The recent High Court decision in the case of Hossein Mehjoo v Harben Barker (2013) has caused considerable discussion within the accountancy profession. The case is of particular interest in that the finding against the firm of accountants Harben Barker that they failed to give appropriate advice to their client in relation to his tax affairs may be contrasted with the current political pressure to reduce the opportunities for successfully engaging in the more elaborate tax avoidance schemes.
In this case the claimant, Mr Hossein Mehjoo, was born in Iran but moved to the United Kingdom at 12 years of age where he has continued to live since. He became a successful businessman and eventually negotiated the sale of his business in 2004. Over the preceding 25 years Mr Mehjoo had regularly used the defendant company as his accountants. The case concerned Mr Mehjoo’s desire to avoid a capital gains tax liability of about £850,000 arising from the sale of his share of the business. He contended that the defendant firm had a legal obligation to advise him in relation to his tax affairs and specifically to give appropriate advice in relation to minimising his tax liabilities deriving from the sale of the business.
The claimant was advised by separate tax advisors to enter into a Capital Redemption Plan but this failed as a result of which he had to pay not only capital gains tax but also substantial penalties and interest. He sued Harben Baker for damages claiming that they had a duty to advise him that he would probably be viewed as not domiciled in this country (“non-dom”), and that they should have known that special tax avoidance arrangements were available to non-doms and accordingly advised him to take specialist advice as to the schemes that were available. He further argued that if he had obtained advice from such specialist advisor he would have been advised to enter into a Bearer Warrant scheme, and the scheme would have been allowed by the Government (although blocking legislation later came into force in 2005).
Harben Baker, among other things, contended that they were not obliged to give the claimant tax advice unless specifically requested to do so and were not obliged to advise Mr Mehjoo to take tax planning advice from a non-dom specialist.
Not surprisingly the result of the trial hung to a great extent on expert evidence provided by accountants. The judge found that there was a duty to give tax advice, that the defendants should have known about the likelihood of non-dom status and should have advised the claimant to seek specialist advice that was not available from the defendants themselves. The end result was a judgment in favour of the claimant allowing him to recover the tax liability the court found would have been avoided.
The facts revealed that whatever may have been the terms of the original written retainer there was a meeting between the parties in October 2004 when tax issues were specifically addressed. The case is the subject of an appeal, but whatever may be the outcome of that appeal the decision serves as a salutary reminder to all professions of the need:
a. to be aware that attempts to restrict one’s professional duties in a retainer letter should constantly be reviewed in the context of instructions and discussions that take place in a long term professional relationship; and
b. to be aware as a general practitioner that the client’s particular circumstances may be such that merit referral to a specialist, and to give proactive advice to the client as to the desirability of obtaining such specialist advice.
For more information about the issues raised in this article or to find out more about how the Dispute Resolution team can help you please contact Mike Robinson on 0118 952 7206 or email [email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.