The founder of Quindell has won a High Court battle to have his old company pay a £1m tax bill incurred when it reversed into another business to become listed.
Rob Terry, his wife and two trusts he set up sued Watchstone – as Quindell is now known – to establish that they received an indemnity in 2011 even though there was no contemporaneous document of an agreement.
Stephen Hofmeyer QC, sitting as a deputy High Court judge, found that Watchstone’s directors at the time agreed to fully indemnify the claimants for both tax liabilities and other liabilities and costs incurred in the reverse takeover of Mission Capital PLC.
Further, he said, they agreed not to seek repayment of any money paid out pursuant to the agreement.
The court went on to dismiss Watchstone’s subsidiary argument that the indemnity was a “substantial property transaction” within section 190 of the Companies Act 2006.
Had it been, it would have required shareholder approval, which was not obtained.
The judge said Mr Terry was alive to tax problems from the deal after “unexpectedly” having to pay tax in relation to shares received under a share option scheme run by his previous company Innovation Group PLC.
The question of whether an indemnity had been granted arose in 2013, the judge said. It was then “investigated carefully” by Watchstone’s then lawyers, Dorsey & Whitney, who concluded that it had been.
This led to the drafting of a memorandum signed by all of the defendant’s directors in office at the relevant time in 2011.
Mr Hofmeyer rejected Watchstone’s argument that they signed it in the mistaken belief that they had entered into the 2011 agreement.
The judge also dismissed its submission that Mr Terry’s concern about adverse tax consequences fell off the radar from early 2011 and was not discussed by the board before the sale was completed.
“The evidence shows not only that Mr Terry made it clear that he wanted to avoid any adverse consequences for the claimants if the sale were to be concluded, but also that he was granted an ‘indemnity’ against such consequences.
“The point did not fall off the radar. As I have found, it was not only on the radar, but addressed expressly.”
The later sale of Quindell’s professional services division to Slater & Gordon is currently the subject of litigation too, and we reported this week that the case is heading towards trial in October.