Necessity Supplies Ltd v Pricewaterhousecoopers LLP
| Jurisdiction | England & Wales |
| Judge | Ms Lesley Anderson |
| Judgment Date | 02 June 2021 |
| Neutral Citation | [2021] EWHC 1479 (Ch) |
| Court | Chancery Division |
| Date | 02 June 2021 |
| Docket Number | Case No: CH-2020-00153 |
[2021] EWHC 1479 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch. D)
ON APPEAL FROM DEPUTY MASTER LINWOOD
Ms Lesley Anderson QC sitting as a Deputy Judge of the High Court
Case No: CH-2020-00153
Giles Goodfellow QC and Edward Waldegrave (instructed by RR Sanghvi & Co) for the Appellants
Graham Chapman QC and Thomas Ogden (instructed by Osborne Clarke LLP) for the Respondents
Hearing date: Wednesday 19 May 2021
Ms Lesley Anderson QC sitting as a Deputy High Court Judge: Preliminary
This is my judgment following the hearing of an appeal against the order of Deputy Master Linwood dated 5 June 2020 and sealed on 22 June 2020 (“the Order”). Permission to appeal was granted by Mr Justice Miles by Order dated 27 October 2020. The appeal was held fully remotely using Microsoft Teams during the Covid-19 pandemic. The Appellants were represented by Giles Goodfellow QC and Edward Waldegrave and the Respondents by Graham Chapman QC and Thomas Ogden. I am grateful to all four Counsel for their helpful written and oral submissions and to their respective instructing solicitors for their careful preparation of the electronic bundles.
The Order was made on the application of the Appellants by Application Notice dated 20 October 2017 (“the Application”) for permission to amend their Particulars of Claim. The Application was stayed in 2018 pending the determination of proceedings between the First Appellant, Necessity Supplies Limited (“NSL”) and the Second Appellant, Primecrown Limited (“Primecrown”) and HMRC in the First-tier Tribunal (“FTT”). Those proceedings in the FTT were eventually settled by settlement agreements dated 15 April 2019 and 6 August 2019.
NSL and Primecrown are involved in the wholesale retail of pharmaceutical goods. At all material times, the Third Appellant, Ketan Mehta (“KM”) and the Fourth Appellant, Bharatkumar Mehta (“BM”), who are brothers, were shareholders and directors of, and the Fifth Appellant, Bhoja Karavadra (“BK”) was employed by, NSL and Primecrown.
The underlying claim is for damages for professional negligence against the First Respondent, PricewaterhouseCoopers LLP (“PwC”), a provider of specialist accountancy and tax advisory services, and the Second Respondent, Landwell, (“Landwell”), its correspondent law firm.
Specifically, the claim arises from a bonus tax planning scheme which was entered into in 2004 by NSL and Primecrown for the benefit of KM, BM and BK. The scheme is described in some detail in paragraphs [22] to [33] of the Particulars of Claim, but it is convenient for this purpose to adopt the parties' abbreviation “the Arrangements”. It is common ground that the essential purpose of the Arrangements was to provide bonuses to KM, BM and BK without paying the income tax and national insurance contributions to which they would otherwise be subject. In summary, the Arrangements involved the purchase by NSL and Primecrown from a bank of valuable forward contracts to acquire gold at a specified price at a future date. At the point of purchase, NSL and Primecrown would pay a substantial proportion but not the whole of the purchase price leaving a balance outstanding. NSL and Primecrown would then grant (for no consideration) an option to the relevant employee entitling him to acquire the forward contract at a price which was significantly lower than its value. The options were then to be sold by each of KM, BM and BK to Basing View Limited (“the Trustee”) as trustee of the respective settlements established by each for the benefit of his family. KM's family trust is known as the Matsyavati Trust; BM's family trust is the Machchhoo Trust and BK's trust is the Laxmi Trust. The trust would purchase the option at full value using monies borrowed from a bank leaving the employee with a substantial amount of cash. Pursuant, to the Arrangements, KM, BM and BK received sums of c.£20 million, c.£2 million and c.£2 million respectively representing the cash value of the forward contract. Finally, if the trustee then exercised the option to acquire the underlying forward contract, it could be sold and the proceeds of sale used to repay the amount borrowed to fund the purchase of the option.
