Accountants sued for negligence for failure to advise of a change in the law

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The recent case of Integral Memory PLC v Haines Watts [2012 EWHC 342 (Ch) demonstrates why professionals need to advise their clients of changes in the law or legislation if they have promised to do so.

For claimants, it serves as a reminder to seek legal advice as soon as they think they may have a claim for professional negligence to avoid a claim being time barred.

Firm of accountants, Haines Watts, was retained by Integral Memory PLC to provide tax advice in relation to a discretionary bonus scheme. The scheme's aim was to achieve savings in national insurance contributions for the company. The accountants advised that the scheme would work and achieve savings for the company until there was a change in the law and that they would advise the company when that happened. However, they did not. There was a change in the law in 2003 which negated the benefit of the scheme. The company only found out about this when they sought advice in August 2009 and as a result, had to make an unexpected payment to HMRC of in excess of £100,000.

They waited until May 2011 before issuing a claim against the accountants for professional negligence. The accountants argued that the claim was clearly out of time, (as usually a claim for negligence must be made within 6 years of the date of the breach). Here the breach was the failure of the accountants to advise the company in 2003 when the law changed. The company argued that the accountants had a continuing obligation to advise of them of the change in law, so they could review their tax affairs. However, the judge rejected this argument and said that the duty to advise occurred in 2003 when the law changed. As this did not happen, there was a clear breach of duty and as a result, negligence. However, the claim could not succeed as it was well out of time, so the company were not able to recover their losses.

There are several lessons to learn from this case. First, professionals, particularly accountants, tax advisers and financial advisers should remember to advise clients of changes in the law if they have promised to do so. Second, companies and individuals should have regular reviews with their accountants, financial and tax advisers to ensure that all financial arrangements in place are still beneficial to them. And third, companies or individuals should seek legal advice as soon as they consider that they may have a claim for negligence. They should not delay to avoid being time barred as claimants cannot argue that a professional has a continuing duty to do something to overcome a strict time limit.

Photograph of Richard Portlock

Richard specialises in professional liability, including negligence and cases involving dishonesty, fraud and breach of fiduciary duty.

Richard Portlock
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