Legal expert Mark Tunstill and professional indemnity claims specialist Glenda West outline the measures needed to protect advisors in the current climate
Cash-strapped governments across the world are trying to track down every potential penny in tax revenues, and an integral part of those efforts is the campaign against tax avoidance that is dominating headlines in the UK and abroad. As tax structures such as the now-infamous K2 scheme used by Jimmy Carr or Starbucks’ use of intellectual property, are called into question, clients will, doubtless, want to be reassured about the validity of advice given to them previously.
In some instances, questions can turn into formal complaints or professional negligence claims, especially if the client finds him or herself under HMRC investigation over a particular scheme. Some of the biggest names in accountancy have faced negligence claims against them this year, including Haines Watts, KPMG and E&Y, highlighting that no firm is safe.
Yet, concerns or even a claim need not always spell the end of a client relationship if handled in the right way. What do advisers need to know to protect themselves and their business? What circumstances typically lead to a claim and what should you do when one comes in?
Typical claim scenarios...
Joint and several liability can pose real concerns for partnerships. In the 2010 case of Goldberg & Ors v Miltiadous & Ors the defendants were accountants in partnership who were all held liable when one of their number gave investment advice without being authorised to do so. One feature of the case was that the partnership agreement did not preclude any particular partner from giving investment advice nor was there anything to suggest to any member of the public or any client that the authority of any particular partner was limited.
Mission creep is another common issue. Often, advisers are exposed to claims when they represent a client over a number of years or even decades and the scope of work changes significantly beyond the original engagement letter and caveats included within that, leaving practitioners exposed. In the £100K+ claim brought against Haines Watts this year by Integral Memory Plc the claimant asserted that the accountants were under an implied and continuing duty to advise on any changes in the law.
The advice concerning a discretionary bonus scheme in respect of NI payments was given in the late 1990s; the change was alleged to have happened in 2003 and the court found the claim time-barred when it was brought this year.
Nevertheless, the case illustrates the importance of a clear and up-to-date definition of what the practitioner is engaged for. In Integral Memory Plc v Haines Watts, the claimant alleged that the accountants were liable as its on-going tax advisers; the accountants had the benefit of the court’s view that they were not under a continuing duty to advise as to whether the scheme was effective in law once it had been put in place. Other claims brought this year alone in respect of tax and/or financial advice include Arrowhead v KPMG, Pegasus v Ernst & Young and Quayle v Rothman Pantall & Co.
…And if you are facing a claim:
Insurers are naturally alert to the risks that accountants face. They generally allow firms to manage claims and circumstances themselves until the start of litigation but dealing with a claim, especially if it is the first one for your firm can be stressful and time-consuming. Whatever happens, the following tips would stand you in good stead:
- Inform indemnity insurance brokers. A good insurance broker will guide their client through the notification clauses of their professional indemnity insurance policy to ensure that Insurers accept a notification and, furthermore, will assist in coming to a satisfactory resolution.
- Do not delay. Address the issue raised immediately and seek legal advice
- Do not get into a defensive frame of mind - try to look at the claim dispassionately
- Above all, do not panic
Mark Tunstill is a legal expert at Tunstill & Co and Glenda West is a professional indemnity claims specialist at Prime Professions