ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE HAMBLEN
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE RIGHT HONOURABLE LORD JUSTICE LONGMORE
and
THE RIGHT HONOURABLE LORD JUSTICE LLOYD
Between:
ANDREW BROWN & OTHERS | Applicants |
- and - | |
INNOVATORONE PLC & OTHERS | Respondents |
Mr John Powell QC, Mr Graham Chapman & Mr Shail Patel (instructed by Enyo Law LLP) for the Applicants
Hearing dates: 27th November 2012
Judgment
This is a judgment of the court:
This application for permission to appeal relates to geared investment schemes with related tax incentives which were said to encourage investment in various forms of Technology. Each scheme was promoted as a limited liability partnership or a general partnership formed to acquire and develop the technology. It required the subscriber to become a partner. The supposed tax advantages were a prime incentive to the investor. In essence, he or she would put up 20% of the cost (either from his own resources or by borrowing) and the remaining 80% would be provided by the partnership. The investor would obtain income tax relief and/or capital gains tax relief in respect of the 20% but, by reason of the way loans were arranged in respect of the remaining 80% of the capital outlay, he would in theory also obtain tax relief in respect of that 80%. The Revenue did not, however, accept that this latter part of the scheme was an arrangement which warranted tax relief. The schemes collapsed and, although the Revenue was prepared to allow relief on the initial contributions, numerous investors claim to have lost very large sums of money. They have made claims against the well-known firm of solicitors, Collyer Bristow and two of their partners for (inter alia) breach of trust, breach of certain provisions of the Financial Services and Markets Act 2000, negligence and dishonest assistance; there are also claims for breach of trust or fiduciary duty on the part of individuals promoting the scheme. The judge, Hamblen J, dismissed all the claims.
In order to succeed in the breach of trust claims against Collyer Bristow, the claimants had to prove the existence of a Quistclose trust whereby money deposited by them in the relevant Collyer Bristow account was held for purposes which did not materialise and/or was paid out in breach of the terms of the Quistclose trust. In very broad outline the judge held (paras 961 and 968) that a Quistclose trust existed between the time of payment and the time when the subscribers became partners and that the terms of that trust were that subscription monies could only be used for making a capital contribution to the partnership or (more controversially) for the payment of the acquisition price for the Technology on the part of the partnership. But he held that the trustee of the monies was not Collyer Bristow. It was the promoter who was the client of Collyer Bristow and the trustee of sums subscribed on the terms of the Quistclose trust. Those monies were always in an account which was the firm’s client account in respect of the promoter, to whom subscription applications were addressed and to whom, if the application was successful, the subscription would be paid. The judge went on to hold that the subscribers had become partners and there was no breach of trust in any event because the monies were applied for the benefit of the partnership. Even if there had been, he would have granted relief from liability for breach of trust under section 61 of the Trustee Act.
The claimants attack this conclusion on various grounds. They say, again in very broad outline, that monies were paid out in breach of the Quistclose trust and Collyer Bristow had notice of the terms of that trust, and also that the offers from the investors to participate in the schemes were subject to various conditions which operated as conditions precedent to their becoming partners which were never fulfilled so that they never became partners; they say further that the Information Memorandum pursuant to which subscriptions were made only authorised the donee of the Power of Attorney described therein to make the subscribers partners and that the Power of Attorney was limited in a number of respects and the making of them as partners was therefore unauthorised for that reason also. The judge rejected all these arguments and held that there were no implied conditions of the offers and that the Power of Attorney had become properly exercisable. To the extent (in two of the schemes) that it may not have been exercisable, the relevant claimants had ratified any excess of authority. He concluded therefore that the subscribers had become partners, that monies had been paid for proper purposes, that the Quistclose trust had achieved its object and that there was no breach of trust on which the claimants could rely.
As far as the FSMA claims are concerned, the judge agreed with the claimants that the schemes were Collective Investment Schemes and should therefore have been promoted only by a person authorised to promote such a scheme and that the persons promoting them were not so authorised. The agreements made were therefore unenforceable under s.26 of the Act but he held that the counterparty to the agreements was only the partnership, not the active defendants sued by the claimants. He held (paras 1229-30) that section 26 did not support a right of recovery against 3rd party recipients. In any event he said (para 1241) that such recipients would be entitled to relief under section 28(6). He also held (para 1248) that any remedy under section 30 of the Act was only enforceable against the relevant counterparty (namely the partnership).
Allegations of fraud and conspiracy were made against the defendants. These were comprehensively dismissed by the judge and the conspiracy claims are no longer pursued. Allegations of negligence and breach of fiduciary duty were also dismissed.
Mr John Powell QC for the claimants accepted that for the breach of trust claim against Collyer Bristow to succeed he had to show
that Collyer Bristow, not the promoter, was the trustee of sums paid into the relevant client account at Collyer Bristow or that Collyer Bristow at least had notice of the terms of the Quistclose trust;
that subscriptions could not be used for partnership purposes before the investor became a partner;
that the investors never did become partners;
that Collyer Bristow would not be entitled to be relieved under section 61 of the Trustee Act.
If he failed to establish any of these propositions, any appeal under this head would inevitably fail. But he submitted that there were real prospects of showing that the judge was wrong on all these matters as well as with regard to FSMA allegations.
