Lawyers, other than those at Hart Brown of course, are not infrequently criticised for sitting on the fence in terms of giving legal advice. Bearing in mind that there are still a lot of grey areas in the law which can be the subject of wildly different opinions (until a judge decides what the right answer is) should a lawyer when providing advice be absolutely categoric?
A recent case of Barker-v-Baxendale Walker Solicitors suggests not, and that lawyers may be under a duty to advise their clients that their legal opinion, however reasonably or strongly held, may nevertheless turn out to be wrong.
The claim related to the transfer of company shares into an employee benefit trust (EBT) which was supposed to enable Mr Barker to pass on the financial benefits of his shares to his children whilst avoiding the payment of capital gains tax and inheritance tax. These EBTs cannot be used to benefit individuals who are “connected” with a “participator” in the underlying company. It was agreed by both sides that Mr Barker was a “participator”. The issue was whether “connected” was to be judged at the time of the initial transfer or the subsequent application of the trust monies. The defendant solicitors advised that it would be the latter but, unsurprisingly perhaps, HMRC adopted a different view.
Mr Barker, having subsequently received different legal advice, ended up having to pay over £11million to HMRC before then beginning professional negligence proceedings against the original solicitors. The claimant accepted that although the defendants interpretation could have been correct there was also a significant risk that it could be wrong. The question of negligence was to be decided on whether reasonably competent solicitors would have acted in the way that the defendant solicitors had done.
Having lost at first instance, Mr Barker succeeded in The Court of Appeal which decided that the defendant solicitors did owe a duty to give a specific warning about the alternative interpretation. The court appears to have been influenced by the fact that this was an aggressive tax avoidance scheme specifically marketed by the defendant firm which “might appear, on the face of it, to be too good to be true”.
Obviously good solicitors still need to provide clear advice as to what their opinion is but need to temper that by identifying the risk of that opinion being wrong so that the client can come to an informed decision as to the true nature and extent of the risks involved.
On the one hand a 60% to 70% chance of advice being right seems reasonable odds. On the other hand a 30% to 40% chance of it being wrong sounds quite risky.
This is not legal advice; it is intended to provide information of general interest about current legal issues.