Introduction
In what was his last decision as a Justice of the Supreme Court, Lord Walker delivered the judgment of Pitt v Holt. Footnote 1 Amongst other issues, the judgment re-examined the ‘rule in Hastings-Bass’.Footnote 2 Twelve years on, the Privy Council in Ashley Dawson-Damer v Grampian Company Trust Ltd Footnote 3 was called upon to further clarify Lord Walker’s analysis of the reformed rule. While the Privy Council offered welcome guidance, it left certain aspects of the rule uncertain. This comment critically analyses the decision, and offers further points of reflection.
1. The facts and decision of the Privy Council
The dispute concerns a discretionary trust, where Grampian Company Trust Ltd (Grampian) serves as the corporate trustee of the Glenfinnan Settlement. Mrs Dawson-Damer (Ashley) is a discretionary beneficiary of the trust, while Spey Ltd (Spey) is the settlor. In 2006 and 2009, Grampian exercised its fiduciary powers to make appointments that resulted in 98% of the trust’s assets being transferred into new trusts. However, Ashley was not a discretionary beneficiary under any of these new trusts. She contended that Grampian’s appointments breached the Hastings-Bass rule, which dictates that trustees, in exercising their fiduciary powers, must only consider relevant considerations, and disregard irrelevant ones. Inadequate deliberation renders an appointment voidable.
Ashley alleged that Grampian incorrectly identified Spey’s intention for the trust to primarily benefit future generations coming after her,Footnote 4 while failing to adequately consider her financial circumstances at the time of the appointments.Footnote 5 As Spey was a corporation, ascertaining its intention necessarily engages the rules of corporate attribution as established in Meridian Global Funds Management Asia Ltd v Securities Commission. Footnote 6
The Privy Council decision was delivered jointly by Lord Burrows and Lady Rose. On the issue of attribution, they upheld the trial judge’s application of the Meridian test and found that Spey’s intention, as identified by Grampian, accurately reflected the intention of its board of directors.Footnote 7 However, on the issue of inadequate deliberation, the Privy Council agreed that Grampian had breached its duty by failing to adequately consider Ashley’s needs and wishes.Footnote 8 Nevertheless, the appointments were not rescinded, for reasons explained below.
Regarding the law on inadequate deliberation as articulated in Pitt, Lord Burrows and Lady Rose clarified that the assessment proceeds in two distinct stages. The first investigates whether the trustee’s inadequate deliberation was ‘sufficiently serious’ to amount to a ‘breach of fiduciary duty’.Footnote 9 Implicitly, the trustee’s inadequacy must therefore surmount a threshold before the court is willing to characterise their decision as a breach of duty. Furthermore, the duo stressed that the seriousness referenced here relates to the trustee’s standard of conduct, and not the question of causation.Footnote 10 Accordingly, the lower courts erred by eliding breach of duty with the consequences of that breach.Footnote 11
If the first stage is satisfied, the court proceeds to examine the consequences of the breach in the second stage. The court then considers the causal effect of the breach on the decision made. More broadly, this stage encompasses the court’s ‘remedial discretion as to whether or not to set aside the disposition’,Footnote 12 under which, the question of whether, had there been proper deliberation, the trustee ‘would or might’ have arrived at a different decision will be ‘relevant, but not decisive’.Footnote 13 While Ashley’s counsel submitted that the causation test was ‘might’ rather than ‘would’, the Privy Council sidestepped this issue and held that, on the facts, ‘Ashley cannot show that the decision would have been, or even might have been, different had there been no breach of fiduciary duty’.Footnote 14 Simply put, Ashley’s claim would fail regardless of which test was applied. Consequently, although Grampian breached its duty of adequate deliberation, Ashley failed to obtain rescission or any other remedy. The Privy Council concluded that the 2006 and 2009 appointments were ‘valid not voidable’.Footnote 15
While the judgment was a step towards clarity, three issues remain. A coherent understanding of the law on inadequate deliberation nevertheless demands deeper reflection, to which this comment now turns.
2. Issues on inadequate deliberation
The issues warranting further attention concern: the nature of a trustee’s duty of adequate deliberation; the ‘would’ or ‘might’ test; and a potential accountability gap arising from the two-stage process.
(a) Fiduciary duty or fiduciary’s duty?
