Neutral Citation Number: [2016] EWHC 664 (Ch)
Case No: HC-2013-000389
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 23/03/2016

Before :

MR JUSTICE ROTH
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Between :

	IAIN PAUL BARKER	Claimant	
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	(1) BAXENDALE WALKER SOLICITORS (a firm)		
	(2) PAUL BAXENDALE-WALKER	Defendants	

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MICHAEL FURNESS QC and DAKIS HAGEN (instructed by Farrer & Co LLP) for the Claimant
JONATHAN SEITLER QC, EMILY CAMPBELL and STEPHEN HACKETT (instructed by Griffin Law Ltd) for the Second Defendant

Hearing dates: 26, 27, 28 January, 2 and 3 February
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Judgment
CONTENTS	Para.	
		
INTRODUCTION	1	
THE PARTIES	4	
THE TRIAL	7	
THE FACTS	11	
Background	12	
Deloitte and the proposed PUT Scheme	15	
BWS and the proposed EBT Scheme	21	
Establishment of the EBT and the transfer of shares	36	
The Sale of Team 121 Holdings	44	
The Wragge advice	47	
The operation of the Trust	54	
The involvement of Bourse and Mr Bourge	60	
Consultation with Mr Andrew Thornhill QC	66	
Dr Ashton’s advice	70	
Subsequent management of the trusts	77	
HMRC’s investigations: 2005 - 2007	79	
HMRC come back: the assessment notices and the appeal: 2010-2011	96	
Appointment of Confiance in place of Bourse	102	
Mr Mark Studer’s advice	104	
Settlement with HMRC	112	
Winding up the EBT Scheme	116	
THE CLAIM	121	
THE SOLICITORS’ DUTY	126	
THE EBT SCHEME	149	
WARNING AND CAUSATION	172	
LIMITATION	182	
DAMAGES	194	
Payment to HMRC	199	
Costs of unravelling the EBT Scheme	226	
Professional fees in respect of negotiation with HMRC	232	
Trustees’ costs and fees	236	
Fees of BWS, TPS and FSL	239	
CONCLUSION	242	
Appendix		

Mr Justice Roth : 

INTRODUCTION
1.	This is a claim for professional negligence against a solicitor for advice on a tax avoidance scheme based on the establishment of an employee benefit trust (“EBT”) which the claimant, Mr Barker, entered into and which, if successful, would have avoided a very significant liability to capital gains tax (“CGT”) and, eventually, inheritance tax (“IHT”).  Many years later, Her Majesty’s Revenue & Customs (“HMRC”) raised assessments on Mr Barker and challenged the validity of this scheme (“the EBT Scheme”).  After Mr Barker was advised that this challenge would probably succeed, he entered into a settlement with HMRC that involved the payment of a substantial amount on account of tax and interest.
2.	Part of the claim comprises all the costs and professional fees incurred, including those of unravelling the arrangements which had been made.  But Mr Barker also claims in respect of the tax paid on the basis that if he had not entered into the EBT Scheme then he would have entered into a different tax avoidance scheme which he had considered at the time and which, he contends, would have avoided the tax which he now has to pay.  Because any contractual claim would clearly be out of time, Mr Barker’s claim is brought only in tort.
3.	The claim is resisted on the basis that there was no negligence because the interpretation of the statutory provision on which the EBT Scheme was based was correct, and in any event not such that it can be said that any reasonably competent lawyer with appropriate expertise would have warned that there was an alternative interpretation such that the scheme may well not work.  Further or alternatively, it is contended that the claim, instituted in 2013, is barred by limitation.  And if the defendants are liable, the defence takes various points regarding the damages claimed, including that if Mr Barker had entered into the alternative scheme that itself would probably have been challenged by HMRC and is unlikely to have been successful.
THE PARTIES
4.	Mr Barker achieved great commercial success at a relatively young age.  He set up his own business, called “121 Consulting”, in 1991 when he was 27 years old.  It was engaged in delivering management consultancy and project services using a particular integrated business software.  The business developed into a set of trading companies under a group company, Team 121 Holdings Ltd (“Team 121 Holdings”).  By 1998, the Team 121 group had 450 employees trading in several countries, although it remained UK based.
5.	The 1st defendant (“BWS”) is a firm of solicitors in which the 2nd defendant, Mr Baxendale-Walker, was at all material times the driving force and principal partner.  BWS specialised in tax advice, in particular as regards tax planning and avoidance schemes.  Mr Baxendale-Walker was the co-author (with Andrew Thornhill QC) of the book, The Law and Taxation of Remuneration Trusts, first published in 1997.
6.	Although a joint Defence was served for both defendants, BWS was not represented at trial and apparently its practice ceased some time ago.  I was told that the claim is effectively being pursued against Mr Baxendale-Walker alone.  However, it is common ground that the case stands or falls against the two defendants together.  For convenience, I use the term “the defendant”, where appropriate, to refer to Mr Baxendale-Walker; “the defendants” refers to both him and BWS.
THE TRIAL
7.	At trial, the defendant called no evidence.  I was told that Mr Baxendale-Walker unfortunately suffers from severe fibromyalgia, a degenerative condition of the brain, and he did not attend court at all.  
8.	The principal witness for the claimant was Mr Barker himself.  He is clearly an individual of considerable intelligence and entrepreneurial skill.  His evidence covered, of necessity, events going back to 1998, when he consulted and retained the defendants.  I found him to be an entirely honest witness who was frankly trying to recall events from long ago.
9.	I was reminded by Mr Seitler QC, appearing for the defendant, of the admonition of Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at [15]-[22] regarding witness evidence based on memory and the greater reliability of contemporary documents.  The problem of recollection was indeed illustrated here by the fact that Mr Barker had no memory of a meeting on 22 July 1999 with solicitors from Wragge & Co ("Wragge"), which on the basis of the contemporary documents I consider he must clearly have attended. That is not a criticism of Mr Barker since it would be surprising if he could remember all these events from 16 years ago. Although it demonstrates that I should be cautious as regards Mr Barker’s testimony where it is not supported, at least indirectly, by the contemporary documents, in fact most of the evidence of Mr Barker was unchallenged, and insofar as it was challenged it is generally not of critical significance to the issues I have to decide. 
10.	The two other witnesses called for the claimant were Mr Andrew Brown and Mr Duncan Montgomery.  Both are professionals: Mr Brown is a chartered accountant who has been advising Mr Barker about his tax affairs since the spring of 2002.  He was involved in the obtaining and to an extent the giving of advice to Mr Barker regarding the consequences of the EBT Scheme from then onwards.  Mr Montgomery is a chartered tax adviser who worked in the Birmingham office of Deloitte Touche Tohmastsu Ltd (“Deloitte”) between 1995 and 2000.  He was involved for Deloitte in advising Mr Barker about an alternative tax avoidance scheme in 1998, which in the event Mr Barker rejected in favour of the EBT Scheme proposed by the defendants.  As I would expect, I found both Mr Brown and Mr Montgomery to be completely honest and doing their best to assist the court.
THE FACTS
11.	Because of the nature of the various issues raised in this case, it is necessary to set out the facts in some detail.  They are essentially derived from the contemporary documents and Mr Barker’s evidence, supplemented for the later stages by the evidence of Mr Brown.
Background
12.	By the late spring or summer of 1998, Mr Barker realised that it would be difficult for the Team 121 group to sustain the impressive rate of growth which it had achieved since he started the business some eight years previously.  He therefore thought about achieving an exit strategy for the shareholders in Team 121 Holdings.  There were approximately 120 shareholders, but together with his then wife and two others, Mr Simon Brock and Mr Steve Ridley, Mr Barker controlled about 55% of the company and his personal shareholding was about 50.5%.
13.	Initially, the preferred approach was to seek investment from a venture capital organisation which would enable a significant percentage of the equity to be sold prior to a potential flotation.  Various organisations were approached and as a result a proposal from 3i to purchase a 40% shareholding received serious consideration.
14.	Since the group was considered to be worth £30-£40 million, the impact of CGT on any such sale would be considerable.  Along with some of the other major shareholders, Mr Barker decided to seek tax planning advice.  Two organisations were approached: Deloitte, since they were the auditors of the Team 121 group; and Taxation Practical Services Ltd (“TPS”), a consultancy run by Mr Nigel Hollinshead and which had for some years provided tax advice to the company, its directors and employees.  It was Mr Hollinshead who suggested the possibility of an EBT and he arranged an introduction to BWS on the basis that they were solicitors specialised in this area.
Deloitte and the proposed PUT Scheme
15.	Mr Barker went to see Deloitte in its Birmingham office in May 1998, where he was introduced to Mr Montgomery.  He asked them to consider viable options to mitigate his expected liability to CGT.  As a result, Deloitte prepared a CGT “Mitigation Report” setting out its recommendations, dated “June & July 1998” (“the Deloitte Report”). 
16.	The Deloitte Report set out two alternative options: (1) a personal capital loss company; and (2) a “private” unit trust (“PUT”).  The Report explains what would be involved in each method, and that the PUT was the favoured alternative, although it also proposed a combined method that reduced some of the risks involved in method (2).
17.	It is appropriate to quote the description and analysis of the proposed arrangement using the PUT (“the PUT Scheme”), as set out in the Deloitte Report:
“A.	Brief Outline of Method.

You transfer shares to a new Unit Trust, run by a reputable broker, which sells the shares on flotation. No Capital Gains Tax is paid, as the Unit Trust is not subject to Capital Gains Tax, and the transfer from you is subject to a relief as a gift.
B.		Resulting Structure
You and your family and possible trusts now hold all of the units in a Unit Trust. The Unit Trust is subject to the normal investment rules, and will produce income for you. Units can be sold to produce Capital Gains in your hands if capital is required. Full taper relief at non-business rate may be available on a subsequent disposal of units.
C. Risk and Cost Assessment
Risk
If this method is used, the Securities and Investments Board (SIB) have indicated that should the business plan, which the new Unit Trust must provide to the SIB for approval, contain such a gift and sale, they will refer the documents to the Treasury before approving the plan. The advantage, however, is that authorisation for the first period is given before inception. A loss company does not have this advantage. Approval will take at least three months from a standing start.
This is not within the strict terms of their (SIB) remit, but it is unwise for a broker to challenge their regulator. If the gifts and sale tax advantage is not declared in the plan, the broker would have serious difficulties.
The gift and sale is technically allowed to occur, from your standpoint. However, as a Unit Trust has a limitation on the value of any holding – 10% of the value of the trust, the Unit Trust rules are therefore breached using this method.
This does not mean that the Revenue can withdraw the tax free ‘authorised’ status if the trust, until a later date. The trustees are in breach of their duties and are required to remedy the situation (i.e. sell the shares) ‘forthwith’.
Summary
These risks are significant in that this area is under Revenue consideration. However, the method works, according to the QC we have sought opinion from, and some of the brokers we are in contact with have done the documentation for similar transactions successfully to date.”
18.	I should add that inherent in the PUT Scheme was the holding by the unit trust of the investments of the proceeds of sale of the shares in a tax free environment, so that the trust itself would not be subject to CGT, although of course Mr Barker would be liable to CGT if he sold any of the units.  Mr Montgomery said in his evidence that the QC referred to was Mr Andrew Thornhill.
19.	It is unnecessary to quote the detailed description of the alternative method (1).  But Deloitte’s overall conclusion on the two methods was expressed as follows:
“The Unit Trust strategy has the advantage over the Personal company of a single layer tax free environment to grow in, but is riskier to undertake. The ongoing benefit is also reduced by charges relating to the Unit Trust as opposed to straightforward management of a portfolio, though brokers claim the gross growth more than compensates for this.”

20.	Subsequent to receipt of the Deloitte Report, Mr Barker had a meeting with Deloitte, which he does not recall in any detail but at which he agreed they would have taken him through their proposals and discussed the relative risks.   Mr Barker said that if he had gone ahead with Deloitte, he would have opted for the PUT Scheme.  That is indeed the basis on which he computes the damages claimed in this case.
BWS and the proposed EBT Scheme
21.	Mr Barker along with his wife, Mr and Mrs Brock, Mr Ridley and the Team 121 group’s operations director, Mr Gary Speksnyder, had a meeting with Mr Hollinshead on 27 September 1998 at Mr Barker’s home.  Mr Hollinshead introduced the shareholders to the idea of setting up an EBT, a concept of which Mr Barker had not previously heard.  Mr Hollinshead did not claim to be an expert on EBTs, but the idea, as explained by him in outline, was of sufficient interest for them to proceed to a further meeting with a solicitor from BWS, the firm he recommended as experts in this field.  Such a meeting, involving the same individuals and also Mr Stephen Ness, the company secretary, duly took place at the group’s head office on 30 September.  The partner from BWS who attended was Mr Bill Auden.  Mr Barker made notes on his laptop of the meeting (by way of expanding and amending the notes he had made of the initial meeting three days before).  
22.	At the meeting, Mr Auden explained the concept of an EBT, its structure, its benefits, the need for a corporate settlor, offshore trustees, sub-trusts for multiple shareholders and loans between the trust and the shareholders.  He answered various questions which Mr Barker and the other shareholders present raised.
23.	According to Mr Barker’s contemporary notes, Mr Auden explained that the settlor would be Team 121 Holdings and that the trust would be to benefit the company’s and its associated and subsidiary companies’ employees and their families.  It would be a discretionary trust, with the trustees able to make distributions to the staff.  He said that the EBT must be a bona fide trust owning a controlling interest in the company from day 1, and that it must exclude and include the appropriate beneficiaries.  According to the notes, Mr Auden said that the shareholders and their families must be excluded from being beneficiaries for a 10 year period.  However, it is clear that this was later corrected.  As I explain below, before embarking on the scheme Mr Barker’s understanding was that the shareholders could never be beneficiaries and that a shareholder’s family could benefit only after his or her death.   
24.	Mr Auden also explained that the gifting of the shares to the EBT is tax neutral and that if the trustees were offshore then on sale of the shares there would be no CGT liability.  He made clear that once the shares had been gifted, the participants no longer own the shares.  However, they can take what were described as “deep discount loans” from the trust at a commercial rate of interest, with the interest accumulated and repayable in a lump sum at the end of the loan period.  Moreover, the loans could be rolled over, so that on a participant’s death the loan became a debt of his or her estate and would therefore reduce the value of the estate for the purpose of IHT.
25.	Mr Auden explained that the EBT would be structured with sub-trusts such that the shares transferred by each of the participants would be ring-fenced for their families in a sub-trust.  Those shareholders would be able to send a letter of wishes to the trustees that could “modify their behaviour in respect of investments, disbursements, etc.”  
26.	In dealing with potential tax issues, Mr Hollinshead had told the shareholders at the initial meeting that there was no case law citing EBT as tax avoidance: the scheme might be attacked by the Revenue if the timing of the transaction is really close to the sale [of the company] but that BWS quote 36 hours as defensible.  Mr Auden in the subsequent discussion referred to the case of Furniss v Dawson, but said that EBTs cannot be attacked under that precedent because (as recorded in Mr Barker’s note) “the recipients [sic] will never be in possession of the capital once it is gifted.”  Mr Auden also said, as summarised in the note of the meeting:
“… the gifting of the shares into the EBT will be dependent on the approval of the trust as a qualifying EBT.  This application will be made pro-actively and there will be no waiting around to find out whether the IR catch up with us.
Clearance of the gifting of shares to the trust will be declared within the first year against section 239. If this gift is accepted as being cleared then there is no way that [R]evenue can reverse that decision and the clearance and re-approach the participators for tax as a result of the distribution practice of the trustees.”
27.	Mr Auden told the shareholders that Mr Baxendale-Walker was the leading authority on EBTs in the country.  Mr Barker said that Mr Auden himself came across as “a steady character who listened to our questions and then quietly but positively gave his answers”.  It seems clear that Mr Barker was impressed by Mr Auden and concluded from the discussion that EBTs were a well-established structure.
28.	Mr Auden also explained that if they wished to go ahead, they would need to instruct a company called FSL Services Ltd (“FSL”), which he described as an offshore business that retained BWS to develop tax planning techniques, and that the tax planning he proposed would use FSL’s intellectual property.
29.	Following the meeting, Mr Barker and the others involved discussed the matter.  Three of the individuals decided not to participate: Mr Ness, Mr Speksnyder and Mr Andrew Hobson, the finance director of the group.  In his evidence, Mr Barker explained their decision on the basis that Mr Ness had practised law with Wilde Sapte and the other two had trained as chartered accountants so that “they were all naturally more cautious than I was.”  However, Mr Barker, along with the other interested shareholders and Team 121 Holdings itself, decided to engage BWS and FSL.
30.	Mr Barker said that he decided on the EBT Scheme in preference to the Deloitte proposal for two main reasons.  First, under the PUT Scheme, CGT would only be deferred whereas under the EBT Scheme it would be avoided altogether.  Secondly, at the time he was envisaging that a venture capital company would become a major shareholder of Team 121 Holdings, which would effectively have put a stop to the provision of the significant benefits the group had hitherto provided for its employees, whereas the EBT Scheme was a means of continuing to provide such benefits out of the trust.  As regards IHT, he appreciated that the EBT Scheme, unlike the PUT Scheme, would avoid IHT but he said that was not his primary focus at the time.
31.	There followed a letter from BWS to Mr Barker dated 2 October 1998 setting out the terms of retainer, which including advice in relation to establishment of a private shares trust, reviewing all relevant documents and researching any relevant matters, including expressly taxation.  Mr Barker signed the retainer on 6 October.  He also received on 4 October a letter from FSL, which specified the services they would provide for Mr Barker’s benefit in supplying a model “Private Shares Liberation Plan”.  Their fees were specified as 25% of the amount of CGT that would otherwise have been payable on disposal of the shares involved if they had not been put into the trust.  Mr Barker duly entered into that arrangement.
32.	Mr Barker had a meeting with Mr Baxendale-Walker at BWS’ offices in October 1998, but he understandably does not recall the date and no note of the meeting was produced.  He was impressed by Mr Baxendale-Walker as a confident, intelligent and dynamic individual.
33.	As specified in the letter of retainer, BWS produced a Memorandum on the Share Taxation Arrangements (“the Memorandum”) and also a Remuneration Trust Manual (“the Manual”) explaining how the EBT would be run.  The Memorandum summarised the position for Mr Barker (“the Taxpayer”) as follows:
“3. Summary
3.1	The Taxpayer’s objective is for the proceeds of sale of the Shares in the Company to be enjoyed free of capital gains tax or inheritance tax.
3.2	One of our substantial corporate clients is FSL Services Limited (“FSL”). We have provided technical assistance to FSL in the development of a number of advantageous taxation arrangements, all of which have been endorsed by leading tax Counsel and used successfully by many clients in recent years.
3.3 	 For the purpose of this Memorandum, we have reviewed the Private Shares Liberation Plan (PSLP) concept and we provide a detailed explanation of its applicability and fiscal benefits below.
…..
4. Remuneration Trusts: the PSLP
…..
4.2 	The particular type of Remuneration Trust used by FSL is the Employee Benefits and Shares Trust: the EBT. What is characteristic of the EBT is that it excludes the Taxpayer, other controlling shareholders in the Company and their families from receiving any benefits from the EBT. This has the consequence that disposal of shares by the EBT is not subject to capital gains tax on the Taxpayer or his family. The EBT also excludes the provision of “relevant retirement benefits”. This means that benefits can be provided by the EBT free of tax to recipients, depending on their individual circumstances. In our Opinion, the EBT brings together effective income tax, CGT and IHT savings benefits in a single unique arrangement.
…..
4.7	The Taxpayer and his spouse are presently controlling shareholders of the Company.
4.7.1	The Deed establishing the EBT should therefore provide that neither of them nor (during their lives) their children and remoter descendants shall be entitled to receive outright distributions of income or capital from the EBT.
4.7.2	However, such persons can receive cash loans from the EBT on interest-accrued terms, at any time after the EBT is established.
4.7.3	Other members of their family can receive similar loans.
4.7.4	After the death of the Taxpayer and his spouse, their children and further family can receive tax free outright benefits from the EBT.”
34.	The Manual similarly stated that while Mr Barker’s family could receive only loans from the trust during his lifetime, his family members would become full beneficiaries under the trust on his death, which would entitle them to receive capital contributions.  It also made clear that while the trustees are bound to consider a letter of wishes from Mr Barker (e.g. as regards the provision of a loan), they are not bound to follow them and Mr Barker must avoid dictating to the trustees.  
35.	The copies of the Memorandum and the Manual in evidence are both dated 16 October 1998.  However, Mr Barker was fairly sure that he received a version of at least the Memorandum before that date.  He says, and I accept, that he would not have signed a document giving away his shares before receiving written advice from BWS.  Mr Barker was less sure about when he was provided with the Manual, but I do not think this matters.  The critical point is that Mr Barker was advised in clear terms that although he and his family could not receive capital from the trust in his lifetime (other than by way of loans), his family could receive distributions after his death.  Mr Barker said that this was of crucial importance to him.  He was a young married man who was hoping to have children, and he said that he would not have contemplated entering into an arrangement which involved the exclusion of his family from receiving what was effectively most of his then capital for ever.  That evidence was not challenged.
Establishment of the EBT and the transfer of shares
36.	On 6 October 1998, Team 121 Holdings entered into a trust deed (“the Trust Deed”) with a Jersey company, Matheson Trust Co (Jersey) Ltd (“Matheson”), which was one of the offshore trust companies suggested by BWS in the Memorandum.  By the Trust Deed, Team 121 Holdings constituted a trust (“the Trust”) by settling the sum of £100 on trust for beneficiaries defined as being present, past and future employees of Team 121 Holdings and its subsidiaries, and their families but expressly excluding specified “Excluded Persons”.  The definition of Excluded Persons in Schedule 3 to the Trust Deed is clearly modelled on section 28(4) of the Inheritance Tax Act 1984 (“IHTA”), which I shall consider below, and I reproduce it as an Appendix to this judgment.  Mr Barker and Mr Speksnyder were appointed protectors with power to remove any trustee and appoint a replacement.  Clause 11 of the Trust Deed states, insofar as material:
“… the Protectors shall with the consent in writing of the Trustees have the power at any time by deed to alter or add to all any of the provisions hereof in any respect PROVIDED THAT such power shall not be so exercised as to impose any new obligation or liability on [Team 121 Holdings].”
37.	On 12 October, TPS produced a written tax opinion for Mr Barker and the other shareholders who had decided to proceed with the EBT Scheme.  The opinion, signed by Mr Hollinshead, is a detailed, 17 page document which discusses the various tax aspects of the EBT Scheme and the potential for challenge by the tax authorities.  The opening paragraph of the opinion reads as follows:
“This opinion is confined to United Kingdom taxation law. It does not express any expert view on the company law and accounting law aspects of the use of EBTs. The opinion is based on our understanding of tax law at October 1998. There is a material amount of precedent enabling an interpretation of the taxation implications of EBTs, although there are still some aspects which have yet to be fully examined before the Courts. More helpfully there is sound evidence of the successful application of EBTs in practice over a number of years.”
38.	Under the heading of “Tax avoidance”, the opinion considers various possible grounds of challenge, and concludes:
“Whilst nobody can rule out possible changes to tax law it is difficult to see that the Inland Revenue will be in a strong position to mount any meaningful attack on the use of an EBT as described in this opinion.
	
