QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
|MIDLAND PACKAGING LIMITED|
|HW ACCOUNTANTS LIMITED||DEFENDANTS|
Crown Copyright ©
a. Midland Packaging Limited ('The Company') manufactures cardboard packaging at its freehold premises known as Aston Works, Cheston Road in Birmingham.
b. Maurice Menir is the Managing Director of the Company. He held 21.5% of the shares in the Company at all material times and until 5th December 2006 when his shareholding increased to 95.1%. He was born in Egypt but lived with his parents in UK since 1978 whilst working for his father in the family business until taking over his father's role upon his father's death in 1991.
c. Rose Menir (d.o.b. 20/7/1931) is Maurice's mother and has been a director in the company with no executive role. She held 74.9% of the shares in the Company at all material times and until 5th December 2006 when her shareholding decreased to 4.9%. She was born in Egypt but came to the UK over 50 years ago in 1957 as a refugee with her husband and family. She has remained domiciled here ever since, apart from 7 weeks (49 days) between 16th March and 4 May 2005 when she and her son sought to emigrate to Israel for tax purposes. She returned after injuring herself badly in a fall on 18th April 2005.
d. The Defendants ('HW') are a national company providing various accountancy, auditing and taxation services. In 1997, they acquired the local Edgbaston practice of Lucas Howard whose acting partner was Geoff Lucas, the longstanding accountant of the Company and the Menir family. A standard Haines Watts Engagement Letter – Audit was signed between the Company and Haines Watts on 6th February 1998; otherwise Mr Lucas continued to act for the Company and the Menirs as before as "BKR Haines Watts incorporating Lucas Howard & Co" until his retirement on 31st March 2000. Thereafter, Henry Briggs, FCA, the Senior Partner of Haines Watts Birmingham office since 1991, took over the role vacated by Mr Lucas in the affairs of the Company and the Menirs, although no other Letter of Engagement was ever signed. This "engagement" continued until 23rd June 2004 when it was terminated by Mr Menir. Between April 2000 and 15th September 2003, Nick Owen, described as the "Technical Tax partner" of HW, was delegated the specific role of tax planning for the Company and the Menirs.
a. They failed timeously to devise and propose a suitable Scheme to be implemented by a share buy back transaction on 31 December 2002 with investment of the proceeds and any PET by 1st July 2003 that the Claimants subsequently ought themselves to have completed by 31st December 2004 ;
b. They failed to raise as one of the options, the possibility of emigration for IHT purposes but that would not have been effective in any event;
c. They missed the point as to deemed domicile for the purposes of IHT until that error was corrected on 11th February 2004.
a. the date and precise nature of the instructions given;
b. whether emigration should have been promoted and recommended;
c. whether a Bearer Share Scheme ought to have been raised and considered as an option;
d. whether Potentially Exempt Transfers ought have been raised and considered as an option for both the shares and the family home;
e. whether Bearer Share planning would have been taken up if offered;
f. whether emigration for 4 complete years would have been attempted timeously and have been successful for IHT purposes;
g. whether the Claimants have mitigated their losses by putting alternative arrangements in place once they discovered the Defendants had defaulted in making any; and
h. the correct approach to investment return upon the proceeds from the shares in the Company and the half share in the family home.
''Credibility' involves wider problems than mere 'demeanour' which is mostly concerned with whether the witness appears to be telling the truth as he now believes it to be. Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person telling something less than the truth on this issue, or though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by over much discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance. [emphasis added] And lastly, although the honest witness believes he heard or saw this or that, is it so improbable that it is on balance more likely that he was mistaken? On this point it is essential that the balance of probability is put correctly into the scales in weighing the credibility of a witness. And motive is one aspect of probability. All these problems compendiously are entailed when a Judge assesses the credibility of a witness; they are all part of one judicial process. And in the process contemporary documents and admitted or incontrovertible facts and probabilities must play their proper part.'
