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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The Financial Services Authority v Asset L I Inc (t/a Asset Land Investment Inc) & Ors [2013] EWHC 178 (Ch) (08 February 2013)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2013/178.html
Cite as: [2013] WLR(D) 54, [2013] EWHC 178 (Ch), [2013] 2 BCLC 480
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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| The Financial Services Authority |
Claimant |
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| - and - |
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| Asset L. I. Inc (trading as Asset Land Investment Inc) and ors |
Defendants |
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Ms Susan Siggins in person for herself and the second defendant
Mr Philip Coppel QC and Ms Vivienne Tanchel (instructed by Aegis Tax LLP) for the third and fifth defendants
Hearing dates: 22, 23, 24, 25, 26, 29, 30, 31 October, 1 November and 17 & 18 December 2012
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Crown Copyright ©
- This case is about whether, as the Financial Services Authority ("FSA") alleges, so-called "land-banking" schemes established and operated by the first defendant, Asset LI Inc ("ALI-Panama"), and the third defendant, Asset Land Investment Plc ("ALI-UK"), were "collective investments schemes" ("CISs") within the definition in section 235 of the Financial Services and Markets Act, 2000 ("FSMA"). The FSA's case was put as follows by Mr Tim Penny and Mr Philip Hinks, who represented it:
- I introduce the relevant statutory provisions through the judgment of Arden LJ in FSA v Fradley and anor, [2005] EWCA 1183, para 3:
- These statutory provisions are directly relevant in this case:
- The FSA makes claims against six defendants:
- None of the defendants was an authorised person under the FSMA in connection with regulated activities. Mr Banner-Eve is an approved person holding "Controlled Function 1" in his capacity as a director of a company called Alliance Premium Plc ("Alliance"), but this is has no direct relevance to the FSA's complaints against him.
- The proceedings were brought on 14 June 2012. On 13 June 2012 Proudman J had made a worldwide freezing order against all the defendants. On 22 June 2012 Peter Smith J ordered a speedy trial of all issues of liability, issues that were defined by an order dated 12 October 2012 and made at a pre-trial review ("PTR") by Mr Kevin Prosser QC, sitting as a deputy High Court judge. I set them out at paragraph 28 below.
- ALI-Panama and Mr Cohen have not acknowledged service, and took no active part in the proceedings: they did not appear and were not represented at the trial. Proudman J's order required them to provide information about their bank and building society accounts and other assets, but they have not done so.
- ESL and Ms Siggins were represented in the proceedings until 8 October 2012, when their solicitors, Messrs Russell Jones & Walker, came off the record. They served a defence but have not made disclosure or served witness statements. On the first day of the trial, Ms Siggins appeared in person and told me that she wished to represent ESL as well as herself, but indicated that she would not attend all of the trial. After the evidence was completed, she and ESL reached a settlement agreement with the FSA, and I made orders by consent against them.
- ALI-UK and Mr Banner-Eve have taken a full part in the proceedings, and were represented at the trial by Mr Philip Coppel QC and Ms Vivienne Tanchel.
- It is convenient before going further to consider a difference between the parties about the standard of proof to which the FSA must prove its allegations, which include contravention of the general prohibition. Mr Penny submitted that they must be proved to the civil standard, the balance of probabilities. Mr Coppel submitted that the criminal standard is applicable, and cited In re B, [2008] UKHL 35 in which Lord Hoffmann recognised a category of cases in which, though they are classified as civil for the purposes, for example, of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the "European Convention"), the courts apply the criminal standard of proof "or something like it", and distinguished them from cases where, in applying the civil standard of balance of probabilities, the court takes into account the inherent improbability that people will act as alleged (for example, cases of fraud, or at least some frauds in some circumstances). The other members of the House of Lords agreed with Lord Hoffmann. (I reject the suggestion of a difference between Lord Hoffmann and Baroness Hale because at paragraph 70 of her speech she said this: "…I would go further and announce loud and clear that the standard of proof in finding the facts necessary to establish the threshold under section 31(2) or the welfare considerations in section 1 of the [Children Act, 1989] is the simple balance of probabilities, neither more nor less. Neither the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied in determining the facts. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies". This is entirely in line with what Lord Hoffmann said. Baroness Hale's point was that the court requires proof on the balance of probabilities in care proceedings because their purpose is to protect a child from harm and "The consequences for the child of getting in wrong are equally serious either way".)
