Afan Valley Limited (in administration) & Ors v Lupton Fawcett (a firm) & Ors

A professional-negligence claim may be struck out or summarily dismissed where the pleaded loss is no more than the obligation to repay money received, because the receipt and matching liability leave the claimant financially neutral. Loss caused by the subsequent use or dissipation of those monies is distinct and will not fall within a solicitor’s duty unless the duty extends to that use.

At the summary-judgment stage, factual causation should generally be left for trial where further evidence could materially affect what would have happened. Claims tainted by alleged illegality are not automatically barred: the court must consider the purpose of the prohibition, competing public policies and proportionality.

Forty-three companies in liquidation, said to be victims of a Ponzi fraud, claimed professional negligence against their former solicitors, Lupton Fawcett LLP and Metis Law entities. They alleged that competent advice would have prevented the promotion and operation of investment schemes which were collective investment schemes requiring authorisation under the Financial Services and Markets Act 2000.

Lupton Fawcett applied to strike out or obtain summary judgment. The claimants sought extensive amendments, including allegations concerning regulatory advice, SRA warnings and advice from counsel. The claimants also sought amendments against Metis, including a breach of trust claim and further secured-lending allegations. The central issues were loss, duty nexus, factual causation, illegality, limitation and whether the proposed amendments disclosed arguable claims.

1. Claims against Lupton Fawcett. The claims were struck out and/or dismissed summarily. The obligation under section 26 of the Financial Services and Markets Act 2000 to repay investor monies was offset by the monies received. The same analysis applied to secured loans. Receipt of the monies was financially neutral; the alleged loss resulted from their subsequent use or dissipation.
2. The court applied Saddington v Colleys Professional Services (a Firm) and Galoo Limited v Bright Grahame & Murray. A loan or investment receipt is not itself loss-causing damage. Any later loss resulting from use of the money was, on the pleaded duty, outside Lupton Fawcett’s responsibility. Applying Manchester Building Society v Grant Thornton LLP, the only harm sufficiently connected with the duty was the repayment obligation, which was fully matched by the receipt.
3. The factual-causation challenge to the whole claim was not summarily determinative. Although difficult, it was not fanciful that stronger advice might have stopped the schemes, particularly because legal advice appeared to supply validation. Further disclosure and witness evidence could affect the issue, so it required trial.
4. The allegations concerning SRA warning letters and company accounts were dismissed summarily. Lupton Fawcett had raised the warnings, and further probing of the controlling mind was unlikely to have made a difference. The filed accounts could not realistically have altered the outcome.
5. The illegality defence failed. Applying Patel v Mirza and Grondona v Stoffel, denying the claim would frustrate investor protection and undermine the policy that solicitors should perform their duties diligently.
6. The limitation argument concerning later investments and loans failed. Where advice was given on a continuing basis, alleged failures could constitute separate events rather than one cause of action crystallised on the first receipt.
7. Claims against Metis. Agreed amendments were allowed. Detailed pleading of the Solicitors Disciplinary Tribunal decision was refused. The breach-of-trust amendment was not reasonably arguable because the pleaded facts showed that Metis acted on instructions from the SPVs’ controlling mind. Secured-lending amendments were refused for lack of clarity and particularity.

The Lupton Fawcett claims were dismissed. The proposed Metis amendments were refused except for those agreed by Metis.