Gary James Keane v David Sargen & Ors [2025] EWHC 3147 (Ch)

[2025] EWHC 3147 (Ch)Case No BL-2019-000814IN THE HIGH COURT OF JUSTICEBUSINESS & PROPERTY COURTS OF ENGLAND AND WALESBUSINESS LIST (ChD)Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 02/12/2025
Before
Deputy Master Linwood
Between
GARY JAMES KEANEClaimantDAVID SARGENDefendantsMICHAEL FRANCIS BEATONDefendantYANG FAN (as executor of the estate of SEAN MACGLOIN)DefendantJONATHAN MARTINDefendantDOCUMENT RISK SOLUTIONS LTDDefendantDERIVATIVES RISK SOLUTIONS LLPDefendant
Mr John McDonnell KC (instructed by Richard Slade & Company) for ClaimantMs Lesley Anderson KC (instructed by Brabners LLP) for 1 st-5 th DefendantsHearing Hearing dates: 13 th-15 th October 2025
Approved JudgmentThis judgment was handed down remotely at 10.00 on 2 nd December 2025 by circulation to the parties’ representatives and release to the National Archives.Deputy Master Linwood:
[1]This is my judgment on two accounts and inquiries (“the Accounts”) directed by Insolvency and Companies Court Judge Jones sitting as a Deputy Judge of the High Court. His judgment with Neutral Citation Number [2022] EWHC 1006 (Ch) was reversed on appeal so far as his findings of a partnership between the Claimant, Mr Keane, and the Defendants were concerned in a judgment dated 15th February 2023 with Neutral Citation Number [2023] EWCA Civ 141. His orders for accounts to be taken remained for determination.[2]The Sixth defendant was dissolved in May 2019 having ceased trading some time before. Mr MacGloin died during the proceedings and his estate has been represented by his executor. Below I set out the background to the claims, the scope of the Accounts, the First and Second Accounts produced by the active defendants and the Notice of Objections to each served by Mr Keane. I then turn to the Issues, the evidence of witnesses of fact, and then set out my findings by reference to each Objection and finally summarise the overall account. References [ ] are to paragraph numbers in this judgment.

BACKGROUND

[3]D1, D2, Mr MacGloin and D4, who are all solicitors, operated via D5 (“Ltd”) a specialist risk management consultancy specialising in financial services. Mr Keane worked in retail banking until around February 2012 when negotiations were initiated to bring him into Ltd to run the operations side. D6 was then formed (“the LLP”), which had 6 members, being Mr Keane and Ds 1, D2, Mr MacGloin, D4 and D5. Mr Keane was offered, but refused for tax reasons, a share of Ltd. He claimed that he had a profit and equity interest equal to that of each of the individual defendants in the business. This was denied.[4]In November 2017 a Deed of Asset Transfer ended Mr Keane’s membership of the LLP and involvement in the business. He maintained that he was a partner and following a 5-day trial ICC Judge Jones found in his favour. The Court of Appeal when reversing that judgment ordered Mr Keane to pay the Defendants by 2nd March 2023 the sum of £485,916. To date he has paid £65,000 on 7th March 2023. Two claims, for the Accounts, were not part of the appeal. Directions Orders were made by me on 24th October 2024 and Master Pester on 13th March 2025, the latter dealing with the parties’ respective applications for specific disclosure against each other that I will turn to later. A key factor in this dispute is the operation or use by all parties of a tax saving scheme the essence of which I set out at [49-50] below. SCOPE OF THE ACCOUNTS AND INQUIRIES[5]Paragraph 7 of

Judge Jones’ Order of 5th August 2022 provides:

“That an Account be taken and made to determine the sum outstanding on the loans made by [Mr Keane] to [Ltd.] on 22nd May and 22nd November 2013 for the purpose of enabling [Ltd.] to acquire fractions of [Mr Keane’s] interests in the [LLP] and that the sum to be found outstanding be paid by [Ltd] to [Mr Keane] with interest at a rate and over a period of time to be determined on the taking of the said Account. ”
[6]Paragraph 9 of that Order provides:
“An Account with all necessary Inquiries be taken and made of all monies (if any) owed to [Mr Keane] by [LLP] and that the amount found owing to [Mr Keane] be paid to [Mr Keane] by [LLP] or (if [LLP] has not been restored to the Register) by the 1st to 4th Defendants or by [Ltd.].”
