Abacus Trust Company (Isle of Man) & Anor v Barr & Ors [2003] EWHC 114 (Ch)

Case No HC02C00626[2003] EWHC 114 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 6 th February 2003
Before
THE HONOURABLE MR JUSTICE LIGHTMAN
Between
ABACUS TRUST COMPANY (ISLE OF MAN)ClaimantsCOLYB LIMITEDClaimantANDREW BARRDefendantsBRIAN J BARRDefendantRUSSELL BARRDefendant
Mr Thomas Dumont (instructed by Browne Jacobson, 44 Castle Gate, Nottingham, NG1 7BJ) for ClaimantsMr Nicholas Warren QC and Ms Emily Campbell (instructed by Hewitson Becke & Shaw, 7 Spencer Parade, Northampton, NN1 5AB) for First DefendantMr Gilead Cooper (instructed by Manches, 3 Worcester Street, Oxford, OX1 2PZ) for Second and Third DefendantsHearing Hearing dates : 21-22 January 2003
Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic..............................The Honourable Mr justice Lightman

INTRODUCTION

[1]I have before me an application by the Claimant Abacus Trust Company (Isle of Man) (“the Trustee”) and Colyb Limited (“the Protector”), who are respectively the trustee of and protector under a settlement dated the 13th April 1992 (“the Settlement”) made between the first defendant Andrew Barr (“the Settlor”) and the Trustee. By this application the Trustee and Protector seek the determination by the court of the validity of a Deed of Appointment dated the 22nd April 1992 (“the Appointment”) made between the Trustee and the Settlor in purported exercise of a power of appointment conferred by the Settlement.[2]The application raises important and unresolved questions as to the ambit and application of what is known as “the Rule in Hastings-Bass” (“the Rule”) governing the validity of the exercise of powers by trustees laid down by the Court of Appeal in the case of Re Hastings-Bass [1975] Ch 25 (“Hastings-Bass”). In a word, the Rule requires that a trustee when exercising a power (for example) of appointment or of advancement shall take into account all relevant considerations and refrain from taking into account any irrelevant consideration, and opens his decision to challenge if he fails to do as so required. The two primary issues raised on this application are:(1) whether the trustee’s decision is open to challenge when the failure to take a consideration into account is not attributable to a breach of fiduciary duty on the part of the trustee; and(2) whether, where a decision is open to challenge on the ground that the trustee failed to take a factor into account, the decision is void or voidable. On both issues I have received assistance of the highest quality from all Counsel involved.

