Judgment Call: 20 May 2013

Banking & finance

Harbinger Capital Partners v Caldwell[2013] EWCA Civ 492. Mummery LJ; Lewison LJ; Neatson LJ. 9 May 2013

In assessing the value of Northern Rock shares prior to its nationalisation, and therefore the amount of compensation due to shareholders, an independent valuer appointed under the Northern Rock plc Compensation Scheme Order 2008 had correctly interpreted the phrase “has been withdrawn” in the Banking (Special Provisions) Act 2008 art.5(4) and had not erred in denying them compensation on the basis that the shares had a nil value as at the date they were taken into public ownership.

Appeal dismissed

For the appellant Harbinger

South Square’s Mark Phillips QC; Blackstone Chambers’ Pushpinder Saini QC; Brown Rudnick partners Louise Verrill and Neill Shrimpton

For the respondent Independent Valuer

Brick Court Chambers’ Mark Howard QC; Martin Chamberlain QC; Brick Court’s Jonathan Dawid; Mayer Brown partner Stuart Pickford


Attrill v Dresdner Kleinwort Ltd[2013] EWCA Civ 394. Maurice Kay LJ; Elias LJ; Beatson LJ.

26 April 2013

An employer who had made an oral promise in a ‘town hall’ meeting to pay relevant employees a guaranteed performance-based bonus had done so in accordance with powers of unilateral variation set out in the employee handbook and with the intention that the promise would be legally binding.

Appeal dismissed

For the appellant (1) Dresdner Kleinwort and (2) Commerzbank

Matrix Chambers’ Thomas Linden QC; Brick Court’s Martin Chamberlain (now a QC) and Oliver Jones; Linklaters partner Nicola Rabson

For the respondents (1) Richard Attrill & Ors

4 Pump Court’s Nigel Tozzi QC;

4 Pump Court’s Kate Livesey; Stewarts Law partner Clive Zietman

For the respondents (2) Fahmi Anar & Ors

Essex Court’s Andrew Hochhauser QC; Essex Court’s David Craig; Mishcon de Reya partner Mark Levine


BNY Corporate Trustee Services Ltd & Ors (Respondents) v Neuberger Berman Europe Ltd (on behalf of Sealink Funding Ltd) & Ors (Appellants); BNY Corporate Trustee Services Ltd & Ors (Respondents) v Eurosail-UK 2007-3BL plc (Appellant) [2013] UKSC 28. Lord Hope JSC; Lord Walker JSC; Lord Mance JSC; Lord Sumption JSC; Lord Carnwath JSC. 9 May 2013

While discrediting the ‘point of no return’ test, the Supreme Court affirmed the decision of the Court of Appeal that the ability of a company to meet its liabilities was to be determined on the balance of probabilities, with the burden of proof on the party asserting “balance sheet insolvency”.

Appeal dismissed

For the appellant/cross-respondents

South Square’s Gabriel Moss QC; South Square’s Richard Fisher; Sidley Austin associate Alastair Hopwood

For the 2nd respondent/


South Square’s Robin Dicker QC; South Square’s Jeremy Goldring; Berwin Leighton Paisnerpartner David Leibowitz

For the 1st respondent

South Square’s David Allison; Allen & Overy senior associate Tim Beech

Featured case



Futter & Anor (Appellants) v The Commissioners for HM Revenue and Customs (Respondent); Pitt & Anor (Appellants) v The Commissioners for HM Revenue and Customs (Respondent) [2013] UKSC 26. Lord Neuberger JSC; Lord Walker JSC; Lady Hale JSC; Lord Mance JSC; Lord Clarke JSC; Lord Sumption JSC. 9 May 2013

The Supreme Court considered the existence and limits of the principle known as ‘the rule in Hastings-Bass (Deceased), Re [1975] Ch. 25’.

Appeals allowed in part

In conjoined appeals the appellant trustees Futter and Pitt appealed against a decision ([2011] EWCA Civ 197) that the principle known as ‘the rule in Hastings-Bass (Deceased), Re [1975] Ch. 25’ could not operate in their favour to unwind transactions that had attracted unforeseen tax disadvantages owing to inaccurate professional advice.

The court was also required to decide whether it had jurisdiction to set aside the dispositions under the equitable doctrine of mistake.

Futter’s appeal concerned incorrect advice given by a solicitor regarding liability to capital gains tax. The solicitor

was also one of the trustees. He and the other trustee had exercised their powers of enlargement and advancement in circumstances where it was wrongly thought that no tax liability would arise.

Pitt’s appeal concerned financial advisers recommending a trustee to settle damages in a discretionary trust. The settlement had inheritance tax consequences the advisers had omitted to address. If the correct advice had been given the settlement could have been drafted to avoid them.

The transactions in both cases were vitiated by the court under the rule in Hastings-Bass. The Court of Appeal (CoA), finding that that rule was not a correct statement of the law, allowed HMRC’s appeals. It held that where acts within the power of trustees were said to be vitiated by their failure to take account of a relevant factor, a beneficiary had to demonstrate a breach of fiduciary duty by trustees and that such breach could not be shown where, as in the appellants’ cases, the trustees had acted on apparently competent advice.

The court held that it had power to set aside a transaction under a separate equitable doctrine of mistake where the mistake concerned the legal effect of the disposition or a fact which was basic to the transaction, but that that doctrine did not apply to unforeseen fiscal consequences of a trustee’s decision. The instant court was required to make findings about the existence and limits of the Hastings-Bass rule.

