(1) DENIS JAMES BURRELL v (2) SARAH CAROLINE SHARMAN [2005] EWHC 245 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2005] EWHC 245 (Ch)Case No Case No: GLC 264/04Venue Royal Courts of Justice Strand,, London, WC2A 2LL
Between
(1) DENIS JAMES BURRELL(2) SARAH CAROLINE SHARMANClaimants(1) CHARLES BURRELL(2) RICHARD SHORE(3)CHARLESTYRRELL(4) MATTHEW TYRRELL(5) SARAH TYRRELL(6) JENNIFER HELEN BURRELLDefendants
Before
MR. JUSTICE MANNMR. N. WARREN Q.C. and MS. EMILY C.AM:PBELL (instructed by Messrs. Boodle Hatfield) for the ClaimantsMS. T. ANGUS (instructed by Messrs. Boodle Hatfield) appeared for the :First Defendant.MR. H. LEGGE (instructed by Messrs. Boodle Hatfield) appeared for the Second, Third, Fourth, Fifth and Sixth Defendants.Hearing dates: 25 January 2005Date 23 February 2005
[1]Mr. Justice Mann: The Nature of this Case The claimants are the present trustees of a settlement made on 2nd May 1996; they were also the trustees in 2000, when the events central to this action took place. The defendants are all the persons living at the moment who are potential beneficiaries under that settlement (other than those remotely interested). In this application the claimants seek to set aside part of a deed of appointment made on 26 November 2000 on the footing that they failed to appreciate, consider and take into account the fact that that appointment generated very considerable inheritance tax liabilities. They invoke what is sometimes known as the principle in Hastings-Bass, named after the case ofthat name ([1975] Ch 25). The Facts[2]The first claimant is Mr Denis Burrell. He was formerly the chairman of a successful engineering company known as Martin-Baker (Engineering) Limited ("MBE"), and he was at all material times (and remains) a substantial shareholder in that company. In 1996, he wished to settle some of his shareholding on his family, and principally on his son Charles. He obtained tax advice from his accountant and legal advice from Messrs. Allen & Overy. I do not need to set out verbatim the terms of the settlement; it will be sufficient if I summarise them. In order to minimise the effects of inheritance tax, it was created as an accumulation and maintenance settlement so as to have the benefits of s.71 ofthe Inheritance Tax Act 1984 (which prevents a charge to tax arising when a beneficiary acquires an interest in possession). Mr Burrell's only son Charles was to take an interest in possession in capital and income when he attained the age of 18, but until he reached the age of 35 that interest was liable to be divested by an appointment by the trustees (if they chose to make one) in favour of a "Wider Class" of beneficiaries, which included spouses, stepchildren and others. That power could not be exercised for at least one year after Charles' 18 th birthday (apparently so there could be no doubt, for fiscal purposes, as to whether or not Charles was to acquire an interest in possession for the purposes of the legislation).[3]Charles 'attained the age of 18 on 24th November 1999. At that point he acquired his interest in possession. As his 19 th birthday approached, his father became concerned that a dividend payment that MBE was intending to make would put Charles in possession of a sum of money which it was felt would be more than he should sensibly have at that age, and the same would apply from year to year thereafter. He arranged with the company that the declaration of that dividend (which was to be an interim dividend) should be delayed while he took steps to investigate and, if possible, sort out the position. The board of MBE took a decision that it would consider (if appropriate) and declare a dividend on 27 November 2000 - that gave Mr Burrell some sort of deadline. He spoke to his accountant about the matter, and shortly before the beginning of October 2000 he made contact with a partner at Allen & Overy, namely Mrs Ceris Gardner, about the possibility of restricting Charles' rights to income. On 4 th October 2000 he wrote to her about apportioning the settlement income arising in Charles' 18 th year, and he also suggested a trustees' meeting. On 16 th October 2000 Mrs Gardner replied, and acknowledged there should be some form of resolution formally recording decisions about distributing income. She also acknowledged her belief that it was or might have been the intention of the trustees to restrict Charles' right to receive income, and if she was right, pointing out that it would be necessary to execute a power of appointment to that effect after his 19 th birthday; she invited discussion of that.