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Cite as: [2001] EWHC Ch 454

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Grimm v. Newman & Anor [2001] EWHC Ch 454 (1st November, 2001)


		Case No: CH 0003605

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

1st November 2001

B e f o r e :

THE HONOURABLE MR JUSTICE ETHERTON
____________________

Charles Richard Grimm
Claimant

- and -

(1) John A Newman
(2) Chantrey Vellacott DFK (a firm)
Defendant

____________________

Peter Trevett QC and Michael Jefferis (instructed by Paul Hastings Janofsky & Walker LLP for the Claimant)
John Ross QC and Andrew Warnock (instructed by Squire & Co for the Defendants)
____________________

HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT

____________________

Mr Justice Etherton

Introduction

This is a claim for damages for professional negligence. It arises out of tax advice given by the First Defendant, a chartered accountant, to the Claimant in 1991.

The First Defendant, who is presently a partner in Smith & Williamson, was at that time a partner in the Second Defendant firm.

The Claimant’s complaint in brief

Until 26th June 1996 the Claimant was a citizen of the United States of America. He became resident in the United Kingdom in 1983. He became a citizen of United Kingdom on 6th January 1995. He continued, however, to be domiciled in the USA.

The Claimant is the managing director of Blue Ocean Associates plc. That company purchases petroleum in the wholesale market. Previously, the Claimant was an employee within a Dutch group of oil companies, the Vitol Group (“Vitol”). Vitol paid its employees in part with Vitol shares.

Vitol repurchased its shares from its employees from time to time. The repurchase of Vitol shares enabled the Claimant to accumulate substantial sums and investments, which he maintained outside the United Kingdom.

On 11th March 1991 the Claimant countersigned a letter of engagement from the Second Defendants, by which the Second Defendants agreed, among other things, to provide the Claimant with taxation advice from time to time. The First Defendant, who, as I have already said, was then a partner in the Second Defendants, had a particular expertise in advising resident, but non-domiciled, individuals about United Kingdom tax liabilities.

In 1991 the Claimant became engaged to be married to Aurora Lombardi.

The Claimant was, at that time, living in rented accommodation. He and his fiancée decided that, following their marriage, they wished to purchase a house in London for themselves.

The Claimant sought the advice of the First Defendant as to whether he could, without giving rise to United Kingdom tax, make his intended wife a gift from his assets outside the United Kingdom, which would then be transferred by her into the United Kingdom and used to acquire an interest for her in a house in London which they would purchase together. The initial enquiry from the Claimant, and the initial response of the First Defendant, were in September 1991. The initial response of the First Defendant was favourable.

The Claimant married Aurora Lombardi on 29th September 1991.

In late October 1991 the Claimant sought the confirmation of the First Defendant that the proposed gift to Mrs Grimm of assets of the Claimant outside the United Kingdom, to be used for the purchase of a half share interest for her in a house which they would jointly purchase in London, would not give rise to United Kingdom tax. Advice was also sought as to the making of additional gifts by the Claimant to Mrs Grimm in the future. By letter dated 30th October 1991, the First Defendant confirmed the proposals would not give rise to United Kingdom tax, provided there was no “reciprocity” for the gifts, and with a warning as to large gifts on a regular basis.

Pursuant to that advice, in November 1991 the Claimant made a gift to Mrs Grimm of various assets outside the United Kingdom with a total value of approximately $685,000. He made a further gift to her of $100,000 in late January 1992. These gifts were made out of the proceeds of the redemption of Vitol shares.

On 24th February 1992 the Claimant and Mrs Grimm agreed to purchase Templewood Lodge, 1a Templewood Avenue, Hampstead, London NW3 (“Templewood Lodge”). The purchase price was Ł750,000. The solicitors acting for the Claimant and Mrs Grimm on the purchase were Howell Jones & Partners.

The purchase of Templewood Lodge was completed on 20th March 1992. A total of Ł386,983 was applied by Mrs Grimm towards the purchase. The balance of the purchase price and costs was funded by a Ł300,000 loan from First National Bank of Boston (Guernsey) Ltd (“FNBB”), which was secured on Templewood Lodge, and from other funds of the Claimant .

The First Defendant advised the Claimant that there was no need to report his gift to his wife in the Claimant’s tax return for the year ended 5th April 1992.

In early 1994 the Inland Revenue Inspector for London Provincial 10 District indicated that it was necessary to consider the tax implications of the money remitted to the United Kingdom by Mrs Grimm and applied towards the purchase of Templewood Lodge. At this time, and quite separately, the Special Compliance Office of the Inland Revenue (“the SCO”) was conducting a review of various aspects of the tax affairs of employees of Vitol. In due course the Inland Revenue District Inspector transferred to the SCO the issue relating to Mrs Grimm’s remittance for the purchase of Templewood Lodge. From 1994 until 1999 the SCO conducted a wide ranging inquiry into the tax affairs of the Claimant.

On 14th October 1997 Templewood Lodge was sold by the Claimant and Mrs Grimm for Ł1,421,000. This represented a gross profit of Ł671,000.

In November 1997 the First Defendant instructed counsel specialising in revenue law to advise in conference on matters concerning the inquiry and claims by the Inland Revenue in relation to the Claimant’s tax affairs. The instructions to counsel did not expressly raise the issue of the gift to Mrs Grimm and her remittance to the United Kingdom for the purpose of the purchase of Templewood Lodge. The conference with counsel, attended by the First Defendant, but not the Claimant, was held on 24th November 1997. During the conference the First Defendant raised orally the issue of the gift to Mrs Grimm. Counsel advised that the gift to Mrs Grimm, and the subsequent remittance by her to the United Kingdom, gave rise to a charge to tax on the Claimant. Counsel advised that the Claimant should negotiate an overall settlement of the various claims made by the Inland Revenue, and that, given his view, it might be worth while to bargain by giving way on the gift to Mrs Grimm.

In the negotiations which then took place between the Inland Revenue and the Claimant, for whom the First Defendant continued to act, the First Defendant calculated the tax payable on the remittance by Mrs Grimm (if it was treated as a taxable constructive remittance by the Claimant) as being Ł90,953. That same figure was in due course used by the Inland Revenue in arriving at a global offer of Ł675,720. In April 1999 the Claimant and the Inland Revenue concluded a global settlement in that amount in relation to the various claims by the Inland Revenue, including the gift by the Claimant to Mrs Grimm and the remittance by her to the United Kingdom. The Claimant paid the Ł675,720 to the Inland Revenue on 18th May 1999.

The Claimant alleges that the advice given by the First Defendant was negligent and in breach of the Second Defendants’ contract of retainer. In the Particulars of Claim he alleges that, in consequence of the negligence, he has suffered loss in the amount of Ł111,145. This amount represents what the Claimant alleges is the aggregate of the tax he has had to pay on the remittances by Mrs Grimm to the United Kingdom out of the value of the gifts he made to her in 1991 and 1992, interest, wasted fees paid to the Second Defendants, and consequential expenses.

The Tax Legislation and Principles

An individual who is domiciled outside the United Kingdom, but is resident and ordinarily resident in the United Kingdom, is liable to United Kingdom taxation on income, profits and capital gains to the extent that they are remitted to the United Kingdom.

Income from Possessions out of the United Kingdom

Under the provisions of the Income and Corporation Taxes Act 1988 (“TA 1988”) sections 18 and 65(5), income from possessions outside the United Kingdom is subject to United Kingdom income tax under Case V of Schedule D

“on the full amount of the actual sums received in the United Kingdom in ... the year of assessment from remittances payable in the United Kingdom, or from property imported, or from money or value arising from property not imported, or from money or value so received on credit or on account in respect of any such remittances, property, money or value brought or to be brought into the United Kingdom …”

Those charging provisions have been given a wide interpretation by the Court. Lord Radcliffe said the following, in relation to them (in their previous statutory form), in Thomson v. Moyse [1961] AC 967, at pp. 995-6:

“It is true that the rule then goes on to list a number of sources from which sums to be computed may have been received; and this additional wording has, I think, been the origin of some of the mystification which had crept into this branch of law. There has been a tendency to treat these several instances of the way in which income may be remitted as if they were limiting the generality of the phrase “ actual sums received in the United Kingdom” and it may be said in defence of such a reading that the strict grammar of the sentence does so suggest. In my view, however, it would be wrong to give any weight to this; for I cannot think that it was ever the intention of the legislature to say in effect that whereas under Case IV all sums of foreign income were to be computable, if received in the United Kingdom, under Case V only those sums of income received were to be computable which were attributable to the specified operations or sources. There could be no reason for such a distinction. I think, therefore, that these four sub-heads, as they have been called, should be treated as illustrations, no doubt intended to form a comprehensive list of illustrations, of the way in which, when foreign income is transmitted to this country, the transmission can be effected and the sterling sums obtained. These sub-heads, which are not all very clearly phrased, should accordingly be construed according to their general sense and without too much nicety of language. For instance, “remittances payable in the United Kingdom” is a phrase capable of applying to the instrument employed to effect the transfer, to the credit arising from the transfer and, I think, to the whole operation of remitting money to be paid here.”

Income from Employment

A non-domiciled individual, who is resident in the United Kingdom and is employed by a foreign resident employer, for example, a foreign company, is subject to income tax under Case III of Schedule E on the remittance basis in respect of emoluments “received in the United Kingdom” for duties of the employment performed wholly outside the United Kingdom: TA 1988 sections 19 and 192. Section 132(5) of the TA 1988 provides the following wide definition of “received in the United Kingdom”, for this purpose:

“ Emoluments shall be treated as received in the United Kingdom if they are paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom, ...”

Capital Gains

Section 12 of the Taxation of Chargeable Gains Act 1992 (“TCGA”) imposes a charge to tax on the remittance basis in relation to gains accruing to individuals resident or ordinarily resident, but not domiciled, in the United Kingdom, from the disposals of assets situated outside the United Kingdom. Subsection 12(2) describes a chargeable remittance in the same wide terms as section 132 (5) of TA 1988.

