Michael Patrick SAYERS and Clarke Walker
| Jurisdiction | England & Wales |
| Judge | Lord Justice Brooke |
| Judgment Date | 26 June 2002 |
| Neutral Citation | [2002] EWCA Civ 910 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2001/2845 |
| Date | 26 June 2002 |
[2002] EWCA Civ 910
Lord Justice Brooke and
Lord Justice Kay
Case No: A2/2001/2845
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
Buckley J
Robert Anderson (instructed by Hammonds Suddards Edge) for the Appellants
This is the judgment of the court.
On 14 th May the court gave its reasons for extending time for appealing in this case see [2002] EWCA Civ 645. This judgment is concerned with the merits of the proposed appeal. We received very full written submissions from both sides, supported by all the documentary evidence they wished us to consider, and we have had the opportunity of studying it carefully since the original hearing took place. We have also held another hearing at which we received oral submissions from Mr Anderson on behalf of the defendants. We told Mr Goodfellow that we did not require him to attend on behalf of the claimant, but he took the opportunity of sending us an amended and extended version of his original submissions, which we have taken into account.
The action centred round the agreement whereby Mr Sayers agreed to pay Mr and Mrs Back, who were the owners of the company, a total price of £225,000 for the shares he was purchasing. £100,000 was to be paid on completion of the purchase, followed by five annual instalments of £25,000 each. The company also wrote off various of its assets in favour of the vendors and/or their associate companies and agreed to provide Mr Back with various fringe benefits.
In order to finance his purchase Mr Sayers took out loans which he paid into the company, and the company created a loan account for him for this purpose. His loans were eventually to be paid off from the proceeds of endowment policies. The company then paid the original lump sum and the instalments of the purchase price to the vendors. It also paid the interest accruing on Mr Sayers's loans and the premiums on the endowment policies. The cost of the voluntary write-off of assets in favour of Mr and Mrs Back was also debited to the loan account. The idea at the time the purchase was completed was that the company's future earnings would provide the cashflow to finance the future payments, while the financial reckoning as between Mr Sayers and the company would be taken into account in the computations relating to his loan account. In the fullness of time, however, the loan account became overdrawn as the purchase instalments, the premiums and the interest on the loans were successively debited to it.
This state of affairs brought about disagreeable consequences for Mr Sayers. The proportion of the interest on the loans which he was entitled to deduct for income tax purposes was reduced, while the benefit of the notional interest- free loans from the company to him (on each occasion when the company made payments on his behalf) was treated as income in his hands taxable under Schedule E. He was also required by section 330(2)(a) of the Companies Act 1985 to ensure that the overdrawing on his loan account was eliminated.
The judge found that the purchase agreement could have been structured in a different way, which was described at the trial as "Topco". This could have avoided the unwelcome tax consequences which eventually befell Mr Sayers. Under this structure Topco would for the most part be discharging its own obligations. The judge recorded (at para 26 of his judgment) that both the experts called by the parties agreed that any competent accountant, including the defendant firm, should have known about this alternative structure.
The defendant firm had been the company's accountants and auditors for a long time and they also acted for Mr and Mrs Back. When the purchase agreement was in contemplation both parties wanted them to act for Mr Sayers as well, but their senior partner, Mr Aukett, was concerned that a conflict of interest might arise. He therefore took advice from his professional body, and following their advice his firm agreed to act for both parties provided they signed letters, which they duly did, agreeing to indemnify the firm if any difficulties arose in consequence of a conflict of interest. The judge recorded (at para 20 of his judgment) that neither side relied solely on these letters, and nothing turned on their contents so far as the issues at the centre of this appeal are concerned. Mr Clarke-Walker, the former owner of the defendant firm, who had now left the firm, was acting on behalf of Mr and Mrs Back, and he and Mr Chilcott (a partner in the firm) were the advisers who were principally involved in the work of facilitating the sale and purchase transaction.
The judge found (at para 26 of his judgment) that the firm was instructed by both parties to deal with various formalities, to explain the terms of the agreement and their impact from an accountancy/tax point of view and generally to act as "facilitators" to implement the agreement negotiated between Mr Clarke-Walker (who was at all times acting for Mr Back alone – see para 24 of the judgment) and Mr Sayers. He said that the retainer was clearly wide enough to cover the giving of advice as to the structure of the agreement in the sense of its tax implications, insofar as such advice should have been within the competence of a general firm of accountants.
In these circumstances he held (at para 44) that it was a breach of this retainer and/or negligent for Mr Chilcott to fail to advise Mr Sayers on the Topco structure. He accepted the experts' agreed view that such advice was or should have been within the defendants' competence. There was no suggestion in the evidence that appropriate advice would have prejudiced Mr Back in any way that could not easily have been overcome. The judge had earlier (at para 26) found that the parties were advised to get independent financial advice and that the question of consulting tax counsel was discussed. He held, however, that advice to consult a greater specialist did not absolve the general practitioner from advising competently within his sphere.
A long meeting, attended by Mr Back, Mr Sayers, Mr Clarke-Walker and Mr Chilcott took place on 18th May 1989. At this meeting the parties went through the draft agreement line by line. According to Mr Chilcott's notes, it was agreed on this occasion that each side could be fully appraised of the consequence of the agreement. The judge held that any "appraisal of the consequence of the agreement" should have identified its disadvantages for Mr Sayers compared with Topco. In these circumstances, the judge said, Mr Chilcott was expressly bringing such advice within the retainer, if indeed there was any doubt about it.
The judge went on to hold that Mr Sayers was entitled to assume that he had received the advice a competent accountant would have given. He was not bound to pay more for more expert...
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