litigation Archives - Elysium Law

Failed Off-Plan Property Developments – Do you have a Professional Negligence Claim?

Posted on 29 Jul 2025 by Ruby Keeler-Williams

Over recent years, off-plan property schemes in England and Wales have been marketed to individual purchasers, particularly those based overseas, as secure, high yield opportunities. These transactions typically involved purchasing residential apartments that were either in the planning phase or under construction, with purchasers required to pay substantial deposits of up to 50% of the purchase price at exchange of contracts.

A significant number of these developments have since failed, leaving purchasers without a property and unable to recover their funds due to the impecuniosity of the developer, which is often a Special Purpose Vehicle (SPV) with no trading history and limited assets.

At Elysium Law, we have significant experience in representing purchasers who have lost money in failed off-plan developments. We specialise in professional negligence and breach of contract claims and have recovered many millions of pounds for purchaser groups against conveyancing solicitors who failed in their duties. We continue to act in multiple claims arising from similar patterns of negligence and misconduct.

This article explains how these failings arise, the legal duties that were likely breached and the steps available to affected purchasers.

Solicitors’ Duties in Off-Plan Transactions

The Solicitors Regulation Authority (SRA) issued the 2020 Warning Notice Investment Schemes Including Conveyancing, which sets out clear expectations for solicitors involved in these transactions. Many of the risk factors and failures highlighted by the SRA are common features in these failed developments.

A solicitor instructed in an off-plan conveyancing transaction must do more than simply process documents. Under the SRA Principles, they are required to:

Principle 2 – Uphold public trust and confidence;
Principle 5 – Act with integrity;
Principle 7 – Act in the client’s best interests;
Code of Conduct 8.6 – Ensure that the client is able to make informed decisions.

A Solicitor who fails to investigate the true nature of the transaction, or who does not warn of serious financial risks, may fall below the standard expected of a reasonably competent conveyancer. In such cases, a professional negligence claim may arise.

That duty includes investigating beyond the representations made by the developer, analysing the financial structure of the scheme and advising the purchaser clearly on the likelihood of deposit loss or construction failure.

Typical Failures in the Legal Reports we have reviewed

From our analysis of multiple solicitor reports issued to clients purchasing in various failed schemes, the common patterns set out below emerge.

Failure to advise on the risks of losing the deposit

The legal report will often fail to warn the purchaser that there is a real risk that the Developer could fail and that some or all of the deposit could be lost.

Where a warning is included, it is often buried mid report and not restated in the introduction or summary, which could be construed as not satisfying the duty to present critical risks prominently.

The SRA expects important warnings to be flagged early, especially in off-plan schemes where consumers are at significant financial risk.

Where a development carries risks, the report should highlight this clearly in unequivocal terms at the beginning of the report, with wording such as ‘You should consider not proceeding’ or ‘This structure carries unusually high risks and is not suitable for many purchasers’.

Failure to advise as to how the deposit is held

Often, we find that the report does not adequately explain how the deposit is held.

For example, in many off-plan developments that have failed, the contract states that the deposit will be released to the seller’s solicitor as agent, not stakeholder.

This means funds could be accessed and used by the developer immediately upon exchange, with very limited protection.

Often the legal report will fail to highlight this at all or will simply confirm that the deposit would be released to the developer’s solicitor acting as agent, not stakeholder, but fail to provide any clear warning of what this actually means or the practical consequences.

A lay purchaser cannot be expected to understand the level of risk without comprehending the powers that this gives.

The report should warn that the deposit could be spent immediately, with little to no recourse if the development failed.

Incorrect or misleading statements about Standard Conditions of Sale

In residential conveyancing transactions, there are what are known as Standard Conditions of Sale (5th Edition), which normally provide vital protections such as stakeholder treatment of deposits, remedies in default and a requirement for the seller to insure the properties.

Often in schemes that fail, these Standard Conditions have been excluded from the contract. If the report fails to recognise or advise on the absence of these protections, this is a serious breach of duty and gives clients a false sense of security.

Overreliance on assurances from the developer

An example of this can be seen in a legal report that we recently reviewed as part of an ongoing action.

In this case, in the legal report, the solicitor simply repeated the developer’s claim that ‘the site value will not fall below the combined debt and deposit contributions’, without challenge or warning.

This placed an unjustified reliance on speculative valuations and failed to advise the client on the real possibility of insolvency and loss.

Such statements should have been accompanied by an independent risk assessment and caution.

Minimisation of Risk Warnings through unclear language

It is not uncommon to see reports state that ‘you may lose your deposit’ but immediately followed with reassurances about insurance warranties or second ranking debentures, without explaining their limitations or enforceability.

This undermines the strength of the warning and may leave purchasers under the impression that the risk was mitigated, when it was not.

Failure to advise on Special Purpose Vehicle risk

The developer is often a special purpose vehicle (SPV) with little to no assets and no trading history.

Many solicitors fail to explain that this means the purchaser is contracting with an entity that would have no capacity to refund deposits in the event of collapse.

Purchasers are often not warned that the SPV could be wound up with no assets to claim against, leaving them as unsecured creditors.

Failure to advise on restrictions to protecting the purchaser’s interest

In multiple examples seen in ongoing cases, the contract expressly prohibits the registration of a notice or restriction on title after exchange.

In these cases, the Solicitors failed to advise that this removed a key method of protecting the purchaser’s interest and further increased the purchaser’s exposure to risk.

This is a significant omission, as such notices are standard safeguards in off-plan transactions.

Are the above examples adequate advice?

These are not minor oversights. They reflect a failure to identify and explain serious risks in transactions that were, in substance, speculative investments rather than ordinary property purchases.

A reasonably competent solicitor would be expected to highlight these dangers clearly, document appropriate advice and, where necessary, decline to act.

The SRA’s Warning Notice makes clear that solicitors must not participate in schemes that are high-risk or improper. They must not simply rely on representations made by the developer or seller. Instead, they must carry out a robust risk assessment, advise fully and candidly and decline to act where a scheme is unfair or potentially fraudulent.

In terms of sufficiency of advice, a solicitor must provide the advice that a reasonably competent practitioner would have provided. That includes explaining the risks of agent-held deposits, the implications of security such as second ranking debentures and the dangers of contracting with an SPV with little to no assets.

Where those explanations are missing or misleading and the purchaser suffers loss, there is potentially a viable cause of action.

Can you bring a claim

If you paid a deposit for an off-plan property and lost this deposit as a consequence of inadequate advice, you may be eligible to bring a professional negligence claim against the solicitor who acted in the transaction.

In many cases, even if the firm no longer exists, a claim can be brought against its professional indemnity insurer, as firms are required to hold Professional Indemnity Cover on a run-off basis for 6 years.

You may be entitled to recover:

Your deposit;
Legal fees;
Other financial losses caused by the solicitor’s breach of duty.

Limitation periods apply, so early advice is essential. Professional Negligence claims are subject to a six-year primary limitation period from the date of the negligent act, or a secondary limitation period of three years from the date of knowledge, whichever is later.

Group Action Litigation

Many purchasers affected by the same failed scheme or solicitor can pursue claims together through group litigation.

We often find there is strength in numbers for these claims in terms of evidence, the benefit of splitting disbursements and legal costs, efficient case management and a stronger negotiating position.

We are currently coordinating group actions on behalf of purchasers affected by multiple failed schemes. We have seen strikingly similar failings across these transactions.

Our Approach

At Elysium Law, we take a structured and strategic approach to pursuing professional negligence claims against conveyancing solicitors.

The process begins with a preliminary assessment, where we obtain and review your full client file, including any previous solicitor correspondence, and identify the full scope of potential claims. We then advise on the legal merits, the supporting evidence required, and the likely quantum of damages. You’ll receive a clear summary of that advice, our proposed next steps and guidance on important procedural issues such as limitation and litigation funding.

