Engineers can't use 'overarching contract' defence to limit liability

The High Court has rejected a claim that a firm of accountants failed in their duty of care and should be held liable for a client’s failed investment.

The client, Mr Knights, sought damages from Townsend Harrison Ltd for losses he suffered after the firm introduced him to three tax schemes and an investment opportunity.

Townsend was not authorised by the Financial Conduct Authority to conduct investment business and was therefore not permitted to recommend individual investments under the Financial Services and Markets Act 2000.

However, it was licensed by the Institute of Chartered Investments in England and Wales to provide limited investment services complementary to, or arising out of, the professional services it provided to clients.

It was therefore entitled to provide advice on investments generally, and to refer clients to third parties.

The firm introduced Knights to several parties regarding the tax schemes and the investment opportunity. Two of the tax schemes had failed to achieve the desired tax savings, and the other appeared likely to fail in the same way. The investment had resulted in a total loss of the funds invested and it was likely that it had been a Ponzi scheme.

Knights alleged that the firm owed a duty of care in making the introductions to the providers of the tax schemes and providing advice regarding those schemes. He claimed it had agreed to carry out due diligence in respect of the investment but failed to do so and further breached its duty of care in making incorrect statements about the investment.

Townsend maintained that it acted as a mere introducer of the tax schemes and the investment and had stated in its terms of business and limitation of liability letters that it did not and could not provide advice on those matters.

It therefore denied that any duty of care arose for any of the introductions, or that it was under any other obligation to carry out due diligence concerning the investment.

The court ruled in favour of Townsend.

It held that Knights’ case could not succeed. There was insufficient evidence to support the contention that Townsend had assumed any responsibility to give advice. The limitation of liability letters clearly explained that the firm could not advise on the success or otherwise of any tax planning strategy.

Knights had acknowledged that Townsend was not providing formal advice. He had failed to establish the existence of the duty of care alleged, and it followed that no breach of duty had been established.

Please contact us if you would like more advice about the issues raised in this article or any aspect of professional negligence.