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Tag: professional negligence

Lost Deposits for Kingsway Square Buyers?

Posted on by Ruby Keeler-Williams

In my experience from speaking to clients, it is often only when a development delays or fails that buyers understand how their deposit was actually treated under the contract.

Buyers connected with the Kingsway Square development in Liverpool are in this situation. Contracts were exchanged and deposits were paid, but the development did not complete as anticipated. Sourced Development Group’s vehicle, Kingsway Square Limited, is now in administration

When this occurs, it is understandable to focus on the failure of the development itself. In many cases, however, the more immediate legal question is whether the buyer was properly advised by their conveyancer or solicitor before exchange took place about the risks within the contract, including how deposits and pre payments could be handled if completion did not take place.

We have addressed the circumstances in which buyers may have a claim in professional negligence.

In a previous article, we addressed the growing number of failed off-plan property schemes in England and Wales and examined in general terms the duties owed by solicitors in off-plan conveyancing transactions, including the obligation to identify and clearly explain material risks, the exclusion of standard contractual protections, the use of special purpose vehicle developers and the associated risks and the limitations of some security structures relied upon to reassure buyers.

This article is more specific and concentrates on the Kingsway Square development in Liverpool. It explains how the particular contractual structure used in that scheme affected the treatment of deposits, what buyers should look for in their own paperwork and how a lack of clear advice prior to exchange may give rise to a claim in professional negligence.

What buyers often assume about off plan deposits

Many buyers assume that money paid on exchange remains protected until completion.

That assumption is common because in most residential transactions, the deposit is held on a stakeholder basis.

In broad terms, holding the deposit on a stakeholder basis means the solicitor acts for both the seller and the buyer and the funds cannot be released to either party unless there is mutual agreement, or upon completion.

However, some off plan transactions depart from that model, such as Kingsway Square. Here, the deposit was instead held as agent.

Where a deposit is held as agent, the seller’s solicitor who holds the funds may pass the funds to the seller at any time after exchange (potentially immediately).

If the development then fails, which has happened here, a buyer may find that rescission does not automatically lead to a refund, because the money has already been passed to the seller and may have already been spent.

This is often the key difference between a situation where a deposit is recoverable and one where it is effectively lost.

Kingsway Square contract clauses and deposit risk

Buyers who are reviewing whether they were advised properly in relation to a development such as Kingsway Square should pay close attention to how the contract treats deposits and any additional pre payments.

Kingsway Square contracts that we have reviewed include provisions that depart from standard deposit protections. Some buyers who have approached us have raised concerns that these departures were not clearly explained to them by their solicitors prior to exchange.

Where a contract incorporates the Law Society Standard Conditions of Sale, but then disapplies specific conditions relating to how deposits are held, the buyer needs to be told clearly what that means in practice. Some buyers have indicated that this was not explained prior to exchange.

Further, where a deposit is held as agent and effectively treated as the seller’s money from the outset, even though completion may be a long way off, this needs to be clearly highlighted to the buyer before exchange. Unfortunately, it appears this may not have been the case for some buyers in this development.

A buyer may have contractual rights, including rescission, but if the money has been released and spent, they need to be informed that recovery may depend on the solvency of the seller or developer and the structure of any security arrangements. In that scenario, buyers can find themselves in the position of unsecured creditors, which is typically not what they expected when they paid a 20% – 30% deposit.

If money has been released as agent, it is even more important that the position regarding insurance is clearly explained. In the case of Kingsway Square, we have seen cases where buyers were informed that the seller had obtained insurance to protect the deposit. In fact, the contract expressly stated that the only obligation on the seller was to provide information so that the buyer’s conveyancer could themselves apply for a warranty. If the buyer’s conveyancer did not do so, then there was no protection for the deposit.

This is why the wording of the advice you were given matters. If you were not clearly warned that the contract treated the deposit as the seller’s money and had no protection, that is relevant when assessing whether the advice you received met the required standard.

How the deposit release mechanisms operated in practice

Some off plan contracts, such as those in the case of Kingsway Square, do not simply label deposits as being held as agent. They also set out a mechanism for releasing deposits and pre payments during the build. Buyers should look for language that requires the seller’s solicitors to transfer funds out of the client account upon request and for a wide range of purposes. Those purposes may include construction costs, but they may also include acquisition costs, professional fees, marketing and sales expenditure and the repayment of development borrowing.

If the funds can be drawn down for different purposes, the buyer may expect that the purpose of the funds be verified. In the Kingsway Square development, the contracts we have reviewed authorised the seller or developer to request payment from the solicitors upon receipt of a Schedule of Costs, invoice, account, fee note, or voucher. They did not require any form of certification by an independent party, nor impose conditions on how frequently or in what amounts such requests may be made. This allowed the developer to draw down the funds as soon as it produced its own internal paperwork, with no obligation to demonstrate genuine expenditure.

Furthermore, the contract removed any potential oversight by the seller’s solicitors. It expressly provided that the sellers’s solicitors were not required to review, verify, or enquire into the accuracy or authenticity of any Schedule of Costs or supporting documents before releasing the funds. This limited the role of the seller’s solicitors and meant that the release of funds occurred automatically on request.

When release categories are wide and verification obligations are limited, the buyer’s deposit and pre payments can operate in a manner that resembles development finance. Here, the buyers were exposed to the commercial risk that funds would be used up long before completion.

The contract also provided that all deposits and pre-payments received by the seller’s solicitors were irrevocably released to the seller and that the seller’s solicitors must send those funds to the seller or, at the seller’s direction, to the developer upon request. The buyer expressly acknowledged and agreed to this arrangement by entering into the contract. This meant that, once the contract had been entered into, the authority to release the funds could not be withdrawn. As a result, if buyers later became aware of the risks, they were unable to revoke that authority.

None of these items automatically means the contract is unenforceable. The issue is simpler and more practical. The question is whether the buyer was properly advised, in plain terms, that funds could be released early and what that meant if the development did not complete.

Buyers in this situation should ask themselves:

“Was I adequately informed as to how the deposit was treated under the contract and what would happen if the development failed?”

Security trustee arrangements and development finance priority

Kingsway Square documentation also refers to a security trustee structure. A trustee arrangement can, in some circumstances, provide protection and a route to recovery, but the details matters.

Buyers should check whether they have any direct enforcement rights or whether enforcement sits solely with a trustee, as was the case in this development.

Buyers should also be informed if the Trustee is associated with any other party to the contract.

It is also important to understand priority. If there is senior secured development lending, as in this development, lenders usually rank ahead of buyers. If buyer funds have been released and spent, the practical value of trustee security can be limited, particularly where recoveries are directed first to the main funder.

A measured way to think about this is that a trustee does not guarantee that deposits are ring fenced and, if the contract allows early release of funds and if senior secured lending ranks ahead, there may be little preserved value to protect buyers if the project fails.

This is a reminder that buyers should be advised as to the hierarchy and how any recovery would be obtained before they commit substantial funds.

When a claim against your solicitor or conveyancer may arise

Our review of whether you have a claim in professional negligence against your conveyancer will usually focus on the advice given before exchange.

A solicitor or conveyancer is not required to guarantee that an off plan development will complete. They are required to identify material risks and explain them clearly, so that the buyer is fully informed in relation to the agreement they are entering into before they commit to it.

In the Kingsway Square development, material risks included (but were not limited to) the following:

  • The deposit is held “as agent” rather than stakeholder;
  • The contract states the deposit or pre payments are “irrevocably released” and transferable out on request;
  • There is a drawdown mechanism that allows early release of funds during the build;
  • The permitted uses of funds are broad, including non construction categories;
  • The purpose for the funds or documentation demonstrating the need for the funds did not need to be verified;
  • The buyer has limited or indirect enforcement rights under any security structure.

