When a professional provides negligent advice they may be liable for consequent loss. But is the professional liable for the distress caused by their negligent advice? Clark v Turnbull [2017] CSOH 4 says that they're not. Distress is only a valid head of claim where the purpose of a contract was to provide pleasure or peace of mind.
The pursuers in this case are brothers. They sought the advice of the defenders, a firm of chartered accountants, on their capital gains tax liabilities arising from the sale of flats. They were incorrectly advised the CGT would be between £40,000 and £50,000. They sold the flats. In fact the CGT liability was around £150,000.
The brothers sought damages for the losses suffered. This included the increased CGT incurred; transaction fees; and late payment surcharges. They also sought damages for the distress they suffered when they discovered they faced a larger tax bill.
Lord Tyre dismissed one brother's claim for excess CGT and their claim for overpayment of tax in subsequent year: these claims had prescribed. This was a straight application of Morrison v ICL Plastics 2014 SC (UKSC) 222. But of more interest is how his lordship addressed their claim for distress.
Lord Tyre noted that the general rule is that a claim for distress is not a valid head of claim in a case for breach of contract. An exception to this rule was affirmed by the House of Lords in Farley v Skinner [2002] 2 AC 732. Where a contract is aimed at procuring peace or pleasure, then, if as a result of the breach of contract the expected pleasure is not realised, the party suffering that loss may be entitled for damages for distress.
As clarified by the House of Lords, the focus must be upon the purpose of the contract. In this case, the contract was for professional advice in relation to capital gains tax liability. The purpose of the contract was not to procure them peace of mind or pleasure. Lord Tyre noted that it was likely foreseeable that the provision of negligent advice by the defenders would cause distress to the pursuers. However the same could be said about professional advice generally.
We can all agree that paying taxes rarely brings pleasure. But negligently advising a client on the amount of tax they may owe does not become a contract to procure pleasure if it turns out more tax is owed.
Just as professionals are not liable for distress arising as an inevitable consequence of their advice – see Guney v Kingsley Napley [2016] EWHC 2346 (QB) on which we have recently commented – nor are they usually liable for distress caused by their advice being negligent.
Professional Advice Can Be Taxing - Don't Sweat It
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