Twin Benefits Ltd v Lain Paul Barker and Another
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Marcus Smith |
| Judgment Date | 19 June 2017 |
| Neutral Citation | [2017] EWHC 1412 (Ch) |
| Docket Number | Case No: HC-2016-000053 |
| Court | Chancery Division |
| Date | 19 June 2017 |
[2017] EWHC 1412 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Marcus Smith
Case No: HC-2016-000053
Mr. Jonathan Seitler, Q.C. andMr. Stephen Hackett (instructed by Mishcon de Reya LLP) for the Claimant
Mr. Stephen Moverley Smith, Q.C. andMr. Dakis Hagen, Q.C. (instructed by Memery Crystal LLP) for the First Defendant
Hearing dates: 22 and 23 March 2017
Judgment Approved
A. INTRODUCTION AND FACTUAL BACKGROUND
(1) The tax avoidance scheme
The First Defendant, Mr. Barker, set up a business called "121 Consulting" in 199121 Consulting delivered management consultancy and project services, and was very successful. The business developed into a set of trading companies under a group holding company, Team 121 Holdings Limited ("Team 121 Holdings"). I shall refer to the group as the "Team 121 group".
By the spring or summer of 1998, Mr. Barker, who had a majority shareholding in Team 121 Holdings, was looking to sell. Since the group was considered to be worth £30m to £40m, the impact of capital gains tax on any such sale would be considerable. Mr. Barker therefore sought tax planning advice from, amongst others, a firm of solicitors called Baxendale Walker Solicitors. Mr. Paul Baxendale-Walker was the principal partner in Baxendale Walker Solicitors, and was involved in providing tax planning advice to Mr. Barker.
As a result of the advice received, Mr. Barker set up a tax avoidance scheme which was based on the establishment of an employee benefit trust ("EBT"). Had the scheme been successful, it would have avoided a very significant liability to capital gains tax and, eventually, inheritance tax.
On 6 October 1998, Team 121 Holdings entered into a trust deed (the "Trust Deed") with an offshore trust company based in Jersey, Matheson Trust Co. (Jersey) Ltd ("Matheson"). By the Trust Deed, Team 121 Holdings constituted a trust (the "Trust") by settling the sum of £100 on trust for beneficiaries defined as being present, past and future employees of the Team 121 group, and the families of those employees, but expressly excluding specified "Excluded Persons", defined in Schedule 3 of the Trust Deed. The definition of Excluded Persons in Schedule 3 to the Trust Deed followed the wording of section 28(4) of the Inheritance Tax Act 1984, and was critical to the working of the tax avoidance scheme. It will be necessary to revert to the meaning of "Excluded Persons" later on in this Judgment.
Mr. Barker, and a Mr. Speksnyder, were appointed protectors of the trust. Mr. Speksnyder subsequently ceased to be a protector (on 28 September 1999), and from then on Mr. Barker was the sole protector of the Trust.
On 15 October 1998, Mr. Barker as grantor executed a deed declaring that he held all his shares in Team 121 Holdings (the "Shares") on trust for the EBT (the "Deed of Gift"). This gift of the beneficial interest in the shares was, however, expressed to be conditional. The condition was that "in the event that the Inland Revenue determines in writing to the Grantor that, in respect of this transfer of the equitable interest in the Shares to the [EBT], the trusts of the [EBT] do not satisfy the conditions for exemptions from inheritance tax set out in Section 28 Inheritance Tax Act 1984 or do not satisfy the conditions for a no gain/no loss of disposal for the purposes of capital gains tax set out in Section 239 Taxation of Chargeable Gains Act 1992; then…the Trustees shall hold the Shares and any income arising to the Shares and any capital proceeds of disposal of the Shares and any income arising from such capital proceeds upon trusts absolutely for the Grantor".
The Deed of Gift, therefore, made provision in the event that the tax avoidance scheme failed to achieve the objectives that it had been set up to achieve.
On 23 March 1999, Matheson as trustee of the Trust declared a sub-trust (the "Sub-Trust"). The beneficiaries of the Sub-Trust were termed the "Principal Beneficiaries", which term was defined as follows:
"…the widow, children and remoter descendants and the mother and sisters of Iain Paul Barker who shall be living after his death…"
The Shares were sold in mid-1999 for a substantial consideration.
It is averred in paragraph 32 of the Particulars of Claim that the Sub-Trust received either the Shares and/or their proceeds, and this Judgment proceeds on that basis.
Her Majesty's Revenue and Customs ("HMRC") began investigating the EBT in 2005 and, in 2010, HMRC issued three Notices of Assessment to Mr. Barker, asserting a liability to tax on the income and gains arising via the Trust and Sub-Trust. Mr. Barker sought to appeal against the Notices of Assessment to the First-tier Tribunal. However, during the course of this appeal, Mr. Barker reached a settlement with HMRC, which concluded in April 2013 and which involved Mr. Barker paying £11.3m to HMRC.