FACTS

[3]The Isle of Man firm of Coopers & Lybrand (“C&L Isle of Man”) has traded as such on the Isle of Man since 1984. In 1984 C&L Isle of Man incorporated the Trustee to act as corporate trustee of settlements administered by C&L Isle of Man. In 1996 C&L Isle of Man transferred its fiduciary services business to a new company Abacus Limited which thereafter carried out the administration (but excluding the exercise of any trusts, powers or discretions) of all settlements of which the Trustee is trustee.[4]The United Kingdom firm of Cooper & Lybrand (“C&L”) and C&L Isle of Man are separate firms, but in practice have at all times had a close relationship with each other. In particular C&L has provided C&L Isle of Man and the Trustee with tax advice and other assistance in the administration and management of trusts and referred business to them.[5]In 1992 the Settlor and his fellow directors of Aerostructures Hamble Limited (“AHL”) were engaged in a management buy-out and retained C&L in respect of that buy-out and tax issues. Mr Graham Ward-Thompson (“Mr Ward-Thompson”) of C&L was their main contact. The directors incorporated as the management buy-out vehicle Aerostructures (Hamble) Holdings Limited (“AHHL”). Mr Ward-Thompson advised the Settlor that it would be advantageous principally for capital gains tax reasons to set up an Isle of Man company limited by guarantee to receive and hold his shares in AHHL and to use an Isle of Man resident trust to own all the shares in the Isle of Man company. The Settlor accepted the advice and C&L on his behalf through C&L Isle of Man incorporated Andrew Barr Investments Limited (“ABIL”) to acquire 15% (being his share) of the capital of AHHL and established the Settlement. Accordingly on completion of the management buy-out on the 23rd April 2002 the position had been established that AHHL held all the shares in AHL, ABIL held 15% of the share capital of AHHL, and the Settlement held the entire capital of ABIL.[6]Under the Settlement the Settlor was entitled to a life interest in the property settled (“the Trust Fund”), but this life interest was subject to an overriding power of appointment by the Trustee with the consent of the Protector in respect of capital and income in favour of any one or more of the “Discretionary Objects” as defined. These included the Settlor, the children and remoter issue of the Settlor and the spouses of each of the foregoing. Subject to the life interest of the Settlor and any exercise of the power of appointment, for 80 years the income of the Trust Fund was payable to the Discretionary Beneficiaries as the Trustee should in its discretion decide and at the end of the 80 year period the capital and income was divisible amongst the surviving great grandchildren of the Settlor and in default of such great grandchildren for the NSPCC. The Settlement provided that the Trustee with the consent of the Protector might by resolution declare any individual to be an Excepted Person, in which case no power or discretion should be capable of being exercised in such manner as might benefit directly or indirectly any such Excepted Person. The Settlement conferred the power to add to the class of Discretionary Objects.[7]The Settlor had a wife and they had two adult children, the second and third defendants (“the Sons”). The Settlor decided that he wanted the Trustee to exercise the power of appointment to create discretionary trusts in respect of 40% of the Trust Fund for the benefit of the Sons to the exclusion of any interest of himself or any wife that he might have. The Settlor asked Mr Ward-Thompson to contact the Trustees and relay his wishes. Mr Ward-Thompson appears to have misinterpreted or misunderstood his instructions and when he gave instructions to the Trustee’s solicitors to draft the Appointment and when he communicated the Settlor’s wishes to Mr Michael McBain, (an employee of C&L Isle of Man) requesting execution by the Trustee of the Appointment when so drafted, he said that the Settlor wished the Trustee to appoint 60% of the Trust Fund on such discretionary trusts for the benefit of the Sons. In consequence on the 22nd April 1992 the Trustees and the Protector in accordance with the wishes of the Settlor as so communicated to them executed the Appointment exercising the power of appointment conferred by the Settlement appointing 60% of the Trust Fund on discretionary trusts for the Sons and excluding the Settlor and any wife of his from any benefit thereunder.[8]In August 1992, the mistake was discovered and the Settlor expressed his dissatisfaction to Mr Ward-Thompson. Mr Ward-Thompson did not consider that there was any satisfactory method of rectifying the situation. The Settlor did not take any legal advice, but decided that for fiscal reasons no action should be taken: it was considered that the possible adverse fiscal consequences of taking action militated against it. Matters were accordingly left as they were.[9]Thereafter in 1992 the Trustee made two appointments in exercise of the power of appointment. On the 21st September 1992, the Trustee by deed appointed in favour of the Settlor’s wife Helen Barr a successive life interest in the unappointed (40%) part of the Trust Fund. On the 12th November 1992 the Trustee by written resolution appointed the family of Helen Barr as additional members of the class of Discretionary Objects. Both the deed and resolution recited the Appointment as a prior valid exercise of the power of appointment.[10]In 1994 the Settlor reconsidered the Appointment and what (if anything) could or should be done in regard to it. For reasons of cost however the Settlor decided not to take legal advice and to let matters rest as they were.[11]On the 19th June 1994 AHHL was floated on the London Stock Exchange and thereafter ABIL began a series of sales of its shares in AHHL. Starting in 1996, the Trustee began making distributions of capital and income to the Settlor and the Sons on the basis that the Appointment was valid. Some £200,000 in capital and £200,000 in income have since been paid to each of the Sons. The value of the Trust Fund today is between £1.5 million and £2 million.[12]In November 2001, the Trustee received advice that the Appointment was open to challenge and that this application should be made to the court unless the Settlor and his wife agreed to proceed on the basis of the continuing validity of the Appointment and a release of claims against the Trustee. The Settlor and his wife wished the Appointment to be challenged and accordingly this application was issued on the 7th March 2002. Appropriate representation orders were made by Master Price on the 12th September 2002. The Attorney General (on behalf of charity) and the Inland Revenue were invited to be joined as parties and attend to make representations. Both declined.