If those features were present, a buyer may reasonably expect their conveyancer to draw attention to them to the forefront of the advice. They should explain the practical consequences and record this advice in writing.

Some buyers will still proceed, and that is their choice. In those circumstances, the conveyancer’s advice will not have caused the loss.

However many buyers, if properly advised, would have declined to proceed to exchange.

That is where causation often lies. The question is not whether the contract looked unattractive in hindsight. The question is whether the buyer would have acted differently if the risk had been properly explained at the time.

Group claims for off plan conveyancing negligence

A group claim approach to matters such as this is sensible where many buyers entered into materially similar contracts and suffered similar losses.

Where a number of buyers entered into materially similar contracts and encountered the same underlying issues, a group claim allows those shared issues to be examined for the group rather than repeatedly in separate cases. This can significantly improve proportionality, as legal costs that would otherwise be incurred individually can be spread across the group, making it more realistic to investigate and pursue claims that might be uneconomic on a standalone basis.

Individual circumstances still matter, particularly when assessing what advice was given and what a buyer would have done if properly advised. However, dealing with the common issues together can reduce duplication and allow us to focus attention on the issues that truly distinguish one claim from another.

There is also a practical benefit in proceeding alongside others who are facing the same situation. Litigation can be isolating and uncertain, particularly for individuals who have suffered significant financial loss. A group claim provides a degree of shared support and transparency, allowing buyers to understand how their position compares with others and how the overall strategy is developing. It does not remove the need for individual decisions or instructions, but it can make the process more manageable and less burdensome.

Our Experience

Elysium Law has represented hundreds of clients worldwide in actions of failed off-plan developments. Our experience and success rate in these claims is outstanding, with many multi-million pound recoveries for our client groups.

We continue to represent small and large groups of purchasers in multiple ongoing actions.

Due to our experience in these types of claims and our use of technology platforms for efficiency, we can offer competitive rates and recover the lost funds for our clients.

Who could benefit from our review

If you purchased an off plan unit at Kingsway Square, paid a deposit of 20%-30% and were not properly advised as to how your deposit was held and whether it was safe before exchange, you may benefit from our review of your circumstances.

Please contact us for a free initial assessment.

We will review your documentation, explain your options and confirm whether your case may be suitable for a group claim.

We will likely ask you to provide the following:

  • A copy of your Purchase Agreement;
  • Any correspondence with the developer, agent, or solicitor;
  • Any legal advice you received;
  • Evidence of payments made and whether any have been recovered.

Contact us today to have a discussion on how we can assist you.

Failed Off-Plan Property Developments – Do you have a Professional Negligence Claim?

Posted on by Ruby Keeler-Williams

Over recent years, off-plan property schemes in England and Wales have been marketed to individual purchasers, particularly those based overseas, as secure, high yield opportunities. These transactions typically involved purchasing residential apartments that were either in the planning phase or under construction, with purchasers required to pay substantial deposits of up to 50% of the purchase price at exchange of contracts.

A significant number of these developments have since failed, leaving purchasers without a property and unable to recover their funds due to the impecuniosity of the developer, which is often a Special Purpose Vehicle (SPV) with no trading history and limited assets.

At Elysium Law, we have significant experience in representing purchasers who have lost money in failed off-plan developments. We specialise in professional negligence and breach of contract claims and have recovered many millions of pounds for purchaser groups against conveyancing solicitors who failed in their duties. We continue to act in multiple claims arising from similar patterns of negligence and misconduct.

This article explains how these failings arise, the legal duties that were likely breached and the steps available to affected purchasers.

Solicitors’ Duties in Off-Plan Transactions

The Solicitors Regulation Authority (SRA) issued the 2020 Warning Notice Investment Schemes Including Conveyancing, which sets out clear expectations for solicitors involved in these transactions. Many of the risk factors and failures highlighted by the SRA are common features in these failed developments.

A solicitor instructed in an off-plan conveyancing transaction must do more than simply process documents. Under the SRA Principles, they are required to:

  • Principle 2 – Uphold public trust and confidence;
  • Principle 5 – Act with integrity;
  • Principle 7 – Act in the client’s best interests;
  • Code of Conduct 8.6 – Ensure that the client is able to make informed decisions.

A Solicitor who fails to investigate the true nature of the transaction, or who does not warn of serious financial risks, may fall below the standard expected of a reasonably competent conveyancer. In such cases, a professional negligence claim may arise.

That duty includes investigating beyond the representations made by the developer, analysing the financial structure of the scheme and advising the purchaser clearly on the likelihood of deposit loss or construction failure.

Typical Failures in the Legal Reports we have reviewed

From our analysis of multiple solicitor reports issued to clients purchasing in various failed schemes, the common patterns set out below emerge.

Failure to advise on the risks of losing the deposit

The legal report will often fail to warn the purchaser that there is a real risk that the Developer could fail and that some or all of the deposit could be lost.

Where a warning is included, it is often buried mid report and not restated in the introduction or summary, which could be construed as not satisfying the duty to present critical risks prominently.

The SRA expects important warnings to be flagged early, especially in off-plan schemes where consumers are at significant financial risk.

Where a development carries risks, the report should highlight this clearly in unequivocal terms at the beginning of the report, with wording such as ‘You should consider not proceeding’ or ‘This structure carries unusually high risks and is not suitable for many purchasers’.

Failure to advise as to how the deposit is held

Often, we find that the report does not adequately explain how the deposit is held.

For example, in many off-plan developments that have failed, the contract states that the deposit will be released to the seller’s solicitor as agent, not stakeholder.

This means funds could be accessed and used by the developer immediately upon exchange, with very limited protection.

Often the legal report will fail to highlight this at all or will simply confirm that the deposit would be released to the developer’s solicitor acting as agent, not stakeholder, but fail to provide any clear warning of what this actually means or the practical consequences.

A lay purchaser cannot be expected to understand the level of risk without comprehending the powers that this gives.

The report should warn that the deposit could be spent immediately, with little to no recourse if the development failed.

Incorrect or misleading statements about Standard Conditions of Sale

In residential conveyancing transactions, there are what are known as Standard Conditions of Sale (5th Edition), which normally provide vital protections such as stakeholder treatment of deposits, remedies in default and a requirement for the seller to insure the properties.

Often in schemes that fail, these Standard Conditions have been excluded from the contract. If the report fails to recognise or advise on the absence of these protections, this is a serious breach of duty and gives clients a false sense of security.

Overreliance on assurances from the developer

An example of this can be seen in a legal report that we recently reviewed as part of an ongoing action.

In this case, in the legal report, the solicitor simply repeated the developer’s claim that ‘the site value will not fall below the combined debt and deposit contributions’, without challenge or warning.

This placed an unjustified reliance on speculative valuations and failed to advise the client on the real possibility of insolvency and loss.

Such statements should have been accompanied by an independent risk assessment and caution.

Minimisation of Risk Warnings through unclear language

It is not uncommon to see reports state that ‘you may lose your deposit’ but immediately followed with reassurances about insurance warranties or second ranking debentures, without explaining their limitations or enforceability.

This undermines the strength of the warning and may leave purchasers under the impression that the risk was mitigated, when it was not.

Failure to advise on Special Purpose Vehicle risk

The developer is often a special purpose vehicle (SPV) with little to no assets and no trading history.

Many solicitors fail to explain that this means the purchaser is contracting with an entity that would have no capacity to refund deposits in the event of collapse.