(2) The Confiance Proceedings
The settlement with HMRC was effectively made on the basis that Mr. Barker had failed effectively to give away the Shares, and that he could be taxed on their capital gains. Nevertheless, the proceeds of sale of the Shares remained in the Sub-Trust, of which Mr. Barker was not a beneficiary. Mr. Barker accordingly sought to wind up the Trust and the Sub-Trust, thereby avoiding on-going trustees' costs and (more to the point) securing the return to him of as much of the assets held by the Trust and the Sub-Trust as possible.
Mr. Barker therefore commenced proceedings against the trustee of the Trust. The trustee was no longer Matheson, but the Second Defendant, Confiance Limited ("Confiance"). I shall refer to the proceedings commenced by Mr. Barker as the "Confiance Proceedings". Confiance was named as a defendant in the Confiance Proceedings.
In addition to the trustee (Confiance), the beneficiaries of the Trust and of the Sub-Trust were joined as defendants. The beneficiaries of the Trust included former employees of the Team 121 group and their children. The beneficiaries of the Sub-Trust comprised the Principal Beneficiaries. Essentially, these were:
i) Mr. Barker's children and any unborn descendants. Mr. Barker has five children by three women:
a) At around the time when the tax scheme was being considered, Mr. Baxendale-Walker introduced Mr. Barker to a Ms. Susan Glover, with whom Mr. Barker formed a personal relationship, resulting in the birth of twin children, Tom and Freya Barker, in 2001. Mr. Baxendale-Walker is the godfather of Tom and Freya. Mr. Barker and Ms. Glover's relationship subsequently broke down.
b) In 2004, Euan Barker was born (by Ms. Deborah Siddoway).
c) In 2005, Lauren Chadwick was born (by Ms. Julie Chadwick).
d) In 2006, Rowan Barker was born (by Ms. Siddoway).
ii) Mr. Barker's mother, Ms. Joan Barker.
iii) Mr. Barker's two sisters, Ms. Ingrid Heywood and Ms. Margot White.
The following were, therefore, defendants in the Confiance Proceedings:
i) First Defendant. Confiance itself (as trustee).
ii) Second Defendant. Euan Barker. Ms. Alison Meek, a solicitor of Harcus Sinclair LLP, was appointed as litigation friend to Euan Barker, since he was a minor. Although (as shall be seen) this is controversial, Euan appears to have been joined for the purposes of representing all of Mr. Barker's children.
iii) Third Defendant. Mr. Stuart Brown. Mr. Brown was joined as a representative of beneficiaries of the Trust (that is, former employees of the Team 121 group and their children).
iv) Fourth Defendant. Mr. Barker's mother, Ms. Joan Barker.
v) Fifth and Sixth Defendants. Mr. Barker's two sisters, Ms. Heywood and Ms. White.
The Confiance Proceedings sought to have the Trust and Sub-Trust declared void for breach of a condition precedent (namely, the conditional nature of the Deed of Gift, described in paragraph 6 above) or, alternatively, for mistake. The Confiance Proceedings did not go to trial, but were settled. Settlement negotiations were conducted by the parties to the Confiance Proceedings and a compromise was reached (the "Confiance Settlement").
As Euan Barker was a minor, Ms. Meek instructed Mr. Francis Barlow, Q.C. and Mr. Richard Dew to prepare an opinion as to whether the Confiance Settlement was for the benefit of Euan. That opinion was not before the Court in these proceedings.
The Confiance Settlement was put before Asplin J. for approval on 25 July 2014 and by an order of that date (the "Asplin J. Order") the Confiance Settlement was approved. I understand that the opinion of Mr. Barlow, Q.C. and Mr. Dew was before Asplin J.
It is necessary to consider separately the terms of the Confiance Settlement and Asplin J. Order.
Beginning with the Confiance Settlement:
i) The Confiance Settlement defined two classes of beneficiary, the "Family Beneficiaries" (defined in clause 1(k)) and the "Employee Beneficiaries" (defined in clause 1(l)). Essentially, the identity of the Family Beneficiaries tracked the definition of Principal Beneficiaries in the Sub-Trust, whilst the definition of Employee Beneficiaries tracked the definition of beneficiaries in the Trust.
ii) As part of the settlement, each of these classes had settled upon it on trust a sum of money. In the case of the Family Beneficiaries, this was £1 million. In the case of the Employee Beneficiaries, this was £500,000. These monies were set aside and paid out of the Trust (including any assets held by the Sub-Trust).
iii) The balance of the funds held on trust were to be held by Confiance:
a) On trust to pay and discharge the costs of the Confiance Proceedings and the costs occasioned in establishing the trusts for the Family...
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