LESSONS TO BE LEARNED FROM THE PRIVATE EYE CASE

EMILE WOOLF as expert witness, written by MOIRA HINDSON ACA  KINGSTON SMITH

The collapse of the defamation case brought against the magazine ‘Private Eye’ by John Stuart Condliffe, a West Country accountant, has been widely reported in certain sections of the press and, of course, in the magazine itself.

Having spent the past three and a half years delving through unending boxes of diaries and working papers relating to the matter, the outcome of the case was of considerable interest to members of the litigation support team at Kingston Smith and in particular to Emile Woolf who, as Expert Accountant instructed by Private Eye’s solicitors, Davenport Lyons, withstood 10 days under cross-examination by the Claimant’s barrister, believed to be a UK – if not world – record for an Expert Witness. Certainly Emile, after 21 years in the business, had previously never had to occupy the witness box for more than three days in one case!

The media coverage has, understandably, focused on the dire consequences of the Claimant’s capitulation for himself, his practice, his barristers and his solicitors, Peter Carter-Ruck & Partners who, having entered into a contingency fee arrangement with Condliffe, are now left with huge unrecoverable costs.

Private Eye, on the other hand, is basking in the glory of its first ever victory in a libel action and is planning how to spend the £100,000 that the Claimant, or Carter-Ruck on his behalf, is required under Court order to pay the magazine within three months.

Of more direct relevance to practising accountants, however, are the nature of the accusations made by Private Eye and the circumstances that brought about the libel action. The case emanated from an article that appeared in the March 1992 issue of the magazine which reported that Condliffe, at that time a Chartered Accountant, had deceived certain clients of his accountancy practice, Condliffe Hilton, as to the level of his fees and had overcharged them.

The article was widely circulated around the locality of the Claimant’s practice. Condliffe went bankrupt in August 1993 mainly, he claimed, as a result of the impact of the article on his ability to retain clients and attract new business. As a bankrupt Condliffe was automatically excluded from membership of the Institute, which was therefore unable to investigate complaints notified by several of his former clients.

There is no doubt that the manner in which he conducted his professional relationship with certain clients was, at best, unusual. However, the broad nature of his practice, which provided basic accountancy services, including tax and financial advice, to small local businesses largely dependent on the tourist industry, will be familiar to many sole practitioners or small partnerships that operate in similar circumstances.

Those of Condliffe’s clients who provided Witness Statements, included a bakery, a bed and breakfast hotel, gift shop, cafeteria, upholsterer, pub, garage mechanic, fisherman and a small local double-glazing fitter. Almost all were unincorporated and their financial well-being fluctuated according to the vagaries of the weather and the local economy, but they rarely did better than scrape a living from one season to the next.

Though they understood their trade, they were not sophisticated business people and they relied on their accountant to help keep the tax man at bay and the bank manager sweet for as little expense as possible. Disputes with clients over fees are a feature of professional practice that virtually every accountant encounters from time to time. Why is it that in this instance matters got so out of hand as to culminate in financial ruin and public humiliation? Are there any significant lessons that practitioners can learn from this case to avoid becoming embroiled in such a nightmare scenario?

Lesson One:
get the relationship right from the outset

  • When you receive an instruction for the first time make sure you understand what your    client is expecting from you and specify what information or records you need, in what state, if you are to meet their expectations
  • Set out what’s been agreed in writing in a properly tailored letter– not a standard letter of engagement for the sake of form. Condliffe did not issue any such letters and, not surprisingly, there was a good deal of factual dispute as to what had been discussed at initial meetings – let alone agreed.
  • Explain the basis of charging and give your best estimate of what the work will cost. Tell clients that if it becomes clear to you that for any reason the agreed budget is not achievable you will advise them and await further instructions before proceeding – don’t wait until the budgeted time cost has been used up.
  • Tell clients which factors will contribute to additional costs, such as failure on their part to deliver all the records needed, when needed.
  • Don’t start the clock until you have been engaged. Initial interviews should be free – you can’t bill potential clients who decide not to instruct you, so why penalise those who do?

