ON APPEAL FROM THE HIGH COURT OF JUSTICE
ROBERT ENGLEHART Q.C.
MR JUSTICE NORRIS
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LONGMORE
LORD JUSTICE LLOYD
| (1) PATRICIA MADGE PITT
(2) DAVID NEVILLE WAITE SHORES
|- and -
|(1) DAVID LANGFORD HOLT
|(2) THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
William Henderson (instructed by Thring Townsend Lee & Pembertons) for the Respondents in Pitt v Holt, appeal 2010/0385
Richard Wilson and Jennifer Seaman (instructed by Withers LLP) for the Respondents in Futter v Futter, appeal 2010/0762
Hearing dates: 24 to 26 November 2010
Crown Copyright ©
Lord Justice Lloyd:
Introduction - general
Introduction - Pitt v Holt
Introduction – Futter v Futter
i) Under the No 3 settlement Mr Mark Futter (the First Claimant) had a life interest, his wife (the First Defendant) had a reversionary life interest, and eventually the capital was to go their children, the Second to Fourth Defendants. The trustees (the two Claimants) had a power of enlargement which they exercised on 31 March 2008 in such a way that Mr Futter became absolutely entitled to the fund.
ii) The beneficial interests under the No 5 settlement were similar. On 3 April 2008 the trustees exercised the power of advancement under section 32 of the Trustee Act 1925 so as to appoint £12,000 to each of the three children immediately.
The Hastings-Bass rule
"Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account."
Cases before Re Hastings-Bass deceased: Vestey and Abrahams
"that there has been no effective exercise of the discretion on the ground that the trustees intended to undertake this operation on the footing that they were producing a specific result, and that, if they produced a wholly different result, it would not be right to say that they had exercised their discretion."
"I do not think that it can or ought to be said that if, as I hold, the trustees wrongly thought that section 31 would operate, then a result is produced substantially or essentially different from that which was intended."
"whether, on the true construction of the will, the 1948 settlement and the 1957 settlement and in the events which had happened the advances in favour of Carole and Linda were (a) valid or (b) invalid (i) by reason of the alterations to the effect of the declared trusts, powers and provisions of the 1957 settlement effected by operation thereon of the rule against perpetuities, or (ii) for any other and if so what reason".
"Of course, it may well be that, if the invalidity caused by the operation of the rule against perpetuities is quite small as compared with the parts of the settlement which are unaffected by the rule, the court might be prepared to say that the valid parts of the settlement would survive intact. Thus Lord Evershed M.R. held in the Vestey case that the exercise of the discretion there could be upheld notwithstanding the fact that the trustees were to some extent under a misapprehension as to what its effect would be. But here there is no doubt that the effect of the operation of the rule is wholly to alter the character of the settlement. In my judgment the result of that must be that there never was a valid exercise by the trustees of the power of advancement."
Re Hastings-Bass deceased: the decision
"(iii) The decision is objectionable on grounds of public policy (a) because it involves the bona fide exercise of trustees' discretions, falling within the letter of their powers, being open to attack years later on grounds that the trustees had been under some misapprehension of law or fact and (b) because it would give rise to many uncertainties in the administration of the law because of difficulties in drawing the line.
(iv) The decision conflicts with the well established principle that where trustees have been given an absolute discretion and have exercised it within the letter of their powers, the court will not subsequently interfere with such exercise provided it has been exercised in good faith and not demonstrably unreasonable. …
(v) The decision is unsupported by authority. If it were open to persons to attack an exercise of trustees' discretion merely on the grounds that, although exercised bona fide, it had been exercised under some mis-apprehension, one would expect the reports to be full of such cases. There appear to be no reported cases where such an attack has been made."
"(2) The power of advancement is a fiduciary power only capable of being validly exercised after the trustees have exercised their discretion properly, i.e., after giving due weight to all relevant factors, in particular to the benefit to be conferred on the advancee: In re Pauling's Settlement Trusts  Ch 303.