Purchasers are often not warned that the SPV could be wound up with no assets to claim against, leaving them as unsecured creditors.

Failure to advise on restrictions to protecting the purchaser’s interest

In multiple examples seen in ongoing cases, the contract expressly prohibits the registration of a notice or restriction on title after exchange.

In these cases, the Solicitors failed to advise that this removed a key method of protecting the purchaser’s interest and further increased the purchaser’s exposure to risk.

This is a significant omission, as such notices are standard safeguards in off-plan transactions.

Are the above examples adequate advice?

These are not minor oversights. They reflect a failure to identify and explain serious risks in transactions that were, in substance, speculative investments rather than ordinary property purchases.

A reasonably competent solicitor would be expected to highlight these dangers clearly, document appropriate advice and, where necessary, decline to act.

The SRA’s Warning Notice makes clear that solicitors must not participate in schemes that are high-risk or improper. They must not simply rely on representations made by the developer or seller. Instead, they must carry out a robust risk assessment, advise fully and candidly and decline to act where a scheme is unfair or potentially fraudulent.

In terms of sufficiency of advice, a solicitor must provide the advice that a reasonably competent practitioner would have provided. That includes explaining the risks of agent-held deposits, the implications of security such as second ranking debentures and the dangers of contracting with an SPV with little to no assets.

Where those explanations are missing or misleading and the purchaser suffers loss, there is potentially a viable cause of action.

Can you bring a claim

If you paid a deposit for an off-plan property and lost this deposit as a consequence of inadequate advice, you may be eligible to bring a professional negligence claim against the solicitor who acted in the transaction.

In many cases, even if the firm no longer exists, a claim can be brought against its professional indemnity insurer, as firms are required to hold Professional Indemnity Cover on a run-off basis for 6 years.

You may be entitled to recover:

  • Your deposit;
  • Legal fees;
  • Other financial losses caused by the solicitor’s breach of duty.

Limitation periods apply, so early advice is essential. Professional Negligence claims are subject to a six-year primary limitation period from the date of the negligent act, or a secondary limitation period of three years from the date of knowledge, whichever is later.

Group Action Litigation

Many purchasers affected by the same failed scheme or solicitor can pursue claims together through group litigation.

We often find there is strength in numbers for these claims in terms of evidence, the benefit of splitting disbursements and legal costs, efficient case management and a stronger negotiating position.

We are currently coordinating group actions on behalf of purchasers affected by multiple failed schemes. We have seen strikingly similar failings across these transactions.

Our Approach

At Elysium Law, we take a structured and strategic approach to pursuing professional negligence claims against conveyancing solicitors.

The process begins with a preliminary assessment, where we obtain and review your full client file, including any previous solicitor correspondence, and identify the full scope of potential claims. We then advise on the legal merits, the supporting evidence required, and the likely quantum of damages. You’ll receive a clear summary of that advice, our proposed next steps and guidance on important procedural issues such as limitation and litigation funding.

If the case is viable, we proceed to the pre-action stage, following the Pre-Action Protocol for Professional Negligence. This involves issuing a detailed Letter of Claim setting out the grounds of your complaint and the compensation sought and responding to any replies from the Defendant Solicitor or Third Parties.

We will always explore early settlement through a method of Alternative Dispute Resolution (ADR), in accordance with our duty under the Civil Procedure Rules. We are however fully prepared to escalate matters if needed.

Should the matter not resolve at the pre-issue stage, we move to the litigation stage, issuing formal court proceedings and instructing experienced counsel to act on your behalf. We manage all aspects of disclosure, pleadings, and preparation for trial, while continuing to pursue resolution via settlement where possible.

Throughout, we ensure you receive clear, strategic advice at every step of the process, with the focus always on recovering your losses.

Our team is equipped to advise both domestic and overseas clients and can work with parties in tandem with multilingual support where needed.

Our Experience

Elysium Law has represented hundreds of clients worldwide in actions of failed off-plan developments. Our experience and success rate in these claims is outstanding, with many multi-million pound recoveries for our client group, and we continue to represent small and large groups of purchasers in multiple ongoing actions.

Due to our experience in these types of claims and our use of technology platforms for efficiency, we can offer extremely competitive rates and recover more of the lost funds for our clients.

Next Steps

If you believe you were poorly advised in connection with a failed off-plan purchase, please contact us for a free initial assessment.

We will review your documentation, explain your options and confirm whether your case may be suitable for a group claim.

We will likely ask you to provide the following:

  • A copy of your Purchase Agreement;
  • Any correspondence with the developer, agent, or solicitor;
  • Any legal advice you received;
  • Evidence of payments made and whether any have been recovered.

Contact us today to have a discussion on how we can assist you.

Why Contemporaneous Notes Are Your Best Defence

Posted on by Ruby Keeler-Williams

Introduction

In the current climate of professional negligence claims, the phrase ‘if it isn’t written down, it didn’t happen’ has never been a better mantra to live by.

Whether you are an accountant or tax advisor advising on complex planning, a solicitor giving verbal advice during a negotiation or a trustee managing an asset on behalf of beneficiaries, the ability to evidence your actions and the rationale behind them could be the key difference between resolving a potential dispute and a costly judgment.

Contemporaneous notes (which are a written record made at the time of an event) can be extremely persuasive evidence if you are facing a potential professional negligence dispute.

A core element of our practice is Professional Negligence and we have obtained many multi-million pound awards for claimants and successfully defended many claims. I have seen the importance of this issue in practice.

In this article, I will explore why contemporaneous notes are so important, the risks of relying on memory alone, real life case law where note taking or lack thereof made a difference and set out some practical steps professionals can take to protect themselves.

Why Are Contemporaneous Notes Important?

Memory is Limited and Fallible

Human memory has its limitations, particularly in fast paced and high-pressure environments. Over time, memories degrade or become distorted.

Even traumatic events that people may think are deeply embedded into memory are subject to distortion. A good exploration of this topic can be seen in the 2013 Paper ‘The neuroscience of memory: implications for the courtroom’ published by Lacy JW, Stark CEL. Of particular relevance to this article is the section regarding distortion in an original memory after being exposed to misleading information related to that memory. In this context, in the absence of written notes setting out the events and rationale behind them recorded at the time, the language used when being questioned (for example by the insurer defending your claim) about events that have previously occurred can have a significant impact on the accuracy of the recall.

If your memory is distorted, you can appear an unreliable witness, however earnest your intentions. If you make contemporaneous notes, you can refer back to these if a dispute arises and ensure that your recollection is accurate.

Courts Prefer Objective Evidence

If a dispute arises, it often involves both parties recalling events in a conflicting manner. In the absence of a written record, it is up to the court to determine whose recollection is more accurate.

Contemporaneous notes serve as a more objective account, in that they were typically recorded before a dispute was contemplated, meaning that the recollection is not tinged by bias.

Taking Notes Can Help With Detail in Memories

Making a contemporaneous note, especially when giving verbal advice, can also help in ensuring that your memories of events are detailed rather than vague.

An example of this in the context of recalling a verbal discussion can be seen in the study ‘How Contemporaneous Note-Taking Shapes Memory for Conversation’ published by Brown-Schmidt S, Jaeger CB, Evans MJ, Benjamin AS. This study involved 2 parties having a verbal discussion, with one party making contemporaneous notes following the conversation. One week later, both parties were asked to recall the conversation and the study showed that the party that made notes recalled more details of the conversation that the party that did not.

Professionalism and Compliance

Maintaining records is not just best practice; it is often a regulatory requirement. Most professional bodies expect members to maintain adequate records to justify their decisions, advice given and communication with clients.

