Case summary
This group action case relates to disputes arising from the purchase of long leasehold interests in individual hotel rooms (“the Properties”). The Claimants (“Cs”) were mainly overseas property investors based in Singapore and Hong Kong hoping to bring a claim for professional negligence against their former conveyancing solicitors, the Defendants (“Ds”).
What happened?
The properties were hotel rooms in the Needham House Hotel & Conference Centre (“Needham”) and the Hever Hotel & Country Club (“Hever”). The vendor of the rooms in Needham was Oak Property and in Hever was Oak Forest (“Oak”). Mercantile Investment Holdings SA (“Mercantile”) provided loans to purchasers to enable them to purchase the rooms.
The Ds received a draft legal pack of conveyancing documents to be used for all purchases prepared by Oak’s solicitors, Sheppersons. The Ds worked with the latter to agree the legal pack before attending an exhibition in Kuala Lumpur where the hotel rooms were promoted as a “truly hands off investment”.
The purchases completed around 2013, and the Cs stopped receiving shared revenue or guaranteed rent from approximately September 2014 onwards. In 2015, the rental management agreements were terminated and the vendors entered liquidation in 2017 – the date of knowledge. Mercantile had purported to pay monies to the vendors but later it was known (from the liquidators of the vendors) that no such money was advanced.
The investors were left with no return on investment, worthless titles and were hoping to recover some of the losses by way of damages and/or equitable compensation.
The Ds were involved in the pre-vetting of potential purchasers and had attended a property investment fair in Hong Kong enticing investors to a “guaranteed” income investment.
Many fraud indicators were apparent throughout the transaction process including the loan advance not being transferred to the client account but directly to the vendor instead. In addition, the loan company, Mercantile, was not regulated by the FCA and there was an overlap of ownership structures between the vendors, management companies and Mercantile.
None of these issues seem to raise any concerns as to the scheme’s legitimacy. Instead, the investments were treated as general property transactions and carried out without any financial due diligence or advice sought as to their potential risks.
Conversely, the D’s position was that they had only been instructed to conduct the necessary conveyancing and could not have reasonably suspected anything unusual in the transaction. The Ds also claimed they were not authorised to provide financial advice, and that the Cs had chosen to proceed with their investment without the benefit of any financial advice.
The Temple Perspective
Our underwriter’s initial assessment of this case concluded that the investment opportunity appeared to have been fraudulent, and the question would be whether the Cs could turn to the solicitors for compensation.
Counsel’s advice for the Cs was exceptionally positive, which supported the underwriter’s assessment. Counsel also seemed to share the underwriter’s view that the solicitors had been too involved with the project in its early stages and there were too many ‘red flags’ to treat it as an ordinary transaction.
Outcome
Overall, this was a particularly strong case Temple were happy to insure on the basis of the strength of the Cs’ case and the liability of the Ds for their role in facilitating the problematic transactions. The case serves as a cautionary tale, highlighting the importance of conducting thorough due diligence and exercising vigilance in identifying and addressing potential risks to clients’ investments.
Financial settlement
The group action concluded at mediation in April 2022 with a settlement of £500,000.
