Pitt v Holt [2010] WLR (D) 2

The Hastings-Bass principle is applied to conduct of fiduciaries other than trustees for the first time. A natural progression or a slippery slope?

This English case applied the so-called Hastings-Bass principle for the benefit of a Receiver appointed under the Mental Health Act. The Hastings-Bass principle, put briefly, enables a trustee to apply to the court for an order the effect of which is to unwind steps (and all the consequences of such steps) taken by a trustee in the exercise of its discretion in circumstances where the consequences of those steps are detrimental to the trust assets or the beneficiaries – usually because they lead to significant tax liability. The basis of the application is that the trustee is able to demonstrate to the court that had the trustee not failed to take into account certain key matters (e.g. tax advice) the trustee would (or, arguably, might) have taken a different course. It in effect provides a  Get Out Of Jail Free card for trustees.

As the court noted, there is (or was prior to this decision) no decided authority applying the Hastings-Bass principle to anyone other than trustees.

However, the court said that a Receiver under the Mental Health Act was in a similar position to a trustee in key aspects – the Receiver had a fiduciary duty, exercisable for the benefit of another; but not on the basis of instructions from that other. The Court therefore concluded that the Hastings-Bass principle could be applied to Receivers, and that in the circumstances of the case, a settlement made without consideration of the IHT consequences would be set aside.

Why is the case important?

The decision may be seen as a precedent (and a dangerous one at that) towards a more widespread application of the Hastings-Bass principle, at a time when many commentators believe that the principle has already been extended too far beyond the scope of its original purpose. It would certainly be interesting to see whether, for example, a Protector might subsequently seek to rely on the principle on the basis that he too owes a fiduciary duty and is exercising his powers for the benefit of others (i.e. the beneficiaries), but not on their instruction.