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Y2. Scope of duty

Scope of the duty: general

Scope of the duty: general

- Extent of duty depends on terms and limits of instructions

"[69] I agree that the appeal should be allowed for the reasons given by Lord Justice Patten. What, to my mind, went wrong was that the judge lost sight of the wise words of Oliver J in Midland Bank Trust Co Ltd v Hett Stubbs & Kent [1979] Ch 384 at 402:

"There is no such thing as a general retainer in that sense. 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.
Now no doubt the duties owed by a solicitor t
o his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the court must beware of imposing upon solicitors - or upon professional men in other spheres - duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his client's general interests, take it upon himself to pursue a line of inquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what the reasonably competent practitioner would do having regard to the standards normally adopted in his profession, and cases such as Duchess of Argyll v Beuselinck [1972] 2 Lloyd's Rep 172; Griffiths v Evans [1953] 1 WLR 1424 and Hall v Meyrick [1957] 2 Q.B. 455 demonstrate that the duty is directly related to the confines of the retainer."

[70] In my judgment it was impermissible for the judge to infer from the limited occasions upon which Mr Purnell pursued a line of inquiry beyond the strict limits of his retainer that there had been a far reaching (but silent) variation of the retainer, which had the effect of imposing an open-ended and apparently limitless duty upon HB." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Lewison LJ)

- Extent of duty depends on terms and limits of instructions

Accountant not under a general roving duty to advise on all aspects of C's affairs

"[24]...As the judge observed in [126] of his judgment, there is no such thing as a general retainer and the terms and limits of the retainer and any consequent duty of care therefore depend on what the professional is instructed to do: see Regent Leisuretime Ltd & Ors v Skerrett & Anor [2006] EWCA Civ 1184; [2007] PNLR 9. An accountant in the position of HB was not therefore under a general roving duty to have regard to and to advise on all aspects of the claimant's affairs absent a request to do so." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- Accountant not under a general roving duty to advise on all aspects of C's affairs

Accountant dealing with personal financial affairs has duty to point out hidden tax consequences of a proposal

"[39] It is clear from this evidence and the various occasions when Mr Purnell did proffer unprompted advice to Mr Mehjoo about the tax consequences of particular financial and other transactions that Mr Purnell did consider that he owed a duty to his client to avoid unnecessary (and perhaps unforeseen) adverse tax consequences when it was possible to do so. None of this is surprising or particularly controversial. An accountant who is retained by a client to deal with his personal financial affairs will inevitably have to point out what might be the hidden tax consequences of any particular proposal. This may well arise in the context of carrying out general accounting services such as preparing tax returns or more general discussions about the client's business plans. Similarly, in handling the client's tax affairs the client can expect his accountant to advise on any available tax reliefs under the relevant fiscal charge which may be available to him to reduce his tax liabilities." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- Accountant dealing with personal financial affairs has duty to point out hidden tax consequences of a proposal

But not to identify sophisticated tax planning opportunities

"[40] But routine tax advice of this kind, though an important part of an accountant's ordinary duties, is not what this case is about. And Mr Stewart is, I think, right in his submission that much of the difficulty with the judge's analysis of the scope of HB's retainer and duty of care stems from a failure to differentiate between the tax advice of the kind which Mr Purnell gave to Mr Mehjoo on the occasions referred to by the judge and the much more sophisticated form of tax planning exemplified by the BWS which often involves a re-formulation of the transaction in order to bring about particular tax consequences rather than a mitigation of the tax liability which the transaction will otherwise produce.

[41] No distinctions of this kind appear in the passage of cross-examination I have referred to and there are obvious dangers in using the term "tax planning" without making it clear what one is referring to. HB were not specialist tax planners of the kind I have mentioned and never offered to give the claimant such advice. Their retainer letter listed entirely conventional forms of tax advice including what they described as tax planning advice on the best use of reliefs. A more extensive tax planning service was available only on request and was never requested. On the occasions the judge refers to, Mr Purnell gave Mr Mehjoo tax advice in a pro-active way but none of it was of this latter more specialised kind. It either involved alerting Mr Mehjoo to potential tax liabilities if a particular course of action was pursued or advising him on the most tax effective way of purchasing his second boat." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- But not to identify sophisticated tax planning opportunities