- Mr Coppel argued that the proceedings brought by the FSA under section 19 of FSMA are of a kind to which Lord Hoffmann said the criminal standard of proof applies because (i) contravention of the general prohibition is a criminal offence of strict liability under section 23 and (ii) the implications of a breach are otherwise serious. Lord Hoffmann gave these examples of cases attracting the criminal standard: applications for the summary removal of immigrants on the grounds of leave to enter being obtained by fraud or deception; applications for a "sex offender orders" under section 2 of the Crime and Disorder Act, 1998; and applications for anti-social behaviour orders under section 1 of that Act. These are applications for orders which, if granted, restrict freedom of movement and activity. I do not understand Lord Hoffmann (or Baroness Hale) to say that the criminal standard applies wherever an allegation is of criminal conduct. It does not: the usual civil standard applies in insurance disputes where, say, arson is alleged, and in claims after traffic accidents involving allegations of driving in breach of the Road Traffic Acts. I do not see why allegations of breach of the general prohibition should import a higher standard of proof. Nor am I persuaded by Mr Coppel's argument that the criminal standard applies because the FSA seeks "serious" remedies: it seeks injunctive relief, but (although at times the FSA has not formulated the claim entirely accurately) it could only restrain contravention of the FSMA: see section 380(1). Nor to my mind does the statutory remedy under section 382 so differ from common law restitutionary relief as to justify a different standard of proof. (Sections 380 and 382 require the court to be "satisfied" before it makes an order, but this term does not, in my judgment, indicate what standard of proof is applicable.) Nor is it justified by the possibility that payments to the defendants might be recovered and compensation ordered if an agreement is unenforceable under section 26.
- Mr Coppel's further point related only to Mr Banner-Eve and not to ALI-UK: the FSA may take disciplinary proceedings against him as an approved person if he does not comply with relevant statements of principle, and may withdraw his status if it considers that he is not a fit and proper person to have it. A statement applicable to Mr Banner-Eve requires him to deal with the FSA in an open and co-operative way and to make appropriate disclosure to it, and Mr Coppel argued that in effect the FSA contends in these proceedings that he did not so behave and complains about his conduct while an approved person. This is not relevant to the standard of proof for determining the FSA's claims against Mr Banner-Eve: the possibility of findings in a civil case resulting in disciplinary proceedings before a professional or trade body does not import a higher standard of proof. Mr Banner-Eve's standing as an approved person does not mean that allegations against him have to be proved to a different standard from those against other defendants.
- I reject Mr Coppel's contention that the FSA must prove their case to a higher standard higher than the balance of probabilities. Mr Penny observed this conclusion is consistent with previous cases, but apparently the point has not previously been argued and I find only limited support here. However, I mention two cases. First, in the Fradley case (loc cit at para 32) Arden LJ made some general observations and pointed out that, "... since contravention of the general prohibition ... may result in the commission of criminal offences, s235 must not be interpreted so as to include matters which are not fairly within it". Had she thought that contravention therefore had to be proved to the criminal standard, Arden LJ would probably have referred to this. Secondly, in FSA v Rourke, [2002] C P Rep 14, where the FSA sought summary judgment for declaratory relief that the defendant had contravened the Banking Act, 1987, Neuberger J considered a submission that he should not grant declarations in civil proceedings about a matter that might attract criminal sanctions. Having considered the decision of the House of Lords in Imperial Tobacco Co v AG, [1981] AC 718, he rejected this as a reason to refuse relief: he said that declarations would not amount to a finding that the defendant was guilty of a criminal offence, because "All the declarations involve is my finding that, on the balance of probabilities, the facts contained in the declarations are true". Thus, although these two judgments considered the impact on the civil proceedings of potential criminal sanctions, there was no suggestion that the higher standard of proof applied, and Neuberger J assumed that the standard was the balance of probabilities.
- However, I accept that Lord Hoffmann's second category of cases is relevant. The seriousness of the allegations means that the court's starting point is that the defendants probably did not behave as the FSA alleges, and it has to prove its case the more cogently. Therefore, in this case it makes no significant difference whether the allegations must be prove to the criminal or the civil standard, and my conclusions do not turn on the standard of proof.
