“Clients, I know, want two inconsistent things. They want confident advice on which they can act, and they want cautionary advice about the risks of doing so. It is a solicitor’s unhappy lot to have to try to satisfy both requirements simultaneously”.
So said Sedley LJ in Queen Elizabeth’s School Blackburn v Banks Wilson Solicitors.
In this blog post, I am going to focus on the part of Roth J’s judgment in Barker v Baxendale Walker Solicitors in which he dealt with the health warning which the claimant complained that he had not received. The case concerned what the claimant, in his evidence, accepted amounted to aggressive tax planning to avoid CGT and IHT on very substantial sums.
The scheme fees paid by the claimant were over £2.4 million and the ultimate settlement with HMRC when the scheme was challenged was in excess of £11 million. So we are talking about problems experienced only by the very rich who want to avoid paying UK tax on the fruits of their not inconsiderable labours in business.
What sort of health warning, if any, should be given by a legal adviser in such circumstances?
Roth J found that because the scheme involved aggressive tax avoidance, the solicitors should have made clear that there was a possibility of challenge by HMRC and that the scheme might not be upheld. That must be right in every such case.
However, should the solicitors have given a more detailed warning about the risk of the precise challenge which eventuated? This is where it all gets a bit more fact-specific. The nub of the judge’s decision on the point is at paragraph 178. First, the duty to give a detailed warning arises only in “appropriate” cases. There seems to be a spectrum of risk for solicitors in deciding whether to give specific warnings or not. It runs from, “am I definitely right in the advice I am giving?” through “would most experienced and careful practitioners in my field think I am right?” to “is there is big risk that I am wrong?”
So solicitors whose interpretation of the law might be wrong, but not negligent, could nonetheless be in breach of duty for failing to give a warning about the risks of an alternative view. However, solicitors whose interpretation of the law is likely to be correct are not in breach of duty for failing to give a specific warning about the ways in which they might be wrong. Alternatively, they might be found to be negligent if the correct view is that the law is finely balanced.
If the view later taken by HMRC was one not shared or even considered by the majority of experts in the field (as was the case in Barker), it would not be a breach of duty to fail to warn of that view. It seems to me that this could only work before, not after, HMRC have in fact expressed their view. Once it has been expressed, it needs to be dealt with. So the more obvious (and maybe more widely held) the point of possible challenge, the greater the need to warn of it. That makes sense. Are the factors pointing away from an adviser’s view strong enough that they should be pointed out by a lawyer presenting a balanced view to the client?
Plainly, the principles the judge laid down here can apply outside the field of tax avoidance and are not limited to cases where the person taking the opposing view, or who might do so in the future, is HMRC.
Timing is also relevant. The duty to warn is greater before the client embarks on the cause of action than when giving advice on the merits after the event. The crucial signing, the point of commitment for Mr Barker, took place in a Nottingham clinic where Mr Barker’s wife was having IVF treatment. Although Mr Barker did ask a question about some of the terms before signing, the judge, quite rightly in my view, held that the last minute nature of the circumstances, as well as what was asked and the answer given, did not amount to a proper health warning, if one was indeed required.
Barker is an interesting case worth reading not only for the section describing the case law cases on failure to warn, but also on the difference between being wrong and being negligent, and for the discussion on limitation.
