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Published 26 February 2015
A recent decision in the High Court case of Altus Group (UK) Ltd  has provided useful guidance for accountancy firms on both the standard of care expected of "top end" professionals and the way in which loss of chance claims may be approached by the courts in claims involving tax advice from accountancy firms.
The defendant accountants were engaged to prepare the claimant's corporation tax returns over a three-year period, commencing on the year ending 31 December 2008. On the defendants' advice, the claimant adopted a tax structure intended to allocate the amortisation of goodwill acquired arising on the purchase of a consultancy business. The coming into force of the Corporation Tax Act 2009 (the CTA 2009) rendered the scheme adopted by the claimant on the defendant's advice ineffective.
The claimant asserted that the defendant had been negligent in not advising it on the application of the CTA 2009 in January 2009, which had resulted in it filing tax returns being unaware that the tax scheme adopted was ineffective. It claimed that had it been properly advised, it would have implemented a restructuring that would have stood a significant chance of limiting its tax liability. It claimed damages for the loss of that chance. The defendants admitted that they ought to have advised on the application of the CTA 2009. However, they argued that even if they had so advised, the claimant would not have implemented the restructuring, which in any event would have failed to reduce tax liability.
These defences are based on issues of causation and damage. This was a loss of chance claim. In cases of negligent advice, a loss of a chance claim involves a two-stage test: (1) whether on the balance of probabilities the claimant would have acted differently had it received non-negligent advice and had lost a valuable opportunity as a consequence, and (2) if the first test is met, a calculation of the value of that lost opportunity by assessing the chances of success of the alternative, hypothetical course of action.
The judge agreed with the claimant that a higher standard of care was to be expected of the defendant because it held itself out to be, and was, a "top-end" firm providing specialist advice.
As regards the causation issues, the judge was not convinced that on the balance of probabilities the claimant would in fact have been advised to pursue a restructuring by the firm of accountants it retained at the time. The claim therefore fell at the first "loss of chance" hurdle; the claimant was unable to prove that it would have acted differently from the way in which it did act.
This case highlights a particular area of difficulty for many claimants pursuing loss of chance cases in the tax arena. The "first hurdle" for such cases, namely proving the claimant would have acted differently and pursued a different tax strategy if different advice was given is potentially a significant barrier, particularly if that different tax strategy is complex and potentially risky.
Claims based on loss of chance are also seen in cases involving business planning. A further difficulty for claimants in these cases is proving not only that they would have pursued the alternative course, but that the alternative course would have succeeded.
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