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Do accountants have continuing duty to advise clients of a change in the law?

The case

Integral Memory plc v Watts [2012] EWHC 342 (Ch)

The issue

Were accountants under a continuing duty to advise of achange in the law after a tax scheme had been put in place?

The facts

The defendant accountants (D) gave the claimants (C) taxadvice on a discretionary bonus scheme designed to achieve NIC savings. Twoletters dated June 1997 and March 1988 set out the terms of the retainer.

In 2000 HRMC formally demanded payment of NIC and unpaidinterest. D provided C with their views on the continued viability of thescheme. In 2003 HRMC issued proceedings for protective purposes but theproceedings were not progressed whilst litigation over related schemes wentthrough the courts.

Eventually in 2009 HRMC and C reached agreement. Under thesettlement, C agreed to pay the outstanding NIC and interest of £103,296.34. On11 May 2011 C sued D for the interest (but not the NIC itself) on the groundsthat D failed to advise D of a change in the law in 2003 which meant the schemewould fail. D was granted summary judgment on the grounds that the claim wasstatute-barred. C appealed, arguing that D was under a continuing duty to adviseon the effectiveness of the tax scheme.

The decision

D was not under a continuing duty to advise. The initialretainer letters did not cover a continuing duty, and the fact that D hadprovided advice on the scheme in 2001 did not alter their obligations under thewritten retainer.

Even if there was a continuing duty, D was negligent when itfailed to advise C to settle with HRMC because the scheme had failed in 2003.From that date onwards, D failed to remedy its original breach but did notcommit a further breach. All breaches therefore occurred more than six yearsbefore the professional negligence claim was issued.

C also argued that the limitation period in tort only beganwhen it accepted HRMC’s settlement proposal, as before then the liability for interestwas contingent only, depending on whether or not HMRC succeeded in a taxtribunal or settled the litigation. The court disagreed, finding that there waseither a liability to pay interest or not. The tax tribunal was simply decidingwhether that liability existed. Equally the power of HRMC to remit interestwould only reduce the actual liability to pay interest. In both scenarios,there was still an actual, not a contingent liability within Law Society vSephton principles, and that actual liability arose more than six years beforethe issue of proceedings.

C’s attempt to rely on the extended limitation period unders14A failed, as it was clear from the correspondence that C had actualknowledge of the material facts more than three years before proceedings wereissued.

Comment

This is a useful case on the approach to be taken whenestablishing the starting date for limitation in failure to advise cases. It isparticularly useful in cases where a defendant gives incorrect advice, whichcould be remedied, but is not. This case demonstrates that the breach occurswhen the defendant fails to give correct advice - after that there is anongoing failure to remedy the breach, not a fresh breach which would startlimitation running again.

This article was first written by Bond Pearce and has beenreproduced with their permission. Bond Pearce are a leading UK business lawfirm, to find out more go to bondpearce.com.

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