Accountants´ Professional Liability: Tackling Limitation Issues In A Transactional Setting

PEGASUS MANAGEMENT HOLDINGS AND BRADBURY –v- ERNST & YOUNG

Chancery Division, 11 November 2008

Background

In April 1997, the Second Claimant, Mr. Bradbury, who had been advised by Ernst & Young on his personal tax matters since 1980, sold an electronics manufacturing business. Ernst & Young recommended a tax saving scheme, which required heavy investment in a new Luxembourg company before 5^th April 1998. The Luxembourg company was the second Claimant, Pegasus. It was incorporated on 26^th March 1998 and shares were issued on 2^nd April 1998 in return for $40k capital.

When the Scheme did not work as anticipated, both Pegasus and Bradbury launched a claim for damages against Ernst & Young for alleged negligence over the tax advice given. They alleged that, in April 1998, Ernst & Young ought to have appreciated it was necessary to change the share purchase structure in order to achieve tax savings. In these circumstances, they went on, E & Y should have advised