Constructive Remittance

In Carter v Sharon [1936] 20 TC 229 Lawrence J held, on the facts of that case, that there was no charge to tax under Case V of Schedule D in respect of a gift by a person domiciled outside the United Kingdom, where the gift was completed outside the United Kingdom, and even though the donee subsequently brought the gift to England and the donor was resident in England at that time.

On the other hand, Harmel v Wright 1974 1WLR 325, a case concerning Case III of Schedule E, establishes that a charge to tax will arise, on the remittance basis, if an artificial “conduit pipe” can be identified, through which the foreign source income or gain can be treated as passing from abroad to the financial benefit of the non-domiciled individual in the United Kingdom. In that case, the taxpayer, who was born and domiciled in South Africa, but resident in England, was employed by South African employers. In order to reduce his liability to United Kingdom tax on his annual salary of Ł25,000, the following scheme was devised. He was paid his salary in South Africa. He used the money to subscribe for shares in a South African company, in which he owned all the shares. That company loaned the money to another South African company, which then lent the money to the taxpayer in London. Templeman J held that the taxpayer had properly been assessed to tax under Schedule E on the amount of the loans to him in London. Templeman J said at p. 328:

“Has the taxpayer received in the United Kingdom emoluments from the South African company? Although at various stages different cheques were written on different accounts, one can, with fascination, with certainty and no difficulty at all, follow, for example, a salary of Ł25,000 paid by cheque from the South African company to the taxpayer; then by cheque by the taxpayer to Artemis; then by cheque by Artemis to Lodestar, and finally by cheque by Lodestar to the taxpayer in England. Ignoring for the moment exchange control and the possibility that some cheques would be in rands and others in sterling, and ignoring costs that would drip away, that sum began in South Africa from the employers of the taxpayer and ended up in this country with the taxpayer. In my judgment, on the peculiar circumstances of this case - and I can say nothing about other cases where it may be possible that the money does, en route, disappear and it is not possible to follow with the same certainty as in the present case - the sums which the taxpayer eventually received represent and are the emoluments which started off from his South African employers in the first place.

.....

....It is true that ...[the original sum of Ł25,000] was paid over at one stage as purchase price for shares, and it is true that one cannot normally identify money, but in the present case you can; you do not need to get behind the corporate veil to perceive and know that the Ł25,000 which went in as purchase price for shares came out on the instant in the form of the loan to Lodestar. In my judgment, on the wording of section 156, one does not need to strip aside the corporate veil if you find that emoluments, which means money, come in at one end of a conduit pipe and pass through certain traceable pipes until they come out at the other end to the taxpayer”.

Having referred to Thomson v Moyse and cited passages from the speeches in that case of Lord Reid and Lord Radcliffe, Templeman J went on to say, at p.331:

“Mr Vinelott, who appeared for the Crown, submitted in the alternative that the word “received” should now be given a slightly wider extension because of paragraph 8 of Schedule 2 to the Finance Act 1956, which requires that “emoluments shall be treated as received ... if they are paid, used or enjoyed...” He did not submit that “paid, used or enjoyed” substantially alter the authorities on receipt or the test adumbrated by Lord Radcliffe, but he did say in a proper case they can shed light on and possibly give some small extension to the word “receipt”. If one asked whether, in fact, the original sums paid in South Africa have been used or enjoyed in any manner or in any manner transmitted, it is difficult to avoid the conclusion that they have been used, enjoyed and transmitted. All I need to say is that paragraph 8 is not inconsistent with the result I reach by construing section 156 in the light of the authorities.”

The facts, reasoning and decision in Harmel v Wright highlight the breadth of what constitutes a remittance to the United Kingdom under the statutory charging provisions which I have set out above, by virtue both of the express broad wording of TA 1988 s. 132(5) and TCGA s.12, and also the approach to construction taken by the Court in Thomson v Moyse and Harmel v Wright itself.

The Duty Of Care

The standard of care which the First Defendant had to apply in his advice to the Claimant was that of a reasonably skilful accountant tax adviser, with specialist knowledge of the United Kingdom tax liabilities of individuals resident in the United Kingdom, but domiciled abroad.

Witnesses of Fact

Evidence of fact was given orally at the trial, on behalf of the Claimant, by the Claimant himself and by Mr Keith Ott. I have already described the Claimant’s background, so far as is relevant. He was and is an astute and successful businessman. I consider that he was a credible and honest witness.

Mr Ott was admitted to practise law in the state of Georgia, USA. He is registered as a foreign lawyer with the Law Society. He is presently a partner in the firm of Paul, Hastings, Janofsky and & Walker LLP, a firm of solicitors and registered foreign lawyers in London.

Mr Ott was previously a partner in the firm Kilpatrick & Cody, a US law firm. Between 1986 and 1997 Mr Ott managed the London office of that firm. The First Defendant acted as United Kingdom tax adviser to Kilpatrick & Cody. He also acted for Mr Ott as his personal United Kingdom tax adviser, from 1986 to 2000. Mr Ott also instructed the First Defendant concerning United Kingdom tax law issues on behalf of various clients of Mr Ott from approximately 1986 until approximately 1999. Mr Ott has acted as an adviser to the Claimant since 1986 on US legal matters, both in relation to his personal affairs and on corporate matters. By 1991 he had become, and still remains, a personal friend of the Claimant. Mr Ott was, in my view, a credible and honest witness.

Oral evidence on behalf of the Defendants was given by the First Defendant. He was, in my view, a credible and honest witness.

Expert Witnesses

Both sides called an expert witness. Expert evidence on behalf of the Claimant was given by Mr Simon Jennings, a chartered accountant, and a partner in Rawlinson & Hunter. Expert evidence was given on behalf of the Defendants by Mr R .E. Churchill, formerly an employee of the Inland Revenue for 22 years, eventually reaching the rank of inspector (Principal), with authority to act on behalf of the Board of Inland Revenue. Although he is not himself qualified as a chartered accountant, he is a partner in Day, Smith & Hunter, chartered accountants, and is head of taxation for that firm.

Although I am satisfied that both experts were doing their best to assist me, I found their evidence of limited value in the resolution of the issues in the proceedings. A substantial part of their evidence appeared to be directed to establishing whether, as a matter of law, the remittance of the money by Mrs Grimm to the United Kingdom and applied in the purchase of Templewood Lodge gave rise to a charge to tax on the Claimant. That, it seems to me, is a matter for the court and not one for expert evidence. Further, Mr Jennings appeared to direct much of his report and evidence to the competence of the First Defendant in handling the Inland Revenue inquiry. The First Defendant’s conduct in relation to the inquiry is not, however, a matter in respect of which the Claimant claims damages in these proceedings. Further, a considerable part of the report and evidence of Mr Churchill was directed to what, in his experience as a past Inland Revenue Inspector of Taxes, would have been the view of the Inland Revenue as to the interpretation of the statutory provisions governing remittances to the United Kingdom by resident, but non-domiciled, individuals. The relevant issue, however, for my purposes, is what a reasonably competent accountant would have considered to be the meaning and effect of the statutory provisions, and, most critically, the way in which a reasonably competent accountant tax adviser, with the same specialism as the First Defendant, would have responded to the request for advice from the Claimant in 1991.

Was the Advice Negligent?

The relevant facts in more detail.

The Claimant’s initial enquiry for advice was contained in a letter dated 24th September 1991 from Mr Ott to the First Defendant. That letter, so far as material, was in the following terms:

“Rick Grimm is getting married this Sunday, and he has asked whether any actions can be taken by him either before or after his marriage to make tax-free remittances by gift to his new wife. (His wife-to-be is English-domiciled, to the extent this is relevant) Rick is especially anxious to remit funds so that he may purchase a house in London.

Any thought?”

The First Defendant replied by letter dated 25th September 1991 which, so far as material, is in the following terms:

“Thank you for your recent fax concerning Rick’s forthcoming marriage.

It is possible for Rick to gift funds on the occasion of his marriage to his wife from his funds outside the UK, which would not be taxable in the UK. He may gift (say) enough funds for his wife to buy her half share of the house in London and provided that this is a gift on marriage this would be okay.

Although it is not absolutely necessary to make the gift on the day of the wedding, it should take place near to this date, so that the inspector cannot challenge the question of reciprocity.”

That short exchange of correspondence was followed by a further enquiry in a telephone call telephone from the Claimant to the First Defendant’s assistant on 26th September 1991.

The Claimant was, as I have already said, married to his present wife on 29th September 1991.

On 18th October 1991, while in the United States, the Claimant prepared and signed a letter to his wife in the following terms:

“Dear Aurora

On the occasion of our marriage and with love and affection, I hereby make a gift to you today of all my right, title and interest in the following assets” [there is then set a number of shares and securities]

“I have arranged for Prudential Bache, Louisville, Kentucky to set up an account in your name and these assets will be transferred to your account as soon as they receive all the necessary paper-work required.”

That letter did not constitute, under the relevant US State law, a complete gift to Mrs Grimm of the specified assets. Under that law, the gift was not completed until the specified assets were transferred to Mrs Grimm.

While the Claimant was in the United States he discussed the proposed gift and tax implications with Mr Ott. The Claimant was concerned to have clear written advice as to the efficacy of the proposed scheme by which assets of the Claimant outside the United Kingdom would be transferred by means of a gift to his wife, for application in the joint purchase of a matrimonial home in the United Kingdom. Accordingly, Mr Ott, on the instructions of the Claimant, wrote the following letter dated 23rd October 1991:

“Dear John

I met with Rick Grimm here in Atlanta last Friday and, among other things, we discussed the gift Rick will make to his new wife, Aurora, this week. As you will recall, Rick desires to make this gift to allow Aurora to acquire a one-half interest in a property they will jointly acquire in London later this year. For U.S. tax purposes the amount of the gift will be limited to $695,000. The gift will be effected by transferring a mutual fund account, denominated in dollars, into Aurora’s name, and that account is presently located (that is, managed by a company incorporated and resident) outside the United Kingdom.