If the case is viable, we proceed to the pre-action stage, following the Pre-Action Protocol for Professional Negligence. This involves issuing a detailed Letter of Claim setting out the grounds of your complaint and the compensation sought and responding to any replies from the Defendant Solicitor or Third Parties.

We will always explore early settlement through a method of Alternative Dispute Resolution (ADR), in accordance with our duty under the Civil Procedure Rules. We are however fully prepared to escalate matters if needed.

Should the matter not resolve at the pre-issue stage, we move to the litigation stage, issuing formal court proceedings and instructing experienced counsel to act on your behalf. We manage all aspects of disclosure, pleadings, and preparation for trial, while continuing to pursue resolution via settlement where possible.

Throughout, we ensure you receive clear, strategic advice at every step of the process, with the focus always on recovering your losses.

Our team is equipped to advise both domestic and overseas clients and can work with parties in tandem with multilingual support where needed.

Our Experience

Elysium Law has represented hundreds of clients worldwide in actions of failed off-plan developments. Our experience and success rate in these claims is outstanding, with many multi-million pound recoveries for our client group, and we continue to represent small and large groups of purchasers in multiple ongoing actions.

Due to our experience in these types of claims and our use of technology platforms for efficiency, we can offer extremely competitive rates and recover more of the lost funds for our clients.

Next Steps

If you believe you were poorly advised in connection with a failed off-plan purchase, please contact us for a free initial assessment.

We will review your documentation, explain your options and confirm whether your case may be suitable for a group claim.

We will likely ask you to provide the following:

A copy of your Purchase Agreement;
Any correspondence with the developer, agent, or solicitor;
Any legal advice you received;
Evidence of payments made and whether any have been recovered.

Why Contemporaneous Notes Are Your Best Defence

Posted on 29 Apr 2025 by Ruby Keeler-Williams

Introduction

In the current climate of professional negligence claims, the phrase ‘if it isn’t written down, it didn’t happen’ has never been a better mantra to live by.

Whether you are an accountant or tax advisor advising on complex planning, a solicitor giving verbal advice during a negotiation or a trustee managing an asset on behalf of beneficiaries, the ability to evidence your actions and the rationale behind them could be the key difference between resolving a potential dispute and a costly judgment.

Contemporaneous notes (which are a written record made at the time of an event) can be extremely persuasive evidence if you are facing a potential professional negligence dispute.

A core element of our practice is Professional Negligence and we have obtained many multi-million pound awards for claimants and successfully defended many claims. I have seen the importance of this issue in practice.

In this article, I will explore why contemporaneous notes are so important, the risks of relying on memory alone, real life case law where note taking or lack thereof made a difference and set out some practical steps professionals can take to protect themselves.

Why Are Contemporaneous Notes Important?

Memory is Limited and Fallible

Human memory has its limitations, particularly in fast paced and high-pressure environments. Over time, memories degrade or become distorted.

Even traumatic events that people may think are deeply embedded into memory are subject to distortion. A good exploration of this topic can be seen in the 2013 Paper ‘The neuroscience of memory: implications for the courtroom’ published by Lacy JW, Stark CEL. Of particular relevance to this article is the section regarding distortion in an original memory after being exposed to misleading information related to that memory. In this context, in the absence of written notes setting out the events and rationale behind them recorded at the time, the language used when being questioned (for example by the insurer defending your claim) about events that have previously occurred can have a significant impact on the accuracy of the recall.

If your memory is distorted, you can appear an unreliable witness, however earnest your intentions. If you make contemporaneous notes, you can refer back to these if a dispute arises and ensure that your recollection is accurate.

Courts Prefer Objective Evidence

If a dispute arises, it often involves both parties recalling events in a conflicting manner. In the absence of a written record, it is up to the court to determine whose recollection is more accurate.

Contemporaneous notes serve as a more objective account, in that they were typically recorded before a dispute was contemplated, meaning that the recollection is not tinged by bias.

Taking Notes Can Help With Detail in Memories

Making a contemporaneous note, especially when giving verbal advice, can also help in ensuring that your memories of events are detailed rather than vague.

An example of this in the context of recalling a verbal discussion can be seen in the study ‘How Contemporaneous Note-Taking Shapes Memory for Conversation’ published by Brown-Schmidt S, Jaeger CB, Evans MJ, Benjamin AS. This study involved 2 parties having a verbal discussion, with one party making contemporaneous notes following the conversation. One week later, both parties were asked to recall the conversation and the study showed that the party that made notes recalled more details of the conversation that the party that did not.

Professionalism and Compliance

Maintaining records is not just best practice; it is often a regulatory requirement. Most professional bodies expect members to maintain adequate records to justify their decisions, advice given and communication with clients.

Examples include:

ICAEW: Requires members to keep sufficient records to demonstrate compliance with standards and obligations.
SRA Code of Conduct: Mandates that solicitors keep records to justify actions and maintain transparency.
FCA: Emphasises record-keeping as part of senior management and conduct responsibilities.

Case Law

Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm)

This is one of the leading cases on the reliability of witness evidence in the context of litigation. You can read the full judgment here.

Here, the now Lord Legatt (then Leggatt J) was asked to evaluate witness accounts of events that had occurred years earlier. In his judgment, he drew on psychological research to caution against placing too much weight on a witnesses confidence in their recollection.

At paragraph 20 of the judgment, Leggatt J observed that recollections may become entangled with subsequent narratives and documentation, making them less reliable than they may appear. Even when a witness appears sincere and confident, that confidence is no guarantee of accuracy, especially where they are attempting to recall what they believed or felt at the time.

His guidance at Paragraph 22 was of particular relevance to this article, as he stated that:

“… the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts … Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

This approach has been cited in many subsequent judgements and codified via Practice Direction 57AC of the Civil Procedure Rules, which applies to cases in the Business and Property Courts. The appendix to PD57AC sets out that witness evidence should be based on actual recollection rather than retrospectively constructed from documentation. This witness evidence can then be contrasted at trial with any contemporaneous documentary evidence.

Professionals should take from this case that the courts may distrust your recollection, however strong your belief as to its accuracy, if it contradicts your own written records (or worse so if no written record exists).

Simetra Global Assets Ltd v Ikon Finance Ltd [2019] 4 WLR 112

This case was a successful appeal to order a retrial of a matter before a different judge in the commercial courts. The matter involved dishonest assistance in a fraudulent Ponzi scheme. You can read the full judgment here.

Of particular relevance to this article are the comments at Paragraph 48 of the Judgment:

“In this regard I would say something about the importance of contemporary documents as a means of getting at the truth, not only of what was going on, but also as to the motivation and state of mind of those concerned. That applies to documents passing between the parties, but with even greater force to a party’s internal documents including e-mails and instant messaging. Those tend to be the documents where a witness’s guard is down and their true thoughts are plain to see. Indeed, it has become a commonplace of judgments in commercial cases where there is often extensive disclosure to emphasise the importance of the contemporary documents. Although this cannot be regarded as a rule of law, those documents are generally regarded as far more reliable than the oral evidence of witnesses, still less their demeanour while giving evidence….”

Jaffe & another v Greybull Capital LLP & others [2024] EWHC 2534 (Comm)

This recent case involved a clash of recollections between the parties, specifically as to whether the representative of Greybull Capital LLP made fraudulent misrepresentations in a meeting in October 2026. You can read the full judgment here.

The Judge deemed both witnesses to be ‘patently honest and truthful’ and as such had to determine which of their recollections to prefer. The Judge cited both Gestmin and Simetra in their judgement.

Ultimately, the Judge found that there had been no fraudulent misrepresentation and a key reason for this decision was that one party’s contemporaneous note was in fact a reinterpretation of incomplete handwritten notes taking during the lengthy meeting and had the potential to have been tainted by post meeting discussions.

