The High Court has recently held that, where a professional gives negligent advice causing loss, the benefits of the competent part of the advice cannot generally be offset against the losses arising from the negligent aspects of the same advice.
In Jones v WHK Sherwin Chan & Walshe (HC Wellington, CIV 2009-485-1324, 25 July 2011) the defendants were the former accountants for Sir Robert Jones. The defendants admitted that they had provided Sir Robert with negligent tax advice. The Court was asked to determine the quantum of defendants' liability. The defendants claimed (among other things) that they were entitled to set off the value of the benefits that had accrued to Sir Robert as a result of the competent part of their advice against the losses flowing from the negligent aspects of their advice.
However, the Court held that an innocent party who has relied on negligent professional advice, and irrevocably changed its position in doing so, is not required to subtract related benefits from the loss suffered; unless it can be put in the position it would have been in had the advice been correct. This was not the case for Sir Robert, who had not received a net gain and was worse off because of the tax liability arising from the negligent advice. As a result, the residual tax efficiency flowing from the negligent advice was not a benefit that could be offset against the price paid to fix the flawed advice. The Court also refused to accept mitigation arguments raised by the defendants.
The case highlights the difficulties faced by negligent professionals when disputing losses that a plaintiff has suffered following reliance upon negligent advice.