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Eversheds wins landmark UK Court of Appeal tax case

  • United Kingdom

    31-03-2014

    Global law firm Eversheds, acting on behalf of HCC International Insurance, has successfully appealed a High Court decision which had serious implications in relation to the scope of the duty of care owed by accountants to their clients.

    Hossein Mehjoo, a former owner of the fashion retailer, Bank, brought proceedings against his previous accountants, Harben Barker, a small firm of general accountants, alleging negligence in relation to tax advice regarding the disposal of his shares in the UK company which resulted in a gain of £8.5million.

    Mehjoo alleged that he should have been advised that he was, or possibly was, non–domiciled for UK tax purposes, which carried with it tax advantages. He argued that he should been advised to seek advice from a “non-domicile tax specialist”. Mehjoo contended that the “non-domicile tax specialist” would have advised him that he was non-domiciled and that he should enter into an aggressive tax avoidance scheme, which involved changing the situs of the shares, and which would have resulted in him avoiding paying Capital Gains Tax on the disposal.

    The High Court trial spanned 3 months and expert evidence was heard from leading tax experts at Grant Thornton and KPMG. The Judge, Mr Justice Silber, found in favour of Mehjoo and held that, despite the fact Harben Barker did not have the expertise to provide complex offshore tax planning advice, it was under a duty to refer Mehjoo to a non-domicile tax specialist, even though it had not been asked to do so, it was not contractually obliged to do so and was not aware of any benefit in doing so. The decision attracted considerable attention from the accountancy profession as it significantly changed the basis on which accountants were required to advise their clients.

    On 25 March 2014, the Court of Appeal unanimously overturned the Judge’s decision. Lord Justice Patten held that Harben Barker’s duty of care did not extend to advising Mehjoo to seek specialist tax advice and that a professional’s obligations are limited to the instructions set out in the retainer letter.

    The Eversheds team was led by partner Paula Gaddum assisted by associate Luke Gill.

    Paula Gaddum commented:

    “This was a very hard fought case and will live long in the memories of all those involved. It was our view that the first instance decision was seriously flawed. However, we have, to the satisfaction of our clients, the professional indemnity insurance market, and many within the accountancy profession, achieved an excellent result in the Court of Appeal which has restored some sense to the scope of the duties owed by accountants.”

    Mark Bowers, Head of Professional Indemnity Claims, commented:

    “I commend Eversheds on the fantastic and tenacious work put into this case. The legal team worked tirelessly with HCC International to get the right result for our client and accountants generally who were potentially affected by the erroneous decision of Mr Justice Silber.”

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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