[7]I asked counsel why no Inquiry was provided in the Order as to the First Account. Ms Anderson considered it was a mistake, but nothing turned upon it. Mr McDonnell did not demur. THE FIRST ACCOUNT[8]Mr Sargen made a statement on behalf of Ltd. as to the First Account. He said that the primary position of Ltd. was the loans were accounted for in Mr Keane’s current account, being the subject of the Second Account, and that accordingly there is no sum due to him. In the alternative, he sets out the account which I reproduce below in its entirety save I have totalled Mr Keane’s drawings and omitted the footnotes: 9. First Account Fifth Defendant "the sum outstanding on the loans made by the Claimant to the Fifth Defendant on 22 May and 22 November 2013 to acquire fractions of the Claimant's interests in the Sixth Defendant" Loan made by the Claimant on 22.05.2013 £267,600 Loan made by the Claimant on 22.11.2013 £246,400 Total lent by the Claimant £514,000 Total drawings made by the Claimant since 01.06.2013 £776,491 Sub-total Total loaned by the Claimant, less total drawings made by the Claimant -£262,491 Claimant's Profit Allocations since the MIPAs in the financial year 01.06.2013 to 31.05.2014 £75,000 in the financial year 01.06.2014 to 31.05.2015 £75,000 in the financial year 01.06.2015 to 31.05.2016 £75,000 in the financial year 01.06.2016 to 31.05.2017 £172,149 in the financial year 01.06.2017 to 30.11.2017 £60,275 Total profit allocations to the Claimant since 01.06.2013 £457,424 Sub-Total Total loaned by the Claimant, less total drawings made by the Claimant, plus total profits allocated to the Claimant £194,933 On account payment Payment 'on account' made by the First to Fifth Defendants to the Claimant on 25.07.2022 £165,000 Final Total Total loaned by the Claimant, less total drawings made by the Claimant, plus total profits allocated to the Claimant, less the payment 'on account' £29,933 THE SECOND ACCOUNT[10]As to the Second Account, Mr Sargen made his statement on behalf of himself and the other defendants save the LLP. Again I set out that account in its entirety save as to the footnotes. Mr Keane’s itemised drawings totalling £776,491 are also listed : Second Account First to Fifth Defendants "all monies (if any) owed to the Claimant by the Sixth Defendant" The Claimant's Capital and Current Accounts in the Sixth Defendant 31/05/2013 member accounts CAPITAL ACCOUNT Opening balance at 02/04/2012 £0.00 Capital introduced £1,000.00 Purchase by Limited Closing balance at 31/05/2013 £1,000.00 CURRENT ACCOUNT Opening balance at 02/04/2012 £0.00 Profit allocation £75,000.00 Drawings paid via Limited £0.00 Payments on behalf of the limited company treated as drawings Drawings from the LLP -£135,000.00 Transfer to capital -£1,000.00 Closing balance at 31/05/2013 -£61,000.00 31/05/2014 member accounts CAPITAL ACCOUNT Opening balance at 01/06/2013 £1,000.00 Purchase by Limited Closing balance at 31/05/2014 £1,000.00 CURRENT ACCOUNT Opening balance at 01/06/2013 -£61,000.00 Profit allocation £75,000.00 Drawings paid via Limited £0.00 Drawings transferred to limited re MIP £514,000.00 Transfer to capital Drawings -£207,500.00 Limited company payments treated as drawings Closing balance at 31/05/2014 £320,500.00 31/05/2015 member accounts CAPITAL ACCOUNT Opening balance at 01/06/2014 £1,000.00 Repayments of capital -£955.00 Closing balance at 31/05/2015 £45.00 CURRENT ACCOUNT Opening balance at 01/06/2014 £320,500.00 Profit allocation £75,000.00 Drawings -£142,000.00 Tax planning KS fees attributable to members -£650.00 Limited company payments treated as drawings £955.00 Closing balance at 31/05/2015 £253,805.00 31/05/2016 member accounts CAPITAL ACCOUNT Opening balance at 01/06/2015 £45.00 Repayments of capital Closing balance at 31/05/2016 £45.00 CURRENT ACCOUNT Opening balance at 01/06/2015 £253,805.00 Profit allocation £75,000.00 Drawings (from LLP) -£155,972.00 Management charge VAT difference Closing balance at 31/05/2016 £172,833.00 31/05/2017 member accounts CAPITAL ACCOUNT Opening balance at 01/06/2016 £45.00 Repayments of capital Closing balance at 31/05/2017 £45.00 CURRENT ACCOUNT Opening balance at 01/06/2016 £172,833.00 Profit allocation £172,148.80 Management charge Drawings (from LLP) 12 months to May 2017 -£181,019.00 Opening balance JAD re VAT Partners expenses Closing balance at 31/05/2017 £163,962.80 30/11/2017 member accounts CAPITAL ACCOUNT Opening balance at 01/06/2017 £45.00 Closing balance at 30/11/2017 £45.00 CURRENT ACCOUNT Opening balance at 01/06/2017 £163,963.00 Profit allocation £60,275.00 Management charge VAT difference Accounts fee difference DLA difference Opening capital difference Other small difference VAT timing difference reversed Partners expenses reversed Drawings (from LLP) 6 months to November 2017 -£90,000.00 Closing balance at 30/11/2017 £134,238.00 Totals CAPITAL ACCOUNT Final Total Capital Account £45.00 CURRENT ACCOUNT Sub-Total £134,238.00 Less the payment 'on account' made by the First to Fifth Defendants to the Claimant on 25.07.2022 pursuant to paragraph 8 of the 05.08.2022 Court Order £165,000.00 Final Total Current Account -£30,762.00[11]As can be seen, and as I will turn to, there is considerable overlap between the accounts. THE NOTICE OF OBJECTIONS[12]Mr Keane served his objections (“the Notice”) in January 2025. They state: (1). The Claimant has never received any money from the Fifth Defendant by way of repayment of the loans made by the Claimant to the Fifth Defendant and so the loan remains outstanding in full with accrued interest. (2). The Fifth Defendant states in its account that excess monies made by the Sixth Defendant to the Claimant are to be categorised as part repayment of the loans. That has never been stated before and the Claimant does not accept it. The Fifth Defendant is put to proof. (3). To the extent relevant, the Claimant avers that the figures provided in the account for his profit allocation from the Sixth Defendant are under-stated by reason of “management charges” made to the Sixth Defendant by the Fifth Defendant. The management charges leviedwere: 31 May 2016 £100,000, 31 May 2017 £957,274 and six months to 30 Nov 2017 £383,484. The figures are those provided previously by the Defendants. (4). The management charges are improper because they do not reflect any management ever provided by the Fifth Defendant. At all material times, the Sixth Defendant was managed by its individual members and not by the Fifth Defendant. (5). The management charges totalled £1,440,758 over the relevant period. If the account is revised by adding the management charges back in, there will be no excess payments and no argument available to the Defendants that the loans have been repaid. (6). In the premises, the loans are repayable in full with accrued interest, in the aggregate total sum of £514,000 for principal and £247,754 for interest, making a total of £761,754. NOTICE OF OBJECTIONS TO THE SECOND ACCOUNT (7). Paragraphs 4 and 5 above are repeated. If the management charges are written back into the accounts, the Claimant’s profit allocation will be £288,152 over the period and he will be owed a further £708,473.”