Examples include:

  • ICAEW: Requires members to keep sufficient records to demonstrate compliance with standards and obligations.
  • SRA Code of Conduct: Mandates that solicitors keep records to justify actions and maintain transparency.
  • FCA: Emphasises record-keeping as part of senior management and conduct responsibilities.

Case Law

Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm)

This is one of the leading cases on the reliability of witness evidence in the context of litigation. You can read the full judgment here.

Here, the now Lord Legatt (then Leggatt J) was asked to evaluate witness accounts of events that had occurred years earlier. In his judgment, he drew on psychological research to caution against placing too much weight on a witnesses confidence in their recollection.

At paragraph 20 of the judgment, Leggatt J observed that recollections may become entangled with subsequent narratives and documentation, making them less reliable than they may appear. Even when a witness appears sincere and confident, that confidence is no guarantee of accuracy, especially where they are attempting to recall what they believed or felt at the time.

His guidance at Paragraph 22 was of particular relevance to this article, as he stated that:

“… the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts … Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

This approach has been cited in many subsequent judgements and codified via Practice Direction 57AC of the Civil Procedure Rules, which applies to cases in the Business and Property Courts. The appendix to PD57AC sets out that witness evidence should be based on actual recollection rather than retrospectively constructed from documentation. This witness evidence can then be contrasted at trial with any contemporaneous documentary evidence.

Professionals should take from this case that the courts may distrust your recollection, however strong your belief as to its accuracy, if it contradicts your own written records (or worse so if no written record exists).

Simetra Global Assets Ltd v Ikon Finance Ltd [2019] 4 WLR 112

This case was a successful appeal to order a retrial of a matter before a different judge in the commercial courts. The matter involved dishonest assistance in a fraudulent Ponzi scheme. You can read the full judgment here.

Of particular relevance to this article are the comments at Paragraph 48 of the Judgment:

“In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party’s internal documents including e-mails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence….”

Jaffe & another v Greybull Capital LLP & others [2024] EWHC 2534 (Comm)

This recent case involved a clash of recollections between the parties, specifically as to whether the representative of Greybull Capital LLP made fraudulent misrepresentations in a meeting in October 2026. You can read the full judgment here.

The Judge deemed both witnesses to be ‘patently honest and truthful’ and as such had to determine which of their recollections to prefer. The Judge cited both Gestmin and Simetra in their judgement.

Ultimately, the Judge found that there had been no fraudulent misrepresentation and a key reason for this decision was that one party’s contemporaneous note was in fact a reinterpretation of incomplete handwritten notes taking during the lengthy meeting and had the potential to have been tainted by post meeting discussions.

Mehjoo v Harben Barker [2014] EWCA Civ 358

This case was an appeal following the first instance judgment which found a duty of care that was breached by the accountancy firm failing to advise a non-domiciled client about the availability of a tax shelter.

This was appealed on the basis that this fell outside the documented agreed scope of work. You can read the full judgment here.

In this matter, the Court found in favour of the Accountants partly because the engagement letter and contemporaneous file notes demonstrated that a limited scope had been agreed.

Professionals can take from this that contemporaneous records not only help prove what work was completed, but also what was not included in your remit.

Practical Tips for Professionals

1. Make Note-Taking a Habit

After every client call or meeting, make a short, written record. This should include the date, time, attendees, the issues discussed, the advice given and rationale behind it, decisions made and next steps. This can be done via a formal file note, email summary sent to all parties, or internal system log.

2. Follow Up Verbal Advice in Writing

Send a short confirmation email setting out the advice discussed. This not only protects you but reinforces client understanding.

3. Use Templates and Checklists

Standard templates for client meetings, risk warnings, and conflict checks make consistency easier. They also serve as prompts to ensure nothing critical is overlooked.

4. Record Your Scope of Work and Limitations

Make it clear what you have and haven’t been asked to do. Record whenever you advise a client to seek other expert input (for example legal advice).

5. Store Notes Securely

Store contemporaneous records in a secure, backed-up system that can be accessed by your colleagues. Avoid post-it notes, loose paper, or undocumented phone calls.

6. Train Your Staff

Ensure that you and your team understand that note-taking is a defensive tool, not just an administrative burden.

Conclusion

For professionals working in high-risk environments, the ability to demonstrate what was done, why it was done, and when, is vital. Contemporaneous notes are not just a matter of good practice, they act as a safeguard in future disputes. As the courts have made clear, where recollection fails or is contested, a contemporaneous written record often provides the most persuasive evidence.

Yet, note-taking is just one piece of the wider picture. Maintaining robust compliance, managing risk effectively and responding quickly to potential claims all form part of a sound defence strategy.

This is where we can help. Our focus is to give professionals the confidence that legal and regulatory risks are being actively managed — so that you can focus on your clients and your core work.

We provide:

  • On-demand legal guidance for your team as issues arise, including conflicts of interest, confidentiality breaches, AML concerns and exposure to potential negligence.
  • Advice on data breaches, including recording, internal investigation, and assessing reporting obligations to the ICO or other regulators.
  • Money laundering compliance support, including drafting Policies, Controls and Procedures and offering independent oversight in line with regulatory requirements.
  • Complaint handling support, including recording and monitoring of all complaints to ensure they are resolved and providing draft responses.
  • Staff training, focused on practical, scenario-based learning around risk awareness, compliance obligations and documentation.

Contact us today to have a discussion on how we can assist you.

Professional Indemnity Insurance in Professional Negligence Claims

Posted on by Ruby Keeler-Williams

Introduction

Professional indemnity insurance (PII) is a type of liability insurance held by professionals, which covers them in relation to negligent acts or omissions.

For Claimants, the existence of PII can be the difference between a successful financial recovery and a pyrrhic victory, as without PII the professional may lack the resources to personally satisfy the judgment.

In this article I will set out the importance of PII in professional negligence claims, examining how it influences the litigation process, impacts settlements, and what Claimants should be aware of when dealing with insured professionals.

What is Professional Indemnity Insurance?

Professional indemnity insurance is a type of liability insurance designed to protect professionals against claims made by their Clients for damages arising from any negligent acts, errors, or omissions. This insurance is particularly important in professions where mistakes can lead to significant financial loss for clients, such as law or accounting.

In many professions, PII is a regulatory requirement. Solicitors in England and Wales must maintain a minimum level of PII under the SRA Indemnity Insurance Rules. At the time of writing, these limits are at least £3 million where the insured firm is a relevant recognised body or a relevant licensed body, and in all other cases, at least £2 million.

Other professional bodies also impose the requirement of PII upon professionals, including accountants, financial consultants, surveyors, engineers and healthcare professionals. The reason for this is to protect the public by ensuring that professionals can cover the cost of any claim.

The Impact of PII on Professional Negligence Claims

Whether or not a professional holds PII can influence the viability of a professional negligence claim. For Claimants, PII offers financial certainty as it ensures that, even if the professional themselves are unable to meet the claim from their own resources, the insurer will step in to cover the liability. This is particularly important in high-value claims, where the potential damages could far exceed the professional’s personal assets – without PII, this would result in a pyrrhic victory for the Claimant.

Furthermore, the existence of PII often facilitates quicker and more efficient settlements. Insurers, who are commercial entities and can be keen to avoid the costs and uncertainties associated with litigation, may be more inclined to settle claims early, given they can objectively assess the events that have led to the litigation and the commercial merits of challenging the claim – provided they believe the claim is justified and falls within the terms of the policy. This can lead to a more streamlined process, sparing both parties the time, expense, and stress of a court trial.

