The Court of Appeal in the UK has determined that the rule in Hastings-Bass has been misinterpreted and is much narrower than subsequent cases suggested. In the words of Lord Justice Longmore, "these appeals provide examples of that comparatively rare instance of the law taking a seriously wrong turn, of that wrong turn being not infrequently acted on over a twenty year period but this court being able to reverse that error and put the law back on the right course."
This appeal was brought by HM Revenue & Customs against decisions being un-wound which had unintended and adverse tax consequences. How this decision will be applied in the context of pension schemes generally, and in Ireland in particular, remains to be seen. In addition, the decision may be appealed to the Supreme Court in the UK.
Going forward, it is likely to be beneficiaries who will need to challenge the trustees' actions if they wish them to be set aside. The remedies may not be "in the realms of equity but by way of a claim for damages for professional negligence".
Pitt and Another –v- Holt and Another; Futter and Another –v- Futter and Others  EWCA Civ 197
Previously, the Hastings-Bass decision had been interpreted as meaning that where trustees exercise a discretion (and the effect has unintended consequences) the decision could be declared invalid if the trustees would have acted differently had they not failed to take into account all relevant factors or had they not taken into account irrelevant factors. This was often used by trustees to unwind actions which resulted in unintended consequences.
The main points from the Court of Appeal judgement are:
- If trustees act outside their powers their actions are void;
- If trustees act within the scope of their powers but fail to take into account relevant factors or take into account irrelevant factors and where this is a breach of the trustees' fiduciary duties, their actions may be voidable. The trustee's actions are voidable at the instance of the scheme beneficiaries.
- If the trustees act on appropriate professional advice their decision is unlikely to be a breach of their fiduciary duties and the exercise of the discretion will not be voidable.
- To set aside a voluntary transaction for mistake, there must be a mistake on the part of the donor as to the legal effect (as opposed to a consequence or economic effect of the mistake) of the transaction or as to an existing fact that is basic to the transaction.
The ruling is likely to increase the burden on trustees where they seek an order setting aside their decision where it has undesirable or unforeseen consequences. This decision, if followed in Ireland, may see trustees seeking to recover from their advisers rather than having the court un-wind their past decisions.
It is unclear whether the Irish Courts will follow the same approach as the UK Court of Appeal. One would expect the Irish Courts to vigorously defend the interests of beneficiaries. However, it remains to be seen whether they will expect this to be through the setting aside of the trustees' decision or professional negligence claims.
The ruling highlights the importance for trustees of ensuring their decisions are made on the correct legal and factual grounds by obtaining and acting on appropriate legal or other professional advice.