(4) Therefore, in order to exercise the power of advancement by making a sub-settlement the trustees must weigh the benefits to the advancee under the sub-settlement against the other interests affected and for that purpose must have a proper understanding of the effect of the sub-settlement. If they do not, they have not validly exercised their power at all. This is tied up with passages in Pilkington. Cross J. thought the trustees must apply their minds to the question of balancing on one side the benefit to the advancee and others against other factors, the effect on the trust subsisting under the settlement. Unless the conglomerate benefit to the advancee is found, the weighing operation cannot be carried out: see In re Pilkington's Will Trusts  Ch. 466, per Upjohn L.J. at pp. 489, 490 and  A.C. 612, per Viscount Radcliffe at pp. 641, 642, accepted unanimously by the House of Lords. Until the trustees have weighed the benefits they cannot have applied their minds to the right question."
"(2) The argument on this point is derived from In re Pauling's Settlement Trusts  Ch 303; the trustees accept the principle as laid down by the Court of Appeal at p. 333 but say that the duty imposed on trustees, as explained in that case, only extends to applying their minds to what they know or could reasonably be expected to know. The duty of the trustees here did not extend to forecasting what the House of Lords would decide in Pilkington six years later.
(4) which ties in with (2), is wide and if correct would have far-reaching significance in trusts. It is erroneous. The courts in general do not undertake a retrospective examination of the states of mind of trustees in exercising discretions. The words "must have a proper understanding of the effect of the sub-settlement" are much too wide and should read "must apply their minds to the effect of the settlement." If they do not do this, the exercise of the discretion may well be held invalid as being "merely wanton or capricious and not to be attributable to a genuine direction": Pilkington  A.C. 612, 641. Here the trustees took legal advice and therefore, reasonably and in good faith, thought that the sub-settlement was not perpetuitous."
"The power of advancement is, he says, a fiduciary power, and as to this we think there is really no dispute. He says that the trustees can only properly exercise such a power after giving due consideration and weight to all relevant circumstances. As they must weigh the benefit which the advancement will confer upon the person advanced against those interests under the settlement which will be adversely affected by the advancement, they cannot give due consideration and weight to the benefit to be conferred on the person advanced unless they appreciate the true nature of that benefit. Mr Browne-Wilkinson contends that, if in the present case when the trustees made the advancement they believed that all the trusts of the sub-settlement would take effect, they cannot have applied their minds to the right question."
"We can feel no doubt that in such circumstances the duty-saving aspect of the scheme was a primary consideration in the minds of the trustees. The trusts of the sub-settlement which were intended to take effect after William's death in favour of his issue could also (had they been capable of taking effect) legitimately be regarded as beneficial to him as making some provision for any issue he might have for whom he would otherwise be expected to wish to make provision out of his free estate, and as securing the fund for that end. The intended power for William to make provision for a widow under the sub-settlement could also legitimately be regarded as benefiting William indirectly in a similar manner, and the power for the trustees to pay capital to him for his own use could also clearly be regarded as conferring a contingent benefit on him. But, in our opinion, these indirect or contingent benefits (had they been capable of taking effect) should be regarded as mere make weights which might be treated as enhancing the benefit to William of the scheme as a whole, but which were of far less significance than the major benefits of the saving of death duties coupled with an acceleration of William's interest.
In these circumstances, to what considerations is it reasonable to suppose that the trustees addressed their minds before making the advancement? No doubt it is right to say that they should and would have considered whether the aggregate of all the provisions of the sub-settlement (if fully effective) would be for William's benefit, but in doing so they could not, we think, have failed to consider to what extent each of those provisions could properly be regarded as contributing to the aggregate benefit, and in particular they could not have failed to consider to what extent the conferring upon William of an immediate and indefeasible life interest in possession would benefit him. The circumstances of the case, in our view, make it clear that this aspect of the arrangement must have been the prime consideration in the minds of the trustees, and this is, we think, borne out by the terms of Captain Hastings-Bass's contemporary letter to which we have already referred."
"Had it occurred to the trustees that the ulterior trusts might all fail for perpetuity, they could not reasonably have thought that this could tip the scales in the weighing operation against the scheme. The law cannot, in our judgment, require the trustees' exercise of their discretion to be treated as a nullity on the basis of an absurd assumption that, had they realised its true legal effect, they would have reached an unreasonable conclusion as the result of the weighing operation."
