A company has succeeded in establishing that tax advice given to it by its lawyers in the wake of a Euros 1.5 billion corporate merger was inadequate. However, its claim for damages ultimately failed in a case which underlined the duty of professional negligence victims to help themselves and take steps to minimise their losses.
The structure of the highly leveraged merger was extremely complex and involved an aggressive tax mitigation strategy. Large volumes of debt were distributed amongst various subsidiaries around the world in order to benefit from local tax relief available on interest payments.
One of those subsidiaries was in Mexico. Following an investigation, however, the Mexican tax authorities issued very substantial tax demands. The High Court accepted that that eventuality had arisen due to negligent advice given to the company by its lawyers in respect of an inter-company loan agreement.
However, in dismissing the company’s claim for Euros 3,276,000 in damages, the Court found that it had failed to take reasonable steps to mitigate its losses. The company had acted unreasonably in abandoning proceedings in Mexico which would have offered a very good prospect of overturning the tax demands.