Trustees' Tax Error Not Rectifiable - Court Says 'Sue Advisers'

Posted: 31st March 2011

Trustees who ‘get it wrong’ have traditionally been able to go to the court to rectify a mistake they have made if they failed to take account of something which turned out to be significant. When this occurs, a beneficiary can go to court and ask for the transaction to be voided. Technically, this depends on the trustees having breached their duty of trust to the beneficiaries (through ignorance of the relevant issue).
Recently the Court of Appeal had to consider to applications brought where the trustees of trusts had made errors in carrying out transaction which led to avoidable tax liabilities. In these cases, professional advice had been sought by the trustees. The consequence of this was that the claims to make the transactions void were rejected.
The trustees had not breached their duty of care. They had acted on negligent advice.
In the words of Lord Justice Lloyd, “Where matters of tax were relevant… it was likely to be part of the duties of the trustees, under their duty of skill and care, to take proper advice as to those matters. However, if the trustees, aware of the need to consider relevant matters, sought advice as to the position while considering what, if anything, to do under their discretionary powers, then …the trustees could not be said to be in breach of their duty if they proceeded to address the exercise of their discretionary power on the basis of the advice given to them as to, for example, tax consequences. Accordingly, in a case where the trustees’ act was within their powers, but was said to be vitiated by a breach of trust so as to be voidable, if the breach of trust asserted was that the trustees failed to have regard to a relevant matter, and if the reason that they did not have regard to it was that they had obtained and acted on advice from apparently competent advisers, which turned out to be incorrect, then the charge of breach of trust could not be made out.”
The only path open to the trustees now is to consider suing the tax advisers for negligence.
If you have received negligent tax or investment advice, we may be able to help you obtain redress.