Richards (t/a Colin Richards & Co) v Hughes

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgePeter Gibson L.J.,Jacob LJ,Sir William Aldous
Judgment Date09 March 2004
Neutral Citation[2004] EWCA Civ 266
Date09 March 2004
Docket NumberCase No: A3/2003/1911

[2004] EWCA Civ 266

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Birmingham District Registry

His Honour Judge Norris Q.C. (sitting as a High Court Judge)

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

Lord Justice Peter Gibson

Lord Justice Jacob

Sir William Aldous

Case No: A3/2003/1911

Between:
Hughes and Others (By their Litigation Friend)
Respondents
and
Colin E. G. Richards (Trading as Colin Richards & Co.)
Appellants

Miss Nicola Shaldon ((instructed by Messrs Knight & Sons of Newcastle-under-Lyme) for the Respondents Mr. Alexander Hill-Smith instructed by Messrs CMS Cameron McKenna) for the Appellant

Peter Gibson L.J.
1

When A contracts with B for B to perform professional services in connection with the establishment of a trust for the benefit of C and B is negligent in the performance of those services with the result that C receives no benefit from the trust, does A or C have a remedy in tort against B? That is the primary issue raised on this appeal. It arises because David and Alison Hughes ("the parents") by one action and their infant children, Thomas, Stephanie and Charlotte Hughes ("the children") as the beneficiaries under a trust created by the parents, by another action have sued the Defendant, Colin Richards, alleging negligence by him in connection with the establishment of a trust for the benefit of the children. Mr. Richards applied for the striking out or dismissal of the children's claim. His Honour Judge Norris Q.C. sitting as a High Court judge in the Birmingham District Registry, Chancery Division, on 30 July 2003 refused the application. Mr. Richards appeals with the permission of the judge.

2

The application was brought under CPR 3.4, alternatively under Part 24. Although the latter application permits the court to take account of the evidence which has been filed, the judge said that the evidence had not been relied on before him and he proceeded on the footing that the facts alleged by the children in their pleadings were to be assumed to be true for the purposes of the application. The hearing before us has proceeded on the same footing. It is, however, not irrelevant to note that by his Defence Mr. Richards has denied many of the facts relied on by the children for their allegation that he owed them a duty of care in the respects pleaded by them.

3

I now summarise the facts taken from the Amended Particulars of Claim and the allegations made therein.

The Amended Particulars of Claim

4

Mr. Richards is a chartered accountant practising in Stratford-upon-Avon. He held himself out to the parents as experienced at providing tax and investment advice. The parents owned all the shares in Castle Oils Ltd. He acted for them on the sale by them of those shares for £550,000 and a royalty agreement under which they were to receive royalty payments totalling £100,000 before deduction of tax.

5

Mr. Richards was informed by the parents that they wanted to invest the royalty payments to provide for the future funding of their children's education. He advised them in April/May 1990 to set up an off-shore trust fund for their children's education which would enable them to avoid income tax on the royalty payments; the royalty agreement would be assigned to the trust. He provided them with an explanatory document entitled Information Memorandum on Offshore Trusts. In reliance on that advice and that document the parents in May 1990 instructed Mr. Richards to proceed with the setting up of the trust. They retained him to act for them as a tax and investment adviser and as their agent in connection with the investment of the royalty payments, the retainer including (a) the provision of advice on that investment, on the setting up of the trust and on taxation matters arising from that investment, and (b) that he should act with reasonable skill and care (see para. 17 of the Amended Particulars of Claim, the retainer there outlined being called by the judge "the investment retainer"). Mr. Richards advised the parents that a Swiss trading company, the shares in which would be held by the trust, should be formed.

6

Mr. Richards advised the parents that they must have no involvement in the direction or administration of the trust. They further retained him to act, after the setting up of the trust and the Swiss trading company, on their behalf as their agent in all further matters concerning the trust and the company and to provide advice and information with regard to the trust and the company and to provide advice and information with regard to the performance of the trust and the company, it being an implied term that he would act with reasonable skill and care (see para. 19 of the Amended Particulars of Claim, the further retainer therein described being called by the judge "the monitoring retainer").

