The NSW Court of Appeal has unanimously dismissed an appeal by a firm of solicitors against a District Court order that they pay damages to a client (Mrs Jurisich) equivalent to the amount of tax she was required to pay concerning a share buy-back plus interest, in addition to a proportion of the accounting fees incurred by Mrs Jurisich.
The Court said the question in the appeal was whether the Solicitors should be held liable for the amount of income tax that the respondent, Mrs Helen Jurisich, was required to pay in connection with the realisation of shares she held in her family company. She realised the shares by means of a buy-back and incurred a liability for tax of a substantial sum on the basis that the money paid to her by the Company was deemed to be a dividend. She received over $1.3 million under the buy-back.
Mrs Jurisich sued the Solicitors in the District Court on the basis that they should have advised her to obtain tax advice before proceeding with the buy-back.
It was common ground, the Court of Appeal said, that the Solicitors were in breach of their duty to Mrs Jurisich as their client in failing to advise her to obtain tax advice and that, whatever she received by way of a voluntary winding up, would not have been assessable in her hands.
However, the Court said “it is clear that there was no suggestion in the statement of claim that, but for the advice of the Solicitors, Mrs Jurisich would not have sold her shares in the Company and would not have incurred the tax liability. Nor does the statement of claim allege that, by relying on the advice of the Solicitors, Mrs Jurisich lost the opportunity of realising her shares by means of a voluntary winding up of the Company.”
But despite this, a judge of the District Court (the primary judge) held (see Jurisich v Ralston [2016] NSWDC 82) that, had the Solicitors advised her to obtain tax advice, she would not have proceeded with the buy-back but would have agreed to a voluntary liquidation of the Company and, in such a voluntary liquidation, would have received at least the same amount as she received under the buy-back but would not have incurred any liability for income tax.
The Solicitors appealed from the orders of the District Court. Mrs Jurisich claimed, by way of damages, the amount of tax paid (in round figures, $608,000), an amount in excess of $37,000 for accounting fees, and interest. The damages assessed by the primary judge were around $740,000.
The Court of Appeal found that had Mrs Jurisich received advice that the buy-back would result in a liability for tax in a substantial sum, she would have explored the alternative of a voluntary winding up. Whilst she was reluctant to be involved in a voluntary winding up, the Court said it was more likely than not that, had she investigated that alternative, she would have participated in the voluntary winding up. The Court also found that it was more likely than not that, had she done so, she would have realised at least the relevant sum in respect of her shares and would not have incurred any liability for tax in respect of that receipt.
In the result, the Court concluded that the appeal should be dismissed and that the Solicitors should pay Mrs Jurisich’s costs of the appeal.
(Ralston v Jurisich [2017] NSWCA 63, NSW Court of Appeal, Ward JA, Emmett AJA and McDougall J, 3 April 2017.)
Catchwords from Court of Appeal judgement
PROFESSIONAL NEGLIGENCE – where client suing former solicitors – where client incurred significant income tax liability after realising shares in a company – failure to advise – whether the respondent had proved factual causation – how factual causation is to be proved – whether primary judge erred in his implicit findings as to the loss caused by the breach –
APPEALS – principles of appellate review – function of appellate court in relation to fact finding at trial
[LTN 73, 20/4/17]