Court of Appeal confirms no general duty to advise on sophisticated tax planning
Last year the High Court's decision in Mehjoo v Harben Barker gave rise to plenty of lurid headlines.
"Accountants must help tax avoiders"; "Multimillionaire [successfully sues] his accountants for failing to help him avoid paying £850,000 in tax" were two.
Today the Court of Appeal has overturned that decision, and its reasoning will be welcome news to accountants (indeed all professional advisers) and their insurers.
High Court decision
Mr Mehjoo was a successful businessman and Harben Barker were his long-standing accountants. In 2005 Mr Mehjoo sold some shares, made a profit of £8.5 million and incurred a capital gains tax liability of £850,000. He sued Harben Barker for failing to advise him to consult with tax planning specialists, which he alleged would then have resulted in him entering into an off-shore tax planning scheme and so avoided the tax liability altogether.
Last year Mr Mehjoo's claim succeeded before the High Court. The High Court concluded that, through their conduct over many years in advising on several tax planning issues, Harben Barker had assumed a duty to advise Mr Mehjoo that:
- he was (or was likely to be) non-domiciled;
- that this carried with it certain tax advantages; and
- that Mr Mehjoo should seek specialist advice on whether his non-domicile status might enable him to minimise or reduce the CGT that he would otherwise incur when selling his shares.
The High Court concluded that had Harben Barker advised Mr Mehjoo in this way, he would have sought specialist advice and would then have been advised to enter into a sophisticated tax planning scheme called "bearer warrant planning" (a form of off-shore tax avoidance scheme, which has since been rendered ineffective by legislation). In this way, the Court decided, he would have avoided paying any CGT on his share sale.
Court of Appeal decision
Today the Court of Appeal has overturned the High Court's decision and has helpfully emphasised that there needs to be clear evidence before a course of conduct can significantly vary the terms of a professional's written retainer.
Harben Barker's only written retainer with Mr Mehjoo did not require them to advise on tax planning in the absence of express instructions to do so. Harben Barker did provide Mr Mehjoo with advice on how to avoid unnecessary and unforeseen tax consequences in respect of certain transactions, including the share sale, and thus did assume a duty to advise on routine tax issues. However, this did not amount to an assumption of a duty to advise on the rather more sophisticated tax planning that formed the basis of this claim.
The Court of Appeal concluded that although Harben Barker knew that Mr Mehjoo's potential non-domicile status might have certain tax benefits, they were unaware (and it was reasonable for them to have been unaware) that his non-domicile might enable him to reduce or eliminate the CGT on his share sale. Accordingly, in the absence of any express instruction from Mr Mehjoo to consider the matter further, they were not under a duty to advise Mr Mehjoo to seek any more specialist advice. Accordingly, the appeal was allowed and Mr Mehjoo's claim now fails.
In agreeing with Lord Justice Patten's leading judgment, Lord Justice Lewison commented that the High Court had lost sight of the decision in Midland Bank Trust Co Limited v Hett Stubbs & Kent , in which it was said:
"...the court must beware of imposing ... upon professional men ... duties which go beyond the scope of what they are requested and undertake to do."
This decision should be welcome news for accountants, and all other professionals, as it limits the scope for arguing that advice should be given on non-routine issues in the absence of express instructions to do so.