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

For section 235 of the Financial Services and Markets Act 2000, “arrangements” is a broad and objective concept. It may arise from an operator’s representations and the reasonable understanding thereby created in investors, even if the arrangements are not legally binding, are inconsistent with later documentation, or were never intended to be honoured.

The statutory inquiry concerns the reality of the scheme as presented and operated. A land-selling scheme may be a collective investment scheme where the operator is to obtain planning advantages, arrange an eventual sale and enable investors to profit. Participants’ legal rights over individual plots, or the differing personal aims of a few investors, do not displace the absence of effective day-to-day control or management of the property as a whole by the operator.

The FCA alleged that Asset Land Investment Plc, its Panamanian associate and individuals connected with them operated unauthorised land-banking collective investment schemes. Investors bought plots at six sites after telephone sales presentations which represented that the sites would be progressed for development and sold to developers at a profit.

Andrew Smith J held that the arrangements satisfied section 235 of the Financial Services and Markets Act 2000, and that the statutory prohibitions had been contravened. He granted relief, ordered an inquiry under section 382, and made substantial interim-payment orders: [2013] EWHC 178 (Ch).

The appellants challenged the meaning of “arrangements”, the profit, control and whole-property requirements of section 235, the relevance of contractual clauses, and the interim-payment order.

1. Appeal dismissed unanimously. Lady Justice Gloster held, with Lady Justice Sharp and Lord Justice Rimer agreeing, that the judge was entitled to find that the land-banking operations were collective investment schemes under section 235 of the Financial Services and Markets Act 2000.

2. “Arrangements” in section 235(1) has a wide, objective meaning. It includes non-binding understandings arising from an operator’s representations and what reasonable investors understood from them. It does not require a mutual subjective expectation that the operator will honour the representations. A fraudulent scheme may therefore fall within the provision. Nor are arrangements necessarily displaced by later contracts; the court must identify the reality of the scheme as designed to operate and presented to investors.

3. There was no statutory requirement that every participant hold an identical understanding of the scheme. The evidence permitted the judge to find that investors understood its essential features: Asset Land would progress planning matters, procure a sale of the sites, and distribute the resulting consideration. The purpose requirement was met because the arrangements enabled profit on acquisition and eventual disposal after enhanced development value. Individual investors’ differing personal motives did not alter the objective purpose of the scheme.

4. The relevant property was the site as a whole, although the result would have been the same if each plot were treated separately. Management included steps to enhance, market and sell the land. Section 235(2) concerns effective control under the actual arrangements, not merely legal powers which investors theoretically retained. It was enough that participants had relinquished day-to-day control; the scheme was not saved because one or a few participants might retain it.

5. Section 235(3)(b) was satisfied because the arrangements contemplated that Asset Land would manage the long-term, site-wide matters. The provision asks what the arrangements proposed, not whether the operator later performed them. The contractual disclaimer clauses did not alter that conclusion. It was unnecessary to determine their enforceability under consumer-contract legislation.

6. The interim-payment order was within the judge’s discretion. Procedural non-compliance caused no material unfairness where the appellants had notice, served no responsive evidence and sought no adjournment. The judge was entitled to conclude that the FCA would recover a substantial sum following the section 382 inquiry.

• Court of Appeal (Civil Division) — dismissed the appellants’ challenge to the finding that the land-banking schemes were collective investment schemes, and upheld the interim-payment order: [2014] EWCA Civ 435.
• High Court of Justice, Chancery Division — Andrew Smith J held that the schemes contravened sections 19 and 21 of the Financial Services and Markets Act 2000, granted relief, ordered an inquiry under section 382, and ordered interim payments: [2013] EWHC 178 (Ch).