Financial Services Authority v Watkins (t/a Consolidated Land UK)

Arrangements constituting a collective investment scheme are assessed objectively by reference to what was agreed and understood between the operator and participants. The purpose or effect of the arrangements is relevant, and the scheme may qualify even where the proposed development or profit is unrealistic or impossible. An unauthorised person who carries on, or purports to carry on, the regulated activity of operating a collective investment scheme contravenes the general prohibition in Financial Services and Markets Act 2000. Declaratory relief may be granted on summary judgment where the evidence establishes the factual basis and the relevant discretionary considerations support it. Injunctive relief must be no wider than necessary to restrain the contravention. An interim payment may reflect investor losses and profits under section 382.

The Financial Services Authority brought proceedings concerning an alleged land banking scheme operated by the defendant, who traded as Consolidated Land UK. Investors bought small plots on the understanding that planning permission would be pursued or that the site would be sold to a developer. The defendant was unauthorised to conduct regulated activities.

After failing to provide information required by an unless order, the defendant was debarred from defending the claim. He did not appear at the summary judgment hearing. The court considered whether the arrangements constituted a collective investment scheme, whether the defendant had contravened the general prohibition, and whether declaratory, injunctive and monetary relief should be granted.

1. Summary judgment. The defendant had no real prospect of successfully defending the claim and there was no other compelling reason for a trial. The evidence established that investors were told that the land would be managed through planning applications or an onward sale to a developer.
2. Collective investment scheme. The arrangements were assessed objectively under section 235 of Financial Services and Markets Act 2000. Their purpose or effect was to enable investors to participate in profits arising from the acquisition, management or disposal of the land. Investors lacked day-to-day control, and the land was managed as a whole by or on behalf of the defendant. The fact that the land could not, and was not intended to, be developed did not prevent a contravention.
3. General prohibition. Operating the scheme was a regulated activity under section 22 and Articles 4 and 51 of the Financial Services and Markets Act 2000 (Regulated Activities) Order, SI 2001/544. Since the defendant was unauthorised, he breached section 19. The prohibition also applied because he purported to conduct a regulated activity.
4. Declaration. A declaration could be made on summary judgment. The court considered justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and any special reasons for granting or refusing it. Those considerations favoured a declaration that the defendant purported to operate a collective investment scheme between 1 March and 27 May 2007.
5. Injunction. A final injunction was appropriate, but an injunction against selling land in the course of business generally would be wider than necessary. The order had to be confined so far as possible to conduct contravening FSMA, notwithstanding the greater difficulty of policing a narrower order.
6. Interim payment. Applying CPR 25.71(c) and section 382 of Financial Services and Markets Act 2000, the court was satisfied that the defendant would be ordered to pay a substantial sum at trial. It ordered an interim payment of £919,655, with directions concerning distribution to investors.

The judgment was a first-instance decision on the Financial Services Authority’s application for summary judgment. The proceedings had followed an interim injunction and undertakings, and the defendant was later debarred from defending after failing to comply with an unless order.