Altus Group (UK) Ltd v Baker Tilly Tax And Advisory Services LLP & Anor

In a professional-negligence claim involving tax advice, the claimant must prove on the balance of probabilities that it would have taken the relevant course of action. If that is established, loss is assessed by reference to the practical chance that the course would have produced the claimed benefit, including the chance of intervention by a third party or tribunal.

A disputed issue of law does not automatically displace the loss-of-a-chance approach. The court should decide the legal issue where it is sufficiently clear, but otherwise may assess the prospects of a successful challenge. A professional adviser’s duty is defined by the retainer, but includes warning of material risks discovered while performing it. Specialist advisers are judged by the standards appropriate to their specialist status.

The claimant sought damages from its tax advisers for failing to advise in 2009 about the effect of the Corporation Tax Act 2009 on the allocation of losses within a limited liability partnership. It alleged that timely advice would have led it to implement a dual-LLP restructuring designed to preserve tax benefits.

The defendants admitted breach by July 2009 but disputed the earlier breach date, primary causation, the legal efficacy of the proposed restructuring, and recoverability of loss based on the chance that HMRC would not successfully challenge it. The court therefore considered breach, what the claimant would have done, and the appropriate treatment of legal and factual contingencies.

1. Outcome. The claim was dismissed. The defendants were in breach of duty in January 2009, but the claimant failed to prove on the balance of probabilities that it would have implemented the proposed restructuring.
2. Loss of a chance. Where an omission deprives a claimant of an opportunity dependent on a third party’s conduct, the claimant must first prove what it would have done. If that primary causation issue is established, damages are assessed by reference to the chance that the third party would have acted so as to confer the benefit. This approach applied even though the chance depended partly on HMRC or a tribunal dealing with disputed tax-law issues. Only a point so clear that it had no substantial prospect of being resolved otherwise should be determined conclusively rather than assessed as a chance.
3. Scope of duty. The advisers’ duty arose from the engagement letters and the common law, including the duty under section 13 of the Supply of Goods and Services Act 1982. A retainer to prepare tax returns required advice about the forthcoming statutory change because it was material both to the existing filing position and to future returns. The defendants were judged by the standard reasonably expected of a top-end specialist tax and accountancy firm.
4. Hypothetical restructuring. If implemented, the proposal would probably have taken about twenty-seven weeks. A challenge based directly on sections 1263 and 1264 of the Corporation Tax Act 2009 would have had no substantial merit. The court also rejected the proposed challenges based on Heastie v Veitch & Co, goodwill transfer pricing and IR35.
5. Remaining contingencies. The court considered that a Ramsay challenge under section 54 of the Corporation Tax Act 2009 had a 50% chance of success, with a 60% chance of being brought by HMRC. A service-fee transfer-pricing challenge had a one-third chance of success if brought. These findings were immaterial because primary causation failed.
6. Draft judgment. The court refused to reopen the causation findings after circulation of the draft judgment. The draft-judgment procedure is principally intended to correct errors of detail, not to permit a party to reargue an issue or adduce further evidence after trial.

This was a first-instance decision. The court adjourned consideration of the claimant’s application for permission to appeal and extended the time for applying to the Court of Appeal.