At Rick’s request I would like your blessing of this gift transaction for UK tax purposes. For your information I will soon prepare a letter for Rick to leave with Aurora evidencing the gift. Second, I would appreciate your confirmation that there are no UK gift tax consequences to the gift. Finally, I would appreciate your advice as to whether Rick may make additional gifts next year in the same fashion, with the amount of such gifts not being treated as remitted income or profits of Rick when remitted to the United Kingdom by Aurora.

Thank you very much, and I look forward to hearing from you.”

The First Defendant replied by letter dated 30th October 1991, which is in the following terms, so far as relevant:

“Thank you for you fax dated 22nd October 1991.

I have reviewed our previous correspondence concerning Rick’s gift to Aurora and I note that in a conversation which Rick had with Alicia Shaw he mentioned that Aurora is a U.K. domiciled lady. Whilst this does not effect the position, I would like confirmation of her domicile and residence position for my records.

The gift of $695,000 is okay provided it is made outside the U.K. and there is no reciprocity. The gift to purchase a half share in their marital home may go ahead without any U.K. tax consequences.

With regard to future gifts, I am a little wary of large gifts on a regular basis, as the Inspector may argue that the funds were being used to meets Rick’s expenses. This is a situation which should be kept in check, but provided the authorities can be satisfied that there is no reciprocity then further gifts may be made, but once again I stress that the gift must be made outside the U.K.”

It appears, from the oral evidence given at the trial, that the figure of $695,000 was determined by an exemption, under US gift tax provisions, for a one-off gift not exceeding $700,000. It also appears, from the oral evidence at the trial, that there is an exemption, under US gift tax provisions, for a gift or gifts not exceeding in the aggregate $100,000 in any year.

On about 15th November 1991 the assets specified in the Claimant’s letter to his wife of 18th October 1991 were transferred to Mrs Grimm. They had a net aggregate value at that date of $684,725.33.

On 2nd January 1992 the Claimant and the First Defendant spoke on the telephone with regard to the Claimant’s plans to purchase a house. The First Defendant’s attendance note of that telephone conversation, so far as material, was as follows:

“Rick advised that he was contemplating purchasing a house for a price of around the half million mark He is contemplating taking a mortgage outside the United Kingdom of Ł200,000 and I confirmed that if the interest on this mortgage was paid outside the United Kingdom out of non U.K. earnings, then this would not constitute a remittance to the United Kingdom of such non UK earnings.

With regard to the other terms of the mortgage, Rick advised that it would be an interest only mortgage and would be paid back either out of funds generated in the United Kingdom or on the sale of the property.

With regard to the source of the finance, Rick mentioned that his preceding mortgage had been with First National Bank of Boston and he would seek further mortgage from them. I mentioned that Barclays Bank, Isle of Man had been approached in connection with Keith Ott’s mortgage - this was a possibility for him too.

Lastly, he had close working relationships with Nat West Bank in the United Kingdom and perhaps their overseas branches, Coutts & Co. Overseas would be appropriate.”

On about 31st January 1992 the Claimant made a further transfer of $100,000 to Mrs Grimm. The First Defendant was not specifically consulted in relation to the making of this transfer.

Following a letter of instruction dated 1st February 1992 from Mrs Grimm to Prudential Bache Securities, a total of $786,000, realised from the aggregate of the gifts made by the Claimant to Mrs Grimm, was transferred to her account with FNBB in Guernsey.

By an agreement in writing dated 24th February 1992 the Claimant and Mrs Grimm agreed to a purchase Templewood Lodge for Ł750,000, and retained Howell Jones & Partners for that purpose.

On 19th March 1992 FNBB, on Mrs Grimm’s instructions, converted the $786,000 which had been transferred to her account and accrued interest into Ł454,763.23. Of that sum, she transferred Ł386,983 to Howell Jones & Partners for the purchase of Templewood Lodge.

The purchase of Templewood Lodge by the Claimant and Mrs Grimm was completed by a transfer dated 20th March 1992. The transfer, which was in a standard H M Land Registry form, stated that the property was transferred to the Claimant and Mrs Grimm as “Joint Tenants Beneficially Entitled”.

Neither the Second Defendants generally, nor the First Defendant in particular, were involved in the conveyancing arrangements for Templewood Lodge.

The purchase price for Templewood Lodge and related expenses were paid partly with the Ł386,983 transferred by Mrs Grimm to Howell Jones & Partners, partly with a loan of Ł300,000 from FNBB secured on the property, and partly with other funds of the Claimant.

The Quality of the First Defendant’s advice.

The Claimant alleges that the transaction by which some $786,000 was transferred from the Claimant to Mrs Grimm, was converted into sterling, and applied in large part in the purchase of Templewood Lodge, gave rise to a tax charge on the Claimant under Case III of Schedule E. The Claimant submits that the Inland Revenue was correct to assert that charge to tax and was bound, when it learnt of the transaction, to enforce that charge to tax.

For his part, the First Defendant submits that the transaction did not give rise to a charge to tax as a taxable remittance, whether under Case III of Schedule E or on any other basis. He alleges that this has always been his view, and that, far from his advice being negligent, it was correct. His case is that the charge to tax on the transaction was only conceded, as a matter of pragmatism, in order to achieve a settlement across the range of issues which the Inland Revenue had raised in relation to the Claimant’s tax affairs, and in relation to which the Claimant stood to lose much more through litigation with the Inland Revenue than he agreed to pay by way of the global settlement amount of Ł675,720 in 1999.

The Claimant’s case, as advanced at the trial by Mr Peter Trevett QC and Mr Michael Jefferis, was that Templewood Lodge was purchased by the Claimant and Mr Grimm as beneficial joint tenants. Accordingly, the money transferred by Mrs Grimm to Howell Jones & Partners acquired for the Claimant a proprietary interest and right of occupation in the entire property, and also a right to acquire the whole property if Mrs Grimm should pre-decease the Claimant. Further, it was submitted on the Claimant’s behalf, that his ability to purchase an interest in the property, and thereby to gain a right to occupy it, could only have been achieved by a charge over the entire property, which itself could only have been acquired with the assistance of the contribution to the purchase price made by Mrs Grimm. Further, it was submitted on behalf of the Claimant that, on the evidence, Mrs Grimm paid more than half the purchase price of Templewood Lodge and associated costs and expenses. Mr Trevett QC and Mr Jefferis submitted that, in the light of the width of the charging provisions relating to Case V of Schedule D, Case III of Schedule E, and section 12 of TCGA 1992, and in the light of the gloss on those provisions by Lord Radcliffe in Thomson v Moyse and by Templeman J in Harmel v Wright, it is clear that the remittance to the United Kingdom by Mrs Grimm of the assets given to her in 1991 and 1992 by the Claimant gave rise to a charge to tax.

Mr Ross QC’s starting position, on behalf of the Claimant, was that this action was a classic Sharon v Carter transaction, by which a non-domiciled individual had completed, outside the United Kingdom, a gift of assets outside the United Kingdom, and had retained no interest of any kind in the assets transferred. He submitted that, in accordance with the reasoning and decision in that case, a remittance to the United Kingdom by the donee of her own assets would not give rise to a charge to tax, even though the donor was resident in the United Kingdom and the remitted funds were derived from assets which had been given to her by way of gift.

Mr Ross QC submitted, further or alternatively, that Templewood Lodge was not transferred to the Claimant and Mrs Grimm as beneficial joint tenants. He submitted that the property was transferred to them as equitable tenants in common in equal shares. He submitted that the effect of equitable accounting between the Claimant and Mrs Grimm was that Mrs Grimm was always entitled to insist that the mortgage of Ł300,000 be debited wholly from the Claimant’s share of any proceeds of sale. Accordingly, Mrs Grimm’s payment to Howell Jones & Partners did no more than purchase her own beneficial half interest in the property.

Mr Ross QC submitted that, even if Templewood Lodge was transferred to the Claimant and Mrs Grimm as beneficial joint tenants, the principles of equitable accounting would apply, so that it could not be said that Mrs Grimm’s contribution did anything other than acquire for her a half share in the property and its proceeds of sale. So far as concerns the right of survivorship, inherent in a joint tenancy, he submitted that this had no financial value since it depended entirely upon the completely unpredictable contingency of Mrs Grimm predeceasing the Claimant: there was and is no market for such an interest, and it has no financial value.

Mr Ross QC further submitted that a reasonably competent solicitor would not necessarily have advised that there was any danger of the transaction giving rise to a charge to tax by virtue merely of gifted assets being used to purchase a property in which the Claimant had a right of physical occupation. He submitted, by reference to various publications of the Inland Revenue current at the time, as well as the evidence of Mr Churchill, that the perceived policy of the Inland Revenue was not to treat, for tax purposes, a mere right of physical occupation as a “use” or “enjoyment” of foreign assets which had been transferred by way of gift out of the jurisdiction, and were then remitted by the donee for the purchase of the property in which the donor was to reside.

The way in which these submissions on each side were made at the trial appeared to be an invitation or request to me to determine whether, as a matter of law, the transaction by which assets given by the Claimant to his wife, and then remitted by her to the United Kingdom, and applied in part in the purchase of Templewood Lodge, gave rise to a charge to tax. I am, naturally, concerned to be asked to give an absolute ruling on this issue, in the absence of the Inland Revenue. My decision on the point would not, of course, be binding on the Inland Revenue in any subsequent proceedings involving a taxpayer, since the Inland Revenue is not a party to these proceedings. On the other hand, my decision could affect the way in which future transactions are arranged, and would be of some persuasive authority in any future proceedings involving the Inland Revenue, even though I would not have had the benefit of submissions on its behalf in these proceedings.

I do not consider that, in order to determine the proceedings before me, it is necessary for me to express a concluded view on whether the relevant transaction by the Claimant and Mrs Grimm gave rise to a charge to tax under all or any of the statutory provisions which I have set out earlier in this judgment. It is sufficient to say, for the reasons that I will elaborate, that the Inland Revenue had a strong case for contending that the transaction did give rise to a charge to tax under Case III of Schedule E.

