Case details
Summary
A tax adviser who guides a client’s decision to enter a tax scheme owes an advice duty, rather than a limited information duty. The adviser must exercise the skill and care expected of a reasonably competent practitioner and must not give an unconditional assurance of success where material risks remain. A written term stating that success cannot be guaranteed does not necessarily displace earlier oral assurances forming the retainer.
For limitation purposes, damage may arise when the claimant enters a transaction exposing them to the relevant risk, rather than only when the tax authority finally determines liability. Knowledge under Limitation Act 1980, section 14A, arises when the claimant knows enough to justify investigating whether the advice was defective.
Factual background
Four solicitor claimants sued Champion entities after entering two promoted tax-planning arrangements: charity shell schemes and the Scion film scheme. They alleged negligent advice, including assurances that the charity shells would succeed and advice that the Scion scheme had a 75% or 80% prospect of success. They also alleged that material valuation and downside risks were not explained.
The court determined the scope of the defendants’ duty, breach, causation, contributory negligence, limitation, contractual limitation clauses and a counterclaim concerning claims against other Champion entities. The central issues included whether the claims were brought within the periods prescribed by the Limitation Act 1980 and whether the defendants’ contractual terms altered the agreed retainer.
Held
- Nature of the duty. The defendants were advising the claimants on whether to enter the schemes and were guiding the whole decision-making process. The engagements therefore fell within the advice category identified in SAAMCO, not the information category. The defendants had to consider and communicate the material risks associated with the proposed transactions.
- Charity shells. Champion Consulting, through Mr Dallimore, gave Messrs Halsall, Stanton and Higgins an unconditional assurance that the schemes would work and reduce their tax liabilities. Such an assurance was advice that no reasonably competent tax adviser could have given. The defendants also failed to explain that the share valuation at flotation was pivotal and exposed the scheme to a significant risk of successful HMRC challenge. That omission independently amounted to a breach. Mr McDermott did not establish that he received the relevant advice or assurance, so his claim failed on causation and reliance.
- Although some engagement letters stated that success could not be guaranteed, the court held that the relevant term did not amend or correct the oral retainer. The contractual limitation clause was incorporated in some cases and was reasonable under section 11 of the Unfair Contract Terms Act 1977. The charity-shell claims were nevertheless statute-barred under sections 2 and 14A of the Limitation Act 1980. Damage arose when the claimants entered the transactions, or at latest when they gifted the shares. By 2009–2011 they knew enough to investigate whether the advice was defective.
- Scion film scheme. The defendants advised the claimants to enter the scheme and represented that its prospects of success were 75%. That assessment was outside the range available to a reasonably competent adviser. The court did not need to determine the additional-liability allegations. The claims were also statute-barred: the damage arose when the contractual documentation was entered into, and the claimants had sufficient knowledge by June 2011.
- The claimants did not contribute negligently to their losses by failing to read the documentation. The defendants’ counterclaim based on clause 9 was dismissed because “persons” referred to natural persons, not other corporate defendants. The claim was dismissed.
The court’s approach to earlier authorities
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