Category: Litigation

STANDSTILL AGREEMENTS AND HMRC

Posted on by David Brogelli

In this article David Brogelli discusses the use of a Standstill Agreement specifically in disputes with HMRC but also their relevance in wider applications.

Limitation

The Limitation Act 1980 sets out specific time limits for certain actions to be brought.

A Claimant’s failure to do so is an absolute bar to bringing the Claim, but the defence of limitation must be pleaded in any Defence.

Note, the court will not simply strike out a claim of its own motion.

Recently, Elysium Law has been approached by a number of clients who, either as individuals or via their Company entered Tax Avoidance Schemes all of which were registered under DoTAS.

Not surprisingly, HMRC has issued determinations under Regulation 80 of the Income Tax Pay As You Earn and Regulation 2003 and  Section 8 of the Social Security (Transfer of Contributions) regulations 2001.

Again, not surprisingly, given the planning arrangements and various challenges most of these assessments have been the subject of an appeal with the tax held over pending the outcome.

As far as the collection of National Insurance Contributions are concerned, this is a contractual debt. HMRC is therefore bound by the provisions of Section 5 of the act in that any claims for a debt must be issued within the 6-years period, failing which the Taxpayer can raise limitation as an absolute bar to the claim.

For the avoidance of doubt, the NIC is due from the year in which it should have been paid and not of course from the date of the assessment.

The Letter of Claim and the Pre-Action Protocol for debt Claims

HMRC is not bound by the pre-action protocol on debts.

Their position is covered by Practice Direction 7 D Section 1.1 (e).

Generally, if a defence is filed, the court will fix a date for a hearing and the only evidence that is needed from HMRC is a certificate – the PD goes on to state;

3.1 On the hearing date the court may dispose of the claim.

(Section 25A(1) and (2) of the Commissioners for Revenue and Customs Act 2005 (‘the 2005 Act’) provides that a certificate of an officer of Revenue and Customs that, to the best of that officer’s knowledge and belief, a sum payable to the Commissioners under or by virtue of an enactment or by virtue of a contract settlement (within the meaning of section25(6) of the 2005 Act) has not been paid, is sufficient evidence that the sum mentioned in the certificate is unpaid.)

The ’PD’ goes on to state:

3.2 But exceptionally, if the court does not dispose of the claim on the hearing date it may give case management directions, which may if the defendant has filed a defence, include allocating the case.

Protective proceedings and the issue of a Claim

In their Particulars of Claim HMRC say:

“The Claim is issued to protect the Claimant’s right to NICs that it considers to be correctly due…once the Claim is issued, it is the Claimants intention to make application to the court for a general adjournment pending the outcome of the Defendant’s appeal.”

As far as the issue fee is concerned, most if not all of these cases fall into the County Court and the issue fee is payable in the sum of 5% of the amount alleged to be owed. In the event that the Claimant loses the claim, the disbursement as well as any cost will automatically follow the event as will interest on the debt, which must be pleaded in the Claim.

In the majority of cases, HMRC has written to the various Defendants and has threatened proceedings.

Prior to issuing proceedings, it is prudent that HMRC is offered a standstill agreement in order to stop time running during the limitation period. We believe that this will protect the Taxpayer on the question of costs should the challenge to the planning fail and the NICs become due and payable, as at that stage, there can be no defence to the Claim.

Standstill Agreements

In our view and in order to protect your client or yourself on costs, we suggest that you offer HMRC a standstill agreement under which the Claimant agrees not to rely on the expiry of a limitation period as a defence and which runs from a given date (usually the date of the agreement) until notice is given to restart the claim.

This will, in effect, freeze the running of time at the date of the agreement, while giving the Defendant the option to start the clock running again by giving notice to the claimant. Of course, if the Defendant taxpayer wanted to restart the claim before the planning issues had been decided by for example the FTT, then HMRC would be within its rights to issue and stay the claim. This would result in no costs protection for the Defendant, on the contrary.

How is time stood still?

There is a difference between extending time and suspending time for limitation purposes.

An agreement to suspend time (Standstill Agreement) is set out in the following way.

