Angelgate & Baltic House Claimants (Various) v Key Manchester Ltd & Ors

For an amendment to be permitted, the proposed case must be properly arguable and have a real prospect of success. Whether arrangements constitute a collective investment scheme under the Financial Services and Markets Act 2000 requires consideration of the arrangements as a whole, including what is intended to happen after construction is complete. Assured rental arrangements and a fund securing guaranteed payments may make pooling and collective management properly arguable. A solicitor’s facilitative conveyancing role does not, without more, amount to establishing or operating a collective investment scheme or managing investments through the exercise of discretion. Remedies under section 26 lie against the counterparty to the operative agreement, not merely against a solicitor who received or held the client’s money.

The PMC claimants sought permission to amend claims concerning the Angelgate and Baltic House developments. They alleged that the developments were unregulated collective investment schemes under section 235 of the Financial Services and Markets Act 2000, that Oliver & Co solicitors had carried on regulated activities in breach of section 19, and that remedies were available under section 26.

The application was opposed. The court considered whether the collective investment scheme allegations, the allegations that Oliver & Co had carried on regulated activities, and the proposed section 26 remedies were properly arguable with a real prospect of success.

1. Amendment test. The proposed amendments had to be properly arguable and have a real prospect of success.
2. Collective investment scheme. The court adopted the approach in Financial Conduct Authority v Capital Alternatives Ltd, namely that establishing a scheme means setting it up and operating it means running or managing it. Section 235 required attention to the purpose or effect of enabling participation in profits or income, the participants’ day-to-day control, pooling, and management of the property as a whole.
3. The court rejected the suggestion that the construction phase could be considered in isolation. In an ordinary case where a purchaser obtained complete control and freedom to deal with an individual apartment after completion, the statutory requirements would not be met. Here, however, the assured rental fund and guaranteed rental payments made it properly arguable that contributions and profits or income were pooled and that the property was managed as a whole by or for the operator.
4. Oliver & Co’s role. The pleaded facts did not give rise to a properly arguable case that Oliver & Co had established or operated the scheme or managed investments involving the exercise of discretion. Attendance at sales events and the possible or actual appointment of a solicitor as a director of a buyer company were consistent with a facilitative conveyancing role. In Baltic House, the solicitor’s directorship did not involve control over stakeholder funds. In Angelgate, payments were made under the pre-arranged contractual scheme and were not discretionary management of the claimants’ assets.
5. Section 26 remedies. Even if regulated activity had been established, the relevant agreement was the sale agreement with the developer. The retainer and the client-money trust were not the operative agreements constituting the scheme or requiring the payments. Section 26 therefore gave no arguable remedy against Oliver & Co. The amendment application was dismissed.