Hurlingham Estates Ltd v Wilde & Partners (A Firm)
| Jurisdiction | England & Wales |
| Judgment Date | 10 December 1997 |
| Date | 10 December 1997 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Michael Jefferis (instructed by Earnest H Godson, Sleaford) appeared for the plaintiff.
Rodney Stewart Smith (instructed by Barlow Lyde & Gilbert) appeared for the defendant.
The following cases were referred to in the judgment:
Virgin Management Ltd v De Morgan Group plc UNK(unreported, 24 January 1996)
Yager v Fishman UNK[1944] 1 All ER 552
This was a claim for damages by the plaintiff against the defendant firm of solicitors for failing to advise that a transaction would give rise to a charge to tax under the Income and Corporation Taxes Act 1988 section 34 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 34(1).
The plaintiff company wanted to acquire a company called Midas which owned both 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 payment of £200,000. 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 and the transaction proceeded to completion. Subsequently the plaintiff became liable to a charge to tax under the Income and Corporation Taxes Act 1988 section 34 subsec-or-para (1)Income and Corporation Taxes Act 1988, s 34(1) which provided that where the payment of rent of any premium was required under a lease for less than 50 years the landlord was to be treated as having become entitled to an amount by way of rent equal to a proportion of the premium. Therefore the £200,000 was to be treated as additional rent and an assessment of £61,338.58 was made and paid by the plaintiff.
The plaintiff issued proceedings against the defendant and claimed that 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 contended that it had been expressly agreed that it would not be giving any taxation advice for which the plaintiff would look elsewhere and that it was only responsible for the drafting of the necessary documents for the transaction.
Held, giving judgment for the plaintiff:
1. There had been 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 firm of solicitors having the conduct of it.
2. Although a person unfamiliar with the law of taxation would not have known that the plaintiff would incur a charge to tax since the plaintiff was not to make any profit or loss by the transaction, a competent solicitor practising in the field of conveyancing or commercial law should have been aware of the existence of the liability 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 for the transaction would expose the plaintiff to the tax charge which, by alteration to its form rather that substance, could have been avoided.
Lightman J: I Introduction
In this action the plaintiff Hurlingham Estates Ltd ("Hurlingham") is claiming damages against its former solicitors the defendant firm of Wilde & Partners ("the solicitors") for breach of the contractual duty of care and the tort of negligence. The solicitors acted for Hurlingham and certain other persons (to whom I shall refer to collectively as "the clients") in a transaction involving (i) the purchase by those others of the shares in a company called A La Mode Knightsbridge Ltd ("ALM"); and (ii) the purchase for £200,000 by Hurlingham of a lease of the shop premises where ALM carried on business, 36 Hans Crescent, London ("the premises") and the grant by Hurlingham of a sublease of the premises to ALM in connection with which ALM agreed to pay £200,000 to Hurlingham. The structure of the transaction, so far as it involved the purchase of the lease, the grant of the sublease and the payment by ALM of £200,000, was such that it exposed Hurlingham to a tax charge which it has paid and associated costs totalling some £69,455.36. If a different structure had been adopted (as it could have been), exposure to this charge could have been avoided. Hurlingham seeks to recover this sum and interest. The issues in this case are twofold, one of fact namely whether the solicitors, when they accepted instructions at a charge rate of £200 per hour, obtained the agreement of the clients that their remit should be limited by excluding any duty to advise on tax and that the clients should look for tax advice elsewhere; and one of law namely whether in the absence of such a limitation on the duties they assumed, there was a duty on the part of the solicitors to advise or warn Hurlingham of its exposure, or the existence of the risk of exposure, to such tax charge.
The first remarkable feature of this case is that Mr Rowe, who was at the material time the Conveyancing and Commercial Partner of the solicitors, (1) had (as he told me) next to no knowledge of tax law and was quite unqualified to give tax advice or to appreciate, or give any warning as to, the existence of any risk of any adverse tax consequences of any transaction, save on the simplest sale of residential property; and (2) was unaware of the provisions of r. 6 of the then current Solicitors' Practice Rules 1988 prohibiting solicitors accepting instructions from two or more clients where there is a conflict of interest between them. There was accordingly no appreciation on his part of the tax risks involved in the transaction, or that there plainly was (in the respect of the transaction relating to the premises) an objectionable conflict of interest between the clients. (Hurlingham at the close...
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