The recent decision of the Outer House of the Court of Session McMahon v Grant Thornton UK LLP [2020] CSOH 50 provides a valuable reminder of the importance of letters of engagement. To effectively safeguard interests of both parties they should be free from ambiguity and accurately reflect the scope of professional services they aim to outline. The clients should seek advice in respect of any "ad hoc" services referred to in the document.


The pursuer Mr McMahon was the sole shareholder of Lomond Motors Limited. Between 2005 and 2014, he engaged the services of Grant Thornton UK LLP ("the defender") in connection with his personal tax and accountancy affairs. The scope of the services was set out in three separate letters. Where additional services were to be provided, specific letters of engagement detailed which services the defender was to provide.

In July 2012, the pursuer sold his entire shareholding in the company to Lookers Motor Group Limited for £14,738,320 which attracted capital gains liability amounting to £2,077,291.60.

In January 2008, the Chancellor of the Exchequer had announced that “entrepreneur’s relief” would be introduced on 6 April 2008 allowing a qualifying taxpayer to pay capital gains tax ("CGT") at 10% on gains up to a lifetime limit of £1,000,000. The new rules surrounding the CGT were known to the defender at the material time. At a year-end meeting in 2009 tax inefficiency of the pursuer being the sole shareholder of the company was brought to the pursuer's attention. In that context there was also a passing reference to entrepreneurs’ relief.

The pursuer argued that the defender breached its contractual and delictual duties by failing to inform him of the lower CGT liability had he transferred some of his shares to his wife and delayed the sale ("the idea"). He claimed that, had this been suggested to him, the CGT liability would have reduced by £733,664.


In relation to the contractual argument, the pursuer sought to rely on a section of the letter of engagement which stated that the defender would "always seek to inform you of tax planning ideas of which we become aware which may be of assistance to you”. He argued that this amounted to an obligation to advise of tax planning ideas of which the defender became aware and which might be of assistance to him.

He further argued that even if the defender had not been under a contractual obligation to inform the pursuer of the idea, they were under a delictual obligation to do so. While contractual and delictual duties were normally co-extensive, sometimes delictual obligations were wider.


The court considered that the letter of engagement was an engagement to provide tax compliance services. There was a clear distinction between that obligation and separate ad hoc tax services which would be the subject of further letters of engagement. A reasonable person in the position of the parties would have understood that the defenders had not undertaken an obligation as to any tax planning ideas they might have, instead they only expressed an intention to provide such ideas without undertaking any obligation in that regard.

However, the court took the view that once the defender knew about the proposed sale, informing the pursuer of the idea became reasonably incidental to the retainer. On the question of the defender's delictual duty the court's position was that contractual and delictual duties were concurrent and co-extensive. There was no duty before the sale was proposed but it did exist in the run up to the sale. The court held that the comments made by the defender to the pursuer during their 2009 meeting sufficiently discharged his duties arising in both contract and delict.

Finally, the court considered the question of causation. Even if there had been a breach of duty there was insufficient evidence that the alleged breach caused loss to the pursuer. Postponing the sale to take advantage of the tax relief could have resulted in any number of outcomes. Looker’s may not have agreed to the proposed delay, they may have agreed the sale conditional on a downward adjustment in price and the CGT regime may have changed in the intervening period.

Where the loss to be calculated is that of a lost chance, given its intangible nature and uncertainty, the value could be assessed as 50% of that which the pursuer believed he stood to gain. Had there been a breach, the loss would have been the loss of a chance to save £733,664. The pursuer would have had to prove that there was a substantial prospect that the idea would have gone to plan. Given the risks involved the pursuer would have been unable to do so.


The case is a cautionary tale of the importance of letters of engagement being an accurate description of the scope of professional services provided by one party to another. The relationship should not only be precisely defined from the outset, but its scope monitored and clarified throughout the duration of provision of services. Circumstances and expectations of the parties may change in time. These changes should all find reflection in the letter of engagement.


Jan Kapaon