McDermott sets out defence against allegations from former investment management client

McDermott Will & Emery’s UK arm has set out its defence against allegations of fraudulent misrepresentation and breach of fiduciary duty made by a former investment fund management client.

The claimant, David Gorton, alleged that two former McDermott London lawyers advised him to invest in carbon credit trading schemes that they had undisclosed personal financial interests in.

The two lawyers, Alistair Wilson and Menna Bowen, formerly worked in the US firm’s London tax practice. They have both since left McDermott and are now at UK firm gunnercooke.

In McDermott’s defence, filed on 31 January at the High Court, the firm denies that there was any breach of fiduciary or fraudulent misrepresentation, and claims that Gorton knew of the personal financial interest Wilson and Bowen had in the carbon credit trading scheme, referred to in the documents as the Carbon LLPs.

Gorton had stated that based on advice from the two lawyers, he invested £38m in five Carbon LLPs, including £7.6m in cash, adding that “but for the breaches of duty and fraudulent misrepresentation, he would have not invested in the Carbon LLPs”. His lawsuit also claimed that he is likely to lose the entirety of his initial capital contributions.

In its defence, McDermott claims that Gorton would have known about the personal financial interest because Gorton and Wilson had “a close relationship which extended beyond that of lawyer and client”, evidenced by Wilson being registered as the proprietor of a Kensington property owned by Gorton.

The firm also claims that Gorton had previously engaged in other “tax mitigation arrangements” in which Wilson had a financial interest.

Similarly, Wilson and Bowen’s interest as members of the Carbon LLPs was publicly available, and the firm argues that as Gorton was a “sophisticated, professional investor”, “it is to be inferred that he made all reasonable enquires and conducted due diligence”.

McDermott also denies Gorton’s claim that Wilson and Bowen advised him that an investment in the Carbon LLPs “would generate the anticipated tax relief” or advised him “to proceed with his investments in the Carbon LLPs”, which was previously stated in his claim.

The defence states that: “Gorton was well aware that there was a risk that HMRC would successfully challenge any claim for tax relief.”

The firm also claims that if Wilson and Bowen acted in breach of fiduciary duty or made fraudulent misrepresentations – which the firm denies – then they would have acted “outside the scope of their employment which was limited to the provision of legal services”, meaning that firm would not be ”vicariously liable for their acts or omissions”.

The defence also states as that the events in question occurred in 2005 and 2006, they are “time-barred pursuant to the Limitation Act 1980″.

A spokesperson for McDermott said: “McDermott Will & Emery has filed its defence and intends to contest the claim vigorously.”

Gorton is being represented by Fieldfisher tax disputes head Hartley Foster, who has instructed 3VB’s John Jarvis QC and Matthew Parker.

Clyde & Co is representing McDermott, which has turned to Mark Simpson QC and Bridget Lucas.