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Does a Duty of Care Arise when an Accountant is Acting as an Introducer?

December 2021
Joe Eizenberg and Sarah Hinton

The answer to the question posed is unfortunately, of course, highly fact specific. However, the recent High Court case of Knights v Townsend Ltd [2021] EWHC 2563 (QB), provides some useful guidance to practitioners as to when such a duty is or is not likely to arise. We discuss the facts of the case and the key takeaways from the decision below.


In September 2011 the Claimants engaged the Defendant chartered accountants. The Defendant introduced the Claimants to three tax schemes and an investment opportunity. The tax schemes were successfully challenged by HMRC and failed, and the investment opportunity resulted in a total loss of funds. In respect of the tax schemes the Claimants brought a claim alleging:

  • The Defendant breached its duty of care by providing negligent positive advice and encouragement in relation the tax schemes.
  • In the alternative, the Defendant breached its duty of care by negligently introducing the schemes to the Claimants.
  • The breaches of duty of care caused the Claimants to enter into the tax schemes, as a result of which they had suffered loss and damage.

In respect of the investment opportunity, the Claimants alleged:

  • The Defendant agreed but failed to carry out due diligence in relation to the investment opportunity and similarly provided negligent positive advice and encouragement in respect of it.
  • The breaches of duty of care caused the Claimants to commit funds to the investment which were lost.

The Decision

The High Court dismissed the claim on the basis that the Claimants failed to prove their case on duty of care.

In considering whether there was a duty of care the court followed Carney v Rothschild Investments [2018] EWHC 958 (Comm), applying the following legal principles:

  • Whether the Defendant had given what could be properly described as ‘advice’? and
  • Whether in doing so, the Defendant had assumed responsibly for its advice or owed a duty of care by one of the other well-known incremental tests for establishing duty at common law.

In considering the second question, the Judge stated that where the Claimants had engaged the Defendant accountants and the issue was the scope of that retainer, it was appropriate to apply the assumption of responsibly test laid down in Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] UKHL 4. There are essentially two elements to this test:

  • Whether the defendant reasonably foresaw that the claimant would rely on its advice.
  • Whether the claimant did in fact reasonably rely on the advice.

The advice claim

In applying the legal principles above, the Judge first considered what advice, if any, was provided.   The Judge found that the Defendants did generally encourage the Claimants to consider the tax schemes. The Judge stated that whether the Defendant had assumed responsibility for the statements/encouragement given (and thereby had a duty of care to the Claimants) must be objectively assessed by reference to what a reasonable person in the position of the parties would have understood. On the facts of the case, the judge was not persuaded that the Defendant assumed any responsibility in relation to any encouragement/advice provided in relation to the tax schemes. The key reasons for concluding this were:

  • The Defendant’s engagement letter contained limitations of liability and made clear that it was not providing advice or recommending any particular investment.
  • The retainer required the Claimants to confirm that they were relying purely on external advice.
  • The Claimants signed the various declarations above stating that they had understood the terms.
  • The Claimant had in fact received advice from another party (the scheme providers).

As to the investment opportunity the judge was similarly unable to conclude that the defendant had agreed or had assumed responsibility to carry out a due diligence exercise of the kind that the claimants contended.

The introduction claim

The judgment clarifies that there may be circumstances where a duty of care is owed to clients in relation to introduction cases. The Judge stated that the relationship between a client and its accountant is one of trust and confidence. On the facts of the case, the Judge held that there was no support for the proposition that these types of tax schemes ought not be introduced to the Claimants or that the Claimants were unsuitable persons to be introduced.


The judgment in Knights v Townsend contains some useful analysis on the legal principles which will be applied to assessing accountants’ duty of care to their clients.  Whether a duty of care exists, and the scope of that duty, will of course be objectively assessed and will be highly fact specific.  However, what is abundantly obvious from the decision is that clear letters of engagement whether acting as introducer or advisor will likely be highly relevant to the court’s objective consideration as to whether there had been an assumption of responsibility by the practitioner. As such, the judgment should provide some reassurance to professionals and their insurers in instances where engagement terms have been carefully drawn up.

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