Horner v Allison & Anor

A failed tax scheme is not necessarily fraudulent. Fraudulent misrepresentation depends on what was represented, whether it was false, the representor’s knowledge or recklessness, the intention that it should be relied upon, and actual reliance. A defendant who honestly relies on another’s explanation and is not reckless is not liable in deceit merely because the scheme later fails. Limitation under Limitation Act 1980 s.32 turns on when the claimant discovered, or could with reasonable diligence have discovered, the fraud. General enquiries and warnings concerning related transactions did not necessarily start time running where the claimant remained unaware of the fraud in the transaction sued upon.

The claimant invested in a film tax scheme promoted by the defendants. A tax refund was obtained in his name and paid into an account controlled by the defendants, after which he received 20 per cent of the refund. The Revenue later rejected the underlying claim and required repayment of the refund, interest and penalties.

The claimant sued for fraudulent misrepresentation, alternatively negligent misrepresentation and recovery of money allegedly held on trust. The principal issues were limitation, the representations made at the presentation, their falsity and the defendants’ states of mind. The claimant also alleged that the first defendant had dishonestly induced his participation and that the second defendant was jointly liable.

1. Limitation. The claim form was issued more than six years after the presentation, but the claimant’s deceit claim was preserved by Limitation Act 1980 s.32. The relevant question was when he discovered, or could with reasonable diligence have discovered, the fraud in relation to Taipan. Earlier Revenue correspondence and advice concerning Angel or related partnerships did not make the fraud in the Taipan transaction apparent. The position became sufficiently clear at, or following, the meeting on 25 August 2004. The claim was therefore in time.
2. Representations. The first defendant represented, or caused it to be represented, that she was a specialist in film tax investment schemes, that investors would receive a guaranteed 20 per cent return, that the scheme had a proven track record, that tax refunds would be invested in qualifying films, and that the Revenue had approved or accepted the scheme. The representation concerning BDO Stoy Hayward was true and did not found liability.
3. First defendant. The material representations were false. The first defendant knew that they were false, intended investors to rely upon them, and the claimant did rely upon them. She was therefore liable in deceit.
4. Second defendant. Although he made or repeated some representations, he honestly believed them and was not reckless as to their truth. He was not liable for fraudulent misrepresentation.
5. Authority and damages. Brown v Innovatorone Plc [2012] EWHC 1321 (Comm) was confined to its own facts. It did not establish that a tax scheme which failed was necessarily non-fraudulent. The claimant recovered the amount repaid to the Revenue, less the sum returned to him, plus his reasonable accounting costs. Judgment was entered against the first defendant for £185,832.25. The claim against the second defendant was dismissed.