Held to Account

The Court of Appeal has held that the duty of an accountant is limited to the terms of their retainer. In the case of Mehjoo –v- Harben Barker (a firm) & Anor, which involved a claim for professional negligence, it was held that a firm of accountants who gave general tax advice did not have a duty to give advice on a specialist tax scheme which provided significant tax advantages to their client.

Mr Mehjoo who was born in Tehran, the capital of Iran, had resided in the UK since he was a child. He became a successful businessman of the high street fashion company ‘Bank’ which was sold for £8.5 million in 2005. Mr Mehjoo consequently faced a Capital Gains Tax liability of £850,000.  Mr Mehjoo successfully sued his accountants, Harben Barker, based in the Midlands, for professional negligence and was awarded £1.4 million after the firm had failed to recommend the use of an off-shore tax avoidance scheme known as a Bearer Warrant Scheme. This scheme reduces the amount of Capital Gains Tax for non-UK domiciled residents.

The term ‘domicile’ is a legal concept which the English Courts use to determine which legal system applies to an individual where the individual has connections with more than one jurisdiction. Although Mr Mehjoo was resident in the UK and owned a British passport he was classed as non-UK domiciled for tax purposes.

Harben Barker had been Mr Mehjoo’s accountants and tax advisors for over 20 years. The retainer had referred to Harben Barker providing ‘general tax planning advice’ and confirmed that more extensive tax advice was available on request.

At first instance the Court found that the conduct of Harben Barker (who had voluntarily offered tax advice over the years) established a variation to their retainer and found that Harben Barker had a duty to recognise Mr Mehjoo’s non-UK domicile status and refer him to a non domicile specialist.

The decision caused controversy amongst accountants who as a result of the decision had a contractual duty to advise on all areas of tax avoidance even if that area was out of their expertise.

The Court of Appeal however held that the case was wrongly decided and Harben Barker ‘were not and never had held themselves out to be specialist tax planners’. They had never offered to give Mr Mehjoo specialist tax advice, and Mr Mehjoo had never requested this advice.

The Court of Appeal held that a reasonably competent accountant could not have been expected to have known that the Bearer Warrant Scheme existed. It was held to be enough for Haben Barker to discharge their duty of care by stating to Mr Mehjoo that other tax schemes may be available.

In holding that Haben Barker were not professionally negligent, the Court of Appeal drew a distinction between ‘general’ and ‘specialist’ tax advice. Although the case is good news for small and medium sized accountants who will not be held responsible for failing to advise on wider areas out of their expertise, what counts as ‘specialist’ advise may be hard to apply in practice.

Picture of Luke Patel
Luke Patel


Luke Patel
Commercial Dispute Resolution Department  
0113 227 9316

This entry was posted in Commercial Dispute Resolution. Bookmark the permalink.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s