Mr Swain wanted to sell his business, by share sale, to an MBO team. He instructed Mills & Reeve (M&R) to act. In their engagement letter, M&R made clear that it was not providing personal tax advice to Mr Swain…
Shortly before and after completion
A couple of weeks before the MBO completed, Mr Swain blind-copied an e-mail to the M&R corporate partner who was acting for him on the sale. In that e-mail, Mr Swain stated that he was shortly to go into hospital for heart surgery. M&R was already aware that Mr Swain had a history of heart problems.
The MBO completed on 31 January 2007, with cash (and other) consideration passing on the same day. On 17 February 2007, Mr Swain died during the course of his heart operation
The interaction of these timings meant that the cash consideration received by Mr Swain for the sale of his business became subject to inheritance tax. Had Mr Swain died still owning his shares, IHT would have been avoided as business property relief would have been available, and there would also have been a deemed disposal for capital gains tax purposes. The effect of Mr Swain’s death shortly after the sale of his shares was that IHT and CGT reduced his estate by around £1.2 million.
Negligence action against Mills & Reeve
Mr Swain’s daughters commenced an action in negligence against M&R. Their case was that, upon seeing the blind-copied e-mail from Mr Swain, the M&R partner should have suggested to Mr Swain that he take advice as to the possible tax consequences of proceeding with the sale of his shares and then not surviving the planned operation. Or that, at the least, the M&R partner should have mentioned to Mr Swain that M&R’s engagement did not include personal tax advice (which, they argued, would have prompted Mr Swain to take advice).
The Court of Appeal’s decision
Agreeing with the High Court, the Court of Appeal found in favour of M&R. The court observed, reviewing the relevant case law, that:
“…what these cases… show is that the scope of the retainer, and the nature and extent of the duty arising, depend on the particular documentation and the particular facts of the particular case”.
And, applying that test, the court found two points persuasive:
- The M&R engagement letter had been clear that M&R was not advising on personal tax matters.
- The e-mail from Mr Swain has in fact been blind-copied to the M&R partner because it referred to a banking matter; there was not enough to suggest that Mr Swain was requesting any advice relating to the possibility of him not surviving the operation.
The litigation was lengthy and controversial, with a first instance judge being removed from the case. Mills & Reeve have produced its own note on the litigation, which is here.