In July 2008 HMRC challenged the effectiveness of the Arrangements. Amongst other things, as summarised in paragraph [8] of the Appellants' Skeleton Argument for this appeal, HMRC argued that the Arrangements constituted a “cash delivery mechanism” and that the options did not constitute “rights” to acquire securities in the relevant sense required by Chapter 5 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003. As I have already indicated, this led to proceedings in the FTT which were eventually settled on the basis that NSL and Primecrown were treated as having made payments which were to be treated, for tax and national insurance purposes, as income. NSL agreed it was liable to pay just under £10 million and Primecrown agreed it was liable to pay just under £6.7 million to HMRC although I understand that Primecrown ceased trading before it had made any payment.
The Proceedings
I have been provided with an Outline Chronology at pages 63 to 68 of the Appeal Bundle which, although not agreed by the Respondents for all purposes, was agreed to be sufficient for the purpose of the hearing of the Application.
The proceedings were commenced by a Part 7 Claim Form issued on 23 June 2016 and Particulars of Claim were served on 18 October 2016, at a time when the dispute with HMRC was at an early stage. On 27 July 2017, the Respondents made a formal request for information (“RFI”) to which a response was provided by the Appellants on 29 September 2017 (“the RFI Answer”).
So far as the Application is concerned, I have been provided (at pages 69 to 125 of the Appeal Bundle), as was the Deputy Master, with a marked up version of the Particulars of Claim from which it is possible to compare: (a) the Particulars of Claim as originally served on 18 October 2016 (“the Original Version); with (b) the version which accompanied the Application in 2017 (“the 2017 Version”) which shows the then proposed amendments in red; and (c) the further version produced on 25 October 2019 (“the 2019 Version”) which shows in green italics those amendments to which the Respondents ultimately consented and in green ordinary script, the proposed amendments which were disputed (“the Disputed Amendments”). Aside from the Disputed Amendments, the principal difference between the 2019 Version compared with the 2017 Version is that by 2019 the Appellants had dropped a proposed amendment which pleaded a failure properly to advise them in relation to corporation tax.
The Application was supported by three witness statements of Urnisha Lakhani (“Ms Lakhani”) of RR Sanghvi, the solicitors acting on behalf of the Appellants in these proceedings, dated 20 October 2017, 29 March 2018 and 8 April 2020 (although only the latter statement was before me) and a witness statement of BK dated 1 June 2020, which served was shortly before the hearing before the Deputy Master on 3 June 2020. Tom Ellis, a partner in Osborne Clarke acting on behalf of the Respondents, had made two witness statements dated 31 October 2017 and 15 May 2020 (although again only the second of these was in the bundle for this appeal).
I will refer to the Deputy Master's judgment (“the Judgment”) in more detail below. For present purposes, it is sufficient to note that the ultimate outcome was that he gave permission only for those amendments to which the Respondents had consented and refused permission for the others.
I note for completeness that pursuant to the Order, an Amended Defence dated 10 July 2020 has been filed (which responds to the amendments for which permission was granted by the Order) and an Amended Reply was then served on 7 August 2020.
The legal basis of the appeal
This is an appeal to the High Court within the meaning of CPR Rule 52.1(1)(b). CPR Rule 52.21 provides that every appeal is limited to a review of the decision below unless (a) a practice direction makes different provision for a particular category of appeal; or (b) the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing. CPR Rule 52.21(3) provides that the appeal court will allow an appeal where the decision of the lower court was (a) wrong; or (b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court.
CPR Rule 52.20(1) provides that in relation to an appeal the appeal court has all the powers of the lower court and rule 52.20(2) makes clear that this includes the power to: (a) affirm, set aside or vary any order or judgment made or given by the lower court; (b) refer any claim or issue for determination by the lower court; (c) order a new trial or hearing; (d) make orders for the payment of interest and (e) make a costs order.
I was also reminded by both parties of the well-established limits on appeals against the exercise by a Judge of a discretion set out in the judgment of Brooke LJ in Tanfern Ltd v Cameron MacDonald [2000] 1 WLR 1311 at [31] and [32] and the quoted observation of Lord Fraser of Tullybelton in G v G (Minors: Custody Appeal) [1985] 1 WLR 647 at 652:
“ All these various expressions were used in order to emphasise the point that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or...
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