There was no breach of duty: Arch Cru founder

The court heard the case involves one of eight investments, in respect of which claims are made in overall proceedings against Arch, brought by 18 incorporated cells of SPL Guernsey ICC Ltd.

In an earlier court ruling it was held that the current claim, which involves six of the cells, should be heard first, together with a related claim against Arch founder and chief executive officer Robin Farrell.

The cells all formed part of the structure established by Arch through which UK investors took part in the Arch Cru funds, marketed to them by IFAs.

Article continues after advert

The claimants stated they invested £20.2m to finance the acquisition by Isle of Man-based special purpose vehicle Lonscale Ltd of the Club Easy group, a business involved in the ownership and management of student accommodation.

The court heard that the amount due on completion was only £13.2m but Arch caused them to invest the additional money so that Lonscale could make unauthorised payments of £6m, including £3m to Arch.

They claim that this constituted a breach of Arch’s fiduciary duties and gave rise to a conflict of interest.

The court also heard that Arch decided to invest despite clear indications that the business offered poor investment prospects.

The six claimants alleged that Mr Farrell knew that Arch was acting in breach of its duties and acted “dishonestly in assisting and intentionally procuring” the alleged breach.

Of a total of more than £26m, following a further payment of more than £6m, they claimed that they have suffered total losses of £19.7m.

In the larger overall claim, it is said that £463m was invested in all of the cells managed by Arch, primarily by UK retail investors, with an estimate of 6400 investors in total, many of whom suffered heavy losses when the Arch Cru funds collapsed in 2009.

Mr Farrell, who is representing himself and Arch, opened his defence before Mr Justice Walker. He told the court that the claim against him was “without any evidential foundation and should not have been made”. He added that he was “outraged at the allegation of dishonesty”.

Mr Farrell said: “Having worked in the financial industry for 25 years with an unblemished track record, to have an allegation of dishonesty based purely on circumstantial evidence is horrifying. All such allegations having been made purely on the basis of inference with no contemporaneous fact, evidence or element of personal gain shown by the claimants.”

“The defendants dispute all claims and note the paucity of evidence of the claimants. The claimants’ case is almost entirely made up of circumstantial evidence and supposition.”

He argued that none of the claimants’ current directors or advisers were involved at the time, and so they had no knowledge or the contemporaneous facts.

He told the court: “There was no breach of fiduciary duties. The fee paid to Arch was pre-agreed prior to any investment by the cells. The transaction and fees were disclosed to the claimants. The investment was considered a good and reasonable investment for the claimants at the time.”