Vinton & Ors v Fladgate Fielder (a firm) & Anor [2010] EWHC 904 (Ch)

[2010] EWHC 904 (Ch)Case No HC08C03446
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 30/04/2010
Before
MR JUSTICE NORRIS
Between
Anna VintonClaimantsJennifer GreenClaimantStephen LuffClaimantAlfred VintonClaimantIsabel VintonClaimantGeorge VintonClaimantMarisha GreenClaimantFladgate Fielder (a firm)DefendantsFladgate LLPDefendant
Matthew Collings QC (instructed by Speechly Bircham LLP) for ClaimantsTeresa Rosen Peacocke (instructed by Kennedys) for DefendantsHearing Hearing dates: 3-4 March 2010
Judgment
[1]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).[2]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).[3]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.[4]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.[5]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).[6]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.[7]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.[8]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.[9]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.[10]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.[11]Have Fladgates demonstrated that in making these factual assertions and legal averments the claimants’ statement of case fails to disclose reasonable grounds for bringing the claim? In my judgment they have not.[12]First, I address the allegation that Fladgates owed a duty of care in contract in accordance with its retainer as the Widow’s solicitors, in respect of which the Widow’s executors now sue. This claim seems to me to have a real prospect of success. In Otter v Church Adams Tatham & Co [1953] Ch 280 X (through his agent) requested the solicitors to advise him what steps should be taken to reduce an entailed interest into his absolute ownership. The solicitors gave negligent advice and X died before the error could be remedied. Because of the error his estate was smaller than it should have been. Upjohn J held that the solicitors had broken their contract and were liable in damages. The issue was whether the damages should be nominal or substantial. In argument the judge said:- “Is not the real question at issue the time at which damages are to be assessed?” In his judgment (at p.289) he answered that question in this way:- “It is perfectly true that if [X] had continued to live damages would have been nominal. Are they, however, to be limited to the damages which he could have recovered in his own life time…? Not in my judgment. It is contrary to commonsense to suppose that damages in a case such as this must only be nominal merely because, had the mistake been discovered in the life time of the deceased, it could have been rectified. …if the mistake is not discovered until after his death, [X] has been deprived of the opportunity of increasing his estate by executing a disentailing assurance relating to the settled property, and, therefore, upon his death his estate may be diminished by that amount”.[13]In my judgment there is a real prospect of the claimants carrying that argument home in the instant case. The Widow was ill in hospital. Steps were being taken in relation to Wilton’s capital to cater for the possibility of her death. In relation to those steps inheritance tax was a significant consideration. It is well arguable that a mistake in the inheritance tax planning, although conceivably resulting in only nominal damage during her lifetime, would occasion substantial damage on her death (because her estate was diminished by the failure to obtain BPR relief) in respect of which her executors might sue.[14]Fladgates object that it is not possible to bring home this case without relying on a breach of duty. They point to the paragraph in the Particulars of Claim which alleges that inheritance tax planning was an overriding consideration. They submit that the share allotments could only have been undertaken by Wilton acting through its directors, and that those directors were required to act bona fide in the interests of the company and for proper business purposes. To exercise the powers for the purpose of achieving an inheritance tax saving for the Widow (by converting a loan into equity or by absorbing part of her free estate in the acquisition costs of new shares) would not be a proper exercise of the capital raising power. I am not certain that paragraphs 9 and 17 of the Particulars of Claim compel any such analysis. All they say is that “nothing was to be undertaken which did not achieve [successful inheritance tax planning] or seek to achieve it”. Thus if there were two ways of raising capital (a rights issue and a subscription), and in legal and practical terms Wilton was properly indifferent as to which course to adopt, then the determining factor would be whether successful inheritance tax planning could be achieved. Fladgates have certainly not demonstrated that the only legally proper way to raise capital rendered BPR impossible of attainment. I therefore decline to strike out this head of claim.