[4]Shortly after receiving that letter, Mr Burrell spoke to his co-trustee (the second claimant, his niece) and they both agreed that it was not in Charles' interests for him to be entitled to the full income from the trust at such a relatively young age. Mr Burrell communicated this to Mrs Gardner in a letter of 20 th October and asked for a meeting to discuss the way forward. That meeting took place on 22 nd November 2000 at the offices of Allen & Overy. Mr Burrell attended; the second claimant did not. Mr Burrell's wife attended, and on behalf of Allen & Overy Mrs Gardner attended with her assistant, Rebecca Shaw. They discussed the concern of the trustees that Charles should not receive the next dividend from MBE which was to be declared on 2i h November. Mrs Gardner advised that this could be achieved by an exercise of the trustees' power of appointment after Charles' 19 th birthday on 24 th November and before the board meeting at which the dividend was to be declared. The deed of appointment would end his interest in possession. In a witness statement put before me, Mr Burrell says that he understood at the meeting that the assets would be the subject of two separate new trusts. Witness statements of Mrs Gardner and Miss Shaw indicate that that idea came later, at the drafting stage. Although there was no cross-examination on this issue, I think that the two solicitors are more likely to be correct about that. What seems to have happened is that during the course of the meeting Mrs Gardner suggested that the trustees could achieve their aims by ending Charles' interest in possession. Mrs Gardner seems to have had it in mind that that could be achieved by appointing the assets on new discretionary trusts. She made a note for herself which reads:
"[BPR - check relief applicable on transfer from Charles to discretionary trust. Give note on CGT and IHT position]" ("
BPR" stands for business property relief). This, she said, was a note to herself, and did not positively reflect the fact that she said something like that at the meeting. However, I think it likely that she mentioned discretionary trusts. Mr Burrell says that at the meeting he mentioned that the shares in MBE were, to his knowledge, capable of qualifying for business property relief for inheritance tax and capital gains tax purposes. This was based on advice he had received some years before as to the nature of the shares. Mrs Gardner and Miss Shaw do not confirm that Mr Burrell said anything about that, but I find that he did.[5]The important thing that emerges from this stage of the proceedings is that tax implications were in the minds of the parties. There was no particular reference to tax beyond that made by Mr. Burrell, but I find that it was clearly in the minds of all participants at the meeting that the appointment of assets was to be done in such a way as did not attract a charge to inheritance tax so far as possible. So far as the Allen & Overy representatives are concerned, this clearly emerges from what happened next. After the meeting, Mrs Gardner asked Miss Shaw to draft a deed of appointment. They noted that the assets of the trust fell into two categories. The first was the shares in MBE - that was the bulk of the assets. The second was a much smaller amount of other assets comprising principally stock exchange quoted securities which had been bought out of accumulated income, together with a bit of cash. The solicitors realised that an appointment of that latter class on discretionary trusts. would give rise to an immediate charge to inheritance tax, so they decided it would be better to appoint that latter class on accumulation and maintenance trusts, thereby avoiding an inheritance tax charge because of the provisions of section 3A(I)(c) of the -linheritance Tax Act 1984 provided Charles survived for seven years. Miss Shaw therefore set about drafting a second appointment relating to those assets. She explained this difference to Mt Burrell when she rang him on 24 th November 2000 to arrange for execution of the deeds; Mr Burrell immediately agreed with the idea and accepted the point. No further research was done, nor was any further advice . given, on the tax implications of the appointments that were about to take place save the advice which later appeared in a covering letter and save for a brief conversation between Miss Shaw and Mrs Sharman two days later.[6]The result of the drafting exercise was a deed of appointment which was sent out to the trustees for their consideration and execution. Miss Shaw sent out two engrossments. The first went out under cover of a letter of 24 th November 2000, sent to Mrs Sharman. It was sent to her so that she and Mr Burrell could execute it if they thought fit. The letter summarised the main effects of the deed, saying that the MBE shares would be transferred to discretionary trusts primarily for the benefit of Charles and Mr Burrell's step-children, and the quoted shares and cash would be retained on accumulation and maintenance trusts until Charles' 25 th birthday. There then follows a paragraph which says this:
"The reason that we have split the trust fund into two in this way is that, as I explained to Dennis this morning, the transfer of the quoted shares and cash to discretionary trusts would have unnecessarily given rise to an immediate inheritance tax charge. "
