The Financial Services Authority v Asset L I Inc (t/a Asset Land Investment Inc) & Ors

Arrangements may constitute a collective investment scheme under Financial Services and Markets Act 2000, s 235, even though they are not legally binding and are accompanied by contractual disclaimers. The court must examine how the scheme was promoted and operated in practice. Investors need not share identical understandings, provided their understandings are reasonably based on representations forming the scheme. Day-to-day control concerns actual control of the relevant property, not merely the legal rights attached to individual plots. Management includes steps directed towards enhancing development prospects and arranging a sale. A person may be knowingly concerned in a contravention by knowing the facts constituting the breach; knowledge that the conduct was unlawful is unnecessary.

The FSA brought proceedings concerning land-banking schemes operated by ALI-UK and ALI-Panama. Investors bought small plots of agricultural land after being told that Asset Land would improve the sites’ development prospects, arrange their sale, and distribute the resulting profits. The defendants argued that the arrangements were not collective investment schemes, relying on contractual terms, disclaimers, lack of authority, and estoppel arising from earlier correspondence with the FSA.

The principal issues were whether the schemes satisfied s 235 of the Financial Services and Markets Act 2000, whether the companies contravened ss 19 and 21, whether individuals were knowingly concerned in those contraventions, and what relief should follow.

1. Standard of proof. The FSA’s allegations were to be proved on the balance of probabilities. The seriousness of the allegations required cogent evidence, but did not import the criminal standard. The court rejected the submission that the statutory remedies or possible criminal consequences required a higher standard.
2. Arrangements. The relevant arrangements arose when plots were marketed and deposits were paid. They were arrangements concerning the sites, with the purpose of enabling investors to participate in profits from disposal after Asset Land sought to enhance the sites’ development prospects. Section 235 did not require legally binding agreements, identical understandings, or a subjective intention by the operator to perform the arrangements. The objective substance of the scheme was decisive.
3. Disclaimers and contracts. The contractual representations clause did not cover promises about how the scheme would operate. The services clause did not remove the arrangements relied upon by the FSA. In any event, the clauses were unfair under regulations 5 and 6 of the Unfair Terms in Consumer Contracts Regulations 1999, having regard to the investment marketing, the investors’ lack of sophistication, the timing of the contracts, and the inequality of bargaining power. The disclaimers did not displace the arrangements formed through the sales process.
4. Control and management. Investors lacked day-to-day control over the relevant property. The operative management consisted of improving development prospects, deciding how and when the sites would be sold, and distributing proceeds. Those matters were to be undertaken by Asset Land. The fact that investors retained legal powers over their individual plots did not alter the practical operation of the schemes. The section 235(3)(b) characteristic was therefore satisfied.
5. Contraventions and knowledge. ALI-UK operated schemes concerning South Godstone and Liphook and promoted them in breach of ss 19 and 21. ALI-Panama did likewise concerning Newbury, Lutterworth, Harrogate and Stansted. Mr Banner-Eve and Mr Cohen were knowingly concerned because they knew the facts constituting the contraventions. Knowledge that the conduct was unlawful was unnecessary.
6. Defences and relief. The authority defence failed on the facts; the brokers were authorised, or their conduct was ratified. The estoppel defence failed because ALI-UK did not comply with the conditions stated in the FSA’s letter of 15 November 2008. The FSA was entitled to declarations and submissions were invited on injunctions, accounts, inquiries and interim payments.

First-instance decision. The judgment records no prior appellate decision in the same proceedings.