Stephane Etroy & Anor v Speechly Bircham LLP

For limitation under section 14A of the Limitation Act 1980, a claimant needs knowledge of both the material damage and its attribution to the defendant’s acts or omissions. In professional tax-advice cases, identifying tax exposure and investigating whether a liability exists will not necessarily establish that knowledge. The claimant may reasonably await specialist advice where the tax consequences are complex and the advice remains tentative. Investigation costs incurred to establish whether damage has occurred will usually be preliminary or ancillary and will not, by themselves, start time running. The relevant knowledge arises when the claimant has sufficient information to justify taking legal advice and embarking on the preliminaries to proceedings. Knowledge of legal negligence is irrelevant.

This was a trial of a preliminary limitation issue. Stephane Etroy and RBC Trust Company (Jersey) Ltd claimed damages for negligent inheritance-tax advice given by Speechly Bircham LLP in 2009. The advice led to the transfer of assets from an existing life-interest trust to a new discretionary trust. The claimants alleged that the advice caused an immediate inheritance-tax entry charge, a later principal charge and associated costs.

The claim form was issued on 26 May 2021. The defendant argued that the claims were statute-barred because the claimants had the requisite knowledge by 2 May 2017. The claimants contended that the relevant date was 28 September 2018, when PwC first firmly linked a substantial entry charge to the defendant’s advice. The central issue was when the claimants first acquired the knowledge required by section 14A of the Limitation Act 1980.

The claims were not time-barred. The court held that the claimants first acquired the knowledge required by section 14A on 28 September 2018.

1. Section 14A requires knowledge of material facts about the damage and knowledge that the damage was attributable, in whole or in part, to the act or omission alleged to constitute negligence. Knowledge that the conduct was legally negligent is irrelevant. The defendant bore the burden of proving any earlier date on which actual or constructive knowledge existed.

2. The relevant damage was not merely the existence of UK-situs assets or a possible ten-year charge. It included the allegedly avoidable entry charge, the principal charge on pre-22 March 2006 additions and associated costs. The essence of the complaint was the failure to recognise the UK situs of the assets and to advise that the transfer into the new trust would cause an entry charge.

3. The correspondence by 2 May 2017 showed that PwC was investigating possible principal and entry charges, but remained tentative as to whether either charge applied and had not established that any liability was attributable to the defendant’s advice. The principal-charge issue concerning post-22 March 2006 additions would have arisen independently of that advice.

4. In a complex pure economic-loss claim involving specialist tax advice, it was reasonable for the claimants to obtain expert advice before concluding that something had gone wrong. The claimants’ knowledge of UK-situs assets and of the absence of express advice on the charges did not itself establish knowledge of actionable damage or attribution. RBC’s knowledge could not be imputed to Mr Etroy because RBC was acting as professional trustee, not as his agent.

5. Investigation costs may constitute relevant damage in principle, but costs incurred to discover whether damage had occurred were preliminary or ancillary. The estimated costs by May 2017 were also insufficient, in context, to justify proceedings against an acquiescent and creditworthy defendant.

6. On 28 September 2018 PwC first firmly indicated that a substantial entry charge was likely and attributable to the defendant’s advice. That was the first date on which either claimant had sufficient knowledge to justify embarking on the preliminaries to proceedings. The claims were therefore brought within the three-year period under section 14A.