gains tax law about the treatment of several settlements, with different trustees, as one composite settlement, and about the treatment of professional trustees as resident or non-resident, held to be relevant in Green v. Cobham, might have been regarded as too subtle and arcane for the BVI based trustees of the will trust to have been obliged to take them into account. Park J clearly considered that the "abstruse and recondite" technical defect of the 1976 appointment in Breadner was not a point which could bring the principle into play (see paragraph 63 above). If the discrepancy between the intended and actual fiscal consequences were the result of a later court decision by which the position was held to be otherwise than had previously been supposed, it would be very surprising if that change could have the effect of invalidating acts by trustees done on the basis of the previous understanding of the position. But I have no doubt that fiscal consequences may be relevant considerations which the trustees ought to take into account, and that a material difference between the intended and actual fiscal consequences of the act may be sufficient to bring the principle into play.
- Mr Herbert also submitted that the trustees of the 1971 settlement owe duties only to their own beneficiaries and in relation to their own trust fund, and that consequences for them are what has to be taken into account, not consequences in the context of the 1987 settlement of which, in their capacity as 1971 trustees, they know nothing. Why, he asked rhetorically, should the 1971 trustees be expected to have regard to the terms of clause 47(c) of the 1987 settlement, even though there is a comparable but different provision in the 1971 settlement (Second Schedule paragraph 8, modified in relation to the Chattels Fund by clause 19(1)(ii) of the settlement)? Given that Lord Howland's assignment to the trustees of the 1987 settlement, though foreseen, was his own voluntary act, as was his later move into Woburn Abbey, why (he asked) should it be for the 1971 trustees, rather than for Lord Howland and the 1987 trustees, to consider the pros and cons of that assignment, and the move to the Abbey? He also pointed out that the capital gains tax charge was imposed on the assets the subject of the appointment and in turn the assignment, so as to be borne by the 1987 trustees, and submitted that this feature takes this consequence outside the scope of what it was the duty of the 1971 trustees to take into consideration.
- He elaborated this submission by reference to the duty of the 1971 trustees, and by inviting the court to consider to whom this duty is owed. He pointed out that neither the beneficiaries nor the trustees of the 1987 settlement could sue the 1971 trustees for any breach of duty. While Lord Howland could do so, as a beneficiary of the 1971 settlement himself, Mr Herbert submits that he could not succeed because his personal loss, if any, would have arisen from his own independent acts, namely assigning his contingent interest to the 1987 settlement trustees and moving into the Abbey.
- I cannot accept Mr Herbert's proposition that, because the 1971 trustees' appointment was on terms that passed the burden of any capital gains tax, with the appointed assets, to Lord Howland, therefore they were not under a duty to consider what the fiscal results of the transaction would be. The corollary of his proposition seems to be that fiscal results were an irrelevant consideration which they ought not to have taken into account, so that, if they did think about them, the appointment might have been at risk of being set aside on that ground instead, depending on whether thinking about it made any difference to what they decided to do. The fact is that they did consider that question, albeit on the basis of inaccurate advice. They were, in my judgment, bound to do so, because the power of appointment was exercisable for the benefit of beneficiaries and whether, and if so to what extent, a particular appointment, as opposed to any other, or doing nothing, would be for the benefit of a beneficiary would be very much affected by its fiscal treatment. Their duty in this respect was not in any way affected by the fact that, for good reason, they chose to throw the risk of capital gains tax on the appointed assets.
