Sheldon: No evidence that claimants had suffered loss caused by Lupton Fawcett
A High Court judge has struck out a £68m negligence claim against Yorkshire law firm Lupton Fawcett (LF) from companies in liquidation as a result of failed property development schemes.
Mr Justice Sheldon also rejected all the amendments proposed by the companies to their separate £57m negligence claim against former Leeds law firm Metis Law, apart from those agreed by the law firm.
The losses suffered by the companies relate to investor money and secured lending that needs repaying.
They arise from investment schemes linked to Gavin Woodhouse. The Serious Fraud Office began investigating suspected fraud and money laundering by Mr Woodhouse in August 2021. The investigation is ongoing.
The 43 claimant companies described themselves as “vehicles for, and thereby the victims of a Ponzi fraud”.
There is no suggestion that LF was in any way complicit in the fraud, but it is alleged that, had the claimants 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”.
Sheldon J said the claim form was filed in April 2022, since when there had been “a number of iterations”. The latest proposed amendments were the fifth amended particulars of claim. No defence had yet been filed.
The judge said Mr Woodhouse and his business partner Robin Forster began to promote investment schemes in 2014, on behalf of the MBi Group, involving the sale of individual rooms in hotels and care homes to investors.
The MBi Group, set up by Mr Woodhouse in 2012, instructed LF to undertake a review of the documents and advise on whether or not they constituted collective investment schemes (CIS) for the purposes of the Financial Services and Markets Act 2000 (FSMA), which are heavily regulated.
The two men separated their business interests and in early 2016, Mr Woodhouse set up the NPD Group. Investors in the various schemes were offered very high investment returns.
In early 2016, the NPD Group instructed LF to advise as to whether its schemes amounted to CIS. LF continued to advise on this into 2017 and beyond.
From July 2016, the claimants instructed Metis to advise on the investment transactions themselves. This included dealing with the various deposits received from investors.
The schemes run by the claimants all failed, and they went into administration in 2019 and subsequently went into liquidation.
The claimants argued that, if LF had advised “fully, properly and competently”, the schemes would not have been promoted, investments would not have been accepted and they would not have lost “the entirety of their investor receipts”.
They argued that Metis was under a duty to provide advice on the risks involved.
LF responded by submitting that the law firm was instructed to advise on whether the schemes were FSMA compliant, “and that was the scope of their duties”.
The firm said they did not extend underwriting the success of the business proposition as a whole, insisting that it was not responsible for how the claimants spent the monies.
Striking out the claim against LF, Sheldon J said the claimants had failed to establish that they had suffered any loss as a result of the alleged negligent advice by LF.
Receipt of the investment money was not itself “a loss causing damage” – rather, they were monies “that had a zero effect: penny in, penny out”.
He said a distinction needed to be drawn between the receipt of money and the use to which it was put. “It is the use to which these monies were put that is the cause of the losses that the claimants have sustained, not the receipt of the investment or loan monies themselves.”
Rejecting all the proposed amendments to the claim against Metis Law, Sheldon J said he accepted the arguments of counsel for Metis that the pleading was “already prolix, and any additional material needs to be properly justified”.
Last year, Richard Longton, a solicitor who described Mr Woodhouse as Metis Law’s “best client”, was fined £45,000 by the Solicitors Disciplinary Tribunal.
It found his wish to keep Mr Woodhouse as a client had “blinded” him to the “obvious risk of conflict” – which later “became manifest as actual risk” – in acting for both Mr Woodhouse’s companies and the purchasers of properties in his off-plan development schemes.
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