Angela Rayner’s tax regret highlights adviser lessons on professional negligence

Written by Jemma Brimblecombe (Partner) and Elliot Grosvenor-Taylor (Senior Associate) in the Professional Negligence team at Kingsley Napley LLP

The headlines this week around former Deputy Prime Minister Angela Rayner are a reminder of the importance of taking the right advice from appropriate professionals and the potential consequences when such advice is called into question.

In her resignation letter, Ms Rayner said that she “deeply regrets” her decision not to seek “additional specialist tax advice” over her purchase of her Hove property.

However, given stamp duty land tax is a complex area, what if the advice she had received had been wrong? For anyone buying or selling a property it is important to be aware of the general principles and the necessary next steps if they suspect that they have been poorly or negligently advised by a professional.  IFAs may also sometimes be the ones to spot a potential problem. 

The elements of a professional negligence claim

In the first instance, it is necessary to consider the various elements of a professional negligence claim and whether these are satisfied. The relevant test is set out below:

Duty of Care

As a starting point, to bring a claim the client must prove that they were owed a duty of care by the professional involved. The duty is usually evidenced by the written retainer/engagement letter between the professional and client but in the absence of a written retainer it may be implied by the parties’ conduct.  In the case of a solicitor, it is well established that a solicitor owes their clients a duty of care. 

Breach of Duty

Once a duty of care is established, it must then be shown that the professional breached their duty of care, by demonstrating that the services provided fell below the standards of a reasonably competent professional specialising in their area of expertise. Sometimes this requires expert evidence, for example if a valuer has allegedly misstated the value of a property, then a valuation expert would be required to assist with this. At other times, the alleged negligence may be more obvious. Using the example of Ms Rayner, if her advisers had not properly taken account of stamp duty provisions relating to a conveyancing transaction, then there may have been a breach of duty. The standard is what a reasonably competent professional specialising in their area of expertise would advise in that situation considering the instructions they received. 

Causation

Once it has been established that there was a breach of duty, it must also be proven that the loss suffered was caused by the negligent act or advice. This is commonly referred to as “causation”.

The relevant test is whether “but for” the professional’s negligence, the loss would still have occurred. A claim will not succeed if the claimant would have acted in exactly the same way had the professional not been negligent. For example, if a claimant purchased a house but subsequently discovered there was a defect with the property (which the solicitors should have picked up on) but there is evidence to suggest this was the Claimant’s dream home and they were always going to buy it because it had sentimental value, then they will struggle to pursue a negligence claim.

Loss

If you are able to establish the above, you will be entitled to damages. Damages are generally assessed from the date of the breach. The usual principle is that claimant is put back in the position they would have been in had the professional not been negligent. The loss must have been caused as a direct result of the negligence and it must have been reasonably foreseeable.

It may be obvious that a loss has been suffered in some cases for example a clear amount can be calculated if a tax penalty is levied, but in other cases it may be more complicated, and could, for example, involve valuing a loss of opportunity (i.e. had I not received bad financial advice I would have invested my money elsewhere) or a loss of chance or even the loss of a job or reputation which is harder to evaluate. 

Steps to take if negligence suspected 

With the above general negligence framework in mind, there are various steps to take if adviser negligence is suspected. This applies whether you are the claimant or if you are an IFA advising a new client and from a review of their files/instructions it becomes clear a problem may have arisen with previous advice.

1. You should collate the relevant documentation relating to the instruction. Key documents include engagement letters or any letters confirming the nature of the instruction and the advice/services the professional agreed to provide, any documents in which you/your client is providing instructions and any letters or emails of advice (including any attendance notes of conversations).  Collating key documents and reviewing the underlying file is a crucial first step.

• Check the time period as a priority. Did the issue or potential negligence arise more than 6 years ago? If so, you may be potentially be out of time to bring a claim. The applicable limitation period in most professional negligence cases is six years from the date of the negligence. However, this may be extended where the negligence only becomes apparent at a later stage.  In those cases, the relevant limitation period is three years from the date of knowledge of the facts which might give rise to a claim. There is a long stop date of fifteen years within which claims must be brought.

• Be aware that not all mistakes are capable of amounting to negligence. However, if you are an advisor to a client (such as a solicitor) it will often be within your experience, using the test referred to above of the standard of a reasonably competent professional to gauge whether potential negligence has arisen. If the advice is such that no competent professional would have advised in the manner you have seen on a file then very likely are good grounds for asserting negligence.

• Consider also whether you or your client has mitigated their loss. For example, could they easily take steps to minimise or extinguish their potential losses (or prevent their losses from increasing, i.e. by selling a property). If so, then they should act to mitigate their losses. If a potential claimant fails to do so, it may be unable to recover damages for losses which could have been avoided by taking such reasonable steps.

• Has the claimant/your client contributed to the losses suffered? If the professional is able to show contributory negligence, the losses claimed may be reduced having regard to the claimant’s share of the responsibility. For example, if a solicitor was accused of negligence but the client failed to inform them of key information, this could give rise to a defence of contributory negligence. 

• Carefully consider what the potential losses may be and collate relevant and detailed information to ascertain what the potential loss may be. As noted above this is not always straightforward but it is very useful at the outset of every claim for a solicitor to have a general idea of what a claim is considered to be worth. This also feeds into proportionality and commerciality and whether it is worth the time and investment in pursuing the claim.