- The FSA called to give evidence fourteen people who had bought from ALI-Panama or ALI-UK (or both) a plot (or plots) at the sites, and one witness, Ms Victoria Ogilvy-Hobbs, who paid ALI-Panama for a plot at Newbury but withdrew from the transaction before signing a contract and had her money returned. (Generally when I refer to investors in this judgment, I nevertheless include Ms Ogilvy-Hobbs.) The FSA served statements from 59 such witnesses whom they intended to call. Moreover, ALI-UK and Mr Banner-Eve, the "represented defendants" as I shall call them, served notice under CPR 33.4 that they wished to cross-examine a further 17 people who had completed so–called "consumer questionnaires" for the FSA, on which the FSA wished to rely as hearsay evidence. Faced with an estimate that the consequent trial would take 27 days, at the PTR the FSA decided to call only 15 of the witnesses, and Mr Prosser ordered it to identify which they would be. These investors gave evidence:
- The represented defendants objected to questionnaires completed by other investors being admitted as evidence, and they were not. Accordingly, there is evidence from fourteen actual investors. Mr Coppel disputed that their dealings were typical of those who dealt with Asset Land or ALI-UK.
- The FSA called four other witnesses:
- I consider that all these witnesses gave honest evidence. Some investors were uncertain about such details as when they spoke with Asset Land and with whom they spoke, and they were not always entirely accurate about exactly what they were told. Subject to that I consider that all the witnesses called by the FSA gave reliable evidence, and I accept it in all significant respects.
- The FSA also put in evidence under the Civil Evidence Act, 1995 some answers given by Ms Siggins when she was interviewed by the FSA on 19 September 2012 in the presence of her solicitor, and she was cross-examined on them by Mr Coppel. The FSA's application to adduce this evidence was opposed by Ms Siggins and by the represented defendants, but for the most part I allowed the application. I give my reasons at paragraph 29ff below.
- When she was interviewed, Ms Siggins told me, she felt "pressured" and was in what she found a "really stressful situation"; and she understood that she was not allowed to reply "no comment" to questions. I accept that. She also said that she understood that she might not reply that she did not know the answer to any questions: when he was cross-examined Mr Banner-Eve referred to this several times, the suggestion being, I think, that Ms Siggins therefore made up answers. I do not accept this. Ms Siggins' solicitor would not have let her believe that she was obliged to answer questions when she could not do so, and in any case Ms Siggins would not, in my judgment, have been brow-beaten in that way. I accept that she understood that she had to answer as best she could, and that some of her answers were therefore on the basis not of direct knowledge but of her general understanding from her involvement with Asset Land, but with that qualification I regard as reliable her answers in the interview on which the FSA relied. I also regard as generally reliable her evidence in cross-examination in so far as it related to the case against the represented defendants.
- There was difficulty about documentary evidence that the FSA wished to adduce. By the start of the trial no bundles had been agreed even between the FSA and the represented defendants, and therefore no documents were initially in evidence under CPR 32PD 27. The FSA had apparently not anticipated that it might have to prove the documents in the bundles, but the represented defendants were properly insistent that the FSA should not put unproven documents before the court. In the end, a good measure of agreement was reached between the FSA and the represented defendants about what documents were in evidence to determine the issues between them. However, this agreement does not assist the FSA to prove its claims against ALI-Panama and Mr Cohen, and I determine them without regard to documents in the bundles that have not been proved. These difficulties during the trial probably resulted from it being expedited, but the lesson that documents must be proved unless agreed will not, I am sure, have been lost on those involved.
- Mr Banner-Eve gave evidence on his own behalf and for ALI-UK, but they called no other witnesses. I conclude that Mr Banner-Eve was a dishonest witness. He was evasive in his answers and often claimed to know nothing, or to remember nothing, about documents and other matters of which he must, in my judgment, have been aware and recalled. I reject parts of his evidence as deliberately dishonest for reasons that I shall explain, but in particular I reject his claim that he was not involved in establishing and operating ALI-Panama, and his evidence about his and ALI-UK's involvement with buying the Newbury, Lutterworth, Harrogate and Stansted sites. But it is important to keep this in perspective: Mr Banner-Eve's dishonesty as a witness does not mean that he or ALI-UK (or any of the defendants) was involved in a CIS, and does not answer many of Mr Coppel's arguments.
- Mr Penny observed that the represented defendants did not adduce evidence either from any investor or from any broker or employee of Asset Land (other than Mr Banner-Eve). He invited me to infer:
- Mr Penny cited Wisniewski v Central Manchester Health Authority, [1998] Lloyd's LR Medical 223, where Brooke LJ set out these principles:
- Mr Coppel submitted that no adverse inference can properly be drawn against the represented defendants. First he complained (justifiably) that the FSA had not sufficiently identified what inferences it invited or to what issues they would relate, but Mr Penny answered that in later submissions: see paragraph 23 above. Mr Coppel also argued that this case came to trial so quickly that the defendants did not have proper time to gather evidence. I do not accept this submission, which was not supported by evidence (although it is a matter of record that the represented defendants changed their solicitors, which might have hampered their trial preparations). Mr Banner-Eve accepted in cross-examination that some 300 to 400 investors had bought plots at South Godstone, and that ALI-UK had contact details for them (or most of them). He could, I infer, have contacted investors had he wished to do so. He also confirmed that he knew some of those who had worked for Asset Land, including Ms Anthea Smeed-Hughes, who worked for both ALI-UK and ESL and had become a friend, Ms Caroline Starbuck, whom he knew "personally", and his adopted daughter, Ms Calladine. There is no reason to think that it would have been difficult for him to have contacted representatives of Asset Land, even if some brokers are in Spain or elsewhere abroad.
