The Court of Appeal has recently overturned a decision of the High Court which found a firm of accountants negligent for failing to advise a client of the tax advantages available to him on the disposal of shares.

The Facts

Harben Barker Limited and its predecessor, Harber Barker (the “Defendant”), was a firm of chartered accountants which was retained by Mr Hossein Mehjoo (the “Claimant”) to provide accountancy and general tax advice.

The Claimant was born in Iran and lived there until 1971, at which point he moved to the UK. The Claimant gained British citizenship in 1996.

In 2005, the Claimant sold his shares in a successful company known as Bank Fashion Limited for £8,508,586.50. The litigation between the Defendant and Claimant concerns the Claimant’s attempts to avoid capital gains tax (“CGT”) on the disposal of these shares.

The Claimant contended that, as reasonably competent chartered accountants, the Defendant had been obliged to advise him that he had or very probably might have had, non-domicile status owing to his Iranian origin which carried with it significant tax advantages. The Claimant further contended that the Defendant should have recommended that he sought and obtained specialist tax advice.

At First Instance

At first instance, the Judge found that, on the evidence, there had been a clear and mutually accepted understanding between parties, based on a course of conduct, that the Defendant had always been required to consider the Claimant’s best tax position and to give appropriate advice, including on how to reduce his tax liability, even when such advice had not been expressly requested.

The Judge found this obligation included advising the Claimant that he should obtain tax advice from a non-dom tax specialist. The Judge therefore found the Defendant had been negligent and awarded the Claimant damages.

The Defendant appealed.

On Appeal

The issues for determination by the Court of Appeal were:

whether the Judge had erred in finding that the retainer between parties extended to advising the Claimant generally in relation to his tax affairs including CGT planning, even in circumstances where the Defendant had not requested this; and
whether the duty to give general tax advice could be said to have included a duty to give advice to the Claimant that there were potentially significant tax advantages available to him as a non-domicile.

On Appeal, Patten LJ found that the Defendant was not “under a general roving duty to have regard to and to advise on all aspects of the [C]laimant’s affairs absent a request to do so” and, accordingly, held that the “fundamental variation in the terms of the retainer” which was found by the Judge could not be inferred on the evidence.

The Defendant could not have been expected to have known that there were advantages available to the Claimant on the sale of UK registered shares. As Patten LJ noted, the “reasonably competent accountant…. would not… have been under any obligation to raise for discussion the [C]laimant’s domicile unless it was relevant to the CGT liability on the disposal”.

In his judgment, Patten LJ found that “[t]he accountant would have known that it gave Mr Mehjoo no tax advantages in relation to the sale of the… shares unless the situs of the shares could be changed. As this was something which…. [the Defendant] neither knew or could have been expected to know was achievable, there was no reason to mention the matter still less a liability in negligence for not having done so”.

It was material to the Court of Appeal’s decision that the Defendant had previously alerted the Claimant “to the fact that various tax saving schemes might be available in relation to his impending capital gain”.

The Court of Appeal therefore found for the Defendant.


Whilst this case turned on its own facts, it highlights the importance of identifying the scope of an accountant’s retainer when considering a negligence claim.

For further information, please contact Georgina Squire or the Partner with whom you usually deal.