A commercial EBT is a bona fide discretionary trust into which participators can gift their shares. They do so irrevocably. Moreover they accept the discretionary nature of the trust into which they have gifted their shares. They are excluded from any benefit under the trust whatsoever. They undertake a real commercial commitment. They have no ability in law to command the trustees to exercise their discretion in a particular manner. Whilst recommendations can be made through declaratory memoranda this is entirely different to circumstances with other tax planning where in a real sense taxpayers maintain substantive control over the direction of transferred assets. It is this line of reasoning which we believe provides the most effective defence to any arguments of the Inland Revenue, based on the line of case law referred to above, that tax avoidance has resulted.”
39.	Mr Barker said that given the complexity of this advice, he and the other three interested shareholders had a meeting with Mr Hollinshead who took them through it and answered their questions.  He thought that may have been on the afternoon or evening of 12 October.  In any event, I consider that it would necessarily have been before Mr Barker proceeded to make the gift of his shares to the EBT.
40.	On 15 October 1998, Mr Barker as grantor executed a deed with Matheson declaring that he held all his shares (“the Shares”) in Team 121 Holdings on trust for the EBT (“the Deed of Gift”).  However, this gift of the beneficial interest in the Shares was expressed to be conditional.  The operative provisions of the Deed of Gift (which refers to the EBT as “the Scheme”) subsequently assumed considerable importance, so it is appropriate to quote them:
“1. The Grantor hereby declares that:
1.1.1	provided the condition stated in Clause 2 below is satisfied at the date of this Deed; then
1.1.2	with effect from the date of execution of this Deed the Grantor holds the Shares upon trust absolutely for the Scheme and subject to the trusts of the Scheme
2.  The condition upon which this gift is made is that:
2.1	in the event that the Inland Revenue determines in writing to the Grantor that, in respect of this transfer of the equitable interest in the Shares to the Scheme, the trusts of the Scheme do not satisfy the conditions for exemptions from inheritance tax set out in Section 28 Inheritance Tax Act 1984 or do not satisfy the conditions for a no gain/no loss disposal for the purposes of capital gains tax set out in Section 239 Taxation of Chargeable Gains Act 1992; then
2.2	the Trustees shall hold the Shares and any income arising to the Shares and any capital proceeds of disposal of the Shares and any income arising from such capital proceeds upon trusts absolutely for the Grantor.”                                                                                                                                     
Clause 3 provided that the Deed is governed by English law and subject to the non-exclusive jurisdiction of the High Court of England and Wales.
41.	Mr Barker explained the circumstances in which he executed the Deed of Gift.  His wife was having IVF treatment at a clinic in Nottingham and he was at the clinic to accompany her.  Mr Auden came to see him there with the document, which comprises only one page of text.  Mr Barker read it through and asked Mr Auden to explain the condition in clause 2, which he said took him by surprise.  His evidence on this was as follows:
“He told me that the deed of gift was in order and that the condition safeguarded any possibility of the tax planning not working. If the tax planning, for whatever unforeseen event, did not work then the shares returned to me and were not gifted at all. I think my reaction was that it was clever. I had not previously thought about the possibility of making a gift conditional, or the consequences of this. However, I could see, in principle, the benefit of a gift that reverted to me if the trust did not have the intended tax effect. I do not recall him drawing to my attention any of the potential problems with this condition that were later identified and I assume and believe that he did not.”
Mr Barker added that he did not differentiate in his mind between the tax planning aspect of the Trust and the Deed of Gift.  After receiving this explanation, Mr Barker signed the document in the clinic.
42.	There were apparently several meetings between Mr Barker and representatives of Matheson accompanied by Mr Auden over the subsequent months, but these are of little relevance to the present case.  On 23 March 1999, Matheson, as trustee of the Trust, declared a sub-trust of which the beneficiaries were stated to be the widow, children and remoter descendants of Mr Barker and also his mother and sisters, who will be living after his death (“the IB Sub-trust”).   This was in accordance with the exclusion which Mr Barker understood was provided for in the Trust Deed, as he had been told that it was a statutory requirement that his family be excluded as beneficiaries so long as he was alive but not after his death.  Mr Barker was given power to remove trustees and appoint any new or additional trustees.  
43.	Apparently, similar sub-trusts were set up as regards each of the other three participating shareholders (including Mr Barker’s then wife).  This was in accordance with the explanation which had been given by BWS that such sub-trusts would be established to hold the respective shares of each of the participating shareholders, and in due course the proceeds of sale.  That would enable the trustee to manage requests for loans from each participating shareholder and to have different beneficiaries associated with each of them after their deaths.
The Sale of Team 121 Holdings
44.	In November 1998, 3i had pulled out of their proposed investment in Team 121 Holdings and the board of the company then decided to look for a trade buyer, assisted by Deloitte.  In June 1999, an agreement was reached with Logica plc (“Logica”) for sale of the entire share capital of Team 121 Holdings.  The consideration was about £75 million in cash and ordinary shares in Logica and in addition there was a deed of restrictive covenant for three years, whereby Mr Barker was to receive about £4.2 million worth (as at June 1999) of Logica shares on each of the first three anniversaries of the deal.  Also included as part of the deal was a service agreement for Mr Barker at a salary of about £120,000 p.a.
45.	Mr Barker said the deal was structured in the form of the sale plus separate restrictive covenant so as to enable Mr Barker to have some assets of his own outside the EBT, in case he needed capital urgently which the trustees of the EBT were unwilling to provide in the form of loans.
46.	The sale was apparently completed on 28 June 1999 and Wragge acted as solicitors to Team 121 Holding on the transaction.  On 9 July 1999, Matheson resolved to transfer the sum of about £5.8 million out of the cash consideration to the IB Sub-trust.  
The Wragge advice
47.	Following the sale, there was some discussion with Mr Barker’s accountants, Deloitte, as to whether Mr Barker should disclose the gift of the Shares to the EBT in connection with his tax return.  BWS advised that this was unnecessary as it had resulted in no gain.  Mr Hollinshead, was involved in advising some of the shareholders on the sale to Logica and on 26 July 1999 he wrote to Mr Barker referring to “the increasing concern in professional firms with the Inland Revenue’s belligerent approach to tax avoidance arrangements and tax compliance.”  He advised Mr Barker to ask either Deloitte or Wragge for a written opinion on his compliance obligations arising out of the arrangements entered into concerning the EBT Scheme.  
48.	It is unclear exactly how Wragge came to be instructed to look into the matter following that letter, but that does not matter.  On 29 July 1999, Wragge wrote to Mr Barker enclosing a detailed six page report on the EBT Scheme.  In her covering letter, the solicitor from Wragge stated:
“I think there are grounds on which the gift to the EBT could be argued to be ineffective, or invalid, and that these are certainly worth putting to Counsel.”
After indicating that she thought that the EBT should probably be disclosed to the Revenue and observing that there would obviously be “big tax consequences” if the gift was ineffective or the scheme failed, she continued:
“Clearly from your point of view, having entered into these arrangements, you would probably prefer to continue with them. However, at the same time, I am sure you will want to ensure that to the best of your knowledge any return you make to the Revenue is correct.  For this reason, I consider it extremely important that Counsel is asked to advise on the effectiveness of the arrangement….”
49.	The enclosed report (“the Wragge report”) discussed in some detail various lines of argument on the basis of which the gift might be declared ineffective.  These included the question whether the conditions of sect 28 IHTA (“sect 28”) were satisfied by the terms of the Trust.  The report in particular expressed concern about clause 11 of the Trust Deed and the width of the powers given to the trustees and the protectors to alter its provisions, such that those powers might be construed as enabling them to allow “Excluded Persons” to benefit.  But Wragge notably did not suggest that there was a potential problem in the fact that members of Mr Barker’s family could benefit after his death.  On the contrary, the report in its summary of the background included the observation that “[c]learly, your family will be able to benefit following your death” but made no further reference to this in the discussion of the possible issues raised by the EBT Scheme.
50.	The report concluded as follows:
“I am certain that Baxendale Walker would not agree with the arguments I have put forward in this letter.  However, if there is a possibility of my view being correct then you do run a significant risk of making a misdeclaration in your tax return if you do not make any reference to the disposal to the EBT.”
51.	Mr Barker discussed the Wragge report with the other participating shareholders and, as one would expect, they took the advice very seriously.  They decided to send a copy to BWS and requested an urgent meeting to discuss these concerns.  That meeting took place at the Goring Hotel in London on 4 August 1999.  Mr Baxendale-Walker and Mr Auden were present, along with Mr and Mrs Barker, Mr and Mrs Brock and Mr Ridley.   An independent financial advisor who had been involved for several years in advising Team 121 Holdings, Mr Mark Stephenson, also attended. It was a lengthy meeting but, somewhat surprisingly, no written notes of the meeting were produced in evidence.  A written agenda has been found, marked up with some manuscript annotations probably made by Mrs Brock, but they are not very helpful.  However, Mr Barker said that in the meeting Mr Baxendale-Walker addressed each point in the Wragge report to show that it was mistaken.  Mr Baxendale-Walker explained the concept of “connected persons” under sect 28.  Mr Barker recalled Mr Baxendale-Walker was very dismissive of the Wragge report, saying that it was not worth the paper it was written on, comparing them to general surgeons whereas BWS were like brain surgeons, and that at the end of the meeting he theatrically tossed the Wragge report over his shoulder.
52.	After the meeting, the shareholders discussed what they should do.  Mr Barker said they had been impressed by Mr Baxendale-Walker’s seemingly encyclopaedic knowledge of the law and they had already committed themselves to paying a lot of money to BWS.  From the documents, it appears that Mr Barker went back to Wragge with some queries and that Wragge sent him a copy of a tax case which he duly forwarded to Mr Baxendale-Walker.  The shareholders knew that Deloitte had been content to follow the view of BWS that the gifts to the EBT did not need to be declared, and in the end they decided not to follow the Wragge advice but to stay with BWS.  Mr Barker felt that BWS were indeed specialists of the kind that Wragge had recommended should be consulted by instructing Counsel.  However, Mr Barker asked BWS to put their rebuttal of the Wragge report in writing, which was duly supplied in a letter from Mr Auden of 2 September 1999.
53.	I should make clear that it is not now suggested that the various concerns raised in the Wragge report were well founded.
The operation of the Trust
54.	After the Trust and sub-trusts had been established, Mr Barker worked with BWS and Matheson on the establishment of a benefits committee for the Trust, and Mr Mark Stephenson was appointed by Matheson as an investment advisor to the Trust and reported to Mr Barker on the costs associated with its management.  
55.	BWS advised that offshore investment companies should be established to receive any UK source income as otherwise the sub-trusts would be subject to tax charged on such income to offshore trusts.  Pursuant to that advice, a British Virgin Islands (“BVI”) company called Springfellow Ltd (“Springfellow”) was set up in July 1999.  It was also decided to purchase Apartment 6, 3 Cambridge Gate, in the outer circle of Regent’s Park in London.  This was acquired in the name of Springfellow in September 1999 for about £1.75 million.  Mr Barker says that it was purchased “as an investment, although I also lived there.”   
56.	Subsequently, other properties were purchased using assets in the IB Sub-trust, and at least one other BVI company was established for that purpose.  As I understand it, some of these properties were then occupied by members of Mr Barker’s family, an aspect which later gave rise to considerable concern as I explain below.
57.	Mr Barker also proceeded to take loans from the Trust.  The loans were effectively channelled through Deepwater Ltd (“Deepwater”), a Jersey company owned by Matheson.  Apparently loans were made to Deepwater by the Trust or the IB Sub-trust, and then from Deepwater to Mr Barker.  Between September 1999 and January 2000, Mr Barker borrowed £500,000 at a rate of 1.5% above LIBOR.  He repaid these loans and interest on 11 June 2001.  In April 2002, he took a further loan of £200,000 at 2% above LIBOR, which was repaid about 7 weeks later.
58.	The Trust funded some benefits to the employees of the Team 121 group.  Between 1999 and 2003, benefits at a cost of £1.475 million were distributed, ranging from the provision of health support, corporate events and staff incentive schemes.
59.	It appears that on 28 September 1999, Mr Speksnyder purported to retire as one of the Protectors of the Trust, and Mr Barker acted as the sole Protector thereafter.
The involvement of Bourse and Mr Bourge
60.	In 2000, FSL sent its invoices for the fees of setting up the EBT Scheme.  There was a prolonged dispute regarding the fees charged, which is not relevant to the present claim save that by 2002 it led to Mr Barker to feel that he could not rely on BWS to support the Trust. In these proceedings, it is not disputed that the sum of £2,388,555.44 was paid to FSL by the IB Sub-trust out of the proceeds of sale of the Shares, and this sum forms part of Mr Barker’s claim.
61.	At about the same time, Mr Barker became disenchanted with Matheson as trustee.  Matheson had been acquired by Insinger de Beaufort and thereafter became interested in selling their investment products to the Trust, which Mr Barker considered gave rise to conflict of interest.  Moreover, Matheson’s charges had mounted as they related to the level of assets in the Trust and also involved work in relation to the establishment of a new BVI company each time another property was purchased.  According, in 2002 Mr Barker decided to look for a new trustee.  Through Mr Stephenson, he was put in contact with Mr Andrew Brown, a chartered accountant who ran an independent tax consultancy practice and who had experience in advising on offshore structures, including EBTs.  
62.	Mr Barker accordingly met Mr Brown in May 2002.  He provided him with his EBT Scheme file, which included all the trust documents and also the Wragge report and the written advice received from BWS.  The particular questions which Mr Barker first asked Mr Brown to consider were summarised in an email to him sent on 15 May 2002:
“How can I “benefit” from assets held by the trust without violating its terms – in particular live in Cambridge Gate and not pay rent.
What are the issues associated with moving trustees a[n]d what are the pros and cons of doing so – Andrew knows that the current trustees are expensive, inflexible and conservative but also that if we do move the trust we loose [sic] whatever influence we thought we had in respect of resolving Ingrid’s (my sister) situation.
How can we transfer value from Trust to Onshore without increasing long term debt – I.e. not building up a debt situation which means I am t[h]en locked in to the trustees etc.”
63.	Mr Brown gave his initial response by letter of 10 June 2002, and followed that up with further advice by letter of 24 June after looking at some additional documents which Mr Barker had given him.  Mr Brown stated that he had no problem with the Trust itself which he believed satisfied the conditions of the relevant tax legislation, including specifically sect 28, and he noted that it had been drafted by BWS with those conditions in mind.  But he continued:
“I am concerned that if the Inland Revenue were to look at the EBT and sub-trusts at the current time, they would see that little or no benefits were being provided to the employees of the founder and that substantial assets were “invested” in excluded beneficiaries in terms of property. I think that this may cause them to question the commercial objective or the arrangement. The action being considered by Ingrid could also be seen as indicative that she considers she has an interest in the “fund”.
To add you as a beneficiary may therefore add more credence to the overall position.”
64.	Mr Brown had suggested to Mr Barker the possibility of working with Mr Simon Bourge of Bourse Trust Co Ltd (“Bourse”), based in Guernsey, and he talked through some of the legal issues with Mr Bourge before writing to Mr Barker.  Mr Bourge is an English barrister who had moved to Guernsey to establish Bourse as providing offshore trust services.  Through Bourse, he was involved in acting as trustee for other EBTs.  Mr Barker agreed to Mr Bourge being instructed and on 17 July 2002 there was a meeting between Mr Barker, Mr Brown and Mr Bourge, which Mr Stephenson also attended.  Among the matters there discussed were the points raised by the Wragge report, and Mr Bourge mentioned that he knew a leading English tax barrister, Mr Andrew Thornhill QC, whom he could ask about this.  Mr Bourge initially approached Mr Thornhill on an informal basis but then recommended that he should be formally instructed.
65.	Following that meeting, Mr Barker decided to terminate the engagement of the existing trustee and appoint Bourse in their place.  By this point, Mr Barker had decided to use Mr Brown as his tax adviser.  He also agreed that Mr Thornhill should be instructed to advise.  Mr Barker said that he understood that Mr Bourge was keen to get Mr Thornhill’s advice before becoming a trustee, and he expressed his own perspective as follows in his evidence:
“One of the great opportunities of getting a brand new team of advisers on board is that they were going to examine all of the assumptions, all of the trust documents, all of the previous advice, all of the correspondence from scratch with totally fresh eyes, so they did not have a vested interest, they were not an introducer, they did not have any commission at risk, they did not have their own EBT or their EBT business at stake.  So I was going to find out from new advisers what they thought of it and that was a good thing.”
Consultation with Mr Andrew Thornhill QC
66.	The instructions to Mr Thornhill were sent by way of letter from Mr Bourge dated 19 September 2002.  The letter enclosed copies of the Trust Deed, the IB Sub-trust deed and an extract from the Wragge report.  Mr Thornhill was specifically asked to advise on whether:
“1.  Mr Barker is an income beneficiary.
2. Whether Mr Barker can be added as a full beneficiary.
3.  What possible courses of action may be open to enable Mr Barker to benefit from the funds held within the Trust notwithstanding the restrictions contained in the Trust Deed.”
67.	Mr Barker attended a consultation with Mr Thornhill in his Chambers on 25 September 2002, accompanied by Mr Bourge, Mr Brown and Mr Stephenson.  It was a long consultation.  It emerged that Mr Thornhill knew Mr Baxendale-Walker well but that they had apparently fallen out.  No notes of that consultation have been produced, but Mr Barker’s summary of the advice given in the consultation was not challenged: 
“Andrew Thornhill … explained that the EBT scheme was fairly straightforward and could have been set up by him for much less money. This sticks in my mind because of the amount of money I had paid to BWS and FSL. He thought (incorrectly) that I expected to be able to take all the capital out of the trusts in the form of loans and in his view that was unlikely to be possible because, if they were taking their fiduciary responsibilities seriously, a trustee would expect security or true commercial terms to the loans.
I do not recall, and I believe that he did not say, that the EBT’s drafting meant that it was ineffective for tax purposes, but Andrew Thornhill did say that the EBT could have been set up at the outset with me as an income beneficiary but in fact the trust deed excluded me as a beneficiary for my whole life. … There was a suggestion that if I was an income beneficiary the income accumulated in the EBT could be used as collateral against which the trustee could make loans to me. I do not believe any conclusion was reached at this meeting about whether I could be added a beneficiary.
I remember that Andrew Thornhill was also concerned that HMRC might consider the EBT to be a settlor interested trust. BWS had told me that because Team 121 established the EBT and paid an initial sum into the trust it was “corporately settled”. However, Andrew pointed out that the company had only settled a nominal sum on the trust. The value of the shares I had gifted to the trust was much greater.
Andrew Thornhill was concerned that the trust had purchased properties and that I and other excluded beneficiaries occupied these properties, thus gaining a benefit. He felt strongly that it would be appropriate for the other beneficiaries and me to repay or “restitute” the value of the benefits we had received to the trust fund. If we had been income beneficiaries we could have occupies the properties rent free.
Andrew Thornhill also felt that the shareholders had entered into an arrangement whereby we had gifted our shares into the EBT on the understanding that we could take out loans without collateral and without needing to pay the loans back. Since it was not going to be possible to take further loans of that type he thought we could argue that we had made a mistake and that we could therefore apply to the Court to have the trust set aside. This course of action had apparently been taken by other clients of BWS.”
68.	In preparing for this case, Mr Barker also obtained from the computer files of Mr Stephenson print-outs of two letters addressed to him from Mr Bourge which covered similar ground: (a) a draft letter dated 1 October 2002; and (b) a letter which evidently has an electronic date that updates automatically, so that the original date is uncertain.  Mr Barker now has no recollection of receiving either of these letters.  The draft letter (a) had evidently been sent to Mr Brown, as there is an email from Mr Brown to Mr Bourge of 2 October expressing misgivings about some of the points that Mr Bourge made in it.  Mr Brown said in his evidence that in view of his comments to Mr Bourge on the draft, he doubts that a letter in that form was ever sent.  I agree and I think it is much more likely that Mr Bourge sent as his letter to Mr Barker document (b).
69.	However, in the final analysis this does not particularly matter.  What in my view does matter, and was not in dispute, is that:
i)	Mr Thornhill conducted a review of the documentation and the effectiveness of the EBT Scheme, which led him to express a number of concerns.  But he did not consider that the fact that under the IB Sub-trust Mr Barker’s family could benefit after his death presented a problem or rendered the EBT invalid.  Mr Barker’s recollection of that was clear.
ii)	Although Mr Bourge also raised in (a) and to a more moderate extent in (b) a number of concerns about the validity of the EBT, those focussed on the width of the power of amendment under clause 11 and on the problem of providing Mr Barker with the income he desired. Like Mr Thornhill, Mr Bourge was not concerned about the ability of Mr Barker’s family to benefit after his death.
Dr Ashton’s advice
70.	Mr Bourge also recommended that advice should be sought from Dr Raymond Ashton, an advocate in Guernsey and who was previously a lecturer in trust and tax at Bristol, Durham and Nottingham universities while in practice at the English Bar.  In letter (b), Mr Bourge said of Dr Ashton: “He specialises in complicated tax cases and has thirty years hands on experience in dealing with the Revenue.”  The rationale for approaching Dr Ashton was explained by Mr Bourge as follows:
We can rely on and follow the advice of Andrew Thornhill, in whom I have complete faith, but acknowledge there is a concern that there may be a personal involvement or connection that may not be helpful. In addition, he himself has admitted that he is not a pure Chancery lawyer and that therefore someone such as Nicholas Warren should be consulted.
We could take the lead, but do not have the relevant experience in dealing with the Revenue.
Andrew Brown could take the lead but I suspect that Andrew might not feel able to do so on a case of your size.

