Russell-Cooke Trust Company v Prentis
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice LINDSAY,Mr Justice LINDSAY |
| Judgment Date | 04 November 2002 |
| Neutral Citation | [2002] EWHC 2227 (Ch) |
| Docket Number | Case No: HC0003081 |
| Court | Chancery Division |
| Date | 04 November 2002 |
[2002] EWHC 2227 (Ch)
The Honourable Mr Justice Lindsay
Case No: HC0003081
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
IN THE MATTER OF THE SOLICITORS ACT 1974
IN THE MATTER OF RUSSELL-COOKE TRUST COMPANY AS TRUSTEE OF VARIOUS TRUSTS
IN THE MATTER OF AN 0APPLICATION BY THE RUSSELL-COOKE TRUST COMPANY
(1) Mr Hodge Malek Q.c. and Mr Tony Oakley Instructed by Russell-Cooke for The Claimant
(2) Miss Amanda Tipples Instructed by Wright, Son & Pepper for the 3rd Defendant
(3) Mr M. Wonnacott Instructed by Ibb Solicitors for the Fifth and Sixth Defendants
Hearing dates: 8th October and 9th October 2002
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The SPIP: an Introduction :
From September 1999 a solicitor, Richard Michael James Prentis, practising as a sole practitioner in Sheffield under the name of Richard Prentis & Co., caused advertisements to appear in the Yorkshire Post, the Daily Mail, The Daily Telegraph and the Financial Times. They described what he called the 'Secured Property Investment Plan'. That 'plan' ('the SPIP') offered a fixed return of 15% per annum on sums invested. Mr Prentis drew attention to the fact that he and his firm were regulated by the Law Society in the conduct of investment business. The advertisements and the SPIP attracted over £6m from between 400 and 500 investors. A number of the advertisements, with a candour that may have disarmed some of those responding to them, asked, of the 15% annual return, whether it was 'too good to be true?'. That, unfortunately, proved to be the case. The Law Society intervened on the 2nd June 2000. Looking at assets and obligations globally, there are very substantial short-falls, both as to capital and income. New trustees were appointed and these proceedings began. This hearing has been concerned with some questions of broad principle, answers to which are needed to assist the present trustees to determine how the assets now held are to be distributed. It is recognised that there will need to be one or more further hearings to deal with distributions in more detail once the practical effect of the answers given in this judgment have been worked out.
How, in general did the SPIP work ?
I will need to look at Mr Prentis' publicity in more detail later but will first describe how, in general, the SPIP worked.
At first those learning of the offer were not invited to send money with their initial response; later they were. But, in either case, prospective investors would have received a brochure (with or including a "question and answer" passage) before parting with their funds. Money thus received went into the Prentis No.2 Client Account, a Solicitor's client account. A letter of receipt would be given to the investor, who would by then have completed a simple application form. The receipt gave the investor a 'roll number'. The form of the receipt letter varied but suggested that an 'allocation and registration' process would be completed within 17 days of the investor's cheque clearing, that during that period the money would be in a client account attracting 2% per annum interest but that once the investment was 'utilised and registered' interest would accrue at 15% per annum.
The intention, not by any means always implemented (as I shall later explain) was then that the sum received from the investor would be allocated (alone or, more generally, after aggregation with sums received from one or more other investors) to a short term loan made to an identified borrower, who was to give a first legal charge (either on its own or with other security) charging his or its property with repayment of the loan and of payment of interest in the meantime at 15% per annum.
Whilst the investors were told that no deductions would be made from the 15% interest paid by the borrowers but that it was the borrowers who would be charged legal fees, arrangement fees and administration fees, a feature of the operation of the SPIP, of which the investors were not made aware, was the sheer scale of the deductions made from the gross sums charged by the borrowers on their properties. Out of gross loans of £5.56m some £969,000 was deducted as financing fees, broker's fees, legal fees, life cover and insurance premiums and as interest prospectively payable on the gross advance made. Needless to say, borrowers willing to pay 15% per annum and to suffer deductions on such a scale, despite their being able to offer first legal charges, were likely often to be borrowers little short of desperate and who were likely to have been spurned by more orthodox financiers.
A completion statement would be sent to the borrower and the deduction of the gross amount of the loan would be made from the No.2 client account.
A Deed of Legal Charge would be prepared in respect of the gross sum of the loan. In the case of the first eight of the twenty loans and also in the case of the 18th loan (SPIP 1039), all made before the Law Society intervened, the Legal Charge expressly identified one or more named investors as chargees. Such charges make no mention of Mr Prentis or his firm and provide for payment of interest to 'the Mortgagee', effectively therefore to the named individuals identified as chargees (or, if there were more than four, to the first four of the named individuals). For the ninth and subsequent loans, (the 18th apart), that system was not adopted; in these cases the mortgagee was described as 'Richard Prentis & Co., Solicitors' with a form of words added such as '(acting on behalf of its clients details of whom are shown in the attached schedule)'. It cannot be said in every case that there was, at the point of the completion of the legal charge, an attached schedule giving details of clients, or indeed, any attached schedule at all. Such legal charges as I have seen make no reference to the SPIP or to shortfalls or surpluses arising in relation to other chargees or other investors.
In all but one case, that being the case where the investor was a Mr O'Dwyer, the investors were not consulted nor gave directions as to the particular property over which a charge to secure their investment or, as the case might be, a part of their investment, would be taken. Save in the O'Dwyer case, investors did not have details of their security until each respectively received a copy of the relative Legal Charge or a 'Certificate of Mortgage Investment', to which I will refer in more detail below.
Where interest prospectively due had been deducted from the gross sum advanced, (as it was in all but four loans), it was, in general, taken from the sum advanced out of the client account No.2 and paid into Client Account No.3, which was an account intended as a vehicle for the receipt and distribution of interest paid by borrowers and due to investors.
A 'Certificate of Mortgage Investment' with an accompanying letter would be sent to the investor whose investment had been allocated. It indicated the name and address of the investor, the amount of his investment and the address or addresses and Title Numbers of the property or properties within the charge or charges taken as security, the date or dates of which were given in the certificate. Such Certificates (at any rate, one might think, in cases after those in respect of the first eight loans) included a passage saying:
"This Certificate confirms that the investor has invested the above sum which is secured by way of legal charge over the secured property address. The Legal Charge will be held in the name of Richard Prentis & Co. solicitors on behalf of the investors. The firm of Richard Prentis & Co. retains the legal charge".
It may have been that, even in the case of the first eight loans, some such a Certificate was used.
There was no strict correlation between the aggregate of the sums described as the investment in such certificates and the amounts charged by the chargees described in the legal charges there referred to; it cannot be taken, for example, where the investment is described as £10,000 in the Certificate and where a charge was identified in the certificate referring to particular identified charged property, that that investor had truly had £10,000 of his investment allocated to the loan secured by that charge. The sum described as the investment was, at least in some cases, the total invested by that investor, whose investment had in fact been allocated to more than one loan and who had received more than one certificate in respect of it. An investor who had provided £10,000 might thus end up with a number of certificates, say three, each giving details of legal charges and each describing the amount invested as £10,000, thus giving the appearance of a total investment of, in that case, £30,000.
Interest was paid to investors on the sum invested. Most commonly it was paid monthly. From the date of receipt of the investor's cheque the first five days attracted no interest, the next 17 attracted interest as 2% per annum and thereafter it was paid at 15% per annum. There was no strict correlation between interest received or deducted in advance from a particular borrower and interest paid to the investor or investors to whom a charge from that borrower had been allocated. Nor was such prospective interest as had been deducted from the gross loans immediately paid on to the investors...
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