The High Court has dismissed a professional negligence claim for damages equalling £68 million against the law firm Lupton Fawcett, brought by 43 companies in liquidation due to failed property development schemes.
In addition to this, the High Court denied the recommended modifications by the businesses to a separate £57 million claim for negligence against former law firm Metis Law based in Leeds, except for those changes agreed by the law firm.
Case summary
The financial damages acquired by the companies are combined with funds from investors and the repayment of secured loans. These economic losses are connected to investment projects associated with Gavin Woodhouse.
In August 2021, an inquiry had been initiated by the Serious Fraud Office into the allegations of fraudulent activities and money laundering involving Mr Woodhouse, and this investigation is currently active.
The companies have described themselves as “vehicles for, and thereby the victims of a Ponzi fraud”.
It’s important to note that there are no reasons to believe that Lupton Fawcett was involved in the fraudulent activities by the Claimants. However, it is claimed that if they were given appropriate legal guidance, 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 High Court heard that in 2014, under the MBI Group banner, Mr Woodhouse, alongside his associate, Mr Forster, initiated promotional activities for investment opportunities. These opportunities included the sale of individual units within hotels and care homes to investors.
Established by Mr Woodhouse in 2012, the Mbi Group instructed Lupton Fawcett to go through and examine specific documents in order to see if they met the criteria of collective investment schemes (CIS) under the Financial Services and Markets Act 2000 (FSMA), subject to stringent regulations.
Soon after, Mr Woodhouse and Mr Forster dissolved their joint business ventures, and at the start of 2016, Mr Woodhouse founded the NPD Group. This new group offered investors extremely high returns on their investments.
At the start of 2016, the NPD Group obtained legal guidance from Lupton Fawcett about the classification of its investment programs as CIS. Lupton Fawcett advised the NPD Group into 2017 and further.
Starting in July 2016, the Claimants instructed Metis to advise them on the investment deals, which encompassed the management of investor deposits. Ultimately, the Claimants who managed the investment programs Claimants were not successful, therefore, leading to their administration in 2019 and then liquidation.
The Claimants stated that if Lupton Fawcett had provided advice “fully, properly and competently” the promotion of the schemes and acceptance of investments would have been avoided, preventing the loss of “the entirety of their investor receipts.”
They also contended that Metis had an obligation to inform them about the potential risks.
In response, Lupton Fawcett affirmed that their job was to determine FSMA compliance of the schemes, stating “and that was the scope of their duties.”
The business also stated how their role was never promising the overall success of the business venture and they were not responsible for the Claimants’ expenses of the money.
In light of this, the High Court dismissed the claim against Lupton Fawcett and said that the Claimants did not experience any losses because of the supposed negligent counsel from Lupton Fawcett.
The High Court decision
The High Court went onto say that the receipt of investment funds did not equal to “a loss causing damage” but were transactions “that had a zero effect: penny in, penny out.”
The Court highlighted the need to differentiate between the acquisition of funds and their application. Mr Justice Sheldon stated:
“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.”
Dismissing all changes to the claim against Metis Law, Justice Sheldon accepted the disagreement of Metis legal counsel that the pleading was “already prolix, and any additional material needs to be properly justified”.
Previously, Richard Longton, a solicitor who referred to Mr Woodhouse as “Metis Law’s best client,” incurred a £45,000 penalty from the Solicitors Disciplinary Tribunal.
The Tribunal finalised that they want to retain Mr Woodhouse as a client had rendered him “blinded” to the “obvious risk of conflict”. This eventually materialised into an “actual risk” while representing both Mr Woodhouse’s enterprises and the property buyers in his development projects.
How can we help?
Daniel Brumpton is a Partner in our Dispute Resolution team, specialising in professional negligence and commercial litigation. Daniel heads our Commercial Litigation and is recognised by the independently researched legal directory, The Legal 500.
For more information on the subjects discussed in this article, don’t hesitate to get in touch with Daniel or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online enquiry form.
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