KVB Consultants Ltd and Others v Jacob Hopkins McKenzie Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Paul Stanley |
| Judgment Date | 06 July 2023 |
| Neutral Citation | [2023] EWHC 1686 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: LM-2022-000105 |
[2023] EWHC 1686 (Comm)
Paul Stanley KC
(sitting as a Deputy High Court Judge)
Case No: LM-2022-000105
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Hugh Sims KC and Mr Jay Jagasia (instructed by Acuity Law) for the Claimant
Mr Simon Howarth KC (instructed pro bono by Advocate) for the Twelfth Defendant
Hearing date: 20 June 2023
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on Thursday 6 th July 2023.
Paul Stanley KC:
Introduction
The claimants in this case are a number of companies and individuals. Between October 2015 and March 2019 they invested a combined total of about £1.7 million in one or more of eight investment schemes. The schemes were devised, managed, and promoted by Mr Andrew Callen, through a company Jacob Hopkins Mckenzie Limited (the first defendant, which I shall call “JHM”). JHM traded under the trading name “How Refreshing”. The schemes were designed to allow investment in property development opportunities, which would be developed (or partly developed) and sold at a profit, to be split between the investors and JHM. The ventures failed; half of them have been repossessed by lenders; Mr Callen was made bankrupt on 1 February 2022.
In this application I am concerned only with the claims that the investors make against the twelfth defendant, Kession Capital Limited (“KCL”). It is the only remaining active defendant. KCL became involved because JHM lacked authorisation from the Financial Conduct Authority that was considered necessary for the business. KCL took on JHM as its “authorised representative” under section 39 of the Financial Services and Markets Act 2000 (“the Act”). It lent its regulatory permission to JHM, and thereby became responsible for supervising JHM, and accepted responsibility for JHM's conduct of the business it had authorised under section 39(3) of the Act. The claimants say that KCL is liable to them. In this application, they contend that the liability is so clear that the court should give summary judgment. Alternatively, they argue that KCL's pleaded case should be struck out in whole or in part.
Summary judgment
The approach to summary judgment is not in dispute: see Easyair Ltd v Opal Telecom [2009] EWHC 339 (Ch), at [15] (Lewison J). Under CPR 24, summary judgment is not to be granted if a defence has a “realistic” as opposed to a “fanciful” prospect of success. Such a defence must carry “some degree of conviction”, which means that it is more than merely arguable. In relation to facts, the court does not conduct a mini trial. But it is not obliged to accept factual assertions where they are clearly without real substance. Nor will it disregard realistic chances that a fuller investigation of the facts at trial may alter the evidence and so affect the outcome of the case. So far as legal issues are concerned, the court should grasp the nettle and decide a short point of law or construction if it is satisfied that it has before it all the evidence necessary for a proper determination of the question. But summary judgment is not an appropriate vehicle for determining complex points of law whose correct resolution may depend on evidence that is not before the court, but which is likely to exist and be available at trial.
The facts
The account that follows sets out those facts that have been established with sufficient clarity that it would be fanciful to suppose that a trial would lead to their significant revision, and the key areas where the facts are not so established.
Mr Callen's CV describes a varied career. He had served in the army and been a police officer. By the time he introduced himself to KCL, he had qualified as a solicitor (in 2003), and was practising as such. He professed to specialise in “High Court Work around Turnaround, Insolvency, and commercial business fraud and investment”. Quite soon after he was introduced to KCL he stopped practising, but remained a solicitor, and continued to emphasise his legal qualifications, for example by including his LLB degree in his email signature. His CV also listed various investment qualifications, and attested to experience as an entrepreneur in various business ventures, some apparently successful.
At some point (it is not clear exactly when), Mr Callen developed a business which involved attracting investment for small “refurbishment” property schemes. Those are not directly in issue here, except that they form the background to the grander schemes with which this case is concerned.
Mr Kessler, KCL's CEO, has given evidence on behalf of KCL. He says that Mr Callen first contacted KCL on 1 October 2014, completing a “new client questionnaire” online. In that form he described his business (then Jacob, Hopkins & McKenzie LLP) as “currently Legal Consultancy … Going forward to offer Property funded refurbishments”, and said he had heard about KCL by “google search”. His interest was in becoming an “authorised representative” of KCL in order to carry out that business. He provided a CV, which set out the experience I have described.
I have little evidence to explain how that initial contact progressed over the following months. Mr Kessler exhibits a business plan. It is undated, but it is safe to infer that it originated at a fairly stage, because although the trading name “How Refreshing” is used, the corporate entity concerned is still identified as Jacob, Hopkins & McKenzie LLP (“the LLP”).
The proposed business is described as follows:
“The objective of this proposed and FCA regulated business is to provide investors with the opportunity to invest in Residential properties in need of Refurbishment or of properties bought out of repossession, or Auction, and to realise a profit following any works needed to be done.
The proposal is that each property will be bought in a new and separate company each time with shares allotted at a £1000 per share. Typical purchases initially will be in the region of less than £100,000.
…
The title to the property will vest solely in the shareholders and it is repeated that there is one new company per property.”
The business plan described the aim of the business as follows:
“The aim of the business is to offer experienced property developers who have satisfactorily elected up to the FCA requirements on Sophisticated/Professional investor to earn a steady return on their moneys which carries a lower element of risk (as classified under property investment), and to which the investors, ultimately, are in total control of their investment as shareholders of an SPV. This is defined by the rights of voting and meetings etc under the Companies Act as amended etc.”
That initial approach led KCL to appoint the LLP as an authorised representative. The terms of that agreement are not in evidence.
Evidently there was then a decision to restructure the business arrangements, substituting JHM for the LLP. There is no substantial documentary or witness evidence about how that happened, and I have seen no revised business plan. But we know that it led to the conclusion of an Appointed Representative Agreement dated 30 June 2015, which represented the first appointment of JHM.
The Appointed Representative Agreement defined the “Relevant Business” as follows:
“Relevant Business means regulated activities which the [Appointed Representative] is permitted to carry out under this Agreement which are subject to the limitations of the Appointor's part IV permission as detailed in Schedule 5. For the avoidance of doubt, the AR is not permitted to carry out any investment management activities.
The [Appointed Representative] is permitted to market and promote its services, arrange business and give advice.
The [Appointed Representative] will conduct business with professional clients, elective professional clients and eligible counterparties.
The [Appointed Representative] is not permitted to conduct any business with retail clients.
The Appointor acknowledges that the [Appointed Representative] will offer advisory and arranging services to third party investors with regard to residential property investment. There is no pooling of capital and no CIS.”
Schedule 5 to the Agreement, which set out the limitations on KCL's Part IVA permissions, listed various regulated activities that KCL was entitled to conduct. Among other things it stated that KCL could not “conduct any investment management activities”, “operate a collective investment scheme” or “give advice to retail clients”. It did, however, include as activities that fell within KCL's permissions “advising on … rights to or interest in investments … share … unit”, and “arranging … deals in investments … rights to or interests in investments … share … unit”. Those headings correspond to articles in the Financial Services and Markets Act 2000 (Regulated Activities) Order, SI 2001/544, articles 25 and 53.
The investment schemes which have led to this claim appear to have been conceived and operated between late 2015 and 2018. The claimants' case is that some of them first become involved with the Limited Liability Partnership in the original “refurbishment” schemes, and later became involved with JHM in the more ambitious “development” schemes. With one exception, JHM classified each claimant as an “elective professional investor”, a “high net worth investor”, a “professional client”, or a “sophisticated investor”. The claimants say that in most cases those...
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