Although claims against professionals, such as tax advisers, are referred to under the general title of 'professional negligence' claims, in the vast majority of cases, claims are brought by clients who have entered into formal or informal contracts for the provision of the professional services in question, and liability primarily arises out of that contractual relationship.
For clients and advisers alike when either considering or facing a claim, the starting point will be to consider any available contractual documentation and the terms agreed between the parties to identify the scope of the agreement and the term which it is alleged has been broken in breach of contract.
Many professional bodies, such as the ICAEW1, state that the contractual relationship with a client should be governed by an appropriate letter of engagement which will define the terms and limitations of the engagement and thereby provide protection in the event of a claim. Guidance to tax practitioners about engagement letters for tax work developed by the main tax and accounting bodies is available at http://www.icaew.com/en/members/practice-resources/practice-management/practice-development/client-engagement.
A tax adviser was found not to be negligent where the engagement letter covered tax compliance services and clearly distinguished between those services, which it was obliged to provide, and ad hoc planning and advice, which would require a separate agreement2.
The difficulties which can arise in the absence of a letter of