"If one asks what discretion they exercised, there can be no doubt that they believed themselves to be acting under section 32. They made the transfer to the 1957 settlement trustees because they considered that it would benefit William. Can the fact that they believed their action would have a different legal effect from the limited effect which alone it could have result in the transfer not having been an exercise of their discretion under that subsection? There is no reason to suppose that, in the light of their own understanding or advice as to the law, they failed to ask themselves the right questions or to arrive in good faith at a reasonable conclusion. Amongst the questions they must have asked themselves was the question whether a sub-settlement limiting William's interest in the advanced fund to a life interest would be for his benefit. For reasons which we have already indicated, the only answer which they could reasonably have given themselves to that question would have been affirmative, even without regard to any indirect or contingent benefits intended to be conferred on William by the other provisions of the sub-settlement. They may not have asked themselves whether to give William an immediate life interest without any further variation of the trusts of the 1947 settlement would benefit William, but the consequence would not, in our opinion, be that their action should be regarded as something other than an exercise of their discretion under section 32."
"Where trustees intend to make an advancement by way of sub-settlement, they must no doubt genuinely apply their minds to the question whether the sub-settlement as a whole will operate for the benefit of the person advanced, but this does not, we think, involve regarding this benefit as a benefit of a monolithic character. It is, in our opinion, more naturally and logically to be regarded as a bundle of benefits of distinct characters. Each and all of those benefits is conferred, or is intended to be conferred, by a single exercise of the discretion under section 32. If by operation of law one or more of those benefits cannot take effect, it does not seem to us to follow that those which survive should not be regarded as having been brought into being by an exercise of the discretion. If the resultant effect of the intended advancement were such that it could not reasonably be regarded as being beneficial to the person intended to be advanced, the advancement could not stand, for it would not be within the powers of the trustees under section 32. In any other case, however, the advancement should, in our judgment, be permitted to take effect in the manner and to the extent that it is capable of doing so."
"Cross J. might well have been justified in that case in considering that the intended sub-settlement in its attenuated form could not reasonably be regarded as beneficial to the daughter intended to be advanced and so could not be treated as an exercise of discretion falling within the terms of section 32. If so, we think he reached the right conclusion. His decision should not, in our judgment, be regarded as authority for the fourth contention of the commissioners in the present case. It should not, we think, be treated as laying down any principle applicable in any case other than one in which the effect of the perpetuity rule has been to alter the intended consequences of an advancement so drastically that the trustees cannot reasonably be supposed to have addressed their minds to the questions relevant to the true effect of the transaction. We do not consider that the operation of the rule has produced such a drastic effect in the present case."
"To sum up the preceding observations, in our judgment, where by the terms of a trust (as under section 32) 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 upon 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."
Re Hastings-Bass deceased – the ratio decidendi
The decisions since Re Hastings-Bass deceased
"I have come to the conclusion that there is a principle which may be labelled 'the rule in Hastings-Bass'. I do not think that the application of that principle is confined, as Mr Nugee suggested, to cases where an exercise by trustees of a discretion vested in them is partially ineffective because of some rule of law or because of some limit on their discretion which they overlooked. If, as I believe, the reason for the application of the principle is the failure by the trustees to take into account considerations that they ought to have taken into account, it cannot matter whether that failure is due to their having overlooked (or to their legal advisers having overlooked) some relevant rule of law or limit on their discretion, or is due to some other cause.
It is not enough, however, for the principle to apply, that it should be shown that the trustees did not have a proper understanding of the effect of their act. It must also be clear that, had they had a proper understanding of it, they would not have acted as they did. That is apparent from Re Hastings-Bass itself, where the Court of Appeal rejected what it referred to as the fourth contention of the Commissioners of Inland Revenue."
"Nor can I accept Mr Nugee's 'all or nothing' argument. There may well be cases where the court, giving effect to the rule in Hastings-Bass, comes to the conclusion that, had the trustees not failed to take into account considerations which they ought to have taken into account, they would not have acted as they did at all, but would either have done nothing or done something quite different. In such a case the court must declare void the whole of the purported exercise of the trustees' discretion. There may however be cases where the court is satisfied that the trustees would have acted in the same way but with, for instance, the omission of a particular provision in a deed. I do not see why, in such a case, the court should not declare only that provision void. It seems to me that the remedy to be adopted by the court must depend on the circumstances of each case."