The suspension of time under this agreement shall continue in force until the earlier of:

(a) 30 days after the service by any party of a notice stating that the running of time is to recommence; or

 (b) the service of proceedings by any party in connection with the Dispute; or

 (c) [add in a long stop date] or an event such as determination of the issues taken by HMRC (mention the planning).

 In this case, upon the conclusion of the trigger event, the remainder of the limitation period would run.

If however, the Parties decide to contract to extend the limitation this will expire on the date set out in the agreement.

 The author’s view is that the suspension of time is by far the safest way of proceeding.

 If you want to know more about standstill agreements or want advice upon litigation against HMRC, or any other party, then contact us www.elysium-law.com

Contractors – the ‘loans’ you never needed to repay

Posted on by Ruby Keeler-Williams

In this article, Ruby Keeler-Williams and Richard Gray Barrister of Elysium Law consider claims made against loan charge contractors and the litigation which subsequently ensued and is contemplated going forward.

The ‘Contractor Loan Scheme’ Planning

The ‘contractor loan scheme’ was part of a large-scale marketed tax avoidance scheme. The user would usually be an individual working for what is called an umbrella company or for their own personal service company. Normally, that would attract tax and NICs on a PAYE basis. The responsibility for paying such statutory deductions falls upon the employer. However, in an attempt to reduce tax liability, the employer, who would be acting under a contract of employment would pay the employee the minimum wage and then do one of two things:

  • Pay lumps sums to a trustee who would ‘loan’ the employee (now beneficiary under a trust) money (remuneration) with the arrangements setting out the terms of the repayment.
  • Alternatively, the employer would directly loan the monies collected and then assign the loans to a trust later.

By way of example; if an employee was paid a salary of £150,000, only a basic minimum wage would be paid. Then 85% of what was left (collected by the umbrella company) was ‘loaned’ to the employee and the umbrella would take what was left. It was argued under these schemes that the loan did not constitute earnings and as such was not taxable. “Don’t worry we have Counsel’s advice” was the normal selling point.

Another and more significant inducement was made to the employee that the loan would never need repaying. We have a particular legal view on that arrangement but at he very least it was a misrepresentation which materially induced the employee to enter the contractual arrangements.

The Assignment out of the Trust

Unusually, the purported ‘loans’ in many cases have been assigned out of the Trust and have either directly or via other companies ended up being assigned to a company named Felicitas Solutions Ltd, which was formed and based in the Isle of Man. The company appeared to be purposely set up to receive these assignments and pursue claims for reimbursement from behind the corporate veil, as they threatened to do.

The users of these schemes were then contacted with demands for repayment and as a result many sought advice from Elysium Law and we were instructed by a large group to defend these claims.

The Claims

The ‘demand for repayment’ letters received by Our Clients did not constitute a compliant Letter of Claim under the Pre-Action Protocol. As such, we insisted that prior to providing a response, a compliant Letter of Claim must be produce supported by evidence.

In early 2021, this was provided to us and some 107,000 pages of documents were disclosed and reviewed.

It was clear from the review of these documents, together with evidence from Our Clients, that the loans were ‘circular’ and were never intended to be repaid. This was clearly a tax avoidance arrangement, and the loans were, in our view, unenforceable.

Our stance  was to offer a mediation in order to narrow the issues in dispute.

Following that Mediation, Elysium Law subsequently served upon Felicitas a comprehensive letter of response that rebutted the claims on the following grounds:

  • Collateral Contract and/or Misrepresentation, in that a legal assignment is subject to existing causes of action which are not avoided by assignment (Bibby Factors Northwest Ltd v HFD Ltd). This means that the Beneficiaries may raise against the assignee, any defence, set-off or counterclaim which they could raise if sued by the assignor. Here, there was a verbal collateral contract made that this was a tax avoidance arrangement and that the ‘loan’ would never be enforced against them.
  • Breach of Trust, in that the Trusts into which the user’s money paid was subject to both express and implied fiduciary obligations. The assignment would likely have substantially devalued the assets of the trust and has exploited the beneficiaries.

After service of the letter of response, to which we received no reply, the threat of litigation seemed to disappear.

