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”.
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