KVB Consultants Limited & Ors v Jacob Hopkins Mckenzie Limited & Ors

For summary judgment, a defence must have a realistic prospect of success. The court may decide a short legal issue where the evidence is sufficient, but should leave complex or fact-sensitive issues for trial.

Under section 39 of the Financial Services and Markets Act 2000, responsibility and exemption are co-extensive. An appointor may define the business for which responsibility is accepted, but contractual wording must be read commercially. Operating an unauthorised collective investment scheme fell outside the statutory responsibility; promoting and marketing the schemes fell within it.

Responsibility under section 39(3) supported liability for unlawful promotions under sections 238 and 241. Fault-based COBS and supervision claims remained fact-sensitive, save where the evidence made the defence fanciful.

The claimants invested approximately £1.7 million in property development schemes promoted through Jacob Hopkins Mckenzie Limited, an appointed representative of Kession Capital Limited. They alleged that Kession Capital was liable for the schemes and their promotion under section 39 of the Financial Services and Markets Act 2000, the FCA rules, and statutory provisions governing financial promotions and collective investment schemes.

The claimants sought summary judgment, alternatively strike-out relief. The court considered whether Kession Capital had a real prospect of defending claims concerning seven schemes, including whether the schemes were collective investment schemes, whether promotional activity fell within the appointed representative agreement, and whether supervision and causation issues required trial. Kingsley Terrace raised separate factual issues.

1. Summary judgment test. Under CPR 24, summary judgment was appropriate only where the defence had no realistic prospect of success. The court could decide a short point of law on adequate evidence, but should not determine complex or fact-sensitive issues requiring a fuller trial.
2. Collective investment schemes. The first seven schemes fell within section 235 of the Financial Services and Markets Act 2000. The arrangements concerned property, investors lacked day-to-day control, and the property was managed for collective profit. Substance, including investor understandings and marketing, prevailed over formal structure.
3. Section 39 responsibility. Operating the collective investment schemes was not a prescribed business for which section 39 could provide exemption or responsibility. However, promoting and marketing the schemes were prescribed activities, were authorised activities of Kession Capital, and fell within the commercial scope of the appointed representative agreement. The parties’ mistaken view that the schemes were not collective investment schemes did not alter the activity contemplated by the agreement.
4. Liability for promotions. Kession Capital was responsible under section 39(3) for JHM’s promotional activities. Promotions inviting participation in unlawful collective investment schemes breached section 238. Section 241 therefore gave the investors an actionable claim, subject to proof that the promotions caused their investments. That causal question was fanciful only in relation to the first seven schemes generally; particular post-termination Salisbury Road investments required further evidence.
5. COBS and supervision. COBS obligations relied upon by the claimants were fault-based. Claims concerning investments after mid-2016, when JHM recognised that the schemes might be unlawful but continued accepting investments, had no realistic defence. Earlier COBS claims and the supervision claim remained fact-sensitive. The supervision rules required positive and continuing assessment, but did not impose an absolute legal prohibition on reliance upon information from a qualified prospective representative.
6. Disposition. Summary judgment was granted for claims concerning Winchfawr, Hirwaun, Brynithel, New Tredegar, The Bryn/Rhigos, Porth, and specified Salisbury Road investments. Claims concerning Kingsley Terrace and the remaining Salisbury Road investments proceeded to trial. The defence was to be struck out and a fresh defence served within 21 days, subject to final directions on costs, interest and case management.