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Are accountants under a continuing duty to advise on a material change in the law? In a recent case, Integral Memory Plc v Watts [2012] EWHC 342 (Ch) (22 February 2012) the High Court was asked to consider this in deciding whether a claim against a firm of accountants was out of time.
The case concerned claims against the defendant accountants in negligence, breach of contract and misrepresentation arising out of tax advice in connection with a discretionary bonus scheme. The purpose of the scheme was to achieve NIC savings.
Two letters dated 16 June 1997 and 4 March 1998 set out the terms on which the defendant agreed to act.
On 31 January 2001, HMRC demanded payment of NIC from the claimant together with interest. There was significant delay in dealing with HMRC’s claim. Between early 2000 and 2003 the defendant advised the claimant on a number of occasions to make protective payments in order to avoid exposure to interest on unpaid NIC.
Proceedings were commenced by HMRC against the claimant on 11 June 2003, but were not progressed significantly. In August 2008, HMRC asked whether the claimant wished to appeal or settle the matter and an offer of settlement was made. On advice, the claimant reached an agreement with HMRC on 30 October 2009.
The claimants brought a claim against the defendants for the total sum paid to HMRC (excluding NIC) of £104,096.34 on 11 May 2011. The defendant was given summary judgment on the basis that the claim was timed barred.
Under the Limitation Act 1980 there is a limitation period of six years for actions in respect of simple contract or tort. The period begins to run from the date on which the cause of action accrued. Where at the time the claimant’s cause of action accrues he does not have knowledge of all the material facts, the limitation period is the later of either 6 years from when the cause of action accrued or three years from the date when the claimant knows or ought to have known the material facts about the loss suffered, the identity of the defendant and his cause of action. There is a fifteen year long-stop date from the date of the defendant’s negligent act or omission.
On appeal, the court found that, although there was a continuing relationship between the claimant and the defendant, as a matter of construction of the original retainer, there was no continuing duty on the defendant to advise the claimant of a material change in law or that the scheme had failed.
Even if there had been a continuing duty, the defendant had been negligent or breached its contractual duty in failing to advise the claimant to settle with HMRC in 2003 when HMRC issued proceedings against the claimant. The advice which the defendant was alleged to have failed to give thereafter was the same advice which it was alleged should have been given in 2003. It did not constitute a further breach of contract or set a new six-year limitation period running.