In formulating the duty of adequate deliberation, Lord Walker in Pitt held that:
[T]he inadequate deliberation on the part of the trustees must be sufficiently serious as to amount to a breach of fiduciary duty. Breach of duty is essential (in the full sense of that word) because it is only a breach of duty on the part of the trustees that entitles the court to intervene … Apart from exceptional circumstances (such as an impasse reached by honest and reasonable trustees) only breach of fiduciary duty justifies judicial intervention.Footnote 16
Subsequently, in Gany Holdings (PTC) SA v Khan, the Privy Council similarly referred to inadequate deliberation as ‘a breach of fiduciary duty’.Footnote 17 Nevertheless, in Dawson-Damer, Lord Burrows and Lady Rose said that:
Lord Walker was obviously using the term ‘breach of fiduciary duty’ in a wide sense … as meaning a breach by a trustee or other fiduciary of its duty of proper consideration. He was not using breach of fiduciary duty in the strict narrow sense…of a breach of the duty to avoid a conflict of interest and duty.Footnote 18
In one sense, they were correct to state that the duty of adequate deliberation is not meant to prevent conflicts of interest. Indeed, equating the two duties ‘would not make sense in this context’, especially since a fiduciary can be guilty of inadequate deliberation without being in a position of conflict.Footnote 19 However, the duo also seemed to indicate that the duty of adequate deliberation is merely one of a trustee’s non-fiduciary duties. Insofar as they suggested that inadequate deliberation is a breach of a fiduciary’s duty rather than a breach of fiduciary duty, they were inconsistent with Lord Walker’s analysis. Writing extra-judicially post-Pitt, Lord Walker clarified that the duty ‘is so much part and parcel of the exercise of fiduciary powers that it would be perverse not to regard this subsidiary obligation as being fiduciary also’.Footnote 20 He reiterated this position in a subsequent lecture.Footnote 21
It appears that the reluctance to recognise fiduciary duties beyond the ‘no-conflict’ and ‘no-profit’ rules stems from the perceived orthodoxy that fiduciary duties are proscriptive.Footnote 22 This understanding has recently been challenged by commentators.Footnote 23 Furthermore, apex courts have recently signalled a shift towards a prescriptive view of fiduciary doctrine. First, in Credit Suisse Trust Ltd v Bidzina Ivanishvili, the Singapore Court of Appeal doubted the proscriptive-prescriptive dichotomy, and cautioned that the dichotomy can be ‘robb[ed] of practical utility’ by reframing a given duty, and that ‘the taxonomic exercise should not obscure the substantive content of the duties’.Footnote 24 Importantly, it held that fiduciary duties are not confined to the ‘no-conflict’ and ‘no-profit’ rules, and encompass the duty to act in good faith.Footnote 25 This duty can require a fiduciary to positively act in circumstances where they know that the principal’s interests are endangered.Footnote 26
Secondly, in Tianrui (International) Holding Company Ltd v China Shanshui Cement Group Ltd, the Privy Council construed a director’s duty to exercise their powers for a proper purpose as a ‘fiduciary duty’.Footnote 27 Lastly, in Rukhadze v Recovery Partners GP Ltd, Lord Briggs held that there is a free-standing ‘fiduciary duty to account for profits’ independent of wrongdoing.Footnote 28 In light of recent developments, it is ripe to reconsider the proscriptive view of fiduciary duties.
The nature of the duty of adequate deliberation deserves urgent clarification. As Michael Ashdown observes, the duty can be conceptualised as either a fiduciary duty, an equitable duty of care, or a sui generis duty imposed on trustees.Footnote 29 It is preferable, however, to recognise it as a fiduciary duty for two reasons.
First, equitable compensation for breach of fiduciary duty is more generous than for breach of an equitable duty of care. In the former category, foreseeability of loss is ‘not relevant’,Footnote 30 whereas in the latter, recovery is constrained by a ‘reasonable foreseeability’ limitation similar to that applied in the tort of negligence.Footnote 31 Enforcing the duty as fiduciary therefore provides stronger remedial protection for beneficiaries or principals.
Secondly, recognising the duty as fiduciary avoids an anomalous gap in the law governing third-party liability. For instance, dishonest assistance arises only where the defendant assists in a breach of trust or fiduciary duty. If the duty of adequate deliberation, itself a prescriptive duty, is not characterised as fiduciary, the law risks producing an ‘inexplicably different scope’ of liability.Footnote 32 A person who dishonestly assists a trustee in breaching the duty is liable, while someone who aids a director in an identical breach would not be.Footnote 33 Treating the duty as fiduciary resolves this discrepancy.
Given the significance of this classification, it is unfortunate that the comments in Dawson-Damer did not reflect Lord Walker’s intention.
