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A reminder to limit the scope of the retainer

16 January 2014
Hossein Mehjoo v Harben Barker (a firm) and Harben Barker Limited

Mehjoo serves as a reminder to all professionals that having diligently set out the scope of the retainer in an engagement letter, one should also carefully control how, if at all, the scope of the retainer changes with time. A generalist must also consider carefully the client’s potential need for specialist advice.

Mr Mehjoo (‘M’) sold company shares in 2004 relying on a Capital Redemption plan to avoid a CGT liability in the order of £800,000. HMRC successfully challenged the arrangement and demanded the CGT. M sought to recover his loss from his accountant (‘P’) on the basis that he should have been advised to avoid the charge to CGT by relying on his non-domiciled status.

P defended on the basis that he was not instructed to advise on the potential benefits of M’s ‘non-dom’ status. In doing so he pointed out that:

  • there was no such thing as the general retainer to advise contended for by M
  • P’s retainer letter made no reference to such tax advice
  • there was no document recording instructions to advise on the issue
  • other professionals were advising on the tax issues
  • he had not held himself out as an expert on the very specialised issue.

All of the above points were accepted by the judge who, nevertheless, held P liable for the loss. In the five years that P had been advising Mr Mehjoo he had given him advice from time to time on tax issues whether it had been requested or not. There was a “clear and mutually accepted understanding that P was always required to… give appropriate advice on how to reduce his tax liability”. That course of dealing gave rise to a duty of care to advise M on how to avoid CGT in this case. The fact that others were advising on the tax issues was immaterial to P’s liability. Whilst P’s experience was insufficient to give the advice required, it was sufficient to identify that M needed advice from a specialist. The failure to refer M to a specialist was a breach of P’s duty.

Practical steps to avoid falling foul of this decision
This broadening of the scope of P’s retainer resulted from a long-standing and close relationship in which (ironically) P felt the need to give M some added value. Had P routinely recorded any assumption of responsibility to give extra advice in further retainer letters, the absence of such a letter in this case might have altered the judge’s decision. For a full explanation, see paragraph 172 of the judgment which can be found here.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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