Analysis
The first claimant (the settlor), who was then non-domiciled in the UK, established the Helios April Trust (HAT) in Jersey in 2002. As events then stood, the trust held excluded property for inheritance tax purposes and in which the settlor had an interest in possession. The Finance Act 2006 significantly changed the tax regime for trusts, principally by removing many of the differences between the tax treatment of life interest trusts on the one hand and discretionary trusts on the other. In particular, any additions of UK-situs assets to interest in possession trusts were treated as ‘relevant property’ for inheritance tax purposes and subject to both entry charges and decennial principal charges. By 2009 it was anticipated that non-domiciled persons would be brought further within the tax regime in the UK and the settlor sought advice as to bringing his interests in the HAT into a discretionary trust while he was still non-domiciled, thereby to avoid his interests terminating after he became deemed domiciled in the UK and being subject to inheritance tax on his or his wife’s death. However, following the Finance Act 2006 this would only work for excluded property, namely assets outside of the UK.
At a meeting on 22 September 2009 the settlor was advised by the defendant to transfer the assets of the HAT to a new discretionary trust called the Helios May Trust (HMT), governed by the law of the Cayman Islands. The second claimant (RBC), a professional provider of trust services based in Jersey, was appointed the trustee and the assets held within the HAT were transferred to the HMT. Unfortunately, the defendant failed to appreciate that there were UK-situs assets held by the HAT and consequently the advice given to the settlor was negligent and resulted in significant tax liabilities for entry charges, principal charges plus interest and penalties in excess of £1m. The claimants did not acquire the knowledge to bring a claim against the defendant until many years later as a result of the settlor seeking advice from PwC in respect of changes to the tax rules for non-domiciled residents expected to come into effect as from 5 April 2017. The claimants issued a claim form on 26 May 2021. The defendant maintained that the claims were time barred because the alleged tort arose more than six years earlier. The claimants maintained that the action was not time barred because the earliest date on which they acquired the knowledge required for bringing the claim was 28 September 2018. Deputy Master Nurse ordered a trial of a preliminary issue as to whether the claims were brought within the time permitted by s14A of the Limitation Act 1980.
Held (allowing the claim to proceed):
While the ordinary limitation period was six years, a later starting date for a three-year limitation period was permitted in circumstances where a claimant lacked the knowledge required for bringing an action in negligence. For the purposes of s14A of the Limitation Act 1980, ‘knowledge’ meant:
- (a) knowledge of the material facts about the damage in respect of which damages are claimed; and
- (b) knowledge that the damage was attributable in whole or in part to the act or omission which was alleged to constitute negligence.
The better view was to treat the first aspect of knowledge as relating solely to matters of quantum and the second aspect of knowledge as relating to the evaluation or classification of damage. As pointed out by Lord Walker in Haward v Fawcetts [2006], cases such as this involving pure economic loss typically call for specialist technical expertise where it is likely that a claimant may know basic facts but not know what, to an expert, they add up to. PwC had noticed that there were UK-situs assets which were added post 22 March 2006 and flagged up to RBC in February 2017 the possibility that these could be subject to entry and principal charges to inheritance tax. At that stage neither settlor nor RBC had specialist knowledge on inheritance tax in the UK and could not reasonably have been expected to analyse the various factors differently or to have gone behind the advice so as to draw separate conclusions or work out that something had gone wrong and that the transaction in itself was unsound. Further, there was no legal or evidential basis for the defendant’s suggestion that the settlor had constructive knowledge through RBC. By May 2017 both of them knew that it was necessary for PwC to carry out detailed investigations and their knowledge of exposure to entry and principal charges at that time fell far short of what would have justified them taking legal advice and embarking on the preliminaries to making a claim, including sending a letter before action.
It was not until 26 September 2018 that the settlor was asked by PwC whether he had received formal advice from the defendant when he set up the HMT and, two days later, in a conference call attended by the settlor and RBC, they received advice that there was a potential tax liability of around £1m. They were advised to make a voluntary disclosure of the potential liability to HMRC. Thus, it took almost 18 months for PwC to come to the conclusion whether entry charges were payable on additions to the HMT post 22 March 2006. It was only then that the settlor knew that he had been poorly advised – that conference call first gave him actual knowledge that liability for the entry charges was a real possibility and he then sought legal advice within a couple of months and sent a letter before action in February 2019. RBC would have first known that it had suffered damage that was attributable to the defendant’s advice at the same time. Consequently, the claimants could not reasonably have been expected to have acquired the knowledge required for bringing the action for damages in respect of the damage alleged prior to 28 September 2018. It followed, therefore, that the claimants’ claims were not time barred, having been commenced within the time permitted by s14A of the Limitation Act 1980.
JUDGMENT MS CLARE AMBROSE: Introduction [1] This is the trial of a preliminary issue as to whether the Claimants’ claims for negligent tax advice are time-barred. [2] The claims are made by Mr Stephane Etroy (an individual resident in London) and the Second Claimant (a professional provider of trusts services based in Jersey) for damages …Continue reading "Etroy & anr v Speechly Bircham LLP [2023] WTLR 885"