The 24 th November was a Friday. It is clear that a further engrossment was sent to Mrs Sharman on Sunday26 th November, and that that is the engrossment which was executed by the trustees. There is a conflict of evidence between Miss Shaw and Mrs Sharman as to what the reason for that was. Miss Shaw says that it was because she rang to check that the first engrossment had been received, and when she heard that it had not, she arranged for a secona engrossment to be sent because of the urgency of the matter ~ the document had to be executed before the board meeting on the 27 th . Mrs Sharman says that a second engrossment was sent because Miss Shaw had rung to say that there was a mistake in the first one and it should not be executed. It is not necessary for me to resolve this conflict. What I do find, on the basis of a witness statement from Mrs Sharman, is that she received a telephone call from Miss Shaw over that weekend during which she received a brief explanation of the appointment and its effect, and there was some reference to inheritance tax. She kept a note of this conversation which is a little garbled in its content, but it is clear that there was some reference to inheritance tax. The second engrossment was sent under cover of a letter dated 26 th November, and that letter repeated the paragraph in the letter of 24 th November which I have set out above.[7]Both claimants executed the second engrossment on either Sunday 26 th November or Monday 27 th November, but in any event before the relevant board meeting of MBE which duly declared the anticipated dividend. The document is actually dated 26 th November 2000; neither Mr Burrell nor Mrs Sharman can remember whether it was actually executed on that date or the next day. I do not need to set out the provisions of that document verbatim. Its effect is that summarised above. The MBE shares (described as "the discretionary fund") were held on discretionary trusts for the benefit of the Wider Class, which included Charles and Mr Burrell's step-children. The discretionary trusts were to last until the day before Charles' 35 th birthday. The other assets (shares and cash) were appointed so as to be held on the same accumulation and maintenance trust as affected the original fund immediately prior to Charles' 18 th birthday, such trusts to last until the relevant beneficiary (which in practice meant Charles) attained the age of25. It is unnecessary for me to set out any further details of the effects of that document. The effect of the deed of appointment and the intentions of the trustees[8]This litigation arises out of the tax consequences of that deed of appointment which it is said were not contemplated by the trustees when they made their appointment. The inheritance tax position to which that deed gives rise is as follows.[9]Under s.49 of the Inheritance Tax Act 1984 ("the Act"):
"(i) A person beneficially entitled to an interest in possession in settled property shall be treated for the purposes of this Act as beneficially entitled to the property in which the interest subsists."
At the date of the deed of appointment Charles had such an interest. Accordingly, pursuant to s.52 of the Act, the coming to an end of his interest in possession when the deed of appointment takes effect would give rise to a transfer of value:
"52(1) Where at any time during the life of a person beneficially entitled to an interest in possession in settled property his interest comes to an end, tax shall be charged ... as if at that time he had made a transfer of value and the value transferred had been equal to the value of the property in which his interest then subsisted."
Insofar as the property passed into an accumulation and maintenance settlement trust within the meaning of s.71 (and the accumulation and maintenance trust created by the deed of appointment in this case fell within that section) then the deemed transfer of value was a potentially exempt transfer with the result that there will be no charge to inheritance tax provided that Charles survives for seven years - see s.3A(1)(c). However, that provision does not ptevent a chargeable transfer (and a corresponding charge to inheritance tax) arising in relation to the appointment into the discretionary trusts. A different form of relief from tax was being contemplated in relation to those assets (namely the shares in MBE). By a combination of s.l 05(1 )(bb) and s.122, the shares were of such a nature as to entitle them to attract business property relief from inheritance tax. Mr Burrell had previously been advised about this in 1995 prior to creating the settlement, and during the meeting with Mrs Gardner he referred to the fact that the shares as property qualified for that relief. However, in order to qualify, an additional requirement has to be fulfilled. Under s.l 06 relief is not available unless the shares have been held by the transferor for at least two years before the transfer. Charles was the deemed transferor for these purposes, and since his interest in possession arose only when he was 18, he had not fulfilled the requirement of holding them (in the deemed sense required by the statute) for the relevant period of two years by the time of the deed of appointment. Accordingly this form of relief was not available and the appointment into the discretionary trusts therefore gave rise to a substantial liability to inheritance tax in a sum between £800,000 and £1,470,000. This would be a very serious loss to the trust estate.[10]The trustees say that they did not appreciate that the deed of appointment would have this consequence, and had they known about it then they would not have executed it. This state of mind, and perhaps the state of mind and acts of the solicitors, lies at the heart ofthe application before me, and so I need to make some findings about it.