Mehjoo v Harben Barker [2014] EWCA Civ 358

This case was an appeal following the first instance judgment which found a duty of care that was breached by the accountancy firm failing to advise a non-domiciled client about the availability of a tax shelter.

This was appealed on the basis that this fell outside the documented agreed scope of work. You can read the full judgment here.

In this matter, the Court found in favour of the Accountants partly because the engagement letter and contemporaneous file notes demonstrated that a limited scope had been agreed.

Professionals can take from this that contemporaneous records not only help prove what work was completed, but also what was not included in your remit.

Practical Tips for Professionals

1. Make Note-Taking a Habit

After every client call or meeting, make a short, written record. This should include the date, time, attendees, the issues discussed, the advice given and rationale behind it, decisions made and next steps. This can be done via a formal file note, email summary sent to all parties, or internal system log.

2. Follow Up Verbal Advice in Writing

Send a short confirmation email setting out the advice discussed. This not only protects you but reinforces client understanding.

3. Use Templates and Checklists

Standard templates for client meetings, risk warnings, and conflict checks make consistency easier. They also serve as prompts to ensure nothing critical is overlooked.

4. Record Your Scope of Work and Limitations

Make it clear what you have and haven’t been asked to do. Record whenever you advise a client to seek other expert input (for example legal advice).

5. Store Notes Securely

Store contemporaneous records in a secure, backed-up system that can be accessed by your colleagues. Avoid post-it notes, loose paper, or undocumented phone calls.

6. Train Your Staff

Ensure that you and your team understand that note-taking is a defensive tool, not just an administrative burden.

Conclusion

For professionals working in high-risk environments, the ability to demonstrate what was done, why it was done, and when, is vital. Contemporaneous notes are not just a matter of good practice, they act as a safeguard in future disputes. As the courts have made clear, where recollection fails or is contested, a contemporaneous written record often provides the most persuasive evidence.

Yet, note-taking is just one piece of the wider picture. Maintaining robust compliance, managing risk effectively and responding quickly to potential claims all form part of a sound defence strategy.

This is where we can help. Our focus is to give professionals the confidence that legal and regulatory risks are being actively managed — so that you can focus on your clients and your core work.

We provide:

On-demand legal guidance for your team as issues arise, including conflicts of interest, confidentiality breaches, AML concerns and exposure to potential negligence.
Advice on data breaches, including recording, internal investigation, and assessing reporting obligations to the ICO or other regulators.
Money laundering compliance support, including drafting Policies, Controls and Procedures and offering independent oversight in line with regulatory requirements.
Complaint handling support, including recording and monitoring of all complaints to ensure they are resolved and providing draft responses.
Staff training, focused on practical, scenario-based learning around risk awareness, compliance obligations and documentation.

FS Capital v Adams: Disposals of Trust Assets for an Improper Purpose

Posted on 11 Feb 2025 by Ruby Keeler-Williams

The recent case of FS Capital Limited Ors v Alan Adams Ors EWCA Civ 53 sends a clear message to beneficiaries of trusts – you have recourse when trustees act improperly.

This judgment, concerning Jersey trusts, considers whether a disposal of trust assets constitutes a breach of trust due to an improper purpose.

Understanding the High Court Judgment in Adams v FS Capital

The initial case in the High Court involved a complex series of transactions related to three Jersey trusts (the 2011 Trust, the 2012 Trust, and the 2014 Trust).

These trusts were part of Employer-Financed Retirement Benefit Schemes (EFRBS), which were utilised to facilitate loan schemes. Participants in these schemes received remuneration from their employer via loans, structured to avoid income tax.

Many of these loans were later affected by the Loan Charge, a tax levied on outstanding loan balances.

FS Capital Limited (“FS Capital”) purchased loan assets from these trusts. The book value of the loan assets was initially £410 million, later reduced to £279 million. The basic consideration was paid, with deferred contingent consideration capped at £1,176,033.93, allegedly the sum owed to the Trusts’ creditors.

The Respondent Beneficiaries in the FS Capital Appeal numbered around 700 individuals.

The High Court Judgment

The key findings following the judgment of Mr Justice Edwin Johnson in the first instance are as follows.

Improper Purpose

The High Court considered the actions of the decision makers surrounding the disposal of the Loan Assets, focusing on the subjective purposes of the disposal.

The court determined that the structuring the disposal of loan assets to ensure no surplus remained for the beneficiaries was inconsistent with the proper exercise of a trustee’s power of sale.

The court emphasised that the circumstances at the time of the disposal did not justify disregarding or excluding the beneficiaries’ interests. This was in contravention of Grand View Private Trust Co Ltd v Wong UKPC 47.

The court found the trustee determined the consideration based solely on the sums owed to creditors, which improperly allowed creditor rights to take priority over those of the beneficiaries. Evidence showed an attempt to retrospectively justify this structure, aligning the consideration with debts to the Second Defendant and Hatstone Jersey.

In relation to the valuation of the Loan Assets, the judge rejected that the Defendant could apply a ‘next to zero’ valuation of the loan assets. The inclusion of a cap in the sale agreements indicated an awareness of the potential for higher value, contradicting the claim that the assets were worthless. This showed the cap was intended to limit the deferred consideration to what had been calculated as due to the Second Defendant and Hatstone Jersey and was intended to guard against the possibility of the Loan Assets turning out to have a higher value.

The court therefore determined that the disposal was made for an improper purpose.

Bona Fide Purchaser

A central aspect of the case was whether FS Capital could claim protection as a bona fide purchaser for value without notice. The court rejected this claim, finding that FS Capital had actual notice of the breach of trust and specifically Mr Reid and Mr Emblin (who collaborated with Mr O’Shea of the Second Defendant in designing the disposal) were aware of key facts.

Void or Voidable

Significantly, the High Court declared the disposal void in equity. This means the disposal was deemed invalid from its start. The High Court considered the Court of Appeal case of Cloutte v Storey in relation to this point.

Liability for Breach of Trust

The Second Defendant was found to have committed a breach of trust by reason of the fact the disposal was made for an improper purpose (Paragraph 401)

The Court of Appeal Judgment

The appeals in this case concern several complex issues related to Jersey trust law.

The first is whether the judge was incorrect in determining that, to be considered as having actual notice per Article 55 of the Trusts (Jersey) Law 1984, it was enough to have actual knowledge of the facts that made the Disposal improper, rather than also knowing that those facts constituted a breach of Jersey law.

The second point, related to the first, is whether the judge was wrong to decide that FS Capital had not met its burden to prove it did not have actual notice of the Disposal and whether the judge should have used the burden of proof to make that determination.

The third issue is whether a transaction that arises from a fiduciary power being used for an improper purpose is void or voidable under Jersey law. This includes whether Jersey law is the same as English law on this point, or whether it only considers English law when making its decision.

The final issue in the FS Capital Appeal is whether the judge should have decided that the Disposal was voidable and, if so, whether he should have declined to set it aside.

The Court of Appeal upheld the High Court’s decision in FS Capital v Adams.

Fiduciary Duty

The Court of Appeal explicitly reinforced the fundamental fiduciary duty of trustees. Trustees must act solely in the best interests of the beneficiaries.

In this case, the Court of Appeal found that the power of sale was exercised to terminate the Trusts, benefit FS Capital, benefit Pinotage and Hatstone Jersey and ensure no surplus for the Beneficiaries. This indicates a conflict of interest and a failure to prioritise the beneficiaries’ interests

Further to this, the court noted that the value of the Loan Assets was unknown but could be substantial, and the purpose of the Disposal was to pay creditors without leaving any surplus for the Beneficiaries, effectively excluding them. This was deemed unjustifiable because there was a possibility of substantial value in the Loan Assets

Additionally, the Court of Appeal highlighted that the breach of trust was constituted by the Disposal and the whole purpose of putting Pinotage PTC in place as new trustee was to allow the sale of the Loan Assets, on terms which excluded the interests of the Beneficiaries, to proceed to completion. The court confirmed that a trustee cannot resign to enable a breach of trust by a successor.

