(1)pegasus Management Holdings Sca (2)ivan Harold Bradbury v (3)ernst & Young (A Firm) Ernst & Young Llp

JurisdictionEngland & Wales
JudgeLord Justice Rimer,Sir John Chadwick
Judgment Date12 March 2010
Neutral Citation[2010] EWCA Civ 181
Docket Number[2008] EWHC 2720 (Ch)
CourtCourt of Appeal (Civil Division)
Date12 March 2010
(1)pegasus Management Holdings Sca (2)ivan Harold Bradbury
(3)ernst & Young (a Firm) Ernst & Young Llp

[2010] EWCA Civ 181


Before : Sir Mark Potter, The President Of The Family Division Lord Justice Rimer


Sir John Chadwick

[2008] EWHC 2720 (Ch)

Case No: A/2008/2902




Mr Rhodri Davies QC and Mr Conall Patton (instructed by Edwards Angell Palmer & Dodge UK LLP) for the Appellants Mr Simon Salzedo (instructed by Barlow Lyde & Gilbert LLP) for the Respondents

Hearing dates: 27 and 28 October 2009

Crown copyright©

Lord Justice Rimer

Lord Justice Rimer :



This is a claimants' appeal against an order made by Lewison J on 11 November 2008. The claimants are Pegasus Management Holdings SCA and Ivan Bradbury. Mr Bradbury owns all the shares in Pegasus. The defendants, respondents to the appeal, are Ernst & Young (a firm) and Ernst & Young LLP (between whom it is unnecessary to distinguish and to whom I will refer simply as 'E&Y'). The claims are for damages for professional negligence, the complaint being the alleged failure of E&Y to give the claimants proper tax planning advice. The claimed consequence is that it resulted in Pegasus incurring a liability for corporation tax calculated by reference to a capital gain when the relevant disposal in fact resulted in a loss; and it is said that the same is likely to recur on further disposals. The primary claim is by Pegasus, which sues in contract and tort. Mr Bradbury's claim, as a shareholder of Pegasus, is also brought both in contract and tort and is for the diminution in the value of his Pegasus shares caused by the allegedly negligent advice. His claim is, however, an alternative one as it is recognised that, if Pegasus is entitled to sue, he cannot do so as well.


The claim form, issued on 10 November 2005, asserts that E&Y's breaches occurred over the period 1997 to 2003, although the claims relate to two distinct periods. The first period concerns advice given before 2 April 1998; and the second period concerns advice given between 1999 and 200There is no dispute that the claims in respect of the second period fell within the limitation period, they are proceeding to trial and the appeal is not concerned with them.


The appeal is concerned only with the claims in respect of the first period. Before the judge was a preliminary issue raising questions as to whether the claimants' claims in contract and tort in respect of that period were time-barred. So far as concerns the claims in contract, there is no dispute that Mr Bradbury engaged E&Y under a contract for professional services; and also no dispute that any claims by him based on breaches of contract by E&Y committed before 10 November 1999 (six years before the claim form) are time-barred. That includes his claims in respect of the first period: it is agreed that any breach of contract during this period was committed by 2 April 1998. There is similarly no dispute that if Pegasus had retained E&Y under a contract (although the judge found it did not), its claim in contract was similarly time-barred.


So far as concerns the claims in tort, proof of damage is an essential ingredient. The critical question raised by the preliminary issue was whether E&Y could show that the claimants had suffered actual damage before 10 November 1999; and, in particular, by 2 April 1998, that being the date by which, if any such damage had been suffered, it must have been suffered. As regards Pegasus, the judge held on a separate summary judgment application that it had no real prospect of showing at trial either that it had any contract with E&Y or that E&Y owed it a duty of care in tort. Whilst, as I have said, the judge held on the preliminary issue that any claim by Pegasus in contract would be statute-barred, he did not find it necessary also to decide whether, if E&Y did owe Pegasus a duty of care in tort, its claim in tort was also time-barred. As regards Mr Bradbury, the judge held on the preliminary issue that he had suffered damage by 2 April 1998 so that his claim in tort was time-barred.


