The industry has received a stark reminder of the time limits for bringing a professional negligence claim following the handing down of a judgment in the High Court in relation to a negligent tax adviser (Halsall and others v Champion Consulting Ltd and others  EWHC 1079 (QB)).
Halsall and others: speed read
- Claimants were partners in a solicitors firm. Defendant is a tax adviser firm.
- In around 2003 the Claimants were introduced to two tax schemes by the Defendant: a “charity shell” scheme intended to obtain tax savings through Gift Aid, and a film fund scheme.
- The Defendant maintained that it had only introduced the Claimants and had provided no advice in relation to the tax schemes.
- In 2011 HMRC wrote to the Claimants questioning the legitimacy of the schemes.
- Both schemes subsequently failed. The Claimants brought proceedings against the Defendant for negligent advice and the loss and damage incurred as a result.
- The Judge found that the Defendant had been negligent. It did not advise the Claimants that there were significant risks that the schemes would be challenged by HMRC and its advice was flawed in relation to the success of the film scheme and the possible levels of loss if it failed.
- However, despite the finding of negligence, the claim failed. It had been brought over six years since the investment into the schemes and the Claimants had been on notice since 2011 (the HMRC letter) of the possible failure.
The overarching principle of whether or not a professional has been negligent is whether or not it has acted in accordance with what is expected of a reasonable body of competent professionals in that area (known as the Bolam test). This is irrespective of whether there is a body of contrary opinion present in the industry at the time.
A distinction has been drawn by the court between (1) the provision of information for enabling someone to decide what steps they would like to take and (2) a duty on a professional to advise someone on what step they should take. In (1), the adviser is only responsible if the information is wrong. In (2) the adviser must take reasonable care to advise in relation to all potential outcomes of the advice. If either one is negligent, the loss suffered must have been a foreseeable outcome of the advice.
The Limitation Act 1980 sets out the time limits which apply in bringing a negligence claim. Section 2 states that a claim in negligence must be brought within 6 years from the date on which the cause of action accrued.
A cause of action accrues when the damage occurs. In tax adviser negligence cases, indeed in many finance related negligence cases, the damage is held by the court to occur at the time that the claiming party entered into a transaction. This could be a negligent investment by a financial adviser or, as in the Halsall case, the entering into tax schemes.
Given the realities of these types of claim, often several years will have passed before a party is aware of the negligence. HMRC is not known for its quick processes, and it can often be several years from the commencement of a tax scheme before it is challenged. If over 6 years has passed, the party who has suffered a loss may not be able to bring a claim.
There is a small loophole in limitation, to be found at section 14A of the Limitation Act. In short this states that if the claiming party didn’t know, or could not reasonably have known, of the negligence, then a claim can be brought within 3 years of them finding out (irrespective of the 6 year period). Section 14A is often of particular use in complex negligence claims where parties don’t know they have a claim for some time. This can be outside of the 6 year period but is a very high threshold – only knowledge sufficient to investigate further is required.
Often, and as in the Halsall case, receipt of a letter from HMRC questioning the scheme will be sufficient to start time running for the purposes of section 14A.
There is a hard longstop time limit of 15 years from the negligence for any claim to be brought.