Floyd & Ors v John Fairhurst & Co

An appellate court reviews whether a lower court’s factual decision was wrong, but the intensity of review depends on the nature of the finding. Particular restraint is required where the trial judge assessed oral evidence or made a complex evaluation of numerous factors. Intervention remains appropriate where the conclusion was plainly wrong, the reasons were materially deficient, or a significant relevant factor was overlooked.

Damages must reflect the claimant’s actual loss. Mutually exclusive tax benefits obtained through an alternative course must be credited where omission would produce overcompensation. By analogy with reflective loss, an effective sole shareholder claiming against a professional adviser must give credit for a corresponding gain obtained by the company from the same negligence.

The appellants sued their former accountants and tax advisers for negligent tax advice and associated losses. The admitted negligence included failure to advise that compensation received following compulsory purchase could qualify for capital gains tax rollover relief. The trial judge found that the principal appellant would not have used that relief even if properly advised. He awarded £10,549 on the claim and £12,943 on the accountants’ counterclaim for fees.

The appellants challenged the judge’s factual findings, his approach to damages and tax benefits, the fees award, and the joint and several costs order against one appellant. The accountants cross-appealed concerning interest and penalties arising from a Revenue investigation and the treatment of benefits obtained through the resulting tax settlement.

The central questions concerned the proper appellate approach to different kinds of factual finding, the losses recoverable from negligent tax advice, and whether the trial judge’s findings and orders could stand.

1. Appeal and cross-appeal dismissed. The Court of Appeal unanimously upheld the judge’s order.

2. An appellate court’s approach to a factual finding depends on the nature of the finding and the advantage enjoyed by the trial judge. Findings based on the credibility or reliability of oral evidence attract particular restraint. Similar restraint applies to complex evaluations involving numerous interdependent factors. The appellate court must nevertheless intervene where the judge was plainly wrong, gave materially deficient reasons, or omitted a significant relevant factor.

3. The finding that the principal appellant would not have used compulsory-purchase rollover relief was a complex and substantially subjective evaluation. It required the judge to assess his characteristics, financial priorities, appetite for restrictions, alternative investments and preference for principal private residence relief. The judge had tested his evidence against objective considerations and was entitled to conclude that he preferred a permanent tax-free gain and freedom of investment. The conclusion was neither plainly wrong nor materially incomplete.

4. The proposed 25% discount for the possibility that deferred tax would crystallise did not arise for decision. It nevertheless lay within the range reasonably available to the judge. The tax savings obtained through principal private residence relief also had to be credited in the alternative damages calculation because those savings and compulsory-purchase relief could not both have been obtained. Otherwise the claimant would recover more than his loss.

5. The judge was entitled to find that no concluded decision to pay a dividend had been made and that the accountants had proved £12,943 in fees. Those findings depended materially on oral and documentary evidence and were not plainly wrong.

6. Although the dividend damages issue was academic, the judge was entitled to net the shareholders’ loss against the company’s gain. By analogy with reflective loss, effective sole shareholders cannot recover more than the net loss caused by the adviser’s negligence merely because the company is legally distinct.

7. The joint and several costs order against Mrs Floyd was within the judge’s discretion. She had funded litigation from which, on the appellants’ own evidence, she stood to benefit substantially.

8. The appellants discharged their evidential burden of showing that the tax could have been paid on time. The accountants were not entitled to credit for tax which the Revenue had not assessed, although the timing benefit actually obtained was properly brought into account.

1. Court of Appeal (Civil Division): The appeal and cross-appeal were dismissed unanimously: [2004] EWCA Civ 604.
2. High Court, Chancery Division, Manchester District Registry: HHJ Maddocks, sitting as a deputy High Court judge, gave the claimants judgment for £10,549 and the defendants judgment for £12,943 on their counterclaim. No citation is stated.