Professionals should clearly outline the scope of the retainer and stay within its confines

In brief - Avoid misunderstandings which can lead to claims

The recent decision of the England and Wales Court of Appeal in Mehjoo v Harben Barker (A Firm) & Anor [2014] EWCA Civ 358, whilst not binding in Australia, provides useful guidance for professionals on the importance of defining the scope of a professional's retainer in a formal retainer letter, and the circumstances where the retainer may, or may not, be extended.

Minimisation of CGT on the sale of shares

Mr Mehjoo was a dual Iranian/British national who retained a firm of chartered accountants, Harben Barker ("HB"), to provide general accountancy services and general tax advice. In 1999 Mr Mehjoo signed an engagement letter with HB to that effect.

The engagement letter included a stipulation that HB would provide tax planning advice if requested. In subsequent years, from time to time HB proactively volunteered tax planning advice, and advice on Mr Mehjoo's business and personal financial affairs, despite not having been asked to do so.

In 2004, Mr Mehjoo was in the process of selling his shares in a business. On 2 October 2004, he held a meeting with HB to discuss measures for minimising capital gains tax (CGT) on the sale. The claim by Mr Mehjoo was that HB failed to identify and advise that he may have been entitled to non-domicile status which carried significant tax advantages, and that as a result he should seek specialist advice on schemes such as a Bearer Warrant Scheme which could have avoided any CGT liability altogether. Ultimately, other attempts by Mr Mehjoo to avoid CGT proved unsuccessful.

English High Court decision at first instance: retainer had been extended by the proactive volunteering of advice

In Mehjoo v Harben Barker (A Firm) & Anor [2013] EWHC 1500 (QB), Justice Silber considered whether HB's retainer extended to CGT and tax planning advice (despite no express request for such advice) and whether HB had a duty to advise on the possibility that Mr Mehjoo was entitled to non-domicile status and ought to seek specialist advice in that regard.

His Honour found that HB's unsolicited tax advice from 1999 onwards had varied and expanded the retainer beyond the initial engagement letter. As a result, HB was required to consider Mr Mehjoo's best tax position and give appropriate advice as to how he could reduce his tax liability, even if no such advice had been expressly requested. This extended to the 2 October 2004 meeting, when HB was under an obligation to...