7

The parents signed a Trust Deed on 11 June 1990 and the trust, called the Thedis Trust, was registered in Liechtenstein with a Swiss bank as trustee. Thomas Hughes, born on 24 August 1987 and adopted by the parents on 12 February 1988, and Stephanie Hughes, born on 17 October 1989, were named in the Trust Deed as beneficiaries of the trust together with any further children of the parents, and any such further child could be added as a beneficiary. Charlotte Hughes was born on 31 March 1993 and was added as a beneficiary.

8

The parents transferred £30,000 to the trust in June 1990. On 12 July 1990 the Swiss trading company, Cedrus AG ("Cedrus"), was formed. Another Swiss company, Serconta AG, was to manage Cedrus. On 27 August 1990 the parents agreed with Cedrus to sell to it the benefits of the royalty agreement for £25,000. That sum, plus £1,000 interest, was paid by Cedrus to the parents in two tranches, one in September 1990 and the other in February 1992.

9

The parents paid Mr. Richards in respect of his expenses £721.74 and £6,000 in June 1990 and £6,325 in respect of his fees in December 1990.

10

Two royalty payments, each of £37,500 after deduction of £12,500 tax, were paid to Cedrus in October 1991 and 1992. The tax was not recovered nor, because of the Double Tax Convention with Switzerland, was it recoverable by Cedrus.

11

No sums were paid out of the trust to or for the benefit of any of the children. On 7 June 1999 Cedrus was put into liquidation and on 5 July 1999 the trust was struck off the register. The £30,000 paid by the parents to the trust and the royalty payments were largely absorbed by the setting up costs, trustees' and directors' fees, administrative charges, accounting fees, bank charges and taxation liabilities.

12

It is alleged in para. 20 of the Amended Particulars of Claim that Mr. Richards assumed a responsibility to the children as beneficiaries or future beneficiaries for the advice given on investment and taxation and the setting up of the trust and Cedrus and the services provided in relation to that setting up and the subsequent monitoring. It is pleaded in para. 21 that he owed the children a duty of care at common law to use reasonable skill and care in the performance of the investment retainer and the monitoring retainer. It is said in para. 22 that at all material times the parents, acting on behalf of and for the benefit of the children, acted in reliance on the advice of Mr. Richards in relation to the investment of the royalty payments in the trust and Cedrus, taxation matters and the performance of the trust and Cedrus.

13

The children allege negligence by Mr. Richards. In para. 59 of the Amended Particulars of Claim the children set out particulars of negligence and breach of duty. These, as the judge said, boiled down to two complaints. The first, relating to the investment retainer, is a complaint that the scheme devised by Mr. Richards was unsuitable because it did not enable recovery by Cedrus of income tax from the royalty payments, and the establishment and running costs of the trust and Cedrus exceeded the income likely to be produced so that capital would be depleted by those costs. The second, relating to the monitoring retainer, is that Mr. Richards failed to monitor the performance of the trust and Cedrus failed to inform the parents of the erosion of capital by the charges and outgoings and failed to advise them that the trust and Cedrus should be wound up.

14

It is further alleged in para. 60 of the Amended Particulars of Claim that, had the parents been properly advised, they would have been told of alternative investment schemes, the most appropriate of which would have been investment of the royalty payments in a range of unit trust accumulation units to be held by the parents on trust for the benefit of the children. Particulars are given of the loss and damage suffered by the children under two heads:

(a) had the £75,000 royalty payments been invested in 1991 and 1992 in accordance with competent advice, that sum would have increased in value to approximately £220,000 —£225,000 as at 1 January 2002;

(b) alternatively, had Mr. Richards advised the parents to wind up the trust and/or Cedrus and transfer the assets to the parents for investment for the benefit of the children at any material time prior to the complete loss of the capital, the parents would have accepted that advice and the children would have retained the benefit of such part of the assets as then remained.

The first of those two heads has been referred to as the investment claim, the second as the salvage claim.

15

The claim by the parents in their action commenced at the same time as the children's action is in very similar form, though there are some differences in the way the duty of care is...

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