There is no doubt, in my judgment, that Templewood Lodge was transferred to the Claimant and Mrs Grimm as beneficial joint tenants. The form of transfer expressly stated that the transfer was to the Claimant and Mrs Grimm as “Joint Tenants Beneficially Entitled”. I do not accept Mr Ross QC’s submission that those words are ambiguous as to the nature of the beneficial interest acquired by the Claimant and his wife. They are an express declaration as to their beneficial entitlement. It is well established that such a declaration in the transfer itself is conclusive : Goodman v Gallant [1986] Fam 106; Turton v Turton [1988] 1CH 542. It is apparent that HM Land Registry took the same view as to the nature of the beneficial interest acquired by the Claimant and Mrs Grimm since no entry in Form 62 was entered on the Register when the transfer to the Claimant and Mrs Grimm was entered, as would have been required under Section 58 (3) of the Land Registration Act 1925 and Rule 213 of the Land Registration Rules 1925 if the Claimant and Mrs Grimm had been beneficial tenants in common: see Re Gorman [1990] 1WLR 616. Furthermore, the Claimant gave oral evidence that, at the time of the acquisition of Templewood Lodge by himself and his wife, they were advised by their solicitors as the nature of a beneficial joint tenancy, and in particular the right of survivorship, and they intended and agreed to purchase the property as beneficial joint tenants. I have no reason to disbelieve the Claimant’s evidence in this respect. Accordingly, even if the express declaration in the form of transfer was, as Mr Ross QC submitted, ambiguous, the oral evidence of the Claimant as to the intention to hold the property as beneficial joint tenants would be conclusive: ibid 623 to 624; Saville v Goodall [1993] 1FLR 755

Mr Ross QC is plainly right, in my judgment, in submitting that, upon the acquisition of Templewood Lodge by the Claimant and Mrs Grimm, Mrs Grimm was entitled to insist that, if the property be sold, there would be an equitable accounting under which the Ł300,000 mortgage was to be treated as the liability of the Claimant alone. This would give effect to their common intention and agreement, bearing in mind that Mrs Grimm’s cash contribution was to be in respect of her acquiring a half share of the property: see Re Pittortou [1985] 1WLR 58; Re Pavlou [1993] 1WLR 1046 ; Saville v Goodall.

I do not, however, accept Mr Ross QC’s submission that it is not strongly arguable that the acquisition by the Claimant of an interest in Templewood Lodge as a beneficial joint tenant, as a result of the use by Mrs Grimm of assets given to her by the Claimant and applied in the purchase of the property, brought Mr Grimm within the charging provisions concerning taxable remittances by ordinarily resident, but non-domiciled, individuals. It seems to me, in the light of the very wide scope of the charging provisions relating to Case V of Schedule D, Case III of Schedule E, and section 12 of TCGA 1992, as elucidated in the case law to which I have already referred, that the Inland Revenue had a strong argument that the transaction fell within those charging provisions. Not only did the acquisition of his interest in the beneficial joint tenancy give the Claimant a proprietary right which carried with it a right of physical occupation, but it conferred on the Claimant a prospective right to ownership of the entire property. I do not accept Mr Ross QC’s submission that, in the absence of any evidence that there was a market for the sale of a right of survivorship or as to the value of such a right, there could be no realistic argument by the Inland Revenue that the transaction gave rise to a charge to tax. The prospective, albeit contingent, right of the Claimant to the entire property was manifestly an important benefit to him. It gave him the contingent right to ownership of a much larger property than he could have afforded from his own resources, apart from the gift to his wife. That was plainly a financial benefit to him, even if it turned upon an uncertain and possibly remote contingency, namely his wife predeceasing him before sale of Templewood Lodge or severance of the joint tenancy so as to create the Claimant and Mrs Grimm equitable tenants in common.

Further, I do not consider that the Inland Revenue’s publications could lend any practical reassurance to an accountant, specialising in United Kingdom taxation of resident but non-domiciled individuals, that the right of occupation of a donor, such as the Claimant, in a property acquired in whole or in part by the financial contribution of the donee out of the gifted assets, would not give rise to a charge to tax as a remittance. In connection with this line of argument, the Defendants relied upon a Statement of Practice dated 18th May 1987 issued by the Inland Revenue, in which it was stated that, for the purposes of Inheritance Tax:

“the estate duty practice on the treatment of gifts involving a share in a house where the gifted property is occupied by all the joint owners including the donor will apply. The donor’s retention in a share of the property will not by itself amount to a reservation. If, and for so long as, all the joint owners remain in occupation, the donor’s occupation will not be treated as a reservation provided the gift is itself unconditional and there is no collateral benefit to the donor.”

The Defendants also place reliance upon the contents of a consultative document issued by the Inland Revenue in July 1988, which commented on the defects in the legislation governing the remittance basis of assessment, and included proposals for a new receipts basis. That document included the following paragraphs:

“A new “receipts basis”

6.27 The second strand - and the more unsatisfactory at present - is the taxation of income and gains from overseas on a “remittance basis”. The main defects of this basis have already been outlined ( see paragraphs 4.13 to 4.18 ), and particular reference has been made to the exploitation of the source rule and of remittances of capital. Clearly, any new basis of intermediate liability must counter arrangements of this kind.

6.28 A possible approach would be to extend the concept of the remittance basis so that, in effect, all benefits enjoyed in the United Kingdom out of foreign assets were regarded as remittances from overseas, and as therefore within the U K tax charge.

6.29 Under an approach on these lines, UK tax would be levied not only on all financial remittances, but also on the proceeds of certain valuable chattels e.g. jewellery, paintings and antiques which were brought into this county and disposed of while the owner was resident here. In addition, the value of the benefits, for example in the form of an interest free loan or the rent free use of a property, which was provided for out of overseas assets would be brought into the U K tax charge.”

Mr Churchill, the Defendant’s expert, relying upon these Inland Revenue publications, as well as his own experience as an Inland Revenue Inspector of Taxes, expressed the opinion that s.12(2) of TCGA 1992 and s.132 (5) of TA 1988 would have been interpreted by the Inland Revenue as referring to economic enjoyment rather that personal enjoyment. I do not accept that the Inland Revenue publications, to which I have referred, could have given any reasonable grounds for confidence that the transaction proposed by the Claimant, on which he sought the advice of the First Defendant in 1991, would avoid a charge to tax on the sums given to Mrs Grimm and applied by her in the purchase of Templewood Lodge. So far as concerns the Statement of Practice of 18th May 1987, the Inland Revenue’s practice in relation to Inheritance Tax could not justify any conclusion as to the way in which the Inland Revenue would interpret and apply the very wide provisions concerning income tax and capital gains tax on remittances by resident, but non-domiciled, individuals. So far as concerns the consultative document issued by the Inland Revenue in July 1988, paragraphs 6.27 to 6.29 appear to me to be directed primarily, if not exclusively, to the issue of whether remittances of capital or enjoyment of benefits provided out of capital should be subject to tax. It does not seem to me that these paragraphs are directed to a situation in which money or value, that would be taxed as a remittance of income under Case III of Schedule E if made directly into the United Kingdom by the taxpayer, is diverted by way of gift to another person, who them remits it to the United Kingdom for the purchase of property in which the taxpayer acquires both a proprietary interest and a right of physical enjoyment. Indeed, it is to be noted that, in paragraph 4.15 of the consultative document, the Inland Revenue expressly referred to “the broad definition of remittance in the Taxes Act and wide interpretation which has been given to it by the courts ...”

In my judgment, a reasonably skilful and careful accountant tax adviser, with the same specialism as the First Defendant, would have recognised in 1991 that a scheme, by which assets representing income were paid to the Claimant’s wife and applied by her in the purchase of property jointly acquired with the Claimant and intended to be occupied by them, ran a high risk of being challenged by the Inland Revenue and stood a significant prospect of giving rise to a charge to tax on a constructive remittance by the Claimant.

The First Defendant accepted, in evidence, that he was aware of a distinction between a beneficial tenancy in common and a beneficial joint tenancy. He did not, however, advise the Claimant whether the risk of a charge to tax could be reduced by structuring the intended purchase of a new home as a purchase by the Claimant and his wife as equitable tenants in common, thereby avoiding the complication of the right of survivorship inherent in a joint tenancy. Nor did he advise that any particular care could be taken in relation to the conveyancing, so as to reduce the risk of a charge to tax. Nor did he advise or seek to ascertain whether some other scheme for the joint purchase of a house in London might be feasible, with less risks of a charge to tax. In my judgment, any reasonably skilful and careful accountant tax adviser, in the position of the First Defendant, would have done all these things.

Mr Ross QC submitted that it must have been, or ought to have been, obvious to the Claimant in 1991 and 1992 that there was no certainty that the proposed arrangements would avoid tax on assets intended to be given by him to Mrs Grimm and remitted by her to United Kingdom for the purchase of the proposed new home. In this connection, the Defendants rely upon the Claimant’s experience as a businessman in general, and his knowledge, which was established in oral evidence, of the need to structure his personal and financial affairs in such a way as to minimise the risk of tax on remittances or constructive remittances. The First Defendant, in his evidence, described the Claimant as “ a financially literate and astute businessman”. Mr Ross QC submitted that it went without saying to a sophisticated client, whose tax affairs were as complex and labyrinthine as the Claimant’s, that no tax avoidance scheme came with any guarantee or assurance that it was immune from challenge by the Inland Revenue.

The Defendants also rely on the fact that the enquiries for advice in 1991 in relation to the proposed scheme emanated from Mr Ott, acting on behalf of the Claimant. The Defendants emphasise that, in judging whether or not the First Defendant’s advice fell below that of a reasonably competent and skilled tax accountant, Mr Ott had, in the words of the First Defendant, an “overarching and co-ordinating role”. They rely upon the fact that Mr Ott was himself a lawyer and adviser to the Claimant, and could and should have been aware that there was no tax certainty in this or in any other tax scheme.

