View more on these topics

Peter Hamilton: Avoid ‘open-ended advice’ with your terms of business

Peter-Hamilton-700x450-MM-New.jpg

Does a financial adviser have a duty to advise a client on matters which lie outside the scope of the immediate instructions given by the client? The answer will depend on the facts of the case.

The starting point will be the terms of business or client agreement, which will govern the relationship between adviser and client until ended by notice. However, it will not necessarily set out what the adviser has agreed to do at any given time; rather, it provides the framework within which the adviser will work.

Although an adviser’s primary duty is to carry out what he has agreed with his client, he may be bound by a wider duty to advise the client in relation to something which, strictly speaking, lies outside the scope of the immediate job.

To prevent the occurrence of an unexpected duty to advise, the general terms of business should be drafted to make it clear that the adviser has no duty beyond the immediate task in hand. The adviser should also define that task in a way that excludes any further duties.

These principles apply to advisers in all professions. In a court judgment on a solicitor’s negligence case in 1979, Mr Justice Oliver said: “There is no such thing as a general retainer…  The expression “my solicitor” is as meaningless as the expression “my tailor” or “my bookmaker” in establishing any general duty apart from that arising out of a particular matter in which his services are retained. 

“The extent of his duties depends upon the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do.”

Case in question

In March this year, the Court of Appeal considered the case of Mehjoo vs Harben Barker. Mr Mehjoo was a long-standing client of accountancy firm Harben Barker. 

Mehjoo and his co-shareholder owned a limited company which ran a fashion business. In April 2005, the company was sold for £22m, of which Mehjoo’s share was £8.5m. The litigation centred on Mehjoo’s attempts to avoid the payment of capital gains tax.

Lord Justice Patten outlined the facts as follows: “At the heart of the claim is the allegation that Mr Mehjoo retained his Iranian domicile of origin for UK tax purposes and could, by entering into what is described as a bearer warrant scheme, have avoided CGT entirely on the disposal of his shares. 

“It is not alleged that Harben Barker were a firm of accountants which specialised in giving tax advice of this kind; that they were ever asked to give such advice; or that they ought to have known of the existence of the BWS or any other specialised scheme designed to reduce or eliminate CGT on a disposal of shares in a UK-registered company by a non-dom like Mr Mehjoo. It is accepted that they were generalist accountants. 

“But what is claimed is that Harben Barker… had, as a reasonably competent chartered accountant, the obligation to advise Mr Mehjoo that he had or very probably might have non-dom status, which carried with it significant tax advantages, and that he should therefore seek and obtain tax advice from a firm of tax advisers or accountants which specialised in advising non-doms on their tax affairs. 

“Mr Mehjoo’s case was that armed with this advice, he would have gone to such a specialist; been advised to enter into a BWS; and implemented that advice before the scheme was blocked by primary legislation.”

Mehjoo succeeded at the trial and Harben Barker appealed. As his accountants, Harben Barker provided Mehjoo with accounting services and advice generally in relation to his tax and other financial and business affairs. Harben Barker’s letter embodying its terms of business dealt with its responsibilities in relation to income tax and CGT, including dealing with “other routine compliance matters as necessary, [and] giving you general tax-planning advice on the best use of reliefs”.

No obligation

The trial judge interpreted that letter as not imposing any obligation on Harben Barker to advise Mehjoo on how he might minimise his tax liabilities unless it was specifically requested to do so. The Court of Appeal agreed and went on to say there is no such thing as a general retainer. 

Harben Barker could be responsible for giving advice on how to avoid CGT on the disposal of his shares by means of a BWS only if it had been asked and agreed to do so. Harben Barker succeeded on appeal.

The key point for advisers is to ensure that they define precisely what they agree to do and that their terms of business are narrowly drawn and do not expose them to providing open-ended advice.

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk

Recommended

3

Chris Gilchrist: Zombies win, clients and advisers lose

The vast majority of extant UK life and pension policies are now administered by zombies and the way financial engineering has asset-stripped both mutual and listed life companies has created new hazards. The FCA claims a consumer focus, but in its row-back from the Telegraph’s interpretation of an FCA thematic review that could decimate lifeco profits, […]

Bolton Anthony Fidelity 2014

Bolton’s final word on China

Many investors are making a big mistake by looking at China from a Western perspective, according to investment legend Anthony Bolton.  After his first retirement, the veteran fund manager was enticed back into the game in 2010 by the prospect of investing in China. The result was mixed, with the Fidelity China Special Situations fund […]

Mourinho OOC

Out of Context: “We’ve had more housing ministers recently than Chelsea managers”

“How can there be any coherent policy to tackle the housing supply issue when we’ve had more housing ministers recently than Chelsea have had managers?” Paragon Mortgages CEO Nigel Terrington says housing ministers should not be churned with the same frequency as Premier League football managers. “It took him three years to die, the bastard.” […]

Sign-Signing-Letter-Contract-Business-700.jpg

Better Business: Benchmarking your business

Benchmarking compares your business to the rest of the market and provides context for competitive analysis. There are two main stages – gathering external data and assessing your position. Gather market information as follows: From the trade press and specialist research projects Provider and supplier analysis of the market – they will include useful data […]

Neptune’s Burnett looks beyond Greece

Watch Rob Burnett, manager of the Neptune European Opportunities Fund, discuss the Greek bailout deal and its potential implications for European equities. In the video Rob discusses: Why, with the Greek crisis receding, markets can now focus on Europe’s strong fundamentals The resilience of European markets and why the recovery is on a solid footing […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Nick Pilkington 14th April 2014 at 4:43 pm

    I wonder what the judgement (without the leave to appeal) would have been against an IFA in similar circumstances by the FOS?

  2. and therein Nick lies the question…

  3. Since the FOS has no interest in the “Law of Contract” …its pretty obvious… Plaintiff 1 Accountants 0

  4. And, as Lord de Ramsey said in the House of Lords, 21 January 1998: Semper in excretia sumus, solim profundum variat. A pretty fair summation of where we are thanks to 25 years of unbridled regulation.

    Update : Thank you !

    .

    Best Answer
    Katie answered 3 years ago

    We’re always in the manure, only its depth varies.
    Lord de Ramsey said this in the House of Lords, 21 January 1998

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com