"The essential requirement is that the trustees address themselves to the question what is fair and equitable in all the circumstances. The weight to be given to one factor as against another is for them.
Properly understood, the so-called duty to act impartially - on which the ombudsman placed such reliance - is no more than the ordinary duty which the law imposes on a person who is entrusted with the exercise of a discretionary power: that he exercises the power for the purpose for which it is given, giving proper consideration to the matters which are relevant and excluding from consideration matters which are irrelevant."
"Nevertheless, there is no doubt that the trustees' decision can be set aside if it can be shown that they failed to consider matters which were relevant, or took into account matters which were irrelevant."
"This duty lies at the heart of the rule, which is directed at ensuring for the protection of the beneficiaries under the trust that they are not prejudiced by any breach of such duty."
"If the trustee has in accordance with his duty identified the relevant considerations and used all proper care and diligence in obtaining the relevant information and advice relating to those considerations, the trustee can be in no breach of duty and its decision cannot be impugned merely because in fact that information turns out to be partial or incorrect."
"The authorities leave open the question whether a decision successfully challenged under the Rule is voidable or void. (The problematic judgment of Farwell LJ in Cloutte v. Storey  1 Ch 18 on the effect of a fraud on a power raises difficulties pointed out by Lord Walker and cannot be determinative). There are statements in a number of the cases that the decision is void, but it is not clear how far the issue was fully argued, if argued at all, and so far as they do so decide, their weight and otherwise binding effect on me is diluted by the absence of reasoning and accord with principle by the fact that there appears to have been no reference made to the statement by Staughton LJ in Stannard (at para 66 p.237) that in the case of the challenge to the decision in that case the court had a discretion whether to declare the trustees' decision invalid. It is necessarily implicit in this statement in the private law context in which it is to be found that he was holding that the court had a discretion whether to avoid the trustee's decision i.e. it was voidable only."
"32. … But if the trustees have exercised the discretion conferred upon them, but in doing so have failed to take into account a relevant consideration or have taken into account an irrelevant consideration, it cannot in my view fairly or sensibly be held that they made no decision. It may be held that they made a flawed decision which is open to challenge, but that they made a decision is beyond question. The common law doctrine of "Non est factum" has a very narrow and limited application. The transaction must be essentially different in substance or in kind from the transaction intended: Saunders v. Anglia Building Society  AC 1004 at 1026 per Lord Wilberforce. As Lord Walker suggests [in "The Limits of the Principle in Re Hastings-Bass"  PCB 226, 233 and 239], a like requirement as to the essential nature of a transaction is surely called for before the equivalent rule can render a decision in equity no decision at all. The application of the rule cannot of itself have this effect.
33. A successful challenge made to a decision under the rule should in principle result in the decision being held voidable and not void. This accords with the ordinary principles of equity that (leaving aside the separate and distinct self-dealing rule) a decision challenged on grounds of breach of fiduciary duty is voidable and not void. That applies to the appointment which, as I have held, falls foul of the rule."
"In an imperfect world trustees (like other decision-makers) do often make decisions which are based on less than complete information and less than full analysis and discussion, and there is real difficulty in formulating the test for determining when a decision is so flawed as to be invalid. The authorities just mentioned are not completely clear as to whether the test is whether the trustees, if properly advised and informed, would have acted otherwise, or whether it is that they might have acted otherwise. There is also the question of how materially different the trustees' decision would or might have been (for instance, on the facts of this case, the council of the National Trust might have decided on a ban, even contrary to donors' memoranda of wishes, but might have decided to defer the ban for a full year, that is until the end of the current season). To impose too stringent a test may impose intolerable burdens on trustees who often undertake heavy responsibilities for no financial reward; it may also lead to damaging uncertainty as to what has and has not been validly decided."
Two different categories of case
What is the true principle?
