Michael Halsall David McDermott and Others (Claimants) Champion Consulting Ltd and Others (Defendant)
| Jurisdiction | England & Wales |
| Judge | HHJ Moulder |
| Judgment Date | 19 May 2017 |
| Neutral Citation | [2017] EWHC 1079 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: B40MA037 |
| Date | 19 May 2017 |
[2017] EWHC 1079 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MERCANTILE COURT
HHJ Moulder
sitting as a Judge of the High Court
Case No: B40MA037
Paul Chaisty QC and Andrew Grantham (instructed by Waterside Legal Solicitors) for the Claimants
Graham Chapman QC and Christopher Greenwood (instructed by Plexus Law) for the Defendants
Hearing dates: 14 March 2017–31 March 2017, 24 April 2017
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.
Introduction
This is a claim brought by four claimants Mr Halsall, Mr McDermott, Mr Higgins and Mr Stanton. Unfortunately Mr Higgins has since died and his widow now brings the claim on behalf of his estate. The claims are brought against four defendants, Champion Consulting Ltd ("CCL"), Champion Accountants LLP, Champion Business Solutions Ltd and Champion Chartered Accountants (a firm). The fourth defendant, Afortis Ltd is in liquidation and no claim is now pursued against it. Accordingly references in the judgment to the "defendants" are to the Champion entities referred to above.
The claimants' case is that they were negligently induced to invest in two tax schemes which for convenience are referred to as the "charity shell" schemes and the "Scion" film scheme. A claim was also made in respect of alleged breaches of fiduciary duty but is no longer pursued.
The claimants are solicitors and at the time of entering into the tax schemes were partners in the firm of solicitors, Michael W Halsall Solicitors.
Background
The claimants' case is that Mr Dallimore on behalf of Champion Consulting Ltd introduced the claimants to the charity shell schemes in July 2003 and at meetings in July 2003 and October/November 2003 Mr Dallimore assured the claimants that the charity shell scheme would work effectively, would reduce their tax liability and improve their overall financial position as well as being able to benefit charities of their choice.
The claimants' case is that (so far as the tax benefits were concerned) the charity shell scheme was promoted to them on the basis that they could obtain tax relief through the mechanism of gift aid. In summary it involved the investors initially subscribing for shares in a shell company with a further subscription in the event that the shell was floated. The shell company then acquired a target company and the shares of the shell company would be listed on AIM or the Channel Islands Stock Exchange. The investor would decide whether to gift all or part of his shares to a charity and would claim tax relief on the value of the shares so gifted. The amount of tax relief claimed would be on the basis of the value of the shares at the time of gift which in turn was claimed on the basis of the value on listing.
The claimants allege that in addition to giving the assurances, the defendants failed to advise the claimants that the valuation of the shell upon flotation was critical and there was a significant risk that the value of the shell post flotation would be successfully challenged by HMRC.
The Scion film scheme in summary involved a film studio selling the distribution film rights to a film to a Scion film rights company. That company would then sell or license the film rights to the investors. The investors as sole traders would be trading in the purchase and sale of film rights. The purchase would be funded partly from the investors' own resources and partly from a loan arranged by Scion. The investor would provide not less than 21% of the total funding. The loan would be made available by a Scion lender on limited recourse terms that is limited recourse as to capital but full recourse as to interest. The terms of the sale of the film rights would be for a share of profits supported by a minimum annual payment sufficient to meet the interest obligations under the loan. The investor would sell the film rights in return for a share of the revenues arising from the exploitation of the film rights; the investor would use a proportion of the sale proceeds to repay the loan and would retain approximately 45% of the revenues leaving it with a trading profit. As to the tax benefits the loss resulting from the fees and expenditure on the film rights acquisition was to be available for sideways loss relief and the interest on the loan was anticipated to be deductible.
The claimants' case is that the defendants advised the claimants that the film scheme was robust with the prospects of success being 75/80%, that the Scion tax schemes had a history of successful implementation and if the film scheme failed the maximum loss would be the amount of cash invested. The claimants say that that advice was negligent and as a result they suffered loss and damage.
Issues for the court
This judgment deals with the following issues which appear to be the principal issues pursued at trial and advanced in closing submissions and thus falling for determination by the court.