[13]Mr Keane initially claimed he was owed £761,754 in respect of the First Account and £708,473.00 as to the Second. The Defendants say as to the First Account nothing is due or else a maximum of £29,933 and that Mr Keane owes them £30,762 when the payment on account ordered by Judge Jones is netted off.[14]As at the end of trial before me Mr Keane’s position changed substantially in that he said as to the First Account he is still owed the entirety of his loan of £514,000 plus interest at 8% from November 2013 to date. He bases this on what he alleges to be the move by Ltd of all the loan accounts to the LLP in the absence of any legal agreement between Ltd and the LLP which would have required the consent of the individual members. Therefore, he says, the loan account should be reversed, all drawings should have been treated as profit shares and thereby income. Accordingly they should be taxed as such and not within the then tax saving scheme.[15]As a result, all tax returns are incorrect and the statutory accounts materially mis-stated. He considers all the members will have overdrawn current accounts but that as the LLP was dissolved monies cannot be recovered from members by it. On the face of it I find that submission difficult to accept in view of the drawings and profit allocations he received as part of the tax saving scheme over the material time.[16]Mr Keane has also changed his position substantially as to the Second Account. He now claims £134,238 which is the subtotal that appears at the end of Mr Sargen’s Second Account in [10] above. He has dropped his objections to management charges save as to amortisation of £320,945 in the accounts of years ended 30th November 2016 and 2017. That total of £641,890, Mr McDonnell submits, should be uplifted by the 5% added as an administrative charge resulting in Mr Keane being entitled to about £30,329 (his share being 4.5%), being a grand total of £164,567 plus interest. THE ISSUES[17]The First Issue is what sum, if any, is due to or from Mr Keane. Two Accounts arose due to the way Mr Keane pleaded his claim. The first arose due to [35] of his Particulars of Claim (“PoC”) wherein he pleaded he was entitled to £194,933 on his Loan Account. The Defendants admitted he had not been paid that amount but otherwise denied the allegation.[18]As to the second, at [36] of his PoC Mr Keane pleaded he was entitled to an account and sums standing to his credit, with Ltd. This was denied by the Defendants. At [37] of his PoC Mr Keane claimed an account and payment of sums due on his current and capital accounts with the LLP. That was also denied by the Defendants, whose specific defences failed, which left alive the claims for two accounts. As appears below in my assessment of the Accounts I consider it appropriate to combine them as items in the First appear in the Second.[19]The Second Issue is whether Mr Keane can maintain his challenge to Management Charges charged by Ltd to the LLP. Ms Anderson submits that it is not open to him to do so as they do not fall within the scope of the Accounts as:(1) They were never pleaded nor referred to in the trial skeleton arguments.(2) No evidence was heard at trial upon them – they were mentioned almost in passing.(3) They were not referred to in the Judgment of ICC Judge Jones.[20]In all those circumstances Ms Anderson submits that the court cannot make findings based on serious, unpleaded and untested allegations of fraud when never in issue.[21]By way of background the Management Charges were raised by Mr Keane’s solicitors in pre-action correspondence in June 2019 wherein in terms they alleged Ltd was charging the LLP hundreds of thousands of pounds by way of “consultancy fees” by which the Defendants were enriched beyond their profit shares. The latter’s response was that Mr Keane was aware of these charges (approving them in the accounts as a member of the LLP) and there was no question of them enriching themselves at Mr Keane’s expense.[22]Mr Keane’s solicitors returned to this issue in a letter dated 26th June 2024 in which they made the serious allegation “The “management charges” are not proper charges. They were, effectively, a fraud upon our client.” Almost one month later in a letter dated 22nd July 2024 they alleged that the Management Charges were “unlawful” and “…a front for misappropriation of profits made by [the LLP].”[23]Substantial disclosure was sought as to them in Mr Keane’s application for specific disclosure. The Order made by Master Pester required the Defendants to disclose “…any detailed schedule of the management charges made by [Ltd] to [the LLP].” Mr McDonnell in his skeleton argument for this hearing also said that “Management Charges” were apparently taken by [the Defendants] from [the LLP] on behalf of [Ltd] without the consent of Mr Keane and without any justification and Mr Keane claims 20% of the total…”[24]I do not accept Ms Anderson’s submissions that the Management Charges do not fall within the proper scope of the Accounts for these reasons:(1) The process of the taking of the Accounts requires the trial on liability followed by the taking of the Accounts. The latter results in an Order for directions as to the way that is to proceed. In other words, it is not necessary for such an issue to be pleaded as at liability stage, as it is within the pleaded claim for an account.(2) Likewise, there is no need for disclosure or evidence on this matter as at trial, but that does not prevent the issue being determined upon the taking of the Accounts.(3) I accept that the allegation of fraud, whilst most serious, is not pleaded and is untested as it has not been in issue. But in my judgment that does not prevent the Management Charges being an accounting issue before me.(4) Master Pester ordered disclosure exactly as sought by Mr Keane (see [23] above), which was provided, in so far as it was not already in the possession of Mr Keane. Master Pester’s decision was not appealed, even though the Defendants’ solicitor argued in his evidence that Management Charges were not within the scope of the Accounts. In my judgment it is therefore no longer possible to dispute the determination of this issue. THE EVIDENCE[25]I refer to the oral evidence of the witnesses of fact in the order in which they appeared. Whilst Mr Keane through his solicitor at the hearing of his application for specific disclosure said that subject to permission of the court he would produce accountancy expert evidence at trial, no such application was made. It may have been better for Mr Keane if he had taken such advice and made that application. I now turn to my assessment of the evidence of the individual witnesses.

