Hossein Mehjoo v Harben Barker (A Firm)and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Silber,MR JUSTICE SILBER |
| Judgment Date | 05 June 2013 |
| Neutral Citation | [2013] EWHC 1500 (QB) |
| Date | 05 June 2013 |
| Court | Queen's Bench Division |
| Docket Number | Case No: HQ10X02724 |
[2013] EWHC 1500 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Silber
Case No: HQ10X02724
Mark Simpson QC and Isabel Barter (instructed by Wragge & Co LLP) for the Claimant
Giles Goodfellow QC and Jonathan Bremner (instructed by Eversheds LLP) for the Defendants
Hearing dates: Hearing dates: 20, 21, 26 to 30 November and 4 to 7, 14, 17 to 21 December 2012, 16 to 22 and 24 January 2013, 13 and 14 March 2013
Written submissions served until 10 May 2013.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Table of contents
| Introduction | 1 |
| Overview | 1 |
| Chronology | 7 |
| The Hearing and Its Length | 49 |
| The Issues | 61 |
| The Witnesses | 62 |
| The Retainer Issue | 117 |
| Pre-Merger | 124 |
| Post Merger | 139 |
| Mr. Purnell's Evidence | 152 |
| The Meetings on 30 September and 1 October 2004 | 157 |
| Conclusions | 173 |
| The Referral Issue | 175 |
| Defendants' duty as generalist accountants to advise Claimant | |
| (a) He had, probably or might have had non-dom status | 177 |
| (b) Non Dom status carried it with it potentially very significant tax advantages | 188 |
| (c) To take tax advice from non-dom specialist | 193 |
| Would Claimant have taken that advice? | 208 |
| The Warnings Issue | 222 |
| Substantial risk of successful Challenge by HMRC to non-dom status | 224 |
| Substantial risk of successful Challenge on Young v Phillips | 267 |
| Change of Law | 281 |
| Loss of BATR | 289 |
| Loss of Control | 301 |
| Effect of BWP on prospective purchaser | 313 |
| Costs of accountants, lawyers, trustees and Mr. Scott's lawyers | 320 |
| Stamp Duty Costs | 336 |
| The BWS/ CRP Issue | |
| The BWP and CRP Schemes | 343 |
| Which Scheme more suitable for Claimant | 349 |
| The BWS Timing Issue | |
| Claimant's threshold for Using BWP | 371 |
| Risk of HMRC challenge to Claimant's non-dom status | 378 |
| Risk of BWP filing for other reasons | 379 |
| Loss of Control Risk | 382 |
| Costs of BWS and other factor | 387 |
| Would Claimant have entered BWP if properly advised by non-dom specialist? | 393? |
| Would Claimant have taken shares offshore prior to 16 December 2004? | 394 |
| The Mr. Scott Issue | |
| Would Mr. Scott have consented to the amendment of the Articles? | 420 |
| The Company Reconstruction point | 429 |
| The Defendants' other points | 451 |
| The BWP Advantage issue | |
| Challenge by HMRC | 454 |
| Diminution in Value | 472 |
| Employment Related Securities | 481 |
| The Damages issue | 515 |
| CGT 521 | 521 |
| Costs of CRP Scheme | 523 |
| Interest Charged by HMRC | 530 |
| The Limitation Issue | 540 |
| The Claim in Contract | 541 |
| The Claim in Tort | 552 |
| Section 14 A Limitation Act | |
| Conclusion | 562 |
A. INTRODUCTION
(i) Overview
Mr Hossein Mehjoo ("the Claimant") is claiming damages against his former accountants who were first the firm of Harben Barker, and second Harben Barker Limited, which in 2003 took over the firm of Harben Barker. I will refer to which of the entities was acting as accountants for the Claimant at any particular time as "the Defendants".
The Claimant, who was born in Iran, had built up a clothing business which he merged with the similar business of his great friend Mr Andy Scott in February 2003. They sold their shares in the merged business, Bank Fashion Limited ("BFL") for about £22 million in April 2005. The Claimant's share of this disposal was £8,508,586.50 and his liability for Capital Gains Tax ("CGT") on this sum was 10% of that figure. This case is concerned with the steps which the Claimant claims that the Defendants should have advised the Claimant to take in order to eliminate or to reduce this liability.
