For
professional negligence claims, the Court of Appeal draws a distinction between
“flawed transactions” and “no transactions” in deciding when the six year
limitation rule starts running. Negligent
tax advice commonly falls under the “no transaction” category because taxpayers
would be unlikely to follow advice if promised tax outcomes were fruitless.
When losses from negligent advice arise
more than six years before court proceedings are filed, the claim fails. This is a policy rule from the Limitation Act
forcing litigants to get something on the court record before memories dim and
records get lost. Deciding when a right
to sue for negligence first arose can be a headache. Professionals sued for negligence exploit the
rule by arguing the right to sue arose so far back in time that it is now too
late to claim.
The Court said in “flawed transaction”
cases, the deal would still have gone
ahead despite what turns out to be negligent advice. The right to sue ends six
years after loss caused by the negligence becomes apparent. In “no transaction” cases, the deal would
never have been agreed to if it were not for the negligent advice. The right to sue ends six years after being
committed to the deal.
Denise Roose alleges her Pukekohe
accountants Duthie Taylor Ruiterman gave negligent tax advice on tax structures
to be used for buying a neighbouring property and subdividing the combined
block of land. This was coupled with a
need to protect the asset from potential relationship property claims. Use of a new company structure coupled with a
trust were recommended as minimising tax and GST. Ms Roose was not happy with the outcome. Her company was lumbered with a $413,500 tax
bill and tax audit fees of $39,500. She
sued her accountants.
The Court of Appeal ruled she filed her
court case within six years of the last date she was committed to the deal
recommended by her accountants. This was
when the land was transferred to a new company.
She was not firmly committed to the deal at a date some three weeks
previously when a sale contract was signed between her two companies. Since Ms Roose controlled both the selling
company and the buying company she could pull out of the deal at any time prior
to land being transferred by cancelling the deal and ripping up the contract.
The Court ruled Ms Roose still has the
right to sue. A ruling on whether the
accountants’ tax advice was negligent requires a further court hearing.
Roose
v. Duthie – Court of Appeal (15.12.16)
17.011