Afan Valley Ltd & Ors v Lupton Fawcett LLP

In a professional-negligence claim, damages are limited to losses falling within the risks addressed by the defendant’s duty. Where solicitors were retained to advise whether investment schemes were collective investment schemes, the relevant duty concerned the consequences of that regulatory status under the Financial Services and Markets Act 2000, not the schemes’ commercial viability, fraud, expenditure or losses caused by their operation.

In comparing the actual and counterfactual positions, the court must account for both money received and the matching liability to repay it. Potential compensation under section 26(2)(b) did not assist where it was not fairly pleaded and, in any event, investors would probably have had tortious or contractual claims of at least equivalent value. Amendments and evidence first advanced on appeal to cure a failed strike-out or summary-judgment application were refused.

Forty-three insolvent companies sued their former solicitors, Lupton Fawcett LLP, alleging negligent advice about whether investment schemes were collective investment schemes under the Financial Services and Markets Act 2000. They alleged that correct advice would have prevented the schemes from proceeding and claimed the liabilities said to arise under section 26, principally repayment of investor monies.

Sheldon J struck out the claims and entered summary judgment, holding that the companies had not shown recoverable loss or loss within the scope of the alleged duty: [2024] EWHC 909 (KB). On appeal, the companies sought to rely on a further pleading and evidence concerning commissions, professional fees, scheme expenditure and compensation under section 26(2)(b). The central issues were whether those matters overcame the matching receipt-and-liability analysis and fell within the solicitors’ duty.

1. Appeal dismissed. The refusal to admit APOC 6 and the further evidence was upheld. Under Aylwen v Taylor Johnson Garrett [2001] EWCA Civ 1171, the modified Ladd v Marshall criteria apply to fresh evidence and amendments first advanced in the Court of Appeal to avert an adverse strike-out or summary-judgment outcome. The proposed material was available with reasonable diligence before the Judge and was an attempt to improve the case after judgment.
2. The correct comparison was between the actual position, in which the companies received the investments and incurred potential section 26 liabilities, and the counterfactual position, in which the schemes did not proceed and neither receipt nor liability arose. A liability to repay money received is matched pound for pound by the receipt, so it does not itself establish loss. This accords with Galoo Ltd v Bright Grahame Murray [1994] 1 WLR 1360 and Saddington v Colleys Professional Services (a Firm) [1999] Lloyd's Rep PN 140.
3. The scope of duty was defined by the question on which Lupton Fawcett was retained: the impact of the schemes being collective investment schemes. Applying the structured approach in Manchester Building Society v Grant Thornton LLP [2021] UKSC 20, that duty did not extend to commercial viability, fraud, misappropriation, commissions, professional fees or losses from the way the schemes were operated. Those losses would have occurred in the counterfactual world and lacked the required duty nexus.
4. Potential compensation under section 26(2)(b) was within the subject matter of the duty in principle, but the point was not fairly pleaded in APOC 5. In any event, the investors would probably have had claims in deceit or contract in the counterfactual world at least as valuable as their alleged section 26 claims. Section 26(2)(b) concerned loss resulting from parting with the investment, not the benefit of promised contractual returns such as a 125% buy-back.
5. The Judge had therefore been right to strike out the claims and enter summary judgment. Lord Justice Edis and Lord Justice Holgate agreed with Lord Justice Nugee.

• Court of Appeal (Civil Division): The appeal was dismissed. The Court refused permission to rely on APOC 6 and further evidence, and upheld the order striking out the claims and entering summary judgment.
• High Court of Justice, King’s Bench Division: Sheldon J struck out the claims against Lupton Fawcett and granted summary judgment, for reasons given at [2024] EWHC 909 (KB) .