ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR JUSTICE PETER SMITH
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE ELIAS
LORD JUSTICE PATTEN
| (1) CLAIRE SWAIN-MASON, DAVID JONATHAN BERRY and NEIL GORDON KIRBY
(executors of C J Swain deceased)
(2) CLAIRE SWAIN-MASON
(3) ABBY SWAIN
(4) GEMMA SWAIN
(5) CHRISTA SWAIN
|- and -
|MILLS & REEVE (a firm)
Robin Mathew Q.C. and Alexander Learmonth (instructed by Berry & Walton)
for the Respondents
Hearing dates: January 13-14, 2011
Crown Copyright ©
Lord Justice Lloyd:
The underlying facts
The opening of the trial before Peter Smith J
"Alternatively, the Defendants could have advised Mr Swain, once non-UK resident and ordinarily resident, to transfer his shares (whether or not subject to put and call options) to an offshore company or family trust, which would complete the MBO, and for Mr Swain to become non-domiciled in the UK for tax purposes, and to take out insurance against the possibility of his dying before losing his domicile for IhT purposes in the UK for tax purposes (i.e. within 3 years). Mr Swain would have acted in accordance with that advice."
"It is the course of action that, in our view, in the circumstances of Mr Swain's declared intention to move to Thailand, was simple to effect and preserved the MBO deal while avoiding inter alia the tax consequences."
The application for permission to re-amend
"when I am asked to amend, I'm entitled to take into account what my experience is of transactions like this and likely timeframes, and for my part, although they will, if the amendment is allowed, have to produce evidence to show that, it is clearly arguable, in my view, that this transaction could have been put in place in two weeks."
"the prejudice of the delay of a trial, yet again, in circumstances where it should not be delayed and they have allegations of negligence hanging over them."
"25. The Re-Amendment involves first contending that the Defendants had a duty to advise any seller in the position that Mr Swain found himself of the advisability of seeking advice to address the consequences of the change of assets as set out above. Second, the proposed Re-Amendment contends that such advice could have been obtained within a few weeks at the most and that a satisfactory scheme could have been created which would have been put in place at the same time as the SPA and ensured that thereafter Mr Swain's estate would be protected from any CGT and/or IHT consequences arising out of a death after the sale of his business."
"Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest of the administration of justice is not significantly harmed."
"The third matter raised by Mr Simpson QC was prejudice. If of course there is prejudice which might be caused by a proposed amendment which cannot be resolved or dealt with that is a substantial factor that almost invariably will lead to a refusal of the application. There is no suggestion that the costs that have been wasted will not be paid to the Defendants. They will therefore be fully paid for the financial cost of this adjournment. I accept that the proceedings are stressful (but no more stressful for them than the Claimants) and that the presence of the proceedings unresolved will be prolonged by the consequences of the adjournment. However that period as I have said is a relatively short one. They will be required to face a new case. However the evidence is not likely to be greatly lengthened as it involves primarily looking at legal issues and expert evidence. It is true as I have said that the case is differently presented but the mere fact that the case is differently presented is not prejudice to the Defendants in this situation in my view. It must be appreciated that the case is not statute barred. No principle of estoppel arises or prejudice can be relied upon merely because the Defendants face a new case for the first time."
"It is not said on behalf of the Defendants that they cannot meet these amendments in time for the adjourned trial. It is not said that they are seriously prejudiced in my view by the relatively short delay. It is not said that they have been prejudiced by the way in which the Claimants have first put forward such a claim, withdrawn it and now seek to reinstate it beyond the fact that the case has taken a different turn."
The supporting evidence and the application to disallow the amendment
"This factor, in addition to the clear possibility of complete freedom from CGT, would have formed the basis of the primary tax advice to [Mr Swain] to seek to negotiate a deferral of the sale to 6 April 2007 or shortly thereafter coupled, if necessary, with a cross-option agreement."
"I'm not going to allow you to play with these kind of pre-CPR games. This case has been at trial twice. At the last hearing you complained about the fact that there was yet another adjournment. What you are doing now, Mr Simpson, you are trying to set this up, for I have no doubt in the event you lose this application, yet another application to the Court of Appeal with a view to adjourning the trial. It is not acceptable."
"In my view, the pleading shows it has a real prospect of success. They only have to show, in my view, that had the advice been given, there would have been a discussion as to what to do with the impending sale. If the sale still had to go ahead on 31 January, then a scheme would have been put in place, namely a put option, which would have simply annexed the deed. It is likely, also, in that eventuality, if there was that urgency, that life insurance would have been taken out as well to cover the tax consequences of Mr Swain dying before the terms of the agreement had run their full course, in the event that that would have meant cover for ten years of loan notes.
Had the scheme not had an urgency to complete on 31 January - and this is what Mrs Mason says in her latest witness statement, although I have to accept that that is subject to trial, but for the purposes of a part 24 application I am entitled to assume that what she says will be established at trial. She says there would have been a deferral. My recollection, because I do not have the original trial bundle is that one of the buyers had also given evidence to the like effect.
So, what would have happened is, one way or another, a scheme would have been set up to address the tax consequences. I do not accept that that material has to be pleaded out. What the Defendants need to know is that a scheme, one way or another, would have been arranged and then the evidence of that is proven by Mr Farley's expert report.
It is clear, in my view, on Mr Farley's two reports and the Re-Amended Particulars of Claim, that the claimants are maintaining two alternative bases, namely one based on the proposition that the scheme would have gone ahead, and the other based on the proposition that the scheme would not have gone ahead and would only have been implemented in the next tax year."
"In my judgment, these applications were unnecessary and an abuse of the process of the court, and I will strike them both out and dismiss them for those reasons."
