Chancery Client Partners Ltd & Ors v MRC 957 Ltd & Ors

The court held that the claimants were not entitled to rescind or have set aside the third‑party agreements and arrangements by which the Employee Benefit Trust (EBT / Qubic) and Blackstar schemes were implemented. The judge accepted the earlier finding that the first defendant received unlawful secret commissions (payaways) but applied established equitable principles to hold that bribery or secret commission gives a principal a right to rescind the contract with the payer of the bribe and a right to remedies against the bribed agent and the briber, but does not automatically void separate contracts made between the principal and innocent third parties who implemented the scheme.

Similarly, allegations of undue influence did not permit rescission of the third‑party implementing arrangements because the law requires either the implementing party to have been the agent of the bribed agent within its authority or to have had actual knowledge of the vitiating circumstances (following Royal Bank of Scotland v Etridge). The claim for avoidance for common mistake failed because the Great Peace test was not satisfied: the alleged common assumptions did not render performance impossible and were not assumptions shared in the sense required between the contracting parties to the Blackstar allotment agreements.

This was a first instance trial of claims by the second to fourth claimants that the EBT (Qubic) and Blackstar tax‑saving schemes they purchased on the advice of the first defendant were void or voidable ab initio and should be rescinded or set aside. The claimants alleged (a) that the first defendant had accepted secret commissions (payaways) from intermediaries and scheme providers and (b) that the first defendant (acting by Mr Coyle) had exercised undue influence and taken unfair advantage of its position. The claimants also relied on common mistake in relation to the Blackstar allotment agreements. If successful, rescission would assist the claimants in resisting HMRC tax assessments that treated the schemes as ineffective.

Nature of relief sought: rescission of the agreements and arrangements by which the schemes were given effect and/or orders setting aside those agreements for common mistake, together with consequential relief to resist HMRC assessments.

Procedural posture: the trial proceeded on the factual assertions made by the claimants (HMRC accepted those facts for the purposes of this issue). A prior summary judgment decision (HHJ Raynor QC) had already found unlawful secret commissions (payaways) were received by the first defendant from AVN / scheme providers.

Issues framed:

• whether bribery / secret commissions entitled the claimants to rescind the implementing arrangements made with third parties (scheme providers, trustees, allottees);
• whether the relationship and advice given by Mr Coyle engaged undue influence entitling rescission of the implementing arrangements;
• whether the contracts implementing the Blackstar schemes were void for common mistake under the Great Peace test.

Court’s reasoning: the judge accepted the prior finding that payaways amounted to unlawful secret commissions which made the bribed agent liable to account and entitled the principal to rescind the contract with the payer of the bribe. The court emphasised the long‑established principle that where a third party (B) contracts with a principal (A) induced by a bribed agent (C), the remedy is generally against C and the briber D (damages or an account) and not rescission of A's contract with B, unless B was C's agent within scope of authority or B actually knew of the vitiating facts. The judge applied the reasoning in Etridge to the undue influence argument and concluded rescission against implementing third parties could not be ordered absent the requisite knowledge or agency; O'Brien and related authorities were noted as confined to suretyship/tripartite situations and not applicable on these facts. On common mistake the Great Peace elements were applied and not satisfied: the alleged common assumptions did not make performance impossible nor were they shared in the required sense between the contracting parties (company and allottee).

Disposition: the substantive relief sought (the rescission claims) was dismissed. The court made an agreed order giving effect to that dismissal.

At first instance the court dismissed the claimants’ rescission claims. The judge accepted that the first defendant had received unlawful secret commissions but held as a matter of established equitable principle that this entitles the principal to remedies against the bribed agent and to rescind contracts with the payer of the bribe, but does not permit the court to rescind or set aside separate implementing agreements with innocent third parties absent agency or actual knowledge of the vitiating facts; undue influence and common mistake grounds likewise failed on the facts and legal tests applied.