Baker & McKenzie has succeeded in its £11.7m professional negligence dispute brought by German food flavourings maker Symrise and its Mexican subsidiary after a judgment passed down at the High Court today (31 March).
The claimants were suing Baker & McKenzie alleging that the firm’s advice on ‘aggressive financial engineering’ to avoid tax in Mexico failed when the company paid out £11.2m.
However, having also ordered the claimant to pay Baker & McKenzie’s legal costs, Justice Burton dismissed the claim and noted amongst various factors that ‘I am entirely satisfied … that BMcK have established that the steps taken by Symrise were not in reasonable mitigation.’
The dispute related to a tax reduction plan drawn up by Bakers in 2002 called ‘Project Hit/Win’ for private equity firm EQT as it sought to create Symrise by combining German flavourings companies Dragoco and Haarmann & Reimer. Debt from EQT’s €1.5bn purchase of Haarmann & Reimer in 2002 from Bayer was then pushed out from a shell company in Luxembourg to reduce tax in seven countries.
Symrise’s Mexican subsidiary bore the brunt of the debt, burdened with €125m, and tax authorities were alarmed when a profitable and tax paying company became loss making overnight. The claimants argued the firm was liable for the £11.2m then paid to the Mexican authorities, contending that ‘no reasonably competent Mexican tax adviser’ would have drafted an intercompany loan agreement that ‘entitled the Mexican tax authorities to re-characterise the payments made under it as dividends (and so subject to tax)’. Baker & McKenzie argued that the settlement made by Symrise was a ‘capitulation’ and that ‘resisting a challenge from the tax authorities was part and parcel of an aggressive tax mitigation strategy’.
On the decision a spokesperson for Baker & McKenzie said: ‘This case related to certain aspects in Mexico of a complex cross border, M&A transaction, which was undertaken more than 12 years ago and involved debt push-down and post-acquisition restructuring across 15 jurisdictions. The claim was dismissed by consent following the trial and the claimant ordered to pay our agreed costs of £2.75m.’
St John’s Chambers’ William Godwin and 3 Hare Court’s Helen Pugh were instructed by Holman Fenwick Willan for the claimants, while Wilberforce Chambers’ duo Lawrence Cohen QC and Sebastian Allen, and One Crown Office Row’s Jessica Elliott were instructed by Triton Global for the defendants.