(1) Robert Marshall Faichney v (1) Vantis HR Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann |
| Judgment Date | 20 March 2018 |
| Neutral Citation | [2018] EWHC 565 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2016-001812 |
| Date | 20 March 2018 |
[2018] EWHC 565 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
London, EC4A 1NL
Mr Justice Mann
Case No: HC-2016-001812
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Jonathan Brettler and Sam Neaman (instructed by Beers Solicitors) for Aquila Advisory Limited
Julian Christopher QC and Benjamin Douglas Jones (instructed by CPS Proceeds of Crime Unit) for the Intervener
Hearing dates: 29 th, 30 th, 31 st January & 1 st February 2018
Although this case has a lot of parties, the residual dispute (after settlements) is one beween Aquila Advisory Limited (“Aquila” — as assignee of choses in action and property rights from Vantis Tax Ltd — “VTL”) and the CPS as intervener. The essence of the dispute is whether proprietary rights to which Aquila would otherwise be entitled as against the Faichney and Perrin defendants can be asserted in the face of a confiscation order (and its surrounding circumstances) under the Proceeds of Crime Act 2002 (“ POCA”), which has been obtained by the CPS after convictions in criminal proceedings against Mr Faichney and Mr Perrin.
The dispute has its roots in an attempted tax avoidance scheme promoted by VTL, of which Mr Faichney and Mr Perrin were directors. The scheme involved the development and assignment of some software and the transfer of that software to various companies whose shares were then to be used to claim tax relief in the manner referred to below. Mr Faichney and Mr Perrin acted as though they owned the software and obtained financial benefits from exploiting it in that way. When matters came to light Mr Faichney and Mr Perrin were suspended, and bought claims for wrongful dismissal. Hence their status as claimants in these proceedings. VTL counterclaimed for, inter alia, a declaration that property of Mr Faichney and Mr Perrin, and their wives, was held on trust for it (VTL) as being property wrongfully obtained by a fiduciary. Mr Faichney and Mr Perrin were found guilty of fraud in a subsequent criminal trial and a confiscation order was made in relation to their assets. VTL's cause of action was assigned to Aquila, which took over the counterclaim. The CPS was then allowed to intervene in these proceedings on the basis of its confiscation order, and thus was brought into conflict with Aquila. The CPS says that Aquila should not be allowed to assert its claims in the face of the confiscation order.
Mr Perrin has recently died and his wife is his sole personal representative. Settlements have been reached between all relevant parties other than Aquila and the CPS, leaving the issue as to the interaction between those two parties as the only issue to be tried. I was not told of the terms of the settlements as between the other parties, but they do not matter (or so I assume).
In the action before me Mr Julian Christopher QC led for the CPS (he also prosecuted in the preceding criminal proceedings) and Mr Jonathan Brettler appeared for Aquila.
Witnesses
There was a limited amount of witness evidence at the trial of this dispute. The credibility of witnesses was not a factor in this case and in substance their evidence (so far as relevant) was not challenged. Jane Fowler was a forensic accountant and Head of Compliance at Vantis Plc (the third defendant and the holding company of VTL) who was called in to investigate this matter when concerns came to light in 2009. She had no involvement in the actual events at the time but gave some evidence about her findings. Mr Applin, former financial director in the Vantis group, gave unchallenged evidence in a witness statement about uncontentious history. Mr Christopher Hyland is an HMRC employee and produced some documents and identified their sources (as to whether they were apparently available and seized on the HMRC raid). He was the CPS's only witness. Mr Paul Jackson was CEO of Vantis plc and a director of VTL, and gave uncontested evidence of fact about the development of the software product, the development of the tax mitigation plans in which it was deployed and certain internal VTL matters. Miss Claire Connolly was the software development manager of the software at the heart of this matter and gave evidence about its development and nomenclature. The relevant parts of their respective evidence are incorporated in the narrative set out below, and it is unnecessary to say anything more about it here.
