Christopher Bernard Upham & Ors v HSBC UK Bank plc

Representations about the legal basis of a tax-advantaged investment may be opinions rather than statements of fact. Where the representor is better placed than the recipient to assess the matter, the opinion ordinarily implies that the representor had reasonable grounds for holding it.

A deceit claim requires falsity and fraud. An honestly held opinion supported by reasonable grounds is not fraudulent merely because the underlying structure later proves ineffective for tax purposes. A financial-services communication duty requiring reasonable steps to communicate clearly, fairly and without misleading effect is assessed by reference to the information actually communicated and the steps reasonably available.

The claimants invested in Eclipse film partnerships, intended to defer tax by enabling interest on investment loans to be set against income. HMRC successfully challenged the scheme, holding that the partnerships were not trading.

The claimants alleged that HSBC, principally through Mr Neil Bowman, had participated in dishonest representations that the scheme had been structured consistently with advice from Mr Jonathan Peacock QC. They also advanced claims in joint tortfeasance, conspiracy, dishonest assistance, partnership and under the Financial Services and Markets Act 2000.

The central issues were whether the representations were false, whether HSBC or Future Films had acted dishonestly, whether the statutory communications rules were breached, whether the claims were time-barred and whether loss had been proved.

1. The claims were dismissed. The representations concerning Mr Peacock QC’s advice were made, and the sample claimants relied on them, but they were not false in the legally relevant sense. They concerned expectation and opinion, including an implied representation that Future Films and Mr Bowman had reasonable grounds for their views.
2. The actual structure was not consistent with the basis on which Mr Peacock QC had advised, particularly because the Marketing Services Agreement did not create an agency relationship between the marketing services provider and the LLP. That did not establish deceit. Future Films had obtained and relied on DLA’s advice, and Mr Bowman was reasonably entitled to rely on Future Films and DLA. Neither was shown to have acted dishonestly or with blind-eye knowledge.
3. The related representations concerning trade, contribution of funds and profit added nothing material. The possibility of contingent receipts was real but limited and speculative. The circular movement of funds and the absence of a meaningful trading role did not establish the pleaded deceit or dishonest assistance case.
4. For the FSMA claims, Mr Bowman’s presentation to two investors amounted to advice under article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, so COB 2.1 applied. HSBC nevertheless took reasonable steps to communicate clearly, fairly and without misleading effect. No breach of COB 2.1.3R was established.
5. The alleged partnership between HSBC and Future Films was not proved. Although HSBC’s remuneration approximated profit-sharing, there was no sharing of losses, mutual agency, common capital or prohibition on assignment.
6. Restructuring arrangement fees resulted from later independent decisions and were not caused by the original investment. Ceasing Member Arrangement fees were materially prompted by the HMRC challenge and could in principle be recoverable as mitigation. Investors had to give credit for profits earned using deferred tax. The absence of evidence quantifying those profits was fatal to the economic claims, except that Mr Pickard’s bankruptcy would have extinguished any such profits.
7. The limitation provisions did not assist the claimants. They knew, or should have known, that something had gone wrong by 2012 and certainly by the Upper Tribunal’s decision in December 2013. With reasonable diligence, the relevant documents and the basis of a potential fraud claim could have been obtained within the applicable period.

This was a first-instance claim in the Commercial Court. The judgment described earlier HMRC proceedings concerning Eclipse 35:

• First-tier Tribunal: Eclipse Film Partners (No. 35) LLP v HMRC [2012] UKFTT 270 (TC); HMRC succeeded on the issue whether the LLP was trading.
• Upper Tribunal: Eclipse Film Partners (No. 35) LLP v HMRC [2013] UKUT 639 (TCC); the decision was upheld.
• Court of Appeal: Eclipse Film Partners (No. 35) LLP v HMRC [2015] EWCA Civ 95; the decision was upheld and permission to appeal to the Supreme Court was refused.

Those proceedings were not appeals in the present litigation.