Raymond Bieber and Others v Teathers Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 09 February 2012 |
| Neutral Citation | [2012] EWHC 190 (Ch) |
| Docket Number | Case No: HC09C03105 HC09C03107 HC09C03108 HC09C03109 |
| Court | Chancery Division |
| Date | 09 February 2012 |
[2012] EWHC 190 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
The Rolls Building
Fetter Lane
EC4A 1NL
Mr Justice Norris
Case No: HC09C03105
HC09C03106
HC09C03107
HC09C03108
HC09C03109
Francis Tregear QC Michael King and Joanna Perkins (instructed by Harcus Sinclair) for the Claimants
Andrew Onslow QC and Matthew Hardwick (instructed by Fulbright & Jaworski International LLP) for the Defendant
Hearing dates: 25–28 October 2011
For the 2001/2002 tax year Teather & Greenwood Limited ("Teathers") promoted an unregulated collective investment scheme called "The Take 3 TV Partnerships" ("Take 3"). Take 3 was intended to be a series of partnerships established principally to co-produce and exploit a portfolio of British TV productions, providing both tax and income benefits to individual partners. It was part of a series of such schemes promoted in earlier and in subsequent tax years ("the Take Schemes").
The Take Schemes utilised tax relief that had been made available by section 42 of the Finance (No.2) Act 1992 and section 48 of the Finance (No.2) Act 1997. The combined effect of these sections was to permit an investor to write off 100% of his expenditure on a TV production certified by the Department of Culture Media and Sport as a British Qualifying Film under the Films Act 1985 in the tax year in which the expenditure was made. (The same relief was available for film productions: but several other promoters offered schemes for films, which is why Take 3 emphasised TV productions). The partnerships were the mechanisms by which this expenditure could be laid out and the tax relief made available for use against other income of the investor. There was an initial 9% charge for using the scheme so that an investor could effectively obtain tax relief at 91% of his outlay. If he borrowed in order to make his investment the tax relief could exceed his cash outlay. Take 3 attracted some £18.8 million of investment.
Teathers invited subscriptions in an Information Memorandum that explained the Scheme. Those attracted by the prospects held out in the Information Memorandum invested by sending a cheque attached to a Subscription Agreement. Teathers then used the money subscribed to establish partnerships (of which it was managing partner). As managing partner Teathers then selected (from a range of proposals proffered by a specialist film finance company) TV productions in which to invest. The partnerships were real businesses which aimed to re-invest any profits made on the initial investments in further TV productions, and then at a time selected by the Partners to sell the rights in all current projects and the retained rights in any former projects ("Library Sale"). It is frankly acknowledged by Teathers that the Take 3 Scheme and the Take 3 Partnerships have in general been unsuccessful.
There are many disappointed investors who say they have lost some 60% of their investment. They have commenced a succession of actions against Teathers. Teathers is now in liquidation. If the investors are able to bring home a claim against Teathers the one asset to which they can look is an insurance policy. According to Teathers this provides cover of £10 million inclusive of Teathers' costs of defending any claim. On this viewhe more that is spent by Teathers on costs the less that is available to the investors as potential compensation.
The Particulars of Claim in the proceedings relating to Take 3 are 106 pages long and put the claim of the investors against Teathers in a number of ways, including:—
• innocent misrepresentation as promoter
• negligent misrepresentation as promoter
• specific misrepresentations to individual investors by agents of Teathers
• negligent misstatement (in contract or tort) about the risks of investment in the scheme
• negligent breach of duty as promoter in failing to analyse the viability of the scheme
• negligent breach of duty as managing partner of individual partnerships in production selection
• negligent breach of duty as administrator in the tax treatment of certain income and the supervision of investments
• regulatory breach of duty under the Financial Services Act 1986
• misuse (in breach of trust) of money paid to Teathers by investors.
