The Court of Appeal has, recently, handed down its judgment in Mehjoo v Harben Barker. The decision should come as a relief to tax practitioners and professional advisers generally.
The effect of the High Court's decision in June last year had been that an accountant and tax adviser was found to be responsible for failing to advise his client to enter into a complex tax avoidance scheme. If the tax adviser did not have the requisite specialist knowledge, that was no defence. He should have alerted his client to the potential for further advice and referred the client to a specialist.
Overturning the High Court decision, the Court of Appeal has made clear that professionals' obligations are limited to the instructions set out in their retainer letter. Varying those instructions will require either express agreement or a clear course of conduct that can, objectively, be inferred as having that effect. Occasional, helpful advice is not sufficient.
Mr Mehjoo, originally from Iran, became a British Citizen in 1996. The claim was about capital gains tax on the disposal of shares in his company. At the heart of the claim was an allegation that Mr Mehjoo retained "non-domicile" status for UK tax purposes and could have entered into a scheme (the Bearer Warrant Scheme (BWS)) to avoid CGT entirely. Mr Mehjoo contended that, as a reasonably competent accountant, Harben Barker had a duty to advise him that he may have a "non-domicile" status which carried with it significant tax advantages and that he should therefore seek specialised tax advice.
The Court of Appeal's starting point was to consider the express terms of Harben Barker's instruction, as set out in its retainer letter. Though that letter referred to "general tax-planning advice on the best use of reliefs", the Court of Appeal found that the letter did not impose any obligation on Harben Barker to advise Mr Mehjoo on how he might minimise his tax liabilities. Harben Barker were a generalist accountant and those were specialist services and would have had to of been specifically requested.
The Court of Appeal then considered whether the instruction had been altered by Harben Barker's conduct. Harben Barker admitted that it had given some general tax advice and that it would "consider Mr Mehjoo's best tax position". There had even been a meeting specifically to discuss minimising Mr Mehjoo's CGT liabilities.
That was, though, routine tax advice. At no stage had Harben Barker volunteered the much more sophisticated form of tax planning exemplified by the BWS. Harben Barker had never held itself out as being a specialist tax adviser and such an extensive tax planning service was available only on request. It was never requested.
The Court of Appeal held that the reasonably competent accountant would not even have been aware of such a complicated scheme and, even further, would not have believed it existed. No duty arose to advise Mr Mehjoo of significant tax advantages that, in its reasonable knowledge, did not exist. It follows that there was, therefore, also no duty to advise Mr Mehjoo to consult a "non-domicile" specialist.
Where a professional has a long standing client, it is easy to how the specific instructions become blurred with time. A professional, trying to be helpful, may very well stray outside those instructions. The adviser, without any specialist tax knowledge, may point out the hidden tax consequences of any particular proposal.
There are clear dangers in trying to be too helpful. There is no such thing as a general retainer: the terms and limits of the retainer and any duty of care depend on what the professional is expressly instructed to do. But that can always be varied by conduct.
Harben Barker is a welcome judgment, but it is also a good reminder of the importance of written engagement terms – and the importance of working within them.