- May have duty to advise that their might be more radical planning opportunities​

 

"[52] ... It may reasonably be said that a firm such as HB should at least have alerted Mr Mehjoo to the possibility that there might be available a more radical scheme. But that is what they in fact did and Mr Mehjoo took the matter no further. What, however, is said in the action is that, had they advised him that he was a non-dom which carried with it significant tax advantages, he would immediately have sought advice from non-dom specialists and this would have connected him up with the BWS scheme." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- May have duty to advise that their might be more radical planning opportunities​

- No duty to advise on tax advantages which adviser reasonably did not know existed

 

"[61] I am not therefore persuaded that HB were under any duty to advise the claimant of significant tax advantages which, to their reasonable knowledge, did not exist." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- No duty to advise on tax advantages which adviser reasonably did not know existed

Scope determined by the risks the duty was supposed to guard against

"[17] Therefore, in our view, in the case of negligent advice given by a professional adviser one looks to see what risk the duty was supposed to guard against and then looks to see whether the loss suffered represented the fruition of that risk. This is the point of the mountaineer’s knee example given by Lord Hoffmann in SAAMCO at p 213." (Manchester Building Society v. Grant Thornton UK LLP [2021] UKSC 20)

Scope determined by the risks the duty was supposed to guard against

- Relevance of distinction between duty to provide advice and duty to provide information: responsibility for the final decision

[19] In our view, for the purposes of accurate analysis, rather than starting with the distinction between “advice” and “information” cases and trying to shoe-horn a particular case into one or other of these categories, the focus should be on identifying the purpose to be served by the duty of care assumed by the defendant: see section (ii) above. Ascribing a case to one or other of these categories seems to us to be a conclusion to be drawn as a result of examination of that prior question.

[20] This also corresponds with Lord Sumption’s explanation at paras 40 and 41 of what is involved in an “advice” case and an “information” case, respectively. In an “advice” case, the adviser’s duty “is to consider all relevant matters and not only specific factors” (and what counts as a relevant matter for the adviser is determined by the purpose for which he has agreed to give advice: see para 44). Where the adviser is responsible for guiding the whole decision-making process, the adviser’s responsibility extends to the decision. In that circumstance, as Lord Sumption explains (para 40), “[if] the adviser has negligently assessed risk A, the result is that the overall riskiness of the transaction has been understated. If the client would not have entered into the transaction on a careful assessment of its overall merits, the fact that the loss may have resulted from risks B, C or D should not matter”.

[21] By contrast, in an “information” case (Hughes-Holland, para 41), the adviser contributes a limited part of the material to be relied on, “but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusively matters for the client” (emphasis added), and in such a case “the defendant’s legal responsibility does not extend to the decision itself”; the result then is that the defendant is “liable only for the financial consequences of [the information] being wrong and not for the financial consequences of the claimant entering into the transaction so far as these are greater”.

[22] We welcome Lord Leggatt’s proposal (para 92) to dispense with the descriptions “information” and “advice” to be applied as terms of art in this area. As Lord Sumption points out in Hughes-Holland, para 39, both “advice” and “information” cases involve the giving of advice. For the reasons we give, we think it is important to link the focus of analysis of the scope of duty question and the duty nexus question back to the purpose of the duty of care assumed in the case in hand." (Manchester Building Society v. Grant Thornton UK LLP [2021] UKSC 20)

"[118]...On the facts of this case it seems to me that the defendants were clearly acting as an adviser responsible for advising the claimants as to what course of action they should take. This was not a case where the defendants merely contributed a limited part of the material on which the claimants would rely in then pulling together other relevant considerations and forming a view on the overall merits. Mr Dallimore as an experienced tax adviser was guiding the whole decision-making process. Accordingly it does not in my view fall into the "information" category identified by Lord Hoffmann but into the category of "advice"."

