Afan Valley Ltd ((in Administration)) and Ors v Lupton Fawcett (A Firm) and Ors
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Sheldon |
| Judgment Date | 23 April 2024 |
| Neutral Citation | [2024] EWHC 909 (Admin) |
| Court | King's Bench Division (Administrative Court) |
| Docket Number | Case No: QB-2022-001260 |
[2024] EWHC 909 (Admin)
Mr. Justice Sheldon
Case No: QB-2022-001260
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr James Pickering K.C., Mr Paul O'Doherty (instructed by Hewlett Swanson) for the Claimants
Mr Daniel Saoul K.C., Ms Pippa Manby (instructed by RPC) for the Second Defendant
Mr Ben Hubble K.C., Mr Michael Bowmer (instructed by Keoghs) for the Seventh and Eighth Defendants
Hearing dates: 7–9 February 2024
Approved Judgment
This judgment was handed down remotely at 10.30am on 23 April 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
I have before me an application by 43 Claimants to amend their Particulars of Claim against their former solicitors: Lupton Fawcett LLP (“LF”), Metis Law Ltd and Metis Law Partners LLP (collectively “Metis”) 1. At the same time, I have an application by LF to strike out the Particulars of Claim and/or to dismiss the claim against the firm by summary judgment. I heard oral argument with respect to these applications on 7th-9th February 2024.
The Claimants are companies in liquidation, with a deficiency to creditors in excess of £68 million. They describe themselves as the vehicles for, and thereby the victims of, a Ponzi fraud. They claim against their former solicitors for professional negligence. It is not alleged that the solicitors were complicit in any way in the Ponzi fraud. Rather, it is alleged that if the Claimants had been properly advised they would not have promoted various investment schemes, accepted investment monies and taken out loans, and would not have suffered substantial losses as a result.
The Claim Form was initially filed on 14 April 2022. There have been a number of iterations of the Particulars of Claim. The application before the Court concerns the Fifth Amended Particulars of Claim, a document which runs to around 140 pages. This incorporates amendments proposed for both the Third and Fourth Amended Particulars of Claim, and adds further amendments. No Defence has yet been filed by the Defendants. An earlier hearing to consider amendments (to the Third Amended Particulars of Claim) and the strike out/summary judgment application by LF was due to be heard on 29 November 2023 before Freedman J, but was adjourned.
A number of witness statements have been produced by the parties in connection with the applications: 3 statements from Graham Reid (an employed barrister representing LF), 2 statements from Christopher Stanton (a solicitor representing Metis), and 2 statements from Lee Dunnill (a solicitor representing the Claimants). These statements exhibit several thousand pages of documents between them.
Among the exhibits are the submissions made and the judgment given by Her Honour Judge Claire Jackson (sitting as a Judge of the High Court) in a claim brought by four of the Claimants (Northern Powerhouse Developments Limited, Woodhouse Family Limited, LBHS Management Limited and Fourcroft Hotel (Tenby) Limited) against Gavin Lee Woodhouse for breach of his director's duties and/or for repayment of sums owed to them: [2023] EWHC 3124 (Ch). Mr Woodhouse was the sole director and beneficiary of each of the Claimants. The judge found that some £2.3 million had been misappropriated by Mr Woodhouse.
The exhibits also include the decision of the Solicitors Disciplinary Tribunal (“the SDT”) with respect to allegations against one of one of Metis' partners, Richard Longton.
Factual Background
In very brief terms, the factual background can be set out as follows. In 2012, Mr Woodhouse set up the MBi group of companies (the “MBi Group”). In 2014, his then business partner, Robin Forster, became a shareholder and director of each of the companies in the MBi Group. These companies started to promote investment schemes involving the sale of individual rooms in hotels and care homes to retail investors.
LF was instructed by the MBi Group to undertake a review of the scheme documents and, in particular, to advise on whether or not the schemes constituted “collective investment schemes” (“CIS”) for the purposes of the Financial Services and Markets Act 2000 (“ FSMA”). CIS are heavily regulated, and can only be lawfully promoted and operated by businesses authorised for that purpose by the Financial Conduct Authority (“the FCA”). MBi Group was not so authorised.