Mr Gary Keane

[26]Mr Keane’s evidence was unsatisfactory in numerous respects. I found him somewhat verbose and argumentative. I had to remind him several times to answer the question rather than make submissions, and keep his answers relevant and succinct, rather than the rambling discourse he preferred. He also was reluctant or unwilling to acknowledge his part in his claim.[27]For example, a substantial 4-page letter from his solicitor Mr Richard Slade of Richard Slade and Company dated 27th February 2019 addressed to Mr Sargen was put to him. It sets out some detailed figures as to Mr Keane’s current account balance at cessation of £134,238. When asked about the detail Mr Keane responded “I’d rather my solicitor answer” and that “I don’t know where he got those numbers from”. When asked if he had approved this letter Mr Keane’s response was “I can’t say for certain.” I do not accept that in the circumstances which obtained then namely the start of his claim that he did not know what was being alleged on his behalf.[28]In another exchange Mr Slade’s letter to Mr Martin of 2nd May 2019 was put to him which said as to his loan account balance with Ltd that it was “…surely, no more than arithmetic. Gary has taken the starting point of £514,000, added on annual profit allocations and subtracted payments. The balance is £194,933. Please provide the company’s calculation.” Ms Anderson said this figure must have come from him. Mr Keane said “I don’t recall, he came up with this before trial”.[29]I do not accept that. Mr Keane must have been aware of that and the earlier figure and must have instructed Mr Slade accordingly. He was trying to avoid the point. Further, that is the very figure in the First Account under the second heading “Subtotal”. After Ms Anderson pursued this calculation Mr Keane eventually accepted it but maintained he had been “…underpaid considerably as what was meant to happen didn’t happen.”[30]What made Mr Keane’s answer in [27] above even more fanciful was that Mr McDonnell in his written Closing Submissions said “The amount [due from the LLP] to which Mr Keane is entitled is the sum of £134,238 which appears at the end of the Summary of his Member’s Account produced by Mr Sargen.”[31]Then the Second Account (reproduced at [10] above) was put to him. When asked why he had not challenged it, his answer was “I can’t recall seeing this. My solicitor would have seen it…not sure he shared it with me.” Next his Noice of Objections was put to him and he was asked if he recalled making it. His answer was “I don’t remember, no”. His witness statement to which that document was attached was put to him, which he did recall, but when Ms Anderson stated that this must be his evidence his response was “I’m not a lawyer.” That was deliberately obstructive.[32]The essence of Mr Keane’s position in his Objections as to the First Account is that his “…loan remains outstanding in full with accrued interest.” Ms Anderson put to him then that his tax returns reflected his understanding of the tax saving structure at the time. His answer was that his tax returns were wrong and that whilst he had not as of yet had to report this error to HMRC he would if judgment was given in his favour. I think Mr Keane was prepared to say whatever he felt suited his position.[33]In summary he was not a reliable witness. He endeavoured to distance himself from documents and events if they did not suit what he thought at that moment would best advance his case. That at one point resulted in the contradiction between his evidence and his leading counsel’s closing submissions – see [27 & 30] above. He did not try to assist the court. I therefore place little weight on his evidence unless supported by contemporaneous documents. Mr David Sargen[34]Mr Sargen has made four witness statements in these proceedings. His role within the overall business included administration and liaison with external advisers including accountants. In his 4th statement he said he kept his own spreadsheet as to what each member had received in pure cash terms. He said that the LLP paid those sums and it was the vehicle through which the business was performed. He referred to many discussions with Chris Hughes and Chris Barker of their accountants Moore Kingston Smith (“MKS”). His understanding was that “…it really didn’t matter where the cash was physically paid from because the key was where it was allocated to for the purposes of the statutory accounts and our tax returns.”[35]Mr Sargen also explained in his 4th statement the physical payment of drawdowns under the Member’s Interest Purchase Agreements (“MIPA” - being the loan agreement by which the parties each lent £514,000) had to come from the LLP and not Ltd; because of the £15,000 they each received every month paid by the LLP it was not at that time known how much was profit and how much was drawings. That attribution would be done by MKS at the end of each financial year. Otherwise there was a risk that it may have been necessary to create loans or balancing transfers to reflect the attribution.[36]As to the Management Charges he explained how the term was created by MKS but that with the benefit of hindsight a better or more descriptive term would have been more appropriate. He said they were an accounting attribution as most of the business expenses were paid by Ltd which were then reimbursed by the LLP. At [33] he said “All of us were aware of the business expenses paid by [Ltd] as month-by-month records of the expenses were contained in monthly management accounts which I sent to everyone, including Gary.”[37]Mr Sargen was to the point, certain and knowledgeable when giving his evidence. He was patient when cross examined upon various matters, some of which were tangential. He gave consistent answers supported usually by reference to the detailed accounting information in the contemporaneous documents, or else by memory. I accept his evidence. Ms Rebecca Shields[38]Ms Shields is a chartered accountant and a partner in MKS. She provided accountancy service to Ltd and LLP from 2012-2019. MKS prepared personal tax returns for Messrs Keane, Sargen, MacGloin, Martin and Beaton over the period 2012-2017. Neither she nor MKS currently advise any of those individuals or corporate entities. In her witness statement she explained that one of her colleagues prepared the Members Accounts from 2012 until the LLP was dissolved in 2019, and that she reviewed them all. Her statement set out her knowledge of two matters: the Members Accounts and the Management Charges.[39]She explained that:
“The Members Accounts were the Capital and Current Accounts and included the Loan Accounts. The Current Accounts were in-effect the Loan Accounts. The MIPA loans are shown on Row 51 of the Members Accounts spreadsheet…Row 51 shows the sum of £514,000 for each individual and the amount owed by [Ltd] of £2,570,000…calculated by [MKS] on the basis that each of the five individuals had loaned £514,000 to [Ltd]. So, these entries give credit to the five individuals (increasing their current accounts) and remove the same amount from the current account of …[Ltd].”