THE ISSUE

[13]As I have already said, at issue on this application is the ambit and application of the Rule. Where a mistake is made in exercising a power of appointment, a mistake is made in reflecting the appointor’s intention in the appointment itself, in appropriate circumstances it may be possible to invoke the court’s jurisdiction to correct that mistake by an order for rectification of the appointment. Where a mistake is made as to the effect of an appointment it may be possible to invoke the court’s jurisdiction to rescind the appointment: see Anker-Petersen v. Christensen [2002] WTLR 313. Neither jurisdiction is invoked on this application (it may be assumed) because the necessary conditions for invoking such a jurisdiction are absent. But in considering the ambit of the Rule it is necessary to bear in mind that it is only one of the protections afforded to beneficiaries in respect of the due administration of the trust by the trustees. It is also important to have in mind that Equity does not afford a trustee or a beneficiary a free pass to rescind a decision which subsequently proves unpalatable or unfortunate and substitute another. Relief is only available if the necessary conditions for its grant are satisfied.[14]To assist me on this application, Counsel have cited to me the many authorities which have considered the Rule since it was first stated in Hastings-Bass and a recent illuminating lecture by Lord Walker entitled “The Limits of the Principle in Hastings-Bass” [2002] PCB 226 in which, after considering those authorities, he advocates constraints on the current wide application of the Rule.[15]The issue of law raised on this application is the impact on the validity of the Appointment of the failure of the Trustee to take into account when executing the Appointment that the Settlor wished that 40%, and not 60%, of the Trust Fund should be appointed in favour of the Sons. The Settlor contends that this error renders the Appointment totally void. The consequence, if this is correct, is that, notwithstanding the lapse of time and intervening events, the Sons are deprived of all entitlement under the Appointment (even the 40% share which the Settlor intended them to receive) and (subject to a possible defence of change of position) the Trustee is entitled to recover from the Sons the payments made on the erroneous basis of the validity of the Appointment. From an objective viewpoint (and in particular from the viewpoint of the Sons) such a “penalty” for the error for which the Sons had no responsibility would appear draconian. The Sons’ primary contention is that on the facts of this case the error does not affect the validity of the Appointment. The Sons’ very much secondary contention is that, even if the error does affect the validity of the appointment, the Appointment is not rendered void but merely voidable, and that in deciding whether in its discretion to afford relief and, if so, what relief, the lapse of time, intervening events and considerations of justice for the Sons are factors to be weighed by the court. The parties have not addressed evidence or argument to the question of the relief to be afforded if the Appointment is held voidable, and they are agreed that, if this issue arises, it should be stood over to be determined (in default of agreement) at a later date.[16]The existence of the fiduciary duty on the part of trustees governing the exercise of their fiduciary powers requires trustees to inform themselves of the matters which are relevant to the decision: (see Scott v. National Trust [1998] 2 All ER 705 at 717) (“Scott”), and in arriving at their decisions whether and how to exercise their discretionary powers to take into account all relevant but no irrelevant factors: (see Edge v. Pensions Ombudsman [2000] Ch 602 at 627-8). The fiduciary duty requires trustees to follow a correct procedure in the decision-making process: see Etherton J in Hearn v. Younger [2002] EWHC 963 at para 91 citing Staughton LJ in Stannard v. Fisons Pension Trust Limited [1991] Pensions Law Reports 225 at para 65. 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.[17]The Rule as stated in Hastings-Bass was expressed in a negative form to the effect that the court should not interfere with the exercise in good faith of a trustee’s discretion, notwithstanding that it does not have the full effect which the trustee intended, unless the trustee exceeded the authority given by the trust or: “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” [1975] Ch at 41G.[18]The Rule was restated in a positive form by Warner J in Mettoy Pension Trustees v. Evans [1990] 1 WLR 1587 at 1621H, namely that:
“where a trustee acts under a discretion given to him by the terms of the trust the court will interfere with his action if it is clear that he would not have so acted as he did had he not failed to take into account considerations which he ought to have taken into account.”
[19]Warner J went on to state (at p.1625B) the exercise to be undertaken by the court in deciding whether the trustee has so acted:
“In a case such as this, where it is claimed that the rule in Hastings-Bass applies, three questions arise: (1) What were the trustees under a duty to consider? (2) Did they fail to consider it? (3) If so, what would they have done if they had considered it?”
[20]A series of subsequent cases (all save one at first instance) have considered and (with only one substantive modification) applied or sought to apply the Rule as reformulated by Warner J. It is unnecessary to consider the question raised by Lord Walker whether the holding in two such cases that the actual or potential adverse tax consequences of the exercise of the power are relevant facts for the purposes of the Rule is a step too far. (In this regard it may be noted that in Gibbon v. Mitchell [1990] 1 WLR at 1304 Millett J limited the jurisdiction to set aside for mistake to cases where there is a mistake of law or fact as to the effect of the transaction itself as opposed merely to the consequence or advantages to be gained by entering into it). The one substantive modification was made by the Court of Appeal in the case of Stannard. In that case the trustees of a pension scheme had to make a transfer in respect of transferring employees to a new fund. Sometime ahead of the proposed transfer they decided its quantum in the light of the value of the pension fund as it then stood. Thereafter prior to the date that the transfer was made, there was a recent substantial increase in value of the pension fund, which might have occasioned a change in the trustee’s decision. The trustees were not however informed of the increase and accordingly did not have the opportunity to reconsider their previous decision in the light of the new facts. The Court of Appeal held that the failure of the trustees to consider this relevant consideration flawed their decision and that it was sufficient for the court to hold the decision invalid that the trustees only might, and not would, have taken a different decision if they had done so. It is not apparent from the judgments in that case that the Court of Appeal appreciated that it was departing from the Rule in this regard as laid down in Hastings-Bass. The choice between the two criteria remains open: see Scott at 718. Fortunately no such choice is required in this case, for clearly the Trustee would not have appointed 60% of the Trust Fund if it had known of the Settlor’s true wishes in that regard. I shall need later to refer to a passage in the judgment of Staughton LJ in Stannard on the issue whether under the Rule the exercise of the power is rendered void or voidable.