The case for the Claimant is that:-
(a) In September and October 2004, the long-standing retainer of the Defendants included an obligation prior and subsequent to the sale to advise and to assist the Claimant in relation to his personal financial and tax affairs, including identifying and advising the Claimant of possible methods by which the Claimant could minimise his tax liability, including giving the Claimant CGT tax-planning advice relating to the proposed sale of his shares in BFL without being expressly requested to do so;
(b) Any reasonably competent chartered accountant in the Defendants' position would have been obliged to advise the Claimant first that he had or very probably might have the status of being regarded as not domiciled in this country ("non-dom") and second that this status carried with it very significant tax advantages and third that in consequence, the Claimant should have been told by the Defendants to obtain tax advice from a firm of accountants or tax advisers who specialised in advising individuals who had or might have non-dom-status. It is common ground that the Defendant did not specialise in this field, but were generalist accountants who practised in Warwickshire;
(c) Even if the Defendants did not have an obligation to give tax-planning advice to the Claimant without being requested to do so, then they accepted such a responsibility when they advised him at a meeting on 2 October 2004 of ways of avoiding paying the very large amount of CGT due on the sale of his BFL shares;
(d) The Claimant would then have consulted such an adviser, who specialised in advising individuals who had or might have non-dom-status;
(e) If the Claimant had sought advice from an accountant or a tax adviser specialising in dealing with non-doms, he would have been advised to enter into a Bearer Warrant Scheme ("BWS"); which is sometimes called Bearer Warrant Planning ("BWP") and this was a tax-saving programme only available to non-doms;
(f) The Claimant would then have accepted this advice and he would then have been able to enter into BWS before blocking legislation was introduced by the UK Government in relation to Bearer Warrant Schemes with effect from 6 March 2005 which was the date of the UK budget (section 275(d a) of TCGA introduced by section 34, Schedule 4, part 1 para 4(1) and (4) of the Finance (No.2) Act 2005); and then
(g) The Claimant would then have saved the large amount of the CGT, which he would otherwise have had to pay and which he did have to pay on the sale of his BFL shares.
Each of these contentions is disputed by the Defendants. The Defendants contend among other things that:-
(i) they were not obliged to give the Claimant tax-planning advice unless they were expressly asked to do so;
(ii) they were not required to advise the Claimant to obtain tax-planning advice from a non-dom specialist;
(iii) even if that advice had been given to the Claimant, he would not have gone ahead with BWP because of the warnings about it which he would or should have been given by the non-dom specialist;
(iv) in any event, the Claimant could not have effected BWP before the blocking legislation took effect; and that
(v) in any event, he would have been worse off as a result of implementing BWP than if he had just paid the CGT.
In consequence of the Defendants' failure to refer the Claimant to a non-dom specialist, the Claimant did not enter into BWP, but instead he was advised, but not by the Defendants, to enter into a Capital Redemption Plan ("CRP") which he duly did at substantial cost and which failed and in consequence he has had to pay penalties and substantial interest for late payment. The Claimant seeks in these proceedings to recover those costs of embarking on CRP and other sums, which he contends, were incurred by him as a result of the Defendants' wrongful conduct. He now accepts that he cannot recover the penalties that he paid.
I will set out the nature of BWP and of CRP in some detail in Section E below, but the main features of them are that:-
(a) BWP was only available to non-doms and could only be used prior to a sale of shares. There is no evidence of Her Majesty's Revenue and Customs ("HMRC") ever challenging any of those schemes and so there is no evidence that any of them has failed to save CGT for the instigator of them; and
(b) CRP could be used by people domiciled both in the United Kingdom and abroad and could be invoked after the sale of shares. It created an artificial loss and was blocked by legislation In addition, a scheme on which it was based (the second-hand life insurance policy scheme) was held to be ineffective. In consequence, the Claimant was compelled to pay CGT as well as penalties and interest to HMRC.
(ii) The Pre-Merger Chronology
On 15 October 1959, the Claimant was born in Tehran to parents of Iranian origin where he spent the first 12 years of his life before moving to the United Kingdom where he attended a boarding school in West Yorkshire. After he left school, he became a squash professional, and for around 9 years, he played squash at the highest level in tournaments around the world.
As a result of playing squash, the Claimant met Alan Purnell, who was a Chartered Accountant and with whom he started playing squash regularly in about 1981. At about this time, the Claimant had to contest an attempt to deport him back to Iran and he was eventually given leave to remain by the Home Office in 1982.
The Claimant and Mr. Purnell soon became good friends. In consequence, Mr Purnell was aware that the Claimant had a family in Iran and he met the Claimant's family on a couple of occasions. Mr Purnell also knew that the Claimant's father sent funds into a bank account in the...
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