[40]The First Account and Second Accounts I set out above contain the figures that appear in the spreadsheet she refers to save Mr Keane’s loan is in total as opposed to the sums of £267,600 and £246,400 in the First Account.[41]She confirmed that on 30th November 2017 when Mr Keane left the business the balance on his Capital Account was £45 and on his Current Account it was £134,238 (thereby confirming those figures at the end of the Second Account at [10] above).[42]Ms Shields then turned to the Management Charges, explaining that MKS calculated them; Ltd paid the expenses of running the LLP’s business and at the end of each financial year MKS calculated them based on the P&L accounts of Ltd plus a 5% markup. She explained that the total sum was £1,440,758 for the 3 years 2015-2017. She explains in some detail where those charges appear and concludes by stating that by reconciling the statutory accounts with the Members Accounts she can see the amounts have been allocated in both Ltd and the LLP.[43]Ms Shields was clear and to the point; authoritative in her command of the detail as one would expect. She gave helpful and full explanations of her actions and the accounts themselves, including in particular Mr Keane’s loan of £514,000. When Mr McDonnell put to her that Mr Keane’s case was that loan was never repaid her response was that then he would be £297,000 overdrawn. Ms Shields took Mr McDonnell through the Members Accounts for all 4 members at Supplemental Bundle p8. The column setting out Mr Keane’s position now appears as the Second Account in [10] above.[44]She was asked “Where in this account do we find the amount due to Mr Keane under the MIPA?” Ms Shields explained that it was the increase of £514,000, which Mr McDonnell said was called drawings transferred to Ltd. She said it was expected payments would come out of the LLP as it was cash rich, so there needed to be credit to the same value, which was purely treasury management for cash in the right place to be paid out.[45]Mr McDonnell repeated that Mr Keane’s case was that he had never been repaid what he was entitled to under the MIPAs – right or wrong? Ms Shields replied that he should compare his income allocation and amount due under the MIPA and deduct all payments he had received as in that schedule, in which case he would agree that £134,238 was owed under the MIPA and profit share, and that Mr Keane had to have received part payment as otherwise he would be significantly overdrawn under the partnership profit sharing arrangements.[46]Mr McDonnell then said the schedule shows £134,238 due to Mr Keane. Ms Shields replied that she agreed on that: that is the balance owed by the LLP but that included the MIPA balance. Mr McDonnell put to her that the claim for the £514,000 under the MIPA was a different claim. Ms Shields responded that then they should recover all payments in respect of it otherwise he owed £297,000 as the MIPA balance is included; he cannot have his cake and eat it.[47]I found Ms Shields’ evidence most helpful in explaining the way the loans and profit shares worked, especially as she was the only independent witness as she and MKS no longer work for any of the parties. Her detailed accounting knowledge was helpful; almost akin to expert opinion (by which I mean Part 35 duties to the court) but with the benefit of direct professional involvement at the material time. I accept all she said. Mr Jonathan Martin[48]Mr Martin made his 2nd witness statement for this trial. He sets out in detail his knowledge of the history and use of the MIPAs and explained the essence of the tax saving scheme which “…revolved around the ability to re-characterise income as capital gains.” This was achieved by establishing the LLP in which they all including Ltd were members. Over time, the 5 individual members would sell part of their interest in the LLP to Ltd which would create a liability from Ltd to pay each of them a consideration for the purchase of their interests in the LLP.[49]Tax law then permitted complete freedom to allocate any profits in the LLP to any of the members. So after they sold part of their interest in the LLP to Ltd, the LLP could allocate profits from its business to Ltd, who could use those sums to pay other members for the interests in the LLP it had purchased from them.[50]As Ltd would not have the funds to pay for those interests in the LLP, loan accounts were created, retained in Ltd. As the years passed, for each trading year of the LLP a determination would be made as to how much of the profits of the LLP would be passed to Ltd, which after business expenses and tax would pay down their outstanding loan accounts. The tax position was that CGT would be payable plus income tax, which would be at rates considerably less than pure income tax rates.[51]At the end of his 2nd statement Mr Martin explained his frustration with Mr Keane’s issues in this trial; first as to Management Charges which he says were raised in 2019 (see [21-22] above) but which were not an issue in the first trial but have been resurrected here. Secondly he criticises Mr Keane’s change of position in that he originally in his solicitor’s letter of 2nd May 2019 (see [28] above) said (and repeated via his solicitors and counsel) that £194,933 was owed to him on his loan account (as also pleaded in his PoC - [17] above). Following the successful appeal, he says Mr Keane is belatedly claiming that his loan account never existed.[52]Mr McDonnell asked if he agreed with the figure of approximately £134K which Ms Shields said was due to Mr Keane. He did, saying he like she accepted that number as the entirety of the sums due, not differentiating between his loan and current accounts. Mr McDonnell suggested that was due from the LLP; Mr Martin disputed that saying it was not just the LLP as the sum included the balance on his loan account.[53]Mr Martin was clear and careful when giving oral evidence. He was deliberate and thoughtful in his answers, and I accept all he said. Mr Michael Beaton[54]Mr Beaton in his 2nd statement prepared for this trial explains the operation of the MIPAs and his own loan account. He emphasises how none of the individuals involved dissented with MKS’ proposals and that they all “…absolutely knew what the purpose of the structure was and the role the MIPAs played within it.”