(first) James Clark And (second) William Clark Against Sandra M L Turnbull And Mark Robertson
| Jurisdiction | Scotland |
| Judge | Lord Tyre |
| Neutral Citation | [2017] CSOH 4 |
| Court | Court of Session |
| Docket Number | CA56/16 |
| Published date | 06 January 2017 |
| Date | 06 January 2017 |
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 4
CA56/16
OPINION OF LORD TYRE
In the cause
(FIRST) JAMES CLARK and (SECOND) WILLIAM CLARK
Pursuers
against
SANDRA M L TURNBULL and MARK ROBERTSON the whole partners within the jurisdiction of the dissolved firm of MFPT, Chartered Accountants
Defenders
Pursuers: Francis; DAC Beachcroft Scotland LLP
Defenders: Paterson; BTO LLP
6 January 2017
Introduction
[1] The first pursuer is a builder trading under the name James Clark Properties. Until 29 February 2008, he was the proprietor of a block of 12 flats (“the flats”) in Buckhaven, Leven. According to the pursuers’ pleadings, title to a one half share of the flats was held by the first pursuer in bare trust for his brother, the second pursuer. At all material times the first pursuer received accountancy and personal tax advice from a Mr Douglas Parsons, a partner in the now dissolved firm of MFPT, chartered accountants, St Andrews. It is averred that Mr Parsons is now resident abroad. In this action the pursuers seek, or alternatively the first pursuer seeks, reparation from the defenders, as the whole partners within the jurisdiction of the dissolved firm, for various losses claimed to have been sustained as a consequence of professional negligence and breach of contract by Mr Parsons in the provision of tax advice and compliance services. The defenders contend that any cause of action has been extinguished by operation of prescription or, alternatively, that in various respects the action is irrelevant. The matter came before me for debate of the defenders’ preliminary pleas.
Factual Background
[2] The pursuers’ averments, which for present purposes must be taken pro veritate, are as follows. The site upon which the flats are built was acquired by the first pursuer in three tranches in 1990. The flats were constructed by the first pursuer in about 1997-98, with the assistance of a grant from Scottish Homes. The pursuers regarded themselves as each owning a 50% share of the flats, although title stood in name of the first pursuer. A sum borrowed by the first pursuer from the Bank of Scotland and secured against the flats was similarly regarded by them as a joint liability. Mr Parsons was aware of those understandings.
[3] The pursuers were also, at the material time, directors of J & W Clark (Developments) Limited (“Developments”). The share capital of Developments consisted of 101 shares, of which 50 were held by the first pursuer, 50 by the second pursuer, and one by the first pursuer’s wife. Mr Parsons provided accountancy and tax advice to Developments and also to the pursuers in their capacity as directors of Developments. The flats were leased by the first pursuer to Developments, which in turn let them to individual tenants. Rents received by Developments were used, as Mr Parsons was aware, by the first pursuer to service his borrowing costs.
[4] In about 2007 the second pursuer told the first pursuer and his wife that he wished to realise some capital from the sale of the flats. The pursuers sought advice from Mr Parsons as to the potential tax consequences of such a sale. They were minded to sell the flats if they would be left with a sufficient net return after tax. Meetings with Mr Parsons were held on 6 February 2007 and on or about 20 April 2007. Mr Parsons advised the pursuers that they would incur a liability to capital gains tax of between £40,000 and £50,000. This advice, it is averred, was incorrect: it failed to take account of the grant received towards the cost of construction, and it wrongly assumed that business asset taper relief would be available to reduce the chargeable gain. Acting on the advice received from Mr Parsons, the first pursuer, with the agreement of the second pursuer, sold the flats to an arm’s length purchaser. The sale transaction was settled on 29 February 2008. But for the incorrect tax advice, the pursuers would not have entered into the sale.
[5] In about May 2009, the business of MFPT was acquired by Henderson & Black, chartered accountants (“HB”). On about 20 May 2009, Mr Jonathan Adamson, a partner in HB, advised the first pursuer’s wife that there had been an error by Mr Parsons in the calculation of CGT payable. At a meeting on 21 May 2009, Mr Adamson informed the first pursuer and his wife that there could be a liability to tax and penalties amounting to hundreds of thousands of pounds, and advised them to seek separate advice. They did so, and the various claims now made are based upon advice subsequently received. The present action was raised on 13 May 2014.
