Deloitte and Linklaters end legal battle with ex-Arsenal investor

27 August 2018 Authored by Consultancy.uk

Deloitte and Linklaters have ended a long-running feud with a former Arsenal investor, who claimed the pair’s negligence had caused her to have to pay tax on her sale of the football club’s shares. Lady Nina Bracewell-Smith settled her negligence claim against magic circle law firm and the Big Four auditing and advisory group for more than £11 million.

Bracewell-Smith had been handed the Arsenal shares by Sir Charles Bracewell-Smith, who inherited them from his grandfather, former Conservative Party MP and Lord Mayor of London Sir Bracewell Smith. While the sale of her 15.9% stake in the Premier League footballing institution to majority owner Stan Kroenke therefore constituted a total profit, Bracewell-Smith was left furious that she was expected to pay tax on the loan notes used to purchase her share of the club.

The Indian-born business woman, whose net worth is believed to stand at around $202.5 Million (£157.36 million), subsequently sued Linklaters and Deloitte for their roles in advising her on the deal. Having accepted Kroenke’s reported offer of £11,750 per share, Bracewell-Smith claimed the firms were negligent and in breach of their duty of care when advising her on the loan notes, with the sitting of the loans in the UK exposing her to be duly taxed.

Deloitte and Linklaters end legal battle with ex-Arsenal investor

Bracewell-Smith described this taxation as a £10 million loss, and further sued for more than £1 million in damages, incurred by her  £1,249,815 move to the city-state tax-haven of Monaco to avoid additional taxation, and more than £400,000 in adviser fees. She argued she would not have faced these if the loan notes had been sited offshore. Some $616 billion in profits were shifted offshore last year by conglomerates in similar efforts to avoid domestic taxation.

The case has reportedly been settled at the High Court as of July, but not before a protracted blame game ensued between Deloitte and Linklaters. Deloitte pointed out its duty was simply “to review and to provide comments and suggestions on draft legal documents when specifically requested to do so by the claimant,” adding that even if it was found liable, the fine would be capped at £500,000.

Refusing to be thrown under the bus, however, Linklaters defended itself by saying its duty of care did not extend to tax advice, and that this was actually the job of Deloitte. The law firm contended that it had ownership of “non-tax aspects of the legal documents needed to effect such a sale.” Meanwhile, Linklaters clarified that the clearance letter for sale, drafted by Deloitte, “did not specify that the loan notes would be registered offshore.”

Deloitte’s defence against this in court was that at the time it had been unaware the loan notes would be cited in the UK, and it had no such duty to check this. The firm alleged that Linklaters either knew or should have known this, and suggested that Deloitte representatives had even made the law firm aware of this requirement.

As the feud continued to fester between the firms, Deloitte even resigned its lucrative role as Linklaters’s auditor earlier in 2018, being replaced by Big Four rival PwC. According to Companies House filings, Linklaters had paid Deloitte £2.5 million for both audit and non-audit services over the 2017-2018 year.

After a turbulent court process, the former Arsenal investor has settled her negligence claim against magic circle law firm Linklaters and Big Four firm Deloitte. Bracewell-Smith will subsequently receive £11.6 million for her troubles.

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