The Court of Appeal highlighted the following extract from Bird Charitable Trust [2008] JRC 013, which states that the Donee:

“…must act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power and not for the purpose of accomplishing or carrying into effect any bye or sinister object (sinister in the sense of being beyond the purpose and intent of the power).”

Knowledge of the Breach

A point of contention was the extent of knowledge required for FS Capital to be fixed with actual notice of a breach of trust.

Specifically, the question was whether FS Capital needed to know that the improper purpose of the disposal constituted a breach of Jersey law. FS Capital argued that the judge erred in determining that actual knowledge of the facts constituting the impropriety of the Disposal was enough to be fixed with actual notice and contended that they needed to know the impropriety was also a breach of Jersey law.

The court equated actual notice with actual knowledge of the breach of trust or wilfully avoiding such knowledge. It was also accepted that actual knowledge arises where the defendant appreciates that the transaction in question is probably improper or there has probably been a breach of trust.

The Court of Appeal referenced Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347 [2012] Ch 453 in relation to whether and, if so, when it is appropriate to impute the legal consequences of facts to a party who is aware of the relevant facts. The judge noted that such knowledge is not automatically imputed.

The Court decided that FS Capital could not claim to have no knowledge of the breach of trust because Mr Emblin and Mr Reid (whose knowledge was attributed to FS Capital) collaborated in designing the Disposal that resulted in it being made for an improper purpose.

The judge emphasised that FS Capital had the burden of proving it did not have actual notice of the breach of trust. Following the hearing, the court concluded that FS Capital failed to discharge the burden of demonstrating that it had no actual notice that the Disposal was made in breach of trust.

Burden of Proof

The Court of Appeal supported the High Court’s allocation of the burden of proof.

To use the bona fide purchaser for value without notice defence, FS Capital had to prove they gave valuable consideration and had no notice of the breach of trust. The court stated it was FS Capital’s responsibility to demonstrate that they did not have actual notice of the breach of trust.

The judge found that FS Capital had not provided sufficient evidence to demonstrate that they were unaware the facts constituted a breach of trust. FS Capital did not present their evidence to suggest that they were unaware that the facts of the Disposal amounted to a breach of trust as a matter of Jersey law.

Instead, the court found that FS Capital collaborated in designing the Disposal, particularly the components that resulted in it being made for an improper purpose. The court also noted that Mr Emblin and Mr Reid knew the deferred consideration was capped despite knowing the trust assets could have substantial value. Despite looking for ways to justify the design of the Disposal, the court determined that Mr Emblin and Mr Reid were not satisfied it was legitimate to disregard the interests of the beneficiaries.

Ultimately, the judge concluded that FS Capital failed to discharge the burden of demonstrating that it had no actual notice that the Disposal was made in breach of trust. Further, there was no evidence that the Appellants sought legal advice, or if they did, that they followed it. There was also no evidence to suggest that the protagonists believed that what they were doing was in accordance with Jersey law, or that they did not believe that it was contrary to that law.

The Court of Appeal emphasised that claiming a lack of knowledge of impropriety requires pleading and proving relevant facts. FS Capital’s failure to adequately demonstrate their lack of knowledge about the breach of trust led to the rejection of their appeal.

Jersey and English Law

The Court of Appeal confirmed the close relationship between Jersey and English trust law. Jersey trust law generally follows English law unless there are conflicts with Jersey customary law or statutes.

Implications for Beneficiaries and Trustees

FS Capital v Adams has significant implications for beneficiaries and trustees of Jersey trusts, as well as those in similar jurisdictions:

Key Takeaways for Beneficiaries

Trustees have a fiduciary duty to act solely in your best interests.
Disposals of trust assets, especially those that appear to benefit parties other than the beneficiaries, will be closely scrutinised for improper purposes.
If trustees act improperly, you have legal recourse to challenge their actions and seek remedies, including setting aside the disposal and recovering assets.

Advice for Trustees

Your primary duty is to the Beneficiaries. All decisions must be made with their best interests in mind.
Seek Independent Advice when making significant decisions, especially those involving potential conflicts of interest.
Document Everything – Maintain thorough and accurate records of all decisions and the reasons behind them.

What to Do If You Suspect a Breach of Trust

If you are a beneficiary of a trust and believe that the trustees have acted improperly, it is essential to take prompt action to protect your interests.

Gather Information: Collect all relevant documents relating to the trust, including the trust deed, financial statements, and communications with the trustees.
Seek Legal Advice: Consult with a qualified lawyer experienced in Jersey trust law. Elysium Law has a team of experienced professionals who can assess your situation, advise you on your options and represent you.
Consider a Formal Challenge: Based on the evidence, we can advise on the best course of action, whether that is:
- Demanding an accounting from the trustees; or
- Seeking an injunction to prevent further improper actions; or
- Applying to the court to have the disposal set aside and the assets returned to the trust; or
- Pursuing claims against the trustees for breach of trust.

Conclusion

The FS Capital v Adams case provides a strong precedent for beneficiaries of Jersey trusts who believe their rights have been violated. This case will also be of particular interest to similar jurisdictions that adopt similar principles.

The Court of Appeal’s decision underscores the importance of trustees’ fiduciary duties and the courts’ willingness to intervene when those duties are breached. Don’t stand by while trustees act improperly. By understanding your rights and taking proactive steps, you can fight to protect your interests and ensure the trust is managed as intended.

If you have been affected by a similar matter and are the subject of threats to call in loans, contact Elysium Law for a free, confidential consultation.

Less Tax For Landlords: Mistake and the Unintended Tax Consequences

Posted on 09 Dec 2024 by Richard Gray

Since November 2023, Elysium Law have been taking enquiries from current/former Less Tax for Landlords clients.

We have previously canvassed the idea of bringing an action under CPR Part 8 for equitable mistake. However, given HMRC’s prevarication, this action has not previously been open to LT4L Clients.

HMRC have now announced that the Letter of Trust which transferred the beneficial interest to the corporate partner in the LLP had Stamp Duty Land Tax liability.

As a result, landlords that have implemented Less Tax For Landlords’ planning (including those who implemented the planning via Chris Bailey directly) are facing significant and unintended tax consequences.

This will potentially give rise to a claim in professional negligence, but the priority must be to mitigate the losses. One option available is an application to the Court to set aside the arrangements on the grounds of mistake.

We have been approached by a large number of LT4L victims to advise, together with Tax Counsel as to the prospects of bringing this claim.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you

In Bhaur and others v Equity First Trustees (Nevis) Ltd and others [2023] EWCA Civ 53 (Bhaur) the Court of Appeal provided helpful guidance on when a court will set aside a transaction and unwind adverse tax consequences. In summary, this was a tax avoidance scheme using the (abusive) EBT arrangements, to avoid IHT which the court refused to unwind. In this case the presentation of the trust to HMRC was dishonest and was tantamount to tax evasion.

Having lost in the High Court, the Appellants first ground of appeal was that the Judge should have allowed the transaction to be unwound in that the Appellants belief that they would incur no tax consequences was not a misprediction, but a mistake.

The first instance Judgment contains an extended analysis of the law on the setting aside of voluntary dispositions for mistake. The leading authority in the area is the decision of the Supreme Court in Pitt v Holt [2013] 2 AC 108.

In Pitt v Holt, at [103], Lord Walker adopted, the approach of Lloyd LJ in the Court of Appeal ([2011] EWCA Civ 197 at [210]-[211]), setting down three principles which would lay the groundwork for the exercise of the equitable jurisdiction to set aside a voluntary disposition, namely;

A mistake, which is;
Of the relevant type; and
Is sufficiently serious so as to render it unjust or unconscionable on the part of the donee to retain the property given to him.

