High Court: Law firm was not operating collective investment scheme


Developments: Group actions underway

A law firm which did the conveyancing work on two failed off-plan housing developments was not acting in a role that amounted to operating an unregulated collective investment scheme, the High Court has ruled.

Investors argued that Oliver & Co, based in Chester, had broken the rules on collective schemes and they were entitled to repayment and compensation under section 26 of the Financial Services and Markets Act 2000 (FSMA).

His Honour Judge Hodge QC, sitting in Manchester as a High Court judge, said Oliver & Co was “merely acting as conveyancing solicitors” for those wishing to proceed with their purchases and “that was a facilitative, and not a managerial, role or a role that amounted to establishing or operating a collective investment scheme”.

There are various group actions ongoing against conveyancing solicitors arising out of three failed developments in the North of England marketed to investors from East Asia – Angelgate, Baltic House and North Point Pall Mall.

In the hearing before HHJ Hodge, various Angelgate and Baltic House investors, represented by Penningtons Manches Cooper (the ‘PMC claimants’), applied to amend their claim to argue that both developments amounted to an unregulated collective investment scheme under the FSMA.

The claimants argued that Oliver & Co was “integral” to the seller’s scheme, going beyond what was necessary to the usual activities of a conveyancing solicitor.

These included representatives of Oliver & Co attending meetings with the PMC claimants in Hong Kong, at which they provided ad hoc advice to the PMC claimants concerning the viability of the developments, they argued.

The claimants also said Oliver & Co made representations as to the security of the buyers’ funds and the likely success of the development, as well as indicating it would be directly involved in the success or failure of the purchases because its principals might be appointed directors of the buyer companies for each development.

But even though it was arguable that there was a collective investment scheme, the judge said he did not consider that there was “any arguable case, with a real prospect of success” that the law firm was carrying on any regulated activity.

There was nothing to indicate that Oliver & Co’s attendance at the sales roadshows in Hong Kong was “anything other than in the course of acting as solicitors” for potentially interested buyers.

“Under the terms of the sales agreement, all that was envisaged was that a representative of Oliver & Co might become a director of the buyer company. Even though [David] Sewell did, ultimately, become a director of the Angelgate Buyer Company, that was in July 2016, at a relatively late stage; and, in becoming a director, he was accepting an office as director of the buyer company which was personal and not fulfilling any role on the part of Oliver & Co.”

Mr Sewell, a solicitor and later consultant at Oliver & Co, was recently fined £8,000 by the Solicitors Disciplinary Tribunal for failing to advise clients of the risks inherent in off-plan development schemes.

He also became a director of the buyer company for the Baltic House development in October 2015, but the judge said the company was “not holding any funds as stakeholder”, unlike at Angelgate, and so he had no “director involvement” in approving payments.

He continued: “Further, if and insofar as the Angelgate Buyer Company was involved in approving any payments to the developer, or to its order, that cannot properly be characterised as the discretionary management of any of the PMC claimants’ assets as the funds were merely being disbursed in accordance with the pre-arranged scheme in the agreements for sale.

“I would therefore reject the proposed amendments on the grounds that they do not give rise to any properly arguable case, with any real prospect of success, that Oliver & Co were carrying on any regulated activity.”

Even if he was wrong on this, the judge accepted the law firm’s argument that “the operative agreement was the agreement for sale, in respect of which the relevant counterparty was the developer and not Oliver & Co”.

HHJ Hodge rejected the claimants’ submission that the retainer between the law firm and each claimant could be “considered as the relevant contract” for the purposes of section 26.

He said it was the sale agreement, “pursuant to which the PMC claimants’ money was paid away on exchange of contracts”, that was the relevant agreement.

“It is that agreement, and not the contract of retainer with Oliver & Co, which would be rendered unenforceable by reason of any breach of the Financial Services and Markets Act.”




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