Reliance and Causation
a. Both Mr Menir and Mrs Menir (in her witness statement evidence) gave evidence that they would have done so;
b. Mr Menir had no wife or immediate family; his mother was his closest family having lived with her all his life apart from when he was a student;
c. They had strong family ties with Israel and Mrs Menir had a burial plot there next to her late husband;
d. They had undeniably ample means to make a successful emigration;
e. The Company with around £10m assets, could be sold and there was no need to live and work in UK;
f. Mr Menir was a bachelor and keen to start his own new Jewish family in Israel.
g. They did in fact subsequently make an attempt to emigrate between 16th March and 4th May 2005.
a. Although technically "non domiciled" in UK for income tax purposes, they have still lived in UK since 1957 and in the same house in Edgbaston for 41 years with roots firmly established in that community amongst longstanding friends and their family. Mrs Menir also had great trust in her local doctor
b. Mr Menir single-handedly, and very successfully, ran the Company upon which the whole family depended and thrived – a quintessential small family company in the West Midlands. Otherwise there was one book-keeper and some machinists. He was indispensable to its day to day running and administration. The only option would therefore be to sell the Company but that would be difficult as it would be virtually unmarketable without Mr Menir.
c. Mrs Menir was only just 70, albeit in poor health, and there were less drastic alternative options to consider, such as an alternative sliding scale 7 year option of PET.
d. The flight to Israel was not a genuine attempt at emigration for 4 years; it was a sham and part of Mr Menir's preparation to take action against the Defendants.
a. Mr and Mrs Menir did not sell, let or clear the house before leaving as one might expect if someone was emigrating for 4 years and as strongly recommended by Messrs Cobbetts in their checklist.
b. His evidence in court that he and his mother would stay in a hotel if they came back to the UK was quite contradictory to his evidence in his supplemental witness statement that "the house would have been left unoccupied because we would have needed it whenever we returned to the UK for visits".
c. no actual arrangements were made before they left on that occasion even beginning to try to demonstrate the "distinct break from the UK" such as such as sale, letting or clearing of the house or the sale of the business or transfer of its management. HMRC would undoubtedly have been unconvinced.
a. Mr Menir could not and would not sell the business that depended upon him running it;
b. Mr and Mrs Menir would not sell the house and sever links with the UK;
c. As a matter of fact, Mrs Menir injured herself in Israel and returned to the UK for medical reasons and to put her trust in her doctor on 4th May 2005 within 4 years of when she would have emigrated if she had been properly advised. The date of that assumed emigration is uncertain but the negligent advice was dated 25th June 2002 (just 3 years earlier) and the date of the instructions to advise on domicile (as I have found) was 1st June 2001 (within 4 years). Accordingly as a matter of historical fact the emigration for 4 years would have failed in any event, as there is no reason to assume she would have acted otherwise.
a. A half share in the house would have been included in the transfers;
b. A Bearer Share arrangement would have been made as it would be expensive and attract unwelcome attention from HMRC and was not taken up when subsequently offered;
c. The Claimants acted with reasonable haste in the devising and implementation of a proper Scheme after their errors came to light on 16th October 2003. They allege that the Claimants failed to mitigate their losses: they ought to have had a proper scheme devised and fully implemented with investment by December 2004, rather than a share buy back in December 2006 and investment by June 2007.
a. House: During the course of their retainer a meeting was held on 5th August 2002 between Haines Watts and Mr Menir. A note of the meeting records "IHT & the family home. MM wishes to leave as is". I have no doubt that this accurately reflects Mr Menir's firm wishes on the sensitive issue of the family home at that time despite Mr Menir's present explanation that he was under the impression that was relying upon a discussion he had had with Mr Owen a month earlier that the family house would be placed in a trust sheltered from tax anyway making the need for IHT planning obsolete. This is purportedly supported by a very odd note produced by Mr Menir that appears to amount to an unsigned confession of the same by Mr Owen. I place no reliance upon that note as a piece of evidence as I have grave doubts about its authenticity. I simply do not believe that Mr Menir's retrospective current belief is accurate or true; I believe the note of 5th August to be an accurate reflection of Mr Menir's true position on the family home at the material time.