[11]Mr Burrell was clearly the driving force behind the deed of appointment. He had identified the undesirability (as he saw it) of Charles having too great an income at too early a stage in his life, and his co-trustee agreed with him. Before the settlement was created in 1996, Mr Burrell had taken tax advice from Allen & Overy and from his accountant. It was from that advice that Mr Burrell had understood (accurately) that the MBE shares qualified for business property relief so far as the nature of the company and its business were concerned. When he was seeking advice in relation to the deed of appointment he· also recalled that there was a two year holding qualification, because his accountant had told him that in J 996, but he did not connect that advice with what could and could not be done to avoid paying inheritance tax on the execution of the deed of appointment. I find that when he made his remark about the shares being capable of qualifying for business property relief, he believed that all the conditions necessary to attract that relief were fulfilled. Mrs Gardner did not query that. She made the note that I have referred to above, but neither she nor Miss Shaw seem to have followed that note up fully. Miss Shaw seems to have considered some of the tax implications, because she realised that an accumulation and maintenance settlement was going to be required in respect of the non-MBE assets if an immediate charge to tax was to be avoided in respect of those assets. That can only have been on the basis of an assumption that tax would not be payable on the appointment of the MBE sh~res into the discretionary trust, and that in turn must have been because she, like Mrs Gardner, assumed that business property relief would be available and did not actually consider the question at, or after, the meeting with Mr Burrell. For her part, Mrs Sharman agreed with her co-trustee's aims, and relied on him to obtain advice as to the best method of achieving them. In her witness statement (untested by cross-examination) she describes how she was rung by Miss Shaw on Saturday 26 th November 2000. She says that what she remembers was that Miss Shaw explained to her how the deed of appointment would operate so that the trust could be rearranged to achieve what the trustees wanted without incurring a tax charge. She says she was expressly advised that the trust funds could be appointed . into a discretionary trust and an accumulation and maintenance trust "with no adverse tax consequences". She made a manuscript note during that telephone conversation, and I have seen that note. The note records that she was told that there was a ten yearly charge to inheritance tax on the property passing into the discretionary trust, and it records that inheritance tax would be avoided if there were an accumulation and[12]Accordingly, I am quite satisfied that neither of the trustees thought that a charge to tax would arise in respect of the deed of appointment (other than the potential charge which might arise if Charles does not survive for seven years after its date). Both trustees say that they would not have executed the deed of appointment had they known of the serious tax consequences of appointing into the discretionary trusts, and I accept that evidence. The law and its application to the facts[13]Accordingly, the trustees say that they executed the deed of appointment in circumstances in which they were seriously mistaken as to the tax consequences of what they were doing. They also say, and I have found, that they would not have executed it had they appreciated those consequences, at least so far as the discretionary trusts are concerned. They therefore rely on what some people have come to call the principle in Hastings-Bass, and say that the deed of appointment should be set aside so far as it appoints on the discretionary trusts. In this they are supported by the other parties to this action, who are, or who represent, all those who may be beneficially entitled under the various trusts. Accordingly, although the defendants were represented by counsel, I did not hear any argument contrary to those advanced by Mr Nicholas Warren QC, who appeared for the trustees and who urged upon me that the principle applied with the consequence just referred to. Since the application has tax ,consequences (indeed, those consequences are the reasons why the application is made) the trustees gave notice to the Inland Revenue and invited it to be joined to the proceedings. I have seen correspondence with the Inland Revenue in which it indicated that it did not wish to be joined, but asked that the court's attention be drawn to the decision of Lightman J in Abacus Trust Company (Isle of Man) v Barr [2003] Ch 409 . My attention was indeed drawn to that case, and Mr Warren thoroughly and fairly took me through a number of cases since the Hastings-Bass decision in which the apparent principle has been applied. It was necessary to look at those cases both in order to see the application of the principle and in order to consider the application of a limitation, or potential limitation, on the application of the principle which appears in the Abacus case.[14]The so-called principle in Hastings-Bass stems from the case of In re Hastings-Bass, deceased [1975] 1 Ch 25. In that case the Inland Revenue Commissioners sought to say that an appointment by trustees was invalid because the trustees did not direct their minds to certain aspects of the trusts created. This attack failed on the facts, but during the course of the judgment ofthe court Buckley LJ said:
"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."