Appeals allowed in part

The rule in Hastings-Bass and the equitable doctrine of mistake were different, but they overlapped in their practical application. Early authorities had been decided by “plaiting together” three strands of Chancery legal doctrine to produce a new rule and distinctions between the doctrines had become blurred.

The ratio of Hastings-Bass was open to debate; in the context of its two main precursors, Baron Vestey’s Settlement, Re [1951] Ch. 209 and Abrahams Will Trusts,

Re [1969] 1 Ch. 463, it was not about mistake, it did not concern what had been in the trustees’ minds at the relevant time and it had distinguished rather than overruled Abrahams, Abrahams and Baron Vestey’s considered.

The judge below had correctly decided that the paragraph professing to be the ratio of Hastings-Bass beginning with the words “To sum up the preceding observations […]” was open to criticism for the generality of its reference to unintended consequences and could not be regarded as clear and definitive guidance about when it would be appropriate for the court to intervene in a transaction. Its supposed principle had been applied in the subsequent case of Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587, but the basis on which Mettoy was decided could not be found in the reasoning in Hastings-Bass.

The rule subsequently developed whereby, in order for it to be invoked, the inadequate deliberation had to be sufficiently serious to amount to a breach of duty, a breach of duty being essential to its application. Such a mistake rendered the trustees’ disposition voidable, not void, Abacus Trust Co (Isle of Man) Ltd v Barr [2003] approved and Sieff v Fox [2005] considered.

It would be inappropriate for trustees, relying on their own failings, to themselves instigate the proceedings; such litigation was not to be regarded as uncontroversial and as reliably leading to a recovery of costs from the trust fund, Kerr British Leyland (Staff) Trustees Ltd [2001] WTLR 1071 considered. As a matter of principle there had to be a high degree of flexibility in the range of the court’s possible responses to Hastings-Bass. To lay down a rigid rule of what the test should be would inhibit the best practical solution in different factual situations.

The rule centred on the failure of trustees to perform their decision-making function and it was that which founded the court’s jurisdiction to intervene if it thought fit. Trustees might still be liable for breach of trust even if they had taken competent professional advice, but it would be contrary to principle and authority to impose a form of strict liability where they had acted on apparently competent professional advice that turned out to be wrong. Although solicitors sometimes acted as agent in a relationship where the trustee was principal, they could not act as agents in the exercise of fiduciary discretions, Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] applied.

In Futter’s case, the solicitor had not failed to consider capital gains tax, but had overlooked a statutory amendment which resulted in him giving wrong advice. It would be artificial to distinguish between him and the other trustee; they had acted together. The solicitor was not in breach of fiduciary duty. Pitt was also not in breach of fiduciary duty.

In both cases the CoA had been right to find that the Hastings-Bass rule was not applicable.

The test for setting aside a voluntary disposition for mistake centred on the gravity of the mistake and its consequences.

The injustice of leaving a mistaken disposition uncorrected had also to be objectively evaluated. An intense focus on the individual facts was required, Ogilvie v Littleboy (1899)considered. A mistake had to be distinguished from mere ignorance or inadvertence.

Mere ignorance, even if causative, was insufficient to constitute mistake, but the court should not shirk from drawing the inference of conscious belief or tacit assumption where there was evidence to support such an inference.

The boundary between mistake and misprediction was also problematic, Ogden v Trustees of the RHS Griffiths 2003 Settlement [2008] EWHC 118 (Ch), [2009]

Ch. 162 doubted. The court outlined uncontroversial points relating to the types of mistake coming within the doctrine and analysed the case law, Gibbon v Mitchell [1990] 1 WLR 1304 considered. Pitt’s case satisfied the test for setting aside a voluntary disposition on the ground of mistake and the court below had been wrong to find otherwise. There would have been nothing artificial or abusive in the settlement having been drafted so as to obtain the protection of the Inheritance Tax Act 1984 s.89.

For the appellant Pitt

Wilberforce Chambers’ Christopher Nugee QC

Serle Court’s Will Henderson

Bolitho Way partner David Grinstead

For the appellant Futter

Wilberforce Chambers’ Robert Ham QC

3 Stone Buildings’ Richard Wilson

3 Stone Buildings’ Jennifer Seaman

Withers partner Paul Hewitt

For the respondent HMRC

Serle Court’s Philip Jones QC

Serle Court’s Ruth Jordan

Commentary: Ruth Jordan


The restricted rule in Hastings Bass still protects beneficiaries who rely on trustees acting within and in accordance with their powers, but beyond this no longer puts trusts in a special category where transactions with unintended consequences are concerned.

The decision is unlikely to please advisers or their insurers because it blocks the route that has enabled liability insurers to avoid full liability where, for example, tax planning schemes have failed.

Those saddled with a bad decision where the trustee has acted properly now have as their only direct remedy rescission on grounds of mistake.

The Supreme Court’s new test for mistake in voluntary transactions is flexible. Lord Walker whilst giving courts discretion to decide cases on their own facts, identifies artificial tax avoidance schemes as unlikely to merit intervention under this jurisdiction on the basis (i) that knowingly taking a risk the tax planning scheme would prove ineffective may not qualify as a ‘mistake’; and (ii) that relief is discretionary and may therefore be refused on grounds of public policy.

This will be not be welcomed by those devising, using and advising on tax avoidance schemes. It is likely to give rise to interesting litigation exploring the boundary between tax planning decisions that merit the court’s intervention and those that do not.

Ruth Jordan is a barrister at Serle Court specialising in trusts and tax litigation