Home Information Cases Russell-Cooke Trust Co v Richard Michael James Prentis & 19 Ors (2002)

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Russell-Cooke Trust Co v Richard Michael James Prentis & 19 Ors (2002)

Summary

Determination of preliminary issues arising out of the collapse of an investment scheme.

Facts

Application by the claimant custodian trustee company ('T') for the determination of three preliminary issues in a proceedings which arose out of the collapse of an investment scheme organised by the first defendant ('P'). In 1999 P, a solicitor who practised as a sole practitioner as the second defendant ('the Firm'), advertised the "Secured Property Investment Plan" ('the Plan'), which promised investors a fixed return of 15 per cent per annum on sums invested. Over £6 million was attracted from between 400 and 500 investors. The monies advanced were paid into the Firm's client account. The essential scheme of the Plan (not always implemented) was that sums received by the Firm would generally be aggregated and then allocated to a short term loan to an identified borrower, who would provide a first legal charge over his property as security for the loan. The Law Society intervened on 2 June 2000, by which time the Plan was substantially in deficit. The issues presently for determination were: (i) did each security give rise to a separate investment scheme, or was there a single investment "pool" creating a single scheme, or was there some intermediate position involving some separate schemes and a single pool as to the remainder of the monies invested; (ii) which, if any, of those schemes were collective investment schemes ('CISs') within s.75 Financial Services Act 1986 (now s.235 Financial Services and Markets Act 2000); and (iii) who beneficially owned the funds in the Firm's client account as at the date of the Law Society intervention (and the assets for the time being representing the same).

Held

(1) There was nothing in the advertising literature produced by P and/or the Firm which supported the conclusion that there had been a single investment pool. Nor did the so-called doctrine of "common misfortune" allow otherwise separate property rights to be surrendered or overridden. (2) In five cases specific property had been clearly allocated to specific investors as security for the gross amount of a loan advanced under the Plan. In those five cases alone, separate investment schemes had been created. Save in relation to those five instances, the balance of the monies received was held in a single investment pool. (3) In only two instances had an investor specifically identified the loan to which his investment was to be appropriated. Following the decision of Laddie J in Russell-Cooke Trust Co v Elliott & 92 Ors (2001) 1 All ER(D) 197, this court accepted that, save in relation to those two instances, the remaining investments created CISs. (3) In all the circumstances, the court was satisfied that the monies in the client account belonged to the investors pari passu to their respective contributions.

Preliminary issues determined accordingly.

Chancery Division
Lindsay J
Judgment date
4 November 2002
References

[2002] EWHC 2227

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