Mason & Ors v Mills & Reeve (a firm)

A solicitor’s duty is primarily contractual, and its scope depends on the retainer and the circumstances known to the solicitor. The duty may extend to warning of an obvious risk discovered while carrying out the retainer, but it does not make the solicitor a general insurer against every legal or tax problem. Where different advisers are involved, the solicitor must clearly delimit responsibility between them. Here, the solicitors should have stated that their advice did not cover potential inheritance tax consequences or comprehensive capital gains tax consequences. That breach did not establish liability because the pleaded causal route depended on further advice about a heart procedure, and the information about that procedure was received by chance and appeared routine. The claim was dismissed.

The executors and daughters of Christopher Swain claimed professional negligence against their solicitors arising from advice given for a management buy-out of shares in Swains International plc. The claim alleged that the solicitors should have advised about inheritance tax and capital gains tax consequences, including the consequences if Mr Swain died shortly after completion, and should have advised delaying completion until after a planned heart procedure.

The court determined the scope of the retainer, whether receipt of an email describing the planned procedure triggered a continuing duty to advise, whether the advice letter inadequately defined its limits, and whether either alleged breach caused the claimed losses.

1. Scope of retainer. The court held that the solicitors’ retainer included advice on the tax consequences flowing from the management buy-out, but excluded advice on how the transaction fitted into the clients’ personal financial and tax planning. The retainer was interpreted from its express terms, the communications between the parties and the circumstances known to the solicitors.
2. Standard and coordination. The solicitors were to be judged by the standard of a firm with a specialist tax department. Their continuing duty included updating advice when material circumstances changed and coordinating the corporate and tax teams. It was reasonable to understand that the existing accountants would deal with tax returns and related valuations, but not that they would advise on the tax consequences of the transaction. Any division of responsibility therefore had to be made clear.
3. Primary case. Receipt by the supervising partner of an email chain containing information about the heart procedure did not trigger a duty to advise on the tax consequences of death or to suggest postponement. The information was conveyed by happenstance, was not sent to the tax advisers, was not accompanied by a request for advice, and did not indicate that the procedure was other than routine. Even if a duty to advise about the tax consequences had arisen, the duty would at most have been to explain the available options, not necessarily to recommend deferral.
4. Alternative case. The advice letter should have stated clearly that it excluded advice on potential inheritance tax consequences and comprehensive capital gains tax consequences. The solicitors were in breach in failing to do so. The clients would probably have sought further advice from the solicitors, but that advice would likely have been given by a private client tax specialist. The available options could have included reinvestment qualifying for business property relief or enterprise investment scheme relief, and other inheritance tax mitigation. It was speculative to conclude that the clients would have chosen to defer completion.
5. Causation and disposal. If the primary or alternative duty to advise postponement had been established, the losses would have been caused by the breach because completion could have been delayed and the buyers and funders would probably have agreed. The necessary duty was not established. The claim was dismissed.

The judgment records that the procedural history had been considered by the Court of Appeal in [2011] EWCA Civ 14. The present High Court trial proceeded on the pleaded case permitted after that procedural history.