BIM38545 - Wholly & exclusively: fines, penalties and damages: cost of defending charge of breach of contract

Costs of defending trade (professional) assets are allowable - costs of defending personal reputation are not

The cost of defending title to trade or professional assets is generally allowable - see for example Southern v Borax Consolidated [1940] 23TC597 (see BIM35540). The costs, for example, of defending personal reputation are not allowable because of duality of purpose. Whether there is duality of purpose is essentially a question of fact.

In the case of Knight v Parry [1972] 48TC580 (and see also BIM37960), Parry was employed as an assistant solicitor by the firm of F. O. Sanders. One of Sander’s clients suggested that Parry should set up and practice in his own account, in which event that client would instruct Parry to act for them. Parry agreed and set up in practice taking Sander’s client.

Sanders complained to the Law Society that Parry had solicited Sander’s client’s business. The Law Society agreed that there was a prima facie case of professional misconduct and invited Sanders to take proceedings in the courts before they would consider the matter further.

In the ensuing action Sanders failed to prove professional misconduct but was awarded damages against Parry. The grounds for the award being that Parry in agreeing to undertake the business in question was in breach of his contract of employment.

The General Commissioners allowed the costs of defending the action.

The High Court disallowed the costs because:

  • Parry’s purpose in protecting himself professionally was not wholly and exclusively referable to the carrying on of his practice but was for seeing that he was not precluded from doing so; and
  • Duality of purpose, in that the defence of the action was also to contest the claim for damages for breach of contract of employment (a Schedule E matter and not Case II, Schedule D).