It is plainly not economic to litigate each and every one of these claims on behalf on each and every one of the investors. The Claimants have therefore selected, the Defendant has agreed (and I have by Order dated 28th of January 2011 ("the Order") directed) the trial of one of the causes of action as a preliminary issue, namely the claim that is founded upon breach of trust. It was common ground that if a trust claim (which involves a construction of the scheme documents) was to be considered then it would be convenient also to consider the claim based on regulatory breach of duty.
The breach of trust claim was advanced in pre-action correspondence in these terms:—
"It will be the claimants' primary case that [Teathers] received subscribers' funds effectively on trust to invest in a scheme which fulfilled the purposes of the partnerships. If the purposes could not or would not be fulfilled [Teathers] had no authority to incorporate the partnerships and pay subscription monies into the scheme."
This way of putting the claim focuses upon the establishment and funding of the partnerships.
The trust claim that emerges at various points in the Particulars of Claim is somewhat different. It does not focus on the application of the subscription monies in the formation of the partnerships. It focuses upon the application of the sums subscribed to the partnership by investment in productions. Thus Paragraph 51 alleges that:—
"[Teathers] used the money paid to it by each Claimant in breach of trust because it failed to use the same in accordance with the Take Criteria—being the sole criteria upon which each Claimant permitted [Teathers] to invest."
The term "Take Criteria" is defined in the Particulars of Claim to mean:—
"…the rubric to be discerned from the [Information Memorandum dated 1 st February 2001] and which [Teathers] was obliged to follow in the implementation of the Scheme… "
It will be seen that the definition itself assumes that the features to which attention is drawn constituted "obligations".
The Take Criteria are pleaded in paragraph 54. It is there said that the Information Memorandum which solicited subscriptions "set out a number of key criteria which [Teathers] represented that they would follow when they invested the Claimants' subscriptions", to "include" the following:—
a) "Funds would only be invested in British TV Productions which were so certified by the Department of Culture Media and Sport ("Take Criterion 1")….".
b) "No investment would be made unless a "pre-sale" or "guarantee" was in place for a least 60% of the funds committed by a Partnership which was payable in the immediately following year in time for it to be reinvested……("Take Criterion 2")".
c) "No investment would be made unless borrowing of up to 100% of the value of the presale or guarantees were to be put in place ("Take Criterion 3")…".
d) "Funds would only be invested in a production…capable of being completed by the end of the tax year in which the investment was made and… capable of producing an income to be invested in the immediately following year sufficiently to shelter the tax that would otherwise be payable that year on receipt of the presale or guarantee required by Take Criterion 2 ("Take Criterion 4")…".
e) "At the end of the period of each partnership (typically five years) such partnership had to own rights in each TV production so that the rights could be realised as Library Sale Value ("Take Criterion 5")."
To the pleaded Take Criteria there was added (by a letter dated 21 February 2011) an additional criterion ("Take Criterion 1A"):—
"Funds would only be invested so that the downside for investors (that is, the risk of loss) would be largely eliminated."
From the correspondence and from the Claimants' evidence it is clear this and the other Take Criteria represent their attempt to distil the essential elements of the workings of the scheme by identifying "the hard edged matters" which they perceive embody its fundamental principles.
The relevance of the Take Criteria is elaborated in paragraph 116 of the Particulars of Claim which is in these terms:—
"The Claimants' subscriptions were collected for the purposes of investing in accordance with the Take Criteria and the Information Memorandum and no others. In the premises [Teathers'] duties owed to the Claimants in respect of Partnership property, including any cash held on behalf of the Claimants, were those of a trustee. "
(There was an additional plea in paragraph 117 of the Particulars of Claim that Teathers held the Claimants' subscriptions upon trust to use the same pursuant only to a validly created partnership deed and management agreement. In the event, part of this allegation was not a matter of controversy (since the formal validity of the partnership and management agreements was not in issue for the purposes of the hearing before me) and the remainder did not add anything to the debate that arose on paragraph 116).
Paragraph 126 of the Particulars of Claim then alleged that:—
"… in breach of trust ….. [Teathers] wrongfully paid away monies of the Claimants from its current account at various times …. in the implementation of the Scheme when such money should have been repaid to the...
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