Case of the week: Professional negligence
7 May 2012
A firm of solicitors was not under a duty to advise on the adverse tax consequences that would arise on the death of a client shortly after completion of a management buyout (MBO) where he had not asked for advice and the death occurred during a medical procedure that was routine and that the solicitors knew of essentially by chance.
Appeal dismissed; cross-appeal allowed in part
The appeal was launched against a decision dismissing a professional negligence claim against the respondent solicitors’ firm Mills & Reeve. The firm cross-appealed on costs.
The appellants were the executors and daughters of businessman Christopher Swain, who owned a successful business in which his daughters held shares. Swain no longer worked full-time in the business and had a history of heart problems.
An MBO of the business was proposed and the firm was retained to advise. Mills & Reeve also gave tax advice to Swain and his daughters about the MBO, which completed by way of a share purchase agreement.
Shortly afterwards Swain died while undergoing a planned heart procedure.
Swain’s death soon after the MBO gave rise to adverse inheritance and capital gains
Mills & Reeve had not given advice as to the tax consequences in the event of Swain’s death. The appellants’ case was that, had due advice been given, the MBO would have been deferred until after the heart procedure had taken place, thereby avoiding the tax consequences arising on Swain’s death.
The judge found that Mills & Reeve was under a continuing duty to advise the appellants in light of changing circumstances; however, the firm learnt about the heart procedure essentially by chance and the information it received did not suggest that the procedure was other than routine.
Swain did not ask for advice and there was no duty on the firm to advise deferring completion of the MBO until after the heart procedure.
The judge dismissed the claim and ordered the appellants to pay 50 per cent of the firm’s costs.
Appeal dismissed; cross-appeal allowed in part
The judge was right to dismiss the claim for the reasons he gave. He was right to attach great weight to the fact that the email indicating the forthcoming heart procedure only reached the firm by Swain subsequently copying the firm in on it, and when he was not seeking or asking for any advice in the light of the forthcoming procedure.
There was nothing in the email to cause or require Mills & Reeve to give further advice. The firm knew that Swain had a history of ill-health, but there was nothing
to indicate that the procedure mentioned in the email carried any significance.
The judge had erred in holding it against Mills & Reeve that it had declined to enter into mediation. Where a party reasonably believed that they had a watertight case,
that might well be a sufficient justification for a refusal to mediate. That remained the case even if on some issues the defence did not succeed.
It had not been shown by the appellants that the firm had acted unreasonably in refusing to agree to mediation. Exercising the discretion afresh, but respecting
the judge’s conclusion on the other issues, the firm should have 60 per cent of its costs of the proceedings.
For the appellants Swain Mason & Ors
Robin Matthew QC, New Square Chambers
Alexander Learmonth, New Square Chambers
David Berry, partner, Berry & Walton
For the respondent Mills & Reeve
Mark Simpson QC, Fountain Court
Marianne Butler, Fountain Court
Guy Hodgson, partner, Mills & Reeve
Commentary: Hugh Evans
In Swain v Mills & Reeves the defendant solicitors acted for the claimants in relation to the sale of shares in their company and the retainer included giving tax advice.
The solicitors knew that Christopher Swain was in poor health and were blind-copied
into an email sequence in which he said he was going to have a heart operation. The sale went ahead and Swain died shortly afterwards during the operation.
It was alleged that the defendant should have advised that there were serious tax consequences if the sale went ahead and Swain then died, and the sale would
not then have gone ahead until after the operation. The claim failed at first instance and on appeal.
Any lawyer involved in large transactions or litigation is likely to be plagued by being copied in on innumerable emails. Do we have to read them? The Court of Appeal does not say and the decision rests on three points.
First, the relevant email indicating the forthcoming operation only reached the defendant by it being subsequently copied in to it at the tail of another email sequence.
Second, no advice was asked for. That cannot have been a conclusive factor because, in the course of carrying out their instructions, a lawyer ought to notice a risk for the client of which the client may not be aware, and the lawyer should warn them.
Third, there was nothing to indicate that the operation carried any significant risk.
Hugh Evans, barrister, 4 New Square