How to right things when they go wrong

SLC Consultation Paper on the defective exercise of fiduciary power

As part of our review of trust law, which is nearing completion, we invite views on whether decisions made by trustees and other fiduciaries should be capable, in certain circumstances, of being reduced in order that a further decision can be made.  This is a topic which we touched on in our recent Discussion Paper on Supplementary and Miscellaneous Issues relating to Trust Law (DP 148) and the responses we received persuaded us to consider the matter in greater depth.  Our consultation paper, published today in electronic form only, seeks views on proposals for clarification of the law.  A downloadable response form is also available. 

Reasons for review

The main stimulus for our review was provided by the English Court of Appeal decisions, handed down in March 2011, in Futter v Futter and Pitt v Holt.  They effectively brought to an end what had become known as the 'rule in Hastings-Bass', which allowed trustees or others to seek a court declaration that a fiduciary's decision was either void or voidable.  Typically this was used for decisions which had unexpected and adverse tax consequences.  Although Futter and Pitt have been appealed to the Supreme Court it has become clear that some other jurisdictions which recognise the rule in Hastings-Bass have declined to follow the Court of Appeal's lead.  Jersey is notable in this regard.  A rule allowing decisions to be set aside, in appropriate circumstances, is seen as an attractive feature for a trusts jurisdiction and one which is therefore likely to encourage trusts business. 

Outline of proposals

The proposals we put forward are based on existing Scots law principles and, if accepted, would allow the court to reduce a decision of a trustee or other fiduciary either on the ground of material error or on one of a list of other grounds, such as consideration of the wrong question, failure to take into account all relevant information and no irrelevant information, or perversity. 

Consultation

In view of the relatively advanced stage of the project – we have begun work on drafting a report on many of the issues on which we have already consulted and have also begun instructing an accompanying bill – and also given the relatively narrow topic under discussion, we are allowing a restricted consultation period of just over 2 months.  We look forward to receiving comments on our proposals. 

For more information about this and the SLC’s other work in the field of trust law please see the project page.