- If one looks at the appointment by itself, and thinking only of the non-exempt chattels, the effect of the 1971 trustees making the appointment as and when they did was to give Lord Howland a contingent interest in the chattels, which were of great value, but to do so in a way which would result in a liability to capital gains tax of an estimated £1 million arising and being charged on the chattels. By contrast, as I understand it, if they had specified, say, 30 November 2001 as the date to which Lord Howland had to survive to get an absolute interest in the chattels, there would have been no capital gains tax charge, so that he would have been better off by £1 million in that respect, although there would have been an exit charge to inheritance tax by reference to the value of the chattels, to be set off against the capital gains tax avoided. Subject to that calculation, or to an equivalent calculation in relation to any other possible course of action, it is likely to have been clear whether it would be more for the benefit of Lord Howland to make the appointment that was actually made, or to do the same by reference to a later date, or to do something else entirely, or nothing. In my judgment, therefore, it is clear that the 1971 trustees were under a duty to consider the fiscal treatment resulting from the appointment which they were considering making, at least as regards the charge to capital gains tax which would arise and would have to be borne, under the terms of the appointment, by the appointed chattels, and thus in effect by Lord Howland. Correspondingly, the fact that the fiscal consequences of the appointment in this respect were materially different from those which they thought would follow is a matter which is sufficient for the Re Hastings-Bass principle to apply.
- I see more force in Mr Herbert's submission that the other unforeseen and undesirable tax consequences of the series of transactions are outside the scope of the matters which the 1971 trustees as such were required to take into consideration. In a sense this is a somewhat artificial distinction, because the 1971 trustees, the 1987 trustees and Lord Howland were all considering the same proposals at the same time, and with the benefit of the same advice. The 1971 trustees knew what was intended at each stage of the sequence of transactions, but their involvement, strictly speaking, was only in relation to the appointment. They could see that it was expected that the chattels would pass via Lord Howland to the 1987 trustees, who were already responsible for the business of opening the Abbey to the public, but this depended both on Lord Howland (and the Marquess of Tavistock) consenting to the appointment and on Lord Howland then assigning his contingent interest to the 1987 trustees. They knew that it was intended that Lord Howland would move into the Abbey, but that in turn depended on other arrangements being made to which they would not be parties.
- I am inclined to think that Mr Herbert is right in his submission that the adverse consequences as regards inheritance tax and as regards clause 47(c) of the 1987 settlement were not matters within the proper ambit of the considerations to be taken into account by the 1971 trustees in deciding whether or not to make the appointment in favour of Lord Howland. They were certainly matters which Lord Howland could and would properly bear in mind in deciding whether to give his consent (and the same, no doubt, goes for the Marquess of Tavistock as well), and they were highly relevant for the 1987 trustees to take into account in deciding whether to enter into the transactions by accepting the assignment from Lord Howland. But it seems to me that these points were strictly foreign to the deliberations of the 1971 trustees as such.
- To draw that distinction, however, makes no difference to the result. The 1971 trustees have all said in evidence that they would not have agreed to make the appointment if they had been aware of the tax disadvantages. Although they do not differentiate between one and another of the tax problems, it seems to me clear that if they had been aware of the capital gains tax charge alone that would have been sufficient to deter them from making the appointment. Accordingly I accept that, if they had known that to make the appointment they did would give rise to the capital gains tax charge on the non-exempt chattels, they would not have made the appointment. Lord Howland has said in terms that either the capital gains tax or the other tax problems would have led him to refuse his consent to the appointment. He says that the same would have been true of the Marquess of Tavistock. He also says that because of the other problems he would not, in any event, have entered into the assignment to the 1987 trustees. I accept his evidence in all these three respects. For these reasons I am satisfied that, if the correct advice had been given to the 1971 and 1987 trustees and to Lord Howland, the 2001 appointment and assignment would not have been made.
- The other ground relied on by Mr Taube and Mr Barlow for having the appointment and the assignment set aside is mistake. Mr Herbert's submissions interwove both lines of authority and I have therefore had to consider the cases in this area in order to come to a conclusion about the Re Hastings-Bass principle. Mr Herbert submits that it would be odd for the rules as regards setting aside an instrument because of a mistake or misunderstanding to differ significantly as between one jurisdiction and another, unless there are objective reasons why they should according to the different circumstances that may be relevant. I note that many of the cases cited to me were relied on before Warner J in Mettoy and were distinguished by him on grounds with which I respectfully agree: see  1 W.L.R. at pages 1622-4.
