Jemma Trust Company Ltd v Lewis & Ors

A solicitor advising executors and trustees must meet the standard of a reasonably competent solicitor holding out relevant expertise. Executors who promote a variation of trust arrangements designed to advance one beneficiary’s interest may place themselves in an impermissible conflict between their fiduciary duties. They should ordinarily adopt a neutral or facilitative role and deal openly and even-handedly with the beneficiaries. An actuary’s report will usually be an important negotiating and evidential tool in dividing a fund between life and remainder interests, although failure to obtain one causes recoverable loss only if causation is proved. A solicitor must consider an available statutory mechanism affecting tax values where the circumstances reasonably call for it. The claim may nevertheless fail where the claimant cannot establish a real or substantial chance of a different outcome.

The claimant brought two derivative professional-negligence actions against solicitors who had advised executors and trustees of a will. The first action concerned advice and conduct in procuring a deed of variation of the will, intended to extinguish a life interest and obtain inheritance-tax advantages. The second concerned capital-gains-tax advice, including probate values, vesting of estate assets and substitution of sale values.

The court considered whether the solicitors had breached their duty of care, whether any breach caused recoverable loss, and whether the claimant was entitled to an enquiry as to loss in relation to the assent of the Hulton Land Fund.

1. Duty and fiduciary position. The solicitors owed the standard of care expected of reasonably competent solicitors holding themselves out as having expertise in the relevant tax and trust matters. The executors’ decision to take the central, proactive role in promoting the deed of variation placed them in an impossible conflict between their duties to the life tenant and the remainder beneficiary. They should have adopted a neutral or facilitative role and dealt openly and even-handedly with both interests.
2. Deed of variation. The solicitors were negligent in failing to advise on equal and open treatment, proper negotiations, reasonable disclosure and obtaining an actuary’s report. An up-to-date valuation was not required in the unusual circumstances, particularly because the Official Solicitor supported proceeding on the existing evidence. The solicitors were not negligent in relation to several further complaints, including the form of affidavits, medical evidence, counsel, skeleton argument and information already available to the Court of Protection.
3. The claimant failed to establish loss. The application was opposed, unusual and unorthodox. There was no real or substantial prospect that the receivers or the Court of Protection would have accepted a payment below £750,000. The DOV Action was dismissed.
4. CGT issues. The policy of using low probate values and retaining the residue was reasonable in the circumstances. The solicitors were negligent in failing to consider and advise on the possibility of using Inheritance Tax Act 1984 s.191 for the Three Properties, but the claimant failed to prove that this caused loss.
5. The solicitors were negligent in failing properly to advise on the desirability and CGT consequences of the 1997 assent vesting the Hulton Land Fund in the trustees. The assent created a deemed disposal on the life tenant’s death, and the asserted inheritance-tax rationale was unsupported. The issue of consequential loss was directed to an enquiry. All CGT claims were dismissed except that claim.

First-instance judgment in two professional-negligence actions. No prior appellate decision is stated in the judgment.