But we need a firm experienced hand on the tiller”

71.	I think the reference to Mr Thornhill’s “personal connection” relates to his previous dealing with Mr Baxendale-Walker.  And in my view, the reason for suggesting that advice may be needed from a “pure Chancery lawyer” was to address the question of the power under clause 11 of Trust Deed and whether it could be narrowly construed to accord with the purpose of the Trust and thus prevent an amendment that would have the effect of taking the Trust outside the necessary statutory conditions of an EBT; it was not to get advice on the interpretation of the tax legislation.
72.	Dr Ashton was duly instructed in early November 2002.  Mr Barker believes he would have authorised this as he had wanted to ensure that Mr Bourge was happy to assist with the running of the trust and thus that Bourse would act as trustee.  Mr Bourge sent Dr Ashton all the relevant documents, including the Wragge report and letter, and the letter in response from BWS.
73.	On 20 November 2002, Mr Bourge received advice from Dr Ashton by telephone, which he recorded in a brief attendance note:
“Raymond was of the opinion that the gift was valid, so no need to disclose on tax return as corporate settlor and that there was a substantial possibility that Iain [Barker] could be added as an income beneficiary.  It may require some redrafting and may require help from Robert Vennables [sic] QC.”
74.	Following Dr Ashton’s advice, Mr Bourge was content to proceed with the appointment of Bourse as trustee of both the Trust and the IB Sub-trust.   This duly took place on 1 January 2003.  It seems that in the light of that advice, the suggestion that a further “hand on the tiller” was required was not pursued.  I should add that a letter dated 11 June 2003 was sent by Mr Bourge to Dr Ashton asking him to confirm his oral advice and asking what if any amendments should be made to the IB Sub-trust deed, but the reply presumably sent by Dr Ashton was not in evidence as it seems that Mr Barker does not have a copy.
75.	On 14 March 2003, Mr Brown wrote to Mr Bourge confirming the tax advice he (Mr Brown) had given at a meeting which they had held with Mr Barker the previous day in relation to the various properties owned by the Trust and the IB Sub-trust.  The substantive advice begins as follows:
“The advice is based on the general point that Iain Barker and his children are specifically excluded from benefiting from the trust during Iain’s lifetime, but that the children are within a class of persons allowed to benefit following Iain’s death.  It is therefore prima facie difficult to see how any tax charge could arise upon Iain.”
Mr Brown said in evidence that when he wrote in those terms he was relying on the expertise of BWS and Mr Thornhill.
76.	The main purpose of Mr Brown’s letter was to advise Bourse on how to deal with the issue of the properties about which Mr Thornhill had expressed considerable concern.  As regards each of six properties, Mr Brown addressed the question whether Mr Barker or a “connected person” could be said to be deriving a benefit. He advised that agreements should be drawn up with the trustee appointing Mr Barker as caretaker responsible for looking after four of the properties: two which he occasionally occupied himself (including Cambridge Gate), one where his children lived with his ex-partner, and one occupied by his mother.  The remaining two properties were commercially let so no issue arose as to them.
Subsequent management of the trusts
77.	Following the advice of Mr Thornhill and Mr Brown, as set out above, Mr Barker acted as property manager or caretaker for the various properties and Mr Stephenson continued as investment adviser to the trustee   Mr Barker was also appointed investment consultant for the Trust and the IB Sub-trust.
78.	Since he had been advised that he could not continue to take loans from the trust in the manner envisaged by BWS, Mr Barker developed with Mr Brown, and with the agreement of Mr Bourge, what he described in his evidence as an “alternative approach to benefitting from assets in the Trust”.  An independent service company which Mr Barker already owned set up a Funded Unapproved Retirement Benefit Scheme, which in turn established an investment company called Lilliane Ltd (“Lilliane”).  The riskier investments made by Springfellow for the Sub-trust were either wound up or transferred to Lilliane by way of loans, for which Lilliane paid Springfellow at the rate of 5% p.a.  Mr Barker said that this arrangement “ensured a steady income for Springfellow in whatever investment environment and reduced the involvement of myself in Trust affairs.  Springfellow had only minimal risky investments by September 2006 and no risky investments at all after September 2009.”  Mr Barker was able to take loans from Lilliane and from a Guernsey pension plan which he set up with assistance from Mr Bourge and Mr Brown.
HMRC’s investigations: 2005 - 2007
79.	In August 2005, Mr Brown received a letter from HMRC Special Civil Investigations unit (“SCI”) informing him that they would be instigating an inquiry into Mr Barker’s tax returns from 5 April 1999 to 5 April 2004, on the basis that capital gains and income may have been omitted from those returns in relation, specifically, to the transfer or sale of shares in Team 121 Holdings.  It appears that this letter was prompted by an entirely separate inquiry that HMRC had commenced previously concerning Mr Barker’s disposal of shares in Logica that he held personally, as a result of which they had obtained a copy of the Logica offer document for Team 121 Holdings that referred to the EBT.   The letter from HMRC requested copies of the relevant documentation.
80.	There ensued correspondence between Mr Brown and HMRC, including discussion of the basis on which HMRC could seek under its discovery rules to open an investigation out of time.  HMRC’s letters raised their concern that the qualifying conditions under the relevant legislative provisions concerning an EBT may not have been met, on the basis that sub-trusts were created within the EBT for the benefit of the individual donors, which meant that those donors were able to benefit.  On 17 November 2005, while expressly rebutting the contention that the statutory conditions for an exemption were not satisfied, Mr Brown sent HMRC copies of the Trust Deed, the Deed of Gift and the IB Sub-trust Deed.  In December 2005 and January 2006 HMRC requested further information and documents regarding the operation of the trusts.  In a letter of 5 December 2005, the inspector from HMRC SCI wrote:
“I will comment on the deeds when I have received an opinion from our experts in that area.”
Mr Brown understood this, no doubt correctly, as a reference to their experts in EBTs.
81.	In the course of dealing with HMRC’s requests, Mr Brown and Mr Barker made contact with BWS and asked Mr Baxendale-Walker for his comments, and Mr Brown sent Mr Baxendale-Walker a draft of his response to one of HMRC’s letters, to which Mr Baxendale-Walker suggested an amendment.  That particular suggestion was adopted, but Mr Barker had no hesitation in rejecting Mr Baxendale-Walker’s proposal that BWS be retained to conduct the dealing with HMRC on his behalf.  
82.	Eventually, Mr Brown received a letter dated 3 May 2006 from a Mr Graham Hogg of the Capital Taxes Technical Group of HMRC in Edinburgh.  He wrote that the SCI had asked him to consider whether the conditions of sect 28 applied to the facts of the case and stated: “I have to conclude that they do not.”  Mr Hogg set out his reasoning in numbered paragraphs.  He stated that the Trust Deed itself fully satisfied the terms of sect 86 IHTA. After referring to the Deed of Gift, he observed that pursuant to sect 28(4) the terms of sect 28(1) do not apply if the trusts permit any of the settled property to be applied at any time for the benefit of Mr Barker or any person who is connected with him.  Mr Hogg continued:
“iv. On 23 March 1999 a sub-trust was created with the “Principal Beneficiaries” in terms of Clause 1.5 being (with my emphasis) the “widow, children and remoter descendants and the mother and sisters of Ian [sic] Paul Barker who shall be living after his death.”
v. In terms of Clause 2 of the sub-trust the trustees are to hold the Trust Fund upon trust for all or any one or more of the “Principal Beneficiaries” as they might appoint with consequent in default provisions.
vi. In terms of Clause 1.5 the “Principal Beneficiaries” cannot be established until Mr Barker’s death so meantime (i.e. in default of a valid appointment) the Trust Fund is to be held “UPON TRUST for the Members upon the terms of the Deed establishing the Principal Scheme.” What exactly do you consider that means? “Members” so far as I can see is not a term used in the original Deed. It is defined in Schedule 2 of the sub-trust in terms wide enough to include Mr Barker and his family but of course they are excluded from benefit under the original deed. If it is your interpretation and contention that Mr Barker and his family can benefit via this route (and it certainly seems to be in practice – see at viii below) then clearly s28(4) is infringed. Either that of course or the trustees have acted ultra vires and the whole arrangement is invalid ab initio.
vii. In this context what do you consider ““UPON TRUST for the Members….” Means exactly?
viii. As I understand it the trustees have since the inception of the sub-trust purchased various properties in which Mr Barker, his mother and his sisters have lived either rent free or at least on terms which must be considered beneficial.”  [The letter then listed five specific properties, including the apartment in Cambridge Gate.]
83.	In the light of this letter, Mr Brown and Mr Barker agreed to seek further advice from Mr Thornhill.  A consultation with him was held on 18 May 2006.  The written instructions for that consultation, prepared by Mr Brown, sought advice as follows:
“1.  IB requires advice generally on his tax position and the likelihood of any significant tax liability
2.  IB requires advice generally on the likely series of events to determine his liabilities, including the requirement to supply information, any hearings before the Commissioners and the possibility of being able to negotiate a settlement.
3.  Separately, but equally as important, if it is alleged that PBW’s advice was negligent, IB requires advice on protecting his ability to take action against PBW.”
84.	Mr Brown gave evidence as to the advice Mr Thornhill gave in that conference, which he attended with Mr Barker, by reference to a manuscript note he took at the time:
“… Andrew referred to clause 11 of the main EBT trust deed which was a power for the Protector (which was lain) to amend the deed. He said that in his view that power would not extend to amending the deed so as to add further beneficiaries and that of course that had not been done. He did say that the definition of “members” in the sub-trust deed was too wide, because the definition of beneficiaries in the original deed specifically excludes excluded persons, which the definition of “members” did not (I wrote “members” here, but I must have meant “Beneficiaries”). However he said that as a matter of trust law those excluded persons could not benefit.”
85.	The note does not indicate what Mr Thornhill may have said as regards question (3) in the instructions, and neither he nor Mr Barker could now recall what, if anything, Mr Thornhill said in that regard.  It may be that in the light of Mr Thornhill’s overall advice, the point did not arise.  Mr Brown was sure that if Mr Thornhill had said that Mr Baxendale-Walker was negligent, that is something he would have noted down, and I have little doubt that it would have made a strong impression on Mr Barker as well.  In my view, Mr Thornhill did not suggest that Mr Baxendale-Walker had been negligent.
86.	Following the consultation, Mr Thornhill settled a draft response to Mr Hogg’s letter.  In his accompanying Note, Mr Thornhill observed that Mr Hogg accepted that the original deed satisfied sect 28.
87.	Mr Brown replied to Mr Hogg in accordance with Mr Thornhill’s draft and suggested that it may be helpful to have a meeting to resolve the matter.  That offer was accepted, and a meeting took place at the offices of HMRC Capital Taxes Technical Group in Edinburgh on 6 July 2006.  It was attended by Mr Hogg and two colleagues from HMRC, and Mr Barker, Mr Brown and Mr Thornhill.  The meeting lasted about two hours and HMRC produced a detailed, 44 paragraph note.  It is appropriate to quote certain passages from that note:
“2. Thornhill asked whether the Revenue accepted that the Trust, as drawn, meets the requirements of Section 28. Thornhill mentioned that Paul Baxendale Walker may have a devious mind but it did appear to Thornhill that the Trust as drafted met the requirements. Hogg said that he accepted that, as drafted, the Section 28 terms were met. Thornhill said that he believed the Trust did meet the requirements as all of the 5% plus shareholders were excluded for [sic] benefiting but the question was has that been the case?
3. Thornhill said that having looked at the list of properties he thought it was fair to say that in some instances there has been an element of quite substantial beneficial occupation. Thornhill said that Barker had been led to believe that the terms were commercial – a cheaper rent being paid while the property was being brought up to order. Thornhill said that if he was being frank in some cases there had been benefits and there may be other properties of which the Revenue were not aware. Clearly, this beneficial occupation was contrary to the Deed and Thornhill said that his advice to Barker had been for Barker and the Trustees to face this issue and recompense to be made from those who have benefited.
4. Thornhill stated that if the Deed as drawn satisfied Section 28 then the receipt of benefits was a breach of a Trust and would be in effect unauthorised payments. It was agreed between all parties that benefits had been paid to excluded persons although not in every case…
…

9. Thornhill stated that in effect the Trust favours persons who cannot as yet be identified as they cannot be identified until Barker’s death. Thornhill said that the Trust should not be benefiting Barker’s widow’s children etc until he is dead but they could make a Trust for when he dies or they also may make loans at a commercial rate. Thornhill said that he believed the Trust to be valid. Thornhill explained that at Clause 2 members are beneficiaries by default and in effect a Trust has been created in favour of a class of persons who cannot be indentified until Barker dies. It is implicit that appointments could not be made whilst Barker is alive by the Trustees could accumulate income and of course if there were no beneficiaries on Barker’s death the property would fall back to be used for the members. Thornhill said that the future class of beneficiaries is of course defined and Thornhill mentioned that the only people who would benefit currently were members. Hoyle [Mr Hogg’s colleague] asked why Barker would choose to lock way such a valuable asset in this manner.
10. Barker explained that he had the separate deal with Logica for around £12M and simply did not need any more money. Barker said that he fully understood the Trust at its inception in that he could not benefit and his family could not benefit [until] after his death. Barker said that this did not seem a problem to him given his £12M deal with Logica.
…
38. Hogg said that the question to be asked in terms of Section 28 was whether in fact the relief claimed was due. Hogg confirmed that as it was set up the Deed satisfies this section but the fact of the matter was that excluded people had benefited. The question was simply whether this was enough to knock out the relief claim under Section 28.
39. Thornhill said that Section 28 refers to the terms of the Trust and if a mistake is made then this could surely be put right. Thornhill said that he would accept that if the Trust is set up and nobody takes any notice of its terms then this is clearly a different situation amounting perhaps to a sham. Thornhill said that the name of Paul Baxendale Walker had been mentioned and the Revenue might therefore be suspicious. However, he is quite clear that Barker was told what the arrangements meant and Barker was happy with these events for the long term in view of his other assets. Thornhill said that this appears to him to be a genuine misunderstanding and his advice to Barker was that the misunderstandings need to be put right.

