In this case, the Supreme Court was asked to determine a number of
interrelated issues concerning a negligence claim brought by Ms Denise
Roose and her two companies, Denise Developments Ltd (DDL) and
DMR Development Ltd (DMR), against Ms Roose’s accountants.
The claim is based on the contention that the accountants negligently advised
Ms Roose as to the tax consequences of what was then a proposed sale
of land by DDL to DMR. As a result of this advice, the sale went ahead
with the result that DDL incurred a substantial tax liability.
The property transaction was pursuant to an agreement for sale and
purchase which was entered into on 14 April 2008 and settled on 2 May
2008. The claim for damages was filed on 1 May 2014.
The accountants contended that the claim had been brought outside the
six year period within which cases of this sort can be brought under the
Limitation Act 1950. The six year period started to run when a loss was
first suffered by Ms Roose and her companies and the accountants
maintained that this was on 14 April 2008, the date the land sale contract
was entered into.
Ms Roose and her companies denied this, arguing that
the cause of action arose when the transfer was completed on 2 May
2008, which was when, on their argument, DDL’s liability to tax arose.
On this basis they maintained that the claim had been brought inside the
limitation period, albeit only by a day.
The High Court was asked to determine a preliminary question whether
the claim was barred by limitation. This was dealt with as if a strike-out
application was before the Court, with the issue being whether it was
arguable that the negligence claim was not barred by limitation.
The High Court concluded that loss occurred on the date the agreement
was entered into, 14 April 2008, and accordingly that the six year
limitation period had elapsed when Ms Roose and her companies
commenced the proceedings on 1 May 2014.
The Court of Appeal took a different view, concluding that Ms Roose and
her companies first suffered loss on 2 May 2008, when the transfer was
settled. Accordingly, on this approach, the proceedings were
commenced within the six year limitation period.
On a further appeal to the Supreme Court, the accountants argued that
the tax loss occurred on entry into the agreement because DDL’s liability
to pay tax arose at that time. In the alternative, they argued that, if the
tax liability did not arise until 2 May 2008, Ms Roose and her companies
had suffered other and ancillary losses prior to 1 May 2008 in that: (a)
they had already incurred costs in relation to the then proposed transfer
(accounting, legal and valuation) which they would not have incurred but
for the allegedly negligent advice they had received (“wasted costs”); and
(b) once the agreement was in place, avoidance of tax liability would
have incurred further costs (“unwind costs”).
The Court has unanimously dismissed the appeal. William Young J
delivered the reasons of the Court. Ms Roose and her companies were
liable to taxation under s CB 14 of the Income Tax Act 2007. This
section imposes tax on “the amount” the vendor “derives from disposing
of land”. This means that a liability to tax arises only at the point that the
vendor derives income from the disposal of land. In accordance with
general principles, which the Court considered were applicable even
though the parties were related, such derivation did not occur until the
transfer was effected on 2 May 2008.
The Court dismissed both ancillary loss arguments. The “wasted costs”
argument had not been advanced in the Courts below and insufficient
material was before this Court to deal with it. The argument as to unwind
costs was dismissed on the basis that, if the true position as to tax had
been appreciated prior to 2 May 2008, liability could have been avoided
without cost simply by not completing the transfer.