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London Capital & Finance’s marketing agent dragged into extended warranty “consumer fraud” lawsuit

In September 2018 Domestic & General Insurance PLC sued Service Box Group Limited, accusing it of poaching its customers by ringing them up and lying to them that D&G had gone out of business or that their insurance had expired, and encouraging them to take out new policies with Service Box.

Since September 2017, Service Box Group Limited has been owned by Surge Group plc and its CEO Paul Careless.

Also part of Surge Group is Surge Financial, the company that ran London Capital & Finance’s marketing and received £60 million in commission in return.

D&G has now sought to drag Surge Group, Paul Careless, and three other Surge directors and shareholders into its lawsuit against Service Box, accusing them of “fraudulent misrepresentation”.

Jonathan Cohen QC, counsel for D&G, argued at Monday’s hearing before Master Matthew Marsh that Careless — who became the sole director of Service Box in October 2017 — and the other directors should be added as co-defendants so that the claim is directed at the “real wrongdoers.”

Paul Careless was arrested as part of a Serious Fraud Office investigation into LCF and released without charge the same day. Despite Careless remaining innocent until proven guilty, D&G cite his involvement in LCF as a reason for him to be included in the lawsuit.

D&G said the circumstances around Careless’ arrest should be considered by the court as so-called similar fact evidence to support the insurer’s allegation in its own case that he seeks to take advantage of unsophisticated consumers for his own financial gain.

“We have good evidence that he’s been engaging in other similar fraud beyond what we see in this case,” Cohen told the judge on Monday. “Of course I would want to put to him in cross-examination that: consumer fraud is what you do, looking at what you have done at London Capital and Financial [sic].”

Careless and Surge both deny any wrongdoing in respect of London Capital & Finance and Service Box.

Careless and Surge say they shouldn’t be added to Domestic & General’s suit, as there is insufficient evidence against them. Careless maintains that although he is an investor in Service Box through his role at Surge Group, he was not involved in the day-to-day running of the firm and that most of the allegations are said to have taken place before he became the sole director at Service Box.

D&G claim that Careless and Surge need to be added to the suit to prevent them winding up Service Box and carrying on under a new company.

In its application to amend, D&G said there was a risk that the directors could simply wind up Service Box and continue to commit the same alleged tortious acts of causing loss by unlawful means through a different corporation.

“We say it was a systematic fraud on customers,” Cohen said. “We think it’s remarkable that fraud continues to be denied. We think that they have no defense whatsoever.”

In its High Court claim, D&G alleged that Service Box’s representatives had phoned elderly and vulnerable customers, often by falsely claiming that they worked for a sister company of D&G.

The insurer first became aware of an increase in complaints from its customers about the sales calls in April 2017. The number of calls increased over time, and in April 2018, D&G received 580 customer complaints about them, according to court documents.

At Monday’s hearing, Cohen said the “striking similarity” of hundreds of call transcripts indicate that the low-level Service Box call center employees must have been schooled by senior staff on what to say to the D&G customers. D&G’s management obtained a script for the phone calls that was handed out at an induction week in October 2017, according to court documents.

“There’s no other way in which the scheme could work,” Cohen said, adding that even if they weren’t involved in the training, the judge needs to take into account the small size of the company. “It would have been impossible not to be aware of it, and yet it hasn’t been stopped.”

Service Box has rejected the allegations, arguing that it did not masquerade as D&G when phoning the claimant’s customers. It also insisted that, even if it promoted insurance plans under the name “Domestic and General,” consumers would not necessarily conclude that D&G is behind them.

On its own, the fact that Careless was arrested and then released without charge over a collapsed investment that had nothing to do with Service Box is pretty thin gruel to add to D&G’s case. D&G’s application may have more to do with money.

The first rule of civil law is don’t sue people who don’t have any money. Service Box’s last accounts for September 2018 show negative net assets of minus £1.7 million (mostly representing unspecified “other creditors”). Even if D&G won, whether Service Box would be able to pay damages is doubtful.

Surge Group as a whole, however, has lots of money, owing to the £60 million commission it received from London Capital & Finance. Careless personally has been described as a millionaire.

The case continues; the judge said he will rule on D&G’s application to have Careless and Surge added to its suit later this week.

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