(Halsall v. Champion Consulting Limited [2017] EWHC 1079 (QB), HHJ Moulder)

- Relevance of distinction between duty to provide advice and duty to provide information: responsibility for the final decision

Duty to explain

Duty to explain

- Analogy with duty to explain in relation to financial advice

“[204] In the context of investment advice too, there must be proper dialogue and communication between adviser and client. In respectful disagreement with Ms Oppenheimer's submission, I do not think the required extent of communication between financial adviser and client to ensure the client understands the advice and the risks attendant on a recommended investment, is governed by the Bolam test.
[205] While Ms Oppenheimer is right to point to differences between the medical and financial contexts, they are not such as to lead to the conclusion that how much to say to a client is a question to be decided according to whether the adviser acted in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice.
[206] The reasoning in Montgomery is not, in my judgment, irrelevant outside the medical context. The expert evidence in the present case tends to indicate that there is little consensus in the financial services industry about how the treatment of risk appetite should be managed by an adviser (a point to which I shall return). As in the medical context, the extent of required communication with the client should not depend on the attitude of the individual adviser.” (O’Hare v. Coutts & Co [2016] EWHC 2224 (QB))

- Analogy with duty to explain in relation to financial advice
Duty to consider matters that are reasonably incidental 

Duty to consider matters that are reasonably incidental 

 

"[37] We were referred to extracts from Chitty on Contracts in relation to the implication of terms and to the Court of Appeal decision in Minkin. In that case, following a review of the authorities, Jackson LJ summarised the relevant principles in the following terms:

38. Let me now stand back from the authorities and summarise the relevant principles:

i) A solicitor's contractual duty is to carry out the tasks which the client has instructed and the solicitor has agreed to undertake.

ii) It is implicit in the solicitor's retainer that he/she will proffer advice which is reasonably incidental to the work that he/she is carrying out.

iii) In determining what advice is reasonably incidental, it is necessary to have regard to all the circumstances of the case, including the character and experience of the client.

iv) In relation to (iii), it is not possible to give definitive guidance, but one can give fairly bland illustrations. An experienced businessman will not wish to pay for being told that which he/she already knows. An impoverished client will not wish to pay for advice which he/she cannot afford. An inexperienced client will expect to be warned of risks which are (or should be) apparent to the solicitor but not to the client.

v) The solicitor and client may, by agreement, limit the duties which would otherwise form part of the solicitor's retainer. As a matter of good practice the solicitor should confirm such agreement in writing. If the solicitor does not do so, the court may not accept that any such restriction was agreed.

[38] As can be seen from this passage, a solicitor is under an implied duty to consider matters that are “reasonably incidental” to the work that the solicitor is carrying out. In determining what is “reasonably incidental” to the solicitor’s express retainer, it is necessary to have regard to all the facts and circumstances of the case." (Ketley v. HMRC [2021] UKUT 218 (TCC), Judge Cannan and Judge Greenbank)

- Reasonably incidental to advise on mitigation steps

 

"[39] On the evidence before the FTT, Mr Abrol was instructed to investigate what had happened and advise on the prospects of a professional negligence claim. In the context of that retainer, we accept that Mr Abrol’s investigation of the prospects of a professional negligence claim would ordinarily involve consideration of the mitigating steps that Mr Ketley may be expected to take in order to mitigate his loss. We say ordinarily, because in a complex area it may be that other professionals would be better placed to consider what could be done to mitigate the loss. Here, one only has to look at regulation 12 of the 2006 Regulations to see that there is provision to give a late notification. This was not a complex procedure. We are satisfied therefore that it would be “reasonably incidental” to the investigation of the potential claim that Mr Abrol would consider and advise on what steps might be required by way of mitigation. Those steps would include considering and advising upon the possibility of making a late notification to HMRC under the 2006 Regulations and the need to do so without unreasonable delay." (Ketley v. HMRC [2021] UKUT 218 (TCC), Judge Cannan and Judge Greenbank)

- Reasonably incidental to advise on mitigation steps

Duty to advise of risks outside retainer that adviser becomes aware of

 

