Professionals can breathe a sigh of relief after the Court of Appeal ruled in favour of an accountant accused of failing to provide specialist tax advice.

The ruling overturned an earlier High Court decision that the accountant was liable as the firm had volunteered tax advice outside the terms of its letter of engagement.

The decision has clarified that professionals’ obligations are limited to those set out in their engagement letters. It does, however, highlight professionals’ duty of care and the importance of acting strictly within the terms of a retainer.

In Mehjoo v. Harben Barker (see Brunel News August 2013), Mr Mehjoo had brought a claim for £1.4 million in unpaid tax, penalties and interest against his accountant Harben Barker. He had unsuccessfully attempted to avoid paying £850,000 in Capital Gains Tax on the sale of his shares in a fashion business. He claimed that his accountant failed to direct him to a tax specialist who would have advised him on an appropriate tax avoidance scheme.

In the first case, the High Court found in favour of Mr Mejoo. It decided that there was a clear understanding between Mr Mehjoo and Harben Barker that it was required to consider Mr Mehjoo’s tax position even where the advice had not been specifically sought. The relationship between Mr Mehjoo and his accountant had developed over 20 years. It had progressed from completing annual returns to latterly advising on all aspects of Mr Mehjoo’s business and personal financial affairs. The judge decided this progression constituted a variation from the terms of a retainer letter signed in 1999.

The Court of Appeal overturned the High Court’s decision. It accepted that Harben Barker had previously provided advice to Mr Mehjoo about his financial affairs, including tax advice. The appeal judge decided that this did not amount to an implied variation in Harben Barker’s retainer letter. The judgment said that there needs to be clear evidence before a course of conduct can be said to have significantly varied the terms of a written retainer.

Professionals still need to be wary about ‘mission creep’ when advising long-standing clients,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “In the Mehjoo case the Court of Appeal decided that Harben Barker had no duty to offer advice outside the scope of their retainer. The case was, however, decided on the specific facts. It remains essential that all professionals accurately scope their retainer letters and then stick to their terms in order to manage their professional liabilities.

Details of the Mehjoo case have been reported by law firms Hill Dickinson and Mills & Reeve.