However, Elysium Law are now aware that last week, a large number (if not all) of these ‘loans’ have been assigned by Felicitas to a company known as West 28th Street Limited, who have subsequently sent letters demanding repayment, albeit they have made an offer to settle at a reduced rate of 50% adding that if the offer is not accepted they will instruct Solicitors to claim from the recipients. We have been contacted by our previous clients seeking further advice and have organised conferences after hours to assist them.

Our view is that action must be taken to ensure that these demands for repayment and subsequent assignments do not continue.

Elysium Law have a litigation strategy to bring these claims to an end. If you have received one of these demands from Felicitas or West 28th Street Limited and wish to have advice on this matter, please contact Elysium Law on 0151 328 1968 or via clerks@elysium-law.com.

Loan Charge Contractors – have you received debt claims?

Posted on by Ruby Keeler-Williams

We have been approached by many clients who have had demands for payment from a Company known as West 28th Street Limited.

Many of these individuals have been previously pursued by FS Capital and Felicitas Solutions regarding these former ‘loans’.

Elysium Law have had success in stopping these pursuits of these claims and are now looking to take action against the Claimants to prevent these claims from continuing.

If you have been affected by this, please contact us via telephone on 0151 328 1968 or via email at clerks@elysium-law.com to have a discussion with the team. We will have a free, no obligation discussion with you to help determine the merits of your claim and can advise you on the next steps if you wish to pursue it further.

Causes of Action in Failed Off-Plan Developments

Posted on by Ruby Keeler-Williams

In this article Ruby Keeler-Williams of Elysium Law considers actions in relation to failed fractional off-plan developments. The article takes a look at the courses of action together with the potential heads of loss.

During the past 5 years we have had the privilege of representing a number of large, multi-national groups in claims for professional negligence, breach of trust and breach of contract against conveyancing solicitors relating to various off-plan fractional residential development schemes.

The Facts

These cases have inevitable followed a similar formula, in that a Developer markets and sells an off-plan project, predominantly to overseas buyers. These buyers intend to let the units upon completion. The development use a fractional sales model and buyers typically pay large deposits of 50%-80% of the total purchase price. These deposits were due to be used to fund completion of the project and were held on trust within a ‘buyer company’, usually with the Sellers solicitor as director, pursuant to a legal charge.

The money held within the buyer company was all spent on construction and more pertinently marketing and the buyers lost all of their deposits with little to no building work completed.

The Potential Defendants

There were 3 potential defendants to consider in these matters: the Developer, the Seller’s Solicitor and the Buyer’s Solicitor.

The Developer in these cases inevitably went into administration, with the freehold of the development site as the only asset. The buyers were creditors, however the typical recovery tended to be between 10 to 20 pence in the pound of their loss.

Action against the Seller’s solicitor was contemplated, but ultimately not pursued. This was because the funds were being held by the buyer company in accordance with the Agreements for Sale, upon which the Buyer’s Solicitor had been instructed to advise. Further, the release of funds was in accordance with the authority given by the Buyer’s Solicitor. This matter was contemplated in detail in the case Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd [2022] EWHC 4 (Ch)

This left the Buyer’s Solicitor as the relevant party to pursue in obtaining recourse. The Buyer’s Solicitors were often on a ‘panel’ of solicitors presented by the developer and/or the sales agent. The buyers, who were almost all based overseas, typically received a ‘legal report’, which was brief in it’s explanation and was not expanded upon in meetings with the clients. The clients invariably did not understand that the transaction they were entering into was not a standard conveyance.

Causes of Action

There were 3 grounds pursued in the claims against the Buyer’s Solicitors. These were:

  • Professional Negligence in failing to conduct due diligence into the contracts and other documentation which were contained in the ‘Seller’s pack’ (such as the Agreement for Sale, the Lease, the Management Agreement);
  • Breach of Contract, in failing to properly advise their client and failing to properly carry out due diligence under the letter of retainer; and
  • Breach of Fiduciary Duty and/or Trust in allowing the monies to be paid over to an unregulated ‘buyer company’ account.