- Mr Taube and Mr Barlow rely first on the decision of Millett J in Gibbon v. Mitchell which I have described and from which I have quoted at paragraph 36. The judge said that, for a mistake to justify a voluntary disposition being set aside, it must be as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. That distinction may be difficult to apply. Mr Herbert submits that it rules out of account a mistake as to the fiscal treatment or consequences of the disposition. Although the disposition in that case was made in the context of tax planning, the mistake had nothing to do with tax, but was as to the substantive effect of the disposition itself.
- The case was followed by Davis J in Anker-Petersen v. Christensen  WTLR 313, and by Mann J in Wolff v. Wolff  EWHC 2110 (Ch),  WTLR 1349. In each of those cases the mistake was as to the nature of the transaction, not as to its tax effects although, again, the transactions were undertaken in the context of advice about tax planning.
- I was also shown some older cases analogous to these, which I will mention before reverting to the recent cases. Some of those cited to me were more in the nature of rectification cases, where the document executed had gone beyond the instructions given to the draftsman as to the effect to be achieved, and the true effect had not been explained, the court holding that the deed should take effect only to the extent intended: Meadows v. Meadows (1853) 16 Beav. 401, and Walker v. Armstrong (1856) 8 De G M & G 531. In Re Walton's Settlement  2 Ch 509, by contrast, the solicitor had also gone beyond his instructions, but in this case by adopting the wrong method of achieving his client's intentions. Here, the intended effect could not be salvaged and the entire document was set aside. The recent case of Wolff v. Wolff is somewhat similar on the facts, except that the solicitor seems to have had no understanding of what he was setting out to do, and the documents which he drafted were altogether inept for any purpose.
- In Phillips v. Mullings and in Ogilvie v. Littleboy the dispositions were held to be fully effective. In Phillips v. Mullings (1871) LR 7 Ch App 244, the transaction challenged was the settlement by an improvident young man of £1,000 out of his inheritance of £3,000. On the facts it was clear that the settlor had understood the effect of what he was doing, and he had been properly advised about the terms of the settlement.
- In Ogilvie v. Littleboy, reported at (1897) 13 TLR 399 in the Court of Appeal and as Ogilvie v. Allen (1899) 15 TLR 294 in the House of Lords, the plaintiff, a widow, had executed deeds founding two charities and devoting to them a considerable part of the large fortune which she had inherited from her husband, but later brought proceedings to set the deeds aside asserting that she had not been fully and properly advised and had not fairly understood the nature and effect of the documents. The action was dismissed by Byrne J and appeals were dismissed by the Court of Appeal and the House of Lords. In the Court of Appeal, Lindley LJ said this, at 13 TLR page 400:
"Gifts cannot be revoked, nor can deeds of gift be set aside, simply because the donors wish they had not made them and would like to have back the property given. Where there is no fraud, no undue influence, no fiduciary relation between donor and donee, no mistake induced by those who derive any benefit by it, a gift, whether by mere delivery or by deed, is binding on the donor. It has been contended that even where all those elements are absent the burden in equity is on the donee to show that the donor knew what he was doing and was under no mistake as to the effect of any legal instrument which he may have signed. Passages were cited from judgments of Lord Romilly and Vice-Chancellor Stuart in support of this contention; but their observations must be understood as having reference to the cases before them, and are far too wide if meant to express a general principle of equity applicable to gifts unaccompanied by any of those circumstances of suspicion to which we have alluded. This was pointed out by Kay LJ in Henry v. Armstrong (1881) 18 Ch D 668. In the absence of all such circumstances of suspicion a donor can only obtain back property which he has given away by showing that he was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him."
