Vinton and Others v Fladgate Fielder (A Firm) and another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 30 April 2010 |
| Neutral Citation | [2010] EWHC 904 (Ch) |
| Docket Number | Case No: HC08C03446 |
| Court | Chancery Division |
| Date | 30 April 2010 |
[2010] EWHC 904 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice Norris
Case No: HC08C03446
Matthew Collings QC (instructed by Speechly Bircham LLP) for the Claimants
Teresa Rosen Peacocke (instructed by Kennedys) for the Defendants
Hearing dates: 3–4 March 2010
Mr Justice Norris:
Wilton Antiques Limited (“Wilton”) was a company in the ownership of the Dugan-Chapman family. In October 2002 the late Mr Dugan-Chapman's executors (his daughters Anna Vinton (“Mrs Vinton”) and Jennifer Green (“Mrs Green”)) held 506,500 shares. The late Mr Dugan-Chapman's Widow, Mary Dugan-Chapman (“the Widow”) held 750,500 shares, and Mrs Vinton personally held 1,244,000 shares. At that time the Widow was the sole surviving director. She had an outstanding loan due from Wilton to her of £300,000. Wilton was short of cash, but it held significant stock (principally valuable paintings).
Fladgate Fielder (“Fladgates”) had acted as the family solicitors for the Dugan-Chapmans for many years. In the autumn of 2002 Fladgates were acting in relation to the estate of the late Mr Dugan-Chapman and were seeking to obtain a grant for Mrs Vinton and Mrs Green. Those responsible at Fladgates were Mr Baker (then a consultant with Fladgates but was formerly the partner with whom the Dugan-Chapmans had dealt) and Mr Stanton (the Fladgate's partner who had taken over the day to day responsibility from Mr Baker). Fladgates were also acting in relation to the affairs of Wilton: in that connection Mr Boundy of Fladgates’ corporate department became involved. (I am deliberately using opaque terms in what is intended as a recitation of uncontroversial background).
Between October 2002 and December 2002 Mrs Vinton and Mrs Green met with Mr Baker, Mr Stanton and Mr Boundy at Fladgates, and it was agreed that the Widow's loan would be converted into equity (thereby eliminating the risk that in the event of the Widow's death her loan would be called in and Wilton would be obliged to sell stock at a low point in the market in order to effect repayment). The conversion of the loan into equity had the advantage that, whereas the loan would be valued in her estate at £300,000, shares in Wilton would be subject to business property relief: so there would be an inheritance tax saving.
The requisite paperwork for a rights issue of 999,733 shares of £1 each was prepared on 23 December 2002. The Widow was allotted 300,000 shares and (acting by Mr Stanton as her attorney) she took up her allotment, accepting that allotment in satisfaction of her loan account. Mrs Vinton and Mrs Green took up the allotment 202,465 shares to which the estate of late Mr Dugan-Chapman was entitled. Mrs Vinton did not take up any of the 497,268 shares that were allotted to her under the rights issue. It had never been intended that she should. Fladgates prepared for Mrs Vinton a letter of renunciation in favour of the Widow and (acting by Mr Stanton as her attorney) the Widow took up this allotment using funds from her free estate.
It was then decided to raise a further £1 million for Wilton. Fladgates prepared the paperwork to achieve this: but on this occasion they did not utilise the mechanism of a rights issue, but instead proceeded by way of an offer of shares for subscription. The Widow (acting by Mr Stanton as her attorney) subscribed for all of the shares on offer, paying for them by using £1 million from her free estate. Her taking up of those subscription shares proceeded on the footing that they would attract business property relief (so that what would otherwise be £1 million in her free estate would be converted into shares attracting inheritance tax relief).
Two days later, on 29 December 2002 the Widow died. By her Will dated 15 October 1999 she had appointed Mr Baker, Mrs Vinton and Mrs Green (together with her nephew Stephen Luff) to be her executors (naming Mr Stanton as an alternative to Mr Baker). After leaving pecuniary legacies free of inheritance tax she constituted a residuary trust fund. By Clause 5 of her Will that trust fund was divided into ten parts, three being held for Mrs Vinton, three being held by trustees for Mrs Green, two being held in trust for Mrs Vinton's three children (Alfred, Isabel and George) and two being held for Mrs Green's daughter Marisha.
