The Supreme Court justified a precedent decision on the dispute over the liability of consulting firms
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The Supreme Court published the full text of the decision to return for a new hearing the dispute over the recovery of losses from Ernst & Young CIS (from 2022 – B1), which arose due to the fact that the client who sought advice ended up facing additional tax charges. The Supreme Court noted that when determining the degree of responsibility of a consultant, the degree of his professionalism, as well as the usefulness of the services provided, should be taken into account. If they are “reproachable,” even the clauses in the agreement on release from liability should not remove it. On the other hand, the Supreme Court pointed out, the actions of the customer should also be assessed – if he could have minimized the damage, but did not do so, then it is unfair to place all responsibility on the consultant. Lawyers note that such a solution is aimed at finding a balance of responsibility between clients and consultants and that it increases the risks of the latter.
The Supreme Court (SC) presented the full text of the ruling in the case of recovery of damages from the consulting company Ernst & Young CIS (from 2022 – B1). The essence of the dispute was that the Posuda-Center Service company entered into an agreement to provide consulting services on the development of a methodology for writing off commodity losses, but as a result of its application it received additional tax charges. The company filed a claim against the consultants for damages in the amount of 11.7 million rubles. The courts of three instances refused to satisfy it, citing the fact that the services under the contract were provided and accepted by the client, and the use of the methodology was his independent management decision. In addition, the contract contained a clause stating that the contractor does not accept responsibility for the use of the results of the services.
In December last year, the case was referred to the Judicial Collegium for Economic Disputes of the Supreme Court – on February 6, the court overturned the decisions of the lower authorities and sent the case for a new trial, but until the full text of the decision appeared, its motivation was not known. According to the ruling published yesterday, the courts limited themselves to stating the fact of execution of the contract and the presence in it of provisions limiting the liability of the defendant, that is, they did not consider the dispute on the merits – it consisted of whether additional taxes were assessed as a consequence of poor-quality methodology or its incorrect application.
As the board notes, although the consultant cannot “literally” bear financial responsibility for the results of a tax audit, even if his advice was taken into account by the customer, he is responsible for the “usefulness of his actions” – “this is the business risk of the consultant.”
In the event of a dispute about the quality of services, the assessment must be whether he “acted with such care and professionalism as, in the circumstances of the case, any reasonable consultant seeking to benefit the client would have acted.” Thus, it should be established whether the customer’s losses were the result of the consultant’s lack of professionalism.
The Supreme Court also draws attention to the degree of qualification: if special knowledge and skills were not applied by a consultant who did not possess them (and which was known to the customer), then it would be unfair to hold him responsible for the problems that arose. If a highly professional consultant did not do this, then it would be unfair to apply a “reduced quality standard” to him to determine the extent of his responsibility. In this dispute, the Supreme Court pointed out, the minimum degree of professionalism implied that the contractor “will not offer the customer simplified approaches to solving complex problems and, in any case, will warn the customer about the risks of following the consultant’s advice.”
At the same time, the Supreme Court notes that adverse consequences cannot be assigned only to the consultant if the court finds that they arose due to the behavior of the customer, who could have taken reasonable measures to eliminate the losses, but did not. Thus, it is worth proceeding from the amount of losses that could have been prevented by the customer himself. If this is not possible, the court may determine the contribution of each party to the losses incurred and divide the responsibility between them.
B1 refrained from commenting until the dispute was over. Pepeliaev Group partner Roman Bevzenko, representing the defendant, considers it positive that the Supreme Court did not support the plaintiff’s main arguments. In his opinion, this is a dispute about whether the client correctly applied the document developed by the consultant. “Unfortunately, the lower courts did not pay attention to this and approached the matter rather formally,” says the lawyer. The Supreme Court invited them to do this in a new round of consideration of the case, in which the decision “will depend solely on what the parties can prove.”
“Many lawyers and tax consultants waited with bated breath for the Supreme Court’s verdict on this dispute, which is really significant for the market,” says Nariman Huseynov, a lawyer in the dispute resolution practice of AB K&P.Group. In fact, he says, the Supreme Court drew the attention of the courts to the incorrectness of the formal approach to the consideration of such cases in general. The logic, adds Yuri Fedyukin, managing partner of Enterprise Legal Solutions, is that clauses releasing the consultant from liability do not in themselves contradict the law, and it is permissible to include them in the contract. But when there is reason to believe that the consultant fulfilled his obligations in bad faith, or even worse, did it intentionally, then such a clause no longer exempts from liability.
Managing Partner of Bartolius Law Firm Julius Tai notes that the decision raised several important legal issues, in particular, the usefulness of the services provided, as well as the importance of the level of professionalism. The lawyer notes that it is difficult to find a balance of responsibility between the customer and the contractor in practice, and in this sense, the definition of the Supreme Court sets the criterion: “tax advice is not an indulgence, and the customer, when using it, must proceed from common sense and minimize losses if the service was provided poorly ”, which does not relieve consultants from liability.
ProLegals project manager Maxim Lukhmanov believes that the positions expressed by the Supreme Court increase the risks of holding consultants accountable for inappropriate advice and recommendations, which their customers rely on in good faith. “However, the limits of responsibility of consultants, as well as the determination of the minimum threshold of professionalism in a specific situation, remain controversial and cannot be fully regulated,” he says.
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