Plaintiff purchasing lease to sell to company as part of transaction – Solicitor instructed to act for plaintiff in transaction – Plaintiff selling lease to company without making profit or loss as agreed – Plaintiff liable for charge to income tax for transaction – Plaintiff claiming solicitor had failed in his duty to advise in relation to charge to tax – Solicitor claiming agreement that plaintiff was to seek tax advise elsewhere – Whether agreement had been made – Whether solicitor was under a duty to advise about charge to tax – Judgment for plaintiff
The plaintiff company carried on business as a property owner and developer and became interested in acquiring a company called Midas which owned the shares in a fashion business, ALM, and the lease of the premises which the fashion business occupied. The plaintiff agreed, inter alia, that it would acquire the lease for £200,000 from Midas and would grant a sublease to ALM on the full repayment of £200,000 which was to be paid by instalments. In fact the lease had no value because it was to be granted to the plaintiff and subsequently to ALM at full market value. The £200,000 represented the value of ALM’s goodwill. The parties to the transaction instructed the defendant, a firm of solicitors, to act for them and the transaction proceeded to completion. Subsequently the plaintiff’s accountant learnt of the transaction and appreciated the risk of a tax charge arising under section 34(1) of the Income and Corporation Taxes Act 1988 on the £200,000 as additional rent. Despite an appeal against the assessment made, a charge of £61,338.58 was paid to the revenue.
The plaintiff claimed the defendant had failed in its duty by not advising that the structure of the transaction would give rise to a charge to tax. The defendant claimed that it had been expressly agreed that it would not be giving any taxation advice for which the clients would look elsewhere and that it was only responsible for the drafting of the necessary documents for the transaction.
Held Judgment was given for the plaintiff.
1. There was no agreement which had limited the defendant’s duties. It had assumed a full role in the transaction and therefore had the full responsibilities of a solicitor having the conduct of it.
2. Although a person unfamiliar with the law of taxation would not have imagined that there was any risk of the plaintiff incurring any such liability since it had been agreed that the plaintiff was to occupy a neutral non-profit and non-loss-making role in the transaction, a competent solicitor practising in the field of conveyancing or commercial law should have been aware of this existence of a liablility to tax.
3. There was no justification for the defendant to have assumed that the plaintiff would be seeking taxation advice on the transaction from its accountants or auditors or anyone else. Therefore the defendant had owed a duty to advise that the structure adopted would expose the plaintiff to the tax charge, which by alterations to the form rather than the substance could have been avoided. Accordingly the plaintiff was entitled to recover the loss by way of damages.
Michael Jefferis (instructed by Earnest H Godson, of Sleaford) appeared for the plaintiff; Rodney Stewart Smith (instructed by Barlow Lyde & Gilbert) appeared for the defendant.