In a masterly synthesis of 1439 paragraphs of judgment, 43 paragraphs (with 10 attached schedules and 6 appendices) of grounds of appeal and 179 paragraphs (with 8 attached schedules) of skeleton argument, Lewison LJ managed to extract the essential grounds of appeal and refused permission on the papers observing tartly that, if the application was renewed orally, the presentation needed to be much more sharply focussed. Lewison LJ has provided an enormous service to the proposed appellants as well as to this court.
Having had the benefit of Mr Powell’s oral submissions, we are firmly of the view that it would be quite wrong to allow the appellants to pursue claims of fraud or dishonest assistance which were dismissed by the judge. Nor do we think that there is any prospect of the claimants proving either the alleged subscription money agreement dealt with by the judge in section 9 of the judgment or the representation claims dealt with in section 7 of the judgment.
We cannot, however, say conscientiously that all of the other grounds of appeal have no prospects. The difficulty is that the grounds are so diffuse that it is not easy to state shortly and precisely what we give permission for and what we do not. This is our conclusion:
Grounds of Appeal paras 5-8 and Schedule 1
We grant leave for paras 6(a) and (b). We refuse ground 6 (c) save for proposed implied condition (1) which we consider arguable (namely “the deadlines condition”). That translates into a grant of permission for Schedule 1 para 3(a), (b) and (c) but a refusal for (d) and (e) save for the deadlines condition. With respect to the other conditions, the judge was right for the reasons he gave. Paragraph 12 of Schedule 1 can only be understood by reference to paragraph 26 of the Advocate’s Statement of 16th November 2012. We give permission for the ground contained in paragraph 26(a); for the ground contained in paragraph 26(b) without prejudice to any argument of the respondents to the effect that the point was not taken below and should not be open in this court (cf para 21 of Lewison LJ’s refusal). We refuse permission for paragraph 26(c) which is on any view a new point.
Grounds para 9 and Schedule 2
We refuse permission save for the first alleged IM condition (1), the deadlines condition.
Grounds 10-12 and Schedule 3
We grant permission.
Grounds 13-14 and Schedule 4
We grant permission except insofar as these grounds relate to CB and Mr Bailey, as to which we refuse permission.
Ground 15 and Schedule 5
We refuse permission save in respect of paragraph 14 of Schedule 5 as to the backdating of documents. As to that, we refuse permission to challenge the finding that documents were not backdated where relevant but we give permission in relation to the allegation that the YTC and Etrino LLP deeds were amended by the substitution of new pages in a document already executed. As far as GT2 and Arte LLP deeds are concerned, there is no ground of appeal relating to them.
Ground 16 and Schedule 6
Permission is refused.
Ground 17 and Schedule 7
Permission is refused.
Ground 18 and Schedule 8
Permission is refused. We cannot see that a claim in negligence adds anything to the trust claim save to complicate it. That is not to deny that acting without appropriate skill and care may be relevant to any claim for relief under section 61 of the Trustee Act 1925.
Ground 19 and Schedule 9
We will however give permission to argue breach of fiduciary duty, even though they must cover much of the same ground as the trust claim.
Ground 20
We understand this is not now pursued. We do not give permission.
Grounds 21-42
Paras 22-23 in relation to Mr Stiedl refused.
Paras 24-25 in relation to Mr Carter granted in relation to FSMA and fiduciary duty only, namely paras 25(c) and (d)
Paras 26-27 in relation to Mr Gates granted likewise in relation to FSMA and fiduciary duty, namely paras 26(c) and 27(b) and (c).
Paras 28-29 in relation to Mr Bailey permission granted for paras 29 (a), (b), and (f) only.
Paras 30-31 in relation to Mr Roper, permission refused.
Paras 32-34 in relation to Collyer Bristow, permission is granted for (d) only in para 32 and, in relation to para 33, is refused for (d), (e), (f) and (h) but otherwise granted.
Paras 35-36 in relation to the LLPs, permission is refused. They did not participate in the trial and attempting to get fresh relief in the Court of Appeal is inappropriate.
Paras 37-38 in relation to CLFL permission is refused.
Paras 39-40 in relation to Innovator, permission is granted for grounds in paras 39 (b), 40 (b) and (d) but not otherwise.
Para 41 in relation to Vermillion is not pursued.
Para 42 adds nothing of consequence.
Ground 43 and Schedule 10
Permission is granted for paras 2, 3, 4 and 6 of Schedule 10.
In the light of our decision, the grounds and skeleton argument will have to be reformulated. They are currently difficult to follow with their Schedules, Appendices and Annexes. The Advocate’s Statement follows a clearer pattern and it would be helpful if the grounds and skeleton can be reformulated following the lines contained in that document. There is an element of overkill which must be reduced.
This will be an extremely burdensome appeal which will need 2 Chancery LJJ and 1 Commercial LJ. The oral argument should allow for 8 sitting days. There should be two prior reading days and, subject to any contrary direction by the presider, two further reading days to be taken after the appellants have concluded their submissions. At the conclusion of the hearing there must be at least 3 writing days.
Other Directions
1) Reformulated Ground of Appeal and Skeleton Argument to be served by Friday 21st December 2012;
Respondent’s Notices (if any) and Skeleton Arguments to be served by Friday 1st March 2013;
Bundle references to relevant documents referred to in relevant parts of the judgment to be inserted in copies of the judgments in the bundles for the court;
Bundles to be agreed and lodged as per PD52C.
Counsel will kindly draw an order to give effect to our above decisions, within 7 days of date of hand down.