In connection with this line of argument, the Defendants rely upon the decision of the Court of Appeal of British Columbia in Ormindale Holdings Ltd v Ray Wolfe, Connell, Lightbody & Reynolds [1982] 135 DLR [3d] 577. One of the issues in that case was whether a partner in the defendant law firm had acted negligently in the advice he had given to the plaintiffs in connection with the sale of certain apartments. The case was tried in first instance by Mr Justice Taylor. The judgment of the Court of Appeal was delivered by Lambert JA. He said the following, at pp. 578 -579:

“Mr Justice Taylor made his findings of fact and expressed opinions on credibility. He said this at pp.353-6:

I accept the evidence of the plaintiffs that there was at no time any specific suggestion that the scheme might not be sound in law or that it represented only the defendant’s opinion of the law. I am satisfied that the defendants, in confidently advocating the scheme, were expressing their honest belief that it was sound in law.
. . . . . . . . .
As Mr Facer emphasised in his evidence in the present case, the defendant’s advice was not of that sort. It was advice of the sort that clients- particularly business clients- generally prefer: “straight answers, no waffling, no ‘in my opinion’ answers”. The defendants did not mention the possibility that their advice might be wrong, nor did the plaintiffs ask if it might possibly be wrong.

He also said this at pp. 356-7:

The plaintiffs say that they were led to believe it was a proven “pat” scheme, that could not fail. They knew that what was being described to them was a legal “loophole”, a means of avoiding a declared policy of the Government. They knew that the “non-profit” co-operative corporations they were creating were a device for obtaining the very profit which the Government intended landlords should not realize, or, at least, not without obtaining prior municipal approval. The plaintiffs are experienced in the real estate business and understand the realities of governmental regulation. They knew the scheme being proposed was a daring one, designed to exploit a supposed weakness in the legislation as it had been implemented, and to defeat the intention of the authorities.

I am unable to accept the evidence of the plaintiffs’ witnesses that they believed the scheme to be free of risks. I cannot accept that the plaintiffs really believed that their lawyers had found a means by which, with timely action, a gain of $5,500,000 was certain.

In my opinion there is nothing in the evidence that would cast any doubt upon these findings of fact and of credibility made by the trial Judge.

Mr Justice Taylor continues on p.357:

While a lawyer might have to warn of consequences unknown to his client which may flow from acceptance of his advice if it proves to be wrong, he is not, I think, normally required to warn experienced business clients of the possibility that the opinion, although firmly held, may not in fact prevail. That follows inevitably from the fact that it is, as these plaintiffs must have known, a matter of professional judgment.There was, of course, no need to advise on the consequences which might result from failure of the proposed plan because these were best known to the clients: they would lose the money spent on it.
(Mr Justice Taylor’s emphasis)

I think that the paragraph immediately above correctly states the law and that by applying it to the facts as he found them, the trial judge reached his conclusion.”

In my judgment, the cited passage from the Ormindale Holdings case does not assist the Defendants in the present case. The views expressed by Mr Justice Taylor and Lambert J A rested upon the findings of fact of the trial judge that the defendants knew that the proposed scheme was “a daring one designed to exploit a supposed weakness in the legislation .... and to defeat the intention of the authorities” and that the defendants did not believe the scheme to be free of risks. In the present case, I find, as a fact, that both the Claimant and Mr Ott believed that, if the Claimant acted in accordance with the proposals in the letter from Mr Ott to the First Defendant dated 22nd October 1991 and the advice contained in the First Defendant reply to Mr Ott dated 30th October 1991, the proposals would not give rise to a taxable remittance. Furthermore, in my judgment, in view of the unqualified terms of the letter of the 30th October 1991, their belief in that regard was reasonable. The fact the Claimant was a financially astute and successful businessman did not entitle the First Defendant to assume that the Claimant would appreciate that the proposals “blessed” in the firm and clear letter of advice of 30th October 1991 had a high risk of a challenge by the Inland Revenue on well arguable grounds. Nor was the First Defendant entitled to assume that such a gloss would be put upon his written advice by Mr Ott, or that Mr Ott would impart that gloss to the Claimant. Mr Ott did not hold himself out to the Claimant or the First Defendant or anyone else as having any expertise in United Kingdom tax law. Mr Ross QC sought to reinforce his submissions on these issues of fact, by referring to a written letter of advice dated 16th January 1991 to Mr Ott, which was copied to the Claimant, concerning, among other things, payments to be made by an off-shore company to a United Kingdom company to be set up by the Claimant. That letter explained in detail the circumstances in which the payments remitted to the United Kingdom, for that purpose, might be taxable as a remittance. Specific reference was made to Harmel v Wright. Neither the Claimant nor Mr Ott made any connection between that earlier advice and the proposals on which the First Defendant advised in September and October 1991 concerning the acquisition of a home in London for the Claimant and his new wife. The advice given by the First Defendant in January 1991 related to quite different scheme, and was concerned with corporate and commercial transactions. It was not unreasonable for the Claimant and Mr Ott to have failed to make any connection between that earlier advice and the later proposals for the purchase of a home in London, or to have failed to adapt, in some way or other, that earlier advice to the later proposals.

Mr Ross QC referred me to a number of text books on tax planning and revenue law which, he submitted, showed that the prevailing view at the time was, and indeed remains today, that the proposed transaction, by which the new house of the Claimant and his wife would be funded, would not give rise to a charge to tax. He referred me, for example, to Tax Avoidance by Colin Masters, Revenue Law by John Tiley, Tax Planning for the Foreign Domiciliary by James Kessler and Peter Vains, and Tolley’s Tax Planning 1992. In my judgment, none of those works would have justified a reasonably skilful and careful tax adviser giving an unqualified assurance that the proposals contained in Mr Ott’s letter of enquiry to the First Defendant of 22nd October 1991 would not give rise to tax in United Kingdom. The passages on which Defendants rely do not give any firm indication of how the Inland Revenue or the courts might regard a gift of assets outside the jurisdiction to a spouse, who then uses them to purchase a share in a property, which is vested in the donor and the donee jointly, and in which the donor has both a right of survivorship and a right of occupation.

The First Defendant gave evidence that he expected to be asked to consider and advise again when the assets given to Mrs Grimm by the Claimant were actually remitted by her to the United Kingdom or the new property was about to be purchased. He said that he expected to work with the conveyancing lawyers acting on behalf of the Claimant and Mrs Grimm. I find, on the facts, that this expectation was not one which it was reasonable for him to hold, and is not one which would avoid liability for breach of duty of care. The First Defendant did not at any time advise the Claimant, whether in writing or orally, that he should be asked to advise again in those circumstances or that he should be asked to liaise with the conveyancing lawyers. On the contrary, the clear, firm and unqualified terms of approval of the proposed transaction in his letter to Mr Ott on 30th October 1991 seem quite inconsistent with any such expectation on his part. He did not advise that the precise way in which the conveyancing was executed was of any significance. Mr Ott’s letter to the First Defendant of 22nd October 1991 referred to the future Mrs Grimm acquiring “a one-half interest in a property they will jointly acquire”; and a letter from the First Defendant to the Claimant of 14th October 1992 referred to a note, which the First Defendant had on file, that the Claimant and Mrs Grimm “were considering purchasing Templewood Lodge jointly”. That was precisely the transaction that was actually carried out. In fact, the Claimant did inform the First Defendant on 2nd January 1992 that he was contemplating purchasing a house for a price of around Ł500,000 and was contemplating taking a mortgage outside the United Kingdom for that purpose. Even then, the First Defendant did not qualify his earlier written advice, or suggest that he should be asked to liaise with conveyancing solicitors. Indeed, even if he had been consulted, it is difficult to understand in what way he would have elaborated upon or qualified his earlier advice. He gave no evidence, at the trial, as to what his elaboration or qualification might have been in those circumstances. On the contrary, his case has always been, and was maintained by him in oral evidence and was enforced by submissions of counsel on behalf of the Defendants, that the advice he gave was absolutely correct and that the transaction, by which assets given by the Claimant to his wife were applied in the purchase of Templewood Lodge, did not give rise to any charge to tax. Mr Ross QC, submitted, as a further alternative, that the First Defendant was entitled to expect that a copy of his letter of 30th October 1991 would be passed to the Claimant’s solicitors instructed on the purchase of the new home. For the reasons that I have set out earlier in this paragraph, and in particular the clear, firm, and unqualified terms of that letter, and the absence of any suggestion in the letter that it should be dealt with in that way, I do not consider that the First Defendant was reasonably entitled to hold any such expectation.

Mr Trevett QC and Mr Jefferis submitted that the fact that Templewood Lodge was acquired by means of a mortgage over the joint legal interest of the Claimant and Mrs Grimm was a significant factor in bringing the transaction within the TA s.132(5) . This was not, in fact, a point ever taken by the Inland Revenue. As I have said, the Claimant informed the First Defendant on the telephone on 2nd January 1992 that he was contemplating taking a loan outside the United Kingdom in order to raise part of the purchase price for the house. I do not consider, however, that the First Defendant failed to exercise skill and care by failing to advise that such a mortgage might bring the transaction within Case III of Schedule E. As I have said, the effect of equitable accounting on any sale of Templewood Lodge was that any mortgage loan taken out by the Claimant, for the purpose of his contribution of half the purchase price, would be deducted solely from his share of the proceeds of sale.

Mr Trevett QC and Mr Jefferis also submitted that the transaction, by which the purchase price of Templewood Lodge was funded, plainly gave rise to a constructive remittance since Mrs Grimm contributed more than half of the purchase price of the property and related expenses. The purchase price of the property was Ł750,000 . Mrs Grimm transferred to Howell Jones & Partners a total of Ł386,983. I do not accept, as a matter of fact, that Mrs Grimm contributed more than half of the purchase price of the property and related expenses. No evidence was placed before me as to the amount of related expenses. Again, this was not a point taken by the Inland Revenue. I would add that, if I had taken the view that Mrs Grimm had contributed more than half the purchase price and related expenses, I would not have considered that her conduct in this respect was consistent with the advice given by the First Defendant in 1991. In my judgment, the Claimant was sufficiently informed, by the written advice from the First Defendant in September and October 1991, that the First Defendant’s blessing of the scheme, for tax purposes, was on the footing that the gift by the Claimant to Mrs Grimm was for the purpose of purchasing her half share of the property and her share, that is to say a half share, of ancillary costs, and was not to be applied in the purchase of the Claimant’s interest in the property or his share of the ancillary expenses. Whatever the deficiencies there may have been, in this respect, in the First Defendant’s earlier letter of 25th September 1991 to Mr Ott, or the advice of the First Defendant’s assistant between the date of that letter and the First Defendant’s letter to Mr Ott of 30th October 1991, the letter of 30th October 1991 was plainly intended to be the definitive letter of advice and was expressly or implicitly clear on the point.