[15]That dictum was reformulated in a positive form in Mettoy Pensions Trustees v Evans [1990] lWLR 1587 at page 1624B:
"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. "For the principle to apply however, it is not enough 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." In this case the exercise ofthe trustees' discretion which it was sought to set aside was the discretion of pension fund trustees to amend the terms of the provisions governing their scheme. That particular claim failed on the facts, because Warner J found that it was not clear that the trustees would have acted differently had they known that of which they were in fact ignorant.[16]The principle, whether in its negative form in Hastings-Bass or its positive form in Mettoy, is now clearly part of the law. It has been applied to impeach various decisions of trustees in pensions trust cases, and in other cases. Thus in Stannard v Fisons Pension Trust Ltd [1991] PLR 224 it was applied to set aside transfers from one pension fund to another because the trustees did not have proper regard to the effect that an up to date valuation would have on the decision to transfer. The case introduced a possible relaxation of Warner J's requirement that it must be shown that the trustees would have acted differently by apparently requiring merely that they might have acted differently. "39. In the upshot, in my judgment, it might materially have affected the Trustees' decision in December 1982 if they had been properly informed as to the current value of the Fund and the implications of its value. Consequently, I would uphold the decision ofthe judge and dismiss this appeal." (per Dillon LJ)[17]In Green v Cobham [2002] STC 820 Jonathan Parker J had to consider the application of the principle in a case which, like the case before me, was one in which the trustees were said to have failed to take proper account of the tax consequences of their acts. In that case the trustees had dealt with income in a way which exposed the settlement to adverse capital gains tax consequences when, as happened, one of the trustees became technically non-resident for capital gains tax purposes. Jonathan Parker J found as a fact that the trustees did not appreciate the potential capital gains tax consequences of their acts and they would not have acted as they did had they been aware of them. He found that they would not under any circumstances have made an appointment which gave rise to any significant risk of the exposure of the settlement to that tax. In those circumstances he declared that the relevant act was an invalid exercise ofthe trustees' power of appointment and was void in its entirety.[18]Patten J considered this decision when he was faced with a similar application, based on a failure by trustees to take into account the fiscal consequences of their acts, in Abacus Trust Company (Isle of Man) Ltd v NSPCC [2001] STC 1344 . Leading counsel had advised the trustees that, in order for a scheme to avoid attracting tax, a certain step should not be taken in a certain tax year. The trustees overlooked that and executed the relevant document in the "wrong" year. Patten J clearly found that the decision to execute the document on that date resulted from a failure to follow advice given to the trustees, and that had they applied their minds to that advice at the relevant time, the document would not have been executed on the day that it was. He then considered Hastings-Bass and Mettoy (see paragraphs 14 and 15). Having done that, he then dealt with the question of whether and to what extent a trustee who misjudges the fiscal consequences of his act can, upon discovering his mistake, resort to the Hastings-Bass principle in order to avoid the charge to tax which has occurred. Having set that question, Patten J then referred to Green v Cobham and at paragraph 16 came to this conclusion:
"That decision is clear authority that the trustees, when exercising powers of appointment, are bound to have regard to the fiscal consequences of their actions, and that where it can be demonstrated that a proper consideration of these matters would have led to the appointment not going ahead, the court is entitled to and should treat that as an invalid exercise of the power in the sense of it being void ab initio. Although the time may yet come when the limits of the Hastings-Bass principle fall to be determined by some higher court, I can see no reason on the authorities as they stand for not following the decision of Jonathan Parker J in Green v Cobham. The financial consequences for the beneficiaries of any intended exercise of a fiduciary power cannot be assessed without reference to the fiscal implications. The two seem to me inseparable. Therefore, if the effect of an intended appointment is likely to be to expose the fund or its beneficiaries to a significant charge to tax, that is something which the trustees have an obligation to consider when deciding whether it is proper to proceed with the appointment. Once relevance is established, then a failure to take those matters into account must vitiate the exercise of the power unless (as in Hastings-Bass itself) it is clear that on a proper consideration of all relevant matters, the decision would still have been the same."