[15]Second, I address the claim that Fladgates owed the Widow a duty of care in tort on which her executors may sue. I accept the submission of Ms Rosen Peacock that on the authorities this claim could not succeed at first instance. In Daniels v Thompson [2004] EWCA Civ 307 a solicitor gave negligent inheritance tax planning advice to the testatrix, so that a property she had intended to give away continued to be part of her estate liable to tax. Her son brought a claim in tort as executor of the estate claiming damages for breach of retainer. The Court of Appeal held that the true issue was whether the testatrix was capable of suffering the loss claimed. Since she was never personally at risk of having to pay the inheritance tax (which was a risk to which her estate alone was exposed) she did not suffer any loss as a result of the solicitor’s negligence. I confess that I do not find the distinction between the testatrix and her estate (upon which the conclusion that the testatrix had not suffered any detriment capable of assessment in money terms depends) at all easy to grasp. The estate has no independent legal existence. It is merely the property of the testatrix being administered by her personal representatives. Nonetheless, the distinction is plainly drawn and underpins the conclusion that the testatrix in that case (and the Widow in this case) had not suffered recoverable loss (and, I think would not have suffered recoverable loss even if during her lifetime she had effected an insurance policy to pay the tax sought to be avoided, so as to secure the practical result intended by her instructions if properly executed).[16]But I will not strike out this head of claim for two reasons:-(a) The argument is purely legal (the material facts being equally relevant to the cause of action in contract): and(b) It may be that the Court of Appeal would wish to give further consideration to the analysis taking into account the decision on contract in Otter (supra) and in tort in Carr-Glynn v Frearsons [1999] Ch 326 especially at 328 and 335.[17]Third, I turn to the claim which is brought by Mrs Vinton, Mrs Green and Stephen Luff as the Widow’s prospective executors at the relevant time. This is a claim which Counsel sought to bring by way of amendment in Daniels v Thompson (see paragraph 49 of the principal judgment). Permission to amend was refused because (it appears) the court considered the claimant had suffered no loss in his capacity as personal representative. The judgments do not set out the reasoning leading to this conclusion because the application for permission was disposed of on procedural grounds.[18]If it is the case that the recipient of the negligent advice has no cause of action in tort because she suffers no loss in respect of which damages are recoverable, and if it is the case that it is only her estate which suffers the loss, then I am not certain that the personal representative can have no cause of action. In Carr-Glynn v Frearsons (supra) Chadwick LJ appears to have assumed that the personal representative would have had a cause of action in respect of the solicitor’s negligent failure to secure that a property interest formed part of the testatrix’s estate (thereby reducing its value), unless displaced by the claim of a particular beneficiary (ibid p.332H-333A and 337E- 338D).[19]In my judgment there is a real prospect of establishing that a negligent failure to protect the estate from an unnecessary charge to tax (thereby reducing its value) is likewise the proper subject of a claim by a personal representative. There is, of course, a difficulty in these cases in treating personal representatives, who may be unascertained at the date when the relevant advice is given or whose identity may thereafter change, as persons to whom a duty is owed: but these difficulties arise from treating the estate and the personal representatives as identities distinct from the testatrix. It is by no means clear how the difficulties will be resolved, and it would in those circumstances be wrong to strike out a claim in what is plainly a developing field of law.[20]Fourth, there is the claim by Mrs Vinton, Mrs Green and Stephen Luff “as the trustees of the residuary estate” under the Widow’s will. This is a novel claim. The claims which have hitherto been canvassed in the authorities are those of the personal representatives and those of the residuary beneficiaries. I am not aware that the claim by personal representatives as trustees of the residuary estate (and on behalf of the residuary beneficiaries) has hitherto been advanced. Nothing in the Particulars of Claim suggests that Mrs Vinton, Mrs Green and Stephen Luff have completed the administration and have assented to the vesting of the residuary estate in themselves as trustees, so that I do not think that this way of putting the claim adds anything to the analysis. But I would not on that ground strike it out, since it is but a differing legal analysis of what are fundamentally the same facts.