TV and film tax scheme fails
Posted: 14th November 2012
Investors who lost substantial sums when they invested in a failed scheme to save tax through investment in British television and film productions have suffered a blow to their hopes of compensation. The Court of Appeal ruled that, whilst they may have other valid causes of action against the company that managed the scheme, they cannot sue for breach of trust.
The investors had engaged in an unregulated collective scheme known as the ‘Take 3 TV Partnerships’ (Take 3) which was managed by Teather & Greenwood Limited (Teathers) which subsequently went into liquidation. The scheme was designed to take advantage of tax reliefs available under section 42 of the Finance (No.2) Act 1992 and section 48 of the Finance (No.2) Act 1997 but was not a success. Many of the television and film productions were commercial failures and, in a number of cases, they were not certified as ‘British Qualifying Films’ so as to obtain the tax reliefs sought.
The scheme took the form of an unlimited partnership, managed by Teathers, and Investors commenced a series of legal actions against the company in relation to Take 3 and other investment schemes, seeking damages for alleged misrepresentation, negligent breach of duty as promoter of the scheme, regulatory breach of duty under the Financial Services Act 1986 and breach of trust.
The Court of Appeal rejected the investors’ arguments that Teathers held the monies in the partnership account on trust for its clients. Teathers had enjoyed a power of attorney in respect of the funds and, on a true interpretation of the subscription agreement, it had authority to execute the partnership deed on the investors’ behalf and to use the monies that they had subscribed as contributions to partnership capital. The movement of monies from a client account to a partnership account was also incapable of amounting to a breach of trust.
The court emphasised that other causes of action are still open to the investors; however they will require proof that Teathers acted in breach of its duty to be honest and faithful in the exercise of its powers as managing partner.