"The term fraud in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power. Perhaps the most common instance of this is where the exercise is due to some bargain between the appointor and appointee, whereby the appointor, or some other person not an object of the power, is to derive a benefit. But such a bargain is not essential. It is enough that the appointor's purpose and intention is to secure a benefit for himself, or some other person not an object of the power. In such a case the appointment is invalid, unless the Court can clearly distinguish between the quantum of the benefit bona fide intended to be conferred on the appointee and the quantum of the benefit intended to be derived by the appointor or to be conferred on a stranger."
What are the relevant duties of a trustee?
"Any trustee would surely make it his duty to know what is the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to other possible claimants, a particular grant was appropriate."
He then went on:
"Correspondingly a trustee with a duty to distribute, particularly among a potentially very large class, would surely never require the preparation of a complete list of names, which anyhow would tell him little that he needs to know. He would examine the field, by class and category; might indeed make diligent and careful inquiries, depending on how much money he had to give away and the means at his disposal, as to the composition and needs of particular categories and of individuals within them; decide upon certain priorities or proportions, and then select individuals according to their needs or qualifications."
"Differences there certainly are between trust (trust powers) and powers, but as regards validity, should they be so great as that in one case complete, or practically complete, ascertainment is needed, but not in the other? Such distinction as there is would seem to lie in the extent of the survey which the trustee is required to carry out: if he has to distribute the whole of a fund's income, he must necessarily make a wider and more systematic survey than if his duty is expressed in terms of a power to make grants. But just as, in the case of a power, it is possible to underestimate the fiduciary obligation of the trustee to whom it is given, so, in the case of a trust (trust power), the danger lies in overstating what the trustee requires to know or to inquire into before he can properly execute his trust."
"Being a fiduciary power, it seems to us quite clear that the power can be exercised only if it is for the benefit of the child or remoter issue to be advanced or, as was said during argument, it is thought to be "a good thing" for the advanced person to have a share of capital before his or her due time. That this must be so, we think, follows from a consideration of the fact that the parties to a settlement intend the normal trusts to take effect, and that a power of advancement be exercised only if there is some good reason for it. That good reason must be beneficial to the person to be advanced; it cannot be exercised capriciously or with some other benefit in view. The trustees, before exercising the power, have to weigh on the one side the benefit to the proposed advancee, and on the other hand the rights of those who are or may hereafter become interested under the trusts of the settlement."
"it is to the discretion of the trustees that the execution of the trust is confided, that discretion being exercised with an entire absence of indirect motive, with honesty of intention, and with a fair consideration of the subject. The duty of supervision on the part of this Court will thus be confined to the question of the honesty, integrity, and fairness with which the deliberation has been conducted, and will not be extended to the accuracy of the conclusion arrived at, except in particular cases. If, however, as stated by Lord Ellenborough in The King v. The Archbishop of Canterbury (15 East, 117), trustees think fit to state a reason, and the reason is one which does not justify their conclusion, then the Court may say that they have acted by mistake and in error, and that it will correct their decision; but if, without entering into details, they simply state, as in many cases it would be most prudent and judicious for them to do, that they have met and considered and come to a conclusion, the Court has then no means of saying that they have failed in their duty, or to consider the accuracy of their conclusion."
"If it can be shown that the trustees considered the wrong question, or that, although they purported to consider the right question they did not really apply their minds to it or perversely shut their eyes to the facts or that they did not act honestly or in good faith, then there was no true decision and the court will intervene."
"there does remain at all times a residual power in the court to restrain or correct any purported exercise that can be shown to be merely wanton or capricious and not to be attributable to a genuine discretion."
What ought trustees to take into account?
"I have heard a lot of submissions about the duties of trustees in making decisions in exercise of their fiduciary functions. Certain points are clear beyond argument. Trustees must act in good faith, responsibly and reasonably. They must inform themselves, before making a decision, of matters which are relevant to the decision. These matters may not be limited to simple matters of fact but will, on occasion (indeed, quite often) include taking advice from appropriate experts, whether the experts are lawyers, accountants, actuaries, surveyors, scientists or whomsoever. It is however for advisers to advise and for trustees to decide: trustees may not (except in so far as they are authorised to do so) delegate the exercise of their discretions, even to experts. This sometimes creates real difficulties, especially when lay trustees have to digest and assess expert advice on a highly technical matter (to take merely one instance, the disposal of actuarial surplus in a superannuation fund)."