40. Brown asked whether Hogg was now able to accept that Barker did understand what this meant at the start and that this was a bona fide settlement. Hogg confirmed that the Deed as worded satisfied Section 28 but he was not sure whether retrospective rectification would simply put things right….”
88.	Accordingly, it seems clear to me that Mr Hogg and his colleagues felt that the drafting of the various trust documents met the statutory requirements for an EBT, although they provided that Mr Barker’s family could benefit after his death. Mr Hogg’s concerns related to what had in fact happened in the operation of the trusts and the way that Mr Barker and his family appeared to have been in receipt of significant benefits.  In that regard, the notes record that there was discussion of the situation concerning the purchase and occupation of each of the properties that had been acquired under the IB Sub-trust, and also works of art that had been purchased for some £250,000 and kept in properties which Mr Barker had occupied.  On behalf of Mr Barker, Mr Thornhill was advancing the argument that if such benefits had been provided, which to some extent he conceded, that was a breach of trust that could be remedied but did not render the EBT itself invalid.  The point was succinctly expressed in a follow-up letter sent by Mr Hogg to Mr Brown on 18 July 2006: 
“The main problem here (in plain English) is that the Employee Benefit Trust says one thing and the parties to it have done another. Do we seek to charge tax on the basis of the de facto breach of trust situation or do we treat the whole arrangement as ultra vires and seek to unravel it (as is clearly envisaged in Clause 2.1 and 2.2 of the Deed dated 15 October 1998 whereby Mr Barker transferred his shares to the Employee Benefit Trust) or do we allow the parties to attempt to “put it right” and ignore past breaches of trust. I think you will agree that overall this is a difficult legal conundrum.”
He said that this was an issue on which he would take HMRC Solicitor’s advice.
89.	Mr Brown sent a copy of that letter to Mr Thornhill, who responded on 17 August 2006 with a brief note.  He stated:
“As a matter of law, the case on s. 28 IHTA 1984 is a strong one because what matters is what the trust provides as opposed to what the parties do.”
90.	In September-October 2006, Mr Brown sent further letters to HMRC providing them with copies of various documents they had requested, concerning the accounts of the IB Sub-trust, Springfellow, and the loans given to Mr Barker. At the same time, HMRC raised the question whether in the light of the events that had happened, the trust might be a “settlor interested trust” under sect 660A of the Income and Corporation Taxes Act 1988 (“sect 660A”).
91.	On 2 November 2006, a telephone conference was held between Mr Thornhill, Mr Bourge, Mr Brown and Mr Barker to discuss what work was needed to follow up the meeting with HMRC in Edinburgh.  As recorded in Mr Brown’s note of that conference, under the heading “Breach of trust”:
“AT confirmed that in his opinion the trust deed prohibited IB from benefiting from the trust and therefore because IB had benefited by occupation of properties it was necessary to consider how this should be dealt with. In AT’s opinion IB needed to take expert advice from someone experienced in the relevant fields to obtain:
-	a commercial value for the occupation of each property
-	a commercial value for the benefit of the “use” or the works of art
-	a commercial value for the services provided by IB [i.e. as caretaker and in supervising refurbishment works to the properties]”
92.	Mr Thornhill drafted a letter for Mr Brown to send to HMRC regarding what would be done to remedy the breach of trust, which was duly sent on 20 November 2006.
93.	On 16 February 2007, Mr Brown received a letter from Mr Hogg, pressing for a response to the sect 660A point.   As a result, a further telephone conference was held with Mr Thornhill on 8 March 2007.  Mr Thornhill expressed the clear view that HMRC were wrong regarding sect 660A.  There was also discussion as to the position if HMRC rejected the arguments regarding sect 28, both as regards the application of the time limits for the issue of tax assessments on Mr Barker and as regards his exposure if such assessments were made.  That advice was eventually followed up by a written Opinion from Mr Thornhill on 2 May 2007, in which he advised that liability under sect 660A “should be strongly resisted”.  Mr Brown wrote to HMRC on 9 May 2007 on the basis of the reasoning in Mr Thornhill’s Opinion.
94.	After several holding letters, HMRC wrote on 10 October 2007 to say they hoped to provide a comprehensive reply by the end of November.  However, no further communication was received until the events described below.
95.	In the meantime, it appears that various steps were taken by Bourse in conjunction with Mr Brown to set up tenancy agreements for some of the properties.  Also, on 16 February 2007 Mr Brown had received a letter from HMRC regarding Mr Barker’s ex-wife, who had been one of the four shareholders in Team 121 Holdings who had transferred their shares to the Trust.  The letter confirmed that HMRC had closed their inquiries into her affairs on the basis that she did not benefit from the Trust.  Mr Brown told Mr Barker that this was good news as it effectively meant that they had accepted that there was no problem with the way the Trust had been set up.
HMRC come back: the assessment notices and the appeal: 2010-2011
96.	After several years’ silence from HMRC, on 19 March 2010 the inspector from SCI wrote to Mr Barker to advise him that he now intended to make assessments on him for the years 1999/00, 2000/01 and 2001/02 on the grounds that his self-assessments for those years were insufficient.  The letter stated:
“The assessments are being made on the basis that you are liable to tax on the income and gains arising via the Team 121 Employee Benefit Trust and the associated sub trust.  I will write to you shortly explaining my reasons for this view.”
That letter enclosed three letters headed “Notice of Assessment” making estimated assessments for each of those three years.
97.	Mr Brown responded to HMRC by letter dated 8 April 2010, pointing out the extraordinary delay, asserting that the assessments were out of time, and without prejudice to those points asking that the letter be taken as an appeal.  On 19 April, HMRC replied, apologising for the long delay but stating that they were entitled to make assessments on the basis that they believed Mr Barker had been negligent in that he never disclosed on his tax returns the benefits received by way of loans, the occupation by him and his family of properties bought by the trust and works of art to decorate the houses. The letter enclosed a five page summary of reasons why HMRC considered that Mr Barker was liable.  Those reasons included (a) a Ramsay challenge on the basis that the trust was used as effectively a personal trust for Mr Barker, so that on a purposive approach sect 28 should not apply; (b) alternatively that sect 660A applies to catch the arrangements; and (c) the contention that sect 28 was not satisfied because Mr Barker’s family could benefit after his death.  As regards (c), HMRC asserted that the fact that the family members may not be “connected persons” at the time they may benefit was irrelevant: the statutory condition applies to persons who are “connected” at the time the various arrangements were put in place.
98.	It is notable that this was the first occasion, in the entire history of dealing with the EBT Scheme, as set out at some length above, that it was suggested by anyone that sect 28 was not satisfied if the members of Mr Barker’s family could benefit under the Trust after his death.
99.	Unsurprisingly, Mr Barker agreed with Mr Brown that they should go back to Mr Thornhill for his advice on HMRC’s arguments.  Mr Thornhill provided a written Opinion on 5 July 2010.  He addressed point (c) as summarised above and expressly disagreed with HMRC’s interpretation of sect 28(4).  As regards their other arguments, he considered the possible implications of various arrangements entered into in breach of trust to benefit Mr Barker and his family and emphasised the importance of taking prompt action to repair the breaches.  He said that HMRC’s point (b) regarding sect 660A was “arguable” but preferred the alternative view.  He also disagreed with the Ramsay argument in point (a) as a matter of principle, although he said that depending on the classes of persons who actually benefitted “the Revenue’s case is stronger than it might otherwise be, in particular if the breaches of trust have not been repaired.”
100.	Following this Opinion, further correspondence took place between Mr Brown, on behalf of Mr Barker, and HMRC, which it is unnecessary to describe.   Eventually, on 16 February 2011, Mr Barker issued a formal Notice of Appeal in the First-tier Tribunal (“the Tribunal”) against the assessments, requesting permission to make a late appeal.  HMRC responded with a Statement of Case dated 27 April 2011.  It appears that HMRC did not object to the appeal being made late, and their Statement of Case sets out their various grounds of challenge, as foreshadowed in the letter of 19 April 2010: see para 97 above.  That includes the contention that, on its proper construction, sect 28(4) requires the exclusion of persons “connected” to the participating shareholder from benefit at any time, whereas here Mr Barker’s family could benefit from the Trust after his death.
101.	Over this period, both before the Notice of Appeal was served and again after receipt of HMRC’s Statement of Case, Mr Barker and Mr Brown were in contact with BWS to obtain Mr Baxendale-Walker’s reaction and views on HMRC’s arguments.  Mr Baxendale-Walker robustly asserted that on each point HMRC was mistaken.  But Mr Barker declined their offer to act for him in the appeal against the assessments.  On the advice of Mr Brown, Mr Barker instructed Mr Thornhill along with a junior counsel from the same Chambers  to act for him on the appeal, and by July 2011 he had also instructed Farrer & Co (“Farrers”) to act as his solicitors.
Appointment of Confiance in place of Bourse
102.	In the course of 2010, Mr Barker decided to replace Bourse as trustee.  It appears that he felt that it was suffering because of high staff turnover, and Mr Brown’s relationship with Bourse had also broken down.  By a deed dated 1 October 2010, Mr Barker appointed as trustee of the Trust in place of Bourse a Guernsey company called Confiance Ltd (“Confiance”), to which he had been introduced by Mr Brown. Bourse duly transferred the assets of the trust to Confiance.
103.	By September 2011, Confiance had instructed their own solicitors, May, May & Merrimans, to advise on the issues concerning the Trust and the need for restitution in respect of the benefits received by Mr Barker and his family.
Mr Mark Studer’s advice
104.	On Farrers’ recommendation, Mr Mark Studer was also instructed to advise Mr Barker, having regard to the trust law aspects involved in his case.   Farrers’ first instructions to Mr Studer of 11 July 2011 stated:
“In seeking Counsel’s advice, his Instructing Solicitors are seeking to do two things. First, it is anticipated that the construction and effect of the Deed of Gift will be an issue before the Tax Tribunal and Counsel’s opinion will be made use of for the purposes of those proceedings. Secondly, Counsel’s advice is requested on the question of restitution and how best to secure this before the case commences in the Tax Tribunal. However, while specific questions are put to Counsel below he is asked to consider the matter generally and if other questions occur to him, or he feels that other issues need to be addressed then he is asked to raise them.”
105.	Supplemental instructions were sent to Mr Studer on 23 September 2011, which gave a detailed account of the dealings with each of the properties purchased by the IB Sub-trust and, referring also to the loans and the furniture and works of art acquired, sought further advice about the proper approach to restitution.
106.	As a result, a conference was held at Mr Thornhill’s Chambers on 12 October 2011, attended also by the tax junior, by Mr Studer and by representatives of Confiance and their solicitors.
107.	There is a full attendance note of the conference prepared by Farrers.  Most of the discussion concerned the difficulty caused by clause 2 of the Deed of Gift (see para 40 above) and whether on its terms there was a valid gift at all.  Counsel’s advice was that an application should be made to the Court for construction of the Trust, any necessary rectification of the trust instruments and for a direction as to appropriate restitution by Mr Barker.  Counsel advised that such an application should be made by Confiance as trustee.  At that stage, it does not appear that anyone was particularly concerned about HMRC’s sect 28(4) argument.
108.	Following that conference, Confiance instructed separate leading Counsel to advise them on the Court application, Mr Nicholas Le Poidivin QC.  On 1 December 2011, a joint conference was held with Mr Le Poidivin and Mr Studer.  They considered the difficulties raised by the drafting of the documents and the validity of the gift of the Shares, and decided that further input was needed from tax Counsel.  Accordingly, there was a meeting between Mr Thornhill, Mr Le Podivin and Mr Studer, attended also by the solicitors advising Mr Barker and Confiance, on 6 January 2012.  It was then agreed that an application would be made as regards construction/rectification in the Chancery Division (but not as regards restitution which was a matter as between Mr Barker and Confiance) and that the Tribunal would be asked to stay the tax appeal pending the outcome of the application in the High Court.  The Tribunal ultimately stayed the appeal proceedings until November 2012.
109.	In the meantime, on 24 November 2011, HMRC wrote to Mr Barker letters to the effect that they had opened what was known as a Code of Practice 9 inquiry into his tax affairs on the basis that he had acted fraudulently in making incomplete tax returns.  On 6 February 2012, HMRC wrote to Farrers stating that they were proposing to amend their Statement of Case in the Tribunal to allege that the arrangements said to be evidenced by the Trust and the IB Sub-trust were shams.
110.	In June 2012, Farrers sent further instructions to Mr Studer asking him to advise on various aspects, including the effect of various possible constructions of sect 28(4) on the interpretation of the trust documents.  In response, Mr Studer provided a very full written Opinion dated 4 July 2012.  Mr Studer advised that there were “strong arguments” in favour of the construction of sect 28(4) put forward by HMRC in their Statement of Case: i.e. that to satisfy the statutory condition “connected persons” had to be excluded for all time and not merely during the participating shareholder’s lifetime, so that they could benefit after his death.  Therefore, since the Trust and IB Sub-trust permitted Mr Barker’s family to benefit after his death, the Trust did not attract the tax benefits that could apply to an EBT.
111.	That was the first time that any of Mr Barker’s various advisers had expressed this view.  Following that Opinion, a further conference was arranged with Mr Thornhill and junior tax Counsel, together with Mr Studer, on 23 July.  It was attended also by Mr Brown and Mr Barker by telephone from abroad.  Mr Thornhill stated that although there were still some arguments that could be run regarding the application of sect 28, Mr Studer’s view “was a strong one.”  It was agreed that it was prudent to proceed on the basis that sect 28 did not apply to the Trust or the IB Sub-Trust. Counsel also advised that the consequences in terms of the original transfer of the Shares and the ownership of the proceeds of their sale was uncertain because of the unsatisfactory and confused drafting of clause 2 of the Deed of Gift: this in turn would have significant implications for the nature and extent of Mr Barker’s tax liability. Mr Brown said that in the light of all the previous advice, he was very surprised by the outcome of the meeting.
Settlement with HMRC
112.	For present purposes, the remaining stages of this lengthy saga can be described briefly.  Mr Barker proceeded to consider with his advisers various potential outcomes, having regard to the uncertainty surrounding the interpretation of clauses 1-2 of the Deed of Gift.  It was also clear that if Mr Barker could achieve a satisfactory settlement with HMRC, that would be in his best interests.
113.	Mr Brown gave detailed evidence in his witness statement about the negotiations which he and the solicitor from Farrers conducted with HMRC on behalf of Mr Barker, and he was not cross-examined on that evidence.  Essentially, Mr Brown and Farrers considered that Mr Barker’s total liability to HMRC, including interest and penalties, could amount to as much as £25 million.  In the meeting with HMRC and subsequent correspondence, they were particularly concerned to seek to rebut the allegation of negligence which would involve penalties that could significantly affect the total amount Mr Barker would have to pay.  On 25 January 2013, HMRC produced calculations of the amount due as £11,266,722, which they said they would accept in full and final settlement of all matters covered by their inquiry.  In advising Mr Barker on this, Mr Brown wrote to him in an email:
“I fully understand its a big figure. As I mentioned on the telephone yesterday, look at it as a glass 2/3rd full not 1/3rd empty. If the trust is worth say £35m then by paying HMRC £11m you keep £24m. There are a lot of uncertainties with going down the Tribunal route and of course the not inconsiderable further costs. I’m not going to rehearse all the arguments again here, but you could possibly lose all £35m or at least considerably more than £11m, and a Tribunal hearing from which HMRC could appeal if they lose could go on for some time giving you ongoing uncertainty and stress.”
114.	In his evidence, Mr Brown said that he regarded the settlement as very advantageous to Mr Barker because of his potential tax liabilities, in particular because it incorporated no penalties.  Mr Field of Farrers also advised Mr Barker that this was a good settlement and that he faced a serious risk of being found negligent if the matter went before the Tribunal.  
115.	Mr Barker decided to settle with HMRC on that basis.  He arranged for Lilliane to lend him the necessary funds and the settlement was concluded in April 2013.
Winding up the EBT Scheme
116.	The settlement with HMRC was effectively made on the basis that the beneficial interest in the Shares had not been given away.  However, the proceeds of sale of the Shares nonetheless remained in the IB Sub-trust of which Mr Barker was not a beneficiary.  Mr Barker accordingly wished to wind up the Trust and IB Sub-trust, avoid ongoing trustees’ costs, and secure the return to him of as much of the assets as possible.  
117.	Since the beneficiaries of the Trust included former employees of the Team 121 group and their children, and the beneficiaries of the IB Sub-trust included Mr Barker’s children and any unborn descendants, arrangements were made for each of those groups to be separately represented by independent solicitors and Counsel.  
118.	Agreement was eventually reached between Mr Barker, Confiance and the two classes of beneficiaries referred to above, to which Mr Barker’s mother and two sisters (who were also beneficiaries) consented.  In summary, Confiance was to hold £1 million on discretionary trust for Mr Barker’s children and £500,000 on discretionary trust for the former employees of the Team 121 group.  Confiance would hold the balance of the assets on bare trust for Mr Barker after paying their own costs and the costs of those two groups of beneficiaries, along with any tax arising out of the settlement.  
119.	The terms of this compromise were approved and embodied in an order made by Asplin J dated 25 July 2014 in the proceedings commenced by Mr Barker in the Chancery Division shortly beforehand for this purpose (“the 2014 Court Order”).
120.	I should add that in order independently to assess Mr Barker’s claim that the Shares were held on bare trust for him, Confiance as trustee had sought advice from Mr Le Poidivin and Mr David Goy QC.  By a written Joint Opinion dated 3 April 2014, they considered various potential interpretations of the relevant documents and the tax treatment of Mr Barker’s gift of the Shares to the Trust.  As regards the construction of sect 28 and the question whether connected persons can benefit after the connection had ceased, they said: “on balance we consider HMRC to be correct in its view of section 28.”  They advised that the proper stance was for Confiance to remain neutral in the negotiations between Mr Barker and the various classes of beneficiaries.
THE CLAIM
121.	In light of the complicated way in which matters developed since the EBT Scheme was set up on BWS’ advice in 1998-1999, it is important to set out what is alleged in these proceedings as the negligence on which the claim is brought.
122.	Specifically, the claim does not advance any allegation of negligence by the defendants relating to the fact that the IB Sub-trust purchased properties which Mr Barker and some members of his family occupied.  That was the basis on which HMRC initially conducted inquiries in 2005-2007 contending that the Trust was for Mr Barker’s benefit, and in respect of which, along with the paintings and furniture purchased for some of those properties, Mr Thornhill advised that Mr Barker should make restitution to the Trust.  Whether the defendants were originally involved in giving any advice regarding those matters was therefore not explored in evidence.  Any claim in that regard would in any event be out of time.
123.	The allegation which is the basis of this claim is that the defendants advised that the Trust with the IB Sub-trust would satisfy the requirements for an EBT if Mr Barker’s wife and children were excluded during his lifetime but could benefit after his death, whereas on the preferable construction of sect 28(4) they had to be excluded completely. In the alternative, as his secondary case, Mr Barker contends that there was a sufficient possibility of this alternative construction such that the defendants should have warned him of the risk that the EBT Scheme would only work if his family was excluded altogether.  The allegation is put this way in the written closing submissions for Mr Barker:
