Investors who lost money in failed luxury care-home developments have secured a High Court ruling against the company that marketed the schemes.
In a case that examines the perilously thin line between marketing investments and providing investment advice, the High Court in London has ruled that a property marketing company cannot escape responsibility for misleading assurances simply by claiming to have acted as a sales agent. Handing down her decision on 9 October, Recorder Janet Bignell KC, sitting as a deputy High Court judge, found that One Touch Solution had assumed legal responsibilities towards investors who paid more than £2.8 million into failed luxury care-home developments.
The decision carries significant implications for property investment intermediaries and their professional indemnity insurers. It also illustrates how accepting an ombudsman’s decision can prevent investors from subsequently seeking more compensation through the courts.
The background
Between September 2017 and March 2019, 28 investors bought leases of individual rooms in luxury care homes being developed by The Care Home Group (TCHG), also known as the Carlauren Group.
The investors, based in the UK, Israel, South Africa, Nigeria, Canada and elsewhere, paid £2.8 million, often using retirement savings or inheritances, and were promised guaranteed yields of 10% per year over 10 years. One Touch marketed the rooms through its website, promotional events and sales representatives, including an Israeli sub-agent, Galon Invest. It described itself as an experienced property investment business that researched opportunities before recommending them. Investors could purchase rooms, receive regular income and eventually sell their interests back to the developer.
By mid-2019, all the schemes had failed, with some properties never refurbished and others never becoming operational. TCHG companies entered insolvency proceedings, leaving investors with little or nothing to show for their money.
One Touch entered creditors’ voluntary liquidation, prompting investors to bring proceedings alleging negligent misrepresentation and unfair commercial practices.
The arguments
The investors maintained that One Touch had presented itself as more than a marketing agent: it had recommended investments, claimed to have undertaken due diligence and assured purchasers that the developments were financially sound. They argued that One Touch had assumed a duty to exercise reasonable care when providing information and recommendations, but had made misleading statements about guaranteed returns, buyback arrangements and construction progress.
One Touch denied responsibility, arguing that it acted solely for the developers and passed on information supplied by TCHG. It maintained that investors should have obtained independent advice and that their losses resulted from alleged fraud by TCHG’s management. It also denied responsibility for statements made by Galon.
A separate dispute concerned investors who had previously complained to the Property Ombudsman alleging that One Touch had failed to check the viability of the developments and had misled them about the investments. The ombudsman upheld aspects of their complaints and ordered One Touch to pay compensation for shortcomings in its service, but did not hold the company responsible for their losses. One Touch argued that, having accepted the ombudsman’s decisions as final settlements, the investors could not rerun the same arguments in court.
The decision
Recorder Bignell substantially accepted the investors’ case, rejecting One Touch’s characterisation of itself as a passive intermediary. “One Touch did not simply market property investments to the claimants on behalf of developers by advertising them for sale and purchase in the well-understood manner of a vendor’s estate agent,” she wrote, concluding that its dealings with investors “amounted to advice, not merely the giving of information”.
The judge found that One Touch had encouraged investors to rely on its expertise, describing investments as carefully researched and carrying minimal risk. Promotional materials also suggested that independent solicitors had reviewed the contracts, although that assertion was not borne out by the evidence presented to the court.
The supposed buyback guarantees were particularly problematic for the court. The companies responsible for buying back the rooms had no established trading history, and investors had not been properly warned about the risks to their promised returns.
The judge also rejected One Touch’s suggestion that describing the investments as straightforward opportunities requiring little effort was simply enthusiastic sales language. “The representation that these were easy armchair investments was neither sales puff nor simply passing on what TCHG had said,” she held, before going on to observe that One Touch had also continued recommending investments despite mounting evidence of problems with the developments. The judge further held the company responsible for Galon’s conduct, rejecting its attempt to distance itself from its Israeli sales operation.
However, the claimants did not have it all their own way, with two investors prevented from pursuing their claims because they had accepted final decisions from the Property Ombudsman. The judge determined that those decisions were legally binding in respect of the same complaints, even though the ombudsman had not determined formal negligence claims. One investor had subsequently withdrawn his acceptance, but that did not alter the outcome.
Insurance coverage will also be considered at a subsequent hearing. Second defendant Hiscox, One Touch’s professional indemnity insurer, has reserved its position, including over a policy exclusion concerning investment or financial advice.
Compensation will be decided at a later date.
The parties
In Moller and others (claimants) v One Touch Solution (first defendant) and another, the claimants were represented by Simon Johnson and Mairi Innes of Enterprise Chambers, instructed by HFW. The first defendant was represented by Simon Wilton KC and Henry Bankes-Jones of Hailsham Chambers, instructed by Browne Jacobson.
