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Law for Business

Knowhow - guidance - precedents

23 AUG 2013

Harben Barker vs Mehjoo

You may have recently registered the decision in Mehjoo v Harben Barker (A Firm) & Anor [2013] EWHC 1500 (QB). It has been reported in some newspapers as imposing an obligation on Accountants to advise their clients of the availability of tax schemes.

The case report runs to many pages but in summary, it concerned Mr Mehjoo, a non-UK domiciled individual claiming damages against his former accountants for alleged negligence. It is reported that Mr Mehjoo paid £200,000 to a scheme provider to participate in a scheme which was intended to mitigate an

£850,000 tax charge arising from the sale of a business in 2005. However, the scheme did not succeed.

Mr Mehjoo then sued his Accountants for failing to provide him with better advice.

The Court found that a ‘Reasonably Competent' accountant would have looked at Mr Mehjoo's domicile status and considered whether this gave rise to planning opportunities. At that time a scheme known as the Bearer Warrant Scheme (BWS) was available to non-UK domiciled individuals and advice from an Accountant or a Tax Adviser specialising in dealing with non- doms' would likely have referred to this. If the BWS was used in Mr Mehjoo's case, then the capital gains tax could have been avoided. The Court held that the Accountant erred by failing to advise the Claimant to take the advice of a non-dom specialist.

The case is currently subject to appeal, however, there are a couple of points worth considering:

  • The costs in defending and making this case even before the appeal will be considerable - Whilst the costs of any Chartered or Certified Accountant will be covered under the Professional Indemnity Insurance in addition to your limit of indemnity. The third party costs will be deducted from the limit of indemnity and can therefore erode the cover available
  • Costs on a complicated claim such as this can sometimes exceed the settlement amount
  • Is your letter of engagement drafted so as to limit your liability?
  • If so, does it make it clear that this limit applies in respect of all services provided - not only those that are listed?

The Accountant was held liable to pay the CGT, less the costs that would have been incurred in entering into a BWS scheme. In addition they were held liable for the £200,000 costs of Mr Mehjoo entering into the unsuccessful scheme, the Court noting that, "...these costs were the foreseeable damage flowing from the Defendants' failure to advise the Claimant to seek the advice of a non-dom expert, who would have advised the Claimant to use BWS." The total settlement is recorded at £1,400,000 with costs in addition.

Contrary to what has been reported, it appears that this case concerns the duty of an Accountant to advise their client that they should seek tax advice from a Specialist Tax Adviser.

Karen Brown Vice President Bristol

+44 (0)117 906 5033 karen.brown@uk.lockton.com 

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