Mr Ross QC spent some time in cross examination, and in his submissions, on the advice of the First Defendant, in his letter of 30th October 1991 to Mr Ott and in his earlier advice, that there should be no “reciprocity” in relation to the proposed gift, and on the understanding of the Claimant and Mr Ott as to the meaning of that expression. It appears to me, and I understood Mr Ross QC ultimately to concede, that this issue has no practical bearing on the question of whether the First Defendant failed to exercise due skill and care in his advice. It is perfectly clear from the letter of the 30th October 1991 that the First Defendant was advising that an outright gift of assets outside the jurisdiction, by the Claimant to his wife, which assets were then applied in the joint purchase of a property, for their joint occupation, would not give rise to a charge to tax on a remittance. Indeed, the Defendants’ case, as I have said, is and has always been that the actual transaction carried out by the Claimant and Mrs Grimm did not give rise to a charge to tax. I have held, contrary to their submission, that the Inland Revenue had a strongly arguable case that the transaction did give rise to a charge to tax on a remittance, not because of any “reciprocity” in relation to the original gift by the Claimant to Mrs Grimm , but in consequence of the width of the relevant statutory charging provisions and the gloss placed upon them, particularly by the judgment of Templeman J in Harmel v Wright

For the reasons I have set out in this part of my judgment, I find that the Defendants, in breach of their duty of care and in breach of their contract of retainer, failed to exercise reasonable skill and care in the advice given to the Claimant in September and October 1991.

Causation.

The Defendants contend that, irrespective of the advice given by the First Defendant, the Claimant’s gift to his wife, for the purposes of acquiring a new home, was inevitably bound to give rise to a charge to tax, by reason of conduct of the Claimant unrelated to the advice of the First Defendant. In this connection, the Defendants rely upon the further transfer of $100,000 made by the Claimant to his wife at the end of January 1992. The Defendants submit that this transfer was made without prior consultation with the First Defendant and, following so quickly after the initial gift of some $685,000 worth of assets, was contrary to the advice given by the First Defendant with regard to future gifts in his letter of 30th October 1991 to Mr Ott. The Defendants contend that the inevitable effect of the transfer of $100,000 would have been to alert the Inland Revenue to the possibility that the initial gift as well as the subsequent transfer of $100,000, were made pursuant to a reciprocal agreement by Mrs Grimm to benefit the Claimant.

The transfer of $100,000 made at the end of January 1992 did not, in my judgment, break any chain of causation between the Defendants’ negligence and the loss suffered by the Claimant. The Inland Revenue never, in fact, relied upon the fact that the money applied by Mrs Grimm towards the purchase of Templewood Lodge was the result of two separate transfers, the second of $100,000 coming shortly after the initial gift of assets worth some $685,000. Further, I do not accept that the payment by the Claimant to his wife of $100,000 was inconsistent with the advice given by the First Defendant in the letter of 30th October 1991 to Mr Ott. In his letter of enquiry of 22nd October 1991 Mr Ott specifically asked for advice as to whether the Claimant could make additional gifts in the following year to Mr Grimm’s wife in the same fashion as the intended gift of $695,000, without giving rise to United Kingdom tax as a remittance. In his letter of 30th October 1991, the First Defendant said, with regard to future gifts that he was “a little wary of large gifts on a regular basis”, but, subject to that reservation, and the absence of “reciprocity”, further gifts could be made outside the United Kingdom. The First Defendant did not advise that there should be no further gifts. US tax law dictated the limitation on the size of the original gift, and also the size of and opportunity for the further transfer of $100,000. It was, it seems to me, entirely consistent with the request for advice in Mr Ott’s letter of 22nd October 1991 that the Claimant might wish to increase his original substantial gift to his wife, by one or more further gifts in 1992, for the purpose of the acquisition of their intended new home. As I have said, there was nothing in the letter of 30th October 1991 from the First Defendant to Mr Ott to indicate that not a single further gift for that purpose should be made; rather, it did indicate that one or more further gifts would avoid tax, provided they were not made on a regular basis.

The Defendants also rely upon the fact that the Claimant made a further undisclosed remittance to the United Kingdom amounting to approximately Ł165,000, and made payments amounting to some $155,000 in 1991 in the United Kingdom using his US credit cards. Both of these matters were taken up by the Inland Revenue in their inquiry into the tax affairs of the Claimant. I see no reason why, however, these matters should affect the chain of causation between the advice given by the First Defendant in September and October 1991 in relation to the use of money given by the Claimant to his wife in order to make a joint purchase of a house, and the loss suffered by the Claimant paying tax in relation to the transaction carried pursuant to that advice. For the reasons which I state more fully below, I find that, if full and proper advice had been given by the First Defendant, the Claimant could and would have structured the transaction, by which he funded and acquired the new home, in a way that would have not have given rise to United Kingdom tax and that would have been beyond challenge by the Inland Revenue.

It is a critical part of the Defendant’s case that, if further or fuller advice had been given to the Claimant casting doubt on the advice given in the letter of 30th October 1991 to Mr Ott, the Claimant would either have not proceeded at all at that time with the proposal to acquire a new home with his wife, or he would have gone ahead with the purchase of a house in a way that would have given rise to tax. The Defendants submit that, in either case, the Claimant will have suffered no loss attributable to any negligent advice given by the First Defendant. On the first hypothesis, the Claimant and his wife would have continued to live in rented accommodation. They would never have realised the profit of some Ł700,000 made on the sale of Templewood Lodge. The Defendants contend, and Mr Trevett QC and Mr Jefferis accepted that, on this “no transaction” hypothesis, the Claimant would have to give credit for his share of that profit: British Westinghouse Electric v Underground Electric Railway Co. [1912] AC 673. The Claimant’s share of that net profit was greater than the loss suffered by the Claimant attributable to the First Defendant’s advice, and so the Claimant would not recover any damages in these proceedings. On the hypothesis that the Claimant would have proceeded with the purchase, but with funds that would inevitably have given rise to tax as a remittance, then, again, the Claimant would have suffered no loss recoverable in these proceedings. The Claimant would have incurred the tax in any event.

The state of the evidence bearing on the issue whether, if the First Defendant had given full and proper advice, the Claimant would have gone ahead with the proposal to purchase a new home, is far from satisfactory. Paragraph 36 (2) of the Particulars of Claim is as follows:

“(2) If the Claimant had been advised that the arrangements connected with the gift would result, or that it was seriously possible that they would result, in liability for tax which he has paid, he would not have made the gift to Mrs Grimm at all and would either have bought a house for a figure in the region of the Ł363,000 odd which he contributed to Templewood Lodge or he would have funded the balance of the price of a slightly more expensive house by using assets of his on which U.K tax had already been paid.”

In paragraph 18 of his witness statement of 10th April 2001, the Claimant says as follows:

“I relied on the advice of Mr Newman and Chantrey Vellacott when I made the gift. But for their having advised me that Aurora could remit the gifted property tax-free to the U.K to pay for part of a new house that would be our marital home, I would not have made the gift. We could have continued to live in my flat after we were married, or if we had decided later to buy a new house, we could have paid for it from money that was already subject to U.K tax.”

In his oral evidence the Claimant said that it was likely that, if he had been told he could not fund the purchase of a new property in the way proposed in Mr Ott’s letter to the First Defendant on 22nd October 1991, without giving rise to United Kingdom tax, he would probably have gone ahead with the purchase of a new property for the price of up to a couple of hundred thousand pounds more that the amount he put into Templewood Lodge, that is to say between Ł500,000 and Ł600,000.

I find it is likely that, irrespective of the advice given by the First Defendant, the Claimant would have wished to purchase a new home for himself and his new wife. Mr Ross QC submitted, and I accept, that the Claimant would have been willing to pay more than the amount he had contributed to Templewood Lodge, since that amount would not have given the Claimant and his wife accommodation that they would have regarded as suitable. I find that the Claimant would have purchased Templewood Lodge, or something slightly smaller and less expensive, but costing more than the amount of his contribution to the joint purchase of Templewood Lodge.

The issue which then arises is whether the Claimant could and would have purchased a property in a way that would not have given rise to tax. This is the least satisfactory area of the evidence in this case. Neither the Claimant’s pleadings, nor the witness statements made by him or on his behalf, provide a clear statement as to precisely what alternative arrangements could and would have taken place in order to fund the purchase of such property without giving rise to United Kingdom tax, other than by using assets of his on which United Kingdom tax had already been paid.

It is obscure as to precisely what assets the Claimant owned outside the United Kingdom at this time, and also as to which, if any of them, had already borne United Kingdom tax or would for any other reason be exempt from tax if remitted to the United Kingdom. This issue was addressed in a request for further information served on behalf of the Defendants on 24th October 2000. In that request, the Defendants asked the following question:

“9. In paragraph 36 of the Particulars of Claim you state you might have been able, in part, to fund the purchase of a house using assets on which you have already paid U.K tax. Give full details of the amount and nature of those assets.”

The Claimant’s answer to that question was as follows:

“9. The Defendants were my accountants at this time, and have retained full financial records in relation to these matters. Nonetheless, reference should be made in those records to the advice of Mr Newman concerning the April 1992 remittance of amounts in excess of the amount given to Mrs Grimm on 15th November 1991.”

I do not regard that answer as satisfactory.