b. The Bearer Share Scheme: This was perfectly legitimate and available until 16th March 2005. In January and February 2005, Mr Menir sought and obtained the advice of new advisers mainly Shaw & Co and Cobbetts. Both raised all the options and explained them options open to Mr Menir, including the Bearer Share Scheme. On 16th March 2005, Ian Croxford of Cobbetts, without knowing that the Bearer Scheme was to be scrapped that same day, had a detailed telephone conference with Mr Menir upon all the options presented to him. Mr Croxford presented it to Mr Menir as a fairly complicated and expensive option only related to CGT saving. The note clearly indicates that Mr Menir was simply not interested in progressing this any further: it was complicated requiring tax counsel's advice and HMRC scrutiny, something to be avoided. It was potentially expensive (Mr Walker an expert in this area said in evidence that a simple scheme would cost at least £20,000) and only dealt with a fairly modest CGT liability of £100,000 - £200,000 compared to the IHT issues and amounts that loomed far larger. In my judgment, the note accurately reflects Mr Menir's true feelings whilst the Bearer Share option was still viable before 16th March 2005.
c. Mitigation of Loss: The Defendants claim that the Claimants did not proceed with urgency. They made 6 specific criticisms of the Claimants in this regard (the 6th now being no longer live in the light of my finding above):
i. They consulted 4 different advisers after them;
ii. They failed to terminate the Defendants' retainer in December 2003 when they had lost confidence in them;
iii. They attempted to emigrate when it was doomed to fail;
iv. They instructed Friend & Co to advise on a claim against the Defendants and waited 6 months or so before instructing them to devise and implement a Scheme;
v. Friend & Co delayed in their work;
vi. Mr Menir delayed in the transfer of the house.
a. he is a highly competent accountant and suitable tax advisor who would have provided appropriate advice if he had been instructed rather than the Defendants in the first place;
b. the time of 2 years taken by Mr Upton to implement an appropriate scheme was a reasonable one from the time he was instructed in May 2005 for this type of case with a very demanding client who was already threatening litigation against one of his peers.
Remedies, Loss & Damage
a. Wasted payments for worthless advice;
b. Additional Corporation Tax
c. Capital Gains Tax
d. Loss of Investment return
e. IHT indemnity in respect of share cash and half the family home.
a. By the relevant time of 2003, despite their wealth neither "Mr Menir and his mother had ever had investments in life assurance plans, unit trusts, gilts or equity funds and their risk was limited to domestic property and substantial cash holdings", according to paragraph 2.16 of the Report.
b. Mr Hamilton noted in paragraph 2.12 that Mr Menir's witness statement stated that his approach as Managing Director of the Company "has been to maintain and protect the wealth built up for the family" i.e. the role of a cautious risk free prudent Trustee.
a. The initial April Report described him having a "moderate" attitude to risk;
b. He met Mr Humphreys on 22nd April 2003 to discuss the Report.
c. The subsequent May Report revised the risk attitude down to "cautious".
d. The amount of cash to be held increased without any rise in higher risk investments;
e. 35% investment in property (higher risk) was excised (and subsequent offers of property investment were not taken up);
f. 64% of investments were in low risk categories;
g. The stated objectives were lowered from "maximise return, subject to an acceptable level of volatility" to "invest for income/capital growth" and "to have a tax efficient investment which would potentially provide greater capital returns over the medium to long term in comparison with Bank/Building Society Deposit accounts". i.e. on shore cash deposit cp off shore.
h. Immediately under "Recommendations" are off shore Bank Accounts with a risk warning even upon them that "There is a belief that cash investments do not carry risk, however it must be remembered that banking institutions can also be vulnerable. This will reduce the overall risk and unfortunately will usually reduce the overall return".
His Honour Judge Simon Brown QC
21st January 2010