As the HMRC continues its crackdown on tax avoidance schemes, the recent case of Michael Halsall & Ors –v- Champion Consulting, 2017 EWHC 1079 (QB) has established, for the first time, that advisers are entitled to require lay clients to contract out of the protection offered by s14A of the Limitation Act 1980.
The claim, brought by four former partners of a personal injury law firm, asserted that they had been negligently advised to enter into two tax mitigation schemes, allegedly resulting in losses of around £7.7 million. The claim, defended in part on the basis that it must be time-barred, raised issues of whether:
(a) any alleged damage was suffered before the outcome of First-tier Tribunals, which held that the tax mitigation schemes had not been effective; and
(b) in any event, the claimants could not have known that they might suffer a loss, so as to trigger time under S14A of the Limitation Act 1980, until it was clear that the HMRC were going to be successful in their challenge, as a result of succeeding on one challenge to one form of the planning in issue.
Acting for the defendants, the Professional Indemnity team at Plexus Law, headed by Partner Peter Court and Associate Partner Alasdair Dick, together with Graham Chapman QC and Junior Counsel Christopher Greenwood of 4 New Square, successfully defeated both challenges, with the court deciding that:
(a) properly considered, the claimants suffered loss (for the purpose of s2 of the Limitation Act 1980) at the time they entered into the schemes (which subsequently failed); and that
(b) while fact sensitive, the claimants were aware that they had relevant knowledge (triggering time under s14A of the Limitation Act) in excess of three years prior to commencing the proceedings.
More significantly, Plexus enforced a clause in the advisors’ standard terms of business which stated that “Any claim for breach of contract, breach of duty or fault of negligence or otherwise whatsoever arising out of or in connection with this engagement shall be brought against us within six years of the act or omission alleged to have caused the loss in question”.
Plexus was successfully able to argue that the purpose of that clause was to remove the protection offered by S14A of the Limitation Act 1980 and require all claims to be brought within the six-year limitation period provided by the clause itself. The court upheld the application of the term, finding that its meaning was clear and it passed the test of reasonableness for the purposes of Unfair Contract Terms Act 1977 (UCTA).
While the judgment is likely to have wide ramifications across all commercial entities contracting on standard terms, these refinements in the limitation position in an uncertain field must be viewed as a very positive development for professionals across the board, and particularly for tax professionals facing a raft of potentially very significant, but quickly ageing claims.