Rescission for Mistake

Last week the UK Supreme Court handed down its judgment in two appeals eagerly awaited by the Trusts and Estate bar: Pitt v. Holt and Futter v. Futter. They concern the rule which emerged since the 1975 decision in Hastings-Bass (HB) by which trustees could attack their own decisions where they had unintended consequences. Some commentators dubbed it the “morning after pill”.

A Press summary of the UKSC decisions can be found here.

Typically the sorts of cases where the HB rule has been applied are to give relief to decisions which have resulted in taxation that was unintended and could have been lawfully avoided if the transactions involved had been carried out differently.

Before Pitt and Futter the HB rule was taken to mean that the courts could generally intervene where the trustee had failed to take into account relevant considerations. But the Court of Appeal found the jurisdiction of the court to intervene was limited to circumstances in which the trustees had breached their fiduciary duty. In Futter and Pitt the trustees’ decisions had resulted in significant unintended taxation. However the court had no jurisdiction to intervene because the trustees had obtained and acted upon proper professional advice. They had not breached their duties. The UK Supreme Court upheld this ruling.

In Pitt the trustees sought rescission on the ground of mistake in the alternative. The Court of Appeal dismissed this claim applying the law that relief is not available for the consequence of a decision, only for its effect. This is a distinction that has caused a lot of confusion. The Supreme Court did not apply it but instead concluded the critical point is that the mistake must be causative, and of sufficient gravity:

“The court must make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected, and form a judgment about the justice of the case.”