[7] I note at this stage that the pursuers’ case is presented throughout on two alternative bases, namely (a) that losses have been sustained by both pursuers, with the various sums sued for being said to be due to them in equal shares; or (b) that those losses have been sustained by the pursuer alone. This has resulted in complicated pleading as well as some inconsistencies between the conclusions of the summons and the supporting averments.
The Pursuers’ First Claim
[6] The first of the pursuers’ claims has three elements to it. The first and principal element consists of losses said to have been sustained as a consequence of their decision to proceed with the sale of the flats, in reliance upon Mr Parsons’ allegedly negligent advice regarding the amount of the CGT charge. It is averred that “the pursuers et separatim the first pursuer have unnecessarily incurred CGT liability of £143,699 in the case of the pursuers and £161,415 in the case of the first pursuer”. I understand the difference in figures (which is not reflected in the terms of the first conclusion) to arise from the fact that if the tax liability is properly to be regarded as shared by the pursuers, additional base costs are available to reduce its amount. Importantly for present purposes, the pursuers further aver that they incurred transaction costs which, but for Mr Parsons’ negligence, they would not have incurred. These comprised a marketing and disposal fee of £9,000 plus VAT and conveyancing fees of £5,070 plus VAT. Invoices for these sums dated 6 August 2008 and 6 March 2008 respectively were produced. The remainder of the first element of the first claim consists of the cost of corrective work subsequently carried out to the pursuers’ tax computations.
[7] The second element of the first claim is for a late payment surcharge said to have been incurred because Mr Parsons failed to submit the first pursuer’s personal tax return for 2007-08 by 31 January 2009, at which date the CGT became due and payable. It is averred that “a late payment surcharge of £14,369.90 in the case of the pursuers and £16,141.52 in the case of the first pursuer is payable for the tax year ending 5 April 2008”. It is not averred that anything has been paid, but the loss and damage consisting of the surcharge is said to have occurred on 1 February 2009 when it became impossible to submit the return and pay the tax timeously.
[8] The sum sued for in conclusion 1(a) of the summons is £193,532. I have been unable to discern exactly how this figure is arrived at.
[9] The third element of the first claim is for damages for distress suffered by each of the pursuers (and by the first pursuer’s wife) when they discovered that they faced a large unforeseen tax liability which caused them severe financial difficulties. Each of the pursuers seeks an award of £20,000 in respect of this element. These are the sums sued for in conclusion 1(b) of the summons.
The Pursuers’ Second Claim
[10] The pursuers’ second claim relates to alleged negligence and breach of contract by Mr Parsons in connection with the submission of the first pursuer’s personal income tax returns. I noted above that rent received by Developments was used to meet the cost of the first pursuer’s secured bank borrowing. It is averred by the pursuers that Mr Parsons failed to declare this as a benefit in kind in the first pursuer’s tax returns for the years 1998-99 to 2007-08 inclusive. The consequence is said to be that the first pursuer is liable to pay penalties of £5,569 plus a late payment surcharge of £1,590, amounting in total to £7,159. This is not consistent with the sum second concluded for, which is £30,274. It is not averred that anything has been paid, but the loss and damage is said to have occurred on 1 February 2000.
The Pursuers’ Third Claim
[11] The pursuers’ third claim also relates to alleged negligence and breach of contract by Mr Parsons in connection with the submission of the first pursuer’s personal income tax returns. It is averred that Mr Parsons, despite being aware that the first pursuer let the flats to Developments for an annual rental of £6,000, took no steps to include in his tax returns in respect of each of the years of trading ending between 31 March 1999 and 31 March 2006 inclusive either (a) a declaration of the rent received, or (b) a claim for interest on the borrowing, which together would have entitled the first pursuer annually to receive Schedule A loss relief. The total net losses for those years are calculated to have been £118,221, with a consequent loss of tax relief amounting to £47,289. It is further averred that “the pursuers et separatim the first pursuer” are liable for an incorrect return penalty and a late return penalty totalling £1,080, and interest of £500. The total of £48,869 is the sum third concluded for.
Issue 1: Prescription
Statutory Provisions
[12] Section 6 of the Prescription and Limitation (Scotland) Act 1973, read with Schedule 1, provides that if an obligation to make reparation has subsisted for a continuous period of five years after the date when it became enforceable without any relevant claim or acknowledgment, then as from the expiration of that period the obligation is extinguished. Section 11(1) states that an obligation to make reparation for loss, injury or damage caused by an act, neglect or default...
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Professional Advice Can Be Taxing - Don't Sweat It
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