"[69] The undoubted general principle should, however, not be read in an unduly restrictive or artificial way. In Credit Lyonnais v Russell Jones & Walker [2002] EWHC 1310 (Ch), [2002] PNLR 2, Laddie J said at [28]:
"A solicitor is not a general insurer against his client's legal problems. His duties are defined by the terms of the agreed retainer. This is the normal case although White v. Jones [1995] 2 AC 207 suggests that obligations may occasionally arise outside the terms of the retainer or where there is no retainer at all. Ignoring such exceptions, the solicitor only has to expend time and effort in what he has been engaged to do and for which the client has agreed to pay. He is under no general obligation to expend time and effort on issues outside the retainer. However if, in the course of doing that for which he is retained, he becomes aware of a risk or a potential risk to the client, it is his duty to inform the client. In doing that he is neither going beyond the scope of his instructions nor is he doing 'extra' work for which he is not to be paid. He is simply reporting back to the client on issues of concern which he learns of as a result of, and in the course of, carrying out his express instructions. In relation to this I was struck by the analogy drawn by Mr Seitler. If a dentist is asked to treat a patient's tooth and, on looking into the latter's mouth, he notices that an adjacent tooth is in need of treatment, it is his duty to warn the patient accordingly. So too, if in the course of carrying out instructions within his area of competence a lawyer notices or ought to notice a problem or risk for the client of which it is reasonable to assume the client may not be aware, the lawyer must warn him. …"
In my judgment, the same position should obtain in the case of other professionals, such as tax advisers." (Altus Group (UK) Ltd v Baker Tilly Tax and Advisory Services LLP [2015] EWHC 12 (Ch), HHJ Keyser QC)

Duty to advise of risks outside retainer that adviser becomes aware of

Examples

Examples

- No reason to mention domicile in the absence of reason to think it was relevant

 

"[56] The reasonably competent accountant setting out to advise Mr Mehjoo of the tax consequences of the sale would not, in my view, have been under any obligation to raise for discussion the claimant's domicile unless it was relevant to the CGT liability on the disposal. The accountant would have known that it gave Mr Mehjoo no tax advantages in relation to the sale of the BFL shares unless the situs of the shares could be changed. As this was something which HB neither knew or could have been expected to know was achievable, there was no reason to mention the matter still less a liability in negligence for not having done so. Although not in any sense conclusive, it is not insignificant that none of the other firms of specialist tax advisers whom Mr Mehjoo subsequently consulted suggested he should consult a non-dom specialist or raised the possibility of using a scheme like the BWS. None of them has been sued in negligence.

...

[58] The obligation to advise the claimant of his status as a non-dom seems to be based on the fact that by 2 October HB were aware that the sale of the BFL shares would generate a large cash sum possibly for future investment. But accountants are not paid to give unnecessary advice and I can see no reason, still less any obligation, on HB to have raised the claimant's non-dom status at the 2 October meeting when the only issue for discussion was the CGT payable on the disposal. The taxation of future income on a remittance basis could be the subject of discussion and advice as and when it arose. The last part of the judge's statement in the passage I have quoted is, with respect to him, a non-sequitur." (Mehjoo v. Harben Barker [2014] EWCA Civ 358, Patten LJ)

- No reason to mention domicile in the absence of reason to think it was relevant

- Auditors liable for losses on having to break swap transactions entered into in reliance on negligent advice that hedge accounting could be used

"[34] In the circumstances in which Grant Thornton gave its advice, the purpose of the advice was clear. They advised that the society could employ hedge accounting in order to reduce the volatility on its balance sheet and keep its regulatory capital at a level it could afford in relation to swaps to be held to term on the basis that they were to be matched against mortgages. In other words, the society looked to Grant Thornton for technical accounting advice whether it could use hedge accounting in order to implement its proposed business model within the constraints arising by virtue of the regulatory environment, and Grant Thornton advised that it could. That advice was negligent. It had the effect that the society adopted the business model, entered into further swap transactions and was exposed to the risk of loss from having to break the swaps, when it was realised that hedge accounting could not in fact be used and the society was exposed to the regulatory capital demands which the use of hedge accounting was supposed to avoid. That was a risk which Grant Thornton’s advice was supposed to allow the society to assess, and which their negligence caused the society to fail to understand.