The Claimant gave oral evidence at the trial that he had considerable assets outside the United Kingdom in early 1992, but, apart from Vitol shares, it is extremely obscure precisely what those assets were and where they were situated. I was shown a schedule during the trial, which had been prepared at the time of the Inland Revenue inquiry, showing the movement of assets between various offshore accounts of the Claimant, but the schedule did not disclose any capital balances. Mr Ross QC complained that no disclosure of bank statements or other documents has been given in relation to the assets disclosed on the schedule. While it is clear that substantial funds were remitted by the Claimant to the United Kingdom in 1992, I am left in a state of ignorance as to the purposes for which they were remitted and the matters on which they were expended. Nor has disclosure been given in that respect. On the other hand, it is true to say that the application of the Claimant and Mrs Grimm in January 1992 for a loan from FNBB disclosed cash deposits of the Claimant amounting to $900,000 outside the United Kingdom. I am unable, on the evidence, to conclude that the Claimant had sufficient funds, which had already borne United Kingdom tax, to fund directly the purchase of Templewood Lodge or a similar property in 1992.

The issue of what alternative tax schemes might have been put in place, in order to avoid United Kingdom tax on a remittance or constructive remittance, was addressed only briefly in the oral evidence. It arose only in the context of the cross examination of the First Defendant. He was asked whether he had advised his other clients about schemes for the purchase of property in the United Kingdom, without giving rise to United Kingdom tax on remittances. The various schemes that were put to him were arrangements for a bank loan to be made abroad, by deposit of matching funds abroad with a lender-bank; the purchase of property in the United Kingdom in the name of off-shore trustees and the purchase of property by an off-shore company. As I have said, the Claimant himself was not asked about and did not say which, if any, of these schemes he would have implemented, if advised. On this state of the evidence, I am not prepared to find that the Claimant would have entered into a scheme by which a property would be purchased in the United Kingdom in the name of off-shore trustees or an off-shore company. It appears, from what I was told by Mr Trevett QC and Mr Jefferis, that in order to avoid tax the Claimant could not be a beneficiary of any such trust of property in the United Kingdom , nor could he be a director of any such off-shore company. I have absolutely no idea, on the evidence, whether the Claimant would have agreed to such a situation, and I therefore decline to find that he would. This aspect of the case, therefore, rests on whether I am able and willing to find, as a fact, that, if so advised, the Claimant would have entered into a scheme, in which sufficient money would be raised by way of a loan made abroad, to purchase a suitable property in the United Kingdom, such loan being backed by a deposit of foreign assets.

The First Defendant accepted, in cross examination, that such a back-to-back loan scheme would be effective to avoid United Kingdom tax, subject to TA1988 ss. 65(8). That sub-section provides, in summary, that, in order to be tax effective, the income from the foreign assets cannot be used to discharge or secure the capital of the loan. This would seem to provide an insuperable difficulty in the case of the Claimant’s Vitol shares. Mr Trevett QC accepted that the Vitol shares were the product of some kind of employee share scheme and would be regarded as income for United Kingdom tax purposes. At the very end of his submissions in reply, at the very end of the trial, Mr Trevett QC sought to deal with this problem by saying that the Claimant could have made the gift to his wife, as he had done, and the funds in her hands would have been capital, which she could have deposited with a foreign bank lender as a back-to back arrangement for a loan. Mr Ross QC, not surprisingly, protested at the way this vital part of the case had developed. He submitted that this was all inadmissible evidence, which had not been pleaded, nor been articulated in the Claimant’s witness statement or Mr Ott’s witness statement, and was not the subject of oral evidence by the Claimant or Mr Ott.

I appreciate that the scheme finally formulated by Mr Trevett QC, namely a gift of overseas assets by the Claimant to his wife, and used by his wife to fund a foreign loan, does not sit comfortably with the answer of the Claimant to the question, raised in the Defendants’ request for further information dated 24th October 2000 “What advice do you allege the Defendants should have given to you, but failed to give to you?”, namely “They should have advised that to make a gift in the U.S. and remit the money to the U.K. for the purchase of a house from which the Claimant would benefit would inevitably have created a UK tax liability”. I also note Mr Ross QC’s protest that there has been no evidence as to the cost of any such loan arrangement nor as to any loan to value ratio.

Nevertheless, it seems to me right that the Claimant should be able to advance the case that he would have proceeded with the proposal to acquire a new home in London by an making an overseas gift of overseas assets to his wife, which she then would use to raise an overseas loan, if he had been advised that such an arrangement would clearly and certainly not give rise to United Kingdom tax. The Claimant’s position that he would have gone ahead with the purchase of property, if he had known that the First Defendant’s advice was not correct, and would and could have done so in a way that would not give rise to United Kingdom tax, is not inconsistent with the Claimant’s pleaded case. Further, the First Defendant himself confirmed, as I have said, in his oral evidence that the off-shore back-to-back loan scheme would be effective for tax purposes and had been the subject of advice by him to clients. Further still, the First Defendant’s attendance note of 2nd January 1992 makes clear that he was aware that the Claimant was intending to enter into a foreign loan arrangement, and the First Defendant advised that, provided the interest on the mortgage was paid outside the United Kingdom out of non United Kingdom earnings, it would not constitute a taxable remittance to the United Kingdom.

The following factors underlie, in my judgment, the likelihood that such a transaction would have been implemented. First, I have already referred to my conclusion that the Claimant would have wished, if possible, to purchase a house for himself and his new wife. Second, it is clear that the Claimant would have been willing to make a substantial gift or gifts to his wife in order to effect that objective. Third, the Claimant was in fact willing to raise some of the funds for the purchase of Templewood Lodge by means of a foreign loan. Fourth, arrangements, under which Mrs Grimm raised money for the purchase by way of a foreign, or increased foreign loan, posed no particular disadvantages from the Claimant’s perspective. Fifth, it is clear from the oral evidence of the First Defendant himself that the cost of such a back-to-back loan transaction was low. Sixth, there is no reason to suppose that a bank lender would not be willing to lend the same amount as cash deposited by way of security; and, in any event, it is clear that Templewood Lodge, or any property purchased, would have sufficient equity to enable a loan to be raised considerably larger than the Ł300,000 mortgage loan in fact secured on Templewood Lodge. Seventh, the Claimant had sufficient assets which he could have employed, if necessary, to make interest payments on any such loan. For all these reasons I find that the Claimant, if so advised, would have proceeded with the purchase of a suitable property in London, without giving rise to United Kingdom tax, by means of a gift to his wife of overseas assets and the use of those assets to raise a foreign loan to his wife, for use in the purchase of the property.

Loss

Mr Ross QC submitted that it was not possible to attribute to the gift by the Claimant to Mrs Grimm any particular part of the sum of Ł675,720 paid by the Claimant to the Inland Revenue pursuant to the compromise agreement with the Inland Revenue in 1999. Accordingly, he submitted it is impossible for the Claimant to establish any loss attributable to the First Defendant’s advice.

This submission was, in substance, one facet of the Defendants’ case that the concession by the Claimant to the Inland Revenue that the assets given to Mrs Grimm by the Claimant, and transmitted by her to the United Kingdom for the purchase of Templewood Lodge, were a taxable remittance by the Claimant, was not the result of any inherent weakness in the Claimant’s legal case on the issue of constructive remittance. The Defendants’ case is that the concession was made solely in order to reach an accommodation with the Inland Revenue on other aspects of the Claimant’s affairs, which were so serious that he could not afford to litigate them.

This line of defence fails, in my judgment, both in principle and on the facts. I have found that the Claimant could and would, if so advised, have acquired Templewood Lodge or some other property in 1992 in a way which clearly and certainly would not give rise to a charge to United Kingdom tax on remittances and would have been beyond challenge by the Inland Revenue. It follows that the only reason why the Claimant was placed in a position, in which he had to consider a compromise of the issue whether his gift to Mrs Grimm gave rise to a taxable remittance, was because of the negligence of the Defendants.

Further, as a matter of fact, it is clear from the correspondence that the global figure of Ł675,720 ultimately paid to the Inland Revenue under the settlement agreement in 1999 included the full tax payable on the assets, amounting in value to some $786,000, transferred by the Claimant to Mrs Grimm in 1991 and 1992. That tax was calculated by the First Defendant at Ł90,953, and put forward by the First Defendant at a meeting with the Inland Revenue on 27th November 1998. Following that meeting, the Inland Revenue made a without prejudice offer by fax on the 30th November 1998. That fax identified separately the Ł90,953, as part of a global compromise offer of Ł675,720. That global figure was, as I have said, the figure ultimately incorporated in the compromise agreement between the Inland Revenue and the Claimant in 1999. Further, it is clear from the fax of 30th November 1998 and Schedule 1 to the 1999 written compromise agreement that the figure of Ł90,953, shown in the fax as the tax payable on the constructive remittance through Mrs Grimm, was incorporated in the global settlement figure as part of the Schedule E income tax, amounting to Ł160,953, in respect of the tax year 1991/1992, which the Claimant acknowledged in the settlement agreement as unpaid in whole or in part by reason of his default. The figure agreed with the Revenue by way of global settlement was in due course paid by the Claimant.

Evidence was given, and submissions made, on behalf of the Defendants, that the compromise agreement finally struck with the Inland Revenue procured substantial advantages to the Claimant in respect of, for example, the split agreed with the Inland Revenue between his income from employment abroad and his income from employment in United Kingdom, and as to certain funds abroad which were to be treated as having borne United Kingdom tax, and also as to the amount of tax penalties and interest. On the evidence, both the existence and the value of these collateral advantages are far from clear. They seem to me, on the state of the evidence, to be matters of speculation. Certainly, there is no cogent evidence that the Inland Revenue accepted the compromise by the Claimant on the issue of whether the gift to Mrs Grimm gave rise to a taxable remittance as a reason for reducing other claims that the Inland Revenue was advancing against the Claimant in respect of his tax affairs. In my judgment, once I have found, as I have done, that the First Defendant’s advice led the Claimant to enter into a transaction that may well have given rise to a charge to United Kingdom tax, and such tax was paid pursuant to an honest demand by the Inland Revenue, and such advice was negligent, and the Claimant could and should have been advised on some other arrangement that would have enabled the Claimant to purchase property without giving rise to tax, the damages recoverable by the Claimant cannot be reduced to take account of dubious and speculative collateral advantages said to have been gained by settling the gift claim together with and at the same time as other claims by the Inland Revenue.