Patten J then went on to find that it was clear that the trustees would not have acted as they did had they been aware of the fiscal consequences of their acts, and observed that the trustees were "Obliged to ensure that in making the disposition [in question] they did not nullify the financial and fiscal effect of the earlier dispositions made at a time when they undoubtedly did owe a fiduciary duty to the settlor and the other family beneficiaries." His conclusion was that the deed of appointment in question was "invalid and of no effect" .[19]That decision stands as clear authority (if authority be required) for the proposition that trustees must consider the fiscal consequences of their acts, and that a failure to do so is capable of leading to the application of the Hastings-Bass principle if it is clear that they would not have acted as they did if they had appreciated the true fiscal position. In the last sentence of paragraph 16 of his judgment, Patten J might be thought to be suggestinK that the burden is different from that suggested in Hastings Bass and Mettoy, and indeed different from that suggested in Stannard (where the Court of Appeal indicate that it might be sufficient to prove that the trustees might have acted differently) but I do not think that it is likely that Patten J intended that result. It is not foreshadowed in any of the authorities he cited, and it is inconsistent with the first sentence of that paragraph.[20]That being the case, it is quite clear that, subject to a possible additional requirement suggested by Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409 , on the facts of the case before me the principle in Hastings-Bass would lead to the deed of appointment being declared to be invalid. It is clear that the trustees had to have fiscal implications in mind, and indeed it is clear that Mr Burrell had them in mind. It is equally clear that they did not give full and proper consideration to them, and it is clear that had they done so they would not have acted as they did, and I so find. They had other courses open to them at the time. The first was to use an accumulation and maintenance settlement to cover the whole of the assets which were subject to the deed of appointment. The second was to wait for the requisite period of two years so that the MBE shares could qualify for relief. That might have meant Charles getting more money than the trustees wished him to have in the short term, but that would no doubt have seemed better to them than to incur large and otherwise pointless liabilities for tax. I am quite sure that they would not have executed the deed of appointment, at least so far as it created discretionary trusts, had they realised the fiscal effect of what they were doing.[21]I turn therefore to consider Abacus Trust v Barr. This was a decision of Lightman J. In that case trustees had a power of appointment in favour of certain discretionary beneficiaries. The settlor wished them to appoint 40% of the assets for the benefit of his two sons. He asked a representative of the trustees to convey that to the trustees. The representative misunderstood and conveyed a wish that 60% be thus appointed. The trustees considered the matter and made an appointment in those terms. The trustee (and the protector) thereafter applied to the court for a determination as to the validity of the appointment. Lightman J had many cases cited to him, including Hastings-Bass, Mettoy and Stannard. At paragraph 22 he turned to the issue as to the sufficiency of the erroneous belief of the trustee, and at paragraph 23 he introduced a hitherto unexpressed requirement for the application of the principle appearing in those cases. He said as follows:
"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 Pension Trustees Ltd v Evans, 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. 24. In summary the rule affords to the beneficiaries the protection of a requirement that the trustee performs its duty in the 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 a trustee's decision was in some way mistaken or has unforeseen and unpalatable consequences. "
The problem which faced those in that case who sought to challenge the trustee's decision was that the trustee itself was not obviously personally in breach of any duty. It had addressed its mind to a relevant factor (the'wishes of the settlor) and accurately took into account what it believed those wishes to be. The fact that it was wrong in its understanding of those wishes was not down to any personal breach of duty by it. However, Lightman J found that the trustee's mistake was caused by the trustee's representative (a Mr. Ward-Thompson) failing to transmit the settlor's wishes accurately. That was a default on the part of the trustee sufficient to bring the principle into play. "27 .... 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 with that of the trustee, its advisers and agents ... 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 W ard- Thompson ..• On the material before me ... 