Iain Paul Barker v Baxendale Walker Solicitors (A Firm)and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Roth |
| Judgment Date | 23 March 2016 |
| Neutral Citation | [2016] EWHC 664 (Ch) |
| Docket Number | Case No: HC-2013-000389 |
| Court | Chancery Division |
| Date | 23 March 2016 |
[2016] EWHC 664 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Roth
Case No: HC-2013-000389
Michael Furness QC and Dakis Hagen (instructed by Farrer & Co LLP) for the Claimant
Jonathan Seitler QC, Emily CampbellandStephen Hackett (instructed by Griffin Law Ltd) for the Second Defendant
Hearing dates: 26, 27, 28 January, 2 and 3 February
| CONTENTS | Para. |
| INTRODUCTION | 1 |
| THE PARTIES | 4 |
| THE TRIAL | 7 |
| THE FACTS | 11 |
| Background | 12 |
| Deloitte and the proposed PUT Scheme | 15 |
| BWS and the proposed EBT Scheme | 21 |
| Establishment of the EBT and the transfer of shares | 36 |
| The Sale of Team 121 Holdings | 44 |
| The Wragge advice | 47 |
| The operation of the Trust | 54 |
| The involvement of Bourse and Mr Bourge | 60 |
| Consultation with Mr Andrew Thornhill QC | 66 |
| Dr Ashton's advice | 70 |
| Subsequent management of the trusts | 77 |
| HMRC's investigations: 2005 —2007 | 79 |
| HMRC come back: the assessment notices and the appeal: 2010–2011 | 96 |
| Appointment of Confiance in place of Bourse | 102 |
| Mr Mark Studer's advice | 104 |
| Settlement with HMRC | 112 |
| Winding up the EBT Scheme | 116 |
| THE CLAIM | 121 |
| THE SOLICITORS' DUTY | 126 |
| THE EBT SCHEME | 149 |
| WARNING AND CAUSATION | 172 |
| LIMITATION | 182 |
| DAMAGES | 194 |
| Payment to HMRC | 199 |
| Costs of unravelling the EBT Scheme | 226 |
| Professional fees in respect of negotiation with HMRC | 232 |
| Trustees' costs and fees | 236 |
| Fees of BWS, TPS and FSL | 239 |
| CONCLUSION | 242 |
| Appendix |
|
INTRODUCTION
This is a claim for professional negligence against a solicitor for advice on a tax avoidance scheme based on the establishment of an employee benefit trust ("EBT") which the claimant, Mr Barker, entered into and which, if successful, would have avoided a very significant liability to capital gains tax ("CGT") and, eventually, inheritance tax ("IHT"). Many years later, Her Majesty's Revenue & Customs ("HMRC") raised assessments on Mr Barker and challenged the validity of this scheme ("the EBT Scheme"). After Mr Barker was advised that this challenge would probably succeed, he entered into a settlement with HMRC that involved the payment of a substantial amount on account of tax and interest.
Part of the claim comprises all the costs and professional fees incurred, including those of unravelling the arrangements which had been made. But Mr Barker also claims in respect of the tax paid on the basis that if he had not entered into the EBT Scheme then he would have entered into a different tax avoidance scheme which he had considered at the time and which, he contends, would have avoided the tax which he now has to pay. Because any contractual claim would clearly be out of time, Mr Barker's claim is brought only in tort.
The claim is resisted on the basis that there was no negligence because the interpretation of the statutory provision on which the EBT Scheme was based was correct, and in any event not such that it can be said that any reasonably competent lawyer with appropriate expertise would have warned that there was an alternative interpretation such that the scheme may well not work. Further or alternatively, it is contended that the claim, instituted in 2013, is barred by limitation. And if the defendants are liable, the defence takes various points regarding the damages claimed, including that if Mr Barker had entered into the alternative scheme that itself would probably have been challenged by HMRC and is unlikely to have been successful.
THE PARTIES
Mr Barker achieved great commercial success at a relatively young age. He set up his own business, called "121 Consulting", in 1991 when he was 27 years old. It was engaged in delivering management consultancy and project services using a particular integrated business software. The business developed into a set of trading companies under a group company, Team 121 Holdings Ltd ("Team 121 Holdings"). By 1998, the Team 121 group had 450 employees trading in several countries, although it remained UK based.
