Afan Valley Ltd (in Administration, acting by Robert Armstrong and Andrew Knowles as Joint Administrators) and others (Appellants) v Lupton Fawcett LLP (Respondent)

Case summary

Case ID

UKSC/2026/0026

Parties

Appellant(s)

Afan Valley Limited (in administration) & 42 Others

Respondent(s)

Lupton Fawcett LLP

Issue

(1) Did the appellant suffer any recoverable loss as a result of the respondent’s alleged breaches of duty? (2) Was the Court of Appeal wrong to refuse to give the appellant permission to amend its statement of case?

Facts

The appellants are a number of insolvent companies, all of which were used as special purpose vehicles (“SPVs”) in connection with investment schemes promoted to the public, under which investors were offered the opportunity to buy long leasehold interests in individual rooms in hotels, care homes or student accommodation. The claim relates to a total of 22 such schemes, under which over £68m was raised from investors in the UK and overseas. The schemes were collective investment schemes (“CISs”) within the meaning of the Financial Services and Markets Act 2000. None of the claimant companies, nor any other entity or person involved in the schemes, was an authorised person. The result of this was that, by virtue of s26 Financial Services Markets Act 2000, the claimants were liable to repay to the investors (a) any money or other property transferred by the investor under the agreement, and (b) compensation for any loss sustained by the investor as a result of having parted with that money or other property. The SPVs’ liability under s26 FSMA in the present appeal amounts to approximately £68m. In 2022, the SPVs commenced a claim against the respondent solicitors firm (“LF”) in relation to the schemes. LF is a solicitors firm which advised the claimants on whether the Schemes were CISs on a number of occasions between 2014 and 2017. The claimants’ case is that LF should have, but failed to advise earlier that the Schemes were CISs, or at the very least that there was a serious risk that they were. The claimants say that if LF had given the advice that it should have done, the schemes would not have been promoted and no investments would have been made. The claimants say that in that case they would not have incurred s26 FSMA liabilities to investors in the form of obligations to return their payments to them, and that they would therefore have avoided loss. The schemes were, in fact, CISs. In addition, the schemes were unsuccessful. The claimants’ case is that none of the Schemes made a profit, and indeed that the Schemes were operating together as a Ponzi scheme whereby unachievable investment returns for existing investors were paid not out of the performance of the underlying assets in the Scheme, but by the fraudulent use of newer investors’ monies. The defendants applied for and obtained strike out of the claims. The judge, striking out the claims, held that no loss had arisen on the claimants’ pleaded case: the SPVs had obtained an asset of equal value to the liability it had incurred and had to give credit for it (the “£ in £ out argument”). The judge therefore held that the claims should be struck out and/or dismissed summarily. The claimant companies appealed against the judge’s strike out and summary judgment decision. They also sought permission to amend their claim, in order to address the £ in £ out argument. In essence, they advanced three new grounds as to why they had in fact suffered a loss. The first argument was that when an investment was successfully completed, the claimant companies paid commissions to sales agents and legal and professional fees, and therefore did not in practice receive £1 in for every £1 out. The second argument was that for the first few years of the schemes, the value of the scheme and its assets would inevitably be less than the value of the sums received and invested. The claimants said that it followed that the loss suffered by each claimant included the balance of any expenditure. The third argument was that their liability under s26 FSMA was not just to repay the investors the amounts received under s26(2)(a), but in addition to pay them compensation under s26(2)(b), and that the liability to pay compensation on top of repayment of the monies received was therefore a loss recoverable in the tort claim. The Court of Appeal refused permission to amend the statement of case, and refused permission to appeal the judge’s strike out and summary judgment decision. The Court of Appeal held that none of the three arguments was successful, and that there was therefore nothing to answer the £ in £ out argument. The claimant companies now appeal to the Supreme court.

Date of issue

4 March 2026

Case origin

PTA

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