Judgment handed down in PAH Hillside Ltd & ors v Various Investors

HHJ Jackson, sitting in the High Court (ChD), has handed down judgment in PAH Hillside Ltd & ors v Various Investors.

Ruth Bala led by Eleanor Temple K.C. acted for the successful claimants, instructed by Matthew Brown at Gateley plc.

Griffins were appointed as the administrators of a corporate group (“PAH”) which had purchased 13 care homes from the Qualia Group. The care homes had been the subject of an fractional ownership scheme, whereby Qualia sold leaseholds of rooms within the homes to individuals (the “Investors”). The scheme had been held to constitute an unauthorised collective investment scheme in Financial Conduct Authority v Forster and ors [2023] EWHC 1973 (Ch).

Griffins wished to realise the homes’ value for the benefit of the defrauded Investors. However, the homes could not be sold while they were encumbered by the room leases and not all of the Investors were able or willing to execute deeds of surrender, many being resident overseas.

In respect of each care home, PAH applied under s28(3) of the Financial Services and Markets Act 2000 (“FSMA”) for an order permitting it, as assignee of Qualia’s rights, to retain the purchase price for the leases paid by the Investors save for a nominal sum (retention of monies paid pursuant to an unenforceable agreement where the Court considers this to be “just and equitable”). This order was sought with an eye to the repayment of a nominal sum triggering the Investors’ obligation, under s28(7), to return their leasehold interests to PAH (obligation to “return any other property received by him under the agreement”), enabling the homes to be sold unencumbered.

This was a novel use of s28: viewed in isolation, it was not “just and equitable” for PAH to retain the purchase prices for the leases, which were paid as a result of fraud. However, the statutory test was satisfied by taking a holistic view of the insolvency considerations and the need to sell the care homes for the benefit of the Investors collectively. While common sense and the law do not always sit as easy bedfellows, that common sense outcome could be achieved on a fair reading of FSMA ss26 and 28 (at §§77-78).

The ‘specified issue’ in FSMA s28(5), namely whether Qualia had reasonably believed that it was not contravening the general prohibition by making the agreement, “is not determinative of the decision but rather is one of the things the Court must take into account” (§83(c)).

The Court also considered whether a payment by PAH, which was an assignee rather than the operator of the collective investment scheme, was sufficient to trigger the Investors’ obligations in s28(7) to return their leasehold interests. Brown v InnovatorOnePlc & Ors [2012] EWHC 132 (Comm), which suggests that the relevant person to make a payment must be the person who is the counterparty to the tainted agreement, was distinguished (§§88-102).

View the full judgment here.