Sayers v Clarke Walker (a firm)

Factual and Procedural Background

The case concerns an agreement whereby the Plaintiff agreed to purchase shares in Company A from the owners, the Defendants, for a total price of £225,000. The payment structure included an initial lump sum followed by five annual instalments. Company A also wrote off certain assets in favour of the Defendants and provided fringe benefits to one of the Defendants. To finance the purchase, the Plaintiff took out loans and paid these into Company A, which maintained a loan account for the Plaintiff. The loan account was debited with the purchase instalments, interest on loans, and premiums on endowment policies. Over time, the loan account became overdrawn, leading to adverse tax consequences for the Plaintiff, including a reduction in deductible interest and the treatment of notional interest-free loans as taxable income. The Plaintiff was also obliged under company law to eliminate the overdrawing on the loan account.

The trial judge found that an alternative purchase structure ("Topco") could have avoided these tax issues and that the Defendant firm, acting as accountants for both parties, should have advised the Plaintiff accordingly. Although the Defendant firm acted for both parties with agreed indemnities against conflicts of interest, they failed to advise the Plaintiff on this alternative structure, which was held to be a breach of their retainer and/or negligent conduct.

The Defendants did not challenge the judge’s findings of fact or the scope of their retainer but contested causation, arguing that the Plaintiff’s failure to seek independent financial advice broke the chain of causation. The Defendants also argued that adverse inferences should be drawn from the Plaintiff’s refusal to waive privilege concerning legal advice received from his solicitor. The court considered detailed documentary evidence and oral submissions before dismissing the Defendants’ application for permission to appeal.

Legal Issues Presented

1. Whether the Defendant firm breached their retainer and/or acted negligently by failing to advise the Plaintiff on an alternative purchase structure that would have avoided adverse tax consequences.
2. Whether the Plaintiff’s failure to seek independent financial advice broke the chain of causation between the Defendants’ negligence and the Plaintiff’s losses.
3. Whether adverse inferences could be drawn from the Plaintiff’s refusal to waive privilege regarding legal advice received.
4. Whether the judge’s costs order was appropriate given the Plaintiff’s partial success and the timing of the issues raised.

Arguments of the Parties

Defendants' Arguments

• The judge should have drawn adverse inferences against the Plaintiff for refusing to waive privilege over legal advice from his solicitor.
• The Plaintiff acted wholly unreasonably by declining to seek independent financial advice, thereby breaking the chain of causation.
• If independent advice had been sought from a different firm of accountants, the Plaintiff would have been advised to adopt the alternative "Topco" structure, avoiding the losses claimed.
• The judge erred in awarding 60% of costs to the Plaintiff given his limited success and the late introduction of the Topco issue.

Plaintiff's Arguments

• The Plaintiff was entitled to rely on the Defendant firm’s competence without incurring additional costs for specialist advice.
• The refusal to waive privilege should not give rise to adverse inferences, consistent with established legal principles.
• The Plaintiff’s failure to obtain independent financial advice did not break the chain of causation as the Defendants’ negligence was the proximate cause of the losses.
• The judge’s costs order was a proper exercise of discretion, reflecting the partial success and complexity of the litigation.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully reviewed the factual findings and the submissions from both parties. It accepted the trial judge’s conclusion that the Defendant firm’s retainer included advising on the tax implications of the purchase structure and that failing to advise on the alternative "Topco" structure constituted negligence.

Regarding causation, the court found no real prospect that the Plaintiff’s failure to seek independent advice broke the chain of causation. The judge’s finding that the Plaintiff was entitled to rely on the Defendant firm’s competence without seeking additional advice was upheld. The court also rejected the argument for adverse inferences from the Plaintiff’s refusal to waive privilege, citing established authority that protects legal professional privilege.

The court noted that although the Plaintiff might have been unwise to decline specialist tax advice, this was a client choice that did not absolve the Defendants of liability. The court found no evidence that the Defendants had advised the Plaintiff of the specific tax consequences or the inevitability of the loan account overdrawing under the chosen structure.

On costs, the court recognized the judge’s discretion and reasoning, including the late introduction of the Topco issue and the partial success of the Plaintiff. It found no real prospect of successfully challenging the judge’s costs order.

Holding and Implications

The court DISMISSED the Defendants’ application for permission to appeal both on the merits of the negligence claim and on the costs order.

The direct effect of this decision is that the Plaintiff’s claim for damages arising from the Defendants’ negligent advice stands, and the costs order in favour of the Plaintiff remains intact. The court did not establish any new legal precedent but reinforced established principles regarding legal professional privilege and the standard for breaking the chain of causation in negligence claims.