The Charity Shell Schemes:
I What statements did Mr Dallimore make to the claimants with regard to the charity shells?
II What was the scope of the duty? What is the effect of the engagement letter on the duty? What is the standard of care? Was it an advisory duty?
III Breach of duty – did the assurances which Mr Dallimore gave amount to a breach of duty? Did the failure to warn of specific risks amount to a breach of duty?
IV Causation: did the breach cause the loss? Did the claimants rely on the advice which was given?
V Contributory negligence
VI Are the claims statute barred — section 2 and section 14A of the Limitation Act
VII Is any breach excluded by Clause 13 of the defendant's terms of business? UCTA
VIII Loss
The Film Schemes
I What representations were made?
II What was the scope of the duty?
III Breach of duty. Contributory negligence
IV Causation. Did the claimants rely on the advice?
V Limitation
VI Loss
Counterclaim– clause 9 of the defendant's terms of business
Evidence
I heard evidence for the claimants from the following witnesses of fact: Mr Halsall, Mr McDermott, Mrs Higgins, Mr Stanton, Mr Alfred Thompson, Mr Richard Hemingway and Miss Gabrielle McParlin.
Mr Alfred Thompson is a partner in the accountancy firm of Lonsdale & Marsh and from December 2005 he acted for Mr Higgins in relation to the completion of his tax returns.
Mr Richard Hemingway is the managing director of Ludlow Wealth Management Ltd. Ludlow provide financial planning advice to clients and each of the claimants was a client of Ludlow in the relevant period. Ludlow did not provide advice in relation to tax matters.
Ms McParlin is an executive director in Tax Controversy and Risk Management at Ernst & Young LLP. In 2014 she was instructed by the claimants in connection with their negotiations with HMRC under the charity shells and in relation to their exposure under the film schemes.
For the defendants I heard from the following witnesses of fact: Mr Dallimore, Ms Molloy, Miss Morris, Mr Robert Thompson and Mr Currie.
Mr Dallimore joined Champion Consulting Ltd in around December 1999 as the Group Tax Director, a position which he held until he left Champion in September 2006.
Ms Gill Molloy (formerly Burns) is an accountant and a chartered tax adviser. She joined Champion Consulting in November 2003 as a tax planning manager. She had no involvement with the claimants until Mr Dallimore left Champion in September 2006 at which point she took over his role as Group Tax Director.
Miss Jill Morris is a chartered tax adviser. She joined Champion Consulting Ltd in July 2001 as a member of the compliance team, working under the supervision of Mark Langslow. After qualifying as a chartered tax adviser in 2004 she became more involved in the tax planning team based at Champion's Manchester office.
Mr Robert Thompson is an accountant who worked for the firm of Jones Harris which in May 2003 merged with Champion Business Solutions Ltd. The claimants were clients of Champion Business Solutions at the date of the merger and until 2004 were looked after by Mr Colin Walton. On Mr Walton's retirement in 2004 Mr Robert Thompson took over as the claimants' relationship manager, preparing the accounts of the claimants' business, Michael W Halsall solicitors. The practice also prepared the personal tax returns for the claimants other than Mr Higgins who used Lonsdale & Marsh.
Mr Ian Currie is an accountant by background but then became a stockbroker. He set up Zeus Partners, a corporate finance house, with Messrs Hughes, Salisbury and Clarkson in 2002.
I also heard from four experts: for the claimants, Mr David Brookes of BDO LLP and Miss Sally Longworth of Longworth Forensic Accounting Ltd; for the defendants I heard from Mr Michael Avient of UHY Hacker Young LLP and Mr Gordon Hodgen of HSNO.
As well as hearing the live evidence and oral closing submissions, in writing this judgment I have had the benefit of being able to refer to the transcript of the evidence as well as the written submissions of counsel.
The Charity Shell Schemes:
what statements did Mr Dallimore make to the claimants with regard to the
charity shells?
The first issue is the factual question as to what information or advice Mr Dallimore gave to Mr Halsall, Mr Higgins and Mr Stanton in 2003 in relation to the Charity Shell schemes.
Evidence
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