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." (emphasis supplied)[22]Thus the case might be said to introduce an additional requirement of a breach of duty or default on the part of the trustee or on the part of its advisers or agents if the principle in Hastings-Bass is to be invoked. In the case before me, Mr Warren was prepared to argue that that additional requirement is not justified as a matter of principle, is not required by any of the preceding authorities, and is actually inconsistent with them in that it is not always possible to identify a relevant default on the part of any of the trustees in all the authorities, and several of them formulate the principle without any reference to such an additional requirement. It may be that Mr Warren's arguments have some merit, but it is not necessary for me to deal with them in this particular case. F or reasons that I will mention in a moment, Mr Warren can get home even applying the additional requirement enunciated by Lightman J. A full consideration of Mr Warren's submissions as to the correctness of the additional requirement would involve a full analysis of the true basis of the Hastings-Bass principle, and a further consideration of the extent to which it might be appropriate to impose some limits on the principle (a point which has apparently occurred to more than one judge who has had to consider it). It is neither necessary nor desirable for me to embark on such a consideration in the circumstances of this case.[23]The reason why it is not necessary for me to do so is that, applying the modified test propounded by Lightman J, the trustees in the case before me can still fulfil the requirements of the principle. In my view, both the trustees and their advisers were in breach of duty when they were considering the deed of appointment. Mrs Sharman never really addressed fiscal matters; she relied on others to do so. Mr Burrell was aware that there was a tax point, but relied at least in part on his own imperfect understanding of the position, failed to give clear instructions to his solicitors (or anyone else) to consider the matter, and failed to appreciate that he had not asked for, and was not in possession of, a full picture of the tax consequences of what was proposed. His advisers in this respect were Allen & Overy. They had no reason to suppose that the trustees were in possession of proper tax advice, and probably had good reason to suppose that they were not. Their own notes indicated that the tax position had to be addressed, but both representatives of Allen & Overy omitted to do so. I expect it just got overlooked in the rush with which the trustees had presented them, but nevertheless, they should still have addressed the point. Accordingly, the default apparently required by Lightman J on his modification of the Hastings-Bass principle is present in this case.[24]In the circumstances all the requirements for impeaching the deed of appointment are fulfilled. The trustees failed to take a highly relevant consideration into account, and had they taken it into account they clearly would not have acted as they did (I do not need to consider whether "might not have acted" is sufficient). There was some discussion before me as to whether this rendered the decision void or voidable, but Mr Warren did not press for anything other than a declaration that the decision was pro tanto voidable, so the distinction is again something that I need not consider.[25]The last point that arises is the extent of the invalidity. The trustees are, and remain, entirely satisfied with what they did in relation to the non-MBE assets. They seek to have the deed of appointment avoided only in relation to the MBE shares. Whether or not a mistake by trustees can invalidate merely part of, as opposed to the whole of, their act was something on which Warner J commented in Mettoy. At page 1624H he commented on something that he called "Mr Nugee's 'all or nothing' argument". That is a reference to a submission recorded at page 1623C:
"Mr. Nugee further submitted that where the rule in Hastings Bass applied ... the whole of the purported exercise by the trustees of their discretion was void. It was not open to the court to set aside part of it and uphold the remainder."
At page 1624 Warner J dealt with that:
"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."
Mr Warren drew my attention to certain passages on the excessive execution of a power in Thomas on Powers and demonstrated that it was possible to sever the good from the bad in certaincircumstances. That is what Neuberger J did in Bestrustees v Stuart [2001] PLR 283 . In that case Neuberger J was faced with a rule change in relation to a pension scheme which purported to be retrospective when there was no power for any change to have such effect. Neuberger J felt able to allow the change to stand prospectively from the date on which it was effected, and to leave the invalidity bearing only on the retrospective element. He did so relying on passages from Thomas on Powers. There is thus support for Warner J's partial invalidity approach. Since I am satisfied on the facts of this case that the trustees' decision in relation to the non-MBE shares would not have been affected by proper tax advice on the rest of the appointment, that part of the appointment can stand. I shall declare only the part relating to MBE shares to be invalid.[26]Accordingly, I shall grant the relief sought. I record one further fact for the sake of completeness. Having been advised that the 2000 deed of appointment was at least partially invalid, the trustees executed a further deed of appointment on 28 March 2002 which operates on the assumption that the earlier deed is indeed invalid. It is the trusts of that document (which also operates in relation to the non-MBE shares) which now operate in relation to the MBE shares in the light of my decision. I do not think I need to set out the terms ofthat deed.

Cited in 3 later judgments