[21]Fifth, Mrs Vinton and Mrs Green advance a case based on reliance (as prospective executors and beneficiaries). This is accompanied by an assertion that Fladgates voluntarily assumed responsibility for the inheritance tax planning advice in relation to Mrs Vinton and Mrs Green. As a bare plea this is unimpeachable. Fladgates were the family solicitors, had acted on successive retainers for members of the family, had drafted the Widow’s will, and knew its contents (including the identity of the prospective executors and of the residuary beneficiaries). On the pleaded case they were retained by the Widow (as well as by Wilton) in relation to capital raising with successful inheritance tax planning being an overriding consideration. Mrs Vinton and Mrs Green attended the relevant meetings and received the relevant advice, being subsequently presented with the paperwork implementing that advice, some of which (the letter of renunciation for example) had been prepared specifically for them. If those facts were proved (and on an application under CPR 3.4 that must be taken to be so) then there is a real prospect of their successfully recovering damages for breach of duty (as pleaded). (The focus of Fladgates’ response on this head lies in its claim for summary judgment).[22]Sixth, the claimants advance a claim as residuary beneficiaries relying upon White v Jones [1995] 2AC 207. A solicitor preparing a will for a client undertakes to use reasonable skill and care in the discharge of that retainer: but if he fails to execute his instructions the client suffers no loss. White v Jones held that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor could reasonably foresee) may as a result of the solicitor’s negligence, be deprived of the intended legacy in circumstances in which neither the testator nor his estate would have a remedy against the solicitor. The beneficiary is thus enabled to sue for the breach of duty for which the testator himself could have sued. The principle is not in doubt.[23]But Ms Rosen Peacocke says that it does not avail the beneficiaries in this case for two reasons:-(a) Will making is the only context in which extending the right of action to beneficiaries in respect of breach of duty to the client has been recognised, and the instant case involves tax advice and not will making:(b) The basis of liability in White v Jones cannot be extended to any case in which the interests of the beneficiaries conflict or potentially conflict with the interests of the client (and here certainly Mrs Vinton’s and Mrs Green’s interests as directors raising capital for Wilton conflicted with the interests of the Widow in relation to inheritance tax planning).[24]I reject this argument. The origins of the principle undoubtedly lie in the proper discharge of a retainer to make a will. But the implications of White v Jones are being explored case by case (per Peter Gibson LJ in Richards v Hughes [2004] EWCA Civ 266 at paragraph [25]). In Carr-Glynn v Frearsons (supra) the principle was extended beyond pure will-making to cover the failure to advise the testator of the need to serve a notice of severance so as to render the property capable of disposition by the will. In Gorham v British Telecommunications PLC [2000] 1 WLR 2129 negligent advice by an insurance company to a customer could be sued upon by the customer’s family. In Richards v Hughes (supra) the Court of Appeal was concerned with the situation in which A contracted with B for B to perform professional services in connection with the establishment of a trust for the benefit of C. The Court of Appeal refused to strike out a case brought in tort by C against B, notwithstanding that it involved an inter vivos gift (which White v Jones had suggested would not be actionable) because the case was:- “Plainly one where the relevant area of law is still subject to some uncertainty and developing and where it is highly desirable that the facts should be found so that any development of the law should be on the basis of actual and not hypothetical facts”. In Rind v Theodore Goddard [2008] EWHC 459 Morgan J likewise refused to strike out a claim concerning a wrongly structured inheritance tax savings scheme on the ground (amongst others) that if the decision in Daniels v Thompson (supra) prevented the client from suing then a court at trial might find that there was lacuna which needed to be filled by extending a White v Jones duty to the residuary beneficiaries.[25]Nor do I accept that it is so clear that there is a conflict of interests (of the type underlying the decisions in Clark v Bruce Lance & Co [1988] 1 WLR 881 and Punford v Gilberts [1998] PNLR 763) such that a White v Jones liability is impossible. Wilton had need of capital. It was looking to its existing shareholders for that capital. It therefore needed to raise capital in a way that appealed to its existing shareholders. The Particulars of Claim allege (and on this application it must be accepted as true) that Mrs Vinton was never intended to take up any allotment of shares. The available sources of capital were therefore the Widow and the executors of her late husband. The Particulars of Claim allege (and it must on this application be accepted as true) that successful inheritance tax planning was an overriding consideration in that nothing was to be undertaken which did not achieve it. Wilton’s need for capital did not conflict with the Widow’s desire for inheritance tax planning. The Widow was willing to provide capital to Wilton if it could be done in a tax-efficient manner. Both Wilton and the Widow wanted Fladgates to come up with a tax efficient (rather than a tax inefficient) scheme. There is a real prospect of establishing that there was a unity of interest in raising capital in an inheritance tax efficient way.