Raymond Bieber & Others (Appellants/Claimants) v Teathers Ltd ((in Liquidation)) (Respondent/Defendant)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Sullivan,Lady Justice Arden |
| Judgment Date | 14 November 2012 |
| Neutral Citation | [2012] EWCA Civ 1466 |
| Docket Number | Case No: A3/2012/0733 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 November 2012 |
[2012] EWCA Civ 1466
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Norris J
HC09C03105
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Sullivan
Lord Justice Patten
Case No: A3/2012/0733
Francis Tregear QC and Michael King (instructed by Harcus Sinclair) for the Appellants
Andrew Onslow QC and Matthew Hardwick (instructed by Fulbright & Jaworski International LLP) for the Respondent
Hearing dates : 2 nd and 3 rd October 2012
The claimants in these proceedings were all investors in what were described as "The Take 3 TV Partnerships" and which I will refer to simply as "Take 3". These were a series of unregulated collective investment schemes promoted by Teather & Greenwood Limited ("Teathers") which were intended to take advantage of the tax reliefs available under s.42 of the Finance (No. 2) Act 1992 and s.48 of the Finance (No. 2) Act 1997.
Under this legislation a UK taxpayer was entitled to write down 100% of any expenditure on a film or TV production which was certified by the Department of Culture, Media and Sport as what is defined in the Films Act 1985 as a British Qualifying Film. Take 3 was set up to invest in TV productions. There was an initial fee equal to 9% of the investment so that 91% of the monies paid into the scheme potentially qualified for tax relief as an off-set against the investors' other income.
Investment in Take 3 was obtained through the issue by Teathers of an Information Memorandum which contained a summary of the scheme and its tax advantages as well as warnings about some of the risks involved. Applicants were required to complete a Subscription Agreement and power of attorney which were included at the end of the Information Memorandum. The amount of the subscription (which had to be a minimum of £25,000) was paid by cheque or banker's draft in favour of Teathers and placed into an account held by them at HSBC. It is common ground that this account was governed by the client money rules contained in regulations made under the Financial Services Act 1986 ("FSA 1986") and later the Financial Services and Markets Act 2000 (" FSMA 2000"). I shall come to the details of this later in this judgment.
The investment of these monies in TV productions was carried out through the medium of an unlimited partnership in which the investors were all general partners and Teathers acted as the managing partner. Under the terms of the Subscription Agreement Teathers was authorised to execute the Partnership Deed on the investors' behalf and it thereupon transferred the subscription monies from the HSBC account into a partnership account at Barclays. Teathers then used these monies to invest in productions which it selected from various proposals put forward by Baker Street Media Finance Limited ("BSMF"), a specialist film finance company, which Teathers engaged to review and identify proposals and programmes which were suitable for the partnership. The Information Memorandum indicated that the partnerships were intended to subsist for at least five years and would re-invest any net income in further productions during that period. At the end of five years re-investment of income was to cease and the partnerships would then dispose of their rights in current productions and in the library of previously completed programmes in which they retained an interest (described as "library sales"). The proceeds would then be distributed to the investors.
Take 3 has not proved to be successful. Many of the productions have been commercial failures and in a number of cases have not been certified as British Qualifying Films so as to obtain the tax relief on the investments which was the rationale behind the scheme. There are also complaints that although the Information Memorandum promised that monies would only be invested in productions where there was a pre-sale commitment for at least 60% of the funds contributed by the partnership, this has not in practice been adhered to.
Consequently a series of actions have been commenced against Teathers seeking damages for misrepresentation; negligent breach of duty both as the promoter of the scheme and as managing partner of the individual partnerships; regulatory breach of duty under the Financial Services Act 1986; and breach of trust. They relate not merely to Take 3 but also to similar schemes marketed by Teathers (Take 2, 4, 5 and 6). Teathers is now in liquidation and its only material asset is an insurance policy which provides cover against these claims up to an overall limit according to Teathers of £10m inclusive of the costs of Teathers' defence of the claims.
In order to maximise any possible recovery Take 3 has been chosen as the paradigm scheme for the purpose of testing liability under one of the heads of claim; namely breach of trust. The essence of this claim is that the subscription monies provided by each investor were held by Teathers both in the HSBC client account and in the Barclays partnership account on a Quistclose trust to apply the monies only for the purpose of an investment which satisfied what have been referred to as the Take Criteria. These are said to derive from the Information Memorandum and to set the limits of Teathers' authority to deal with any of the subscription monies in the partnership account.
As originally formulated in paragraph 54 of the Particulars of Claim, the Take Criteria are alleged 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 at 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")."
An additional criterion (Take Criterion 1A) has been added to the list (by letter dated 21 st February 2011) that:
"Funds would only be invested so that the downside for investors (that is, the risk of loss) would be largely eliminated."
The legal effect of the Take Criteria is set out in the following paragraphs of the Particulars of Claim:
"116. The Claimants' subscriptions were collected for the purposes of investing in accordance with the Take Criteria and the IM and for no other purpose. In the premises T&G's duties owed to the Claimants in respect of Partnership property, including any cash held on behalf of the Claimants, were those of a trustee.
117. Further the Claimants subscribed to the Scheme on the basis that T&G would be the administrator of the Partnership and, in the premises, T&G held the claimants' subscriptions upon trust to use the same pursuant only to a validly created partnership deed and management agreement.
…
126. In breach of trust and in breach of the duties set out at Paragraphs 115 to 120 inclusive above, T&G wrongfully paid away monies of the Claimants from its client account at various times (full particulars of which the Claimants will be able to give only after disclosure) in the implementation of the Scheme when such monies should have been repaid to the Claimants once T&G knew or ought to have known:
126.1 the scheme being implemented was fundamentally different from the Scheme as described in the IM, and that accordingly no authority had been or could have been given for the expenditure of any funds whatsoever, or
126.2 the Scheme as implemented was certain to fail as a tax saving scheme and was overwhelmingly likely to be unsuccessful as an investment, or
126.3 the investments did not comply with the Take Criteria."
As Mr Tregear QC for the claimants explained, the claim for breach of trust has the advantage of imposing liability on Teathers for the misapplication of the partnership monies simply upon proof that they knew or ought to have known that the investments did not comply with the Take Criteria. Indeed, in argument, the case was put in even stricter terms than those pleaded in paragraph 126 on the basis that Teathers had no authority to make any use of the monies for investment in a TV production which did not meet these criteria so that non-compliance itself created an immediate liability to account for the monies and to restore the fund. Whichever way the case is put, it obviates the need for the claimants to prove reliance by the investors on any alleged misrepresentations contained in the Information Memorandum or to demonstrate that in its stewardship of the scheme as administrative partner Teathers was negligent in its acceptance of BSMF's recommendations and the subsequent choice of productions in which to invest.
It was therefore agreed that there would be...
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