Asset Land Investment Plc and another v The Financial Conduct Authority

The Supreme Court considered whether land-selling schemes operated by Asset Land amounted to "collective investment schemes" within the meaning of section 235 of the Financial Services and Markets Act 2000, thereby constituting "regulated activities" for the purpose of section 19 and the Regulated Activities Order. The court upheld the findings below that the relevant "arrangements" were the shared understandings communicated when plots were marketed, that the relevant "property" was each site as a whole (not merely the individual plots), that the investors did not have day-to-day control of management of the site collectively, and that the operator undertook the management activities (notably seeking re-zoning and procuring a sale) amounting to management of the property as a whole under section 235(3)(b).

The court rejected the appellants' arguments that formal contractual documents and disclaimers should determine the characterisation, that legal title to individual plots meant investors retained effective control, and that the statutory definition should be narrowly construed to exclude the schemes on policy grounds. The appeal was dismissed.

Background and parties: The Financial Conduct Authority brought proceedings against Asset Land Investment plc and associated companies and individuals, alleging the carrying on of regulated activities without authorisation contrary to section 19 of the Financial Services and Markets Act 2000. The activities involved marketing and sale of small plots within larger sites with representations about re-zoning and sale to developers. Proceedings began after FCA investigations (closed in 2008, reopened in 2011); at first instance Andrew Smith J ([2013] EWHC 178 (Ch)) held the schemes were collective investment schemes and ordered remedial relief; the Court of Appeal ([2014] EWCA Civ 435) upheld liability; the appellants appealed to the Supreme Court.

Nature of claim and relief sought: The FCA sought declarations and remedies based on the contention that the schemes were collective investment schemes under section 235 and therefore constituted regulated activities for which Asset Land lacked authorisation. Related restitutionary orders were made at first instance but are not challenged in this appeal.

Issues framed by the court:

• Whether the arrangements constituted "collective investment schemes" under section 235(1).
• Whether participants lacked "day-to-day control" of the management of the relevant property under section 235(2).
• Whether the property was "managed as a whole" by or on behalf of the operator under section 235(3)(b).

Court’s reasoning and subsidiary findings: The court accepted the judge's factual findings about how plots were marketed and the investors' shared understanding that Asset Land would seek re-zoning and arrange sale of sites with investors sharing the proceeds. The Supreme Court emphasised substance over form: arrangements include shared understandings whether contractual or not. The court held that the relevant property for the intended profit was the whole site (the asset to be re-zoned and sold) rather than isolated individual plots. "Day-to-day control" in s235(2) must be assessed prospectively by reference to the arrangements and refers to control over the property collectively; investors did not have such control because the common parts were retained by Asset Land and there were no arrangements vesting collective management in investors. Under s235(3)(b), activities of seeking re-zoning and procuring sale were management of the property as a whole when the arrangements empowered the operator effectively to secure sale or coordinate the realisation of the site value. The court rejected reliance on contractual disclaimers and later documentation that were inconsistent with the pre-contractual arrangements and found that the judge was entitled to treat the practical operation and representations as decisive. The court stressed a cautious, text-focused construction of section 235 so as not to extend regulation beyond what is fairly within its terms, but found on the facts the schemes fell within section 235.

Procedural posture and outcome: Appeal from the Court of Appeal; appeal dismissed. The Supreme Court affirmed that these land-banking arrangements, as found by the judge, were collective investment schemes regulated under FSMA.

The appeal is dismissed. The Supreme Court held that (i) the "arrangements" were the shared understandings formed when plots were marketed and paid for; (ii) the relevant property was the whole site whose re-zoning and sale would produce the profits; (iii) the investors collectively did not have day-to-day control of management under section 235(2); and (iv) the operator undertook management of the property as a whole (section 235(3)(b)) by seeking re-zoning and arranging sale, so the schemes fell within the statutory definition of collective investment schemes and were therefore regulated activities under FSMA.

First instance: Andrew Smith J, High Court (Chancery Division) [2013] EWHC 178 (Ch) — held schemes were collective investment schemes. Court of Appeal: [2014] EWCA Civ 435 — appeal dismissed, upholding liability. Supreme Court: [2016] UKSC 17 — appeal dismissed.