Trusts: Unwinding Decisions of Trustees - The Rule in Hastings-Bass

The so-called rule in Hastings-Bass has rarely been considered in New Zealand as a serious concept.  Applying this rule, the courts in England and Wales accepted for many years that where trustees made a decision based on an assumption that proved to be false, the Court should treat the decision as void (or possibly voidable).[1]  In the eponymous decision the English Court of Appeal said the following:[2]

Where by the terms of a trust … 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 has achieved is unauthorised by the power conferred on 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.

The rule was attenuated by the UK Supreme Court in Futter v HMRC; Pitt v HMRC.[3]  Lord Walker said that:[4]

… for the rule to apply the inadequate deliberation on the part of the trustees must be sufficiently serious as to amount to a breach of fiduciary duty. Breach of duty is essential (in the full sense of that word) because it is only a breach of duty on the part of the trustees that entitles the court to intervene . . . It is not enough to show that the trustees’ deliberations have fallen short of the highest possible standards, or that the court would, on a surrender of discretion by the trustees, have acted in a different way.

There is little doubt that the principle can apply in New Zealand.[5]  The rule can have powerful effects. Where a decision is made by trustees where that decision breaches the terms of the relevant instrument, irrelevant considerations have been considered, or relevant considerations have not been considered. It can be used to unwind negative tax consequences, or unwind decisions to liquidate companies, for example.

If you consider a trustee has seriously erred by error of decision-making process, reach out to me. I have successfully acted on several claims involving challenging trustee decisions using this concept, including obtaining injunctive relief.

[1]             Re Hastings-Bass [1975] Ch 25 (CA).  This was followed in several cases including these:  Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513; Stannard v Fisons Pension Trust [1992] IRLR 27; Kerr v British Leyland (Staff) Trustees Ltd [2001] WTLR 1071; Green v Cobham [2002] STC 820; Abacus Trust Co (Isle of Man) Ltd v NSPCC [2001] WTLR 953; Burrell v Burrell [2005] EWHC 245 (Ch); Sieff v Fox [2005] EWHC 1312 (Ch), [2005] 1 WLR 3811.

[2]             At 41.

[3]             Futter v HMRC; Pitt v HMRC [2013] UKSC 26.

[4]             At [73].

[5]             See C Kelly, G Kelly, C Mackenzie and K Lawrence Garrow & Kelly Law of Trusts and Trustees (8th ed, LexisNexis, online ed, 2022) at [19.89]-[19.90]; Re Motorola New Zealand Superannuation Fund [2001] 3 NZLR 50; Dr Lindsay Breach Nevill’s Law of Trusts, Wills and Administration (14th ed, Lexis Nexis, New Zealand) at [10.1.1], citing Clement v Lucas [2017] NZHC 3278.