Slattery v Moore Stephens (a firm)

A professional adviser must identify and raise a reasonably available tax-saving structure where the client’s circumstances make it relevant. Failure to advise a non-domiciled taxpayer about offshore payment may constitute negligence. Causation depends on what the client would probably have done if properly advised, including whether income would have been remitted. A client’s failure to question an unexpectedly large tax refund may amount to contributory negligence, but will break the chain of causation only in an extreme case. Damages should reflect the true tax position, rather than an erroneous benefit that the taxpayer might have retained without detection.

The claimant, an employee of Citibank, was resident but not ordinarily resident in the United Kingdom and frequently worked abroad. The defendant accountancy firm prepared his United Kingdom tax returns and advised on his tax affairs. It failed to raise the possibility of having salary paid offshore, and later prepared returns on the mistaken assumption that relevant earnings had been paid abroad. Tax refunds were consequently made, which the claimant later had to repay with interest.

The issues were breach of duty, the effect of a disputed telephone conversation, causation, contributory negligence and damages for the tax years 1995/96 to 1997/98.

1. Duty and breach. The defendant was under a duty to raise the potential benefits of offshore payment for consideration. A reasonably careful and competent tax accountant would have identified the relevance of payment into a Channel Islands account for a taxpayer resident but not ordinarily resident who worked abroad. The failure to do so, and the preparation of later returns on an unchecked assumption that earnings were paid abroad, amounted to breach.
2. 1995/96. Although there was a breach, the claimant would have used his earnings to meet living expenses in the United Kingdom. The breach therefore caused no loss for that year.
3. 1996/97. The court rejected the defendant’s evidence that the claimant had said he would arrange payment in New York. The contemporaneous letter did not record that alleged agreement and did not mention the need to avoid remittances or the Channel Islands. The breach caused loss because the claimant had sufficient earnings to fund his living expenses without remitting the foreign-work element, and offshore payment could readily have been arranged. No contributory negligence was established.
4. 1997/98. The defendant’s continuing breach caused loss. However, the claimant was seriously at fault in failing to question an unexpected refund exceeding £127,000, particularly when asked to satisfy himself that the return was correct. That conduct was not sufficiently reckless to break the chain of causation, but justified a 50 per cent reduction for contributory negligence.
5. Damages. Damages were assessed using the agreed correct tax calculations, not the erroneous refunds actually obtained. Interest paid to the Inland Revenue was recoverable in principle, subject to the relevance of Supreme Court Act 1981, section 35A. Judgment was entered for £197,092.48, with ancillary matters left to be addressed.

First-instance decision. No prior or appellate decision is stated in the judgment.