What is negligence in relation to MDR?

What is “negligence” in relation to MDR?

A solicitor or conveyancer will generally be held to have been negligent if they failed to alert their client to a potential claim for MDR where, on the information made available to the adviser, a reasonably competent professional adviser would have spotted that a claim for MDR might have been made and advised their client accordingly.

Can responsibility for MDR claims be excluded by solicitors and conveyancers?

It is commonly thought that the absence of an express duty to advise on SDLT or even an express exclusion in the professional adviser’s terms of engagement with their client absolving them from giving tax or SDLT advice, will get them off the hook of a professional negligence MDR claim. But this is a misconception. In Hurlingham Estates v Wilde & partner [1997] 1 Lloyd’ Rep 525 Lightman J, in a robust decision, held that it is their duty in acting for clients in transactions which could create a potential tax liability – (a) to structure the transaction in such a way as to avoid that liability; or (b) if they are unable to give such advice themselves, either (i) to tell the client to instruct some other competent solicitor; or (ii) to seek the assistance of another practitioner (e.g., a tax partner in the same firm or a barrister) who can provide that tax advice.

To exclude that duty, the client would need to be able to give informed consent and the terms of the exclusion would have to be worded in such severe terms that the client is likely to go elsewhere rather than risk the consequences of the professional adviser’s admitted lack of tax expertise. For these purposes, there is clearly an equivalence between the duty to advise a client of a potential tax liability and the duty to advise the client of a potential relief from that tax liability.

In this regard, many solicitors and conveyancers now advise their clients to obtain an opinion for a direct access barrister to advise whether there are reasonable grounds for a claim for MDR to be made. In some cases, the solicitor or conveyancer will even ask their client to pay the full SDLT up front and then make a retrospective MDR refund claim by amending their SDLT return within 12 months of the land transaction. The refund claim route avoids the risk of an initial underpayment of tax should HMRC disagree that an MDR claim is available.

Is there causation and a loss?

It is not enough for the solicitor or conveyancer to have given negligent advice by failing to alert the client to a possible claim for MDR. The client will also need to show that if he had been properly advised, he would on a balance of probabilities, have instructed the adviser to make the claim and that the claim was likely to have succeeded. Investigating these matters requires a deep dive into the intricacies of MDR and the case-law development of the relief, HMRC’s attitude to claims for MDR and the development of the knowledge of the relief by professional advisers since MDR was introduced in 2011 as an SDLT relief for institutional investors on rented accommodation.

Can you claim against your solicitor or conveyancer if they have given poor advice?

If it is reasonably likely that a successful MDR claim could have been made on your property purchase and your adviser did not advise you about making a claim for MDR, then you may have a claim against the adviser for negligent advice. Your claim should be supported by a professional opinion confirming that an MDR claim could have been made. If so, the claim will be put in terms of the loss of the opportunity at the time to make the MDR claim.

Obviously, if you are still within the 12-month time limit for amending your SDLT return to make the MDR claim then you will be under a duty to do so in order to mitigate your loss. Most cases will, however, involve property purchases that were completed more than 12 months previously and in many cases several years or more ago with some going back to the
introduction of the relief. The only recourse will then be against the solicitor or conveyance concerned.

Process and time frame for a professional negligence claim

The formal process begins by writing a letter before the claim to the solicitor or conveyance setting out the facts, why a successful claim for MDR could have been made but wasn’t, why the adviser was under a duty to advise about MDR but failed to do so and the amount of the loss arising. The time frame for issuing legal proceedings is normally six years from the date of the transaction but this can be extended by a period of three years from the date that the client became aware or ought reasonably to have become aware that an MDR claim could have been made.

Professional advisers are more likely to agree to settle a solid claim without going to court if the client has instructed a solicitor or barrister to act for them because of the risk of an adverse award of costs if they defend the claim and lose.

However, some clients may choose to proceed by way of the small claims procedure in the County Court where the claim is for not more than £10,000 because this limits their own costs exposure should their claim fail.

A word of warning: avoid claims farmers.

If you believe that you have lost out by your solicitor or conveyancer failing to advise you about making a claim for MDR, by all means, consult a reputable specialist SDLT adviser for assistance and advice about whether you have a claim for negligence if so, the best way to go about proceeding with your claim. You should however avoid relying on one of the claims farming solicitors’ firms or companies who trawl the property websites and the Land Registry for details of historical property sales where MDR might have been claimed and then write to purchasers offering to make what are often spurious and entirely speculative claims against the solicitors and conveyancers concerned on your behalf. These claims firms will claim to offer you what is in effect free money by making a claim for negligence for you and will usually offer you some form of protection or indemnity from costs in the event that your claim fails. Be aware that their business model involves threatening the advisers concerned with potentially prolonged and expensive litigation if they choose to defend the claim and then seeking to recover their legal costs by asking the County Court to award them the legal costs of the claim. Many firms of advisers will quite rightly choose to defend such speculative claims as a matter of principle and so you could find yourself a party to unpleasant and potentially expensive litigation.

There is also a risk of you being involved in fraud. This happens when the solicitors acting for you as the claimant have to certify to the court when making a claim for your legal costs against your former solicitor or conveyancer, that you have actually incurred those costs. If the claims company has agreed to bear your costs whatever the outcome of your claim (as they will have done to persuade you to sign-up for the claim), then you will not actually have incurred those costs. In that case, the certificate submitted to the court in those circumstances will be dishonest and as such, fraudulent.

Fundamentally, many claims farmers’ business models rely on offering to indemnify you from any costs to get you to sign up with them but then making a claim to the court in order to recover their legal costs from the other side when such claims cannot and should not be made due to you having been indemnified.

How Patrick Cannon Can help

For professional specialist advice about MDR and making or defending professional negligence claims with one of the UK’s leading specialist advisers, please contact Patrick Cannon. Patrick is authorised by the Bar Standards Board to accept Direct Access work and to undertake litigation, which means that he can advise clients directly and deal directly with HMRC and manage court and tribunal proceedings on their behalf.

Get In Touch

For professional and insurance reasons Patrick is unable to offer any advice until he has been formally instructed.