Anonymised Summary of Opinion

Factual and Procedural Background

The Plaintiffs are 43 insolvent companies, acting by their joint liquidators Attorney Armstrong and Attorney Bines, which operated as special purpose vehicles in relation to 22 investment schemes that raised approximately £68m. The schemes offered investors high guaranteed/assured returns and buy-back provisions. The Plaintiffs allege the schemes were collective investment schemes (CISs) under the Financial Services and Markets Act 2000 (FSMA), with consequent liabilities to investors under s.26 FSMA. Company A (a firm of solicitors) advised the groups involved between 2014 and 2017; the Plaintiffs allege Company A negligently failed to advise earlier that the schemes were CISs, causing the Plaintiffs to be exposed to s.26 liabilities.

Company A applied to strike out, or for reverse summary judgment on, the claims against it on the basis that, even assuming negligence, the Plaintiffs could prove no recoverable loss. Judge Sheldon struck out the claims and entered summary judgment for Company A ([2024] EWHC 909 (KB)). Permission to appeal was granted by Judge Dingemans. The Plaintiffs sought to amend their pleading on appeal (APOC 6) and to admit additional evidence from Attorney Armstrong; permission to amend and adduce that evidence was refused. The appeal was dismissed by the court below (three-judge panel).

Legal Issues Presented

1. Whether the strike-out/summary judgment was correct because the Plaintiffs failed to establish any recoverable loss from Company A's alleged negligence.
2. Whether the Plaintiffs' alleged losses are attributable to Company A's negligence (scope of duty and causation).
3. Whether the judge applied the correct test for summary judgment and whether the Plaintiffs had a real prospect of showing recoverable losses, including compensation under s.26(2)(b) FSMA.

Arguments of the Parties

Plaintiffs' Arguments

• The schemes were CISs and Company A negligently failed to advise this earlier; had correct advice been given the schemes would not have proceeded and the Plaintiffs would not have incurred s.26 liabilities.
• Primary quantum claimed is repayment under s.26(2)(a) (circa £68m less adjustments) and, as argued on appeal, potential compensation under s.26(2)(b); further proposed heads included commissions, legal/professional fees and losses from scheme expenditure.
• On appeal Plaintiffs sought to rely on (i) commissions and fees meaning the £ in/£ out point fails, (ii) a broader scope of duty covering foreseeable commercial losses from the schemes' structure, and (iii) compensation under s.26(2)(b) making liabilities exceed receipts.

Company A's Arguments

• The correct comparison is the actual position (Plaintiffs received investor monies but became liable to repay them) versus the counterfactual (no monies received and no s.26 liabilities); this yields no net loss ("£ in £ out" argument).
• The losses claimed arise from the way monies were used (fraud, misappropriation, Ponzi operation) not from the receipt of monies or from Company A's advice on CIS status; accordingly those losses are outside the scope of Company A's duty.
• The claim to compensation under s.26(2)(b) was not properly pleaded or evidenced before the judge; late attempts to amend and adduce evidence on appeal should be refused under established authorities.

Table of Precedents Cited

Court's Reasoning and Analysis

The court proceeded from the assumption (for present purposes) that the facts pleaded in APOC 5 were true and applied the structured Manchester framework to assess duty, nexus and recoverability.

Scope of duty: Company A was retained to advise whether the schemes were CISs. The duty therefore concerned harms arising from the schemes being CISs (FSMA consequences), not wider commercial risks, fraud or mismanagement. The court accepted Judge Sheldon's framing of the duty.

£ in/£ out analysis: Company A's central point was that receipt of investor monies was matched by the liability to repay (s.26(2)(a)) so no net loss arises from the receipt itself; authorities such as Saddington, Stanford and Galoo support this. The court accepted that the mere acceptance of investor funds, paired with a corresponding obligation to repay, does not give rise to actionable loss.

Counterfactual and nexus: The court rejected attempts (Grounds 1 and 2) to characterise immediate commissions/fees or the schemes' longer-term commercial deficits as losses within Company A's duty. Those expenditures were not caused by Company A's advice on CIS status and would have occurred whether or not the schemes were CISs; thus they fall outside the scope of the duty (SAAMCO/mountaineer's knee analysis).

Compensation under s.26(2)(b) (Ground 3): The court found APOC 5 did not fairly plead claims for compensation under s.26(2)(b) and that the Plaintiffs' late attempt to amend and adduce evidence on appeal was rightly refused under Aylwen and the modified Ladd v Marshall principles. On the merits, the court concluded it was unlikely s.26(2)(b) would yield a recovery superior to investors' tortious/contractual claims in the counterfactual world; accordingly, even if pleaded, it would not defeat the £ in/£ out conclusion.

Procedural/admission point: The court followed Aylwen in refusing APOC 6 and the further evidence because the material and arguments were available before the strike-out hearing and the Plaintiffs had had ample time to plead and evidence them before the judge.

Holding and Implications

HOLDING: The appeal is dismissed. The strike-out and summary judgment entered in favour of Company A are upheld; the Plaintiffs' proposed amendments and fresh evidence (APOC 6 and the witness statement of Attorney Armstrong) are refused.

Implications: The direct effect is that the Plaintiffs' claims against Company A are permanently dismissed; Company A is no longer exposed to indemnity liability to the Plaintiffs in respect of the s.26 claims as pleaded. The court applied established authorities constraining late amendments and confirming the scope-of-duty approach to recoverable loss; the decision applies those principles to the facts of these schemes but does not purport to create broader new precedent.