The Role of Insurers in Litigation

Insurers often play a key role in the defence of professional negligence claims. Once a claim is made, it is typically the insurer who assumes control of the defence, appointing solicitors and experts to investigate the claim and determine the best course of action. This means that the claim is typically run by a party that was not involved in the events that have led to the action. This can significantly shape the litigation strategy, as insurers will often seek to objectively assess the merits of the claim with a view to minimising their exposure to adverse costs.

Insurers may also influence whether a case goes to trial or is settled out of court. Their decision will often be the result of assessing strength of the evidence, the potential costs of litigation, and the terms of the insurance policy. In some cases, insurers may push for settlement to avoid the unpredictability of a court judgment and the risk of adverse costs, while in others, they may choose to litigate if they believe the claim lacks merit.

The involvement of insurers can be seen in the case of Standard Life Assurance Limited v Oak Dedicated Limited and others [2008] EWHC 222 (COMM), which demonstrates the insurer’s right to control the defence and settlement of a claim. It was held that an insurer is not obliged to cover a settlement made by the insured without the insurer’s consent. This case demonstrates the importance for insured professionals to obtain insurer approval before settling, as failure to do so can lead to a denial of coverage and personal liability. Claimants should be aware of this when conducting settlement negotiations.

Disclosure of Insurance Details During Proceedings

A key strategic consideration for litigators running professional negligence claims is the disclosure of insurance details. For certain professions, there may be a duty to disclose detail. An example of this is Solicitors are required under Rule 9.2 of the SRA Indemnity Insurance Rules to provide to a Claimant or any other person with a legitimate interest: the name of their participating insurer, the policy number and the address and contact details of the insurer.

Additionally, in relation to insolvent Defendants only, it is possible to obtain information regarding a policy via the Third Parties (Rights against Insurers) Act 2010.

Outside of these provisions, it can be a challenge to force disclosure of information. In the case of Peel Port Shareholder Finance Company Ltd v Dornoch Limited, it was held that the court should only consider ordering disclosure of a solvent insured’s insurance details in exceptional circumstances. This can lead to difficulties in obtaining disclosure of the insurance details at a pre-action stage (such as via an application under CPR 31.16 as in this case), which creates uncertainty for the Claimant.

While there is no general obligation for a Defendant to disclose their limit of indemnity, there are situations where such disclosure may be advantageous. For example, if a Claimant knows that a Defendant is insured, it can provide reassurance that any judgment will be satisfied, potentially leading to a more aggressive approach to the litigation strategy or a higher settlement demand. In contrast, disclosure of a limit that is substantially below the value of the claim may lead to the merits of pursuing a claim being re-assessed, which could be advantageous for the Defendant/insurer.

In practice, disclosure of insurance details might be volunteered to encourage a Claimant to accept a reasonable offer, knowing that the insurer has the funds to pay the settlement and to pursue the litigation. However, there are also risks in disclosing such information, as it may lead to inflated demands. Ultimately, the approach differs between different insurance companies.

The Consequences of pursuing Uninsured Professionals

Making a claim against an underinsured or uninsured professional is one of the most significant risks for Claimants in cases of professional negligence. In the event that a professional does not have sufficient insurance, the Claimant may be successful in getting a judgement only to discover that there are insufficient or no assets to cover the award. This can be particularly damaging because it effectively renders the judgement financially meaningless.

To mitigate this risk, Claimants should conduct thorough due diligence before pursuing a claim. This involves requesting confirmation of the insurance coverage or checking with professional regulatory bodies that may hold relevant information. However, as discussed above, the insurer does not always have to disclose the limit of indemnity.

Policy Exclusions and Limitations

While PII provides protection, it is not a guarantee of coverage. PII policies often contain exclusions and limitations that can significantly affect recoverability. Common exclusions include acts of fraud, criminal behaviour, and deliberate breaches of professional codes of conduct. Additionally, some policies may exclude coverage for claims arising from certain high-risk activities or may impose sub-limits on specific types of claims.

It is vital that Claimants understand these exclusions, as they establish the extent of coverage and the likelihood of a favourable outcome. The terms of the PII policy must be thoroughly reviewed in order to identify any potential obstacles to recovery. As this can result in drawn-out legal disputes over the interpretation of policy terms, this review is particularly crucial in cases where the insurer raises exclusions as a defence against liability.

In the case of Zurich Professional Ltd v Karim [2006] EWCH 3355 (QB), the insurer Claimant obtained a declaration that the claims made under the Defendant solicitors’ professional indemnity policy arose “from dishonest or fraudulent acts or omissions committed or condoned by the insured” and accordingly they were not obliged to indemnify the insured.

Insurers’ Right of Subrogation

Subrogation is a fundamental principle that allows an insurer to step into the shoes of the insured after payment of a claim and pursue recovery from third parties who may be responsible for the loss. In professional negligence, subrogation rights can be particularly relevant when multiple professionals are involved in a matter, and one professional’s negligence contributes to the loss.

For example, if an insurer pays a claim on behalf of a negligent solicitor, they may seek to recover those funds from another party, such as a barrister who advised, as they may be liable for the same loss. Subrogation ensures that the loss falls on the party responsible for the negligence, rather than reverting to the insurer or the insured professional.

Conclusion

Professional indemnity insurance is an important consideration in any professional negligence. For professionals, PII offers protection against the financial consequences of a negligence claim, while for Claimants, it provides a source of funds to satisfy a judgment or settlement. However, the presence of PII also creates difficulty for litigators, including issues related to policy exclusions, the role of insurers in litigation, and the strategic considerations surrounding disclosure and settlement. Understanding these factors is crucial in any case.

If you are considering or are involved in a professional negligence claim, understanding the role of professional indemnity insurance is essential. Our experienced team is here to guide you through the complexities of PII and provide tailored advice for your specific case. Contact us today.

Mistake and the Unintended Tax Consequences

Posted on by Richard Gray

Elysium Law have received enquiries from taxpayers who have received large CGT assessments from HMRC which have been raised as a result of the Trust document used by Property 118 and Cotswold Barristers.

HMRC’s position is that incorporation relief provided by Section 162 of the Taxation of Chargeable Gains Act 1992 is not available as a result of a clause used in the purported Deed of Trust which creates a power of revocation, allowing the Trustees to vest the property in themselves absolutely and bring the trust to an end. HMRC’s position is that this future right to receive the property creates a separate contingent beneficial interest, which is not transferred to the company. As a consequence, the whole of the assets of the business are not transferred to the company and the relief is not available.

As a result, landlords that have implemented Property 118 or and Cotswold Barrister are facing significant and unintended tax consequences.

This will potentially give rise to a claim in professional negligence, but the losses must be mitigated. One option available is an application to the Court to set aside the arrangements on the grounds of mistake.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you

In Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023] EWCA Civ 53 (Bhaur) the Court of Appeal provided helpful guidance on when a court will set aside a transaction and  unwind adverse tax consequences. In summary, this was a tax avoidance scheme using the (abusive) EBT arrangements, to avoid IHT which the court refused to unwind. In this case the presentation of the trust to HMRC was dishonest and was tantamount to tax evasion.

Having lost in the High Court, the Appellants first ground of appeal was that the Judge should have allowed the transaction to be unwound in that the Appellants belief that they would incur no tax consequences was not a misprediction, but a mistake.

The first instance Judgment contains an extended analysis of the law on the setting aside of voluntary dispositions for mistake. The leading authority in the area is the decision of the Supreme Court in Pitt v Holt [2013] 2 AC 108.

