FCA v Asset LI Inc [2016] UKSC 17

Asset Land sold plots of greenfield land to investors, representing it would seek rezoning for development and arrange sales to developers. The Supreme Court held these arrangements constituted a collective investment scheme under section 235 of the Financial Services and Markets Act 2000, as investors lacked day-to-day control and the property was managed as a whole by the operator.

Facts

Asset Land Investment plc acquired greenfield sites, subdivided them into plots, and sold these to investors. The company represented to investors that it would progress planning procedures for housing development and procure sales to developers, with investors sharing the proceeds. Between 2006 and 2011, the company marketed plots at six sites through telephone sales and exhibitions. Investors paid deposits and later received contracts containing clauses disclaiming any obligation to pursue planning permission or re-zoning. However, the judge found that oral representations made during marketing created a ‘consistent understanding’ among investors that Asset Land would enhance value through rezoning and arrange collective sales.

The Arrangements

The core representations to investors comprised three elements: (i) Asset Land would progress planning procedures for housing development; (ii) Asset Land would procure sales to developers; (iii) investors would receive a share of the total sale consideration. The contractual documents contradicted these representations but were found not to supersede the oral arrangements.

Issues

The central issue was whether Asset Land’s activities constituted a ‘collective investment scheme’ under section 235 of the Financial Services and Markets Act 2000, thereby making the operation of such a scheme without authorisation a breach of section 19 (the general prohibition).

Key Statutory Questions

The Court addressed: (1) whether arrangements existed within section 235(1); (2) whether investors had day-to-day control over management of the property under section 235(2); and (3) whether the property was managed as a whole by the operator under section 235(3)(b).

Judgment

The Supreme Court unanimously dismissed the appeal, upholding the decisions of the lower courts that the arrangements constituted a collective investment scheme.

Identification of Property

Lord Carnwath held that the relevant ‘property’ for purposes of section 235(1) was each site as a whole, not the individual plots:

“That was the property whose sale was to lead to the profits which were the object of the exercise, and which brought the scheme within the scope of the section.”

Day-to-Day Control

On section 235(2), Lord Carnwath explained that ‘control’ must be assessed according to ‘the reality’ of how arrangements operate:

“The investors collectively did not have the relevant control… It was no part of the arrangements that the investors should have any part in, or control over, those management activities.”

Management as a Whole

Lord Sumption provided detailed analysis of section 235(3)(b), explaining the fundamental distinction underlying the provision:

“The fundamental distinction which underlies the whole of section 235 is between (i) cases where the investor retains entire control of the property and simply employs the services of an investment professional… to enhance value; and (ii) cases where he and other investors surrender control over their property to the operator of a scheme so that it can be either pooled or managed in common.”

The judge’s factual finding that the arrangements could not work if investors exercised their theoretical rights was determinative:

“The dominion of the investors over their plots, although apparently complete, was in reality an illusion.”

Implications

This judgment provides authoritative guidance on the application of section 235 to ‘land-banking’ schemes. It establishes that: (1) ‘arrangements’ include non-contractual understandings and representations; (2) the relevant property is determined by the source of intended profits; (3) legal ownership of plots does not equate to day-to-day control where practical realities dictate otherwise; and (4) management of property includes steps to enhance development value, not merely physical stewardship.

The decision confirms that disclaimers in contracts cannot override oral representations where those representations form the substance of the arrangements. The case emphasises substance over form in determining whether schemes fall within the regulatory ambit of the Financial Conduct Authority, whilst Lord Sumption cautioned against extending section 235 beyond matters ‘fairly within it’ given the serious consequences of breach.

Verdict: Appeal dismissed. The arrangements constituted a collective investment scheme within section 235 of the Financial Services and Markets Act 2000, and Asset Land had breached section 19 by operating such a scheme without authorisation.

Source: FCA v Asset LI Inc [2016] UKSC 17