Misprediction or Mistake – the difference

Misprediction

In Pitt v Holt the Court said a misprediction relates to some possible future event, whereas a legally significant mistake normally relates to some past or present matter of fact or law.

In Dextra Bank & Trust v Bank of Jamaica[2001] UKPC 50, [2002] 1 All ER (Comm) 193 at [29], the court said “… to act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run …”

Mistake

This is a different consideration. The courts and lawyers generally deal with mistakes as to the consequences of a transaction.

For many years, a distinction was drawn between a mistake as to the effect of a transaction and its consequences. However, the modern approach is that providing the court is satisfied that there is a causative mistake of sufficient gravity; and as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

The gravity of the causative mistake is relevant to an assessment of injustice or unconscionability. The court said that the injustice (or unconscionability) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an “intense focus” on the facts of the case including the circumstances of the mistake and its consequences for the person who made the disposition.

An evaluation – what are the merits of the case?

The court will look at the surrounding circumstances and the (in) justice done to the person making the disposition. The doctrine of mistake applies to unintended tax consequences. In Pitt, the court rejected any suggestion that mistake could not apply to tax issues. However, the court added the following when referring to previous cases and in particular Futter v Futter where the doctrine of mistake was not raised by the (Plaintiff). Lord Walker in Pitt said;

“Had mistake been raised in Futter v Futter there would have been an issue of some importance as to whether the court should assist in extricating claimants from a tax avoidance scheme which had gone wrong. The scheme adopted by Mr Futter was by no means at the extreme of artificiality (compare for instance, that in Abacus Trust Co (Isle of Man) v NSPCC [2001] STC 1344) but it was hardly an exercise in good citizenship. In some cases of artificial tax avoidance, the court might think it right to refuse relief…”

Why you need advice on the scheme

Lawyers and students alike will recognise the maxim ‘He who seeks Equity must do Equity’, but effectively any refusal now is based on public policy consideration. An example of this can be found in the case Dukeries Healthcare Limited v Bay Trust International Limited [2021] EWHC 2086 (Ch), with Deputy Master Marsh holding that, whilst the doctrine of mistake applied, it was refused nevertheless on the grounds that the whole transaction amounted to an artificial tax avoidance scheme.

Anyone affected needs independent advice, considering the degree of risk and any artificiality of the scheme, given that unintended tax consequences are an issue. This should be advised upon by an independent law firm such as Elysium Law and will involve review of the documentation, any advice provided to the Claimant at the time and what it was that was that the Claimant hoped would be achieved.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you.

Elysium Law have been approached by a large number of LT4L victims to advise, together with Tax Counsel as to the prospects of bringing this claim.

For further advice, or if you wish to join the group, please contact us at Elysium-law

Churchill v Merthyr Tydfil: the Court’s Power to Order ADR

Posted on 27 Sep 202427 Sep 2024 by Ruby Keeler-Williams

The recent Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 has had a profound impact on litigators, given the Court now has the power to compel parties to engage in Alternative Dispute Resolution (ADR).

In this article Ruby Keeler-Williams looks at the background of the matter, considers the decision and looks at the implications going forward.

Background

The case involved a property dispute between Mr Churchill, the Claimant, and Merthyr Tydfil County Borough Council, the Defendant. Mr. Churchill alleged that Japanese knotweed had spread from the Council’s land onto his property, causing damage and diminishing its value. He initiated a nuisance claim against the Council.

However, the Council countered that Mr. Churchill was obligated to make use of their internal complaints procedure before pursuing litigation. They sought a stay of proceedings, aiming to enforce use of this process.

Initial Decision and Appeal

In the first instance, the judge dismissed the Council’s stay application, citing Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, in which it was suggested that the court compelling ADR could obstruct a party’s right to access the court system. However, this decision was successfully appealed by the Council.

The Court clarified that the relevant passage from Halsey which stated that compelling ADR would impose ‘an unacceptable obstruction on their right of access to the court’ was, according to the Court of Appeal, not a ‘necessary step’ in Lord Justice Dyson’s conclusion and therefore was ‘obiter’ and not binding. This was because the issue of whether or not the court had the power to compel ADR was only raised in Halsey during oral argument.

The court went on to clarify that Dyson LJ, in Halsey, was primarily focused on providing guidance on how to assess whether a party acted unreasonably in refusing ADR in the context of a costs order, rather than definitively ruling on the court’s power to mandate ADR

Court can Direct Parties

It was subsequently decided that the Court possesses the power to order parties to engage in ADR, including issuing a stay of proceedings to facilitate such processes.

This authority stemmed from CPR Part 1 and in particular:

CPR 1.4(1) – which sets out the Court’s duty to “further the overriding objective by actively managing cases”
CPR 1.4(2)(3) – which set out that the Court’s active case management included encouraging parties to use ADR if the court considers that ‘appropriate’

The Court’s decision is in keeping with the broader objectives of the Civil Procedure Rules (CPR) and the overriding objective to ensure cases are dealt with justly and at proportionate cost.

In encouraging ADR, the Court is achieving these aims by offering litigants a potentially faster and less expensive alternative to traditional court proceedings.

The Right to a Fair Trial

It is important to note that the Court’s power to compel ADR is not an absolute power. Any order for ADR must respect a party’s right to a fair trial under Article 6 of the European Convention on Human Rights (ECHR).

The precedents considered in coming to this decision included: Ashingdane v United Kingdom, Tolstoy Miloslavsky v United Kingdom and Momcilovic and others v Croatia.

The Court stressed that any limitation on the right to trial must:

Not impair the essence of the right to a fair trial, meaning the ADR process should not unfairly disadvantage or prejudice any party.
Pursue a legitimate aim, meaning the decision to order ADR must be driven by a valid objective, such as promoting a fair, efficient, and cost-effective resolution.
Be proportionate, meaning the benefits of ordering ADR, such as the potential for settlement, must outweigh any potential drawbacks, such as delays or costs.

This approach demonstrates that the Court is under a duty to exercise its authority judiciously.

Broader Implications

Despite Churchill being focussed on the Council’s internal complaints procedure, the decision has much broader implications.

The judgment suggests that courts could order stays for various forms of ADR, such as mediation, early neutral evaluation, or even informal negotiation, as long as the chosen process holds the potential to resolve the dispute.

This reflects the Courts’ growing recognition of the benefits of a move away from a rigid, adversarial approach to litigation towards a more flexible and solution-oriented system.

Practical Guidance for Litigators

Following this decision, litigators need to adopt a more strategic approach to ADR at a pre-action stage.

My recommendations are as follows:

Consider ADR Early – Litigators should advise their clients to explore ADR options before filing proceedings. This should include a consideration of the different ADR methods possible, including any relevant internal complaints procedures where applicable.
Have a robust explanation if you choose to refuse ADR – If your client chooses to refuse ADR, you must be prepared to provide the court with compelling reasons, as such decisions will be scrutinised, especially when parties are legally represented or there is a discrepancy in the parties respective resources.
Understand that the Court does have a discretion – The application of this decision will be fact dependant. The Court will consider factors such as the nature of the dispute, the stage of the litigation, the parties’ conduct, and the specific method of ADR proposed.

Conclusion

Churchill v Merthyr Tydfil County Borough Council signifies a potential turning point, as the Court of Appeal’s decision signals a clear shift toward the Court’s promoting ADR.

If you would like more information regarding ADR, have a dispute you’d like advice upon, or wish to book Richard Gray, our qualified mediator, please contact us.

Professional Indemnity Insurance in Professional Negligence Claims

Posted on 13 Aug 202413 Aug 2024 by Ruby Keeler-Williams

Introduction

Professional indemnity insurance (PII) is a type of liability insurance held by professionals, which covers them in relation to negligent acts or omissions.

For Claimants, the existence of PII can be the difference between a successful financial recovery and a pyrrhic victory, as without PII the professional may lack the resources to personally satisfy the judgment.

