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Fladgate Fielder fails to strike out negligence action

5 May 2010

West End firm Fladgate Fielder has failed to strike out a negligence claim brought by the beneficiaries of a wealthy widow.

The daughters and other relatives of Mary Dugan-Chapman seek almost £360,000 compensation from the law firm after inheritance tax was found to be payable on shares in a family company bought on behalf of the widow shortly before her death.

Fladgates, solicitors for the widow, applied to the High Court to strike out the claim on the grounds that there were no reasonable grounds for bringing it or for summary judgment.

Delivering judgment in Vinton and others v Fladgate Fielder [2010] EWHC 904,Mr Justice Norris said Mrs Dugan-Chapman died in December 2002.

Under the terms of her will a residuary trust fund was created for her daughters, Anna Vinton and Jennifer Green, their children and a nephew.

Before she died, it was decided that a £300,000 loan due to the widow from the family company, Wilton Antiques, should be converted to equity through a rights issue.

“The conversion of the loan into equity had the advantage that, whereas the loan would be valued in her estate at £300,000, shares in Wilton would be subject to business property relief: so there would be an inheritance tax saving,” Norris J said.

It was also decided that the widow would take up almost 500,000 £1 shares which were originally allotted to one of her daughters as part of the rights issue.

It was then decided, in order to raise further funds for Wilton Antiques, the widow should buy a further £1m of shares in the family company through a subscription offer.

Fladgates prepared the paperwork and the transaction was completed two days before the widow’s death.

“Her taking up of those subscription shares proceeded on the footing that they would attract business property relief (so that what would otherwise be £1m in her free estate would be converted into shares attracting inheritance tax relief),” Norris J said.

“Following the death of the widow it was discovered that business property relief was not available in relation to most of the shares which the widow had acquired under the rights issue and the offer for subscription.

“Normally business property must be retained for two years before it qualifies for relief (and that, of course, was not the case in relation to any of the shares acquired by the widow in the days before her death).

“But if the shares owned by the widow could be identified with other shares previously owned by her, and those previously owned shares had been held for two years, then all of the shares qualified.

“This condition was satisfied in relation to the 300,000 shares which the widow had acquired under the rights issue (because she acquired them in the right of her ownership of a holding of 750,000 shares).

“But the shares that the widow acquired on the renunciation by Mrs Vinton of her rights, and the shares which the widow acquired under the offer for subscription, were not acquired by her in the right of any existing holding of hers: they were acquired by her for reasons entirely unconnected with her existing holding. They were simply bought.”

The widow’s daughters appealed to the HMRC special commissioner, who ruled against them.

Norris J said the beneficiaries claimed among other things that, in breach of its duty of care, Fladgates failed to advise on the widow’s acquisition of the shares in a way which would have attracted business property relief.

He concluded that the claimants’ case could not be described as “fanciful and lacking any real prospect of success” and rejected both the application to strike out and the application for summary judgment.

A spokeswoman for Fladgates said the firm was not commenting on the ruling.

Categorised in:

Professional negligence Wills, Trusts & Probate Conveyancing