Asset Land Investment Plc & Anor v The Financial Conduct Authority (FCA)

The Court of Appeal considered whether sales and related arrangements for plots of land at six sites amounted to "collective investment schemes" within the meaning of section 235 of the Financial Services and Markets Act 2000. The court upheld the judge's findings that the operators' representations and the objectively reasonably held understandings of investors created "arrangements" under s 235, that investors did not have day-to-day control of the relevant property and that the property was managed as a whole on behalf of the operators under s 235(3)(b). The court accepted that "arrangements" is to be given a wide, objective meaning and may include non-contractual understandings and representations; contractual clauses purporting to negate earlier representations did not necessarily displace such arrangements in reality. The judge's exercise of discretion in ordering substantial interim payments under s 382 was also upheld.

The Financial Conduct Authority alleged that so-called "land-banking" operations conducted by Asset Land companies and associated persons were unauthorised collective investment schemes (CISs) contrary to FSMA, and that invitations/inducements had been made in breach of s 21 and the general prohibition in s 19. The High Court (Andrew Smith J) found that arrangements relating to plots at six sites (South Godstone, Liphook, Newbury, Stansted, Lutterworth and Harrogate) enabled investors to participate in profits from acquisition and disposal of the property, that investors lacked day-to-day control, and that the property was managed as a whole by or on behalf of the operators; he made declarations, injunctions, and ordered substantial interim payments under s 382.

The appellants (ALI-UK and Mr Banner-Eve) challenged the judge's legal conclusions on the meaning of a CIS under s 235, arguing that (i) there were no objectively identifiable "arrangements" because understandings were unilateral or mere sales talk; (ii) the purpose/effect requirement in s 235(1) was not met because investors received freehold plots and Asset Land lacked power to sell them en bloc; (iii) investors had day-to-day control; (iv) the property was not managed as a whole by the operators; and (v) contractual "representations" and "services" clauses negatived the FCA's case. They also challenged the interim payment order.

The Court of Appeal dismissed the appeal. It held that the word "arrangements" is broad and may include non‑binding understandings objectively grounded in representations by the operator; it is unnecessary that all participants share identical subjective intentions. The "purpose" limb of s 235(1) was satisfied because the schemes envisaged realisation of enhanced value (including unrealised planning gains) through eventual sale, and "profits" may include notional or unrealised economic benefits. On s 235(2) the court endorsed an objective inquiry into how the scheme was designed to operate in practice: investors did not in reality have day‑to‑day control. On s 235(3)(b) the arrangements showed management as a whole by or on behalf of the operator. The court also accepted that contractual clauses signed after payment did not necessarily negate pre-existing arrangements presented and relied upon by investors. Finally, the judge had not erred in making interim payments; procedural irregularities were considered and did not render the exercise of discretion improper.

Appeal dismissed. The court held that section 235 of FSMA admits a wide, objective concept of "arrangements" (including reasonable investor understandings based on operators' representations), that the arrangements had the purpose or effect of enabling investors to participate in profits from acquisition and disposal (including unrealised planning gains), that investors did not have day-to-day control for the purposes of s 235(2), that the property was managed as a whole under s 235(3)(b), and that the judge had acted within his discretion in ordering interim payments under s 382.

Appeal from the High Court, Chancery Division (Andrew Smith J), [2013] EWHC 178 (Ch). Permission to appeal was granted on paper by Lewison LJ on 3 May 2013 in respect of specified grounds (grounds 2-6 and 8-10). The Court of Appeal ([2014] EWCA Civ 435) dismissed the appeal on 10 April 2014.