- In the House of Lords, Lord Halsbury LC referred to "circumstances when misunderstanding on both sides may render it unjust to the giver that the gift should be retained", but agreed entirely with the judgment of Lindley LJ, as also did Lord Macnaghten. That case, therefore, sets out a broad principle of injustice as the test for setting aside a voluntary disposition, in the absence of any circumstances of suspicion such as Lindley LJ mentioned. Possibly because of its not being reported in the Law Reports, the case was not cited in the later cases to which I have been referred.
- In 1909 two cases were decided in which a deed of appointment and a deed of gift respectively were set aside on grounds of mistake. In the first, Lady Hood of Avalon v. Mackinnon  1 Ch 476, the plaintiff, a widow, had a power of appointment in favour of her two daughters. She exercised that power in favour of the younger daughter on her getting married. She wanted to ensure equality between the two daughters. She therefore exercised the power to the same extent in favour of her elder daughter. She had, however, entirely forgotten that, years before, she and her husband had already exercised the power in favour of the elder daughter. The result of the three exercises of the power was to produce inequality and to dispose of more than the amount of the fund available. Eve J held that the last appointment had been made under a serious mistake as to the facts, namely as to the existing position as regards interests under the trusts by virtue of the exercise of the power of appointment, and that it ought to be set aside. Although he did not refer to the formula used by Lindley LJ in Ogilvie, it seems to me that he would not have had any difficulty in finding that the circumstances were such that it would be unjust for the donee to retain the benefit of the appointment.
- In the other case, Ellis v. Ellis (1909) 26 TLR 166, Warrington J set aside a deed of gift as having been made under a mistake as to its effect. The gift was by a husband to his wife, intending it to be her absolute property, and overlooking that fact that it was caught by a covenant to settle after-acquired property in the marriage settlement, so that it would take effect as a gift to trustees to be held on trust for the wife for life, then for the husband for life, and then for the children of the marriage. The husband knew of the settlement, and knew it contained a covenant to settle after-acquired property but did not think that the covenant applied to a gift from him. The gift was set aside as having been made under a mistake of fact.
- I have referred already to Gibbon v. Mitchell, decided in 1990: see paragraph 36 above, where the basis for the decision is set out. That was another case of a mistake as to the effect of the disposition, through a misunderstanding as to the nature of the donor's interest.
- In Anker-Petersen beneficiaries were entitled under trusts to life interests, with capital then going to their issue as they might appoint and in default to their children. As part of a tax-planning exercise in connection with a variation of the trusts under the Variation of Trusts Act 1958, and effecting the export of the trusts, each assigned contingent interests in capital to the trustees of "intermediate" trusts, under which they were then resettled by the trustees on trusts which had been described to the beneficiaries (and to the court) as "similar to" or "corresponding to" the existing trusts, but which differed in respects which the judge described as fundamental, in particular that their life interest was subject to an overriding discretion for the trustees to appoint capital and income, and to accumulate income. The terms of these new trusts were not shown or explained to the beneficiaries. Davis J held that the assignments should be set aside, because the assignor in each case was ignorant of the true effect of the trusts on which the trustees were intending to resettle the fund, having been misled as to their terms. The judge referred to the distinction drawn by Millett J between effects and consequences, treating fiscal matters as consequences, and therefore outside the scope of the principle: see page 330-1. His judgment therefore supports the proposition that a mistake as to tax liabilities is not a sufficient basis for setting aside a voluntary disposition by an individual. He mentions the possibility of dealings by trustees being in a different position in this respect.
- It is fair to say that, in that case, the effect of the assignments as such was not misunderstood. The mistake was as to the next stage in the process, when the trustees resettled the trust property. That is an indirect effect, but one which it would have been difficult to ignore except on a very formalistic approach. It seems to me that it is clearly in line with Ellis v. Ellis where, again, the gift to the wife was understood and the mistake was as to the impact on that gift of the marriage settlement. Of course, that settlement already existed, unlike the resettlements in Anker-Petersen, but it seems to me that both these cases justify a view of the effects of the disposition as not being limited to direct effects.