FIRST ISSUE – NEED FOR FUNDAMENTAL MISTAKE

[21]The first issue before me (raised by Mr Cooper, Counsel for the Sons) was whether the mistake on the part of the Trustee was sufficiently fundamental to bring the Rule into play at all. He submitted that there is no scope for application of the Rule in this case because there is no sufficient difference between the Trustee’s understanding of the Settlor’s wishes regarding the appointment (i.e. an appointment of 60% of the Trust Fund) and the Settlor’s actual wishes (i.e. an appointment of 40% of the Trust Fund). Mr Cooper argued that there is a high threshold for application of the Rule (in particular in view of the draconian consequences of its applications rendering the Appointment void) and that the mistake on the part of the Trustee as to the quantum of the appointment is insufficiently fundamental to bring the Rule into play. I reject this submission. I am fully sensitive to the draconian consequences of the Rule if it does indeed render a decision void and not voidable. I consider that issue later. But it is clear that the Rule does not require that the relevant consideration unconsidered by the Trustee should make a fundamental difference between the facts as perceived by the Trustees and the facts as they should have been perceived and actually were. All that is required in this regard is that the unconsidered relevant consideration would or might have affected the Trustee’s decision, and in a case such as the present that the Trustee would or might have made a different appointment or no appointment at all. It is clear on the evidence that the Trustee would, if he had known of the Settlor’s actual wishes for a 40% appointment, have made such an appointment. I accordingly reject the submission.

