Judge rejects defendant’s bid for £2m legal fees

A High Court judge has rejected an application by a defendant in the London Capital & Finance fraud case to use the proceeds of the sale of his home to pay more than £2m to his lawyers.

Mr Justice Miles said the outcome of the case “could be difficult” for London law firm Kingsley Napley, but the firm “risks continuing to provide legal services… on credit” to Paul Careless.

Miles J. found that Mr Careless, the principal owner and director of marketing company Surge, had not objected “in principle to the making of an asset freezing order” in favour of the plaintiffs, the three companies in administration and their trustees.

However, there was a “very material difference between the parties as to what should happen to the proceeds of the sale” of his Gloucestershire home.

Mr Careless wanted the net income of more than £2.18m to be enough to cover the £2.16m legal costs that had to be paid to Kingsley Napley, while also allowing him to meet living costs of around £8,500 a month.

The claimants said the court should refuse to make any payment towards their legal costs until after the trial, which ended last month, was heard. Miles J expects to deliver his judgment on Michaelmas.

The judge said the reason the defendant was allowed to use the money he claimed ownership of was to obtain legal representation, which in this case had already happened. This meant there was no risk that his defence would not be properly presented

The essence of the dispute was the balance between plaintiff and defendant: “The interests of the defendant’s creditors, including his lawyers, should be of no importance.”

The Supreme Court heard London Capital & Finance Plc and Others v Thomson and Others (2024) EWHC 1684 (Ch), in which the plaintiffs argued that a “serious fraud” had been committed through LCF, resulting in investors losing £230m in what they alleged was a Ponzi scheme.

At the end of 2018, LCF was searched by the Financial Conduct Authority and was declared bankrupt.

Mr Careless was the majority beneficial owner and director of Surge, which acted as a marketing and digital services provider to LCF and received a 25% commission on gross revenues. He and Surge are two of the other seven defendants.

The judge said the evidence showed he “was the driving force behind Surge” and that about £12m of the money paid to Surge by LCF went to him.

The plaintiffs brought various claims directly against Mr Careless, including for engaging in fraudulent trading and dishonestly aiding and abetting the first defendant’s breach of fiduciary duty, and against Surge.

Miles J said the pair denied “every element” of the claims, arguing they “provided commercial services to LCF and had no knowledge or awareness of any irregularity”.

There was “no dispute” between the parties as to the imposition of the asset freezing order and the dispute centred on what should be done with the assets covered by the order.

Miles J said he was “not persuaded” that Mr Careless had “adequately discharged his burden of proof that he had no assets other than his estate from which he could meet his legal costs”.

Moreover, he saw nothing to suggest that the claimants had “lulled the vigilance” of Mr Careless or Kingsley Napley “into believing that they would receive payment”.

The outcome “could be difficult” for Kingsley Napley. “But they ran the risk of continuing to provide legal services (to Mr Careless) on credit. As has been explained, the reason a defendant can use the money that the plaintiff claims ownership of is to obtain representation, and that is what happened.

“The court does not exercise its powers under Article Marina “interested in protecting the defendant’s unsecured creditors by using assets that may turn out to be the plaintiff’s property.”