Mehjoo –v- Harben Barker (a Firm)
Court of Appeal
March 25, 2014
[2014] EWCA Civ 358; [2014] All ER (D) 13 (Apr)
Subject:
Accountants – Duties of care – Tax Advice – Non-domiciled Status
Summary:
The Court of Appeal allowed an appeal by the Defendant accountants, on the basis that the Judge was wrong to find that they had owed their client, the Claimant, a duty of care that embraced specialist advice about and arising from his status as a non-domiciled person.
Abstract:
The appellant generalist accountants (HB) appealed against a decision of the Judge ([2013] EWHC 1500 (QB), [2013] All ER (D) 132 (Jun)) who found that they were under a duty to advise (without a request to do so) their client (M) of the potential advantages of being non-domiciled (non-dom) and to refer him to a non-dom specialist.
M, who had been born in Iran but was resident in the UK since 1971, had entered into a tax scheme (not as a result of advice of HB but advice given by another company on a later occasion) in an attempt to avoid paying CGT on the sale of his share of his business. This was challenged by HMRC.
Having reached a settlement with HMRC, he sued his long-standing accountants (HB), arguing that the written retainer between the parties had been varied either as a result of a course of conduct or alternatively at a meeting on 2nd October 2004 where CGT saving schemes were discussed such that they were under a duty to provide tax planning advice to him with or without a request.
M contended that HB should have advised him that (a) he was not, probably was not, or might not be domiciled in the UK; (b) being a non-dom carried with it significant tax advantages; and (c) he should consult a non-dom specialist.
M said that if he been so advised, a non-dom specialist would have advised him to enter into bearer warrant planning (BWP) which was a tax scheme only available to non-doms. Had that occurred, he would have saved the tax and interest M paid to HMRC to settle the Revenue’s challenge to his CGT-avoidance scheme, plus the cost of entering that unsuccessful scheme.
HB’s appeal was allowed. As to the scope of duty, the Court of Appeal held the Judge had erred in finding that the retainer had been varied as a result of HB’s course of conduct. The Court said the Judge had failed to distinguish between “routine tax advice” and more sophisticated forms of tax planning such as BWP. HB had never offered to give M such advice. HB did offer a more extensive tax planning service, but this was available only on request. M never made any request for this service.
There was a meeting between M & HB on 2nd October 2004, which the Judge had considered important in widening HB’s scope of duty to include advice on tax planning. However the Court of Appeal held that the Judge had failed to differentiate between the matters discussed at that meeting which would have been “obvious possibilities” to a generalist accountant, in contrast to measures such as BWP (it was not suggested by either party that HB should have been aware of BWP).
The Court of Appeal held that HB were under no duty to advise M in relation to his potential non-dom status, because it was not relevant at the time. The Court said this was because HB would have known that non-dom status would not confer any tax advantages on M in relation to the shares in his UK-registered company, unless the situs of the shares could be changed. (The aim of BWP was to change the situs of the shares, so that they became offshore assets). HB did not know whether the situs of the shares could be changed, nor was it reasonable to expect them to know this. For these reasons, there was no duty on the part of HB to advise M that non-dom status carried with it significant tax advantages, or to advise him to consult a non-dom specialist.
It might reasonably be said that a firm such as HB should at least have alerted Mr Mehjoo to the possibility that there might be available a more radical scheme. On the facts, HB had told M that various tax-saving schemes might be available. M had known about the tax charge and had chosen not to follow up on the availability of tax-saving schemes.
Comment:
The Court of Appeal appears to provide some reassurance to generalist accountants because their scope of duty has been narrowly drawn. However, the boundaries of the duty to advise remain unclear. For example, it is difficult to conceive there being a clear ‘bright line’ which separates “routine tax advice” from “more sophisticated” tax planning. Second, there is a tension between the absence of any duty to advise the client in relation to sophisticated forms of tax planning, and the suggestion that they should still alert him to the possibility that there may be more radical schemes. How is the client to request further services or specialist advice, if he has no guidance about what services or possible specialist advice might be available, and of potential benefit?
What is clear is that generalist accountants should ensure that their written retainer is kept up to date and clearly sets out the limits of advice/knowledge, and they should be astute not to jeopardise those limits by their own conduct in, for example, advising beyond the boundaries of their knowledge or outside their ‘comfort zone’. Careful written notes describing the precise advice given should help them to remain inside the limits that have already prescribed (and where necessary, to prove that later!).
Isabel Barter (Junior Counsel for M)
2 Temple Gardens