In late 2015/early 2016, Mr Woodhouse and Mr Forster separated their business interests, dividing the MBi Group assets. In early 2016, Mr Woodhouse set up the NPD Group, which comprised a number of companies that were subsidiary companies of Northern Powerhouse Developments (Holdings) Limited, of which Mr Woodhouse was the sole shareholder and director. The NPD Group promoted, operated and managed a series of investment schemes through special purpose vehicle companies (“SPVs”), which involved investors purchasing long lease investments of individual rooms in hotels or care homes, either off-plan or in an existing building. Investments were promoted and sold to investors from both the United Kingdom and overseas. The NPD Group also took control of and promoted a number of former MBi Group schemes. (This is just a summary of the arrangements: the precise arrangements and relationships between the companies set up and owned by Mr Woodhouse are particularised by the Claimants at paragraph 34 of the Fifth Amended Particulars of Claim. The description of these arrangements does not appear to be in dispute.)
Investors in the various schemes were offered very high investment returns: this included an annual coupon, described as “rent” of between 8% and 12% per annum; and the right to sell the room back to the SPV which owned the property assets or sold leases in property assets (described as “Asset SPVs”). A further arrangement that was made available was for investors to invest a reduced percentage of the full investment amount, described as a “Developer's Deferred Investment”. The investors were told that their investments would be ring-fenced in an SPV company for the purpose of constructing and/or developing and/or refurbishing the particular property which was the subject matter of the scheme into which they had made their investment. A number of the schemes obtained secured financing. (The arrangements with the investors are particularised at paragraphs 38–42 of the Fifth Amended Particulars of Claim. The description of these arrangements does not appear to be in dispute.)
In early 2016, the NPD Group instructed LF to advise as to whether its schemes amounted to CIS. LF continued to advise with respect to this matter into 2017 and onwards. From July 2016, the Claimants instructed Metis to advise and carry out legal services in relation to the investment transactions. This included dealing with the various deposits received from investors.
The schemes run by the Claimants all failed, and the Claimants went into administration in 2019 and subsequently went into liquidation.
The Claims
The Claimants claim damages against LF for a sum of not less than £68,370,803. This is made up of investor receipts that will need to be returned in the sum of £48,634,68; £19,736,121 with respect to the secured loans that need to be repaid plus interest on those loans; as well as administration and liquidation costs; plus interest. They claim damages against Metis in the sum of not less than £57,021,610. This includes a sum for investor receipts that will need to be returned in the sum of £41,920,286; and £14,339,124 with respect to secured loans that need to be repaid, plus interest.
The Particulars of Claim (before the amendments that are the subject of these applications) are very extensive. I shall provide a summary of the main elements.
It is alleged that each of the schemes are insolvent and “are unable to give restitution to the Investors of the monies that are owing to them”.
The Claimants allege that each of the schemes was set up in contravention of section 19 of FSMA 2. As a result of this contravention, it is alleged that each of the agreements entered into by the Asset SPVs and the investors became unenforceable, and the investors are entitled as a matter of statute to recover their investments: section 26 of FSMA 3.
The Claimants allege that the combined effect of one of the features of the scheme (the Developer's Deferred Investment) whereby investors were required to invest only a reduced percentage of the full investment commitment in cash, and the large commission payments made to Sales Agents meant that, from the outset, there were insufficient funds available to deliver each of the schemes.
The Claimants also allege that the schemes were operated as a Ponzi scheme: investors' monies from later investments were used to pay the returns on investments which had been made earlier in time, rather than out of performance of the underlying business or assets.
As against LF, the Claimants allege that the solicitors were expressly instructed in relation to matters concerning whether or not the MBI Group and/or NPD Group schemes were CIS. This included seeking counsel's opinion, and considering the adequacy and accuracy of that advice.
The Claimants refer to correspondence between the FCA and MBi Consulting in 2014, with respect to which LF had been instructed to advise. It is alleged that LF was, or ought to have been, aware that the way in which the Scheme Documentation operated meant that the schemes were CIS, and that a materially inaccurate description of the schemes was provided to the FCA.
The Claimants refer to advice...
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