Lesson Two:
don’t give your clients any nasty surprises

  • If your client has not provided the records or information required don’t exceed your agreed brief without telling them and then expect them to pay the additional costs. You do not have carte blanche to do whatever you think is necessary on their behalf and then present them with the bill. Give them the opportunity to correct deficiencies themselves.
  • Be wary of the dangers of providing “service beyond expectation”. You may be proud of your ‘Rolls Royce’ service – but do your clients know they are paying ‘Rolls Royce’ charges? For some of the clients whose affairs we reviewed the Rolls Royce turned out to be a hearse so far as their businesses were concerned!
  • One element of Condliffe’s silver service was his readiness to engage in a seemingly endless stream of telephone calls from clients apparently demanding his advice on a raft of issues. These calls were denoted by ‘T’ in his diary, unadorned by narrative or context, and became the subject of a 15 minute charge. What should he have done, the Judge asked Emile, if his clients never gave him a moment’s peace? ‘He should have told them to shut up, because “every time you ring me it costs you £15”’ replied Emile, sending Condliffe’s team into paroxysms of outrage, but the context of Emile’s answer was clear. If your conduct leads your clients into believing you are their helpful, avuncular accountant, always ready and willing to proffer words of comfort or advice and expecting nothing but loyalty in return, you’ve either got to be that saintly individual or disabuse your clients fast.
  • Consider whether your clients can afford your charges. What effect will your bills have on their disposable income? When dealing with the kind of clients I have described no accountant can justify rendering a bill of £1,500 to a business with annual turnover of £14,000 and profits of £4,500 – and this was back in 1989!

Lesson Three:
make sure you tell your client what they have been charged for

  • Keep proper time records and notes of meetings and conversations – not just ‘T’ and ‘L’ in your diaries to denote telephone calls and letters (as was Condliffe’s practice)
  • Scrutinise your standard wordings when billing – have you really done everything mentioned on the invoice? In one instance Condliffe charged for ‘the preparation and submission of accounts and tax returns’ when the client was facing a Commissioner’s Hearing for the very reason that he had refused to submit the accounts and tax returns until she paid the outstanding bill!
  • Avoid general terms like ‘provision of advice throughout’ – what advice? Such obviously vacuous phrases are designed as “puff” and the client knows full well that it signifies nothing at all. One of Condliffe’s billing descriptions included the expression ‘……..eventually agreeing tax liabilities’ implying that he had to struggle hard to achieve such agreement, which was not the case. Even unsophisticated clients became wise to such subtle forms of deception.
  • Bill your clients regularly so that they know where they stand. Interim bills should approximate the time costs incurred to date to avoid subsequent shocks. Condliffe’s favourite ploy was to dump old unbilled time onto a client the moment they told him they were going elsewhere.

Lesson Four:
make staff accountable for their time

  • Most of Emile’s evidence involved his demonstration on a case-by-case basis that Condliffe Hilton cultivated a culture of “churning”: there was no sign on the files of any of the most basic features of assignment management – briefing notes, fee budget, planning memorandum –which normally serve as controls over time costs.
  • The impression given by their files was that staff of any grade would pick up the job and just keep clocking up hours heedless of duplication of effort or proportionality. Although the firm was usually able to demonstrate that the time had actually been spent the real deceit was the pretence that all of it was actually necessary.
  • Staff should recognise their obligation to be accountable for their time. They should agree a reasonable time estimate and be required to justify any overrun. Write-off levels should be a factor considered at staff salary/promotion reviews. The Condliffe Hilton time ledgers showed no write-offs. They just billed the lot, regardless of the sheer absurdity of the result when considered against the size of the client’s business, often at a point when Revenue problems provided just the leverage to frighten the client into coughing up despite the palpable iniquity of the charges.

Practitioners may regard the above points as obvious, or mutter about only being able to charge what the market will bear. But remember – the Claimant sued Private Eye not because the magazine accused him of being unprofessional or of not complying with ethical guidance but because it said he had deliberately deceived his clients – in short that he was out to swindle them.

The collapse of the case deprives us of a Judgement on whether such an allegation was justified– although when asked why his client discontinued his action the Claimant’s own solicitor suggested we draw our own conclusions. However, if you’ve told your clients that you charge by the hour but your time ledgers and diaries don’t provide credible evidence to support your fees, or if your charges are wholly disproportionate to the size of the assignment and you’ve nothing on file to explain the excess, or if you lure potential clients into instructing you by giving estimates that bear no resemblance to the eventual invoice – how can your conduct be described as anything but theft?

Telling a Judge that you only did what everyone else does simply won’t wash. Most accountants are well aware of the havoc a serious negligence claim can wreak on reputations as well as insurance premiums. As we have seen, however, circumstances can so conspire as to compel an accountant to defend his reputation, not on the quality of his work, but on these comparatively mundane aspects of client care. The stakes of being found wanting are just as high.