The High Court has made no order in favour of either side in an accountant negligence action, finding that the investor and his accountant knowingly participated in a scheme designed to claim capital allowances from the Revenue incorrectly.
Barry English sued accountant Dan Murphy over a 2001 investment in two fishing boats and fishing tonnage. English alleged that the boats had been overvalued and that Murphy was negligent in relying on valuations obtained at the request of the seller, rather than arranging independent valuations. He claimed the valuations put the boats about IR£1.23 million above their market value.
The court raised the issue of illegality during the hearing, after the evidence and before legal submissions. It found, on the balance of probabilities, that Murphy helped fix incorrect values for the boats and tonnage, and that English knew or should have known the scheme was designed to obtain capital allowances improperly. The judgment relied on evidence including a fax from Murphy setting out proposed asset values before the boats were inspected, and the later amendment of draft valuations.
Under the scheme, English invested IR£2.25 million, financed by an AIB loan, to acquire the boats Avro Hunter and Dun Eochalla and 301 tonnes of fishing tonnage. The court found that the boats were assigned a combined value of IR£1.9 million, while the tonnage was sold for IR£350,000 despite evidence that it was worth about IR£800,000. It also found that some fees and costs were treated as part of the investment in a way that gave the impression they qualified for capital allowances.
The scheme was intended to allow English to claim allowances over five years and then require Brendan McGrath, the fisherman operating the boats, to buy back the assets. McGrath encountered financial difficulties, and English took control of the assets in 2003 and later sold them. The court said the arrangement would have worked as intended for the participants if the buyback had occurred, while leaving the Revenue to bear the cost of allowances based on inflated values.
The court concluded that English and Murphy were knowing participants in the unlawful arrangement. Because English’s negligence claims concerned services provided in connection with that scheme, the court held that public policy prevented it from assisting either party. It therefore made no order in the case. The judgment did not determine the negligence claim in English’s favour or award him damages.