[35] In our view, in the light of the findings he had made, Teare J was essentially correct in his summary at paras 172-173 in so far as he said:

 

“172.  I accept that it can be said … that the defendant [Grant Thornton] provided one piece of information or advice and that the claimant’s [the society’s] decision to enter into the swaps was based upon not only that information or advice but also upon other (commercial) considerations as to which no advice was given by the defendant. However, the information or advice supplied by the defendant was supplied with the accepted purpose of avoiding or mitigating the volatility to which the balance sheet would be exposed if hedge accounting were not deployed. Thus it was advice or information which was intended to protect the claimant from the consequences of that volatility. The defendant did not give any advice about the wisdom or otherwise of entering the swaps but must have appreciated that unless hedge accounting could be deployed [against] the volatility caused by changes in the fair value of the swaps the claimant’s regulatory capital position would be susceptible to adverse change. Hedge accounting was designed to protect the claimant from the effects of that volatility. That feature is not to be found in the classic information case referred to in SAAMCO and Hughes-Holland. Although the defendant in a classic information case owes no duty of care to the claimant in respect of his entering the transaction (see Hughes-Holland para 35) the defendant in the present case owed a duty of care in respect of one prospective consequence of the claimant entering into the transaction, namely, the volatility risk to which the claimant’s balance sheet is vulnerable from changes in the fair value of interest swaps. …

173.    This approach does not make the defendant an insurer in respect of the claimant’s business. For the defendant is not liable for all losses which might have resulted from entering into the swaps. For example if a counterparty to a swap became insolvent causing losses to the claimant such losses would not be within the scope of the defendant’s duty. Similarly, if a counterparty chose to exercise a right to terminate the swap thereby causing the claimant to have to pay the costs of such termination such costs would not be within the scope of the defendant’s duty. Such losses would not have been attributable to the respect in which the defendant’s advice was wrong, namely, that hedge accounting could be applied. Such losses would still have occurred had the defendant’s advice been correct.”

The society entered into the swap transactions in and after 2006 and did not close the prior swap transactions in 2006 because they were advised that hedge accounting could be deployed to counter the volatility risk and its consequences for the society’s regulatory capital. Those transactions exposed the society to the volatility on its balance sheet and its consequences for its regulatory capital when Grant Thornton’s error was discovered.

 

[36] However, the judge did not draw the conclusion that Grant Thornton were liable for the losses suffered by the society in being compelled to break the swaps once the true accounting position was appreciated. It is our view, with respect, that he should have done. As he said at para 149, “[i]t was the volatility of the balance sheet which led to the swaps being closed in 2013”, and hence to the loss suffered by the society. On the judge’s findings the society had suffered a loss which fell within the scope of the duty of care assumed by Grant Thornton, having regard to the purpose for which they gave their advice about the use of hedge accounting." (Manchester Building Society v. Grant Thornton UK LLP [2021] UKSC 20)

- Auditors liable for losses on having to break swap transactions entered into in reliance on negligent advice that hedge accounting could be used

- Doctor with duty to advise re risk of baby having one condition not liable for the costs of the baby having another condition (even though pregnancy would have been terminated if first risk known about)

"[68]...Dr Khan was in breach of her duty of reasonable care, as she readily admitted. Fourthly, as a matter of factual causation, Ms Meadows lost the opportunity to terminate the pregnancy in which the child had both haemophilia and autism. There was thus a causal link between Dr Khan’s mistake and the birth of Adejuwon. But that is not relevant to the scope of Dr Khan’s duty. In this case, fifthly, the answer to the scope of duty question points to a straightforward answer to the duty nexus question: the law did not impose on Dr Khan any duty in relation to unrelated risks which might arise in any pregnancy. It follows that Dr Khan is liable only for the costs associated with the care of Adejuwon insofar as they are caused by his haemophilia. One can also apply the SAAMCO counterfactual as an analytical tool by asking what the outcome would have been if Dr Khan’s advice had been correct and Ms Meadows had not been a carrier of the haemophilia gene. The undisputed answer is that Adejuwon would have been born with autism. Sixthly, given the purpose for which the service was undertaken by Dr Khan, and there being no questions of remoteness of loss, other effective cause or mitigation of loss, the law imposes upon her responsibility for the foreseeable consequences of the birth of a boy with haemophilia, and in particular the increased cost of caring for a child with haemophilia." (Khan v. Meadows [2021] UKSC 21)

- Doctor with duty to advise re risk of baby having one condition not liable for the costs of the baby having another condition (even though pregnancy would have been terminated if first risk known about)
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