Upham & Ors v HSBC UK Bank PLC
The claimants were all investors in the Eclipse scheme which was intended to enable individuals to defer their tax liabilities by investing in LLPs associated with the film industry. In essence investors would borrow to fund capital contributions to an LLP and would then be able to set off the interest against other income. The scheme had been devised by an employee of HSBC and was promoted by Future Films. It ultimately failed because the LLPs were held not to be trading (see Eclipse Film Partners (No 35) LLP v HMRC [2015] EWCA Civ 95).
The claimants alleged that HSBC had, jointly with Future Films, deceived investors as to the tax efficacy of the scheme, as they knew when seeking investments that it had not been implemented in accordance with the advice given to Future Films by a tax silk. It was alleged alternatively that HSBC conspired with Future Films in seeking the investments and that the unlawful means was the deception that was to be practised on investors.
The claim was dismissed.
The Court found that the scheme as implemented materially diverged from the structure approved by the tax QC. In particular, no agency relationship was created with an entity providing marketing services to the partnerships, which adversely impinged upon the analysis that the film partnerships had been trading for tax purposes: this had been highlighted as being a crucial aspect of the structure by the tax QC.
Nevertheless, the Court concluded that the relevant representation in the information memorandum given to investors and there IFAs that the actual structure implemented was consistent with the tax QC advice was a “representation of opinion.” Moreover, the Court concluded that the relevant HSBC employee had reasonable grounds for believing that the scheme was implemented in accordance with the legal advice, not least because of the involvement of:
(i) external legal advisers in reviewing the relevant contracts, and
(ii) the company which effectively made decisions for the film partnerships under consultancy agreements.
As such, he such had not acted dishonestly.
The Court also held that in any event the investors had not suffered any loss (since they had been given the means to invest their tax-saving in the interim) and that the claim was brought outside the statutory limitation period.