- Clearly there is a jurisdiction in equity to set aside a voluntary disposition for mistake (as there is also to rectify such an instrument to accord with the donor's true intentions: Re Butlin's Settlement  Ch 251). The mistake must be as to the effect of the disposition. The discrepancy may arise from a legal defect in the disposition itself (as in Gibbon v. Mitchell) or from a mistake of fact as to the position under the relevant trusts (as in Lady Hood of Avalon v. Mackinnon) or as to the effect of the disposition in the hands of the donee (Ellis v. Ellis). It may arise from a misunderstanding of the nature of the trusts which would affect the property after the disposition, due to a failure on the part of the advisers to explain the position properly (Anker-Petersen). According to Gibbon v. Mitchell the mistake must be as to the effect of the disposition, and a mistake as to its consequences is not sufficient. If that is the correct test, Davis J's comment that the fiscal consequences of the transaction are not relevant is probably right, and a misunderstanding as to those would not justify setting the disposition aside. According to Ogilvie v. Littleboy the test is more general, namely whether the donor or settlor "was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him". That formula might allow fiscal consequences to be taken into account, if they were sufficiently serious. There is no case concerning a disposal by an individual of his or her own property which has turned on the relevance, or otherwise, of tax consequences. In Gibbon v. Mitchell the mistake as to the legal effect of the deed did mean that it had different tax consequences, but this would not have sufficed for Millett J to have set it aside in the absence of the mistake as to legal effect.
- There are cases of rectification where fiscal effects have been central to the case, such as Burroughes v. Abbott  1 Ch 86, and Jervis v. Howle and Talke Colliery Co  Ch 67, where an agreement that A should pay to B a sum which B would receive without any deduction for tax, expressed, ineffectively, as being payment "free of tax", were held to be rectifiable so as to use an effective phrase such as "such a sum as after deduction of the income tax at the standard rate for the time being will leave" the agreed amount. I do not regard those as demonstrating that tax consequences are relevant to dealings by individuals. In those cases the tax point was at the centre of the mistake as to the effect of the agreement. It is not comparable to a disposition where there was no mistake as to its legal effect as a matter of property interests, but it gave rise to unforeseen fiscal liabilities.
- The cases about mistake on the part of an individual dealing with his own property have developed along different lines from the cases concerning acts by trustees, no doubt because of the different facts involved. There is an understandable common theme of restricting the circumstances in which an apparently valid disposition can be set aside. Otherwise, however, I do not find it useful to draw analogies between the two types of case. The different circumstances of individual donors and trustees respectively, and the different situations in which they may come to make a disposition which is later challenged, seem to me to be sufficient to explain and to justify the existence of different rules as to the relevance of a mistake as to the effect of the disposition to whether it is vitiated by the mistake. For that reason, as mentioned in paragraph 85 above, I reject the argument that, assuming tax consequences to be irrelevant in the case of a challenge to a disposition by an individual of his own property, they are also irrelevant in the case of an exercise of a power by trustees. I do not propose to go further into the question whether it is right that a mistake as to fiscal consequences is always irrelevant to a challenge to a voluntary disposition by an individual. It is unnecessary for my decision in the case, and I have already said quite enough about points which do not strictly arise on the facts of this case. Of course, even if tax consequences are irrelevant, one respect in which Lord Howland did not understand the effect of assigning the non-exempt chattels to the 1987 trustees was not to do with tax, but to do with the terms of the settlement itself, namely the impact of clause 47(c). That point seems to make the case somewhat similar to Ellis v. Ellis.
