Barker v Baxendale Walker Solicitors (a firm)

A specialist tax solicitor is not negligent merely because a statutory construction later proves incorrect, provided the construction was tenable and could properly have been adopted by a reasonably competent practitioner. A warning about an alternative interpretation is required only where the circumstances disclose a significant or clear risk that the preferred interpretation may be wrong. A general warning that a tax avoidance scheme may be challenged is distinct from a high-level warning about a specific statutory risk. The defendants should have given the general warning, but that breach did not cause loss. Their interpretation of the employee trust provisions was tenable, and no specific warning was required. The claim was therefore dismissed.

Mr Barker sued his specialist tax solicitors in tort. He alleged that they negligently advised him to transfer shares into an employee benefit trust on the basis that his wife and children could receive capital benefits after his death. He contended that the relevant statutory conditions required their permanent exclusion, or at least that he should have been warned of that risk.

The defendants denied negligence and relied on limitation and causation arguments. The court considered the standard of care for specialist tax advice, the need to warn of alternative statutory constructions, the construction of the employee trust provisions, limitation, and hypothetical loss arising from an alternative unit trust scheme.

1. The court held that the defendants owed the duty of an experienced specialist tax solicitor. The question was whether a reasonably competent specialist, applying proper skill and care, could have given the advice in question. A legal construction which ultimately proves wrong is not necessarily negligent if it was tenable.

2. The court distinguished between a general warning and a specific warning. A solicitor promoting a tax avoidance scheme should explain that the Revenue may challenge it and that litigation may produce an adverse result. The defendants failed to give that general warning. However, Mr Barker would have proceeded in any event, so the breach caused no loss.

3. The court considered the construction of section 28(4) of the Inheritance Tax Act 1984. It regarded the defendants’ interpretation, under which connected persons had to be excluded when benefits were applied rather than permanently after the participator’s death, as strongly arguable and probably correct. The alternative construction required additional words and created difficulties in the statutory structure. A reasonably competent tax specialist could properly adopt the defendants’ view.

4. No high-level warning was required. The court regarded the alternative interpretation as unlikely, and several experienced tax specialists had independently taken the same view over a number of years. The defendants were therefore not negligent in failing to warn that the scheme might fail unless Mr Barker’s family were permanently excluded.

5. The claim was not statute-barred. Mr Barker did not acquire the relevant knowledge for section 14A of the Limitation Act 1980 until the specific statutory argument was raised in April 2010, and expert advice was reasonably required.

6. On the assumed basis that liability existed, the court would have assessed the chance of success of the alternative unit trust scheme at 70 per cent. Most costs of unravelling the employee benefit trust would also have been recoverable, but professional costs arising from benefits taken through properties were not causally connected with the alleged breach.

7. The claim was dismissed.

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