Financial Conduct Authority v Asset Land Investment plc (FCA Proceedings, Andrew Smith J.)

The court considered whether so-called land-banking schemes run by Asset L I Inc (ALI-Panama) and Asset Land Investment Plc (ALI-UK) were "collective investment schemes" within section 235 of the Financial Services and Markets Act 2000 (FSMA) and whether the defendants contravened the general prohibition in section 19 and the financial promotion restrictions in section 21. The judge applied the statutory test in section 235 (arrangements with respect to property enabling participants to receive profits; no day-to-day control by participants; characteristic of management of the property as a whole) and held that the arrangements operated in practice as schemes whose object or effect was to secure enhanced planning status and onward sale of whole sites, with the investors expecting to share in resulting profits.

Key legal findings: (i) the court adopted the approach that section 235 looks to how arrangements operate in practice rather than being defeated by form of contractual documentation; (ii) the written contract clauses relied on by defendants (representations and services clauses) did not prevent the court from finding that the schemes were collective investment schemes and, insofar as they were relied on to exclude liability, they were vulnerable under the Unfair Terms in Consumer Contracts Regulations 1999 and the Misrepresentation Act 1967; (iii) oral statements and sales representations were legally significant for the s235 analysis and could establish arrangements even if not reduced to written terms; (iv) ALI-UK and ALI-Panama carried on regulated activities without authorisation and breached sections 19 and 21; and (v) Mr Banner-Eve and Mr Cohen were knowingly concerned in the contraventions. The FSA was entitled to declarations of contravention and to seek injunctive and restitutionary remedies, with further submissions directed on relief.

Background and parties. The Financial Services Authority (FSA) brought proceedings against ALI-Panama, ALI-UK, an administrative services company (ESL), and various individuals. The FSA alleged that the companies ran land-banking schemes at several sites (South Godstone, Liphook, Newbury, Lutterworth, Harrogate, Stansted) that amounted to collective investment schemes under FSMA s235 and that the defendants breached the general prohibition (s19) and the financial promotion restriction (s21).

Nature of the application. The FSA sought declaratory relief, injunctive relief under s380 and confiscatory/restitutionary relief under s382. The trial addressed liability issues defined at pre-trial review, including whether arrangements existed within s235, whether participants lacked day-to-day control, whether property was managed as a whole by the operator, which defendants established or operated schemes, who communicated financial promotions, and who was knowingly concerned in contraventions.

Facts and evidence. The FSA called investor witnesses and other witnesses (including a reporter who posed as an investor) to show that investors were cold-called or solicited, invited to buy small plots, were told (often in "sales patter") that Asset Land would seek to obtain enhanced planning status or facilitate onward sale of whole sites and that investors would share in profits. The defendants relied on written contracts, a footer/disclaimer, and new documentation adopted after FSA engagement in 2007–08. The judge accepted the investors’ evidence as reliable and found significant documentary and email evidence that linked the two corporate operators and demonstrated the involvement of the individuals complained of. The judge found Mr Banner-Eve to be an unreliable and evasive witness on key points, and concluded he was heavily involved in both companies’ activities; Mr Cohen was also found to be involved in the sales operations.

Legal issues framed. The court framed the issues as: (i) existence and nature of arrangements within s235(1); (ii) whether participants lacked day-to-day control within s235(2); (iii) whether the property was managed as a whole within s235(3)(b); (iv) which defendants established or operated any scheme; (v) which defendants communicated invitations or inducements in breach of s21; (vi) which persons were knowingly concerned in contraventions; and (vii) relief appropriate under ss380 and 382. The parties also litigated admissibility of an interview under the Civil Evidence Act 1995 and defences based on estoppel, disclaimer, and authority of brokers.

Court’s reasoning and conclusions. The court adopted the approach in In re Sky Land Consultants (and related authorities) that s235 should be interpreted by reference to how arrangements operate in practice. The judge concluded that the arrangements were collective investment schemes because: (a) investors were induced to buy plots with the object or effect of participating in profits from acquisition, holding, management or disposal of the sites; (b) participants did not exercise day-to-day control in practice; and (c) the characteristic of management of the site as a whole by the operator existed. The judge rejected the defendants’ reliance on contractual "representations" and "services" clauses to defeat the FSA’s case, concluding they did not prevent the court from finding a CIS and that they were susceptible to challenge under the Unfair Terms in Consumer Contracts Regulations 1999 and the Misrepresentation Act 1967. The judge rejected the defendants’ estoppel defence based on an FSA letter of 15 November 2008 because the defendants had not acted strictly in accordance with the letter’s terms and the FSA’s concession did not preclude pursuing the pleaded case. The court found ALI-UK and ALI-Panama contravened ss19 and 21 and that Mr Banner-Eve and Mr Cohen were knowingly concerned in those contraventions. The court directed that appropriately worded declarations be given and invited submissions on injunctive relief, accounts and inquiries under ss380/382 and interim measures.

Wider context. The judgment emphasised that FSMA’s protections must look to the practical operation of schemes and not be defeated by form, particularly in consumer-facing land-banking promotions where investors are unsophisticated and marketing representations inform their expectations.

First instance: The court concluded that the land-banking operations of ALI-UK and ALI-Panama were collective investment schemes within section 235 FSMA and that both companies contravened the general prohibition in section 19 and the financial promotion restriction in section 21. The court further held that Mr Banner-Eve and Mr Cohen were knowingly concerned in those contraventions. The judge rejected the defendants’ reliance on contractual disclaimers, estoppel and lack of authority defences and directed that declarations be made; injunctive and restitutionary relief and the scope of accounts and inquiries under ss380/382 were to be addressed on further submissions.