In addition to the sum of Ł90,953, the Claimant claims Ł4,892 interest. That sum represents the same proportion of the total interest of Ł20,000 paid by the Claimant to the Inland Revenue pursuant to the 1999 compromise agreement as the Ł90,953 bears to the total tax paid under the settlement. In my judgment, the Ł4,892 is properly recoverable in respect of interest.

In addition, the Claimant claims Ł1,416 in respect of “Wasted fees” paid to the Second Defendants. This head of loss is, in my judgment, misconceived. The wasted fees are said to be the amount paid by the Claimant for the advice of the First Defendant with reference to the arrangements for the gift to Mrs Grimm. The Claimant is, however, only entitled to recover damages because I have found that he could and should have received advice that would have enabled him to structure the transaction as a gift of overseas assets to Mrs Grimm, and the use of those assets to raise a back-to-back overseas loan by a foreign lender. The Claimant would have had to pay for that advice.

The Claimant also claims Ł13,884 in respect of a proportion of the fees incurred by the Claimant in dealing with the claims made by the Inland Revenue against him. That amount represents the same proportion of the total professional costs of Ł56,760.17 incurred by the Claimant in that respect as the Ł90,953 represents to the total amount of tax paid pursuant to the settlement with the Inland Revenue. Mr Ross QC submitted that there is insufficient evidence to conclude that Ł13,884 or any specific level of fees was incurred by the Claimant in resisting the claims of the Inland Revenue as to the transaction with Mrs Grimm. I agree with that submission. I reject this head of loss.

Limitation

The limitation period for actions founded on tort and for actions founded on simple contract is 6 years from the date on which the cause of action accrued: Limitation Act 1980 ss 2 and 5.

The present proceedings were commenced by writ issued on 9th August 2000 . This was more than 6 years after the First Defendant’s advice in 1991, the making of the transfers to Mrs Grimm in 1991 and 1992, the remittance of funds to the United Kingdom by Mrs Grimm in 1992 and completion of the purchase of Templewood Lodge in 1992.

The Claimant relies upon the provisions of section 32 and 14A of the Limitation Act 1980. Section 32 of the Limitation Act 1980 provides, so far as is material, as follows:

“32 Postponement of limitation period in case of fraud, concealment of mistake

(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either-

(a) the action is based upon fraud of the defendant; or

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for the relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

....

(5) Sections 14A and 14B of this Act shall not apply to any action to which subsection (1) (b) above applies ( and accordingly the period of limitation referred to in that subsection, in any case to which either of those sections would otherwise apply, is the period applicable under section 2 of this Act).”

Section 14A of the of the 1980 Act provides as follows:

“14A Special limit for negligence actions where facts relevant to cause of action are not known at date of accrual.

(1) This section applies to any action for damages for negligence, other that one to which section 11 of this Act applies, where the starting date for reckoning the period of limitation under subsection (4) (b) below falls after the date on which the cause of action accrued.

(2) Section 2 of this Act shall not apply to an action to which this section applies.

(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.

(4) That period is either -

(a) six from the date on which the cause of the action accrued; or

(b) three years from the starting date as defined by subsection (5) below, if that period expires later that the period mentioned in paragraph (a) above.

(5) For the purposes of this subsection, the starting date for reckoning the period of limitation under subsection (4) (b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(6) In subsection (5) above “the knowledge required to bring an action for damages in respect of the relevant damage” means knowledge both-

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in subsection (8) below.

(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6) (b) above are-

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(9) Knowledge of any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

(10) For the purposes of this section a person’s knowledge includes knowledge which he might reasonably have been expected to acquire-

(a) from the facts observable or ascertainable by him; or

(b) from the facts ascertainable by him with the help of appropriate expert advice which is reasonable for him to seek;

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

It was not until the Claimant received, on about 2nd December 1997, notes of the meeting with counsel which the First Defendant attended on 24th November 1997, that the Claimant was advised that the gift transaction with Mrs Grimm, and subsequent remittance by her of funds to the United Kingdom for the purchase of Templewood Lodge, might give rise to a charge to United Kingdom tax. On the current state of the law, the Defendants accept that the limitation period was extended by section 32 of the 1980 Act, and did not begin to run until that time. This is the effect of the decision of the Court of Appeal in Brocklesby v Armitage & Guest [2001] (1All ER)172, in which Morritt LJ said as follows at pp 180-181:

“It appears to me that had Parliament intended in the case of a deliberate concealment under s 32(1)(b) of the 1980 Act, as amplified by sub-s (2), that there should be both deliberate commission of an act in the sense of knowingly and intentionally committing the act and also knowledge that such commission gave rise to a particular legal consequence, then it required clearer words to spell that out than are to be found in sub (2) or (1).

Accordingly, the conclusion I reach is that it is not necessary for the purpose of extending the limitation period pursuant to s 32(1)(b) to the 1980 Act to demonstrate that the fact relevant to the claimant’s right of action has been deliberately concealed in any sense greater than that the commission of the act was deliberate in the sense of being intentional and that the act or omission, as the case may be, did involve a breach of duty whether or not the actor appreciated that legal consequence.”

Brocklesby v Armitage & Guest was followed by the Court of Appeal in Cave v Robinson Jarvis & Rolf [2001] 1LL Rep 290. I was informed by counsel that the House of Lords has given leave to appeal in the latter case. Accordingly, the Defendants wish to reserve their right to contend that the decisions in Brocklesby and Cave were incorrect. For his part, in those circumstances, the Claimant wishes to advance two alternative grounds for extending the ordinary 6 year limitation period in the present case. Those two alternative grounds are, firstly, that there was a deliberate concealment or cover-up by the First Defendant, such as to bring in to play the provisions of section 32 of the 1980 Act; and second, that the provisions of section 14A of the 1980 Act apply in the present case.

I reject the Claimant’s allegation that the First Defendant deliberately concealed from the Claimant that the First Defendant’s advice was or might have been negligent and that the transaction on which he had advised, and on which the Claimant had acted, would or might have given rise to a charge to tax. Reliance was placed by the Claimant, in support of this part of his case, on the fact that Mr Ott suggested to the First Defendant in late October 1996 that counsel’s opinion be obtained on the gift issue, but the First Defendant did not instruct counsel at that stage; that in October 1997, after Mr Ott had again suggested that counsel’s opinion be obtained on the gift issue and another significant issue in the Inland Revenue’s inquiry, the instructions to counsel prepared by the First Defendant did not contain any reference to the gift issue; the gift issue was only raised orally during the conference, which was attended neither by Mr Ott nor by the Claimant; and the First Defendant always maintained that the gift transaction, carried pursuant to his advice, did not give rise to tax, and never admitted or accepted liability for negligence; the First Defendant did not at any time, prior to the conclusion of the Inland Revenue inquiry and its compromise, advise the Claimant that there was any doubt about the accuracy of his initial advice or that the Claimant should seek advice from solicitors in relation to it.

In the light of all the evidence, and having seen the First Defendant as a witness, I have no hesitation in rejecting the serious allegation of intentional concealment. I accept the First Defendant’s evidence that he had sound tactical reasons for not going to counsel, on the suggestion of Mr Ott, in late October 1996. It is also clear that there was no intention whatever to mislead Mr Grimm or Mr Ott when counsel was in due course instructed in November 1997. I accept the evidence of the First Defendant that he sent the draft of his instructions to counsel to both the Claimant and to Mr Ott. Unfortunately, Mr Ott was, at that time, abroad. It is also clear that the First Defendant wished and intended that Mr Ott should attend the conference with counsel. Mr Ott was unable to do so, because he was abroad at that time. Further, the First Defendant did, in fact, raise the gift issue with counsel during the course of the conference. Thereafter, he prepared, and provided to the Claimant and Mr Ott, a note of counsel’s advice. There is no evidence whatever that he sought to pressurise counsel to conclude that the First Defendant’s advice in 1991 in connection with the gift transaction was perfectly proper, or that the gift transaction did not, contrary to the view of the Inland Revenue, give rise to a charge to tax. The First Defendant’s conduct is not consistent, in my judgment, with an intention to deceive and to conceal.

So far as concerns section 14A of the 1980 Act, Mr Ross QC submitted that, on the facts of the present case, the “starting date” within section 14A (4)(b) was more than three years prior to the commencement of the present proceedings. He relies upon the fact that from early 1994 it was apparent that the Inland Revenue was querying the tax consequences of the gift to Mrs Grimm, and the subsequent remittance by Mrs Grimm to the United Kingdom for the purchase of Templewood Lodge. Further, the Claimant accepted that he knew that costs were being incurred in relation to that issue, as part of his response to the Inland Revenue’s inquiry. Mr Ross QC pointed, in particular, to the letter from the Inland Revenue of 1st August 1996 in which the Inspector of Taxes stated that he did

“not accept that there is an element of “wishful thinking” in my view that your client has obtained some enjoyment of these funds in the UK. As he has occupied a U.K property acquired with those funds my view seems quite reasonable and would suggest that Mr Grimm did not sufficiently alienate himself from the funds. I would wish to discuss the circumstances of these arrangements with your client at the meeting.”

In my judgment, the “starting date” for the purposes of section 14A(4) (b) of the 1980 Act was not prior to 21st August 1997. It was only on that date that the Inland Revenue formulated its considered view on the various heads of inquiry which it had been, up until that date, pursuing. It was in a letter of that date to Mr Newman that the Inland Revenue set out in detail its analysis and argument that the transaction with Mrs Grimm, in connection with the purchase of Templewood Lodge, gave rise to a constructive remittance chargeable to tax. It was that letter, and the clear formulation of the Inland Revenue’s position within it, that led to the consultation with counsel in November 1997, which in due course led on to the compromise negotiations and then the actual compromise in 1999. Accordingly, I find that the present proceedings were brought within the extended period specified in section 14A of the 1980 Act.

Decision.

For the reasons I have set out in this judgment I hold that the Defendants are liable to the Claimant. for breach of contract and negligence, in the sum of Ł95,845.