No continuing duty on accountant to advise on a change in the law

A recent decision has confirmed that an accountant’s continuing relationship with their client did not mean that there was a continuing contractual duty to advise on a change in law in respect of a tax scheme they had designed after it had been put into place.

In Integral Memory plc v Haines Watts³ the claimants argued that a provision in the accountant’s engagement letter, which stated that “where it proves necessary to amend the terms of this agreement because of legislation or other changes, a revised engagement letter will be sent incorporating the changes”, meant that if there was a material change in the law which affected the viability of the tax scheme, the accountant would advise the claimant of that in a revised engagement letter. The court rejected this construction, and found that this term in the letter clearly related to the retainer itself, rather than to the advice given on the tax scheme.

The motivation behind the claimant’s argument was that the claim was otherwise statute barred (the advice was given in 2003, and as such the six year contractual limitation period had run). The claimant needed, therefore, to a show a breach of duty that would still be actionable. The court also recently considered this issue in Shepherd Construction Ltd v Pinsent Masons LLP⁴. This was a claim against solicitors, in which the claimants were also in difficulty for limitation reasons. The court in that case reached the same decision, stating that “there is something commercially and professionally worrying if professional people are to be held responsible for reviewing all previous advice or indeed services provided”.

An obligation to constantly review past advice would have onerous consequences – not only for the professional, but for the client, who is unlikely to want to pay for his advisors constantly to review their previous work unless this has been specifically agreed. A professional may have a regulatory or conduct obligation to draw an error to his client’s attention where an error has been discovered – but Shepherd Construction and Integral Memory demonstrate that a contractual obligation to review past advice looking for errors will not easily be implied.