“If [the defendants] had performed their duty properly, they should have advised that the probability was that the tax benefits would not be available unless the trust deed excluded [Mr Barker]’s family permanently…..[Alternatively, if it was not negligent for the defendants to take the view that this interpretation was not correct, they] should still have advised of a significant risk that their preferred interpretation was incorrect.”
124.	Mr Barker says that if he had been advised in either of those terms, he would not have gone ahead with the EBT Scheme.
125.	As regards limitation, Mr Barker contends, in summary, that he did not, and could not reasonably have been expected to, become aware that such a permanent exclusion of his family might be required until HMRC sent their letter on 19 April 2010 setting out their basis for challenging the arrangements, nor indeed did anyone advise him that this construction of sect 28 might be correct until he received Mr Studer’s Opinion of 4 July 2012.  I will consider the limitation arguments in detail below.
THE SOLICITORS’ DUTY
126.	It is not in dispute that the defendants owed Mr Barker a duty to exercise the skill and care reasonably to be expected of an experienced specialist tax solicitor.  In their written closing, Counsel for Mr Barker expressed the relevant question as “whether reasonable practitioners professing the expertise of the defendants could properly have given advice in the terms they did.”  I accept that formulation as correct.  In that regard, in Saif Ali v Sidney Mitchell & Co [1980] AC 199, concerning a barrister’s liability in negligence, Lord Diplock observed, at 220:
“No matter what profession it may be, the common law does not impose on those who practise it any liability for damage resulting from what in the result turns out to have been errors of judgment unless the error was such as no reasonably well informed and competent member of that profession could have made.”
127.	In Matrix Securities Ltd v Theodore Goddard (a firm) and David Goldberg QC [1998] PNLR 280, a firm of City solicitors and a leading tax QC were sued for negligence in connection with a tax avoidance scheme which sought to take advantage of the capital allowances then available for investment in property enterprise zones.  The Inland Revenue provided clearance in advance for the scheme in response to a letter settled by Mr Goldberg QC, and as anticipated the claimants marketed and implemented the scheme in reliance on that clearance.  Subsequently, the Inland Revenue withdrew their clearance and a challenge to that decision by way of judicial review proceedings was dismissed: R v Inland Revenue Commissioners, ex p Matrix Securities Ltd [1994] 1 WLR 334.  In the judicial review proceedings, several of the judges were strongly critical of the terms of the letter requesting clearance for failing to make full disclosure, and in the House of Lords Lord Templeman described it as inaccurate and misleading.  In their action against the lawyers, the claimants alleged Mr Goldberg was negligent in settling the terms of that letter.  
128.	Discussing the standard of care required of the lawyers, Lloyd J noted that the objective of the exercise was to seek to persuade the Revenue to grant a clearance in circumstances where they could not go back on it, and said this (at 321):
“In relation to that objective I hold that the duty of TG and Mr Goldberg was to exercise such skill and care as a reasonably competent practitioner in the relevant sector of the profession would have done with a view to securing such a clearance [i.e. clearance from HMRC for a tax arrangement]. I do not accept that their duties were to secure a clearance which was 100 per cent reliable, or to do so if the exercise of reasonable skill and care could achieve such a thing. That formulation turns the common law position set out in Saif Ali by Lord Diplock on its head. Instead of imposing legal liability on the professional only if he does that which no reasonably competent member of the relevant profession or part of the profession would have done in the same situation, he would be rendered liable for breach of duty if he omitted anything which any one of the reasonably competent members of the relevant group or class would have done, even if, as might be the case in an area involving judgment as between different choices, the steps that a number of different reasonably competent members of the profession would reasonably have taken would be incompatible with each other. That is not the law. Mr Slater pays lip service to Lord Diplock's observation, and to one of its sources Bolam v. Friern Hospital Management Committee [1957] 1 W.L.R. 582 , but he submits that the scope for acceptable error in a case such as this, with professionals of such high skill and experience, is very small indeed ... I approach the case on the footing that the standard of competence by which Mr Goldberg is to be judged is that of the rather small and select group of silks specialising in tax matters, and for TG it is that of firms of solicitors with specialist tax departments. I agree that the standard for both Mr Goldberg and TG is a high standard. But I cannot accept [counsel for the plaintiffs]’s reversal of the basic common law formulation of the duty, which led him at one point to accept my formulation of his proposition as being that they could possibly have been right and still negligent but they could not have been wrong and not negligent.”
129.	Lloyd J proceeded to consider whether a reasonably competent tax silk in the position of Mr Goldberg, applying proper care and skill to the task of settling and advising on the draft letter, could have done as he did.  Notwithstanding the criticism levelled at that letter in the judicial review proceedings, the judge held that he or she could have done so, and the negligence claim against Mr Goldberg was dismissed.
130.	For the defendant, it was suggested, albeit faintly, that the standard here applicable was less than that for a tax QC.  However, given that the defendants were content themselves to give advice on the EBT Scheme, and did not seek to rely on the advice of Counsel, I do not see any real difference in the present case. As in Matrix, they are to be held to a high standard.
131.	For Mr Barker, it was submitted that the approach of Loyd J in the Matrix case was distinguishable, in that the judge was there addressing an area of judgment – the degree of disclosure to be provided in a letter – whereas the present case concerns a question of statutory construction on which there had to be a specific, correct answer.  I do not accept that distinction.  I recognise that there are some matters on which lawyers advise where there is no one, right answer but a range within which the answer may fall: e.g. the measure of damages for a personal injury or the valuation which the court will give for shares in a private company.  But just because the question is purely one of law does not mean that it is not a matter of judgment. A question of statutory construction, unless it is very simple or obvious, is in reality a question of what the court will hold that the provision means.  Of course, an opinion as to construction may be glaringly wrong, such that a lawyer who adopts it or advises on that basis can be held to be negligent.  But that is a far cry from saying that any construction which turns out ultimately to be wrong is therefore negligent.  Were it otherwise, a lawyer would be negligent simply because they applied a construction of a statute which was found after contested court proceedings, and perhaps only on appeal, to have been incorrect.  As stated by the editors of Jackson & Powell on Professional Liability (7th edn, 2012), a work to which both sides here referred, at para 11-103:
“The fact that a solicitor erred in construing, or in advising on the construction of, a statute or document is unlikely to constitute negligence, so long as the construction which he favoured was a tenable one.”
132.	It is not suggested that there was anything in the terms of the retainer of BWS that imposed a duty over and above the common law duty of care, or that they provided a warranty that the EBT Scheme which they prepared for Mr Barker would succeed.  Accordingly, I consider that the relevant question is whether a reasonably competent specialist tax lawyer at the time, with particular expertise in tax avoidance schemes, applying proper skill and care, could have advised as these defendants did regarding the EBT Scheme.  If the answer to that question is “yes”, in my judgment there was no negligence just because other reasonably competent tax lawyers of equivalent expertise would have taken a different view or advised in different terms.
133.	The question of a warning, which featured prominently in the argument, is to be considered in that overall context.  Mr Furness QC, appearing for Mr Barker, submitted strongly that even if the defendants were not negligent in interpreting sect 28(4) as they did, the point was sufficiently ambiguous or unclear that they should have warned Mr Barker that there was a high risk of an alternative interpretation which required the permanent exclusion of his family from any benefit.
134.	I was referred to a number of authorities concerning the failure by solicitors to give a warning of a possible alternative view.  In Queen Elizabeth’s Grammar School Blackburn Ltd v Banks Wilson (a firm) [2001] EWCA Civ 1360, [2002] PNLR 14, a school alleged its solicitors had been negligent in the advice they gave regarding a restrictive covenant in a transfer to the school of property from an adjoining owner.  The covenant prohibited the construction of a building on that property “greater in height” than the existing buildings.  When the school planned a development on that property, the solicitor advised that the restriction prohibited a new building above the height of the chimney stacks of the existing building but that it could be above the roofline.  After work had started to construct a building designed on that basis, the adjoining owner raised an objection and the school then carried out alterations to the new works to keep them below the ridge line and ensure that there was no possibility of a breach of covenant.  The Court of Appeal held that even if the solicitors might reasonably adopt the view which they took of the covenant, they were negligent in failing to point out the risk that it might receive a different interpretation.  In her judgment, with which Aldous and Sedley LJJ agreed, Arden LJ stated that the extent to which a lawyer should urge caution and point out risks to their client depends on the facts of the particular case.  And she continued (at [47]):
“… it is clear, from the facts as I have set them out, that [the solicitor] knew that a dispute was potentially to emerge with a neighbour over the effects of the clause, and in those circumstances it seems to me that it behoved him to point out that there was a risk about the construction of the clause. In my judgment, the arguments supporting the contrary construction on the clause were of sufficient significance to meet the threshold that they should have pointed out to the client.”
135.	The facts to which Arden LJ referred included, in particular, the fact that when giving his advice, the solicitor knew that the adjoining owner had already visited the site office to suggest that the proposed building was too high, and that he admitted that he must have known that there was a potential threat of litigation if the adjoining owner believed that the covenant was infringed.  And in a brief, concurring judgment, Sedley LJ stressed that the meaning of the covenant was far from clear:
“This was, in my judgment, a covenant which was likely to give quite a lot of trouble to a court called on to construe it.”
136.	In my view, as both judgments demonstrate, whether a warning of an alternative interpretation is required depends entirely on the circumstances.  Unsurprisingly, of particular significance in that regard is whether the solicitor can reasonably be confident that his interpretation is correct or, put another way, whether the risk of an alternative interpretation is clear.  That follows also from the observations of Salmon LJ (sitting as an additional judge of the High Court) in the much earlier case of Dixey & Sons v Parsons (1964) 192 EG 197 concerning the grant of a subtenancy, quoted by Arden LJ in her judgment and on which Counsel for Mr Barker here also rely:
“In the present circumstances the solicitor owed a duty to his client to take reasonable care, not only to protect his client against committing a breach of the law, but to protect him against a risk of being involved in litigation. Circumstances varied in every case. The law was not an exact science. There was no topic upon which judges had differed more often than upon the construction of documents. No one was infallible, except the House of Lords, and there were many points of construction upon which outstanding learned judges differed. In preparing the lease in the present case the solicitor was presented with what was an obvious danger. It would not do for him to say that in his view it was all right. There was an obvious danger that a different view might be taken. In the present circumstances, the ordinarily careful solicitor in his normal state would have gone to see his clients and advised them not to sign”
Those observations were obiter, since in the operative part of his judgment Salmon LJ had “no hesitation” in finding that the terms of the sublease prepared by the defendant solicitor breached the restriction in the headlease, and that the solicitor’s error constituted negligence since “anyone would jump to th[at] conclusion.”
137.	I consider that the recent decision of Newey J in Herrmann v Withers LLP [2012] EWHC 1492 (Ch), [2012] PNLR 28, is along similar lines.  The defendant solicitors (“Withers”) acted for the claimants on the purchase of a property in Knightsbridge: 37 Ovington Square.  The sales particulars of the property included “Access to communal gardens” but Withers’ inquiries of the vendor concerning the basis of the alleged right to use the gardens never got an adequate response.  However, Withers advised the claimants that on the basis of 19th century statutes the property benefited from a right of access to the gardens.  Although the claimants expressed concern about this and requested that £100,000 be retained out of the purchase price until the matter was sorted out, Withers advised them to go ahead, and they duly bought the property at the agreed price.  Subsequently, it emerged that the Garden Committee took the view that this property did not have a right of access because it was not on the square itself.  The claimants then commenced proceedings against the Garden Committee, but the Court held that on the proper interpretation of the Kensington Improvement Act 1851 (“the 1851 Act”) this property did not benefit from a right of access.  The claimants then sued Withers for negligent advice.
138.	The judge held that Withers were not to be criticised for reaching the view that the property was within the scope of the 1851 Act, but he continued (at [69]):
“That does not mean, however, that Withers were entitled to regard the position as clear-cut. As Miss Copestake accepted in cross-examination, the 1851 Act is a difficult piece of legislation. A central problem is that the Act contains no full definition of "square… ”  
[After setting out some of the problems in the statutory provisions, Newey J noted]:
It is significant, too, that Turner Debenhams [the vendor’s solicitors] had never claimed that 37 Ovington Square had the benefit of rights under the 1851 Act. While Knight Frank's sales particulars had confidently spoken of "Access to communal garden", Turner Debenhams had been much more circumspect….”
The judge held that in all the circumstances, “Withers ought reasonably to have concluded that there was at least serious doubt as to whether 37 Ovington Square fell within the 1851 Act.”  And he notably referred to the Queen Elizabeth’s Grammar School case as analogous.
139.	Counsel for Mr Barker especially relied on the judgment of the Court of Appeal in Levicom International Holdings BV v Linklaters [2010] EWCA Civ 494, [2010] PNLR 29.  In order to appreciate that decision on the particular point of relevance to the present action, it is necessary to outline some of the material facts in what was a very complex case.  By a shareholders’ agreement (“the CSA”), the claimant group agreed to sell 90% of its shareholding in its subsidiary, AS Levicom Cellular, to a company (Tele2) within a group of Swedish companies.  The Levicom Cellular business comprised cellular telecommunications in the Baltic States, and in particular a number of different operations relating to mobile telephony: through various subsidiaries, it was the second largest mobile operator in Estonia, and it carried on a smaller mobile telephone business in Lithuania; but in Latvia it held no licence and although it hoped to expand in the future, at the time of the CSA its only business was two retail handset shops.   By clause 13.1. of the CSA, the Swedish purchasers covenenated that until the earlier of one year from either Tele2 or the claimants ceasing to be shareholders in AS Levicom Cellular or, if earlier, 15 December 2003, they would not:
“… carry on, or be engaged, concerned or interested in carrying on within any of the Baltic States any cellular network business which is the same as or competitive with any business carried on by the Company as at the Completion Date save for equity investments in publicly listed companies of less than 5% of the total equity of such companies.”
The CSA was governed by English law and contained an arbitration clause.
140.	Some 20 months after completion, Tele2 acquired a Latvian company (“Baltkom”) which was one of two companies holding a licence and carrying on a mobile network operator business in Latvia.  Relying on advice from Linklaters, the claimant wrote to the Swedish group alleging a breach of clause 13.  In response, the Swedish group denied any breach, stating that as at the completion date AS Levicom Cellular owned no interest in any company that undertook cellular network business in Latvia and undertook no cellular network business in Latvia itself.  
141.	Further discussions with Linklaters followed, but the allegation of negligence concentrated on two subsequent letters of advice.  The first, in January 2001, advised that the Swedish companies were clearly in breach of clause 13, on a plain reading of its wording, because the business of Baltkom was the same as that of Levicom Cellular’s Estonian subsidiary.  In other words, the clause was to be given what the judgment referred to as a “Pan-Baltic construction” as compared to a “Same State construction.”  On the claimant’s instructions, Linklaters then wrote a letter of demand raising the prospect of a claim under clause 13, to which the lawyers to the Swedish companies, Cleary Gottlieb, replied, stating that they had consulted leading counsel who agreed with their contrary reading of clause 13, so that there was no breach.  They made proposals to settle the matter on a basis that reflected their view of the case on liability.  The claimants then sought further advice from Linklaters, telling their solicitors that while they believed they had a very strong case, if they did not they were not happy to proceed to arbitration.  That led to a further letter of advice from Linklaters in March 2001, confirming their earlier view.  The letter stated: 
“We regard this breach as clear and the claim arising therefrom as straightforward.  In our view, on the basis of the information we have to date, your prospects of success in establishing this breach are very good (and in terms of prospects for success, in the region of, but not less than, 70 per cent).”
142.	The claimants duly commenced arbitration, but a few days into the hearing, after the chairman of the arbitrators (Mr Kenneth Rokison QC) had expressed considerable doubt about the claimants’ construction of clause 13.1, the claimants settled by accepting an offer the Swedish companies had made before the arbitration had started.
143.	In the subsequent action against Linklaters, the judge found they were negligent regarding aspects of their advice on the potential remedies and measure of damage.  But as regards clause 13.1, he held that the Pan-Baltic construction was correct, and that in any event since Linklaters were entitled to take “a relatively robust view” about its meaning they were not negligent in failing to give a warning that the arbitrators might not agree with their view.  The claimants were sophisticated clients who would realise that there might be scope for dispute on a question of construction, which was in any event covered by the advice that the chance of success was “not less than 70 per cent.” 
144.	Reversing the judge, the Court of Appeal held that Linklaters were negligent in this regard.  Giving the leading judgment, Stanley Burnton LJ considered that it was “difficult to conceive of more bullish advice than that contained in the January letter”, and that as regards the advice on the chance of success in the March letter, “lawyers do not advise that the prospects of success are that high unless they are very confident indeed” (which indeed was how the claimants understood that letter): see at [246].  Stanley Burnton LJ continued:
“247		 … I do not think it clear, and I am not convinced, that clause 13 should be given a Pan-Baltic construction. This construction implies that a cellular network business in one Baltic state is "the same" as that carried on in another state. But if this is what the parties intended, why did they simply not draft an agreement that none of the relevant parties would carry on in any Baltic state any cellular network business other than that of Levicom Cellular? The Pan-Baltic construction gives no effect to the qualifying words "as at the Completion Date". Thirdly, it is clear that a cellular network business (in the sense of the kind carried on by, say, Vodafone or Orange in the UK) in one state does not compete in any meaningful sense with one carried on in another state, by reason of the requirement of a national licence. Normally, a restraint against carrying on a "competing" business is wider than a restraint against carrying on "the same" business. Yet, under Linklaters' interpretation of clause 13, the restraint in relation to "the same" is wider than that relating to "competing"; indeed, the inclusion of the latter restraint appears to be otiose. Lastly, a national interpretation of clause 13 makes commercial sense. Clause 13 restrained BV, NV and the NV Shareholders (apart from Mr Pedriks) as much as the Swedish companies. Under the CSA, Tele2 paid a considerable sum for its shareholding in Levicom Cellular. It was understandable that they would want to prevent the shareholders from whom they acquired their shares from competing with the business in which they had acquired their investment, or starting the same business…. 

