Asset Land Investment Plc and another v The Financial Conduct Authority

A collective investment scheme under section 235 of the Financial Services and Markets Act 2000 is identified from the substance of the arrangements, assessed objectively when they are made. Arrangements include non-binding shared understandings and their necessary commercial consequences. The relevant property is that from whose acquisition, holding, management or disposal the participants expect their returns.

Formal ownership and a legal right to refuse a sale do not establish day-to-day control where the practical arrangements surrender management of the property to the operator. Management as a whole requires control of the property, not merely the provision of professional services. The grave consequences of unauthorised operation require a cautious construction, but the statutory language applies naturally to collective arrangements for enhancing and selling land as one site.

The FCA alleged that companies controlled by Mr Banner-Eve had carried on regulated activities without authorisation, contrary to section 19 of the Financial Services and Markets Act 2000. The companies sold individual plots at six sites. Investors were led to understand that the sites would be rezoned, sold to developers as a whole and the proceeds shared. Later contracts and disclaimers purported to deny that the companies would pursue planning permission or provide regulated services.

Andrew Smith J held that the activities constituted collective investment schemes: [2013] EWHC 178 (Ch); [2013] 2 BCLC 480. The Court of Appeal upheld that decision: [2014] EWCA Civ 435; [2014] Bus LR 993. The central issue was whether the arrangements satisfied section 235, particularly its requirements concerning day-to-day control and management of the property as a whole.

1. Appeal dismissed unanimously. Lord Carnwath delivered a judgment with which Lord Mance, Lord Clarke, Lord Sumption and Lord Hodge agreed. Lord Sumption gave additional reasons with which Lord Mance, Lord Clarke and Lord Hodge agreed. The arrangements were collective investment schemes under section 235 of the Financial Services and Markets Act 2000.

2. The statutory word arrangements has its ordinary, broad meaning. It encompasses non-contractual understandings about how a scheme will operate. The content of the arrangements is a question of fact, assessed from their substance and commercial context. Contractual documents receive no special weight where they do not reflect the shared understanding created when the investment was marketed. Lord Sumption added that the assessment is prospective and objective at the time the arrangements are made. Later conduct may evidence, expose as a sham or modify the original understanding, but does not itself determine the scheme's original character.

3. The relevant property was each site as a whole. That was the property to be rezoned and sold, and the source of the investors' expected profits. The same identification of the property applied throughout section 235. The investors' ownership of individual plots did not give them day-to-day control over management of the whole site, either individually or collectively.

4. Control is not confined to legally enforceable powers. It concerns the practical reality of how the arrangements are to operate. An investor's ultimate ability to refuse a sale is not equivalent to management control over the planning and sale process. The approach in In re Sky Land Consultants plc [2010] EWHC 399 (Ch) was applied on these matters.

5. Section 235(3)(b) concerns management of the property, not merely administration of the scheme. Management depends on the nature of the property and the activity expected to generate the profit. The fundamental distinction is between retaining dominion while employing professional services and surrendering control so that property is pooled or managed collectively. Finding a buyer constitutes management where the operator can effect a sale, or require investors to sell on approved terms. Merely presenting an offer for each owner to accept or reject freely would not suffice.

6. Lord Sumption disapproved the actual-exercise formulation derived from Brown v InnovatorOne plc [2012] EWHC 1321 (Comm). Section 235(2) asks where control would be vested if required, not whether investors later exercised it. Here, although the investors appeared legally to retain dominion, the judge permissibly found that the scheme could not work if those rights were exercised independently. Their apparent dominion was therefore illusory, while practical management of planning and collective sale lay with the operator.

7. Section 235 must be construed cautiously because unauthorised operation may produce criminal, contractual and restitutionary consequences. That caution does not prevent application where the facts fall naturally within the statutory language. The decisions below were upheld.

1. United Kingdom Supreme Court: By [2016] UKSC 17, unanimously dismissed the appeal and upheld the decisions below.
2. Court of Appeal: By [2014] EWCA Civ 435; [2014] Bus LR 993, upheld the High Court's decision on liability.
3. High Court, Chancery Division: By [2013] EWHC 178 (Ch); [2013] 2 BCLC 480, held that the activities constituted a collective investment scheme and breached the Financial Services and Markets Act 2000. It directed an inquiry into restitutionary relief and made interim payment orders, which were suspended pending the appeal.