"The applications were an abuse as they were designed to try to abort the trial date which had been refixed because they had objected to further delay caused by the granting of the re amendment on the second day of the trial. The application under Part 24 was much too late. There had been 2 trial days (April and November 2010) which were vacated in the teeth of the Defendant's resistance. On neither occasion did they say the Claimants' original case had no prospect of success. This demonstrates that the application was tactical and devoid of merit."
The Defendants' application under Part 24
The nature of the Claimants' case as re-amended
"As a postscript I would add that, although decided prior to the introduction of the CPR and concerned with an egregious application to change direction in the course of trial itself, the judgment of this court in Worldwide Corporation Ltd v. GPT Limited contains a full compendium of citation of authorities as at that date which emphasises that, even before the CPR, the older view that amendments should be allowed as of right if they could be compensated in costs without injustice had made way for a view which paid greater regard to all the circumstances which are now summed up in the overriding objective."
"We are doubtful whether even applying the principle stated by Bowen LJ, the matter is so straightforward as Mr Brodie would seek to persuade us. But, in addition, in previous eras it was more readily assumed that if the amending party paid his opponent the costs of an adjournment that was sufficient compensation to that opponent. In the modern era it is more readily recognised that in truth the payment of the costs of an adjournment may well not adequately compensate someone who is desirous of being rid of a piece of litigation which has been hanging over his head for some time, and may not adequately compensate him for being totally (and we are afraid there are no better words for it) "mucked about" at the last moment. Furthermore the courts are now much more conscious that in assessing the justice of a particular case the disruption caused to other litigants by last minute adjournments and last minute applications have also to be brought into the scales."
"Where a party has had many months to consider how he wants to put his case and where it is not by virtue of some new factor appearing from some disclosure only recently made, why, one asks rhetorically, should he be entitled to cause the trial to be delayed so far as his opponent is concerned and why should he be entitled to cause inconvenience to other litigants? The only answer which can be given and which, Mr Brodie has suggested, applies in the instant case is that without the amendment a serious injustice may be done because the new case is the only way the case can be argued, and it raises the true issue between the parties which justice requires should be decided.
We accept that at the end of the day a balance has to be struck. The court is concerned with doing justice, but justice to all litigants, and thus where a last minute amendment is sought with the consequences indicated, the onus will be a heavy one on the amending party to show the strength of the new case and why justice both to him, his opponent and other litigants requires him to be able to pursue it."
The judge's decisions to allow the amendment and then not to disallow it
The application for summary judgment on the original case
"Accordingly, having ascertained the relevant circumstances, the court should ask itself whether, having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by him;"
Should the Claimants be given permission to re-amend?
Lord Justice Elias
Lord Justice Patten
The relevant text of the latest re-draft of the re-amendment of the Particulars of Claim (see paragraph  above).
8.1B The further advice which the Defendants would have given to Mr Swain and the Daughters would have been advice on how to arrange Mr Swain's affairs such as to allow Mr Swain and/or the Claimants to avoid or substantially reduce the payment of any CGT or IhT, regardless of when Mr Swain died. In all likelihood, such advice would have been as follows:
a) Not to complete the MBO until Mr Swain had ceased to be both resident and ordinarily resident for tax purposes in the UK;
b) Of the steps Mr Swain should take to cease to be both resident, ordinarily resident, and domiciled in the UK/England and Wales both for tax purposes and at common law;
c) That if such steps were followed prior to 6 April 2007, Mr Swain would cease to be both resident and ordinarily resident in the UK from 6 April 2007;
d) Accordingly, for Mr Swain and the Daughters to negotiate a deferral of the scheduled or likely completion date of the MBO until after 6 April 2007;
e) If any risk was perceived that one or other party to the MBO might seek to alter the terms of the MBO pending such deferred completion, to negotiate and grant 'put' and/or 'call' options between the parties, having sought any necessary assurances from the Bank; ensuring the beneficial ownership of Mr Swain's shares remained vested in him;
f) To set up a company, incorporated and resident for tax purposes off-shore, owned by Mr Swain, before completion of the MBO;
g) To consider transferring Mr Swain's shares to the off-shore company immediately before completion, subject to the options if any, to assist with any arrangement to mitigate Thai tax;
h) Having completed the MBO, immediately to invest as much of the proceeds as possible in 'exempt gilts' (and possibly to borrow so far as possible against the security of the loan-notes and invest the proceeds);
i) Alternatively, having completed the MBO, to transfer that part of the consideration for the sale of Mr Swain's shares as consists loan notes to the off-shore company (if not already vested therein);
j) Prior to completion of the MBO, to investigate the availability of life insurance cover, in an amount equal to the value of the loan notes which could not be invested in 'exempt gilts', to come into effect immediately upon completion for the period until 6 April 2010 (when Mr Swain would ceased to be deemed to be domiciled in England and Wales for tax purposes), and carefully to consider taking out such insurance if available.
8.1C Mr Swain and the Daughters would have accepted and followed such advice.
8.1D As a result the Tax Consequences would have been avoided, such that no CGT or IhT would have been payable or borne by Mr Swain or the Claimants on the value of the shares (whether because Mr Swain would have been possessed of his shares when he died on 17 February 2007 or otherwise). Credit will be given for the likely cost of the advice being provided by the Defendant, and for such of the costs of implementing the advice as would have been incurred before Mr Swain's death.
(If Mr Swain had not died when he did on 17 February 2007, but had survived until after completion of the MBO, no CGT would have been payable on completion or otherwise. IhT relating to the value of the shares would only have been payable if Mr Swain had died before 6 April 2010, and then only on such of the proceeds of the shares as had not been invested in 'exempt gilts'. Such IhT would be offset by the proceeds of the life assurance, if taken out.)