CL-2018-000297, CL-2018-000404, CL-2018-000590, - [2025] EWHC 2364 (Comm)

The lack of any equity price hedge was deliberate, and it distinguished the thinking behind the Klar Model from that of the Solo Model or Maple Point Model. In those Models, the idea was that everything settled to zero, on the terms traded between all of the parties, leaving the tax refund claim as, even on paper, the only profit for anyone in the structure (subject to the wrinkle for the Solo Model referred to in paragraphs 74 and 156-157 of the main body of this judgment). Klar Model trading being unhedged meant that, on paper, the initial and unwind phases, taken as a whole, and ignoring the tax reclaim, would be profitable for one or other side of the structure (the long or the short), trade by trade. Mr Klar explained his thinking in cross-examination, and I accept this evidence, so far as it goes. It was that a ‘sweet spot’ might exist where, over time, the aggregate outturn, on paper, was a profit for the short and corresponding loss for the long that fell between zero and the aggregate of the successful tax refund claims (net of Tax Agents’ fees) made on behalf of the long.

That profit for the short and loss for the long would then be, in effect, the means by which the buyer and short seller shared in the success of the tax refund claims. The short seller had no means to fund any overall trading profit generated for the buyer, if there was one; and the buyer had no means to fund any overall trading profit generated for the short seller, if it exceeded the net realised value of its (the buyer’s) tax refund claims. The whole concept therefore still relied on the success of the facilitated tax refund claims and would collapse without it.