[55]He also set out his understanding of what the Management Charges were for and that no-one including Mr Keane objected. He answered Mr McDonnell’s question did he ever have an idea as to why the management charges varied so much in detail, referring to new projects and increased overheads from new office space in London and opening an office in Newcastle. He was careful and deliberate when giving evidence, thinking his answers through and making it clear when he did not know the answer to a question. I accept his evidence.[56]Overall, the vast majority of the evidence given by the above individuals was not challenged by Mr McDonnell so consequently stands. DETERMINATION OF THE NOTICE OF OBJECTIONS The First Account[57]The first two Objections concern the change of position by Mr Keane subsequent to the Court of Appeal judgment as explained by Mr Martin that I refer to at [51] above; instead of being owed £194,933 on his loan account he maintains he was never paid any money by Ltd and so the entirety of his loan of £514,000 is due to him with interest from 30th November 2013 until payment. However, Mr Keane’s claim is not quite as straightforward as that.[58]Ms Anderson submits Mr Keane’s claim has changed again in that Mr McDonnell’s closing submissions differ from what is set out in the Notice. In his closing submissions, received by her at 11.30 am on the last day of trial, at [6], (inserting paragraph numbers as they are absent in the original) Mr McDonnell submits that the loans were in the Members Accounts and it appears, as he put it, “…David Sargen and Becky Smith moved the loan account from [Ltd] to [the LLP]”.[59]He continues at [7] that to do so:
“…would have required a legal agreement between the two companies to have been executed and likely the consent of the individual members. The Defendants have not provided any such agreement in their evidence bundles, so we believe that no such agreement was executed. Notwithstanding, the MIPA does not provide for [Ltd] having the right to transfer or assign the loan agreement, so such an agreement would have been precluded.”
[60]Mr McDonnell summarises the consequences being that all the loan accounts in the Members Accounts must be reversed, all drawings should have been treated as profit share and therefore income (removing the tax savings from the advantageous CGT rates as I refer to in [50] above). Accordingly, all the tax returns are incorrect and voluntary adjustment is necessary, and the statutory accounts of both Ltd and the LLP are materially misstated.[61]Ms Anderson objects as first that case namely that the full £514,000 is due was simply not put to the witnesses nor that Mr Sargen and Ms Shields moved the loan accounts and secondly it is not the case as pleaded, so it cannot be run now. This is, she submits, wholly inappropriate and unorthodox. Absent an application to amend the Notice (which would be objected to) it is not open to Mr McDonnell to run this argument.[62]Mr McDonnell started his cross examination of Ms Shields by asking whether the Members Accounts were with Ltd? Her response was no; it is a combination of all amounts owing to the individuals and in the interests of transparency the balance owing as a result of the MIPAs was credited to the member’s current account in the schedule and debited to Ltd which had the effect of bringing in all amounts due to individual members.[63]Mr McDonnell expressed some incredulity as to the accounting processes described by Ms Shields, saying the above answer sounded like nonsense to him. Then he asked her how it made sense legally. Ms Shields replied that if profits were due and liabilities owed to individuals then transferring profit back through the LLP was common in owner managed businesses and there was nothing illegal or funny about it.[64]Mr McDonnell pursued his point that indebtedness should be shown in the accounts of Ltd. Ms Shields agreed and explained how it was. Next it was put to her that the amount due to Mr Keane was never paid to him. Ms Shields replied that if it had not been then he would owe £297,000 so some part of that loan had been repaid. If it had not been repaid then he owed it back, and the LLP would not pay out in drawings more than monies he owed.[65]I have set out the above, in addition to the evidence of Ms Shields at [38-46], to show the position is not wholly as Ms Anderson submits in that full repayment of the £514,000 was put to Ms Shields and rejected by her for the reasons given. However, what was not put to any witness was the development of the return of the £514,000 as sought by Mr McDonnell in his closing submissions at [6-9], and also his submission that there should have been an agreement between Ltd and the LLP which was in any event precluded by the terms of the MIPAs.[66]Those matters constitute a new claim and cannot be brought at this very late stage. It is wholly wrong for Mr Keane to attempt to re-open the whole of the accounting arrangements when, until now, there has been no issue that the loan account was freely entered into by him in full knowledge of what it meant and the point – less tax on his share of profits – which was achieved and from which he benefited.[67]Further, this new claim is speculation based upon speculation combined with wide sweeping allegations which are unevidenced – see for example [7] of the closing submissions set out at [59] above.[68]If I am wrong in my rejection of the new claim on the above grounds, then I consider Mr Keane is estopped from putting his claim in this way for these reasons: 1) In his PoC at [35] he pleads that “…as at 30th November 2017 the amount due to him from [Ltd] in respect of the consideration credited to his loan account with [Ltd] as results of [the MIPAs] stood at £194,933.” He therefore accepted the existence of his loan account, that it is valid and he had received partial repayment but that that further sum was due. 2) It would be unjust and prejudicial for him to be permitted to resile from that acknowledgment of the valid loan account upon which the litigation had been premised.[69]I now turn back to the Notice as served relating to the First Account. Mr Keane’s First Objection is that he “…never received any money from [Ltd] by way of repayment of the loans…so the loan remains outstanding in full with accrued interest.” Much emphasis was placed upon no loan accounts being established in Ltd. This is correct in terms of the accounting process but that point goes no further – it is irrelevant as what mattered was that the loan accounts operated properly and did not disadvantage the lender.