Mehjoo v Harben Barker (a firm) & Anor

The Court of Appeal allowed the defendant appellant's appeal and dismissed the claimant's negligence claim. The appeal turned on the scope of the retainer between a long‑standing client and his generalist accountants, and whether that retainer (or the course of dealings between the parties) gave rise to a duty to provide specialist tax‑planning advice or to refer the client to a non‑dom specialist in relation to capital gains tax on the sale of shares.

The court emphasised that ordinary proactive or routine tax advice (preparing returns, pointing out available reliefs and warning of obvious tax consequences) does not equate to the highly specialised tax planning exemplified by the Bearer Warrant Scheme. The retainer letter limited HB’s obligations to conventional accounting and tax work and there was no reliable evidence of a variation of that retainer to impose an open‑ended duty to find and recommend specialised schemes.

The court held that HB were not negligent in failing to advise the claimant that he might be a non‑dom, in failing to identify the Bearer Warrant Scheme or in failing to refer him to a non‑dom specialist, because (among other reasons) HB could not reasonably be expected to know of or advise on specialist schemes changing the situs of registered UK shares and the 2 October 2004 meeting and checklist did not create such a duty.

This was an appeal from Silber J in the Queen's Bench Division concerning a professional negligence claim by Mr Hossein Mehjoo against his long‑standing accountants, Harben Barker Limited (HB). Mr Mehjoo alleged that HB had been negligent in failing to give specialist tax‑planning advice or to refer him to a non‑dom specialist so that he might have avoided a capital gains tax liability on the 2005 sale of his shares in Bank Fashion Limited by entering a Bearer Warrant Scheme (BWS) before legislation blocked that route.

Nature of the claim and relief sought: The claimant sought damages for professional negligence, comprising the capital gains tax he paid on the sale, fees paid for a later challenged Capital Redemption Plan, and related interest. At first instance Silber J held HB negligent and awarded damages.

Issues framed by the Court of Appeal:

• What were the terms and scope of HB's retainer and duties to the claimant?
• Could a term be implied from the parties' course of dealing or from the 2 October 2004 meeting so as to require HB to give specialist non‑dom tax planning advice or to refer to a specialist?
• Whether a reasonably competent generalist accountant should have advised about domicile/non‑dom status in the context of the imminent UK‑share disposal, and whether failure to do so caused the claimant's loss.

Court’s reasoning: The Court of Appeal analysed the retainer letter (1999) and the subsequent course of dealings. It accepted that HB proactively gave routine tax advice at times, but drew a clear distinction between routine advice and highly specialised tax planning such as the BWS. The retainer did not, and objectively could not be shown to have, been varied to require HB to discover or recommend specialist offshore schemes which they did not know existed. The 2 October 2004 meeting and checklist amounted to consideration of conventional CGT reliefs that a general accountant could advise upon. There was no duty to advise the claimant of his likely domicile of origin or of purportedly significant tax advantages in relation to the UK‑registered shares, because any such advantages depended upon specialist techniques HB could not reasonably be expected to know. Reliance on authorities about implying duties or referral obligations was rejected on the facts: a referral duty cannot be stretched to require a generalist to identify schemes outside the scope of his competence and retainer. Accordingly the Court concluded there was no breach of duty and allowed the appeal.

The court therefore reversed the first instance award and dismissed the claim. The judgment emphasised the principle that the scope of professional duties is defined by the retainer and objective standards of the reasonably competent professional in that field.

Appeal allowed. The Court of Appeal held that the defendants were not in breach of duty. The retainer between the parties did not impose a duty to provide or seek out specialist non‑dom tax planning advice or to refer the claimant to a non‑dom specialist in respect of the sale of UK‑registered shares. The 2 October 2004 meeting and the checklist did not establish an implied variation of the retainer to impose such an open‑ended duty, and HB could not reasonably be expected to know of or advise upon the Bearer Warrant Scheme or similar specialist methods of changing situs for CGT purposes. Accordingly the negligence finding and the award of damages at first instance were overturned.

Appeal from the High Court of Justice, Queen's Bench Division (Silber J), HQ10X02724. Silber J found HB negligent and awarded damages; appeal heard in the Court of Appeal, reported at [2014] EWCA Civ 358, which allowed the appeal and dismissed the claim.