High Court finds Baker & McKenzie negligent in tax case but not liable for damages

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13 April 2015


RCJ

Burton J: Decision to settle not “within reasonable range of responses”

A High Court judge has found that although international law firm Baker & McKenzie was negligent in advice it gave on Mexican tax law, it was not liable to pay damages to the company involved.

Mr Justice Burton said the decisions taken by German fragrance and flavouring company Symrise to settle its dispute with the Mexican tax authorities, and not to go on fighting, were not “within the reasonable range of responses”.

He went on: “If the senior management of Symrise wanted out for their own group reasons, all well and good, but not by dint of making an unreasonable decision, and not at the expense [of the law firm].”

Burton J said that Symrise’s Mexican subsidiary had persisted with its nullity petitions against the tax authorities, they would have succeeded.

“In my judgment Symrise acted unreasonably in abandoning the proceedings which they had a very good chance of winning (and in the event would have won), and giving up the very good prospect of a recovery which would have avoided the tax losses.”

The High Court heard in Symrise AG and another v Baker & McKenzie [2015] EWHC 912 that the law firm had been advising on the merger which created Symrise in 2003.

Burton J said the legal services included “a substantial global tax due diligence exercise in 15 jurisdictions”. In Mexico advice was sought from the local Baker & McKenzie office on a “debt pushdown”, whereby debt of almost €125m was pushed down into the Mexican business, which could then claim tax relief on the interest payments.

Burton J held that the law firm’s Mexican office was negligent in failing to warn that the inter-company loan agreement implementing the pushdown might be challenged by the tax authorities.

The judge said there was “clear evidence” that the wording of the agreement might be challenged and, had the company known of the risk, some of it could have been changed.

Burton J also ruled, on causation, that the law firm’s “breach of retainer/negligence was an effective and concurrent cause” of the tax investigation which led to the deal with the authorities.

However, ruling that the claimant’s tax recovery claim failed, Burton J said that he had found for the defendant on the issue of loss, and “no sums are due in respect of any of the payments” to the Mexican tax authorities.

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