Two important appeals set to be heard in the Supreme Court this week could lead to a raft of negligence claims being lodged against tax advisors.
That's the fear of many tax advisors who will closely follow the outcome of the Pitt and Futter v HMRC cases, when the Supreme Court sits down to hear both appeals which begin tomorrow.
HMRC won a significant victory in 2011 when the Court of Appeal made it infinitely more difficult for trustees to unwind decisions which turned out to have adverse tax consequences.
The Supreme Court is now set to consider the circumstances in which the courts can set aside a decision on the basis that trustees had failed to take into account relevant matters or had taken into account irrelevant matters.
The Court of Appeal ruled that trustees' exercise of their powers can only be set aside where they are found to have acted in breach of their fiduciary duties - but trustees will not generally be in breach if they have acted on appropriate professional advice, including that oftax advisors.
Where trustees act on the basis of professional advice and take decisions that turn out to have unexpected adverse consequences, they cannot expect to have those decisions unwound and will turn instead to their advisors for redress.
Stuart Pickford, litigation partner at Mayer Brown, expects the appeal to be watched closely by trustees' advisors and their insurers.
'It will be interesting to see whether the Supreme Court will subscribe to the view aired in the Court of Appeal that there is no need for the courts to have a wide jurisdiction to declare trustees' decisions invalid because trustees can look to their advisers for redress. Claims against advisers are by no means straightforward - an unforeseen consequence will not always translate into a good claim.
'The law as it now stands has unfortunate knock-on consequences: the need to prove a breach of duty by the trustees can easily change the focus from resolving the problem to apportioning blame - putting what would traditionally have been a non-hostile court application onto more hostile footing.
'Although these cases are concerned with tax liabilities for private trusts, the underlying principles are of much wider application, extending from small family trusts right through to major occupational pension schemes,' said Pickford.