145.	After noting a contrary argument supporting the Pan-Baltic construction, Stanley Burnton LJ said that it was unnecessary to resolve the issue of construction, and that Linklaters’ view could not be regarded as negligent given that the High Court judge at trial and also a retired Court of Appeal judge who had refused permission to appeal on this point had considered it to be correct.  But he continued:
“249 … However, nowhere in the documents referred to in the judgment is there any consideration by Linklaters of the factors to which I have referred. In my judgment, they could not sensibly have advised that the breach of clause 13 was "clear". In my judgment, they were negligent in doing so. It was particularly relevant to give a balanced view in the context of potential arbitration proceedings, since if the arbitration tribunal were to arrive at a different interpretation, it could not (save in rare circumstances) be the subject of appeal, even if objectively that interpretation might be incorrect.”
146.	I have set out the circumstances of the Levicom case at some length since it marked the high watermark of Mr Furness’ argument.  However, in my judgment it does not establish a development or change from the approach in the Queen Elizabeth’s Grammar School case, which was cited in the judgment under appeal in Levicom and which the Court of Appeal would have had well in mind.  Nor do I regard it as representing in any way a departure from the scope of the lawyer’s duty as set out by Lloyd J in Matrix Securities.  Lloyd LJ (as he had become) was indeed part of the constitution of the Court of Appeal in Levicom and concurred in the judgment of Stanley Burnton LJ.  
147.	I think it is notable that in all these decisions concerning a warning, the court found that the view of construction taken by the lawyer was either wrong (albeit not negligent) or that at the very least there were such strong factors favouring an alternative construction that this should have been pointed out by a lawyer presenting a balanced view to their client.   That is the basis, in my judgment, on which they hold that any lawyer exercising appropriate skill and care would have given a warning that there was a serious risk that his preferred interpretation might well be wrong.  And in my view, it is also of relevance if the lawyer is on actual notice of the potential challenge to his construction at the time he gave advice, as was the case in Queen Elizabeth’s Grammar School (opposition from the adjoining owner) and Levicom (letter from Cleary Gottlieb). 
148.	Accordingly, the question of a warning in the present case is closely related to the likelihood that sect 28 should be interpreted as prohibiting family members from receiving benefits after a participator’s death.  I therefore turn to consider the statutory provisions governing the EBT Scheme.
THE EBT SCHEME
149.	The relevant year of assessment was 1998-99, and the account of the relevant law is therefore given as in force at that time.
150.	In order to be effective for the purpose of tax avoidance, the EBT Scheme had to provide for the establishment of an EBT within the terms of sect 86 IHTA (“sect 86”) that also satisfied sect 28.  This was necessary because:
i)	The making the gift of the Shares to the Trust constituted a deemed disposal for which Mr Barker would be liable for CGT charged on the basis of their market value.  However, sect 239(1) of the Taxation of Chargeable Gains Act 1992 (“TCGA”) provides that if the conditions of sect 28 are met, the gift would qualify for holdover relief: Mr Barker would therefore be deemed to dispose of the asset on a no gain/ no loss basis.  The Trust would, in effect, “inherit” the gain and when it sold the Shares its gain would be computed on the basis of Mr Barker’s acquisition cost.  Since CGT is payable only by UK residents and the trustee was non-resident, the sale of the Shares by the trustee would not attract any CGT.
ii)	Assets held in a discretionary trust are normally subject to a charge every 10 years computed on the value of the assets in the trust, and there are also exit charges imposed on assets which are paid out of the trust in between 10 year anniversaries (computed on a time apportioned basis relative to the 10 year charge): sects 64-65 IHTA.  However, if the Trust qualified as an EBT under sect 86, it is exempt from these charges.
iii)	The making of the gift of the Shares to the Trust constituted a transfer of value of an amount equal to the resulting reduction in value of Mr Barker’s estate (i.e. his assets less his liabilities), which would be an immediately chargeable transfer for the purpose of IHT.  However, if the Trust qualified as an EBT under sect 86 and also met the conditions of sect 28, it will be an exempt transfer and no IHT is payable.
151.	The primary provision defining an EBT is sect 86.  It is entitled: “Trusts for the benefit of employees”.  In summary, insofar as relevant for present purposes, it applies where settled property is held on trust for a class of persons defined by reference to (a) employment by or office with a body carrying on a trade, or (b) spouses, relations or dependants of persons within (a).  The trust must last either indefinitely or until the end of a defined period. The class of persons within (a) must comprise all or most of the employees or office holders or employees of the body in question.
152.	Sect 28, insofar as material, provides as follows:
“- 	Employee Trusts
(1) A transfer of value made by an individual who is beneficially entitled to shares in a company is an exempt transfer to the extent that the value transferred is attributable to shares in or securities of the company which become compromised in a settlement if –
(a) the trusts of the settlement are of the description specified in section 86(1) below, and
(b) the persons for whose benefit the trusts permit the settled property to be applied include all or most of the persons employed by or holding office with the company.