[70]I reject the First Objection for these reasons: 1) On the evidence before me Mr Keane knew and understood what the scheme or structure was and did not object; he was highly unlikely to then as it benefited him financially as he paid less tax than he otherwise would. I cannot help but observe the contrast with his current apparent desire to correct his tax returns to pay more tax which has arisen since the reversal of the judgment previously in his favour. 2) The MIPAs required the creation of an account, which was satisfied by the current account as explained in the evidence of the Defendants, and especially Ms Shields, all of which I accept. 3) Mr Keane in his evidence accepted that his monies were in a loan account, he received profit shares and drawings, signed off the LLP accounts, saw monthly management accounts and at first accepted he probably saw the accounts of Ltd. 4) Importantly, Mr Keane did not prove accounting information was kept from him, nor in my judgment could he do so; the overwhelming evidence of the Defendants and Ms Shields was that he always knew what the process was and what the documents created as part of that process and made available to him were. Not until now did he object, indeed he accepted he could challenge or query at the material time but did not do so. 5) I find without hesitation that repayments were made to Mr Keane a) in respect of his loan b) by the LLP on behalf of Ltd and c) out of profits. 6) This objection is artificial in that it attempts to ignore the repayments made by the LLP. That is a false distinction in circumstances where Mr Keane always knew what the arrangements were and never objected or queried them. As Ms Shields put it, he is trying to have his cake and eat it. If he had not received repayments, then he would be overdrawn by £379,762 and would owe that to LLP. 7) If this First Objection was of substance then it would logically follow that each of the Defendants should have been challenged that they had not received repayment. That did not happen.[71]I now turn to the Second Objection that Ltd states in the First Account “…excess monies made (sic) [I think that should be “paid”] by [the LLP] to the Claimant are to be categorised as part repayment of the loans. That has never been stated before and the Claimant does not accept it.”[72]I said to Mr McDonnell that I found this difficult to understand and asked for an explanation in his closings, but in the latter document he relied upon the change in the claim I have rejected above. I think this is a reference to [9] of Mr Keane’s 5th witness statement wherein he says “If I have been repaid by [the LLP], then I will have been repaid, in part, from money to which I was already entitled anyway as profits of [the LLP], which I had helped to earn”.[73]But Ltd was a member of the LLP and entitled to profit share and drawings (see also [48-49] above) and after the individuals sold part of their interests in the LLP to Ltd, the LLP could allocate profits to Ltd who could use those sums to pay other members for the interests purchased.[74]If the LLP had not made the loan repayments then it would have had to have paid it to Ltd so Ltd itself could make the loan repayments. So the monies Mr Keane alleges he was entitled to could not remain there. This was explained by Mr Sargen in [14] of his fourth witness statement. He said that the figures all balanced in the accounts but that Ltd did not physically pay the drawdowns; the LLP did so on their behalf.[75]In summary I dismiss the Second Objection as: 1) It makes no sense in the way the accounts were prepared as I have explained above and 2) I do not accept Mr Keane’s allegation that he was unaware of the accounting position, which is also contradicted by his acceptance that the sum of £194,933 is due to him as is set out in the First Account.[76]The other Objections under the First Account heading relate to Management Charges so I will determine them with the final Objection, the seventh, under the Second Account.[77]As I have dismissed Mr Keane’s Objections to the First Account I now turn to that account. As required by the Order of ICC Judge Jones two accounts are to be taken, the First comprising of the sum outstanding to Mr Keane on the loans made by him to Ltd and the Second as to all monies (if any) due to him from the LLP. I accept Ms Anderson’s submission that there is a false dichotomy between the two accounts as the Members Accounts were the Capital Accounts and Current Accounts and included the Loan Accounts, as I have accepted the evidence of Messrs Sargen, Beaton and Martin, and Ms Shields.[78]Further, all the key entries on the First Account also appear in the Second Account, namely Mr Keane’s loan, his drawings and profit allocations. Those amounts are all set out in the MKS spreadsheet of 4th May 2018 proven by Ms Shields.[79]In the absence of any other objections to the First Account I approve it. I will determine the final balance by reference to the Second Account. The Second Account[80]The remainder of the Objections all relate to the so called Management Charges, which I consider are better described as service charges – as Ltd was the service company for the LLP. This claim has wholly collapsed both in principle and amount. In June 2019, as I set out at [21] above, Mr Slade claimed that the Defendants were enriching themselves by hundreds of thousands of pounds via these charges.[81]That issue was not pursued at trial but appeared again when Mr Slade accused the Defendants of fraud upon Mr Keane, that the charges were unlawful and a front for misappropriation of profits – see [22]. The Sixth Objection quantified Mr Keane’s claim in respect of the Management Charges at £708,473. Mr McDonnell in his second trial skeleton argument at [6] submitted that the Management Charges “…were apparently taken by the 1st, 2nd and 4th Defendants from [the LLP] on behalf of [Ltd]without the consent of Mr Keane and without any justification…”.[82]Mr Keane says at [11] in his fifth statement that “No management was ever undertaken of [the LLP] by [Ltd]” and that he never agreed to such an arrangement. Mr McDonnell quantified Mr Keane’s claim in that skeleton argument as 20% of the total of all the Management Charges of £1,440,758 namely £288,151.60.[83]However, in his opening on the first day of trial he said he did not challenge payment of the Management Charges from either a legal or an accounting point of view. Referring to his [6] I quote above he said use of the words “without justification” was an unnecessary assertion which he did not intend to pursue. He maintained however that the charges were made without the consent of Mr Keane.