Practice management: avoiding litigation

It is essential to stay on top of the seemingly basic and mundane details to avoid unnecessary litigation, says Karen Eckstein

This is the fourth in the series of articles on risk issues for tax advisers and accountants. In earlier articles I looked at risk issues arising out of engagement letters and distance selling, liability caps and risks in negotiating penalty settlements. This final article considers general risk management issues which may be relevant.

It is essential to stay on top of the seemingly basic and mundane details to avoid unnecessary litigation, says Karen Eckstein

This is the fourth in the series of articles on risk issues for tax advisers and accountants. In earlier articles I looked at risk issues arising out of engagement letters and distance selling, liability caps and risks in negotiating penalty settlements. This final article considers general risk management issues which may be relevant.

I have specialised in claims against accountants and tax professionals for over 20 years. The vast majority of claims against professionals (I would say over 75%) are caused not by getting the difficult bit, the law, wrong, but by getting the basics wrong. Missing deadlines, lack of clarity as to scope of retainer, failing to advise and update clients, for example.

These are a few of the basic risk management steps that can be taken to minimise the risk of such claims.

Engagement letters

Whenever I deal with professional negligence claims against an adviser I always ask to see the engagement letter because this will clarify who the client is, who the adviser is acting for and the scope of their retainer. I also ask for evidence that the client has received the engagement letter and agreed it. All too often, there is no evidence in the file that the engagement letter was ever sent to the client (it is surprising how often file copies are not retained), and there is no evidence of the client having agreed the terms thereof. Lack of evidence to support the agreement to the engagement letter can mean that any protections included within the engagement letter fall away.

It is important to consider who you are acting for. If you are acting for a company, are you acting for the directors, the shareholders, majority shareholders, or the minority shareholders (different duties may be owed to the different individuals)? This can be particularly relevant where, for example, there may be a restructuring or an MBO. The engagement letter should make it very clear for whom you are acting and what you are going to do.

If an adviser acts for a company and then also starts preparing the directors' personal tax returns, the corporate engagement letter will not extend to the directors personally and separate engagement letters will be required.

It is important to state what steps the adviser will be doing and, sometimes equally importantly, what he will not do. For example, when preparing accounts, it is important to clarify whether or not the professional is responsible for verifying the information underlying the accounts – is the accountant merely putting the information provided by the client into an accounts form or is he undertaking any form of 'sense check'? Failing to clarify the position can give rise to claims.

It is, in my view, a mistake to send an engagement letter out without a covering letter. Merely sending the engagement letter on its own means that there is no evidence that the client has received it if it is not signed and returned. Sending your client a letter asking him to, for example, supply certain documents to enable you to commence work, and attaching the engagement letter, means that, even if the client does not sign and return the engagement letter, as long as he acts on the other issues in your covering letter, you have evidence that he received the same.


There are an increasing number of claims arising as a result of the inappropriate use of email and the failure to implement appropriate policies.

The problem is that emails are immediate. In the past, if we received a letter, we would think about it, dictate a response, wait for it to be typed up, look at the letter, tweak the letter and it would then get sent out. In that timescale, there would be time to pick up any misunderstandings and nuisances.

Now, because email is immediate, a response tends to be typed almost immediately and the thinking time has disappeared. Sometimes it is useful to print off a draft email before it is sent to review it and pick up those issues.

Another risk in relation to emails relates to junior staff. While most firms have a post signing policy, whereby junior staff can only sign certain letters and those letters have to be approved by a senior, how do you prevent junior members of staff sending out emails to clients? More and more cases arise because somebody sends an email out to a client to be helpful and it causes a problem because it has either gone to the wrong person, or it has not been verified or corrected before it has gone. It makes sense to have an email policy so that junior staff can only send emails once a copy has been initialled by a senior as approved. Monitoring the emails needs to be undertaken to ensure that the policy is being complied with. Do not forget that the informality of emails can be dangerous – just because an email is informal does not mean that a client will not sue you if the information contained therein is incorrect or ambiguous.

Then there is the problem if emails are sent to the wrong person. There is a risk with the auto-address function on computers – while it is helpful for the auto-address to fill in the email address of the person you are contacting, care needs to be taken to ensure that the addressee is checked before the email is sent.

Some firms disable the auto-address function to avoid the risk of an email being accidently sent to the wrong person on the list.

The final issue in relation to emails relates to the use of smartphones. In this increasingly technological age, clients are increasingly accessible and emails arrive out of office hours and at weekends; people often reply there and then. That is fine but in a more informal setting when somebody receives an email, they may not always address the matter in as formal and analytical a manner as they may do when they are in the office. 'Friday night' emails are an increasing cause of potential claims.


A lot of the work we do is deadline based. The courts and HMRC take a less flexible approach than they previously did in relation to deadlines. While in the past HMRC, for example, might have been prepared to exercise its discretion to accept a late claim, in my experience it is now less likely to do so and it is no longer safe to rely on discretionary extensions of time.

One example is in the tax litigation regime where appeals need to be made within the appropriate timescale and where HMRC resists late claims.

Deadlines need to be maintained on a firm-wide basis and not merely on an individual's personal calendar. What happens if the person in question is off sick unexpectedly? Who would know to check their diary to see what deadlines exist?

There is also a need for the deadlines to be recorded sufficiently in advance of the deadline date. It is all very well to record in a diary system that a claim for a certain relief has to be made by a certain date, but if the reminder is not in the diary early enough there will not be sufficient time to undertake the work necessary to make that claim before the deadline.

Deadlines need to be recorded legibly and firms need to have a system for picking up deadlines of their colleagues in the event of absence.

File notes

Claims often arise where a client states that he was not advised of a specific issue by his adviser or that a certain issue was not discussed. The adviser's file note of the discussion will be extremely helpful as contemporaneous evidence of what was or was not discussed.

All too often, when looking at a file you may see some numbers written down in one colour ink, and those numbers crossed out and a different number written down in different ink. No written explanation of the reasons for the change in numbers is given. When asked, quite often the adviser will say that he discussed the figures with the client and the amended numbers shown are a result of that discussion, but the points discussed with the client and the reasons for the change are not documented. This makes it very difficult to defend a claim brought by the client that the numbers are incorrect and that he was not advised of the implications thereof.

While any substantive advice given to a client should be recorded in correspondence with the client, if it is not appropriate to write to the client for any reason, then the substantive issues should be recorded in a contemporaneous file note so as to protect the adviser against unmeritorious claims.


A little time spent now on general risk management can be invaluable in reducing the likelihood of claims. Claims are costly for an adviser. Not only will he spend time dealing with the matter (for which he cannot charge fees), he will have to pay an excess to his insurers (the first, for example, £5,000 of any claim payment) and may face increased professional indemnity insurance premiums in the future. Further, the professional faces potential damage to a firm's reputation as well as to the ongoing client relationship. Addressing the practical issues identified in this article may go a long way to avoiding those unfortunate consequences.

Karen Eckstein, Partner, Lake Legal LLP and member of ATT council

Karen Eckstein |Partner, Lake Legal LLP

Karen Eckstein is a partner at Lake Legal LLP and specialises in contentious tax, trust and probate cases as well as tax related pro...

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