In this article I will set out the importance of PII in professional negligence claims, examining how it influences the litigation process, impacts settlements, and what Claimants should be aware of when dealing with insured professionals.

What is Professional Indemnity Insurance?

Professional indemnity insurance is a type of liability insurance designed to protect professionals against claims made by their Clients for damages arising from any negligent acts, errors, or omissions. This insurance is particularly important in professions where mistakes can lead to significant financial loss for clients, such as law or accounting.

In many professions, PII is a regulatory requirement. Solicitors in England and Wales must maintain a minimum level of PII under the SRA Indemnity Insurance Rules. At the time of writing, these limits are at least £3 million where the insured firm is a relevant recognised body or a relevant licensed body, and in all other cases, at least £2 million.

Other professional bodies also impose the requirement of PII upon professionals, including accountants, financial consultants, surveyors, engineers and healthcare professionals. The reason for this is to protect the public by ensuring that professionals can cover the cost of any claim.

The Impact of PII on Professional Negligence Claims

Whether or not a professional holds PII can influence the viability of a professional negligence claim. For Claimants, PII offers financial certainty as it ensures that, even if the professional themselves are unable to meet the claim from their own resources, the insurer will step in to cover the liability. This is particularly important in high-value claims, where the potential damages could far exceed the professional’s personal assets – without PII, this would result in a pyrrhic victory for the Claimant.

Furthermore, the existence of PII often facilitates quicker and more efficient settlements. Insurers, who are commercial entities and can be keen to avoid the costs and uncertainties associated with litigation, may be more inclined to settle claims early, given they can objectively assess the events that have led to the litigation and the commercial merits of challenging the claim – provided they believe the claim is justified and falls within the terms of the policy. This can lead to a more streamlined process, sparing both parties the time, expense, and stress of a court trial.

The Role of Insurers in Litigation

Insurers often play a key role in the defence of professional negligence claims. Once a claim is made, it is typically the insurer who assumes control of the defence, appointing solicitors and experts to investigate the claim and determine the best course of action. This means that the claim is typically run by a party that was not involved in the events that have led to the action. This can significantly shape the litigation strategy, as insurers will often seek to objectively assess the merits of the claim with a view to minimising their exposure to adverse costs.

Insurers may also influence whether a case goes to trial or is settled out of court. Their decision will often be the result of assessing strength of the evidence, the potential costs of litigation, and the terms of the insurance policy. In some cases, insurers may push for settlement to avoid the unpredictability of a court judgment and the risk of adverse costs, while in others, they may choose to litigate if they believe the claim lacks merit.

The involvement of insurers can be seen in the case of Standard Life Assurance Limited v Oak Dedicated Limited and others [2008] EWHC 222 (COMM), which demonstrates the insurer’s right to control the defence and settlement of a claim. It was held that an insurer is not obliged to cover a settlement made by the insured without the insurer’s consent. This case demonstrates the importance for insured professionals to obtain insurer approval before settling, as failure to do so can lead to a denial of coverage and personal liability. Claimants should be aware of this when conducting settlement negotiations.

Disclosure of Insurance Details During Proceedings

A key strategic consideration for litigators running professional negligence claims is the disclosure of insurance details. For certain professions, there may be a duty to disclose detail. An example of this is Solicitors are required under Rule 9.2 of the SRA Indemnity Insurance Rules to provide to a Claimant or any other person with a legitimate interest: the name of their participating insurer, the policy number and the address and contact details of the insurer.

Additionally, in relation to insolvent Defendants only, it is possible to obtain information regarding a policy via the Third Parties (Rights against Insurers) Act 2010.

Outside of these provisions, it can be a challenge to force disclosure of information. In the case of Peel Port Shareholder Finance Company Ltd v Dornoch Limited, it was held that the court should only consider ordering disclosure of a solvent insured’s insurance details in exceptional circumstances. This can lead to difficulties in obtaining disclosure of the insurance details at a pre-action stage (such as via an application under CPR 31.16 as in this case), which creates uncertainty for the Claimant.

While there is no general obligation for a Defendant to disclose their limit of indemnity, there are situations where such disclosure may be advantageous. For example, if a Claimant knows that a Defendant is insured, it can provide reassurance that any judgment will be satisfied, potentially leading to a more aggressive approach to the litigation strategy or a higher settlement demand. In contrast, disclosure of a limit that is substantially below the value of the claim may lead to the merits of pursuing a claim being re-assessed, which could be advantageous for the Defendant/insurer.

In practice, disclosure of insurance details might be volunteered to encourage a Claimant to accept a reasonable offer, knowing that the insurer has the funds to pay the settlement and to pursue the litigation. However, there are also risks in disclosing such information, as it may lead to inflated demands. Ultimately, the approach differs between different insurance companies.

The Consequences of pursuing Uninsured Professionals

Making a claim against an underinsured or uninsured professional is one of the most significant risks for Claimants in cases of professional negligence. In the event that a professional does not have sufficient insurance, the Claimant may be successful in getting a judgement only to discover that there are insufficient or no assets to cover the award. This can be particularly damaging because it effectively renders the judgement financially meaningless.

To mitigate this risk, Claimants should conduct thorough due diligence before pursuing a claim. This involves requesting confirmation of the insurance coverage or checking with professional regulatory bodies that may hold relevant information. However, as discussed above, the insurer does not always have to disclose the limit of indemnity.

Policy Exclusions and Limitations

While PII provides protection, it is not a guarantee of coverage. PII policies often contain exclusions and limitations that can significantly affect recoverability. Common exclusions include acts of fraud, criminal behaviour, and deliberate breaches of professional codes of conduct. Additionally, some policies may exclude coverage for claims arising from certain high-risk activities or may impose sub-limits on specific types of claims.

It is vital that Claimants understand these exclusions, as they establish the extent of coverage and the likelihood of a favourable outcome. The terms of the PII policy must be thoroughly reviewed in order to identify any potential obstacles to recovery. As this can result in drawn-out legal disputes over the interpretation of policy terms, this review is particularly crucial in cases where the insurer raises exclusions as a defence against liability.

In the case of Zurich Professional Ltd v Karim [2006] EWCH 3355 (QB), the insurer Claimant obtained a declaration that the claims made under the Defendant solicitors’ professional indemnity policy arose “from dishonest or fraudulent acts or omissions committed or condoned by the insured” and accordingly they were not obliged to indemnify the insured.

Insurers’ Right of Subrogation

Subrogation is a fundamental principle that allows an insurer to step into the shoes of the insured after payment of a claim and pursue recovery from third parties who may be responsible for the loss. In professional negligence, subrogation rights can be particularly relevant when multiple professionals are involved in a matter, and one professional’s negligence contributes to the loss.

For example, if an insurer pays a claim on behalf of a negligent solicitor, they may seek to recover those funds from another party, such as a barrister who advised, as they may be liable for the same loss. Subrogation ensures that the loss falls on the party responsible for the negligence, rather than reverting to the insurer or the insured professional.

Conclusion

Professional indemnity insurance is an important consideration in any professional negligence. For professionals, PII offers protection against the financial consequences of a negligence claim, while for Claimants, it provides a source of funds to satisfy a judgment or settlement. However, the presence of PII also creates difficulty for litigators, including issues related to policy exclusions, the role of insurers in litigation, and the strategic considerations surrounding disclosure and settlement. Understanding these factors is crucial in any case.

If you are considering or are involved in a professional negligence claim, understanding the role of professional indemnity insurance is essential. Our experienced team is here to guide you through the complexities of PII and provide tailored advice for your specific case. Contact us today.

Contractors – Received a Demand from West 28th Street Limited? Here’s Why You Shouldn’t Pay Yet

Posted on 01 Aug 202401 Aug 2024 by Richard Gray

Elysium Law has been approached by an insolvency practitioner who has received enquiries regarding demands made by West 28^th Street for repayment of loans from various Employee Benefits Trusts (EBTs).