Following the death of the Widow it was discovered that business property relief was not available in relation to most of the shares which the Widow had acquired under the rights issue and the offer for subscription. Normally business property must be retained for two years before it qualifies for relief (and that, of course, was not the case in relation to any of the shares acquired by the Widow in the days before her death). But if the shares owned by the Widow could be identified with other shares previously owned by her, and those previously owned shares had been held for two years, then all of the shares qualified. This condition was satisfied in relation to the 300,000 shares which the Widow had acquired under the rights issue (because she acquired them in the right of her ownership of a holding of 750,000 shares). But the shares that the Widow acquired on the renunciation by Mrs Vinton of her rights, and the shares which the Widow acquired under the offer for subscription, were not acquired by her in the right of any existing holding of hers: they were acquired by her for reasons entirely unconnected with her existing holding. They were simply bought.
Mrs Vinton and Mrs Green did not immediately accept HMRC's analysis of the position, and they appealed the determination to the Special Commissioner. She determined (see Re The Executors of Mary Dugan-Chapman Deceased [2008] WTLR 1359) that there was no evidence that the parcel of one million new shares issued to the Widow on 27 December 2002 was part of a larger reorganisation of share capital in which the Widow had participated, and the subscription could not be treated as if it was a rights issue. At the hearing Mr Baker, Mr Stanton and Mr Boundy gave both written and oral evidence. In the light of it the Special Commissioner determined (see paragraph [67] of the judgment) that everyone involved in the process in December 2002 had IHT in mind.
On 3 December 2008 Mrs Vinton, Mrs Green, Stephen Luff, Alfred, Isabel, George and Marisha commenced proceedings against Fladgates, seeking to recover damages to compensate them for the £359,344 chargeable as inheritance tax upon the 1,497,268 shares acquired by the Widow in respect of which no business property relief was available. On 17 July 2009 Fladgates made an application for orders:—
(a) Striking out the claimant's statement of case pursuant to CPR 3.4(2)(a) as disclosing no reasonable grounds for bringing the claim: and alternatively
(b) For summary judgment against the claimants on the whole of their claim pursuant to CPR 24.2 because there is no real prospect of their succeeding on the claim, and there is no other compelling reason why the case should be disposed of at trial.
The Claim Form was issued on 3 December 2008. The Particulars of the Claim tell a story which I have outlined above. But in addition they make the following legally relevant averments:—
(a) Paragraph 6 says that Mrs Vinton, Mrs Green and Stephen Luff bring the proceedings in their capacities as the executors of the Widow, as the prospective executors of the Widow (at the relevant time), and as the trustees of the residuary estate under the Widow's 1996 will; and insofar as necessary all of the claimants sue as residuary beneficiaries:
(b) That in relation to the October 2002 meeting to consider Wilton's funding and the Widow's loan, Mrs Vinton and Mrs Green relied upon Fladgates as the Widow's solicitors, (and in addition they did so as her prospective executors and beneficiaries):
(c) Further that Fladgates voluntarily assumed liability towards Mrs Vinton and Mrs Green and with regard to the other claimants:
(d) That successful inheritance tax planning was an overriding consideration in that nothing was to be undertaken which did not achieve it or seek to achieve it:
(e) That Fladgates owed a duty of care both in contract and in tort in accordance with its retainer as the Widow's solicitors (in respect of which Mrs Vinton, Mrs Green and Stephen Luff now bring the claim as the Widow's executors):
(f) Fladgates’ retainer was to advise upon and undertake the first and second allotments of the shares in Wilton so as to achieve or seek to achieve an inheritance tax advantage by the attraction of BPR:
(g) In breach of its duty of care Fladgates failed to advise upon and implement those allotments so as to attract, or seek to attract, BPR:
(h) That a reasonably competent practitioner should and would have known that the acquisition of new shares by means of a renunciation or by means of a subscription for new shares would mean that shares so acquired would not attract BPR:
(i) That by reason of these matters the Widow and her estate have suffered a charge of inheritance tax (to the extent of the unavailability of BPR) and that the estate has therefore been denuded to that extent (to the ultimate detriment of the residuary beneficiaries):
(j) There are two resulting charges to inheritance tax in the sum of £359,344 and £41,823 respectively:
(k) In addition the claimants sought to mitigate the loss by challenging HMRC's determination and incurred legal fees of £91,190 and tax advisor's fees in the sum of £15,204.
Have Fladgates demonstrated that in making these factual assertions and legal averments the claimants’ statement...
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