Trustees no longer protected from legal action

A Court of Appeal decision delivered last month is likely to result in a greater number of legal actions against trustees and their professional advisers, warns leading private client law firm Boodle Hatfield

The Court of Appeal has overturned a 35-year old ruling that gave protection to trustees allowing them effectively to eradicate actions they had taken that had adverse tax consequences they had not anticipated. The rule, known as Hastings Bass, effectively gave trustees a legal ‘morning after pill’. The Court of Appeal ruled that if trustees took poor choices based on legal or other professional advice, they cannot turn the clock back.

Will Twidale, a partner at Boodle Hatfield specialising in contentious trusts and probate matters, says that ‘there will certainly be a big rise in litigation against professional advisers, in which trustees will also be involved, and these will cost a lot more than Hastings Bass applications where the trustee simply went to the courts and said, “I didn’t appreciate the tax consequences of this, I took professional advice and it was wrong,” and the court just says, “Okay, go back to Go and you’re let off.”

‘Now the trustee can’t do that, and the tax liability must be paid. The beneficiary will pursue for that loss, and the trustee will pursue their adviser for the bad advice, so there will be a lot more litigation.’

Thanks to the likely increase in costly litigation, ‘the ruling is bad news for beneficiaries, trustees and professional advisers to trustees,’ Twidale says, but that doesn’t mean that the Court of Appeal decision wasn’t welcomed by others.

‘The view that is widely held is that this is an old case that has been misinterpreted for 35 years. If you’re an accountant or a tax lawyer who advises someone and your advice proves wrong, but that person happens to be a trustee rather than an individual, why should you be treated differently? And in the same way, why should HMRC get a windfall from an individual, but not from a trustee?’ Twidale explains.

For this reason, Twidale believes the ruling is unlikely to be reversed even if it is appealed. He says that ‘the decision has been waited for for ages, everyone has wanted this rule to be tested by the court of appeal for a very long time. I know that there is going to be permission sought to appeal it higher up, but I don’t think this will be granted.’