Elysium Law has engaged with West 28 Street on behalf of over 650 clients. The alleged debts (the Loans) were assigned from Felicitas, a specially formed company in the Isle of Man, one of whose directors was Adrian Sacco. Mr Sacco has been disqualified from being a director in England and Wales and also in the Isle of Man. We’ve linked the Insolvency Service publication which demonstrates specifically his behaviour which gave rise to the disqualification. Felicitas attempted to serve demand letters and, in some cases, Statutory Demands for Bankruptcy. Elysium Law, acting in Our Clients’ interests, resisted those demands, which were all subsequently withdrawn.

Following a Mediation and our Letter of Response, Felicitas Solutions Limited (the Isle of Man Company) was dissolved after the debts were purportedly assigned to West 28^th Street Limited.

Upon being further contacted, Elysium law sent the Letter of Response to West 28^th Street for them to consider – Elysium Law has received no substantial response and nor have our clients.

Our Position in relation to the Demands of West 28th Street

There is a claim in breach of trust for equitable and other relief. The Defendant purports to have purchased and/or been assigned the Trust Assets and has sought to enforce a loan as between the beneficiary who is a contractor (“Beneficiary”) and the original Trust Company (“the Loans”), this was a marketed tax avoidance scheme.

The significance of the purported assignment to Felicitas, and the current purported assignment to West 28^th Street, is that they were made for an improper purpose against the interests of the Beneficiaries and with a view to enabling fees to be recovered for the transfers in favour of the Trustees and secondly, recoveries under the Loans in favour of the purported assignees. Accordingly, the assignments were detrimental to the best interests of the Beneficiaries.

They were also contrary to the terms of certain oral collateral undertakings provided by or on behalf of the employers, to the effect that the Loans would not have to be repaid and were the means by which the tax avoidance scheme could operate.

On behalf of its clients, who are Beneficiaries under the various Trusts, Elysium Law contend that any assignments or transfers were for an improper purpose and are void in equity. Any beneficial interest has remained as the property of the Beneficiaries and has not been transferred or assigned. Any purported transfer or assignment is void or otherwise liable to be set aside.

The repeated assignments were in breach of an implied term of the trust relating to the proper exercise of its powers and were unlawful because they were carried out for an improper purpose (also known as a fraud on the power).

The Constructive Trust

The position as set out in FS Capital is that no interest, or right to the Trust Assets have been transferred by the various assignments because they are void. To the extent required, the Beneficiaries will contend that any trust assets alleged to have been assigned by the various assignments are held by the Defendants by means of a Constructive Trust for the benefit of the Beneficiaries. The imposition of the constructive trust arises by operation of law and imposes upon any purported assignee or transferee, the fiduciary principles of a Trustee with regard to the preservation of Trust Assets and the protection of the interests of the Beneficiaries.

The Position

In short, we think the position is as follows:

The assignments were void;
The loans are not enforceable;
Those beneficiaries who have already come to an arrangement must be paid their money back; and
West 28^th Street hold all of the assets on trust for Our Clients and all Beneficiaries under the Trust.

Elysium Law are currently acting for a group of 650 Clients who are contesting this claim.

If you wish to join the claim, or are an insolvency practitioner who have been approached by West 28^th Street or a firm called Fiscus Management in relation to Your Clients, then please Contact Us.

Mistake and the Unintended Tax Consequences

Posted on 04 Jul 202404 Jul 2024 by Richard Gray

Elysium Law have received enquiries from taxpayers who have received large CGT assessments from HMRC which have been raised as a result of the Trust document used by Property 118 and Cotswold Barristers.

HMRC’s position is that incorporation relief provided by Section 162 of the Taxation of Chargeable Gains Act 1992 is not available as a result of a clause used in the purported Deed of Trust which creates a power of revocation, allowing the Trustees to vest the property in themselves absolutely and bring the trust to an end. HMRC’s position is that this future right to receive the property creates a separate contingent beneficial interest, which is not transferred to the company. As a consequence, the whole of the assets of the business are not transferred to the company and the relief is not available.

As a result, landlords that have implemented Property 118 or and Cotswold Barrister are facing significant and unintended tax consequences.

This will potentially give rise to a claim in professional negligence, but the losses must be mitigated. One option available is an application to the Court to set aside the arrangements on the grounds of mistake.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you

A mistake, which is;
Of the relevant type; and
Is sufficiently serious so as to render it unjust or unconscionable on the part of the donee to retain the property given to him.

Misprediction or Mistake – the difference

Misprediction

In Pitt v Holt the Court said a misprediction relates to some possible future event, whereas a legally significant mistake normally relates to some past or present matter of fact or law.

In Dextra Bank & Trust v Bank of Jamaica [2001] UKPC 50, [2002] 1 All ER (Comm) 193 at [29], the court said “… to act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run …”

Mistake

This is a different consideration. The courts and lawyers generally deal with mistakes as to the consequences of a transaction.

An evaluation – what are the merits of the case?

Why you need advice on the scheme

Lawyers and students alike will recognise the maxim ‘He who seeks Equity must do Equity’, but effectively any refusal now is based on public policy consideration. An example of this can be found in the case Dukeries Healthcare Limited v Bay Trust International Limited [2021] EWHC 2086 (Ch), with Deputy Master Marsh holding that, whilst the doctrine of mistake applied, it was refused nevertheless on the grounds that the whole transaction amounted to an artificial tax avoidance scheme.

Should you be the victim of unintended tax consequences, the equitable doctrine of mistake may be open to you.

Elysium Law has been approached to consider bringing such a claim.

For further advice please contact us at Elysium-law

Less Tax For Landlords – The Flawed Business Property Relief Claim

Posted on 09 Feb 202404 Apr 2024 by Richard Gray

We are writing this article as a result of the extensive enquiries we have received from Landlords who engaged in planning offered by Less Tax for Landlords and the Bailey Group.

HMRC’s view (and that of every other tax expert) is that the planning does not work. HMRC’s views are set out in Spotlight 63. They can be seen here.

In this article, we will look at Business Relief, explaining what it is, when it applies, what LT4L and the Bailey Group have told their clients and why their view is incorrect.

What is Business Relief

Business Relief (formerly known as Business Property Relief) reduces the value of business property for inheritance tax. It is available on the transfers of business assets during lifetime or upon death. To qualify, the business asset must usually have been owned throughout the two years before death or transfer.

There is no Business Relief if the business or company is one of ‘wholly or mainly’ in dealing in securities, stocks or shares, land or buildings or in the making or holding of investments.

A business that only generates investment income will not attract BPR, so this excludes:

A residential or commercial property letting business.
A property dealing business.
A serviced office business.

This means relief is not available to landlords with rental property.

The legislation is contained in Section 105(3) and (4), IHTA 1984.

In deciding whether a business consisted “wholly or mainly” of one or more of these prohibited activities, the courts will look at the business in the round, taking into account all of its activities both at the date of the transfer and over a reasonable period of time before the transfer (which may be several years), to see if one or more prohibited activities predominate – see the case of George v IRC [2003] EWCA Civ 1763. This means that the test will be applied to the specific facts in each case. Most of the case law considering the ‘wholly or mainly’ test has looked at whether a business is mainly involved in investment activity rather than trading or service provision.

It therefore seems incontrovertible that BPR or Business Relief is NOT available to Landlords. It defies belief that Chris Bailey, LT4L and the Bailey Group told clients that Business (Property) Relief was available and that the deceased’s estate would not be met with a significant Inheritance Tax liability upon the death of the deceased.

The (Flawed) Basis of the Advice given to the participants in this planning

We must repeat that there is not one tax professional who agrees with the assertion of the availability of Business Relief.

The following is an example of a discussion between Chris Bailey and a tax professional who questioned this aspect of the planning.