The tax avoidance scheme relevant to this case
In order to understand the narrative in this case it is first necessary to understand the nature of the tax avoidance scheme which was promoted by VTL (principally through Mr Faichney and Mr Perrin). It is sufficient to describe its nature without setting out specific statutory provisions.
Tax legislation allows for an individual to claim relief for the value of shares in quoted trading companies when given to charity. The VTL scheme in this case involved the formation of a company in which taxpayer subscribers could subscribe for shares at a small price per share. After that the company would acquire assets which would purportedly take its value much higher, at which point the shares would be given to charity at that higher valuation. The valuation of the donation would be allowed to the taxpayer as a relief, which would, on this basis, be much higher than the amount paid for the shares. The intended figures in relation to the first company in the scheme, Clerkenwell Medical Research plc (“CMR”) can be taken as an example. Subscribers subscribed for shares at 3p per share. CMR then acquired (or purported to acquire) some software which was made available to it, and on the basis of holding that asset the shares were said to be worth £1. Those shares were then given to charity and relief from income tax was claimed on the footing of the £1 gift. The taxpayer thus acquired £1 of relief per share, at a price of 3p per share. That is how the scheme was intended to work.
The underlying facts
I now set out the relevant facts in more detail. In the narrative which follows any statement of fact should be taken as a finding by me unless the contrary appears.
The Vantis group of companies was a group offering accountancy and allied services. The companies have long since gone into liquidation but were active at the time of the events surrounding this matter. VTL was formed as a company intended to offer consultancy, and in particular tax planning, services, to external clients.
Mr Faichney was a former Inland Revenue officer who was headhunted to run the tax consultancy services of the group. He was recruited in 2003 and brought in Mr Perrin, who had been also worked for Inland Revenue, as his deputy. Originally they were employed by a service company within the group, and when VTL was incorporated on 22nd December 2003 they both became directors. In February 2004 Mr Faichney became managing director of that company and Mr Perrin became deputy managing director in May 2004. They both had minority shareholdings in that company. There were no further directors appointed until March 2005, when Mr Jackson, a main board director, also became a director. Others were appointed at about that time, but Mr Brettler indicated that he did not rely on any of their activities (or Mr Jackson's) in the company for the purposes of the attribution point that arises in these proceedings, so I do not need to dwell on those details.
In June 2004 Mr Faichney submitted a business plan to VTL for a software product called Taxcracker. Its purpose was to enable financial advisers to identify high net worth individuals who might benefit from the tax planning services offered by the Vantis group. It operated on the basis of a sophisticated question and answer structure. VTL apparently decided to produce that product and in August 2004 commissioned a software writing company called Netbuilder to write and develop the code. The underlying concept for the product was known to the immediate participants as the “Qaria” concept. The underlying ideas came from Mr Faichney and Mr Perrin.
At about the same time as this was occurring Mr Faichney and Mr Perrin were developing the implementation of the tax avoidance scheme identified earlier in this judgment. They realised that the Qaria concept could be used more widely than just a financial adviser context, and that it could be a product which could be acquired by the tax avoidance company to (purportedly) boost the value of its assets so as to give the relief which the scheme was designed to confer. They therefore arranged the transfer of the software rights to the company which was to be the vehicle for the scheme, CMR. However, despite the fact that VTL had been paying for the development of the software, and despite the fact that their contracts of employment contained the familiar clauses which conferred on their employer the benefits of inventions made during their employment, they procured an assignment of rights to CMR (in fact there were three such documents) from a purported trust called the Richardson Trust.
The Richardson Trust, as a genuine trust, probably does not exist. There is an undated trust document purporting to describe a settlement by Mrs Perrin (using her maiden name of Barnes) of unspecified property on trusts of which the primary class of beneficiaries are the descendants of Mr Perrin's mother and their spouses. Mrs Perrin was the purported trustee and spouses of trustees were excluded as...
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