Linklaters and Deloitte pass blame in defence against Arsenal share sale negligence suit
Dispute over 2011 sale of shares in Premier League club rumbles on as Linklaters and Deloitte file defences
March 06, 2018 at 06:22 AM
4 minute read
Linklaters and Deloitte have pointed the finger at each other in their defences against the professional negligence claim brought by former Arsenal shareholder Lady Nina Bracewell-Smith over the sale of her stake in the football club to current majority owner Stan Kroenke.
The magic circle firm and big four accountants Deloitte are being sued by Bracewell-Smith over their advice on the disposal of her 15.9% stake in the Premier League club to Kroenke's company, Kroenke Sports & Entertainment (KSE), in 2011.
Bracewell-Smith has alleged that Linklaters was negligent and in breach of its duty of care in relation to advice given on loan notes she received in exchange for her stake in the club. Her complaint centres around the siting of the loan notes in the UK, a move that she claims exposed her to losses of more than £10m, which could have been avoided if the loan notes had been sited offshore.
In its defence, filed in the High Court last week, Linklaters argues that its duty did not extend to advice on the tax aspects of the disposal of the shares, and that prior to the sale, it was agreed that Deloitte would oversee all of the tax advice while Linklaters would be responsible for "non-tax aspects of the legal documents needed to effect such a sale".
The firm's defence adds that an allegation in the particulars of the claim that its duty extended to "all legal aspects of the proposed disposal" of the shares is "too broad".
The Linklaters lawyers referenced in the lawsuit are former partner Ian Bagshaw and ex-managing associate Stuart Boyd, both of who have since left the firm and are now partners at White & Case and Kirkland & Ellis respectively.
Linklaters' defence states that the clearance letter for the sale, drafted by Deloitte, "did not specify that the loan notes would be registered offshore" and that the firm "was not instructed to and did not advise on whether the contents of the the clearance letter were appropriate from a tax point of view".
However, Deloitte's defence, which was also filed last week, counters that it "did not actually know that the loan notes would be sited in the UK and did not have any duty to check", but that Linklaters "knew or should have known", and that Deloitte had "specifically made Linklaters aware of this requirement".
The accountancy firm argues that the scope of the duty it owed to the claimant was "to review and to provide comments and suggestions on draft legal documents when specifically requested to do so by the claimaint".
Bracewell-Smith claims that she has incurred losses of more than £10m as a result of the mix-up, as well as costs of £1,249,815 stemming from her move to Monaco, which she claims was necessary to limit her tax exposure. She is also claiming general damages for the "distress and inconvenience" she has suffered as a result of her relocation.
Linklaters denies that it is responsible for any loss or damage, and argues that damages for distress and inconvenience are "irrecoverable as a matter of law". The firm's defence adds that her decision to move to Monaco was "driven by her apparent unwillingness to pay UK capital gains tax on the very substantial gains she made in her Arsenal shares".
Deloitte, meanwhile, argues that in the event that it is held liable, the extent of its liability is capped at £500,000.
Bracewell-Smith has also claimed that but for the events in dispute, she would not have sold her Arsenal shares to KSE but instead would have sold them to another purchaser, such as Russian businessman Alisher Usmanov, who now owns a 30% stake in the club.
Such a decision would have had significant repercussions for Arsenal, given that it would have granted Usmanov a near-50% holding in the club. Two years after the sale, Bracewell-Smith said that she "deeply" regretted selling to Kroenke, in tweets that have since been deleted.
In its defence, Linklaters notes that the firm "was not instructed to and did not advise the claimant on whether she should sell her shares to KSE rather than anyone else".
Linklaters is being advised by Clyde & Co on the dispute, with Rhodri Davies QC and Conall Patton of One Essex Court instructed as counsel, while Deloitte has turned to US firm Reed Smith and Simon Salzedo QC and Tony Singla of Brick Court Chambers. Bracewell-Smith is taking advice from West End law firm Gordon Dadds.
Arsenal's regular lawyers at Slaughter and May acted for the club on the 2011 share sale, while Clifford Chance acted for KSE.
Linklaters and Deloitte declined to comment.
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