In Pitt v Holt, at [103], Lord Walker adopted, the approach of Lloyd LJ in the Court of Appeal ([2011] EWCA Civ 197 at [210]-[211]), setting down three principles which would lay the groundwork for the exercise of the equitable jurisdiction to set aside a voluntary disposition , namely;

  1. A mistake, which is;
  2. Of the relevant type; and
  3. Is sufficiently serious so as to render it unjust or unconscionable on the part of the donee to retain the property given to him.

Misprediction or Mistake – the difference

Misprediction

In Pitt v Holt the Court said a misprediction relates to some possible future event, whereas a legally significant mistake normally relates to some past or present matter of fact or law.

In Dextra Bank & Trust v Bank of Jamaica [2001] UKPC 50, [2002] 1 All ER (Comm) 193 at [29], the court said “… to act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run …”

Mistake

This is a different consideration. The courts and lawyers generally deal with mistakes as to the consequences of a transaction.

For many years, a distinction was drawn between a mistake as to the effect of a transaction and its consequences. However, the modern approach is that providing the court is satisfied that there is a causative mistake of sufficient gravity; and as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

The gravity of the causative mistake is relevant to an assessment of injustice or unconscionability. The court said that the injustice (or unconscionability) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an “intense focus” on the facts of the case including the circumstances of the mistake and its consequences for the person who made the disposition.

An evaluation – what are the merits of the case?

The court will look at the surrounding circumstances and the (in) justice done to the person making the disposition. The doctrine of mistake applies to unintended tax consequences. In Pitt, the court rejected any suggestion that mistake could not apply to tax issues. However, the court added the following when referring to previous cases and in particular Futter v Futter where the doctrine of mistake was not raised by the (Plaintiff). Lord Walker in Pitt said;

“Had mistake been raised in Futter v Futter there would have been an issue of some importance as to whether the court should assist in extricating claimants from a tax avoidance scheme which had gone wrong. The scheme adopted by Mr Futter was by no means at the extreme of artificiality (compare for instance, that in Abacus Trust Co (Isle of Man) v NSPCC [2001] STC 1344) but it was hardly an exercise in good citizenship. In some cases of artificial tax avoidance, the court might think it right to refuse relief…”

Why you need advice on the scheme

Lawyers and students alike will recognise the maxim ‘He who seeks Equity must do Equity’, but effectively any refusal now is based on public policy consideration. An example of this can be found in the case Dukeries Healthcare Limited v Bay Trust International Limited [2021] EWHC 2086 (Ch), with Deputy Master Marsh holding that, whilst the doctrine of mistake applied, it was refused nevertheless on the grounds that the whole transaction amounted to an artificial tax avoidance scheme.

Anyone affected needs independent advice, considering the degree of risk and any artificiality of the scheme, given that unintended tax consequences are an issue. This should be advised upon by an independent law firm such as Elysium Law and will involve review of the documentation, any advice provided to the Claimant at the time and what it was that was that the Claimant hoped would be achieved.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you.

Elysium Law has been approached to consider bringing such a claim.

For further advice please contact us at Elysium-law

Understanding the Procedural Steps: the Pre-Action Protocol for Professional Negligence

Posted on by Ruby Keeler-Williams

The Protocol

Our team has extensive experience in claims for professional negligence, including claims against solicitors, accountants, surveyors, trustees and other professionals and we have been successful in obtaining many multi-million-pound recoveries for Our Clients.

The Pre-Action Protocol for Professional Negligence applies to these claims and covers claims for negligence against all professionals, except those in the construction or healthcare sectors, or those concerning defamation.

The primary purpose of the Protocol is to promote the settlement of claims by ensuring that both parties fully understand the nature of the claim alleged, the evidence supporting the claim, and the defences of the Defendants. By encouraging this early exchange of information, the Protocol aims to reduce the number of disputes that escalate to court, saving time and costs for all involved.

Importance of Complying with the Pre-Action Protocol

Before looking at the Protocol itself, it is important to set out why it is vital that parties comply. Compliance with the Pre-Action Protocol for Professional Negligence is crucial because it establishes the standards that the courts consider the normal and reasonable approach for handling professional negligence claims.

Paragraph 3.1 of the Protocol sets out that, if court proceedings are initiated, the court will determine whether to impose sanctions for substantial non-compliance with it. This guidance is aligned with that set out in the Practice Direction for Pre-Action Conduct and Protocols, which suggests that while the court is likely to disregard minor or technical breaches, substantial non-compliance can lead to significant sanctions against the offending party.

Paragraph 3.2 expands the scope of the Protocol by setting out that the parties are expected to act reasonably when operating the timetable and exchanging information during the Protocol period. This means that even if the Protocol does not explicitly address a specific issue, parties should abide by its spirit by acting reasonably and cooperatively.

Preliminary Notice of Claim

The first step in the Protocol process is for the Claimant to notify the Defendant in writing once there are reasonable grounds for a claim. Paragraph 6.1 of the Protocol sets out that this preliminary notice should:

  • Identify the Claimant and any other parties.
  • Contain a brief outline of the Claimant’s grievance.
  • Provide a general indication of the financial value of the claim, if possible.
  • Ask the Defendant to inform their professional indemnity insurers immediately.

The Defendant is required to acknowledge receipt of this letter within 21 days, as stipulated in paragraph 6.2 of the Protocol.

Letter of Claim

When the Claimant decides there are sufficient grounds for a claim, a detailed Letter of Claim should be sent to the Defendant in accordance with paragraph 6.3 of the Protocol. This letter must:

  • Identify any other parties involved in the dispute;
  • Include a clear chronological summary of the facts, along with copies of any key documents;
  • Specify the details of the alleged negligent act or omission and what the professional should have done differently;
  • Set out how the act or omission caused the loss suffered, setting out the consequences and what would have occurred but for the negligence;
  • Provide an estimate of the financial loss caused by the alleged negligence, detailing how the loss is calculated. If it is not possible to supply these details in the Letter of Claim, the Claimant should explain why and indicate when they will be able to provide this information;
  • Confirm whether an expert has been appointed, provide the expert’s identity and discipline; and
  • Request that a copy of the Letter of Claim be forwarded immediately to the professional’s insurers.

Letter of Acknowledgment

The Defendant should acknowledge receipt of the Letter of Claim within 21 days, as required by paragraph 7.1 of the Protocol.

Investigations

Following the acknowledgment, the Defendant has three months to investigate the Claim and respond with a Letter of Response and/or a Letter of Settlement, in line with paragraph 8.2 of the Protocol. During this period, the Defendant should:

  • Assess whether the Letter of Claim complies with the Protocol’s requirements and, if not, inform the Claimant of the deficiencies and the further information required, as outlined in paragraph 8.1 of the Protocol.
  • Evaluate whether the Claimant has presented a legally and evidentially sound case or merely alleged wrongdoing without substantial evidence.
  • Review the provided evidence, including expert opinions and key documents.

If more time is needed to complete the investigation, the Defendant should promptly request an extension from the Claimant, explaining the reasons for the delay and the anticipated extension required, as specified in paragraph 8.3 of the Protocol. The Claimant is expected to agree to reasonable requests for extensions to avoid unnecessary delays.

Response to the Letter of Claim

Upon completing their investigation, the Defendant should send a Letter of Response as detailed in paragraph 9.2.1 of the Protocol. The Letter of Response should:

  • Be sent in open correspondence (as opposed to being ‘without prejudice’)
  • Clearly state which parts of the claim are admitted or denied, providing reasons for their stance.
  • Specifically address the allegations.
  • Provide the Defendant’s version of disputed events.
  • Offer an estimate of the financial loss if it disputes the Claimant’s estimate. If an estimate cannot be provided at that time, the response should explain why and indicate when it will be available.
  • Include copies of key documents not previously exchanged.