The Legal Issues

During the course of these matters, various legal authorities were considered. These included (but were not limited to):

  • Barker v Baxendale Walker Solicitors and another [2017] EWCA Civ 2056 in considering the solicitors specific duty to warn as to the risks inherent in the purchase;
  • BPE v Hughes Holland [2017] UKSC 21 in relation to the approach to assessing damages for loss of chance in a professional negligence claim;
  • SAAMCO in considering whether the solicitors were retained to provide information or advice;
  • Dreamvar (UK) Limited v Mischcon de Reya; P&P Property Ltd v Owen White & Catlin LLP [2018] EWCA Civ 1082 in considering the buyers entitlement to equitable compensation.

Conclusion

Elysium Law has been successful in obtaining many multi-million pound recoveries for client groups based across the globe in this area of law.

If you have been involved in a failed development similar to this, please call us on 0151 328 1968 or contact us via clerks@elysium-law.com to see if we can assist you.

Data Breach: What Are My Rights

Posted on by Ruby Keeler-Williams

In this article, Ruby Keeler-Williams of Elysium Law considers the consequences of a personal data breach and what rights you have. The article briefly looks at the legislation and considers quantum and case law.

The General Data Protection Regulation (GDPR) and the Data Protection Act 2018 set out rules as to how data is collected, used, stored, and protected.

Under the legislation, any organisation which holds and determines the purpose of the processing of personal data must implement appropriate technical and organisational measures to ensure that the processing of personal data complies with the rules.

A breach of personal data can occur if appropriate measures are not in place. A breach of security may lead to the destruction, loss or unauthorised access to personal data.

This infringes your rights as an individual and can have serious consequences. We have been instructed on matters where a breach in the security of a company led to the unauthorised disclosure of employee identity documents and bank details. These details were then distributed to criminal groups and companies were fraudulently set up in the employees’ names.

If a company that holds your data processes it in breach of the legislation or holds your data in such a way that it is disclosed in an unauthorised way, whether accidentally or deliberately, then you are entitled to claim for compensation.

If your claim is successful, you will receive damages, also known as compensation. You will be able to claim for any identifiable losses which have arisen from fraudulent transactions caused by identity theft. You will also be able to make a claim for general damages if the breach in your data has caused you distress. We will discuss your case at length and identify which damages are relevant to your specific matter.

Your level of compensation will depend on the nature of the data breached. If the data breached does not contain sensitive information (such as name alone) and/or is quickly remedied, then whilst you have a right to claim, in reality the claim will be worth very little and may not be worth pursuing. It is for this reason why you should seek legal advice at the earliest possible opportunity.

Decisions in recent years illustrate that the High Court will not condone claims that are exaggerated and unnecessarily complex. An example is Stadler v Currys Group Ltd [2022] EWHC 160 (QB), whereby a refurbished device was resold without a factory reset to remove the previous users purchase details, leading to a £3.49 purchase being made on the user’s account. The Claimant issued high court proceedings seeking £5,000 in damages for breach of confidence, misuse of private information, negligence and breach of data protection law, seeking injunctive relief. The defendant made an application to strike out the claim and was successful save for the breach of data protection law. The judge also transferred the claim down from the High Court to the County Court and suggested that the small claims court was the appropriate allocation.

In some cases the data breached is sensitive, such as medical records, identity documents, bank details, etc. In these cases, there will be a substantial claim for damages.

Due to the relatively recent developments in technology and the sensitive nature of such claims, there is limited case law detailing the quantum of awards of damages. Many cases settle before they reach the courts. Each case will be assessed on its own merits and due to the individual nature of a claim for distress, a group of individuals who have suffered the same category of data being breached may receive different awards.

Generally, damages for breach of data will be awarded within the following guidelines

  • Personal details (home or email address, date of birth, etc) – £1,000 to £1,500
  • Medical information (depending on who it is disclosed to/the nature of the information) – £2,000 – £5,000
  • Financial information (depending on who it is disclosed to/the nature of the information) £3,000 to £7,500

If you have suffered as a result of a breach of your personal data, please contact us via telephone on 0151 328 1968 or via email at clerks@elysium-law.com to have a discussion with the team. We will have a free, no obligation discussion with you to help determine the merits of your claim and can advise you on the next steps if you wish to pursue it further.