Judge rejects defendant’s request to pay law firm’s £2m costs

Kingsley Napley: Ruling “may be thought tough”, says judge

A High Court judge has refused a request from a defendant in the London Capital & Finance fraud case to use the proceeds of sale of his home to pay his solicitors over £2m.

Mr Justice Miles said the outcome “may be thought tough” for London law firm Kingsley Napley, but they had “run the risk of continuing to supply legal services… on credit” to Paul Careless.

Miles J said Mr Careless, main owner and director of marketing company Surge, did not oppose “in principle the grant of a proprietary freezing order” in favour of the claimants, three companies in administration and their administrators.

However, there was “a very important difference between the parties about what should happen to the proceeds of sale” of his house in Gloucestershire.

Mr Careless wanted the net proceeds of over £2.18m to pay off legal fees of £2.16m owed to Kingsley Napley, while allowing him living expenses of around £8,500 a month.

The claimants said the court should refuse to allow any release of funds in respect of the legal expenses pending the handing down of judgment in the trial, which concluded last month. Miles J expects to rule in the Michaelmas term.

The judge said the reason defendants were allowed to use money to which claimants asserted ownership was to obtain legal representation, which in this case had already happened. This meant there was no risk that his defence would not be properly presented

The issue was the balance of justice between the claimant and the respondent: “The interests of the respondent’s creditors, including his solicitors, should carry little or no weight.”

The High Court heard in London Capital & Finance Plc and others v Thomson and others [2024] EWHC 1684 (Ch) that the claimants argued that “a substantial fraud” had been conducted through LCF, which saw investors lose £230m in what they claim was a Ponzi scheme.

LCF was raided by the Financial Conduct Authority at the end of 2018 and subsequently went into administration.

Mr Careless was the majority beneficial owner and a director of Surge, which acted as a marketing and digital services supplier for LCF and charged a commission of 25% of gross receipts raised. He and Surge are two of the remaining seven defendants.

The judge said that evidence showed that “he was the driving force behind Surge” and around £12m of the money paid by LCF to Surge ended up with him.

The claimants brought various claims against Mr Careless personally, including participation in fraudulent trading and dishonest assistance in breaches of fiduciary duty by the first defendant, as well as against Surge.

Miles J said both denied “every element” of the claims, arguing that “they provided a commercial service to LCF and had no knowledge or notice of any impropriety”.

There was “no dispute” between the parties about the imposition of a proprietary freezing order, with the argument focusing on what should be done with the property covered by it.

Miles J said he was “not satisfied” that Mr Careless had “properly discharged the burden on him of establishing that he has no assets other than the property from which to meet his legal costs”.

Further, he had seen nothing to suggest that the claimants “lulled” Mr Careless or Kingsley Napley “into supposing that they would be paid”.

The outcome “may be thought tough” for Kingsley Napley. “But they have run the risk of continuing to supply legal services to [Mr Careless] on credit. As already explained, the reason a defendant is allowed to use money to which a claimant asserts ownership is to obtain representation, and that has happened.

“The court is not in the exercise of its discretion under Marino concerned with protecting the defendant’s unsecured creditors using property which may turn out to belong to the claimant.”

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