This letter, while not a formal defence, is a crucial step, as the court may impose sanctions if it significantly differs from the eventual defence, as outlined in paragraph 9.2.2 of the Protocol.

Paragraph 9.4.1 sets out that if the Letter of Response denies the claim entirely, the Claimant may proceed with court proceedings.

Experts

The protocol recognises that in professional negligence claims, the parties and their advisers will require flexibility in their approach to expert evidence.

In a professional negligence claim, separate CPR 35 expert opinions may be needed on breach of duty, causation or the quantum value of the claim.

Paragraph 11.2 of the Protocol sets out that the parties should co-operate when making decisions on appropriate expert specialisms, whether experts might be instructed jointly and whether any reports obtained pre-action might be shared and should at all times have regard to the duty in CPR 35.1 to restrict expert evidence to that which is reasonably required to resolve the dispute.

Any expert reports obtained at the pre-action stage are only permitted in proceedings with the express permission of the court.

Alternative Dispute Resolution (ADR)

The Protocol imposes an obligation on the parties to consider whether some form of ADR is more suitable than litigation. The courts have a wide discretion to sanction parties in costs if they are held to have behaved unreasonably by refusing to engage in ADR. This is not to say that a party would necessarily face costs sanctions for declining to accept an invitation to participate in an ADR process: this would depend on whether the refusal to participate was reasonable in all the circumstances.

In practice, it is common for the parties to professional negligence claims to engage in some form of ADR, although not necessarily always at the pre-action stage.

Mediation is a commonly used form of ADR for professional negligence claims and often leads to a successful resolution of the dispute, either on the day of the mediation itself or in the course of follow-up negotiations after the mediation.

Conclusion

Adhering to the Pre-Action Protocol for Professional Negligence involves detailed and timely communication between the parties. Every step, from the preliminary notice to managing experts and engaging in ADR, is crucial.

Elysium Law will help you navigate the complexities of the Pre-Action Protocol for Professional Negligence, ensuring full compliance and thereby avoiding potential court sanctions for non-compliance. We will put forward robust representations that effectively outline your claims or defences, facilitating early settlement discussions and saving you the time and costs associated with litigation.

We have extensive experience in representing large, often multi-national groups in claims for professional negligence brought by or against solicitors, accountants, surveyors, trustees and other professionals and have been successful in obtaining many multi-million-pound recoveries for Our Clients.

For further guidance on professional negligence claims, contact our experienced team today.

Less Tax for Landlords – Are they acting in the best interests of their Clients?

Posted on by Ruby Keeler-Williams

Elysium Law understands that Less Tax for Landlords and OCG Accountants have instructed Leading Counsel (KC) about the tax issues relating to income tax distribution, questions about which have been raised by various tax professionals concerning the hybrid LLP planning.

HMRC’s view (and that of every other tax expert) is that the planning does not work. HMRC’s views are set out in Spotlight 63. They can be seen here.

We have several observations:

Potential Conflict of Interest

We fail to understand why LT4L, Chris Bailey and OCG Accountants are continuing to advise clients who may have suffered loss as a result of the planning.

Our view is that clients who may have been affected require independent advice in evaluating their options, specifically tax advice and the possibility of bringing legal action against LT4L, Chris Bailey and/or OCG Accountants. Accordingly, ongoing representation represents a conflict of interest, and it cannot confidently be said that LT4L, OCG Accountants or Chris Bailey are in a position to advise their clients independently and objectively.

If you are a client of LT4L, Chris Bailey or OCG Accountants, our advice is that you seek urgent advice from a competent and respected tax professional, register following Spotlight 63, ascertain all or any tax liabilities and seek advice from legal professionals.

Is it only income tax that affects the clients in the planning?

The simple answer is no.

At this stage, we anticipate the potential liabilities are as follows:

  • Income tax payments, including interest and penalties;
  • Capital Gains Tax liabilities (potentially by clients who have sold property) – The transfer into an LLP does not give you a base cost uplift as advised by LT4L and Chris Bailey;
  • Inheritance Tax – It is generally accepted that Business Property Relief cannot be claimed upon the death of the partners under this planning.
  • SDLT – as changes in LLP profit sharing automatically trigger SDLT charges under FA 2003, Sch 15, para 14

Elysium Law has been approached by one client who informs us that he sold properties under the mistaken belief of a CGT uplift which is not available, and he had a revised CGT bill of £800,000. There MUST be others in this position.

Clients should be asking LT4L how their instructions to Counsel deal with this, as on the current information their clients have, they don’t appear to.

Can clients rely on Counsels’ advice – who are the clients for the purposes of the retainer?

Traditionally, it was a ‘selling point’ widely used by the tax avoidance scheme providers that ‘Leading Counsel’ had advised. Mostly these were eminent Counsel, with the providers themselves using these ‘names’ to give a form of comfort blanket to the participants who felt very secure knowing that Leading Counsel had advised.

The problem with this is that no matter who Counsel is or was, Counsel’s instructions and advice are governed by the retainer. Leading Counsel will very likely not be retained to advise you. Counsel will likely be retained to advise LT4L or any other of the named entities. In that case, there is no relationship between you as the end client and Counsel and as such his/her advice cannot be relied upon by you. Counsel, we believe, is instructed to advise LT4L and OCG Accountants and only has a duty of care towards them

An example of this is the recent case of McLean v Thornhill [2023] EWCA Civ 466, where it was held that a tax barrister advising the promoter of a tax avoidance scheme owed no duty of care to the tax avoiders who invested in it, even though they had been allowed to see his advice.

In those circumstances, if a client relies on the advice given by LT4L’s KC, and either in the event the advice is not correct, or HMRC does not agree with Counsel’s views, there is no recourse by their clients.

What if HMRC disagrees with Counsel’s views as put forward by LT4L?

If HMRC disagrees with Counsel’s views, the only answer is for you to litigate the matter with HMRC, and this will take considerable time (years) and very significant expense. It is not clear who will pay that expense and it is not at all clear that LT4L insurance will fund this litigation and pay any tax and penalties due to HMRC (as LT4L has informed clients).

The insurance provider will be acting via their solicitors (not via LT4L or any of their representatives) and will not simply ‘payout’ claims. The only way a recovery can be made is by bringing a claim against LT4L and their insurance provider in negligence and breach of contract.

In our further articles, we will demonstrate the effect that relying upon this advice will have on your ability to bring a claim against LT4L or any others who advised that this planning was reliable.

Have the criticisms of the overall planning been answered by LT4L?

The short answer is NO. The informed views namely that the planning does not work, have NEVER been contradicted by Chris Bailey or LT4L since the ineffectiveness of the planning was exposed, principally by Dan Neidle of Tax Policy Associates.

Limitation

There are time limits to bringing civil claims, including claims made against Insurance Companies. These are known as limitation periods. Once those limits have expired, you have no options open to you and your claims will be time-barred, no matter how well-founded.

You must obtain independent and objective legal advice within the limitation period. LT4L will have a complete defence to any claims brought against them once the limitation period has expired.

Conclusion

The deadline to register for Spotlight 63 is rapidly approaching. If you have been affected, you must obtain independent, objective tax advice now.

Furthermore, Elysium Law is still receiving enquiries from clients affected. You can contact us via telephone or email for a free initial consultation.

Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases. With a significant number of taxpayers who are likely to be affected following Spotlight 63, we are looking to advance a group claim. Contact us today for more information

Less Tax, More Risk: Professional Negligence Claims Against Less Tax 4 Landlords

Posted on by Ruby Keeler-Williams

In this article, Ruby Keeler-Williams of Elysium Law explores the tax avoidance scheme advocated by Less Tax for Landlords (LT4L), examining its implications for landlords and the potential basis for professional negligence claims

Following enquiries from individuals affected, we have commenced a review of the tax avoidance scheme being aggressively marketed to landlords by Less Tax 4 Landlords (LT4L).

The circumstances suggest that participating landlords face a perfect storm of adverse consequences – additional tax liabilities, interest, penalties, and even potential mortgage default if lenders deem the structure to breach loan terms.

In this article, we will refer to the meticulously detailed report provided by Dan Neidle at Tax Policy Associates, which serves as an invaluable and comprehensive summary of the prevailing tax position. The report can be found here (Less Tax for Landlords: the £50m landlord tax avoidance scheme that HMRC say doesn’t work, and can trigger a mortgage default)

We have also had sight of client files, in addition to correspondence between numerous tax advisors and Less Tax 4 Landlords regarding their concerns and technical observations.

In our opinion, as a firm with a proven track record of success in professional negligence claims, the assertions set out below, if substantiated, would support a strong claim against LT4L and associated entities for negligent tax advice. Their guidance appears to betray fundamental misunderstandings on key areas of tax law. The scale of the scheme, impacting potentially hundreds or thousands of taxpayers, is deeply troubling. Urgent action is required to mitigate the fallout.

Flawed Inheritance Tax Analysis

A core plank of LT4L’s promotional strategy is the claim that their structure qualifies for business property relief, eliminating inheritance tax exposure. Yet this cannot be correct.

Letting residential property is plainly not “wholly or mainly” a trading activity, but rather an investment activity, as per IHTA 1984 s.105(3). The analysis focuses on the underlying business, not the choice of wrapper. This is confirmed by HMRC guidance and cases like Graham v HMRC [2018] UKFTT 380 (TC). Unless actually operating hotels or quasi-hotels, landlords cannot obtain BPR. No actions or “box ticking” will change this, contrary to LT4L’s suggestions.

Advising that BPR is achievable for ordinary buy-to-let investors is clearly negligent advice. It suggests LT4L fundamentally misunderstands settled inheritance tax law and principles. Clients participating in the scheme likely remain fully exposed to IHT, despite paying large fees to implement LT4L’s flawed structure. This negligent advice may support substantial claims by affected landlords.

Mixed Partnership Muddle

The report highlights equally serious errors regarding the taxation of partnerships. LT4L’s structure hinges on allocation of profits from the LLP to a corporate member to access lower corporate tax rates.

However, the 2014 mixed partnership rules specifically counter contrived profit allocations made for tax reasons. This occurs automatically based on the facts – any tax avoidance purpose is irrelevant. Yet LT4L repeatedly assert the precise opposite in client materials: that tax avoidance purpose is required for the rules to apply.

This betrays a disturbing failure to comprehend a basic pillar of partnership tax law. The rules operate mechanically based on the terms of Profit allocation to a non-contributing partner is ineffective for tax purposes, “tax motivation” aside. By suggesting otherwise, LT4L potentially demonstrates negligent advice, giving rise to claims.

Mistaken Capital Gains Tax Positions

The report evidences similarly flawed advice regarding CGT. Contrary to LT4L’s claims, transferring property into the structure should not “rebase” the base cost for CGT. The landlord retains legal ownership, with the LLP holding the beneficial interest, as reflected in the capital account. Equally, allocation of profits to the corporate member should trigger an immediate CGT charge, not deferred gains.

These are fundamental errors no competent tax adviser could make. LT4L’s advice seems driven by a mistaken belief that accounting treatment dictates tax analysis. This conflation is negligent and likely to lead to significant unexpected CGT liabilities. It further supports negligence claims by participating landlords against LT4L.

Stamp Duty Land Tax: A Litigation Timebomb

Potentially most concerning is the critique of LT4L’s SDLT advice. The report persuasively argues that changes in LLP profit sharing automatically trigger SDLT charges under FA 2003, Sch 15, para 14. This is contrary to LT4L’s assurances of SDLT mitigation. Worse, their structure may incur significantly higher SDLT than normal incorporation, given the loss of reliefs.

The SDLT analysis accords with the legislation and HMRC guidance. Should it be correct, LT4L has exposed clients to major unexpected tax liabilities – plus interest and penalties – which could crystallise many years in the future. The SDLT involved could easily exceed hundreds of thousands of pounds per client. We anticipate a wave of litigation when these liabilities surface.

A Demonstrable Lack of Competence

Most disturbing is the report’s evidence of LT4L demonstrating a lack of basic understanding across multiple areas of tax law. This is perhaps most apparent in their advice regarding partnership taxation. Partners are taxed on profits as they accrue, not when physically distributed – a fundamental principle LT4L appear ignorant of.

Taken collectively, the flawed advice summarised above evidences serious negligence and incompetence regarding key pillars of the UK tax system. The scale of the scheme, potentially impacting hundreds or even thousands of taxpayers, is alarming. LT4L knew or ought to have known their interpretations were unfounded, yet continued promoting the scheme for substantial fees. In our opinion, this conduct easily meets the threshold of actionable professional negligence.

Avoiding Defaulting on Mortgages

Perhaps the most urgent priority is addressing the risk of mortgage default triggered by LT4L’s structure. Declaring a trust over mortgaged properties to transfer them to an LLP may breach the loan terms, causing default. Contrary to LT4L’s assurances, a “letter of trust” has the same effect. Landlords remain the legal owner but lose the beneficial interest the lender may require them to retain.

The potential consequences of default are severe – forfeiture of assets, immediate repayment, litigation costs. Affected clients should seek urgent advice on rectifying the position with lenders. In instances where default has occurred or is unavoidable due to LT4L’s advice, this may represent a further head of claim in negligence against them.

Avenues for Redress

Clients affected by LT4L’s negligent advice should seek urgent tax advice on their position, and strongly consider claims against LT4L and associated entities to recover resulting losses. Potential heads of claim could include:

– Negligent tax/legal advice

– Breaches of contract, failing to advise accurately on the scheme

– Breach of fiduciary duty, giving advice tainted by conflict

– Misrepresentation regarding the scheme and its consequences

– Violations of financial regulation, given links to FCA-authorised firms

Claimants may also have direct recourse against LT4L’s professional indemnity insurers under the Third Parties (Rights Against Insurers) Act 2010. Contrary to LT4L’s misleading suggestions, their standard insurance will likely not cover tax liabilities or interest/penalties – but should respond to successful negligence claims.

Litigation will prove challenging – professional negligence claims always are. But the strength of evidence outlined in the report provides a robust foundation. We anticipate multiple claims against LT4L by landlords facing large, unexpected tax bills thanks to LT4L’s flawed scheme and negligent advice.

Pre-Action Steps

Before commencing litigation, affected landlords should:

– Take urgent tax advice to understand their potential liabilities;

– Instruct a lawyer experienced in these claims such as Elysium Law to advise on their position;

– following your instruction, allow us to Assess the merits of your claim

– Formally put LT4L on notice regarding potential claims;

– Gather all relevant documentation;

– Review funding options including potentially CFAs.

Contact Elysium Law

Elysium has extensive experience running professional negligence group actions against negligent tax advisers. We would be happy to assist any landlord facing significant losses thanks to LT4L’s deeply flawed scheme. With hundreds or even thousands likely affected, we are looking to advance a group claim. We anticipate claims worth tens of millions against LT4L and their insurers. If you have been affected, please contact us.