(b) ‘Would’ or ‘might’ test?
At stage two of assessing a trustee’s inadequate deliberation, the Privy Council in Dawson-Damer accurately observed that, on Lord Walker’s approach, a causation inquiry must be carried out. A question remains, however, as to whether the applicable threshold is the ‘would’ test – more demanding on the beneficiaries, requiring proof that the trustee would have acted differently but for the error – or the ‘might’ test, which is less exacting and satisfied if the trustee might have acted differently. In Pitt, Lord Walker declined to lay down a definitive rule, stating that ‘[t]o lay down a rigid rule of either [test] … would inhibit the court in seeking the best practical solution in the application of the Hastings-Bass rule in a variety of different factual situations’.Footnote 34
Despite submissions made on this point, it is regrettable that the Privy Council in Dawson-Damer stopped short of determining the applicable test. When Lord Walker left the issue unresolved in Pitt, commentators observed that ‘the status quo seems intolerably uncertain’.Footnote 35 This uncertainty persists following Dawson-Damer, and the Supreme Court should grasp the nettle at the next opportunity. Four options present themselves.
The first is to revisit Lord Walker’s tentative ‘ingenious suggestion’ in Pitt, where he mooted the idea that the ‘would’ test is ‘the appropriate test for family trusts’, whereas the ‘might’ test is ‘appropriate for pensions trusts, since members of a pension scheme are not volunteers, but have contractual rights’.Footnote 36 Although this suggestion was referenced in Dawson-Damer, the Privy Council rightly did not endorse it.Footnote 37
While this family-commercial trust dichotomy reflects a broader trend in equity, it lacks a principled foundation. Lord Browne-Wilkinson drew a similar distinction in Target Holdings Ltd v Redferns when articulating the principles of equitable compensation,Footnote 38 but this was met with sustained criticism.Footnote 39 In AIB Group (UK) plc v Mark Redler & Co Solicitors, Lord Reed, while broadly endorsing Target, disapproved this dichotomy, observing:
That is not to say that there is a categorical distinction between trusts in commercial and non-commercial relationships, or to assert that there are trusts to which the fundamental principles of equity do not apply.Footnote 40
There is likewise no principled basis for applying different causation tests for inadequate deliberation based on such a distinction. Both family trust beneficiaries and pension scheme members are equally entitled to have their trusts properly administered and to enforce the same standard of trustee accountability. Whether a beneficiary receives a gift from a settlor or acquires rights through financial contributions as part of an employment bargain (giving rise to contractual entitlements under a pension scheme) does not alter the trustees’ duty or the appropriate causation test. The ‘might’ or ‘would’ inquiry is ultimately concerned with whether the trust has been duly administered, and that inquiry must apply uniformly across trusts.
The second option is to apply the ‘might’ test across all trusts. In support of this proposition, Ashdown argues that:
[T]he underlying principle [is] that beneficiaries are entitled to the proper administration of their trusts … Since beneficiaries will not generally have access to the trustees’ reasons for making decisions, requiring them to prove that the trustees ‘would’ have acted differently … would likely have the practical effect of rendering unchallengeable many decisions made in proven breach of duty.Footnote 41
By contrast, the third option is to apply the ‘would’ test uniformly. Francis Ng formulates the requirement as follows: ‘but for’ the breach of trust, the trustees would not have entered into the transaction.Footnote 42 He argues that such a standard would promote clarity, and that ‘[i]t is hard to see why, notwithstanding that the breach was not causative on the balance of probabilities, a court should allow rescission’.Footnote 43 Similarly, David Hayton contends that the settlor of a trust would not wish their beneficiaries to ‘whine from time to time that the trustees “might” have done this, that or the other’.Footnote 44 While this approach offers conceptual simplicity, it ignores the concern that fewer beneficiaries will succeed in rescinding transactions, even where trustees have demonstrably failed in their duty of adequate deliberation, thereby undermining the standard of trust administration.
The fourth, and preferable, approach – here termed the ‘reversal of burden’ approach – avoids these difficulties. Under this approach, once the beneficiary establishes at the first stage that the trustee has breached the duty of adequate deliberation, a presumption arises that the trustee would have acted differently absent the breach. At the second stage, the legal burden shifts to the trustee to prove that they would have reached the same decision even with proper deliberation. Failure to discharge this burden entitles the beneficiary to rescission.
