Mehjoo v Harben Barker (A Firm) & Anor

A generalist accountant’s duty depends on the retainer and the circumstances known or reasonably foreseeable. A course of dealing may extend the retainer beyond its written terms. Where a client faces a very substantial tax liability and may have non-domiciled status carrying potentially significant tax advantages, the accountant must advise the client to obtain specialist advice if the accountant lacks the necessary expertise. The duty may arise without an express request. Failure to give that advice may make the accountant liable for losses that would probably have been avoided by competent specialist advice, including the cost of an unsuccessful tax scheme subsequently adopted by the client.

The claimant sued his former accountants in contract and negligence. He alleged that, in the context of a proposed sale of his shares in Bank Fashion Ltd, the defendants should have advised him that he was, or might be, non-domiciled, explained the potential tax advantages, and referred him to a non-domicile specialist. He claimed that competent specialist advice would have led him to implement bearer warrant planning before legislation blocked it, rather than entering the unsuccessful Montpelier capital redemption scheme.

The issues included the scope of the retainer, the referral duty, the likely advice and conduct of the claimant and his co-shareholder, the effectiveness and risks of bearer warrant planning, damages, and limitation.

1. Retainer. The defendants’ retainer extended to advising and assisting the claimant generally on his personal and tax affairs, including tax planning connected with the proposed share sale, even without an express request. That obligation arose from the parties’ longstanding course of dealing and was reinforced when the defendants prepared for and gave tax-planning advice at the meeting on 2 October 2004 (paras [117]–[174]).
2. Referral to a specialist. A reasonably competent generalist accountant should have recognised that the claimant was, or might be, non-domiciled and that non-dom status carried potentially significant tax advantages. Given the prospective capital gains tax liability exceeding £800,000 and the defendants’ lack of specialist expertise, they had a contractual and concurrent tortious duty to advise him to consult a non-dom specialist. The duty did not depend on knowledge of the precise scheme or on a reasonable prediction that the specialist’s advice would succeed (paras [175]–[207]).
3. Causation. The claimant would have sought specialist advice promptly. A competent specialist would have advised that there was no substantial risk of a successful challenge to his non-dom status or to bearer warrant planning on Young v Phillips grounds. The specialist would have recommended bearer warrant planning rather than the substantially riskier and more expensive capital redemption scheme. The claimant would have implemented the planning and taken the warrants offshore before 16 December 2004 (paras [208]–[220], [224]–[419]).
4. Effectiveness and additional risks. The court rejected the alleged loss-of-control, diminution-in-value and employment-related-securities objections. Bearer warrant planning would have saved the capital gains tax, subject to implementation costs. Part 7 of the Income Tax (Earnings and Pensions) Act 2003 did not apply because the planning conferred no new benefit on the claimant (paras [453]–[511]).
5. Limitation and damages. The contractual duty gave rise to a separate breach when the referral should have been made in October 2004. Damage in tort crystallised when it became too late to implement the planning. The claimant recovered the avoided capital gains tax net of implementation costs, the net cost of the Montpelier scheme, and recoverable HMRC interest subject to mitigation (paras [540]–[564]).

First-instance decision. No appellate history was stated in the judgment.