- Counsel also cited to me one case on the borderline between dealings by individuals and by trustees: Scroggs v. Scroggs (1755) 1 Amb 272 and 2 Amb 812 (a fuller report), decided by Lord Hardwicke LC. There a father had a life interest under a trust, and a power to appoint capital as between his children exercisable with the consent of the trustees. He had two sons, and favoured the younger, on irrational grounds. He wished to appoint the whole capital to his younger son. He obtained the consent of the sole trustee to this appointment on the basis of what were held to be misrepresentations as to the character and conduct of the elder son. The Lord Chancellor held that the appointment must be set aside, the consent of the trustee having been obtained in that improper manner.
- Lawrence Collins J said in AMP (UK) Ltd v. Barker  PLR at pages 94-5, paragraph 82 that, if necessary, he would have held that NPI's consent to the rule change was vitiated on the same basis, having cited Lady Hood of Avalon v. Mackinnon and Gibbon v. Mitchell.
- Mr Taube and Mr Barlow relied on Scroggs v. Scroggs for the same purpose, to show that Lord Howland's consent to the 2001 appointment should be regarded as vitiated by its having been given on a false basis as to the effect of the intended dealings, resulting from the erroneous and incomplete advice as to tax consequences, erroneous as regards capital gains tax and incomplete by not referring to the tax and other problems that would result from Lord Howland's intended occupation of the premises in which some of the chattels are kept. His consent to the appointment was only given on the basis that he would himself immediately assign his contingent interest to the 1987 trustees. The problems which that gives rise to, because of his occupation of the demised part of the Abbey where some of the chattels are kept, were highly relevant to his decision whether or not to make the assignment, and therefore also to his decision whether or not to agree to the appointment. From his point of view (even if not from the point of the view of the 1971 trustees) the sequence of dispositions had to be viewed and assessed as a whole, not merely stage by stage.
- Of course, Scroggs v. Scroggs was the converse of this case, in one sense, in that there the power was given to a beneficiary, and was not a fiduciary power, whereas the requirement of consent was vested in trustees. Here the power was exercisable by trustees, and a beneficiary (Lord Howland) had a non-fiduciary ability to give or withhold consent, as did the settlor, the Marquess of Tavistock. Apart from the fact that the exercise of the power itself in the present case is subject to duties which did not apply directly to the father's power in Scroggs, it does not seem to me that this reversal of roles makes a difference to the question whether the consent was vitiated in the circumstances. AMP (UK) Ltd v. Barker was similar to this case in this respect, since the trustees had the power and NPI's consent was required as employer.
- It seems to me that it is right to focus on the 2001 appointment, both as regards the trustees' decision to make the appointment and as regards the decision by Lord Howland (and the Marquess of Tavistock) to consent to it being made. Of course, from Lord Howland's point of view, it has to be seen in the context of what he intended to do next, namely to assign his interest to the 1987 trustees. If the appointment is invalid, however, it matters not what the position would have been in respect of the assignment as such, because there would have been nothing to pass under the assignment.
- Looking at the appointment, therefore, it seems to me that, on the part of the trustees, it is vitiated by the failure of the trustees to take into account the true consequences of the appointment as regards capital gains tax, which they failed to take account of because they had been wrongly advised. In my judgment the consequences of the appointment as regards tax (in particular inheritance tax and capital gains tax) were matters which the trustees were under a duty to consider, which they did in fact consider, and to which they failed to give proper consideration because they were provided by their advisers with wrong advice on the point. I find that, if they had had the correct advice, they would not have made the 2001 appointment. Applying the Mettoy test as I have reformulated it above (paragraph 49) I find that the effect of the trustees' exercise of their discretion was different from that which they intended, that they failed to take into account considerations which they ought to have taken into account, and that they would not have acted as they did had they known the correct position as regards the charge to capital gains tax which would result from the appointment.
- I also hold that Lord Howland gave his consent to the appointment on a false basis, because he misunderstood the consequences of the appointment as regards both capital gains tax and inheritance tax. He also misunderstood the position as regards the impact on him of his intended occupation of the private and shared parts of the Abbey, containing a large number of the non-exempt chattels. In my judgment that was something which he was entitled to take into account, even though it was strictly foreign to the deliberations of the 1971 trustees. He thought that he knew the position, having had the advice to which I have referred above (paragraph 16), but in fact he did not because the advice was incorrect and incomplete.