This approach has recently been adopted in related contexts. In Mitchell v Al Jaber, the Supreme Court held that where a beneficiary (or principal) shows that: (i) the trustee (or fiduciary) has misappropriated trust property (or property under fiduciary control); and (ii) the property had value when misappropriated, loss of that value is presumed, and the legal burden shifts to the trustee (or fiduciary) to disprove ‘but for’ causation.Footnote 45 Likewise, the Singapore Court of Appeal in Sim Poh Ping v Winsta Holding Pte Ltd adopted the same burden-shifting approach for a non-custodial breach of fiduciary duty.Footnote 46 Both apex courts justified this outcome on the ground that the defendant-fiduciary is better positioned to establish the true cause of loss, given the inherent information asymmetry between fiduciary and principal.Footnote 47 In the context of inadequate deliberation, the same information asymmetry between trustee and beneficiary arises. Trustees alone possess the internal reasoning, materials, and deliberative processes necessary to show what they would have done had they complied with their duty.
There is a subtle but important difference between the ‘might’ test and the ‘reversal of burden’ approach. The ‘might’ test lowers the substantive standard of causation, requiring only that proper deliberation might have produced a different outcome. However, it leaves the legal burden on the beneficiary to establish this causation on the balance of probabilities, even if the evidential burden may shift more readily than under the ‘would’ test. Nevertheless, in borderline cases, the evidential gap created by the errant trustee may very well prevent a beneficiary from proving causation even on this attenuated test.
By contrast, the ‘reversal of burden’ approach retains the familiar ‘but for’ standard – applied in other fiduciary breaches identified above – but reallocates the legal burden to the trustee. Once the beneficiary proves the breach of the duty of adequate deliberation, it is the defaulting trustee who must demonstrate, on the balance of probabilities, that they would have reached the same decision even with proper deliberation. This ensures that the evidential risk generated by inadequate deliberation falls squarely on the trustee rather than the beneficiary. It therefore provides a more desirable mechanism for enforcing the duty: it aligns with well-established causation doctrine in cognate areas, and prevents the duty from becoming practically unenforceable in precisely those cases where the trustee’s deficient deliberation creates an evidential vacuum.
(c) An accountability lacuna?
Acceptance of the two-stage framework for inadequate deliberation generates another complication. Even where a trustee is guilty of inadequate deliberation, the beneficiary is left without any remedy if the court concludes that the outcome would plausibly have remained the same. The trustee may therefore escape with impunity despite a clear breach of duty. This is troubling, as fiduciary powers have been misused and the integrity of the decision-making process tainted. Against this backdrop, it is curious that the Privy Council in Dawson-Damer concluded that both appointments were ‘valid not voidable’.Footnote 48 Once a breach of the duty of adequate deliberation is established, the transaction should instead be treated as valid but voidable. Whether rescission is granted should then depend, inter alia, on the causal effect of the breach and the presence of any bars to rescission.
Even where rescission is withheld, equity should, absent affirmation, laches, or unclean hands, award equitable compensation in lieu of rescission to vindicate the wrong (ie breach of fiduciary duty). A beneficiary has a right to their trustee’s adequate deliberation – a right that protects the due administration of the trust. Lord Millett has explained extra-judicially that the ‘principal remedies’ for breach of an equitable obligation are rescission, specific performance, and orders following the taking of an account.Footnote 49 These enforce a trustee’s primary obligations. He further observed that equitable compensation, as a ‘secondary remedy’, should be available when the principal remedies are unavailable or inappropriate.Footnote 50
When equitable compensation is awarded in this way, it does not compensate for actual loss. Instead, it redresses the wrong itself. The distinction is between damnum (actual loss) and injuria (wrong). If the law is to take the protection of trust and fiduciary relationships seriously, a beneficiary should be remedied for a trustee’s inadequate deliberation even where rescission is unavailable, and no consequential loss is sustained. This is analogous to the award of negotiating damages for proprietary torts and breaches of confidence in the absence of consequential loss. Adopting this suggestion would require deeper reflection – beyond the remit of this note – on the gist of the action for inadequate deliberation. Is the cause of action complete once inadequate deliberation is proved (ie when the failure is ‘sufficiently serious as to amount to a breach of fiduciary duty’)? Or does it crystallise only upon proof that a different outcome ‘might or would’ have been reached?
Conclusion
Dawson-Damer is significant for clarifying that the law on inadequate deliberation involves a two-stage approach and for distinguishing the breach of duty from its causal effects. However, it represents a missed opportunity, as the Privy Council did not engage with the nature of the duty or clarify the causation test in the second stage. The two-stage framework also raises concerns about a potential accountability lacuna, which future courts may wish to address.
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