Mehjoo v Harben Barker assessed
08 July 2013
Posted by: Author: Richard Highley
Author: Richard Highley
The finding to the effect that a generalist tax accountant can be liable for failing to advise a client to enter into an artificial scheme known only to "non-dom" specialists is potentially troubling. The judge overcame the difficulty of finding negligence by concluding that there was a duty to advise the claimant to seek the advice of a specialist.
This is returned to below. However, there is an issue which deserves comment beyond whether the decision opens up a new legal avenue to pursue tax advisers. The claim faced almost innumerable legal hurdles and yet was successfully brought to trial in spite of, or maybe because of, the huge costs involved. The rewards for claimant lawyers in high value cases are driving change.
Turning first to the implications of the controversial finding, the judgment was so fact specific it is hard to draw a reliable legal precedent from it. However, this was arguably an interesting development of the duty of care line of authorities which if not actively encouraging, may presage more decisions where professionals who hold themselves out as competent generalists are under a duty to refer a client to specialists.
Huge changes are afoot in so many arenas of business life. The increasing willingness of the UK courts to develop existing legal boundaries to reflect the complexity of the modern world is something to keep an eye on with a relatively (by historic standards) young and socially aware Supreme Court. It represents both a business opportunity, and a risk for professional indemnity insurers.
Next, litigation funding. We are becoming inured to hearing of high litigation costs, and that tells its own tale. It is reported that almost £5m of costs were incurred by the claimant in pursuing his claim in respect of some £850,000 of CGT which he claimed he should not have had to pay had he received proper tax advice.
The case is a model for how costs can balloon once a case of any complexity is allowed to proceed to trial.
One does not need to be a qualified accountant to work out that this litigation on the face of it did not represent a good business proposition for the claimant and the commercial driver for the litigation at some point became about legal costs rather than the merits of the original claim.
We do not know the funding arrangements for Mr Mehjoo, but, regardless, the case illustrates that for most parties involved in complex cases, the choices are early settlement or the introduction of a funder, either the legal advisers acting under a Conditional Fee Agreement (CFA) or Damages Based Agreement (DBA), or a financial institution which is prepared to invest in the litigation for a share of the proceeds.
In the US, litigation has long been viewed as business opportunity, supported and largely driven by a well-funded and proactive claimant Bar. In the UK we are moving inexorably to the US reality, albeit with different business drivers.
The US does not have adverse costs orders, we do. US lawyers look to be paid from the results of the litigation. In the UK lawyers still look to be paid from the threat, or granting of, adverse costs orders.
Either way, I believe that we have reached the point where the rewards are sufficiently large for the claimant lawyers to drive the process, not as previously has been the case for years just for personal injury claims, but for higher value claims. This is a challenge for professional indemnity insurers. Sometimes, as in this case (evidently) the defendant professional and its insurer must be prepared to stand its ground if it is not to be seen as a soft target.