Dhillon & Anor v Siddiqui & Ors

A professional adviser’s duty is defined by the retainer and all relevant circumstances, including the client’s objectives, characteristics and known plans. An accountant advising on remuneration must explain a realistically available alternative, its possible benefits and its risks where those matters fall within the scope of the retainer. The accountant need not positively recommend that the client adopt that alternative; the ultimate choice remains the client’s.

The relevance of an anticipated business sale increases as the sale becomes more proximate. The reflective loss principle does not bar a shareholder’s personal claim where the relevant duty is owed only to the shareholder, even though the loss was sustained through the company.

Mr Major Dhillon claimed damages from accountants and associated firms for alleged negligent tax and financial advice given between 1997 and 2004. The claims concerned the use of associated offshore companies, a dividend paid by Electro to Hosta and retained there, and bonuses paid from Electro between 2000 and 2003.

The court considered whether the advice fell below the required professional standard, whether the alleged breaches caused loss, and whether the reflective loss principle prevented recovery of losses suffered through Electro. The central issues included the scope of the accountants’ retainer and whether they should have explained the potential tax advantage and risks of retaining profits in Electro pending its sale.

1. Scope of duty. The court held that the starting point was the retainer or contract of engagement. Where the retainer was unwritten, its terms and scope had to be determined from all the evidence. The implied obligation was to exercise reasonable skill and care, assessed in the circumstances, including the client’s characteristics, instructions, objectives and known plans.
2. Retention of profits. It fell within the accountants’ duty, for the 2001 to 2003 bonus decisions, to explain that retaining profits in Electro might produce an eventual tax saving if the company were sold at an enhanced value and the retained cash returned tax-free. The accountants also had to explain the relevant risks, including uncertainty about the future sale, changes in tax treatment, insolvency and whether a purchaser would pay pound for pound for retained cash. They were entitled to recommend taking a bonus if that was their judgment. The ultimate decision belonged to the client.
3. The duty became more compelling as the anticipated sale approached. There was no breach in relation to the 2000 bonus, when a sale was still about five years away. Mr Davidson was in breach in relation to the 2001, 2002 and 2003 bonuses by failing to give the fuller advice. However, the claimant failed to establish on the balance of probabilities that he would have retained the money, so those claims failed.
4. Reflective loss. The defendants’ reliance on Johnson v Gore Wood & Co, Giles v Rhind and Gardner v Parker was rejected. The principle did not apply because the alleged duties were owed personally to Mr Dhillon, not to Electro as well.
5. The dividend paid to Hosta should have been passed directly to the trust. The failure to identify and correct the resulting tax consequences caused Electro additional tax of £12,627.35. Liability was apportioned 35 per cent to the MHA/Charterhouse defendants and 65 per cent to the Haines Watts defendants. Judgment was entered against the third to seventh defendants for that sum, with interest under section 35A of the Supreme Court Act.