Brown & Ors v Innovatorone Plc & Ors

This is an application for permission to appeal against a Commercial Court judgment of Hamblen J ([2012] EWHC 1321 (Comm)). The underlying litigation concerned geared investment schemes promoted as partnerships with tax incentives and alleged losses by subscribers. Central legal issues included the existence and terms of a Quistclose trust over subscription monies, the identity of the trustee and whether subscription monies were applied in breach of trust, the formation of partnership interests, relief under section 61 of the Trustee Act 1925 and consequences of the schemes being Collective Investment Schemes under the Financial Services and Markets Act 2000 (FSMA), in particular the effect of s.26 and the availability of remedies under ss.28(6) and 30.

The Court of Appeal refused permission to pursue many heads of appeal which lacked prospect, particularly claims of fraud and dishonest assistance, and also refused permission on multiple other grounds. It granted permission in part for a limited and specified set of grounds relating to: certain implied conditions in subscription documents (notably the "deadlines condition"); aspects of power of attorney and ratification; selected FSMA and fiduciary-duty arguments against particular individuals; limited challenge to document backdating and amendment; and some fiduciary-duty and trust-related points as identified in the order. The court directed that the grounds and skeleton be reformulated and gave case management directions for an extensive hearing if pursued.

The appeal arises from claims by investors in geared tax-incentivised technology investment schemes. Investors alleged breach of trust (including a Quistclose trust over subscription monies), negligence, breach of fiduciary duty, dishonest assistance, conspiracy and breaches of the Financial Services and Markets Act 2000. The first-instance judge dismissed all claims. The judge found that a Quistclose trust existed between payment and admission as partner but held that the promoter, not the solicitors Collyer Bristow, was the trustee of subscription monies; that subscribers had become partners; monies were applied for partnership purposes; and, alternatively, relief from liability under section 61 Trustee Act 1925 would have been available. The judge also held the schemes were Collective Investment Schemes under FSMA so agreements were unenforceable under s.26, but remedies under FSMA sections were enforceable only against the relevant counterparty (the partnership) and third parties would be entitled to relief under s.28(6).

Nature of the application: an application for permission to appeal to the Court of Appeal against Hamblen J's dismissal of multiple causes of action.

Issues framed by the Court of Appeal:

• whether Collyer Bristow was trustee of subscription monies or had notice of a Quistclose trust;
• whether subscription monies could be used for partnership purposes before admission as partners;
• whether the subscribers in fact became partners or whether conditions precedent prevented partnership formation;
• whether relief under section 61 Trustee Act 1925 was available to professional defendants;
• the effect of FSMA (notably s.26, s.28(6) and s.30) on enforceability and remedies and whether third parties could be targeted;
• allegations of fraud, dishonest assistance, negligence and conspiracy.

Court’s reasoning and disposition: The court concluded there were no prospects of success on the fraud and dishonest-assistance allegations and refused permission on many other grounds for lack of prospect or because the point was new or inappropriate for the Court of Appeal. However the court identified a number of discrete arguable grounds and granted permission in respect of them (including specific implied conditions in the Information Memoranda, selected FSMA and fiduciary-duty points against named individuals, limited challenges to the exercise or ratification of powers of attorney and to certain document amendments/backdating). The court emphasised reformulation and narrowing of grounds, fixed an extensive hearing timetable and gave directions for skeleton arguments and bundles.

Permission to appeal was granted in part and refused in part. The court refused permission on claims lacking real prospects (notably fraud, dishonest assistance and various other grounds) but gave permission for a defined subset of grounds relating to (inter alia) certain implied conditions in subscription documents (notably a deadlines condition), selected FSMA and fiduciary-duty challenges against named individuals, specified trust and fiduciary points against Collyer Bristow and limited challenges over document amendment/backdating. The court required reformulation of the grounds and imposed directions for an extensive multi-judge hearing. The rationale was that many grounds had no realistic prospect in view of the first-instance findings, while a limited number of issues were arguable and suitable for appellate consideration.

On appeal from the High Court of Justice, Queen's Bench Division, Commercial Court (Hamblen J) [2012] EWHC 1321 (Comm). This judgment concerns an application for permission to appeal to the Court of Appeal (Civil Division) which granted permission in part and refused it in part.