THE SECOND ISSUE

[22]The second issue (raised by Mr Warren, Counsel for the Settlor) was whether it was sufficient to bring the Rule into play that there was a mistake on the part of the Trustee however it arose. Mr Warren submitted that the erroneous belief of the Trustee that the Settlor wished to appoint 60% of the Trust Fund to the Sons of itself was sufficient to invalidate the Appointment because it meant that the Trustee took into account an irrelevant consideration (the erroneous perception of the Settlor’s wishes), and did not take into account a relevant consideration (the Settlor’s true wishes) and that this was the position whether or not the responsibility for the mistake on the part of Mr Ward-Thompson was attributable to the Settlor or the Trustee. I also reject this submission.[23]In my view it is not sufficient to bring the Rule into play that the Trustee made a mistake or by reason of ignorance or a mistake did not take into account a relevant consideration or took into account an irrelevant consideration. What has to be established is that the Trustee in making his decision has (in the language of Warner J in Mettoy) failed to consider what he was under a duty to consider. 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. For example, if the Settlor had wished for an appointment of 40% of the Trust Fund in favour of the Sons, but in a letter to the Trustee informing the Trustee of his wishes by reason of a slip by him or a clerical error by his secretary the settlor had stated that he wanted an appointment of 60% of the Trust Fund, and if the Trustee in accordance with that (erroneous) expression of wishes had made an appointment of 60%, neither could the Trustee be criticised nor could the appointment be challenged under the Rule. The Trustee took into account the relevant consideration (the wishes of the Settlor) and acted reasonably and properly in relying on the letter as the expression of those wishes. The fact that the Trustee misapprehended the Settlor’s true intentions is irrelevant. Likewise a decision by the Trustee to appoint quoted shares to a particular value to a beneficiary is not flawed if the shares subsequently turn out at the date of the appointment to have been immensely more valuable or less valuable than their quoted price by reason of a fact not reasonably ascertainable at the time e.g. an imminent take-over bid or a massive fraud perpetrated on the quoted company.[24]In summary the Rule affords to the beneficiaries the protection of a requirement that the Trustee performs its duty in exercising of its discretion, and a remedy in case of a default. In the absence of any such breach of duty the Rule does not afford the right to the Trustee or any beneficiary to have a decision declared invalid because the Trustee’s decision was in some way mistaken or has unforeseen and unpalatable consequences.[25]Accordingly turning to the facts of this case, it is not sufficient to invoke the Rule that the Trustee mistakenly understood that the Settlor wished the appointment to extend to 60% of the Trust Fund when his true intention was 40%. The Trustee properly identified the Settlor’s intention as a relevant consideration. The Trustee was informed by Mr Ward-Thompson that his wish was that the appointment extend to 60%. The fact that Mr Ward-Thompson misunderstood the Settlor’s true wish and communicated that misunderstanding to the Trustee does not of itself establish any breach of duty by the Trustee and accordingly scope for application of the Rule. To establish the breach of duty and application of the Rule, the Settlor must go further and show that the Trustee was in breach of duty in acting on and relying on what Mr Ward-Thompson told him.

THE THIRD ISSUE – BREACH OF FIDUCIARY DUTY

[26]Until some way into the hearing before me, the Settlor’s case rested on the sufficiency of the existence of a mistake on the part of the Trustee as to the true intentions of the Settlor to entitle the Settlor to invoke the Rule. When I intimated that I was minded to determine the second issue as I have done, Mr Warren sought to raise an alternative submission that the Trustee was indeed at fault in giving effect to the misunderstanding of the Settlor’s wishes for which on the evidence Mr Ward-Thompson was responsible and he sought to support this new case with fresh evidence. Mr Cooper did not object to this course. I have accordingly to decide whether indeed the fault in giving effect to Mr Ward-Thompson’s transmission of the Settlor’s wishes is attributable to the Trustee. This issue is acutely difficult for a multitude of reasons, including the facts that the issue was raised very much as an afterthought at the end of the day, much of the evidence before the court was not prepared with this issue in mind, Mr Ward-Thompson has declined to give evidence or disclose his files and no party has wished to increase costs by requiring cross-examination to clarify the state of the evidence. Counsel however asked me to do my best on the material before me and I shall do so.[27]The issue, as it seems to me, very much turns on the role of Mr Ward-Thompson. He was the one point of contact between on the one side the Settlor and on the other side C&L, C&L Isle of Man, the Trustee and the Protector. For all practical purposes he was the emanation and only representative of C&L, C&L Isle of Man, the Trustee and the Protector in all their dealings with the Settlor. C&L was through itself and its associated firm C&L Isle of Man and its vehicles (the Trustee and the Protector) providing the Settlor was a total corporate and trust holding service. As is common ground the solicitors who drafted the Appointment were acting on behalf of the Trustee: Mr Ward-Thompson in giving instructions for its preparation in the circumstances can only have done so acting as agent for the Trustee. Accordingly in acting as agent for the Trustee he misrepresented the Settlor’s wishes to the solicitors: the Appointment accordingly reflected that misrepresentation; and Mr Ward-Thompson, again it can only have been as agent of or adviser to the Trustee, required execution of that document by the Trustees and Protector. In short, in the context of the relationships between the parties, it is I think plain that the fault in failing to consider the true wishes of the Settlor was that of the Trustee, its advisers and agents. The fiduciary duty of the Trustee required the Trustee to ascertain the wishes of the Settlor, in particular since he was the life tenant whose interest in the Trust Fund was to be overridden and since it was his wishes that the appointment was intended to give effect to. The Trustee failed to take adequate measures to ensure that it received a correct rather than a garbled version of the Settlor’s wishes. Mr Ward-Thompson was under the set-up in operation its appointed vehicle for the eliciting and transmitting of the Settlor’s wishes to the Trustee. The Trustee is accordingly responsible for the default in this regard of Mr Ward-Thompson. It is to be noted that Mr Ward-Thompson has declined to give evidence and answer the case made or suggest a different scenario. I should add that my view is reinforced by the consideration that any ambiguity in the structure and arrangements ought to be resolved in favour of the Settlor:(1) the “C&L” side were responsible for the structure and arrangements;(2) Mr Ward-Thompson has declined to assist the court; and(3) the Trustee perhaps surprisingly failed to seek from the Settlor an expression of his wishes in documentary form or provide him with a copy of the proposed appointment before it was executed. In short on the material before me, on the third issue I am satisfied that the Trustee failed in its fiduciary duty to ascertain the true wishes of the Settlor to which the Appointment was intended to give effect and accordingly the Rule is brought into play.

FOURTH ISSUE – VOID OR VOIDABLE

[28]The fourth issue raised is whether by reason of application of the Rule the appointment is void or voidable. This issue is of critical significance in this case, for the lapse of 10 years since the Appointment, the signal failure by the Settlor (indeed his deliberate decision not) to take any legal advice or any effective action until 2001, his acquiescence until then in the Appointment having full legal effect and in particular the payment to the Sons as fully entitled thereto of some £400,000 from the Settlement must have the greatest significance if the Settlement is voidable, but none at all if it is void.[29]The similarity between the grounds on which a decision by trustees may be attacked and the grounds on which official decision-making is subject to judicial review has been noted: see Edge v. Pensions Ombudsman [2000] Ch 602 at 627-30 and Walker at pp.227-8. But there are three critical differences between public (or administrative) law and private law proceedings. The first is the discretion vested in the court in public law proceedings whether or not to grant relief. The second is a difference in approach to the distinction between what is “void” and what is “voidable”. In public law where an act or order is ultra vires, it is a nullity without existence or effect in law, but the terms “nullity” and “void” have no absolute sense: their meaning is relative depending upon the court’s willingness to grant relief in any situation. If the court is willing to grant the necessary legal remedies, the act or order is recognised as having no legal effect at all. But the court may hold the act or order invalid, but refuse relief e.g. because he does not deserve a discretionary remedy, because of delay or for some other legal reason. In such a case the void order remains effective and must be accepted as if it is valid: see Wade & Forsyth, Administrative Law 8th edition pages 306-8. The third is the strict time limits insisted upon for commencement of proceedings for judicial review.[30]By contrast with the position in public law proceedings in trust proceedings the legal classifications of void and voidable must be respected and there is no such strict time limit, and the court only has a discretion and can only have regard to the lapse of time between the act under challenge and the challenge when the challenged act is voidable and not void. The need in justice for some regard to the lapse of time in cases such as the present when the Rule is invoked was underlined by Park J in Breadner v. Granville-Grossman [2001] Ch 523 at 553. Such need can only be satisfied if the decision successfully challenged under the Rule is voidable and not void.[31]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 [1911] 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]What may appear to have been a decision of trustees may on examination prove to have been no decision at all. An example is furnished by the case of Turner v. Turner [1984] Ch 100 where the trustees for many years signed every document placed before them by their solicitors (including appointments) without understanding that they had any discretion to exercise. 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 [1971] AC 1004 at 1026 per Lord Wilberforce. As Lord Walker suggests, 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.

CONCLUSION

[34]In my view accordingly the Appointment in this case is voidable and not void. Whether in the circumstances of this case the Appointment should or should not be avoided and, if so, on what terms is a matter on which I have not been addressed and on which the parties are at liberty to adduce further evidence and make further submissions. I must accordingly adjourn the hearing of this matter until a date when this issue can be argued and determined. There is however every reason to believe that to save further expensive contentious litigation the parties can and will seek to settle and agree the outstanding issue and seek any necessary approval by the court of the compromise reached.

Cited in 25 later judgments

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