(2) Subsection (1) above shall not apply unless at the date of the transfer, or at a subsequent date not more than one year thereafter, both the following conditions are satisfied, that is to say –
	(a) the trustees –
		(i) hold more than one half of the ordinary shares in the company, and
(ii) have powers of voting on all questions affecting the company as a whole which if exercised would yield a majority of the votes capable of being exercised on them; and
…
(4)	Subsection (1) above shall not apply if the trusts permit any of the settled property to be applied at any time (whether during any such period as is referred to in section 86(1) below or later) for the benefit of –
(a) a person who is a participator in the company mentioned in subsection (1) above; or
(b) any other person who is a participator in any close company that has made a disposition whereby property became comprised in the same settlement, being a disposition which but for section 13 above would have been a transfer of value; or
(c) any other person who has been a participator in the company mentioned in subsection (1) above or in any such company as is mentioned in paragraph (b) above at any time after, or during the ten years before, the transfer of value mentioned in subsection (1) above; or
(d) any person who is connected with any person within paragraph (a), (b) or (c) above.

(5) The participators in a company who are referred to in subsection (4) above do not include any participator who –
(a) is not beneficially entitled to, or to rights entitling him to acquire, 5 per cent or more of, or of any class of the shares comprised in, its issued share capital, and
(b) on a winding-up of the company would not be entitled to 5 per cent or more of its assets.

(6) In determining whether the trusts permit property to be applied as mentioned in subsection (4) above, no account shall be taken of any power to make a payment which is the income of any person for any of the purposes of income tax,….”

153.	Accordingly, the conditions of sect 28 will not be satisfied if the trust permits any of the following people to benefit at any time (i.e. whether during the period when the trust qualifies as an EBT or subsequently): 
i)	a “participator” in the company; or 
ii)	anyone “connected with” a participator in the company.
154.	A shareholder is a “participator”: sect 102(1) IHTA and sect 417 Income and Corporation Taxes Act 1988 (“ICTA”).  Since Mr Barker held more than 5% of the shares in Team 121 Holdings, pursuant to sect 28(5) he was a participator for the purpose of sect 28(4)(a).  Whether someone was “connected with” another person is defined in sect 270 IHTA and sect 286 TCGA. It is clear that Mr Barker’s wife, children and remoter issue (among others) were and are connected with him.  I shall refer to this category as “connected persons”.  However, it is accepted that this connection would cease on Mr Barker’s death so that thereafter his family would no longer be connected persons.
155.	It is clear that sect 28(4) precludes the application of sect 28(1) if the terms of the trust permits the payment at any time of capital benefits to anyone in the prohibited classes defined in the four paragraphs of the sub-section. (Pursuant to sect 28(6), the prohibition does not apply to income benefits.)  The critical question in this case, which is the foundation of the allegation of negligence, concerns the interpretation of the prohibited class in sect 28(4)(d).  Specifically, does it mean that the trust must not permit the payment at any time of capital benefits to persons who are connected when the transfer of value is made into the trust, or to persons who are connected when the benefit is applied to them?   Counsel for Mr Barker sought to characterise the former construction as applying the “Post Death Exclusion Principle”, on the basis that it would require the exclusion to apply after the death of the participator.  However, although deployed as a forensic device, there is in my judgment no question of any such independent or governing principle.  The question is simply one of the proper construction of the statutory provision.  The EBT Scheme was of course based on the latter construction, since it was fundamental to the scheme that Mr Barker’s family could benefit from the Trust after his death, and the trust documents were drafted accordingly.
156.	I heard extensive argument concerning these alternative interpretations and was pressed at various points in the trial to arrive at a decision as to the correct construction of this provision.  I am reluctant to reach a concluded view unless that is strictly necessary.  HMRC were not parties to these proceedings, so any decision that I made obviously would not bind them although it might be seen as having implications beyond this case.  However, I have no hesitation in saying that I do not find the construction urged on behalf of the claimant persuasive and, on a careful reading of sect 28, I regard it as very doubtful.  My reasons are as follows.
157.	Two  aspects of the matter are common ground:
i)	sect 28 should be read and construed as a whole; and
ii)	the word “is” should be given the same meaning in paras (a), (b) and (d) of sect 28(4).
158.	If the claimant’s construction were correct, para (a) would operate to exclude someone who is a participator at the date of the transfer of value into the trust.  But then it is hard to see what this adds to para (c), which on any sensible reading would cover a person who is a participator at the time of the transfer of value.  Although it was suggested that (c) covers only the period ‘before and after’, so that (a) is necessary to cover the position of someone who is momentarily a participator only at the instant of transfer, not only is that a very unusual situation but it would be a very curious approach to statutory drafting to separate that out for discrete treatment two paragraphs before. By contrast, on the defendants' construction, the distinction between para (a) and para (c) is very clear, and the structure of sect 28(4) is logical. 
159.	Secondly, there is no analogous provision to para (c) covering connected persons under (d).  Therefore on the claimant’s construction, (d) would on its plain meaning not cover someone who was not a connected person at the time of the transfer of value but became so connected afterwards.  It would not exclude, for example, the provision of benefits for a participator’s partner whom he or she married after transferring assets into the trust.  Recognising that such an outcome would be “wholly illogical” (as the claimant’s Counsel put it in their written closing), it was submitted that there is a lacuna in the wording which the court could fill by implication of the words “or becomes”, so that the paragraph reads: 
“any person who is or becomes connected with any person within paragraph (a), (b) or (c) above”
160.	Reference was made to O’Rourke v Binks [1992] STC 703, where the Court of Appeal held that it was permissible as a means of construction to read words into the provision of a tax statute to avoid an anomaly.  However, O’Rourke v Binks was a case where the literal reading of the provision produced a result which was described as absurd so that it was necessary to read in words to avoid that result.  Only in exceptional cases is it appropriate to read words into any statute, especially a tax statute.  Hence in IRC v Eversden [2003] EWCA Civ 668, [2003] STC 822, the Court of Appeal rejected the argument of the Revenue that some words need to be read into sect 18 IHTA in order to counter an avoidance scheme that relied on the spouse exemption in that provision.  Giving the leading judgment, Carnwath LJ stated at [22] that such an approach “is neither necessary nor within the court’s power of interpretation.”
161.	In the present case, there is an alternative construction of para (d) which gives rise to no illogicality and requires no amendment to the statutory language.  Where there are two interpretations, one of which works only with the implication of additional wording, that is in my judgment a powerful reason for preferring the other one.  This is not a case where amendment of the statutory wording is therefore “necessary”.  Furthermore, I think it is clear that the drafting of sect 28 paid careful attention to the temporal aspects of its operation: see not only sect 28(4)(c) but also sect 28(2).   For the draftsman to have omitted by oversight such an obvious consequence of the claimant’s interpretation of para (d) seems to me highly unlikely.
162.	Thirdly, on the claimant’s construction, since para (a) then refers to someone who is a participator at the time of the transfer of value, and para (c) on any view covers someone who was a participator in the 10 years before the transfer of value, although para (c) clearly also covers someone who has subsequently become a participator, I consider that the words “has been” do not readily include someone who becomes and remains a participator.  But it would be very odd, and again illogical, if the prohibited class did not include such a person.  This difficulty does not arise on the defendants’ construction.
163.	I should add that I do not think that the phrase “at any time” in the opening words of sect 28(4) provides much assistance, although when read with the present tense used in paras (a), (b) and (d) it does seem to me to indicate that it is at the time of application of the benefit, whenever that might be, that the status specified in those paragraphs is applicable.  
164.	I note that in their letter of 19 April 2010, HMRC seek to support the alternative construction by referring to the prospect of a participator who is very elderly with a short life expectancy and who settles property into a trust so that his family could expect to benefit on his death in the very near future.  But almost any statutory provision will give rise to potential anomalies in extreme cases.  I do not consider that this is such a likely situation as to mandate an interpretation of the statute that then requires amendment to its language to cover much more obvious cases as outlined above.
165.	It follows that although I do not definitively reject the claimant’s construction of sect 28(4), in my view it is neither obvious nor likely.
166.	I therefore do not consider that the defendants were negligent in interpreting sect 28(4) as they did, and in their view that the statutory conditions were satisfied if Mr Barker’s family were excluded from benefiting from the Trust until after his death.  I find that a reasonably competent tax specialist, possessing the requisite expertise, could very properly take that view.
167.	This conclusion is buttressed by the statutory guidance issued in connection with the new general anti-abuse rule (“GAAR”) introduced by Part 5 of the Finance Act 2013 (“FA 2013”).  Pursuant to sect 211(2)(a) FA 2013, in determining any issue in connection with the GAAR, the court or tribunal must take into account HMRC guidance that was approved by the GAAR Advisory Panel at the time the tax arrangements were entered into  (“GAAR Guidance”).  These provisions obviously came into force long after the EBT Scheme in this case.  But the statutory EBT provisions continue to be in force and the wording of sect 28 is unchanged.  The GAAR Guidance includes (in section D29) consideration of an avoidance scheme designed to take advantage of the EBT provisions.  It is unnecessary to go into detail as to the terms of that scheme, but the Guidance clearly proceeds on the understanding that sect 28(4)(d) does not prevent distribution to a participator’s children after her death: see at para D29.5.1.  The GAAR Advisory Panel, established by HMRC pursuant to Sch 43, para 1, FA 2013, includes tax partners from, among other firms, Allen & Overy, Linklaters and the accountants Baker Tilley.  I think it is significant that such a panel of leading practitioners, established by HMRC, evidently do not adopt the claimant’s construction of sect 28(4).
168.	I am further reinforced in my conclusion by the fact that several experienced tax specialists independently interpreted sect 28(4) in this way, and apparently did not consider that there was a likely alternative construction.  In particular:
i)	Mr Thornhill QC, who is a recognised expert in this particular field.  His concern was that Mr Barker and some of his family appeared to have taken benefits under the Trust through the use of properties, but not that the Trust permitted Mr Barker’s family to benefit after his death.  He took that view on several occasions over an extended period: in September 2002, when he was first instructed and Mr Barker wanted him to look at the arrangements from scratch (paras 65-69 above); in May 2006, when he was expressly instructed to look at the tax position generally in the light of the inquiry from HMRC, and over the following months when advising on the communications with HMRC (paras 83-93 above); and again in July 2010, when HMRC first made the argument on this interpretation of sect 28(4)(d) and Mr Thornhill advised that it was wrong (para 99 above).  Only on 23 July 2012 did Mr Thornhill change his mind, after reading Mr Studer’s Opinion.
ii)	Dr Ashton, who is an English barrister and Guernsey advocate who specialised in tax cases.  He considered the EBT Scheme documents and advised in November 2002 (paras 72-73 above).
iii)	Mr Hogg, who is not a lawyer but as an official of HMRC Capital Taxes Technical Group in Edinburgh had particular experience of the legislation and its application to avoidance schemes.  At the meeting with Mr Barker’s advisers, including Mr Thornhill, on 6 July 2006, Mr Hogg effectively confirmed that there was no problem about the terms of the Trust; the basis of HMRC’s objection was the way it had been operated contrary to its terms (paras 87-88 above).
169.	For Mr Barker, it was submitted that since expert evidence is not normally admitted in a lawyer’s negligence case, the fact that several tax specialists, including an eminent tax silk, adopted that interpretation of sect 28(4) is irrelevant.  However, the basis of the objection to expert evidence in such cases is generally considered to be that expressed by Oliver J in Midland Bank v Hett, Stubbs Kemp [1979] Ch 384 at 402:
“… evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court;”
But there is no rule prohibiting expert evidence in lawyer’s negligence cases, and as demonstrated by the discussion in Jackson & Powell at para 11-151 following the citation of this passage, such evidence has been admitted in several cases, in particular where the point at issue is not covered in textbooks.
170.	 In any event, I think there is a material difference between evidence of the kind referred to by Oliver J and evidence of the advice which actually was given at the time by a tax specialist.  Hence, if all the specialists who had afterwards had been consulted by Mr Barker had advised that sect 28(4) was clearly not satisfied, and if HMRC had immediately taken the point, I have no doubt that this would have been relevant in assessing whether the defendants were negligent, and I strongly suspect that Mr Barker would have sought to rely on it.  I think it is wholly unrealistic for the court to ignore what actually happened in this case.  When none of the various specialists considered this point as a matter of concern, I regard that as very relevant in addressing the question whether a reasonably competent tax specialist could have taken the view which the defendants took.
171.	This is subject to one caveat.  I think that there is a difference between the situation when a client is considering whether or not to enter into a tax avoidance scheme and the situation after the deed (literally in the present case) was done.  The standard of care in advising as to the law is no doubt the same in both cases, but the issue of whether the scheme might be vulnerable to challenge and therefore the appropriateness of giving a warning as to the risk is less important after the event.  I apply that qualification in turning to the  question of whether the defendants were in breach of duty in failing to give a warning. 
WARNING AND CAUSATION
172.	Mr Seitler sought to suggest that the discussion which Mr Auden had with Mr Barker regarding clause 2 of the Deed of Gift before he signed it on 15 October 1998 constituted a warning of the risk that the EBT Scheme might not be effective.  However, that was a very brief explanation, given when the client had decided to go ahead with the Scheme, and the Trust had indeed already been set up.  It is true that Mr Barker could of course still have refused to transfer the Shares.  But BWS had already given full advice about the EBT Scheme both at a meeting and through the written Memorandum, and in those circumstances for solicitors first to mention the possibility that the Revenue might defeat the Scheme when they attended on their client for the purpose of executing the documents while he was accompanying his wife in hospital, cannot, in my judgment, constitute an adequate warning about risk.
173.	I consider that the defendants should, in the course of advising Mr Barker and the other participating shareholders, have made clear that since this was a tax avoidance scheme, there was the possibility of a challenge by the Revenue, and that if it was necessary to defend the arrangements in legal proceedings, there was a possibility that they would not be upheld.  The landmark Ramsay case had been decided in 1981 and the jurisprudence was still developing.  In my judgment, any competent tax solicitor putting forward such a scheme to their clients in 1998 would have warned of that risk.  By contrast, the defendants gave extremely confident advice, subject to no real qualification at all, even when Mr Barker and the other shareholders expressly asked them about risks.  In that regard, I find that the defendants were in breach of their duty of care.
174.	However, this kind of warning was what might be described as a ‘general health’ warning about the Revenue’s attitude to tax avoidance schemes.  And on the facts, I am entirely satisfied that it would not have deterred Mr Barker from entering into the EBT Scheme.  I make that finding for two reasons:
i)	Mr Barker accepted that he knew that this was an aggressive tax planning scheme.  He was not naïve, and he acknowledged in his evidence that he realised that such a scheme would always be subject to different opinions.  He knew, moreover, that some of his colleagues in Team 121 Holdings decided not to enter into the EBT Scheme because, as he put it, they were more cautious than he was: i.e. they were less ready to take risks: see para 29 above. 
ii)	Such a general health warning is similar to the warning given by Deloitte in their report on the PUT Scheme.  But fundamental to the way Mr Barker advances his case is that if he had not entered into the EBT Scheme he would have adopted the PUT Scheme.  Indeed, the Deloitte Report proposed two different schemes, and Mr Barker’s case is that he would have chosen what Deloitte said was the riskier of the two.  So such a warning evidently did not deter him. 
175.	Indeed, Mr Barker did not even suggest that such a general health warning would have led him to adopt a different course.  If he were to succeed as a matter of causation, a much stronger or more specific warning was needed.  That was accordingly the secondary case which he advanced.  In his response to a request for further information, it was expressed as follows
“… reasonably competent solicitors professing the Defendants’ expertise would have advised that (whatever the Defendants’ personal view might have been on the true interpretation of section 28 IHTA) there was (at the very least) a risk that an EBT which did not relevantly exclude from benefit persons connected with a participator after his death would not attract the desired fiscal advantages under TCGA 1992 (and to the extent relevant IHTA 1984).”
In the closing argument for Mr Barker, it was explained that the warning should have made clear that the risk was significant.  For convenience, I shall call this a ‘high level’ warning.
176.	I accept Mr Barker’s evidence that if he had received such a high level warning, he would not have gone ahead with the EBT Scheme.  The contrary was not really suggested on the part of the defendant.  
177.	I recognise that a contrary view of sect 28(4) is arguable.  Indeed, HMRC were going to advance that argument before the Tribunal if Mr Barker’s appeal had not settled.  Mr Studer advised in 2012, well after HMRC had set out their argument, that sect 28(4)(d) is to be interpreted as requiring exclusion of the participator’s family at the time when the benefit is advanced, and his Opinion persuaded Mr Thornhill to change his mind.  But I note that Mr Studer does not consider in his otherwise very full Opinion that adopting that interpretation results in the need to imply words into the statute, as explained above.  In fairness, I should add that Mr Studer is a specialist in trust law, not tax law.   Although Mr Goy  (who is a tax specialist) and Mr Le Poidivin also expressed the view, after Mr Barker had settled with HMRC, that they preferred this interpretation, their Joint Opinion does not explain their reasoning.   
178.	However, for reasons I have fully set out above, I strongly incline to the view that the interpretation adopted by the defendants is correct.  Whilst solicitors whose interpretation of a statute or document is incorrect, but not negligent, may be in breach of duty for failing to give a warning of the risk of an alternative view, I find it difficult to see that solicitors whose interpretation is likely to be correct are nonetheless in breach of duty for failing to warn the client that they might be wrong.  That may perhaps be the position where the argument is finely balanced, so that any reasonably careful lawyer (of appropriate expertise) should have been alert to the significant possibility of a contrary view.  I think that the Court of Appeal’s judgment in the Levicom case may be explained in those terms, although from Stanley Burnton LJ’s analysis it seems that he had very serious doubts about the correctness of Linklaters’ interpretation of the contractual covenant.  In that regard, I have acknowledged above that the need for a warning is greater before a client embarks on a course of action as opposed to when giving advice on the merits after the event, but even so, the solicitors’ duty of care only requires a warning in an appropriate case.  Here, not only do I consider it very unlikely that the status set out in the exclusionary conditions in sect 28(4)(a), (b) and (d) applies at the time of application of the benefit, but a series of experienced tax specialists for several years did not interpret the provision that way or even suggest that it was arguable.  In my judgment, therefore, this was not a case where it can be said that any competent and careful solicitor (of appropriate expertise) would have given the high level warning urged on behalf of Mr Barker.
179.	I should add that a further and quite different ground of negligence is alleged in Mr Barker’s Re-Amended Statement of Claim. This is to the effect that clause 2 of the Deed of Gift was ambiguously drafted and that if the defendants had not been negligent it would have been drafted to make its intention clear, i.e. that if the Trust did not comply with sect 28 or sect 239 TCGA, the Shares or their proceeds would revert to Mr Barker. It is not suggested that but for this negligence Mr Barker would not have entered into the EBT Scheme but his pleaded case asserts, on a basis that is not explained, that his resulting loss was nonetheless a proportion of each of the heads of damage claimed by reason of the distinct negligent advice that did cause him to enter into the EBT Scheme. 
180.	This additional ground was not referred to in the skeleton argument, oral submissions or written closing on behalf of Mr Barker, and indeed was not addressed during the trial at all. Nonetheless, by letter from Counsel for Mr Barker written in response to a draft of this judgment, I was asked to determine it. However, although the drafting of clause 2 was subject to criticism by almost all the various Counsel who subsequently had to consider it, it is unclear how a better drafted condition would actually have improved Mr Barker’s position when he decided in 2012 that he would like to unravel the Trust and IB Sub-trust and whether any costs might have been saved as a result. If this ground had been urged during the trial, it would have been necessary to explore those questions in some detail. I note, for example, that Mr Goy and Mr Le Poidevin in their Joint Opinion (para 120 above) took the view that the clause should be interpreted in accordance with its manifest intention but that all the difficulties about the consequences of the gift of the Shares remained. I consider it wholly inappropriate to go into those issues for the first time at this stage.  I therefore make no findings on this additional ground. 
181.	Accordingly, I conclude that the defendants were not in breach of their duty of care in a manner that caused Mr Barker any loss as claimed in these proceedings.  That is sufficient to resolve this action, but in case I should be wrong and as they were extensively argued, I proceed to consider the questions of limitation and damage.
LIMITATION 
182.	For this purpose, it is to be assumed that the Trust documents did not satisfy sect 28(4)(d) because Mr Barker’s family was entitled to benefit after his death.  On that basis, Mr Barker suffered damage when he entered into the Deed of Gift on 15 October 1998, which was not an exempt transfer and did not qualify for holdover relief, so that he then became liable for CGT.  Thus the primary limitation period expired in 2004.  
183.	However, it is common ground that Mr Barker was unaware of this at the time.  The argument that Mr Barker’s claim in negligence is barred by limitation therefore turns on the extended limitation period under sect 14A of the Limitation Act 1980 (“sect 14A”).  That section applies to an action for damages for negligence other than a personal injury claim and provides, insofar as material:
“(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.
(4) That period is either –
(a) six years from the date on which the cause of action accrued; or
(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.
(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.
(6) In subsection (5) above “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both –
(a) of the material facts about the damage in respect of which damages are claimed; and
(b) of the other facts relevant to the current action mentioned in subsection (8) below
(7) For the purpose of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.