The correct principle
Applying the principle: Futter v Futter
Applying the principle: Pitt v Holt
The equitable jurisdiction to set aside a voluntary transaction for mistake
The nature of the jurisdiction; Mrs Ogilvie's litigation
"Gifts cannot be revoked, nor can deeds of gift be set aside, simply because the donors wish they had not made them and would like to have back the property given. Where there is no fraud, no undue influence, no fiduciary relation between donor and donee, no mistake induced by those who derive any benefit by it, a gift, whether by mere delivery or by deed, is binding on the donor.
In the absence of all circumstances of suspicion a donor can only obtain back property which he has given away by showing that he was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him."
"Such questions, doubtless, may arise under circumstances when misunderstanding on both sides may render it unjust to the giver that the gift should be retained."
Cases in the nineteenth and early twentieth centuries
"It seems to me that when a person has forgotten the existence of a pre-existing fact, and assumes that such fact did not pre-exist, he is labouring under a mistake, and he acts on the footing that the fact really did not pre-exist."
"It is, I think, instructive to consider the words of Bramwell B. referred to above [i.e. in Aiken v Short] in the light of these authorities. In the first case which he mentions, namely, that where the supposed fact if true would have made the person paying liable to pay the money, the mistake is a mistake as to the nature of the transaction. The payer thinks that he is discharging a legal obligation whereas in truth and in fact he is making a purely voluntary payment. Such a mistake is to my mind unquestionably fundamental or basic and may be compared, at least by way of analogy, with the class of case in which mistake as to the nature of the transaction negatives intention in the case of contract. But the second case which he mentions, namely, that where the supposed fact would, if true, merely make the payment desirable from the point of view of the payer, is very different. In that case the payment is intended to be a voluntary one and a voluntary payment it is whether the supposed fact be true or not. It appears to me that a person who intends to make a voluntary payment and thinks that he is making one kind of voluntary payment whereas upon the true facts he is making another kind of voluntary payment, does not make the payment under a mistake of fact which can be described as fundamental or basic. The essential quality of the payment, namely its voluntary character, is the same in each case. If a father, believing that his son has suffered a financial loss, gives him a sum of money, he surely could not claim repayment if he afterwards discovered that no such loss had occurred; and (to take the analogous case of contract) if instead of giving him money, he entered into a contract with his son, he surely could not claim that the contract was void. To hold the contrary would almost amount to saying that motive and not mistake was the decisive matter."
"And in refusing assent to the appellant's argument that the Aiken v. Short proposition is of itself necessarily sufficient to fix the boundary, I desire to keep clearly open the possibility of the common law treating other types of payment in mistake as falling within the scope of the action for money had and received. Without expressing any opinion, I recognize, for instance, the possibility that there may be cases of charitable payments or other gifts made under a definite mistake of person to be benefited, or of the substantial nature of the transaction, where on consideration the old principles of the action might still, in spite of limiting decisions, be held to cover such circumstances."
The more recent cases
"In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. The proposition that equity will never relieve against mistakes of law is clearly too widely stated: see Stone v. Godfrey (1854) 5 De G. M. & G. 76, and Whiteside v Whiteside  Ch 65, 74."
"Mr. Gibbon did not merely execute the deed under a mistake of law as to the legal consequences of his doing so. He executed it under a mistake as to its legal effect. The deed itself shows that to be the case. Since its effect was not that which he intended, he is entitled to have it set aside. Equity acts on the conscience. The parties whose interest it would be to oppose the setting aside of the deed are the unborn future children of Mr. Gibbon and the objects of discretionary trust to arise on forfeiture, that is to say his grandchildren, nephews and nieces. They are all volunteers. In my judgment they could not conscionably insist upon their legal rights under the deed once they had become aware of the circumstances in which they had acquired them."
"If a party enters into a deed (with a view to saving tax) on terms which are fully understood and where the effect of such terms is fully appreciated and if for whatever reason the anticipated desirable tax consequences thereafter do not flow, it would really not be open, in the ordinary way at least, to such person to seek to set aside that deed on the ground that he had not understood its nature or effect."
