Mehjoo: No such thing as a general retainer?

LAST SUMMER’S judgment in Mehjoo v Harben Barker was a worrying one for the profession. It raised the spectre of accountants being sued for failing to give specialist advice which they had never offered to provide in the first place. The Court of Appeal has now allowed the firm’s appeal.

The decision will come as a welcome relief to practitioners. The Court of Appeal has made clear that the professional’s obligations are limited to the instructions set out in the retainer letter, unless there is a clear agreement (which can be inferred from conduct) otherwise.

Harben Barker here may have had duties as a general accountant and tax adviser, but it was not offering specialist tax planning. There was no duty to advise the client of tax advantages that the firm reasonably did not know to exist. Nor was there a duty to advise the client to see a specialist.

Mehjoo, originally from Iran, was made a British Citizen in 1996. The claim centred on his attempts to avoid payment of capital gains tax on the disposal of shares in his company. At the heart of the claim was an allegation that 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.

Mehjoo accepted that Harben Barker was a generalist accountant. He argued though 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.

To the letter

The Court of Appeal looked at Harben Barker’s retainer letter. That letter referred to “general tax-planning advice on the best use of reliefs”. The terms did not impose any obligation on Harben Barker to advise Mehjoo on how he might minimise his tax liabilities. Those were specialist tax planning services, which had not been offered or requested.

Could an extended duty have been implied by a course of conduct? Not in this case. 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 Mehjoo’s CGT liabilities. That, though, was routine tax advice. At no stage had Harben Barker volunteered the much more sophisticated form of tax planning such as the BWS. Harben Barker had never held itself out as being a specialist tax adviser.

The Court of Appeal decided that the reasonably competent accountant would not even have been aware of such a complicated scheme as the BWS. Harben Barker could not have been under a duty to advise the claimant of significant tax advantages that, to its reasonable knowledge, did not exist. There also could not be a duty to advise Mehjoo to consult a “non-domicile” specialist in circumstances where Harben Barker reasonably did not know about the tax advantages.

It is a long-standing principle that 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 instructed to do.

A bum steer

A helpful accountant may well point out the hidden tax consequences of a particular proposal. There is, though, a difference between proffering occasional advice outside the confines of the instructions and agreeing to provide a wider scope of advice.

Nonetheless, it is not difficult to see how volunteering a helpful “extra steer” can be a recipe for trouble, and litigation. Helpful as this judgment is, there is a clear lesson from the Harben Barker case: be very clear about the terms of the retainer, and stick to them.

Andrew Howell is head of the professional services group and
Alexa Segal is an associate in the professional services group at Taylor Wessing

Related reading