(8) The other facts referred to in subsection (6)(b) above are –
(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and
(b) the identity of the defendant; and
(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.
(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.
(10) For the purposes of this section a person’s knowledge included knowledge which he might reasonably have been expected to acquire –
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”
184.	In the present case, for the three year period to run Mr Barker would have had to have knowledge, or reasonably be expected to have had knowledge: (a) that he suffered damage; and (b) that this loss was attributable to an act or omission of the defendants.  Mr Seitler accepted, in response to a question from the Court, that the damage was that Mr Barker was liable for CGT because the arrangements he had entered into did not satisfy the relevant statutory requirements.  Therefore, here, (a) and (b) effectively go together.  Once Mr Barker knew or should have known that he suffered that damage, he would have realised that the advice he had been given by the defendants was defective, and he had of course entered into the EBT Scheme in reliance on their advice.  However, to start the period of limitation, he did not need to know that their advice was negligent, i.e. that it was such as no reasonably competent solicitor of appropriate expertise could have given: sect 14A(9). I think it is also clear that Mr Barker could only be expected to have knowledge of (a) with the help of specialist legal or tax advice: sect 14A(10)(b).
185.	For the defendant, it was emphasised that the threshold for knowledge under sect 14A must not be placed too high, and that the court should approach the question of whether a claimant had the requisite knowledge in a common sense way.  Hence in Halford v Brookes [1991] 1 WLR 428, Lord Donaldson MR stated as follows (at 443):
“In this context “knowledge” clearly does not mean “know for certain and beyond possibility of contradiction.” It does, however, mean “know with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking legal and other advice and collecting evidence.” Suspicion, particularly if it is vague and unsupported, will indeed not be enough, but reasonable belief will normally suffice”
And in Spencer-Ward v Humberts [1995] 06 EG 148, Bingham LJ said (at 151): 
“It is, I think, necessary that issues on this section [14A] should be approached in a broad common-sense way, bearing in mind the object of the section and the injustice that it was intended to mitigate. There is a danger of being too clever and it would usually be possible to find some fact of which a plaintiff did not become sure until later. It would be a pity if a desire to be indulgent to plaintiffs led the court to be unfair to defendants.”
186.	The observations of Lord Donaldson were approved by the House of Lords in Haward v Fawcetts [2006] UKHL 9, [2006] 1 WLR 682, and several of the speeches in that case also quoted with approval the analysis by Hoffmann LJ, delivering the judgment of the Court of Appeal (Sir Thomas Bingham MR, Hoffmann and Saville LJJ) in Hallam-Eames v Merrett Syndicates Ltd [2001] Lloyd’s Rep PN 178 at 181.  Considering the extent of the knowledge required, Hoffmann LJ emphasised the statutory wording “attributable … to the act or omission which is alleged to constitute negligence” and continued:
“In other words, the act or omission of which the plaintiff must have knowledge must be that which is causally relevant for the purposes of an allegation of negligence ... It is this idea of causal relevance which various judges of this court have tried to express by saying the plaintiff must know the 'essence of the act or omission to which the injury is attributable' (Purchas LJ in Nash v Eli Lilly & Co [1993] 1 WLR 782 , 799) or 'the essential thrust of the case' (Sir Thomas Bingham MR in Dobbie v Medway Health Authority [1994] 1 WLR 1234, 1238) or that 'one should look at the way the plaintiff puts his case, distil what he is complaining about and ask whether he had in broad terms knowledge of the facts on which that complaint is based' (Hoffmann LJ in Broadley v Guy Clapham & Co [1993] 4 Med LR 328, 332).”
187.	These proceedings were commenced on 10 April 2013.  In submitting that the claim is barred under sect 14A, the defendant relied on various occurrences or events which, he submits, gave rise to the requisite knowledge for the purpose of sect 14A prior to 10 April 2010.  In the end, Mr Seitler concentrated on three particular occasions:
i)	receipt of the Wragge report in July 1999;
ii)	the advice from Mr Thornhill between May and November 2006, spanning the meeting with HMRC in Edinburgh on 6 July 2006;
iii)	receipt of the tax assessments dated 19 March 2010.
I shall consider each in turn.
The Wragge report : July 1999
188.	The Wragge report suggested and indeed warned that the EBT Scheme might fail since the Trust did not satisfy the statutory conditions for an EBT.  However, it did so on a basis which it is now accepted was misconceived.  I do not see how that can constitute knowledge in the relevant sense.  Of course, in very broad terms it can be said that Mr Barker is complaining that the EBT Scheme did not work and that the Wragge report had alerted him to the fact that it might not work.  But that is simplistic: the essence of Mr Barker’s case is that he was not advised that the statutory conditions required, or warned that they might require, exclusion of his family from benefit after his death.  The Wragge report said nothing to that effect.  If Mr Barker had started proceedings against the defendants on the basis of the Wragge report, he would have failed.  I do not see how this can constitute the requisite knowledge.
Mr Thornhill’s advice: May-November 2006
189.	It was submitted that Thornhill’s views after he was first instructed and then through the exchanges with HMRC over which he assisted Mr Brown, made clear that (as assumed for this part of the argument) the advice from the defendants was flawed and that Mr Barker was at risk as a result.  It was pointed out that the instructions to Mr Thornhill even asked him to advise whether BWS had been negligent: para 83 above.  However, although Mr Thornhill was critical of the drafting of the trust documents in certain respects, this related to the potential of Mr Barker’s family being given benefits during his lifetime.  As I have emphasised in discussing the allegation of negligence, he never suggested there might be a problem because the exclusion did not apply after Mr Barker’s death.  And although HMRC suggested in their discussion with Mr Barker’s advisers that sect 28(4) was not satisfied, this was because of the way Mr Barker himself had derived benefits under the IB Sub-trust, something about which Mr Thornhill was indeed concerned.  Mr Hogg at the meeting in Edinburgh expressly accepted that the drafting of the various documents complied with the statutory conditions.  Accordingly even if, which is unclear, the way Mr Barker benefited from properties and artwork bought by the IB Sub-trust reflected the defendants’ advice, that was not the causally relevant advice for the purpose of the present claim.  
The tax assessments: 19 March 2010
190.	It was submitted that Mr Barker relied on the defendants to ensure that he would not be subject to liability to tax on the transfer of the Shares, so that on receipt of the assessments he would have known that the advice was flawed.  However, as Mr Furness pointed out, BWS never promised Mr Barker that HMRC would not seek to impose assessments on him.  The fact that they sought to challenge the EBT Scheme did not in itself mean that it was likely to be invalid. 
191.	No explanation for the assessments was given by HMRC until their letter of 19 April 2010 to Mr Brown, which was the first occasion when anyone advanced the interpretation of sect 28(4), which is the “essence” of the claimant’s case.  That letter came within the three year limitation period and so cannot assist the defendants.  I would only observe that even then, in my view this was just the sort of case to which sect 14A(10)(b) applies: i.e. before Mr Barker could be expected to know that HMRC’s case might succeed so that he would indeed suffer damage, he would need to seek expert advice.  He did precisely that, consulting Mr Thornhill again on the arguments put forward by HMRC, and on 5 July 2010 Mr Thornhill advised in writing in unequivocal terms that their interpretation of sect 28(4) was wrong.  I consider that, the circumstances accordingly fall within the proviso to sect 14A(10).  It was not until two years later and the Opinion of Mr Studer that any of Mr Barker’s professional advisers indicated that HMRC’s contention could succeed.
192.	I should add that I did not find the case of Eagle v Redlime Ltd [2011] EWHC 838 (QB), 136 Con LR 137, on which Mr Seitler sought to rely, of any assistance on this issue.  That was a building case, where the claimant had actual knowledge that there was subsidence causing part of the drainage system to sink and separate from the flooring more than three years before proceedings were brought.  The issues in that case (concerning the extent of the damage and who was responsible) were therefore very different from the present, where Mr Barker did not know that he was under any liability for tax as a result of his transfer of Shares until after 10 April 2010.
193.	Accordingly, I do not consider that Mr Barker had knowledge, whether actual or constructive, for the purpose of sect 14A before the three year period prior to the bringing of this claim.  His claim is therefore not out of time.
DAMAGES
194.	I consider the measure of damages on the assumption, contrary to my finding, that the defendants are liable to Mr Barker.
195.	The defendant raised a basic objection to any recovery of damage on grounds of causation.  Mr Seitler submitted that the investigation into the EBT Scheme was in fact pursued by HMRC only because Mr Barker had taken benefits under the IB Sub-trust by his own use of properties which the Sub-trust had purchased; and that conduct cannot be attributable to the defendants.  However, I cannot accept this argument, which Mr Seitler did not press with much vigour.  It amounts to saying that although the EBT Scheme did not satisfy the statutory conditions necessary to avoid CGT, Mr Barker might have got away with it if only he had acted more prudently.  Even if that were correct as a matter of fact, I do not consider that this can properly be treated as breaking the chain of causation so as to bar recovery.  In any event, it appears that HMRC’s interest in the EBT Scheme was triggered by reference to the Trust in the Logica offer document, and so unrelated to the actions of Mr Barker.
196.	In Wellesley Partners v Withers [2015] EWCA Civ 1146, the Court of Appeal held that where a defendant is under concurrent liability for negligence in contract and tort for pecuniary loss, the contractual test for remoteness applies to both causes of action.  In the present case, both sides accept that the contractual test should accordingly govern.  Although Mr Barker’s claim is brought only in tort, that is because a contractual claim would be out of time.  A claimant clearly should not benefit from a broader test for remoteness after the contractual limitation period has expired than if he had started his proceedings earlier when a contractual claim was still open to him.  Accordingly, Mr Barker can recover only for such loss as was in the reasonable contemplation of both him and the defendants at the time when he retained them in 1998.
197.	Although pleaded under eight heads in the Re-Amended Particulars of Claim, the damage claimed can be simplified for present purposes into five  categories:
i)	Professional fees and charges (of BWS, TPS and FSL) in connection with the setting up of the EBT Scheme;
ii)	Trustees’ costs and fees in connection with the administration of the Trusts (i.e. the Trust and the IB Sub-trust);
iii)	Professional fees (accountants, solicitors and counsel) in respect of negotiations with HMRC;
iv)	Costs of extracting the proceeds of the Shares from the Trust, including the 2014 Chancery Division proceedings, the payment of £500,000 to the employees under the 2014 Court Order and the indemnities given to Confiance;
v)	The sum paid to HMRC under the settlement reached with them on account of tax and interest.
The payment in (v) was made by Mr Barker.  For the other four categories, the claim is in respect of payments made by Mr Barker or out of the proceeds of the sale of the Shares.
198.	I shall consider these in reverse order, since the claim in respect of the payment to HMRC is much the greatest.  I will address the other heads relatively briefly.
Payment to HMRC
199.	The basis of Mr Barker’s claim is that if properly advised, he would never have entered into the EBT Scheme.  As stated at the outset, Mr Barker’s case is that he would instead have entered into the PUT Scheme proposed in the Deloitte Report and so would have avoided CGT on the sale of the Shares to Logica.
200.	I accept that in all probability Mr Barker would have entered into the PUT Scheme.  He was a relatively young man, clearly keen to find the best arrangement to avoid a very substantial tax liability, and this was an alternative scheme which he had actively considered.  Indeed, his case in this respect was not really challenged: on the contrary, it was relied on in support of the defence case that Mr Barker would not have been deterred from going into the EBT Scheme had a warning of risk been given.  Instead, the defendant advanced arguments to the effect that the PUT Scheme would not have succeeded.   That involves considering (a) whether HMRC would have challenged Mr Barker’s implementation of the PUT Scheme; and (b) whether such a challenge would have been successful.  
201.	Since both (a) and (b) involve matters independent of Mr Barker and the defendants, it is common ground that they fall to be determined on the basis of a loss of a chance: see on this point the analogous case of Altus Group (UK) Ltd v Barker Tilly Tax and Advisory Services LLP [2015] EWHC 12 (Ch), especially at [66], with which I respectfully agree.  Although (a) and (b) are conceptually distinct, they overlap since the stronger the case against the PUT Scheme as a matter of law, the more likely it is that HMRC would have challenged it.  There can be no precision in the determination of what are by definition hypothetical questions and I think it is sensible to consider them together.
202.	For Mr Barker, it was argued that the chance of a positive answer to both (a) and (b) is so slight that it can be disregarded, or alternatively that any discount from the recoverable damages should be small.  As I have just indicated, the defendant’s submissions were to the opposite effect and contended that a very significant discount should be applied.  Before analysing the competing arguments, it is necessary to describe briefly the legislative basis of the PUT Scheme and the resulting tax benefits.  As with the EBT Scheme, I do so on the basis of the legislation in force in 1998-99.
203.	An explanation of the PUT Scheme was set out in the Deloitte Report: see para 17 above.  It involved the creation of a new unit trust, in which Mr Barker would hold most of the units and to which he would transfer the Shares.  The sale of the Shares to Logica would then have been made by the trust.
204.	Pursuant to sect 165 TCGA, holdover relief is provided for gifts of business assets, which at the time included shares.  Accordingly, as with the EBT Scheme, a transfer by Mr Barker of the Shares into the PUT would not have realised a gain.  
205.	On the sale by the PUT of the Shares to Logica:
i)	provided that the PUT is a unit trust scheme, the sale would be treated as if it were a sale by a company: sect 99 TCGA.  This is sometimes referred to as the ‘statutory corporate veil’. Therefore the sale would not be treated as a sale of Mr Barker’s beneficial interest and there would be no gain accruing to him; and
ii)	provided that the PUT is an authorised unit trust, any gains would be exempt from CGT.
206.	Two concepts, statutorily defined, are accordingly important for this arrangement: a “unit trust scheme” and an “authorised unit trust”.
Unit trust scheme
207.	Under the Financial Services Act 1986 (“FSA”), a “unit trust scheme” is a collective investment scheme under which the property in question is held on trust for the participants: sect 75(8).  A collective investment scheme receives an elaborate definition, incorporating both positive and negative conditions, in sect 75.  For present purposes, it is sufficient to state that those conditions require, albeit by necessary implication, that there is more than one participator taking part in the scheme: indeed, that is the essence of the investment being “collective”.
Authorised unit trust
208.	An authorised unit trust is a unit trust scheme in the case of which an order under sect 78 FSA is in force: sect 468(6) ICTA.  Sect 78 FSA provides for the making of authorisation orders.  That power is exercised by the regulator. Pursuant to sect 78(1), an authorisation order can only be made if the scheme complies with regulations made under sect 81.  Sect 79(1)(a) gives power to revoke an authorisation order if any of the requirements for making it are no longer satisfied.
209.	Sect 81 FSA enables the making of regulations regarding authorised unit trust schemes, and sect 81(3) provides:
“Regulations under this section may make provision as to the contents of the trust deed, …; but regulations under this section shall be binding on the manager, trustee and participants independently of the contents of the deed and, in the case of the participants, shall have effect as if contained in it.”
210.	The relevant regulations are the Authorised Unit Trust Scheme (Investment and Borrowing Powers) Regulations 1988 (“the Regulations”).  Reg 11, read with regs 9-10 and the definition in reg 2(1), provides that no more than 10% in value of any property of the scheme may consist of shares that are not in a publicly quoted or listed company.  
211.	Regs 6-7 prescribe the duties of the manager and trustee in the event of breaches of the investment limits set out in the Regulations.  Reg 6 deals with inadvertent breaches, and requires that in that event the manager shall take steps to rectify the position “as soon as reasonably practicable having regard to the interests of participants in the scheme” and, in any event, within six months from the manager becoming aware of the breach.  Reg 7 by contrast deals with other breaches of investment limits, i.e. deliberate breaches.  It requires the manager “forthwith upon becoming aware of the contravention, [to] take such steps as are necessary to ensure that the property of the scheme is invested in a manner which complies with these Regulations.”
212.	For the defendant, it was submitted that the PUT Scheme, as proposed for Mr Barker, was in reality “a novel and aggressive tax avoidance scheme which had no proven track record.”  Four points were emphasised:
i)	it was submitted that there was no evidence that Mr Barker would have been prepared to give anything more than an illusory share in the PUT to anyone else;
ii)	at the time the PUT Scheme was being considered, a sale of Team 121 Holdings was already in contemplation;
iii)	it was intended to breach the 10% private company holding limit under the Regulations from the inception of the PUT; and
iv)	the amounts involved were high, since the Shares were worth in the region of £35 million in 1998.
213.	Ms Campbell, who argued this part of the case on behalf of the defendant, submitted that the PUT Scheme was vulnerable to challenge in particular on three grounds:
i)	A Ramsay challenge on the basis that the inclusion of a second or even third participator in the PUT, holding only a nominal number of units, was an artificial step in the arrangement introduced for no commercial purpose other than to make it qualify as a “unit trust scheme” so as to avoid tax.  That step could therefore be disregarded, especially when the final step, i.e. the disposal by the unit trust of the Shares, was a pre-ordained transaction when the PUT Scheme would have been set up;
ii)	Failure to qualify as an authorised unit trust, since the regulator would have been asked to grant approval on the basis of a business plan which showed an express intention that the initial shareholding of the trust would be of shares in a private company in breach of the investment limit in the Regulations.
iii)	Since the investment limits in the Regulations would have been incorporated into the trust document, either expressly or by reason of sect 81(3) FSA, it was clear from the start that the 10% limit would be breached.  Furthermore, this was not an inadvertent breach, so under reg. 7 the holding by the PUT of shares in Team 121 Holdings should have been drastically reduced to fall within that limit “forthwith” whereas this would not occur until a takeover of the company was achieved.  Therefore, submitted Ms Campbell:
“… it was intended to breach the Regulations and to breach the Regulations about how one dealt with beaches of the Regulations, which is, we say, doubly serious.”
She further submitted that what distinguishes a unit trust arrangement from a bare trust are the administrative provisions, and since the parties setting up the PUT did not intend to comply with key aspect of the administrative provisions in the document from the outset, the PUT Scheme could have been challenged as a sham.
214.	In my view, it is very unlikely that the PUT Scheme could have been characterised as giving the required additional participators only an illusory or purely nominal share.  Deloitte explicitly stated in its report that there must be at least one other investor and advised that “the larger the holdings of other members of your family the less risk of a successful Revenue challenge”.  Mr Montgomery’s evidence was that if Mr Barker had pursued their proposal, Deloitte would have advised him to set up the PUT with two other investors, i.e. two corporate trustees holding on trusts for each of Mr Barker and a close member of his family or his then wife. Since Mr Barker’s intention on entering into the EBT Scheme was, at least in part, for his family to benefit, I see no reason to presume that he would not have followed Deloitte’s advice.  I would add that Mr Barker’s then wife was herself a shareholder in Team 121 Holdings and indeed became a participator in the EBT Scheme.  If instead of the EBT Scheme, Mr Barker had proceeded with the PUT Scheme, I think that she may well have participated in her own right and transferred her own shares into it.  Although her shareholding in Team 121 Holdings (2,374 shares) was very small compared to that of Mr Barker (451,372 shares), there was nothing “illusory” about it nor would there be about her holding a corresponding proportion of units in the PUT.  
215.	Moreover, Mr Montgomery said that Deloitte was proposing the PUT Scheme to several clients, not just to Mr Barker, and that tax counsel – in fact, Mr Thornhill QC – had advised that it did not present serious concerns.   Mr Montgomery said that PUT Schemes of this kind were implemented by Deloitte and a number of other tax advisers at the time, and that Deloitte had no knowledge of any of them being challenged by the Revenue, which is something he expects Deloitte would have become aware of.  The Revenue would also have been aware of the schemes from about 1996/97 when they were first being implemented.  The fiscal response to such schemes was a legislative change to the TCGA, which ended the potential for such a scheme to be used for tax avoidance with effect from 9 November 1999.
216.	I recognise that there is an element of uncertainty, but even with an increasing inclination of the Revenue to bring a Ramsay challenge, as seen some years later in their opposition to the EBT Scheme, I do not regard a challenge to the PUT Scheme, on the basis of the ‘more than one shareholder’ requirement, as at all likely to have succeeded.
217.	However, the position regarding the 10% private company investment limit seems to me more problematic.  The PUT Scheme unquestionably involved a significant and deliberate breach of the Regulations in that regard.  This is indeed acknowledged in the Deloitte Report, which also made clear that the nature of the gift of shares and proposed sale should be set out in the business plan of the PUT that would be provided to the regulator - at the time, the Securities and Investment Board (“SIB”). Deloitte envisaged obtaining prior authorisation for the PUT before Mr Barker transferred the Shares into it.  The authorisation process would be handled by the manager of the PUT, which would be an established brokerage firm.  Mr Montgomery said that various brokerage firms with whom Deloitte discussed the PUT Scheme said that they did not see a breach of the 10% limit as an obstacle.  Although Mr Montgomery identified three well-known brokers who had responded in this way, it was unclear on what basis they could feel so sanguine.  
218.	Moreover, the remedial obligation under the Regulations is relevant in this context.  The assumption is that Mr Barker would have implemented the PUT Scheme around the end of 1998.  At that time, it was not clear how long it would take to secure a sale of Team 121 Holdings, and it was only in June 1999 that the sale contract with Logica was entered into.  For the PUT to hold the Shares over that period seems to me wholly inconsistent with the requirement to dispose of them “forthwith” pursuant to reg. 7, especially when there was an outer limit of six months in the case of an inadvertent breach under reg. 6.  Mr Furness responded to this argument by pointing out that there would have been no need to transfer the Shares into the PUT until just before the sale to Logica.  Accordingly, the Shares could have been held by the PUT for only a very short time, and once Logica shares were received in partial consideration of the sale there was no longer a problem since Logica was a listed company.  However, the obligation under reg 7 is, effectively, to dispose of sufficient investments to remedy the breach “forthwith upon becoming aware of the contravention”.  Where the manager was aware at the time the PUT was established that breach of the investment limit with a view to subsequent disposal of the investments was inherent in the purpose for which the unit trust was set up, it seems to me there must have been some risk that the unit trust scheme would not have been authorised by the SIB.
219.	There was no evidence as to how far these matters were discussed by Deloitte with the various brokers mentioned by Mr Montgomery, nor of the basis on which they could feel comfortable if they contemplated such a scenario.  Reference to Deloitte’s general experience with PUT Schemes seems to me of rather less weight when addressing what would have happened on the particular facts of Mr Barker’s case.  Nor was any expert evidence adduced by Mr Barker as to how this issue would in all likelihood have been dealt with.  
220.	As I understand it, the real issue here is not so much a challenge by HMRC but the risk of the regulator refusing to authorise the PUT under sec 78 FSA (or subsequently withdrawing authorisation under sec 79 FSA).  
221.	I do not think the suggestion of sham really takes matters much further.  It essentially derives from the same factual foundation, albeit that it would be a basis of challenge by HMRC rather than a denial of authorisation by the SIB.  To establish a sham is of course a much higher hurdle than simply a refusal of authorisation for failure to comply with the Regulations.
222.	The Deloitte Report described the risks in the PUT Scheme as “significant”.  Mr Montgomery explained that as being Deloitte’s view at the time, when such schemes were relatively new, but with hindsight he felt the risks were not so great.  However, the PUT Scheme involving Mr Barker had its own distinctive features to which I have just referred.  Any assessment of a chance has to be rather broad brush.  In my judgment, the discount of two thirds urged by Ms Campbell is much too great.  Taking all these matters into account, I consider that the chance of success of the PUT Scheme, covering both SIB authorisation and any HMRC challenge, was 70%.
223.	However, it is also necessary to consider how much of the tax paid in the settlement with HMRC would have been avoided if the PUT Scheme had been implemented.  One of the main reasons why Mr Barker had opted for the EBT Scheme instead of the PUT Scheme had been that with the latter, unlike the former, CGT was only deferred not avoided altogether.  Mr Barker would have had a beneficial interest in the units and on a sale of the units he would be liable to CGT.  That could have been avoided only if Mr Barker had by then become non-resident or had died.  Whatever may be the position today, I do not think it was in the reasonable contemplation of the parties in 1998-99 that Mr Barker would become non-resident.  There is no suggestion that he ever discussed this with the defendants and, indeed, his reason for preferring the EBT Scheme suggests that he did not then envisage that development.  But I accept that, on the balance of probabilities, he would have retained units corresponding to the proceeds of sale of the Shares until his death.  There was scant evidence directed to this point, but as Mr Barker had been prepared to enter into an EBT Scheme which involved the proceeds of the Shares being held for the benefit of his family after his death, I think that it is appropriate for me to apply the same approach to the units in the hypothetical PUT Scheme. I therefore find that Mr Barker would probably either have held those units until his death or once he had children he would have made transfers to them in a tax efficient manner.  On that basis, there would have been no liability to CGT.  The units held at his death would of course have formed part of Mr Barker’s estate for IHT purposes, but so now do the assets transferred to Mr Barker on the unravelling of the Trust.  
224.	This takes me to a short point raised by Mr Seitler in his closing submissions.  He contended that as the compromise enshrined in the 2014 Court Order involved a transfer of £1 million to a trust for Mr Barker’s children, that sum has not entered into his estate and he therefore should give credit for the notional IHT avoided as compared to the counter-factual under the PUT Scheme.  However, as Mr Furness submitted in response, that involves the assumption that Mr Barker would have done nothing to benefit his children in similar fashion through the units which he would have held in the PUT.  Since Mr Barker was clearly an individual keen and alert to take any opportunity to mitigate tax, I see no basis for that assumption.  I accept Mr Furness’ submission in that regard and do not consider that any credit falls to be given on this basis.
225.	Finally, under this head, I should address the contention pleaded in the Re-Amended Defence and advanced in the skeleton argument for the defendant that it was not reasonable for Mr Barker to have paid over £11 million to HMRC in settlement. This argument was not abandoned, but Mr Seitler did not pursue it in his oral submissions and I consider that his reticence in that regard was well judged. As I understood it, the point relates not to the fact that Mr Barker reached a settlement with HMRC but to the amount. However, it is clear on the evidence that Mr Barker followed the advice of both Mr Brown and Farrers, who regarded this as a good outcome for their client, as explained above. Mr Brown was not challenged on this. By settling instead of pursuing his appeal before the Tribunal Mr Barker was mitigating his loss, and it is well established that the standard of reasonableness expected of a claimant in that situation is not a high one: see McGregor on Damages (19th edn, 2014) at para 9-074. I accordingly reject this argument. 
Costs of unravelling the EBT Scheme
226.	This head covers the costs of all the parties to the 2014 High Court proceedings leading up to the 2014 Court Order (£558,836.08), the payment of £500,000 to employees under the 2014 Court Order and an indemnity sought in respect of any future liability to Confiance arising from the indemnity given to it under the 2014 Court Order.
227.	Although the test for remoteness is the contractual test, the measure of damages in such a case is the tortious measure, i.e. to put the claimant in the position he would have been in if the breach of duty had not occurred.  In  the well-known case of South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191 (“SAAMCO”), Lord Hoffmann (with whom the other members of the Appellate Committee agreed) emphasised that a claimant can recover only for loss which has a sufficient causal connection with the subject matter of the duty of care.  He expressed the relevant principle as follows (at 214):
“If the duty is to advise whether or not a course of action should be taken, the adviser must take reasonable care to consider all the potential consequences of that course of action.  If he is negligent, he will therefore be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.”
228.	In the present case, had the defendants advised Mr Barker that an effective EBT Scheme required the permanent exclusion of his family from benefit, he would not have entered into the EBT Scheme at all.  On that basis, I consider that the expenditure of significant professional fees and other costs in order to, in effect, unravel the Trust and IB Sub-trust were foreseeable and within the scope of the responsibility assumed by the defendants.  The 2014 Court Order provided for the payment of the costs of Confiance (i.e. the trustee) on an indemnity basis, and although Mr Seitler submitted that in the present action Mr Barker should only be able to recover those costs as assessed on a standard basis, I reject that argument both on principle and authority.  In the present case, it is not simply a question of Mr Barker recovering the whole of his own costs of prior proceedings but his liability under a court order expressly making him liable to pay a trustee’s costs on an indemnity basis.  That is of course the normal order in such a case.  As a matter of principle, I see no basis to deny Mr Barker recovery corresponding to that liability. As regards authority, see the judgment of Newey J in Herrmann v Withers at [114]-[115] explaining why a restriction on the recovery of indemnity costs as damages is no longer appropriate.  
229.	Secondly, as regards the payment of £500,000 for the benefit of the employees, an objection to this loss was raised as a matter of principle and not to the amount.  But I think it was fundamental to the concept of an EBT that it was for the benefit of the employees of Team 121 Holdings and that had been explained by Mr Auden.  Therefore, I regard it as a foreseeable consequence that they would be entitled to a measure of compensation if the Trust were set aside.  
230.	I should add that I also reject the defendants’ pleaded argument, not advanced further in oral submissions, that insofar as monies were paid out of the Trust and not by Mr Barker personally, or through a loan from Lilliane which was not genuine, this was not Mr Barker’s loss.  The short answers are, first, that by reason of these payments Mr Barker was left to that extent with less money than he would have had if he had not transferred the Shares to the Trust; and that there is no basis for finding that the loan from Lilliane was a sham.
231.	Accordingly, I find that the damages under this head would be fully recoverable and that an indemnity in respect of any future liability to Confiance pursuant to the 2014 Court Order is also appropriate.
Professional fees in respect of negotiation with HMRC
232.	Although described in that way, as I understand it this category covers all the professional fees of accountants, solicitors (other than BWS) and counsel advising on the issues concerning the EBT Scheme after it had been established, even before HMRC first raised questions about it in 2005.  It therefore includes all the fees of Mr Thornhill.  The total claimed under this head is £464,763.44 inclusive of VAT.
233.	However, it was only on 19 April 2010 that HMRC first raised the point about sect 28(4).  The need for extensive advice and involvement by the professional advisers – including the trip to Edinburgh to meet with the HMRC officials – was the result of the problems caused by Mr Barker’s taking of benefits from the Trust through the use he made of some of the properties.  Those benefits, as Mr Furness very properly accepted, were not part of the EBT Scheme as such.  He nonetheless submitted that these professional costs were “part and parcel of the costs of trying to enjoy the assets under the EBT and should be recoverable as such.”  I do not agree.  In this respect, Mr Barker was departing from what was envisaged by the EBT Scheme.  They do not flow from the defendants’ breach of duty and I do not regard the resulting costs as falling within the SAAMCO principle set out above.  
234.	I believe that the cost of the Wragge report is claimed under this head. It is a relatively small sum but I accept the defendant’s submission that the Wragge report does not have a sufficient causal connection with the breach of duty alleged since it did not relate to the sect 28(4) issue at all. Nor do I think it was in the reasonable contemplation of the parties that another firm of solicitors would come to advise on the robustness of the EBT Scheme not long after it had been implemented. 
235.	I accept the practical approach put forward by Mr Seitler and hold that only the costs under this head incurred after 19 April 2010 would be recoverable.
Trustees’ costs and fees
236.	The total claimed under this head was £1,067,324.70. It covers all the management time costs and administration fees charged by the various trustees and company managers in respect of the management of the Trust and IB Sub-trust since inception. 
237.	I think it is clear that the consequences of the EBT Scheme with offshore trustees was that those trustees and managers would charge ongoing fees. As I understood it, this head of loss was not resisted as a matter of principle, but two points of substance were raised by the defendant. First, it was submitted that credit should be given for the annual fees that would have been incurred in the running of the PUT. Mr Montgomery indicated that those fees would be between 0.5% and 1.25% p.a. Those fees are distinct from the set-up costs of the PUT that I address under the next head of damage. However, I think there is a difference between the trustees’ management fees and the investment broker’s fees. The Trust also used investment advisers, in particular Mr Stephenson, and no claim is made for his fees. It would no doubt be possible to undertake a detailed investigation, and it may be that the investment brokerage fees of the PUT Scheme would be more than the investment advisory fees incurred under the EBT Scheme. But, this point was not raised in the Re-Amended Defence or indeed in the opening or skeleton argument for the defendant. It was first made in Mr Seitler’s closing submission and therefore not explored in evidence. I consider it much too late to introduce such a significant factual inquiry at that stage. 
238.	Secondly, the same point arose as in respect of the professional fees: i.e. the time spend by the various trustees, and thus their fees, were increased by the need to deal with the issues raised by Mr Barker’s taking benefits in use of some of the properties. I accept that there would have been an element of this head of damage occasioned on that account. The involvement of Mr Bourge of Bourse in the obtaining of legal advice and working out appropriate restitution is an example. It is impossible to determine how much a discount should be made to reflect this and I suspect it may be a relatively small proportion. If I had found in favour of Mr Barker on liability, it would have been necessary to direct an inquiry in the event that a proportion could not be agreed. Subject to this, I consider that the damages claimed under this head would be recoverable. 
Fees of BWS, TPS and FSL
239.	The total under this head is, remarkably, £2,469,923.44, of which almost 97% is accounted for by the fees of FSL: see para 60 above.
240.	I think it is clear that these fees were in the reasonable contemplation of the parties when the EBT Scheme was set up and they would obviously not have been incurred if Mr Barker had not entered into that arrangement. In principle, they would therefore be recoverable. Mr Barker has accepted that he would have to give credit for the set-up costs of the PUT Scheme. That has been quantified on the basis of Mr Montgomery’s evidence at £115,000 and that figure was not challenged. Accordingly, subject to that reduction, I would have found that these damages are recoverable. 
241.	Finally, I should refer to a point raised by Mr Seitler in his closing submissions. He submitted that the decision to settle with HMRC and the unravelling of the EBT Scheme was due as much to the other arguments raised by HMRC in support of their assessments as to concern about the construction of sect 28. As is clear from their Statement of Case in the Tribunal, HMRC were pursuing a Ramsay challenge and also contending that this was a settlor-interested trust under sect 660A because of the way Mr Barker had enjoyed benefits in terms of the properties and their furnishings. I note that HMRC had also indicated their intention to amend their Statement of Case to allege fraud: para 109 above. However, this point, which might have wide implications for the claim, was not pleaded or raised in the defendant’s skeleton argument. Mr Barker’s evidence as to why he decided to seek to unravel the EBT Scheme and reach a settlement with HMRC was not challenged and the point was not put to Mr Brown, who was closely involved in the decisions, in cross-examination. In my view, this point was therefore not open to the defendant. 
CONCLUSION 
242.	In summary, for the reasons set out above, I find that: 
i)	the defendants were in breach of their duty of care in failing to give a general ‘health warning’ about the EBT Scheme, but that if such a warning had been given Mr Barker would nonetheless have proceeded to enter into the scheme and transfer the Shares; 
ii)	the defendants were not in breach of their duty of care either in taking the view that the Trust and IB Sub-trust satisfied the conditions of sect 28 or in failing to warn Mr Barker that there was a risk that the EBT Scheme would not be effective to avoid his liability to tax on the sale of his Shares unless his family were excluded from capital benefits under the Trust even after his death; 
iii)	the claim is not barred by limitation; 
iv)	if, contrary to (ii) above, Mr Barker had succeeded on liability, he would have been entitled to recover: 
a)	70% of the amount paid to HMRC in settlement of their claim for tax; and 
b)	most, but not all, of the damages claimed under the other heads of loss alleged. 
243.	Accordingly, Mr Barker’s claim is dismissed. 

APPENDIX

Trust Deed: Schedule 3
“Excluded Persons

1.	Each and every “Participator” (as defined in the Act) in the Founder .
2.	Each and every person who has been a “Participator” (as defined in the Act) in the Founder within the ten year period preceding the date of this Deed.
3.	Each and every person who is “connected” with any such Participator” (whether current of former) for the purposes of the Act.
In this Schedule, references to “the Act” mean the Inheritance Tax Act 1984 and any statutory modification, amendment or consolidation of the same.”