- This is not a case of deliberate misrepresentation for an improper purpose, as in Scroggs v. Scroggs. It is a case of a highly material mistake resulting, on the part of the person whose consent is required, from inadequate information and misunderstanding, as in AMP (UK) Ltd v. Barker. I need not, and do not, decide anything as regards the relevance or otherwise of tax consequences to dispositions by individuals of their own property, because Lord Howland was not disposing of his own property when he consented to the making of the 2001 appointment. Directly, he was doing the opposite, since by the appointment the property would become his, rather than cease to be his. But it seems to me that his mistakes as to the tax consequences, both as regards capital gains tax following from the appointment, and as regards inheritance tax because of the reservation of benefit, and his ignorance of the implications of clause 47(c) of the 1987 settlement, are sufficient to vitiate the giving of Lord Howland's consent, and the same is no doubt true of that of the Marquess of Tavistock.
- Accordingly, for those reasons I hold that the 2001 appointment ought to be set aside and declared to be of no effect.
- I am most grateful to Counsel for their careful, learned and focussed submissions, with which they sought to guide me through a problematic and developing area of law towards the conclusions that they respectively advocated. I know that this topic has been the subject of a great deal of debate outside court as well as in the decided cases which I have mentioned. This judgment, given upon the last case that I heard as Vice-Chancellor of the County Palatine of Lancaster, will no doubt be grist to the mill of the commentators. I cannot resolve the outstanding issues as a matter of decision; that is a task which remains to the Court of Appeal in a case raising the points on the facts, as and when an interested party takes such a case to that court.
- I will, however, summarise the Re Hastings-Bass principle as I see it, as follows.
i) The best formulation of the principle seems to me to be this. Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account.
ii) I have expanded the formula from that set out at paragraph 49 above to include expressly the proposition that the trustees are not acting under an obligation, so as to distinguish cases such as Kerr v. British Leyland (Staff) Trustees Ltd and Stannard v. Fisons Ltd. It is only in cases, such as those, where the trustees are obliged to act, that the "might" test applies. Stannard should not be treated as applying or endorsing the Re Hastings-Bass principle, but as being in the same line as cases such as Kerr.
iii) It does not seem to me that the principle applies only in cases where there has been a breach of duty by the trustees, or by their advisers or agents, despite what Lightman J said in Abacus Trust Co (Isle of Man) v. Barr.
iv) His conclusion that, if the principle is satisfied, the act in question is voidable rather than void is attractive, but seems to me to require further consideration, in the light of earlier authority.
v) I am in no doubt that, as a general proposition, fiscal consequences are among the matters which may be relevant for the purposes of the principle.
vi) There are limits to what trustees have to consider in such a situation. In the present case the 1971 trustees, when deciding whether or not to make the appointment, did not have to take into account points arising only from the terms of the 1987 settlement and the proposed occupation of the demised part of the Abbey by Lord Howland.
vii) Lord Howland himself was entitled to have regard to those matters, and his mistake as to those consequences is relevant to the setting aside of his consent, but this is not an application of the Re Hastings-Bass principle, which only applies to acts of fiduciaries. Rather it is in the same line of authority as Scroggs v. Scroggs and Lawrence Collins J's obiter indication in AMP (UK) Ltd v. Barker.
- Tempting as it might have been, in the interests of the clarification of the law, to produce a situation in which the Court of Appeal would have to consider the scope of the Re Hastings-Bass principle, by dismissing this claim, in my judgment the Claimants are justified in their assertion that the 2001 appointment should be set aside, because of the mistake of the 1971 trustees and because of the mistaken basis on which consent was given to the 2001 appointment by the Marquess of Tavistock and by Lord Howland, and I will so declare.