[84]Therefore at the start of the trial for the first time Mr Keane accepted the Management Charges were an entirely legitimate way of recharging the expenses of running the business. Mr McDonnell in his written closing submissions completely changed his position again compared to his skeleton argument as he said “We fully accept that costs that were incurred by [Ltd] in support of the operations of [the LLP] can be re-charged across…”. He then went on to limit Mr Keane’s challenge to one item, Amortisation, which he quantified at approximately £30,000.00. This one item had not been raised before.[85]As the overall principle that Ltd incurred operating costs for the LLP which were repaid by the LLP is now accepted by Mr Keane, I will not set out the detail as to the background and history to the charges and the evidence I read and heard save as to that one item that is now subject to this very late challenge.[86]The Amortisation challenge concerns two amounts of £320,945 in each of the accounts of Ltd for the years ended 30th November 2016 and 30th November 2017. Mr McDonnell submits that this is not an operating cost but Ltd writing down the value of its investment in the LLP, as confirmed by Mr Sargen in his evidence. Ms Anderson submits that this is another completely new submission, absent from the Notice and not put to Mr Sargen nor Ms Shields.[87]I agree it was not put to Ms Shields, which was unfortunate. But it did arise in Mr Sargen’s evidence, albeit in a roundabout way. Mr McDonnell challenged Mr Sargen that Ltd never accounted for the interest it acquired under the MIPAs. Mr Sargen said he did not have the document before him but he was fairly sure in the accounts there was an asset value statement namely a note that the LLP was purchased by Ltd.[88]I referred Mr Sargen to Supplemental Bundle page 1434. This is Note 5 in Ltd’s accounts at 30th November 2015, headed Fixed Asset Investments, namely “Investment in a LLP” (sic). The cost is stated as £3,209,450 and Amortisation for the year is £320,945 which appears in the accounts under Operating Loss at page 1431. Mr Sargen said that was exactly it.[89]At the conclusion of cross examination I asked Mr Sargen to explain Amortisation further. His answer was that straight line amortisation had been applied and it was a write down of the cost. Further, Ltd and the LLP had different accounting periods but he tried to ensure the Management Charges over the entire period all added up.[90]Whilst the Amortisation challenged is for the years ended 2016 and 2017, the same accounting treatment has been used as for the year ended 2015 I referred to Mr Sargen. Mr McDonnell subsequently asked Mr Beaton whether Management Charges so far as he was aware included Amortisation. Mr Beaton replied he was a lawyer not an accountant but believed they did, and that he saw nothing nefarious in them anyway.[91]Mr McDonnell now submits that Amortisation in two years’ accounts of £641,890 needs to be adjusted so Mr Keane’s share should with the 5% management uplift amount to about £30,000.[92]This point was never advanced properly in a manner to permit proper evidence being adduced or heard in view of the way it arose as I set out above. It is a makeweight submission to claw something back from the total withdrawal of Mr Keane’s claim in this respect (save as to the issue of consent which does not lead to a monetary claim). I therefore reject it.[93]If I am wrong as to that I reject this claim for these reasons: 1) Mr McDonnell advances no reason nor authority to support his submission that this is a write down that could not be treated as an operating cost, especially in circumstances whereby Mr Keane has accepted the Management Charges in principle and indeed as to all the other amounts charged over those two years. 2) I accept the evidence of Mr Sargen as to how Amortisation was applied. 3) Likewise I accept the evidence of Ms Shields as to the process for the calculation of the Management Charges by her firm. 4) I accept the evidence of Mr Martin and Mr Sargen that Mr Keane was always aware of the way the accounts of Ltd were prepared especially as he was included in the circulation list and received monthly management accounts from Mr Sargen.[94]I therefore dismiss the remainder of the Objections numbered 3-7 in the Notice and I accept the evidence of Messrs Sargen, Beaton and Martin and Ms Shields as to the Second Account which I approve.[95]I consider it is artificial to look at the First and Second Accounts separately when all the figures in the First Account are in the Second. I accept Ms Anderson’s submission that there is a false dichotomy between the First and Second Accounts because the Members’ Accounts were the Capital and Current Accounts and therefore included the Loan Accounts. Accordingly the distinction that appeared appropriate when ICC Judge Jones made his Order of 5th August 2022 is no longer necessary nor appropriate.[96]I therefore declare that for the purpose of ICC Judge Jones’ Order of 5th August 2022, paragraphs 7 and 9, that Mr Keane was owed £134,238 on his Current account. With the sum of £165,000 paid on account Mr Keane owes the LLP £30,762 less the sum of £45 due to him on his Capital Account i.e. £30,717. Whilst the on-account payment of £165,000 ordered by ICC Judge Jones was in respect of the First Account there is no reason why it should not be reflected in the Second Account, as it is here.[97]There is a procedural matter that I should address. The Defendants submitted that Mr Keane’s witness statement for this hearing did not comply with CPR PD57AC. Mr McDonnell submits that it did not need to as the hearing before me was not a trial (defined in PD57AC as “…a final trial hearing, whether of all issues…in proceedings…in any of the Business and Property Courts…”).[98]Mr McDonnell submits that historically the taking of accounts and inquiries was never regarded as a trial and was always conducted by a Master when Masters had no authority to conduct trials at all. I understand that to be correct until April 2015 when PD2B removed the previous restriction on Masters hearing trials.[99]But I consider it to be illogical and inappropriate for there to be any distinction when the key issue concerns witness statements for oral evidence. PD57AC is to promote best practice in witness statements for use at a trial, and I think to address concerns as to the “over lawyering” of witness statements. This was a trial with oral evidence – paragraph 2.1 of PD57AC. Statements should therefore comply. There is no reason why accounts and inquiries should not be treated as different to what they are namely a trial. Deputy Master Linwood 2nd December 2025