Wragge & Co ordered to pay-out £7.65m after High Court ruling

LAW firm Wragge & Co has been ordered to pay £7.65m to a former client after a High Court judgement ruled it failed to advise them on how to deal properly with a group litigation order against HM Revenue & Customs.

Mr Justice Steel, presiding in the Commercial division, said the firm had been negligent in its dealings with Amalgamated Metal Corporation (AMC) over the settlement of an advance corporation tax (ACT) dispute dating back to April 2003.

Two years prior to this, the European Court of Justice had ruled that measures in place to allow UK companies with UK-resident parent companies to avoid paying ACT by making a group income election infringed EU law. The ruling became known as the Metallgesellschaft decision, after the firm involved.

Therefore UK companies with non-UK resident parent companies that had unlawfully paid ACT were entitled to compensation.

On April 15 2003, Wragge accepted an offer from HMRC for £9.4m, of which £4.8m related to utilised ACT and £4.6m to unutilised ACT.

However, AMC, a subsidiary of German firm TUI – formerly Preussag, alleged this had been wrongly calculated and Wragge should not have accepted the offer.

AMC alleged that had compound interest been applied then its claim against HMRC would have been just over £17m. Therefore, it received £7.65m less than it should have.

In his judgement, Mr Justice Steel said: “AMC has clearly satisfied the burden of proof imposed on it to establish that the settlement of the quantum issues in respect of pre-limitation utilised ACT was made by Wragge without AMC’s authority. Indeed, AMC’s instructions were implicitly to the effect that HMRC’s offer should not be accepted as all rights to claim for the pre-limitation period were to be preserved.”

Wragge had said its understanding was that AMC wanted to settle the matter and it had acted accordingly.

“There is no evidence to support the suggestion that Wragge were authorised to settle any of the quantum issues in regard to pre-limitation losses. I would go further. I say that the evidence is almost overwhelming that Wragge was specifically instructed not to settle those issues,” added Mr Justice Steel.

“My conclusion is that AMC have established that the loss claimed was also caused, if necessary, by Wragge’s failure to give appropriate advice.

“It follows that AMC’s claim must succeed in the sum of £7,655,473.13.”