[26]For these reasons I shall not strike out the claim as disclosing no reasonable grounds. There is in my judgment a serious claim for breach of contract. So far as the tort claims are concerned (and subject to the decision in Daniels v Thompson (supra) which is binding upon me) I propose to follow the guidance given by Lord Bingham in Customs and Excise Commissioners v Barclays Bank PLC [2006] UKHL 28 at paragraph 8 namely, that although it is useful to consider the three tests that have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owes a duty of care in tort (see paragraph [4]) they are not discrete enquiries, but rather concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole. Following that guidance and applying those tests in my judgment it is not appropriate in the present case to strike out the claim.[27]This brings me to the alternative limb, namely summary judgment under Part 24. Here I consider not only the Particulars of Claim, but also the terms of the Defence and the evidence filed on both sides.[28]At the heart of Fladgates’ case on summary judgment lies the proposition that the only relevant retainer was a retainer of Fladgates by Wilton in connection with the raising of capital. Thus in relation to the October meeting paragraph 7(d) of the Defence pleads:- “Wilton, represented by Mrs Vinton and Mrs Green, was the client, and not [the Widow] for the purposes of the meeting, and [the Widow] neither sought nor received legal advice from [Fladgates]”. Accordingly paragraph 7(e) of the Defence goes on to plead:- “[Fladgates] was at all material times retained by Wilton, through Mrs Vinton and Mrs Green, and not by [the Widow]”. This analysis explains the role of Mr Boundy: but it does not explain the participation of Mr Baker and Mr Stanton. This difficulty is faced in paragraph 7(h) of the Defence which pleads:- “Mr Baker and Mr Stanton of [Fladgates] attended the meeting as attorneys for [the Widow] as a shareholder (but not as a director) of Wilton and in the expectation that they may be asked to participate in the capitalisation of the loan account as [the Widow’s] attorneys”.[29]If Fladgates at this stage demonstrate that the claimants have no real prospect of gain-saying this analysis then the pleaded claim in contract being pursued by the Widow’s personal representatives and the case advanced by the beneficiaries founded upon White v Jones (which is dependant upon their being able to enforce a duty owed by Fladgates to the Widow in respect of tax planning advice) are both rendered fanciful. The Widow’s personal representatives would be left with trying to construct a case against Fladgates founded upon the admission in paragraph 21(a) of the Defence that:- “The only duty owed to [the Widow] in relation to the transactions referred to in the Particulars of Claim was a duty owed by her attorneys, Mr Baker and Mr Stanton, to act in the interests of [the Widow] in the exercise of their powers under the [Enduring Power of Attorney]”.[30]The argument on behalf of Fladgates runs as follows. The subject of Fladgates’ retainer in 2002 was two allotments of shares in Wilton, which were intended to attract BPR in the estate of the Widow. The share allotments could only be undertaken by the company through its directors. Those directors were required to act bona fide in the interests of the company and for proper business purposes. It is accepted that the occasion, and the mechanism, for raising capital for Wilton’s trading purposes was based upon the desire to attract BPR in the Widow’s estate. But that does not transform what was in fact a retainer by a company through its directors in respect of intended share issues into an inheritance tax savings scheme undertaken for or on behalf of the Widow. The only persons giving instructions in relation to the share issue were Mrs Vinton and Mrs Green, acting as directors of Wilton. They did not in any sense represent the Widow, even though she was still a director of Wilton. The Widow herself was in intensive care in hospital and unable to discharge her duties as a director. But her participation in the proposed share issues was necessary: so Mr Baker and Mr Stanton, her attorneys, were involved in order to accept the allotments made in favour of the Widow. This did not alter the character of the retainer, which remained a single retainer by Wilton to raise capital. There is no such thing as a general retainer: see the familiar passage in Midland Bank Trust Co. v Hett Stubbs & Kemp [1979] Ch 384 at 402G-403C.[31]In my judgment, elegant as this argument is, it is insufficient to discharge the burden lying upon Fladgates to demonstrate that the claim is fanciful.