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McMahon -v- Grant Thornton UK LLP [2020] CSOH 50

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McMahon -v- Grant Thornton UK LLP [2020] CSOH 50

26 May 2020

The commercial court (Lord Doherty) has refused the claim of a pursuer who sought damages of more than £730,000 as a result of an alleged failure to provide tax advice in relation to the potential to mitigate capital gains tax as part of a corporate sale through the use of entrepreneurs’ relief. The claim was brought on concurrent contractual and delictual grounds.

The pursuer was the owner of a car dealership. The defender had been engaged to provide tax and accountancy services to the pursuer’s company. The defender also provided compliance services to the pursuer and his wife personally.  Ultimately the pursuer accepted an unsolicited (and unexpected) offer to sell his business. The pursuer sought to rely on a clause in the letter of engagement which, on his hypothesis, created an obligation on the defender to bring to his attention tax planning ideas. In particular, the pursuer argued that the defender ought to have informed the pursuer that, had he transferred shares in his company to his wife and she had held them for the requisite time, the amount of capital gains tax that would be payable on the sale of the company would have been reduced. On the pursuer’s hypothesis, failing to provide such advice was a breach of contract and also fell below the requisite Hunter v Hanley standard of care. The pursuer had, instead, sold his business as the sole shareholder, incurring a larger liability to capital gains tax.

The defender resisted the pursuer’s claim on several bases.

Having heard a proof on the matter, the commercial court was not satisfied that the pursuer’s construction of the letter of engagement was correct. The letter of engagement was found to have been an engagement to provide tax compliance services, distinguishing between those and tax planning/ advisory work. The court was satisfied, however, that raising the possibility of the planning once the defender was aware that the company was to be sold was “reasonably incidental” to the terms of the letter of engagement having regard to all of the relevant circumstances.

The defender’s delictual duties were found to have been concurrent and coextensive with the contractual obligations. The court was satisfied that the defender did not have a delictual duty to raise the possibility of the planning before the pursuer informed the defender about the proposed sale of his business but it did have a duty to do so once the defender became aware of the proposed sale.

In considering whether there had been a breach of contract/duty, the court found that the defender had communicated to the pursuer a schedule which contained a note, reminding the pursuer that his wife would have an additional lifetime allowance of entrepreneurs’ relief if she satisfied the statutory requirements for the relief. The court was satisfied that this was sufficient to comply with the contractual and delictual duties and, accordingly, there had been no breach.

Beyond that, the court also found that, had there been a breach of duty, there would be no causal connection between that breach and the pursuer’s averred losses.

The court had regard to the authorities on the loss of a chance and ultimately determined that, had it been appropriate to make an award of damages, the value of the damages sought would have been reduced by 50%. That would have resulted in an award of £366,832 plus interest at the rate of 4% (rather than the judicial rate of 8%).

However, as a result of the finding that there had been no breach (and that there was no causal connection with the loss), the court granted decree of absolvitor.

 number of members of Axiom Advocates were involved in the case. Iain Ferguson QC appeared with David Welsh on behalf of the defenders. Ewen Campbell appeared with Gavin MacColl QC on behalf of the pursuer.