Consultant liability: The assignment is decisive
The article was first published in Versicherungsmonitor on December 2.
If a lawyer or tax advisor causes financial loss, incorrect advice often brings not only disadvantages but also advantages that must be taken into account as mitigating factors in an overall comparison of assets. A look at case law shows that uncertainty always arises when the advantages do not benefit the client but a third party. However, clear distinctions can be made if the highest court rulings are applied consistently.
The requirements for the due diligence obligations of legal advisors are high. Lawyers and tax advisors are obliged to provide their clients with general, comprehensive, and exhaustive advice. However, not every instance of incorrect advice results in financial loss: the client is only harmed if their financial situation is worse "on balance" than it would have been without the breach of duty alleged against the advisor.
The starting point for any calculation of damages is the difference hypothesis. Whether and to what extent financial loss is to be compensated is determined by a mathematical comparison of the financial situation that would have existed without the event giving rise to liability with the financial situation that actually arose as a result of that event. This requires a comparison of the total assets, taking into account all financial positions affected by the event giving rise to liability.
Only an overall view of adverse and advantageous changes in assets results in justified compensation. Advantages that are the direct consequence of the event giving rise to liability, i. e., that are inevitably linked to the negative consequences of the breach of duty, must also be included in the calculation of damages.
Principles of consolidated damage assessment
The assets of the injured party serve as the reference point for the overall asset comparison, which is why the liable advisor is generally only liable for the damage suffered by their client. The effects of incorrect advice on third parties are not to be taken into account, and the advisor cannot therefore invoke the fact that third parties have benefited.
However, there are exceptions to this formal approach in which the damage must be consolidated across different legal entities. Whether a consolidated assessment of damages is required depends on the specific mandate given to the advisor by the client. If the client has made the consideration of the interests of a third party the subject of the consulting service, the damage must also be calculated taking these third-party interests into account.
Problems in practice
Consolidated consideration of damages can be described, in a sense, as a reflection of the inclusion of the third party in the scope of protection of the consulting agreement. Whenever the service to be provided by a consultant is also intended to protect a third party from possible financial losses, it is only logical that the calculation of damages also takes into account the assets of the third party.
Based on this principle, different results may arise in cases that appear similar at first glance.
For example, a payroll accounting mandate given to a tax advisor is not intended to take into account the financial interests of the client's employees. If the client suffers damage as a result of being confronted with additional payment obligations due to an incorrect classification of its managing partners under social security law, the advantages resulting from the additional payments for these employees cannot therefore be taken into account as a mitigating factor (Hamm Higher Regional Court, judgment of April 8, 2022, ref. 25 U 42/20).
However, the situation may be different if the tax advisor is instructed to structure the company in such a way as to exempt the managing partners from social security contributions. In this case, the advantages that the shareholder-managing directors gained as a result of the incorrect advice must be offset against the client's additional payment obligations (Higher Regional Court of Cologne, judgment of January 16, 2014, Ref. 8 U 7/13).
These examples show that the diverse case constellations of third-party involvement of third-party assets in advisor liability can be handled well and clear results can be achieved through consistent application of the principles of case law and a focus on the subject matter of the mandate.