[32]First, Mr Boundy prepared a memorandum on 5 November 2002. The stated purpose was to explain the immediate implications of Fladgates’ current instructions in relation to Wilton “so far as directors and shareholders are concerned”. That is an unpromising start for an argument that Fladgates were instructed only by Wilton and not on behalf of the directors and shareholders. The memorandum concludes with a note that:- “Anthony Baker and Richard Stanton act for…[the Widow] and also hold Enduring Powers of Attorney for [the Widow]”. The assertion that Fladgates were retained by the Widow does not seem fanciful in the face of that record.[33]Second, on 19 December 2002 Mr Boundy wrote to Mrs Vinton enclosing the documents which had to be executed in relation to the rights issue. He concluded:- “May I again mention that I am acting for the company here and not for any of the shareholders in their personal capacity. Obviously my colleagues are acting for the estate of your late father and also for your mother…”. The assertion that Fladgates were acting for the Widow does not seem fanciful in the light of that correspondence.[34]Third, in his evidence in support of the Part 24 application Mr Stanton states:- “It was obvious to me at the time of [Fladgates’] instructions by [Mrs Vinton and Mrs Green] in October 2002 that [Fladgates] were not being retained by [the Widow]…Mrs Vinton and Mrs Green did not invite [Fladgates] to accept instructions from [the Widow] or to arrange to obtain instructions from [the Widow] in relation to any of the matters in issue. [Mrs Vinton and Mrs Green] were not authorised, and never purported, to engage the firm on their mother’s behalf…”. However, both he and Mr Baker made witness statements for the purposes of the tax appeal. Mr Stanton’s is much more equivocal:- “So far as I was concerned there would have been no point in simply allotting £1 million shares to [the Widow] against a liability to pay a further £1 million into the company if this would not have achieved the desired effect of saving inheritance tax. I signed the allotment on behalf of [the Widow] in the belief that it was in the best interests of her and the family to attempt to make inheritance tax savings”. Mr Baker’s statement says:- “…the question of [a] further issue of shares arose in 2002, by which time Mr Dugan-Chapman had died and consideration was being given to tax planning on behalf of [the Widow] who was then in declining health. It was natural that any subscription for additional shares on her behalf would be approached on the same basis of a rights issue in order to secure business property relief without the new shares having to be held for two years…I recall that I had noticed from the balance sheet that [the Widow] still had a loan account of £300,000 and I remember mentioning to her that it was not sensible to have money owed to [the Widow] by the company as such loan would not attract business property relief from inheritance tax on her death…”. Despite Mr Stanton’s strong evidence on this summary judgment application I do not consider, in the light of his earlier evidence and that of Mr Baker, that it is fanciful to suggest that they were advising the Widow.[35]Fourth, Mr Boundy also gave evidence on the tax appeal. He explained that he was brought in at the beginning of November 2002 to review documents prepared by a paralegal at Fladgates. He said that he immediately sent an email to Mr Stanton “noting that we were acting for the estate of Mr Dugan-Chapman and for [the Widow] (who was herself seriously unwell)”. In the light of that it is not fanciful to suggest that Fladgates were acting for the Widow.[36]Fifth, on 5 November 2002 Mr Boundy wrote to Mrs Vinton noting that “whilst my colleagues are advising in relation to trust and tax issues, Michelle Smith and myself are acting on behalf of the company…”. In the light of Mr Boundy’s description of Fladgates’ retainer it does not seem fanciful to suggest that there was more than one current retainer, and that Fladgates regarded themselves as retained to advise the Widow on trusts and tax.[37]Sixth, on 27 January 2003 Fladgates sent Mrs Vinton a number of bills for her attention. One was addressed to the Widow for professional charges up to the date of her death. The narrative reads:- “Advising you and acting on your behalf under the Enduring Power of Attorney in particular in connection with Wilton Antiques Limited”. The charge was £4,375. The retainer under which the advice being charged was given does not appear to have been reduced to writing: the observations of Denning LJ in Griffiths v Evans [1953] 1 WLR 1424 at 1428 would accordingly appear to apply at any trial. If the Widow was being charged for “advice” in relation to Wilton’s affairs there seems to me to be a real prospect of her personal representatives establishing that she retained Fladgates in that regard.[38]Another of the bills included was one from Mr Baker (then a consultant with Fladgates but who appears to have been allowed to bill directly). This charge to the Widow was £780 for attending two meetings “to discuss potential inheritance tax with Mrs Vinton and Mrs Green and tax implications of a rights issue by Wilton Antiques”. Again, if the Widow was being charged for advice I consider there is a real prospect of establishing a retainer to provide it.