The recent case of Altus Group (UK) Ltd v (1) Baker Tilly Tax & Advisory Services LLP (2) Baker Tilly Tax & Accounting Ltd [2015] EWHC 12 (Ch) has again shown that even where a defendant admits breach of duty, they may not ultimately be found liable if the breach did not cause the claimant's loss. Causation in this case was assessed on a loss of a chance basis. The case also provides an interesting postscript as to a judge's reaction to a claimant asking for a decision to be reconsidered after the circulation of the draft judgment. 

Background 

The Claimant was one of two corporate members of an LLP which had been incorporated in order to purchase another business. The acquisition of that business gave rise to an asset in the LLP's accounts in relation to the business' goodwill. It was decided that the goodwill would be amortised over a five year period, concluding at the end of the third quarter of 2012. This would create an allowable deduction against the Claimant's profits.

The Claimant retained the Defendants to prepare its corporation tax returns from 2007. The Defendants submitted the returns for the periods ending on 31 December in 2008, 2009 and 2010 on the basis that the Claimant had been allocated the deduction. This meant that the Claimant had incurred a loss, which it could then carry forward to set aside its liability for corporation tax in future years.  

In December 2008, the Corporation Tax Bill was introduced in the House of Commons and the resulting Corporation Tax Act 2009 came into force on 1 April 2009. This Act applied to corporation tax purposes for accounting periods which ended on or after 1 April 2009. The effect of sections 1263 and 1264 of the Act (both of which had been included in the Bill) was that the Claimant could not, in fact, be allocated the deduction with effect from the corporation tax period ending on 31 December 2009.

Unfortunately, the Defendants did not inform the Claimant of the effect of sections 1263 and 1264 on the Claimant's tax affairs until October 2011. The following month, the Claimant spoke to a tax adviser (Ernst & Young), which proposed a restructure to mitigate the Claimant's tax liability. The Claimant tried to implement the restructure but ultimately abandoned it in 2012.

The Claim

The Claimant claimed damages for professional negligence from the Defendants. In summary, the Claimant said that the Defendants should have advised it in January 2009 of the effect of sections 1263 and 1264. The Claimant further argued that, if it had been properly advised at that time, it would have implemented the restructure within about four months and there would have been a substantial chance that that restructure would have been successful in mitigating the Claimant's tax liabilities. The Claimant claimed damages for the loss of that chance.

In response, the Defendants admitted that they ought to have advised the Claimant about the effect of sections 1263 and 1264 in about mid-July 2009, when they prepared the Claimant's corporation tax computation for the six-month period up to 30 June 2009. However, they denied that they were under any duty to give that advice in January 2009. The Defendants further argued that, even if they had given the advice, the Claimant would not have implemented the restructure and that, even if the Claimant had done so, the restructure would have taken approximately nine months rather than four months to implement. The Defendants also said that, as a matter of law, the restructure would not have effectively mitigated the Claimant's tax liabilities and that therefore any damages for the loss of opportunity to mitigate the liabilities are irrecoverable. However, even if damages for the lost opportunity were recoverable, they would either be small or illusory because of the strong likelihood that HMRC would have successfully challenged the restructure.   

The Judgment 

Breach of Duty

Judge Keyser QC held that the Defendants were in breach in January 2009.  He stated that, if the Defendants had become aware or ought to have become aware of the possible change in the Corporation Tax Bill, they should have notified that change to the Claimant, not only because it was relevant in 2008 but also because it would be significant for future years. Judge Keyser QC also said that the Defendants ought to have considered the relevance of the Bill when dealing with the filing position in 2008 and they should have brought the proposed change to the attention of the Claimant. However, even if the Defendants had come to the view that nothing in the Bill affected the risks of the filing position in 2008, the proposed change had such a major effect on the position in future years that the Defendants ought to have brought it to the Claimant's attention.  

Judge Keyser QC also made the point that the Defendants are and hold themselves out as being "a top-end and very large firm of specialist advisers" and as such it is reasonable to judge them by standards appropriate to that standing. He therefore concluded that the Defendants should be expected to have much greater technical resources than an "ordinary" firm of accountants and as a result should be aware of relevant impending changes to tax legislation.

Is This a "Loss of Chance" Claim?

Judge Keyser QC then went on to consider whether the consequences of the breach should be determined on the loss of a chance basis and concluded that they should be.  Applying the relevant case law, in particular Allied Maples Group Ltd v Simmons & Simmons [1995] 1 W.L.R. 1602, he held that where it is alleged that the breach of duty consists of an omission but the benefit to a claimant, had the breach not occurred, would have depended upon the actions of a third party, the Court will usually analyse the case in two stages. The claimant must first prove, on the balance of probabilities, what it would have done had the breach not occurred ("the primary causation issue").  If the claimant overcomes this first hurdle, then the damages will be assessed on the basis of the value of the chance that the third party would have acted in such a way as to confer the benefit.  

Therefore, the Claimant needed to show that, but for the breach, it would have implemented the restructure and then its damages would depend upon the prospects of that restructure being successful, ie not being subject to a successful challenge by HMRC.  

Causation

Judge Keyser QC had little difficulty in finding as a fact that, if the Claimant had instructed Ernst & Young in 2009, it would have implemented the restructure.  However, he considered that the significant question was whether the Claimant would have instructed Ernst & Young at all in 2009.  He was not persuaded, on the balance of probabilities, that the Claimant would have consulted them in 2009.  Instead, the obvious and logical course would have been for the Claimant to instruct PwC to advise them, as PwC were the Claimant's preferred tax adviser at that time.  Judge Keyser QC further held that, on the balance of probabilities, PwC would not have given advice along the lines of the restructure proposed by Ernst & Young.    

Consequently, the Claimant had not proved that it would have completed the restructure and so the Claimant's claim failed.

Despite the Claimant not overcoming the first hurdle in the loss of a chance claim, Judge Keyser QC did go on to discuss in detail how damages would have been assessed.  He ultimately concluded that there was a 7.2% chance that the Claimant would have lost the tax benefits of its original filing position.  

Comment

This case provides a good example of the situation where breach has been admitted by the defendant but the claimant's claim ultimately fails as this breach did not cause their loss and it also clearly sets out the application of the case law relating to loss of a chance claims.  Furthermore, it is a reminder that "top-end" professionals will be judged against a higher standard with regard to breach of duty, as the Defendants were in this case.  

As mentioned, there is also an interesting postscript to this case.  Judge Keyser QC circulated his draft judgment to the parties and the next day the Claimant served submissions requesting that he reconsider the paragraphs dealing with primary causation. Judge Keyser QC would not reconsider his decision.  Whilst he held that there was no doubt that the power to reconsider and alter the judgment existed, the Court should exercise the overriding objective in deciding whether to exercise this power.  Furthermore, Judge Keyser QC considered that there are two relevant matters that may come into some degree of tension. Firstly, the Court will not want to hand down a judgment if it has come to the view that the judgment would do injustice between the parties. However, secondly, the practice of providing a draft judgment is intended to facilitate the avoidance of typing and detail errors.  Judge Keyser QC stated that "it is not intended to provide an opportunity for the parties to reargue points on which they have lost or to seek to adduce new evidence to bolster cases that can now be seen to have been inadequately supported at trial".  In the present case, he found there was no reason to change his conclusion on causation and no proper justification had been shown for seeking to reopen that issue after the circulation of the draft judgment.  Parties should therefore be warned that judges may not take kindly to being asked to reconsider their decisions following the circulation of the draft judgment!