Trusted Advisor: You indicated that by structuring the property business in the particular way that you do, you create a trade which would benefit from BR, giving IHT exemption after 2 years. Business relief is not available for businesses which wholly or mainly involve the making or holding of investments. HMRC considered the holding of rental properties an investment business, which I appreciate is a business and can qualify for s.162 TCGA, but regardless of whether it qualifies for incorporation relief is specifically excluded from Business Relief under s.105(3). As such, unless the business of the LLP relates more than 50% to something other than the holding and letting of residential property, then I don’t see how it can qualify for BR, particularly when 100% of the income, management time and expenditure relates to the letting of rental properties.

Chris Bailey: The LLP holds the equity and not the properties – so it cannot be classed as an investment. The owner of the properties will not qualify for BR on the properties, but on the equity.

Trusted Advisor: I don’t understand how holding equity in a property ‘cannot be classed as an investment’. The case of M ROSS v HMRC (2017) confirmed that the exploitation of land in return for rent is still an investment business (this was an FLH (Furnished Holiday Let) case so related to a business that tax law recognises as a trade) and denied business relief. What is the business doing which is not the exploitation of land which would elevate the activity beyond that of a furnished holiday let? Caselaw in recent decades has been very clear that a business must offer significantly more than just the exploitation of a proprietary interest – what additional services do you suggest are being provided by the business, which means it’s not an investment?

Chris Bailey: Once again, unfortunately, we have had clients die during the time that they have been clients and HMRC have accepted all of our Probate calculations based on the above. The cases range from small cases (about £1m assets) to larger cases in excess of £5m assets.

Elysium Law have been approached by clients who, having submitted the claim for Business Relief as advised by Chris Bailey et al via Accountancy and Legal Solutions UK ( which is now OCG Legal and part of the Less Tax for Landlords group of companies), have now received a review of the claim.

So, does it work? – No

Here is an extract from HMRCs letter to the client (redacted to protect any identity:

“The executors returned business assets valued at REDACTED on the IHT400 reporting the IHT Account for REDACTED’s estate. The IHT400 return shows that business property relief was claimed against the full value of these assets.
I am aware that Accountancy and Legal Solutions UK have provided advice to other taxpayers with similar investment businesses in respect of Business Property Relief claims and that those claims have been determined invalid (Our emphasis). Therefore, I am conducting a review to confirm the validity of the Business Property Relief claim in respect of REDACTED’s estate.
REDACTED’s IHT400 return states that the business assets comprised a property management and development business. I have conducted a review of the deceased’s individual tax returns and the tax returns of both REDACTED Ltd and REDACTED LLP but have not been able to identify any evidence of business activity beyond the holding of property as investments.”

HMRC are now claiming the IHT on the full amount, which runs into millions of pounds, in addition to interest on the unpaid IHT, which is racking up at a significant daily rate.

Conclusion

The planning does not work and if you have engaged in it, you will suffer losses;
Elysium Law has now been approached by numerous clients who have submitted claims for BPR during probate that have been rejected;
The deceased’s estate not only faces a significant increase in the IHT payable but also considerable interest, which is increasing daily as well as penalties;
We have not seen any advice from Chris Bailey or LT4L to contradict HMRC and Elysium Law believe that the Executors who have submitted claims for relief as a result, have a claim in professional negligence.

Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases.

CGT Rebasing – Why Less Tax For Landlord’s Planning Doesn’t Work

Posted on 06 Feb 202404 Apr 2024 by David Brogelli

Elysium Law has posted several articles on this issue in recent weeks. Since HMRC’s Spotlight 63, we have been continuously approached by landlords who have entered into the planning with LT4L, Chris Bailey or the Bailey Group and they are concerned as to what the best course of action to take is.

At this point, it is probably wise to step back and look at the planning itself and why HMRC says it doesn’t work.

We will break down the key aspects of the planning and the claimed advantages of using it as well as providing HMRC’s view and our opinion of that.

The Structure

By now, especially as you may have used the planning, you will likely be familiar with the structure of the planning. Simply put:

The Landlord (and/or family members) set up a Limited Company and an LLP with the Limited Company as a Corporate member of the LLP.
The Landlord transfers their properties into the LLP and then the Landlord as an individual member of the LLP allocates profits to themselves remaining basic rate taxpayers, excess profits are then allocated to the Limited Company.
The Corporate Member then claims a deduction for finance costs.

The Claimed CGT Advantages

LT4L and Chris Bailey claim that the planning results in a Base Cost Uplift to for Capital Gains Purposes to the date of transfer to the LLP

This means that when you come to sell the property, the Capital Gain is calculated on the value when the property was transferred into the LLP, which ordinarily will be higher than when you originally purchased it. The claim is therefore that this will result in a lower gain and consequently lower CGT being paid.

Our view is that LT4L’s planning is based on a total misconception that Incorporation Relief applies in this instance.

Our Analysis

If on the transfer into the LLP an element of Capital is transferred to the Company, then this element would be rebased for the Company, but that would also trigger an immediate CGT charge to the Client. Any disposal of a property from the LLP is treated as transparent and therefore the Client’s base cost is used to calculate CGT. HMRC explains this in example 2 here, which is taken from their Capital Gains Manual.

It is claimed by the scheme promotors that the Incorporation Relief rules apply here. To clarify HMRC states regarding Incorporation Relief:

“you may be able to delay paying Capital Gains Tax if you transfer your business to a company in return for shares”
HMRC

The fundamental flaw here is that you are not transferring your business to a COMPANY in exchange for SHARES, you are transferring it to an LLP – under a Trust arrangement, an entity which does not have shares.

The following questions regarding CGT rebasing were put to Chris Bailey by a trusted colleague of ours.

Trusted Advisor: “You advised that on the transfer into the LLP the properties would be rebased for CGT purposes. I questioned this and although I appreciate that they would be recorded in the LLP accounts at fair market value, on a disposal of a property the LLP would be treated as transparent and as such CLIENT’s base cost would be used for the purposes of the CGT calculation. You advised that this wouldn’t be the case and that he would only be subject to CGT on any growth from the date of contribution into the LLP. I can see that on the transfer into the LLP if an element of capital is transferred to the Company then this would rebase that element for the benefit of the company, but it would also trigger CGT on CLIENT’s disposal to the company. So, on the basis that no CGT is triggered on the transfer into the LLP, I assume that all capital is retained by CLIENT. This is demonstrated in HMRC example 2 on the attached: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg27940 where it demonstrates that the base cost for the disposal is the original base cost (not the uplifted market value).” (Trusted Advisor)

Chris Bailey: “An LLP is an incorporated partnership and as such the incorporation relief rules can be applied”.

Trusted Advisor: “How can incorporation relief apply to an LLP? Incorporation relief requires a person to transfer a business to a company in exchange for shares. The LLP is a corporate body, but it is not a company and cannot issue shares so I can’t see how this could apply or the impact it would have on CLIENT’ CGT base cost. Please can you clarify?”

Chris Bailey: “The LLP’s capital account is increased by the level of the equity. The same rules apply as in a company environment, in that if the LLP is closed down then the CGT would become payable – just as in a company environment.”

As you can see, the question remains unanswered.

Elysium Law has spoken to multiple individuals who used this planning and subsequently received a revised and unexpected CGT calculation from HMRC on the basis of the original value of the properties, not their rebased value as claimed by Chris Bailey.

This of course has resulted in a very large tax charge and had the individuals been aware, it would certainly have affected their decision to sell the properties.

Conclusion

Despite LT4L and Chris Bailey’s claims that there is a CGT Base Cost Uplift, Elysium Law has now been approached by numerous clients who have now had to pay CGT from the date of purchase of the assets, not the uplifted value.

We have seen no advice from Chris Bailey or LT4L as to what they should do, and our view is that they have a claim in professional negligence. Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases.