Pitt v Holt; Futter v Futter

Pitt v Holt; Futter v Futter [2011] EWCA Civ 197

The UK Court of Appeal case overturned the so called “Hastings- Bass Rule“.

The Victorian Supreme Court chose not to apply the “Rule” in Asea Brown Boveri Superannuation Fund No. 1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144.

The case involved new trustees of a superannuation fund seeking a declaration from the Supreme Court of Victoria that an earlier deed (changing provisions of the trust) made by the previous trustees was invalid. Justice Beach considered the applicable law relating to when a court will review and overturn a trustee’s discretionary decisions was found in the Victorian cases of Karger v Paul [1984] VR 161 {The trustee’s discretion can only be examined by the court only to ask if the discretion was exercised in good faith, giving real and genuine consideration to the matter without ulterior purpose. In other words, if a trustee’s  decision making was based on wrong information or was unwise, that is irrelevant} and the unreported decision of Justice Hayne in Esso Australia v Australian Petroleum Agents’ and Distributors’ Association (5 October 1993)

Justice Beach stated: ” I know of no principle of law which permits a trustee to come to the court and say – “sometime ago I made a decision concerning the trust fund of which I am a trustee in the mistaken belief that a certain state of affairs existed at the time. Had I then known what I now know I would not have made the decision I did but a totally different one. Because of my mistaken assumption I now ask the court to declare my earlier decision to be invalid”  { Asea Brown Boveri Superannuation Fund No. 1 Pty Ltd v Asea Brown Boveri Pty Ltd [1999] 1 VR 144 at 157}.

The Hastings-Bass Rule was considered to have doubtful application in Victoria even though it had been applied in a Western Australia case {BMD v KWD [2008] WASC 196}

In Telstra Super Pty Ltd v Finch [2009] VSCA 318 at [65]  the Victorian Court of Appeal made reference to Karger v Paul:

“The Court has power to set aside the discretionary decision of a trustee if the relevant discretion was not exercised by the trustee in good faith, upon real and genuine consideration, and in accordance with the purposes for which the discretion was conferred. However, the mere fact that a trustee makes an error as to a fact or some other matter or does not make all inquiries that may have been open to be made is not sufficient reason for the Court to set aside a determination that was made in good faith, upon real and genuine consideration, and for a proper purpose.”

The High Court of Australia in Finch v Telstra Super Pty Ltd [2010] HCA 36 at [29] raised the question as to what is a “discretionary decision“?

In Dwyer v Calco Timbers Pty Ltd [2008] HCA 13; (2008) 234 CLR 124 at 138-139 the High Court emphasised that while the term “discretion” is used in the description or characterisation of various acts or omissions in the law, the term may be an inadequate description of an inquiry which requires the identification of factual matters. The present is not a case involving a “discretion“.

The High Court at [66] stated:

“Byrne J’s reasoning is, however, reinforced by one qualification to Karger v Paul principles in the present context. There is no doubt that under Karger v Paul principles, particularly as they have been applied to superannuation funds, the decision of a trustee may be reviewable for want of “properly informed consideration” {Kerr v British Leyland (Staff) Trustees Ltd [2001] WTLR 1017 at 1079; Stannard v Fisons Pension Trust Ltd [1992] IRLR 27 at 31}. If the consideration is not properly informed, it is not genuine. The duty of trustees properly to inform themselves is more intense in superannuation trusts in the form of the Deed than in trusts of the Karger v Paul type. It is extremely important to the beneficiaries of superannuation trusts that where they are entitled to benefits, those benefits be paid. Here, for example, the applicant was claiming a Total and Permanent Invalidity benefit to support himself for the rest of his life. His claim depended on the formation of an opinion by the Trustee about the likelihood that he would ever engage in “gainful Work”: that was not a mere discretionary decision. In the Deed there was a power to take into account “information, evidence and advice the Trustee may consider relevant“, and that power was coupled with a duty to do so. It would be bizarre if knowingly to exclude relevant information from consideration were not a breach of duty. And failure to seek relevant information in order to resolve conflicting bodies of material, as here, is also a breach of duty. The Scheme is a strict trust. A beneficiary is entitled as of right to a benefit provided the beneficiary satisfies any necessary condition of the benefit. Whether or not it will be decided hereafter that, consistently with Section 14 of the Superannuation (Resolution of Complaints)  Act 1993, the duty of a trustee in forming an opinion of the present type is a duty to form a fair and reasonable opinion, or even a duty to form a correct opinion, there is because of the importance of the opinion and its place in the Scheme a high duty on the Trustee to make inquiries for “information, evidence and advice” which the Trustee may consider relevant. The existence of that duty in a more intense form than exists under Karger v Paul principles in their standard application is further support for the correctness of Byrne J’s decision”.

The new UK judgement by Lloyd LJ (with Longmore LJ and Mummery LJ agreeing)  is that:

(1)  Where trustees take decisions that are outside of the powers conferred upon them or where they act in breach of some other vitiating principle the decision will be void. Examples of the former will include where the trustees do not possess the relevant power, do not exercise it properly (e.g. not by deed) or where they exercise a power for the benefit of a non-object. The latter will include the rule against fraud on a power. The decision can be set aside as of right by any person, including a trustee


(2) Where trustees take a decision that is within the scope of their power but fail to take into account all relevant considerations that will be a breach of their fiduciary duty and so voidable at the instance of those affected. Trustees will not be expected to bring such claims unless seeking assistance at the urging of affected beneficiaries.
(3) Where the trustees have taken a relevant matter into account (such as tax) but the view they have formed is wrong because the advice they have received is wrong they will nevertheless have properly exercised their duties. Accordingly, they (or the beneficiaries) will not be able to set the decision aside.

Under this reformulation of the rule, everything turns on whether the trustees were in breach of trust. This makes it of crucial significance, particularly in the many cases involving fiscal misapprehensions, to establish whether trustees are in breach of trust when they rely upon apparently competent professional advice that subsequently turns out to have been wrong or incomplete.

 

 

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