The 1 st defendant ("BWS") is a firm of solicitors in which the 2 nd defendant, Mr Baxendale-Walker, was at all material times the driving force and principal partner. BWS specialised in tax advice, in particular as regards tax planning and avoidance schemes. Mr Baxendale-Walker was the co-author (with Andrew Thornhill QC) of the book, The Law and Taxation of Remuneration Trusts, first published in 1997.
Although a joint Defence was served for both defendants, BWS was not represented at trial and apparently its practice ceased some time ago. I was told that the claim is effectively being pursued against Mr Baxendale-Walker alone. However, it is common ground that the case stands or falls against the two defendants together. For convenience, I use the term "the defendant", where appropriate, to refer to Mr Baxendale-Walker; "the defendants" refers to both him and BWS.
THE TRIAL
At trial, the defendant called no evidence. I was told that Mr Baxendale-Walker unfortunately suffers from severe fibromyalgia, a degenerative condition of the brain, and he did not attend court at all.
The principal witness for the claimant was Mr Barker himself. He is clearly an individual of considerable intelligence and entrepreneurial skill. His evidence covered, of necessity, events going back to 1998, when he consulted and retained the defendants. I found him to be an entirely honest witness who was frankly trying to recall events from long ago.
I was reminded by Mr Seitler QC, appearing for the defendant, of the admonition of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at [15]–[22] regarding witness evidence based on memory and the greater reliability of contemporary documents. The problem of recollection was indeed illustrated here by the fact that Mr Barker had no memory of a meeting on 22 July 1999 with solicitors from Wragge & Co ("Wragge"), which on the basis of the contemporary documents I consider he must clearly have attended. That is not a criticism of Mr Barker since it would be surprising if he could remember all these events from 16 years ago. Although it demonstrates that I should be cautious as regards Mr Barker's testimony where it is not supported, at least indirectly, by the contemporary documents, in fact most of the evidence of Mr Barker was unchallenged, and insofar as it was challenged it is generally not of critical significance to the issues I have to decide.
The two other witnesses called for the claimant were Mr Andrew Brown and Mr Duncan Montgomery. Both are professionals: Mr Brown is a chartered accountant who has been advising Mr Barker about his tax affairs since the spring of 2002. He was involved in the obtaining and to an extent the giving of advice to Mr Barker regarding the consequences of the EBT Scheme from then onwards. Mr Montgomery is a chartered tax adviser who worked in the Birmingham office of Deloitte Touche Tohmastsu Ltd ("Deloitte") between 1995 and 2000. He was involved for Deloitte in advising Mr Barker about an alternative tax avoidance scheme in 1998, which in the event Mr Barker rejected in favour of the EBT Scheme proposed by the defendants. As I would expect, I found both Mr Brown and Mr Montgomery to be completely honest and doing their best to assist the court.
THE FACTS
Because of the nature of the various issues raised in this case, it is necessary to set out the facts in some detail. They are essentially derived from the contemporary documents and Mr Barker's evidence, supplemented for the later stages by the evidence of Mr Brown.
Background
By the late spring or summer of 1998, Mr Barker realised that it would be difficult for the Team 121 group to sustain the impressive rate of growth which it had achieved since he started the business some eight years previously. He therefore thought about achieving an exit strategy for the shareholders in Team 121 Holdings. There were approximately 120 shareholders, but together with his then wife and two others, Mr Simon Brock and Mr Steve Ridley, Mr Barker controlled about 55% of the company and his personal shareholding was about 50.5%.
Initially, the preferred approach was to seek investment from a venture capital organisation which would enable a significant percentage of the equity to be sold prior to a potential flotation. Various organisations were approached and as a result a proposal from 3i to purchase a 40% shareholding received serious consideration.
Since the group was considered to be worth £30-£40 million, the impact of CGT on any such sale would be considerable. Along with some of the other major shareholders, Mr Barker decided to seek tax planning advice. Two organisations were approached: Deloitte, since they were the auditors of the Team 121 group; and Taxation Practical Services Ltd ("TPS"), a consultancy run by Mr Nigel Hollinshead and which had for some years provided tax advice to the company, its directors and employees. It was Mr Hollinshead who suggested the possibility of an EBT and he arranged an introduction to BWS on the basis that they were solicitors specialised in this area.
Deloitte and the proposed PUT Scheme
Mr Barker went to see Deloitte in its Birmingham office in May 1998, where he was introduced to Mr Montgomery. He asked them to consider viable options to mitigate his expected liability to CGT. As a...
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