"If anything, it is simply a formula designed to ensure that the policy involved in equitable relief is effectuated to keep it within reasonable bounds and to ensure that it is not used simply when parties are mistaken about the commercial effects of their transactions or have second thoughts about them."
"There are, I think, some problems about voluntary payments made as gifts but that would not have been made but for some causative mistake, whether of fact or law, e.g. a gift of £1,000 by A to B where B is believed by A to be impecunious but is in fact a person of substantial wealth and where A would not have made the gift if he had known that to be so. My present opinion is that unless there were some other reason, such as a misrepresentation by B, to enable the gift to be set aside, the mistake made by A would not suffice, notwithstanding that the payment had not been made pursuant to any legal obligation and that but for the mistake it would not have been made. But the availability of a restitutionary remedy to recover gifts which would not have been made but for some mistake of fact or of law does not need to be pursued on this appeal and can be left for another day."
"By way of analogy with the approach of the courts to a common law claim in restitution, the best measure as to whether the mistake was so serious as to render it unjust for the volunteer donee to retain the moneys is if the payment would not have been made "but for" the mistake. In other words the mistake is the cause of the payment."
The correct test
Applying the test to the facts in Pitt v Holt
Summary and disposition
i) On the one hand there may be a case in which, for example because of an inadvertent misunderstanding of the position, an act done by trustees in the exercise of a dispositive discretion is not within the scope of the relevant power. If so it is void. That was the case in Re Abrahams' Will Trusts, as it was interpreted in Re Hastings-Bass. It would have been the case in Re Hastings-Bass but for the Court of Appeal having allowed the appeal by the trustees.
ii) On the other hand, the case may be one in which the trustees' act in exercise of their discretion is within the terms of their power, but is said to have been vitiated by their failure to take into account a relevant matter, or their taking something irrelevant into account, when deciding to exercise, and exercising, the discretion. The correct approach to such cases is dealt with at paragraph  above. The trustees' act is not void; it may be voidable. To be voidable it must be shown to have been done in breach of a fiduciary duty of the trustees. The duty to take relevant, and no irrelevant, matters into account is a fiduciary duty. Relevant matters may include fiscal consequences of the act in question. However, if the trustees fulfil their duty of skill and care by seeking professional advice (whether in general or in specific terms) from a proper source, and act on the advice so obtained, then (in the absence of any other basis for a challenge) they do not commit a breach of trust even if, because of inadequacies of the advice given, they act under a mistake as to a relevant matter, such as tax consequences. In the absence of a breach of trust, the trustees' act is not voidable. Even if it is voidable, it cannot be avoided unless a beneficiary seeks to have it avoided, and a claim to that effect will be subject to the discretion of the court and to the usual range of equitable defences.
iii) The same principles may apply to acts on the part of other persons in a fiduciary position, of whom a receiver appointed under the Mental Health Act 1983 is an example.
i) What Mrs Pitt did was within the terms of the power conferred on her by the Court of Protection. It was therefore not void. She owed her husband a fiduciary duty in respect of her exercise of the power conferred on her by the Court of Protection. However, having taken advice from a proper source as to the advantages and disadvantages of the various courses open to her, she was not in breach of fiduciary duty even though, because of the inadequacy of the advice given, she did not take into account the liability to iht that would arise. Accordingly what she did was not voidable as having been done in breach of fiduciary duty.
ii) She was under a mistake, in that she believed that the transaction would not have any tax disadvantages. Although neither she nor anyone else had thought about iht, her belief was falsified by the charge to iht that would arise, and this was a mistake. However, it was not a mistake as to the legal effect of the disposition, but as to its consequences, despite the imposition of the Inland Revenue charge on the trust property. It was therefore not a mistake of a kind such as can provide a basis for invoking the jurisdiction of equity to set aside a voluntary disposition for mistake. That is so even though it was of sufficient gravity to satisfy the Ogilvie v Littleboy test.
iii) It follows that the appeal in Pitt v Holt is to be allowed.
Lord Justice Longmore
Lord Justice Mummery