The judge gave permission to appeal against his orders on both the preliminary issue and the summary judgment application. By this appeal, Mr Rhodri Davies QC and Mr Conall Patton, for the claimants, have submitted that the judge was wrong to hold that E&Y owed Pegasus no duty of care in tort and also wrong to hold that Mr Bradbury's claim in tort was time-barred. They contend that neither tort claim was time-barred. Mr Simon Salzedo, for E&Y, has submitted that the judge's decision was correct and should be upheld. By a cross-appeal for which Lawrence Collins LJ (as he then was) gave permission on 11 February 2009, he also argued that if, contrary to the judge's view, E&Y did owe a duty of care in tort to Pegasus, Pegasus's claim is also time-barred.

The facts


There is virtually no dispute about the facts. I gratefully take the account that follows largely from the judge's judgment. E&Y are accountants and tax specialists. By 1997 Mr Bradbury had been their client since about 1980. They advised him on his personal tax affairs and on the tax liabilities of his companies, although there is an issue as to whether they had also advised the companies. In about April 1997 Mr Bradbury sold his electronics manufacturing business for a substantial sum. The sale consideration was paid in loan notes, which enabled the deferring of liability for capital gains tax until the notes either matured or were disposed of. Such disposal was likely to generate a large tax liability which Mr Bradbury was anxious to mitigate or defer. One way of deferring it that was available in 1997 was to achieve roll-over relief by investing the proceeds of such disposal in a qualifying business satisfying the conditions of reinvestment relief provided by the then applicable legislation in sections 164A to 164N of the Taxation of Chargeable Gains Act 1992 (' TCGA'). By early 1998 Mr Bradbury was in discussion with Mr Rhodes of Macfarlanes (solicitors), Mr Allan of E&Y and the Revenue about reinvestment options. He was considering investing in clinics through which primary health care services would be supplied to the public.


I must digress to the legislation. Section 164A of TCGA made roll-over relief available to individuals who had incurred a chargeable gain but who acquired a 'qualifying investment' in the 'qualifying period'. A 'qualifying investment' was defined as the acquisition of shares in a 'qualifying company' but in a case where such shares were issued to him, his acquisition would not be a qualifying investment

'… unless the qualifying company, or a qualifying subsidiary of that company, is intending to employ the money raised by the issue of shares wholly for the purposes of a qualifying trade carried on by it' (section 164A(8A)).


That sub-section, described by the judge as 'not a masterpiece of drafting', made it clear that the relief was available if the qualifying company intended at the time of the share subscription to use the subscribed money for the purposes of a qualifying trade carried on by itself. It also showed that the relief would be available if a subsidiary company intended so to use the money. There was, however, an uncertainty as to whether the subsidiary needed to exist at the time of the share subscription. That uncertainty led to the raising of questions by the Chartered Institute of Taxation and the provision of Revenue guidance in response. The guidance, published in the July 1997 edition of the Taxation Practitioner, included these answers:

'You ask a number of questions about how the test of whether a company is intending to employ money raised will be applied. A statement by the company that the money raised by the share issue will be employed for the purposes of a qualifying trade carried on by that company or by a qualifying subsidiary, will normally be accepted unless on the facts that appears unlikely. The test will then be whether it does so within the time limits. If it does not do so, or does not wholly do so, any deferred gain will be recovered at the time the time limits expire.

Where a company intends to use funds in a subsidiary which has not yet been set up, there is no reason why the subsidiary should not be set up and the money passed on to the subsidiary to enable it to acquire or commence a qualifying trade. …'


This guidance had been withdrawn by March 1999, but not so as to affect retrospectively any reliance earlier placed on it. The new guidance was to the effect that the subsidiary had to exist at the time of the share subscription. It is agreed that the effect of the earlier guidance was that, provided that the qualifying company in which the individual subscribed for shares had, by the time of such subscription, the intention of forming subsidiaries through whom a qualifying trade would be acquired and carried, it mattered not to the obtaining of roll-over relief that it only subsequently incorporated and funded them. The requisite intention could be formed, and evidenced, by a properly minuted board resolution. In short, the guidance showed that, by the time of the share subscription, there must be in place an intention by the company to carry on the qualifying trades by itself or by subsidiaries, being subsidiaries that were either already in place or that the company had determined to incorporate. The significance of this will become clear.


On about 9 March 1998 Mr...

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