18 May 2012
Crushing defeat for claimants in Innovator One litigation
The Innovator One litigation, probably the largest third party funded case of 2008, has resulted in defeat for 555 Claimants who sued all those involved in the tax avoidance schemes concerned in the case. The schemes had been devised by Innovator One in 2002/3 to take advantage of capital allowances then available for investment in information technology.
The claim centred on the allegation that the schemes were fraudulent and that the technology in which the Claimants invested was non-existent, or unworkable and worthless, and known to be such by the technology vendor, by InnovatorOne and its advisers.
Innovator One, its lawyers Collyer Bristow [the managing partners of the LLPs set up to implement the schemes], the technology developers/vendors and lending institutions were all joined to the action. Conspiracy, dishonesty, fraudulent misrepresentation and deceit were all alleged (though not against the technology developer/vendors).
Nigel Meares acted for one of the Defendants, Vermilion, the only technology developer/vendor to take an active role in the litigation. The Claimants sought repayment of the money paid to Vermilion on the ground that it knowingly received money paid out by Collyer Bristow in breach of trust; alternatively that the tax avoidance scheme was an unauthorised Collective Investment scheme and Vermilion was for the purposes of sections 26 and 30 FSMA a counterparty against which repayment could be ordered.
In his judgment, Mr Justice Hamblen rejected what he described as the overarching claim of conspiracy. All allegations of dishonesty were equally dismissed. Furthermore, Mr Justice Hamblin accepted Vermilion's contention that the money it received on sale of its technology was not trust money and that in any event it was a bona fide seller for value so the doctrine of knowing receipt did not apply. Vermilion's contention that the scope of 26 and 30 FSMA could and did not extend to the Seller of services to an unregulated Collective Investment Scheme was also upheld.