BDO loses in Halliwells case but judge leaves door open for fraud claim
It was “inconceivable” that Halliwells’ staff and fixed-share partners did not know something about the equity partners’ reverse premium windfall, a judge ruled today.
Mr Justice Warren, sitting in the Chancery Division of the High Court, made the comments giving judgment in a claim made by Halliwells’ liquidators against a former partner at the firm.
Former Halliwells junior equity partner Michael Burns – now a partner at DLA Piper – was arguing that the terms of his retirement deed from Halliwells, which stipulated a clean break, meant that he could not be pursued by the firm’s liquidators for cash owed by the firm (18 April 2012).
However, Halliwells’ liquidators – BDO partners Dermot Power and Shay Bannon - argued that Burns’ actions of pocketing around £377,000 as part of the reverse premium deal with the firm’s then-landlord Allied London, constituted a breach of fiduciary duty, a breach of duty of care and negligence, meaning it fell within the carve-out clause of the retirement deed.
Warren J gave a summary judgment in favour of Burns, finding that the retirement deed meant that Halliwells had waived all rights to make claims against him. He also found that there was no evidence to suggest that it was unconscionable for Burns to rely on the retirement deed.
Warren J said that it was not unconscionable because it was inconceivable that no one outside the 32 equity partners who profited from the reverse premium deal knew anything about the arrangement. Though staff and fixed-share partners might not have known the full details, it was held that some must have known something and that was enough.
Warren J did not make an order for the judgment, however, and has left the door open for the liquidators to amend their claims to allege fraud against Burns. The liquidators’ counsel would not comment on whether they intend to make such amendments.
James Potts of Erskine Chambers, instructed by Irwin Mitchell partner John Lord, represented Burns. A spokesperson for Irwin Mitchell said: “These were always unmeritorious claims against our client. We welcome today’s judgment and will continue to defend all of our clients against any further claims advanced by the liquidators.”
Lexa Hilliard QC of 11 Stone Buildings, instructed by Addleshaw Goddard, represented Bannon and Power at BDO.
Readers' comments (12)
Theherder | 24-Apr-2012 7:29 pm
Always had a lot of time for Nick Warren - but the statement about it being 'inconceivable' that the other partners did not know is stretching it a little. It pretty damn conceivable! Most junior partners are kept out of key meetings and full equity partners are usually pretty damn tight lipped about (their) money at the best of times.
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Anonymous | 25-Apr-2012 12:06 pm
What he said above
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Anonymous | 25-Apr-2012 1:02 pm
My eyebrows rose somewhat, when I read that Warren J (whom I also have a lot of time for) thought it inconceivable that nobody else would have known about ReversePremiumGate. I am confident that I, a fixed share equity partner at the time, would never have heard anything about it, had I still been there. I hope Warren J deliberately reached that conclusion in order to leave the way open for fraud claims. Nothing personal, Mike Burns.
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anon | 25-Apr-2012 1:54 pm
Warren J is no fool, he'll have a good reason for forming this view.
For other partners to have had no inkling at all suggests that the 32 were living so well that no-one noticed any lifestyle changes following the bonanza. Is that credible?
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TT | 25-Apr-2012 2:06 pm
I intend to reserve judgment until I have read the judgment as the key to this is who knew what and when. The reverse premium genie came out of the bottle well before the Brown board was appointed and I suspect that is what the judge is dealing with in the context of a retirement deed compromising all claims between the parties.
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Old Hack | 25-Apr-2012 3:47 pm
Was the judgment ex tempore? If so, it may not be reported. Which would be a pity...
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prestbury bentley dealer | 26-Apr-2012 7:30 am
for anon at 1.54 - they were already living very well. there's a limit to what is different from the outside when some were already pocketing 500k after tax.
as a Halliwells FSM at the time, I knew they'd taken something from the deal but the figure current was 50k - in some cases this was less than 5% of what they actually took.
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Anonymous | 26-Apr-2012 10:34 am
Isn't it about time that BDO stoped profiting from this and stopped bringing spurious claims?The downfall of Halliwells was a result of a domino effect of a particular set of circumstances coming together at the start of the worst recession in history....... and more fool those who are too myopic to see this.
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Amused | 26-Apr-2012 3:26 pm
@ Anonymous 10.34pm
I wonder which of the EPs you are? "Spurious claims", that's a great one, had me chuckling....
Perhaps you could enlighten the readers of the Lawyer as to the full details of the "particular set of circumstances" which led to Halliwells going bust - I'm sure it would make very interesting reading.... :)
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Freddy | 29-Apr-2012 10:30 pm
I think having £21m away and then borrowing £20m may be the particular set of circumstances being referred to.
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Still amused | 1-May-2012 12:54 pm
@ Freddy at 10:30pm
I'm not sure those were the set of circumstances the EP had in mind! :)
As the Spinningfields payment didn't go through the books of the LLP there was no way for those not party to the transaction to be aware of the terms of it or even the amount involved, which only came to light much, much later on...
The borrowing was allegedly for the fit-out.... I agree this did not help the LLP much!
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The Ghost of St James (Court) | 2-May-2012 2:59 pm
Gordon Gekko from "Wall Street" - "Greed is good, greed makes sense, greed works" - beg to disagree Gords! Having spent 5 years at "Halloweens" there is not a snowball in hell's chance that the EPs would have wanted the rank and file (including the Sal Partners) from knowing anything accurate about the property deal - "there's a small divi" - LLP minutes version B? Clowns.
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