Mills & Reeve defeats negligence claim in case Smith J was recused from

The snowballing case was first launched in March 2009, when Mills & Reeve was accused of being negligent when it advised businessman Christopher Swain on a management buyout of telecoms company Swains International when he was having surgery in Thailand.

Swain died while in hospital. His four daughters claimed he believed that if he died his shareholding would transfer to them tax-free if the deal went through.

New Square Chambers’ Robin Matthews QC, instructed by Berry & Walton, had contended that the firm should have told Swain and his daughters about the possible tax consequences should he die during the procedure. He argued that, had the firm advised as such the MBO would have been delayed until after the procedure and they would have paid £1.3m less in tax.

Fountain Court Chambers’ Mark Simpson QC, who was instructed directly by Mills & Reeve, countered that the firm was not under any contractual obligations as it was not fully informed of the extent of Swain’s illness.

Giving the substantive ruling Lord Justice Davis, who shared the bench with the Master of the Rolls Lord Neuberger and Lord Justice Richards, said Mr Justice Arnold was “entirely justified” in dismissing the claim in the High Court.

The CoA said the firm may have been aware of Swain’s ill health, but “there was nothing to indicate to them that the procedure […] carried any significant risk”.

A further cross appeal was submitted by the firm against the 50 per cent costs order made against the claimants. While the CoA said it could not see any “proper basis for the appellate court to interfere” with the first instance ruling, the decision by the firm not to mediate the case was not reason enough for it to be landed with 50 per cent of the costs. Therefore, he said, Mills & Reeve would be awarded 60 per cent of its costs.

The long-running case has had a turbulent second trip to the CoA with it first outing concerned with the firm’s attempt to have Peter Smith J removed from the case because he had accused it of an abuse of process (25 January 2011).

The firm claimed Peter Smith J had shown bias against it when refusing to strike out the claim. The CoA ruled that any comments made about the firm’s alleged abuse of power were “altogether unjustified” and that the firm’s “application cannot fairly be regarded as having been launched only in order to delay the resumption of the trial”. However, it did not say that Peter Smith J had been biased.