[39]I would therefore refuse summary judgment in relation to the contract and White v Jones claims. Indeed, having regard to the contents of Fladgates’ files I find it difficult to understand how Mr Stanton and Mr Boundy felt able to make the statements they did in support of the Part 24 application: but the trial will afford them an opportunity for explanation.[40]I would also refuse summary judgment in relation to the variation on those claims advanced by Mrs Vinton, Mrs Green and Stephen Luff as personal representatives of the Widow. There is a real prospect of establishing the necessary factual foundation.[41]This leaves for consideration the “reliance” claims brought by Mrs Vinton and by Mrs Green as recipients of the advice concerning the inheritance tax planning scheme. Flagates’ case here is that whatever may be pleaded by Mrs Vinton and Mrs Green, in fact Fladgates expressly refused to accept responsibility for any advice to which they were party.[42]The relevant material is to be found in three places:- (a) On 5 November 2002 Mr Boundy repaired a Memorandum for the directors of Wilton. It concluded with a section on Fladgates. This noted that Mr Baker and Mr Stanton acted for the Widow, and that the corporate department of Fladgates had been instructed to act for Wilton. In relation to this retainer it was recorded that the advice of Fladgates to Wilton was conveyed through the directors (Mrs Vinton and Mrs Green) but that Fladgates did not act for either of them in their personal capacities though it had drawn attention to aspects which were currently apparent and which might affect their personal interests. It continued:
“If they are in any doubt as to their position as shareholders or prospective beneficiaries Mrs Vinton and Mrs Green should seek independent professional advice.” (b) On 5 November 2002 Mr Boundy sent a copy of this Memorandum under cover of a letter to Mrs Vinton. The letter referred generally to the circumstances of the intended share issue and commented upon the prospects of favourable treatment of the shares from an IHT perspective. Mr Boundy expressed the belief that Mr Stanton “has advised you generally in relation to this”
. He went on to say that his colleagues were advising in relation to trust and tax issues and that his advice was therefore directed to Mrs Vinton and Mrs Green as directors and drew attention to the need to take independent advice if they were in any doubt as to their personal positions. (c) On 19 December 2002 Mr Boundy sent a further letter to Mrs Vinton. He said:- “May I again mention that I am acting for the company here and not for any of the shareholders in their personal capacity. Obviously my colleagues are acting for the estate of your late father and also for your mother. But if you or your sister are in any doubt as to your personal positions, you should clearly take independent professional advice before holding the meetings or signing any documentation.”[43]On this material it is plain that Mrs Vinton and Mrs Green could not be heard to say that they relied on Fladgates for advice as to their personal position in relation to any corporate aspect of the transaction. But it is not certain on this material that they cannot be heard to say that they relied on Fladgates for advice as to their personal position in relation to the trust and tax aspects of the transaction. It is of that that they complain. As matters of corporate mechanics the “rights issue” and the “offer for subscription” both worked. The fault was that the Widow offered to take up Mrs Vinton’s renounced rights and to subscribe for shares when that failed to secure any advantage to her or to her estate or to benefit her intended beneficiaries (as Fladgates advised it would, and as a further proper rights issue to capitalise Wilton would have done).[44]It seems to me unlikely that Mrs Vinton and Mrs Green will be able to make good a reliance based claim in circumstances where other beneficiaries who were not direct recipients of any relevant advice fail. But “likelihood” is not the relevant test: I must be able to say that their case is now and would at any trial be fanciful and lacking any real prospect of success. Once Fladgates have failed to establish on a summary basis that there was but a single retainer (Wilton’s retainer of the corporate department) that is a test which cannot be passed.[45]I therefore dismiss both the application to strike out and the application for summary judgment.[46]Having taken soundings at the conclusion of the hearing my provisional order on costs is that the Defendants shall pay the costs of the Claimants, those costs to be assessed on the standard basis if not agreed. I see no reason in the circumstances disclosed in the hearing bundle to depart from the general rule in CPR44.3. If either party wishes me to make a different order now that the outcome is known I will reconsider the matter entirely afresh.[47]I will formally hand down judgment at 10.00am on Friday 30 April 2010. I do not expect the attendance of legal representatives unless I am to be invited to make some other order as to costs (or on any other matter) which has not been agreed between Counsel. Mr Justice Norris…………………………………………………………30 April 2010

Cited in 1 later judgment