- I consider that the fact that Mr Banner-Eve and ALI-UK did not call witnesses would provide some modest support for the FSA on the issues that Mr Penny identified. However, for reasons that I explain, it does not need to rely upon this argument: other evidence establishes the FSA's case.
- I should say what this trial is not about. It is not about whether in general terms the defendants dealt fairly with those who bought plots, nor about whether the purchasers were given unreasonably inflated expectations about the likely returns on their investment, nor about whether they were misinformed about the risks involved, nor about whether some or all of them might have a claim for damages for deceit or some other common law claim. The FSA alleges breach of the 2000 Act, and the case is about that allegation and the consequences if it is established.
- At the PTR these issues were identified for determination at this trial:
- During the trial, I made some rulings on the basis that I would give my reasons in this judgment. I have already referred to the application, made on the fifth day of the trial, 26 October 2012, pursuant to notice given on 23 October 2012, to adduce hearsay evidence of answers given by Ms Siggins when she was interviewed on 19 September 2012. The FSA sought permission to adduce nine extracts from a transcript of her interview by Mr Edwards and Ms Gurprit Mattu of the FSA. As I understand it, it was not strictly a compelled interview under section 173 of the FSMA, under which an investigator may require a person to answer questions if in his view the person may be able to give information potentially relevant to the investigation. But the FSA and Ms Siggins, through her then solicitor, agreed before the interview that it should be treated as tantamount to a compelled interview and that Ms Siggins should have the same protections with regard to what she said as if it were and as if section 174 of the FSMA applied to it: thereby they agreed that any statement to the investigator might be admitted in evidence in civil proceedings (but not generally adduced by the prosecution or the FSA in any criminal proceedings were they to be brought against her) unless it is inadmissible for some other reason. As I have said, the application was opposed by Ms Siggins on her own behalf and that of ESL and by Mr Coppel (who properly and helpfully drew my attention legal points that might assist Ms Siggins as well as advancing arguments for his clients). I largely allowed the evidence to be adduced (allowing paragraphs 1.1 to 1.8 of the FSA's notice), but I refused the application in respect of one extract (paragraph 1.9).
- It is convenient first to explain why I refused that part of the application, but I shall do so only briefly because the FSA sought to adduce this evidence at least primarily against Ms Siggins and ESL, against whom its claims have been settled. The FSA wanted to adduce evidence that Ms Siggins accepted that she knew that investors were being misled by sales-people but thought that she could do nothing about it without affecting her own livelihood. That evidence would not be helpful: it would not have assisted to resolve any issue because no misrepresentations admitted by Ms Siggins were identified. (I invited Mr Penny to consider whether this was because the extract from the interview to which the application notice referred was insufficient, but the FSA did not amend the application to include more answers.)
- I come to the answers that I allowed the FSA to put in evidence, statements that it sought to adduce primarily against the represented defendants. The application notice was late, being served outside the time stipulated in CPR33.2(4)(d), the latest date for serving witness statements, apparently 28 September 2012: see the order of Peter Smith J dated 22 June 2012, as varied by Master Price on 28 August 2012. (I was told that it was extended to 1 October 2012, but that would make no difference.) This does not necessarily defeat the application, but it is a relevant consideration "in considering the exercise of its powers with respect to the course of proceedings and costs", and potentially affects adversely the weight of the evidence: section 2(4) of the Civil Evidence Act, 1995.
- Mr Penny submitted that the answers were admissible evidence and the court should admit them notwithstanding proper notice was not given. The background to the late notice is that a transcript of the interview was included in a bundle prepared for the trial that the FSA apparently anticipated would be agreed so that the evidence would be covered by CPR 32PD 27. But, as I have indicated, the bundle was not agreed, and the FSA made the application when this was appreciated. It did not intend to flout the rules or to put the defendants at a disadvantage. The FSA's conduct is, to my mind, readily understandable in the context of preparing for an expedited trial. In these circumstances, the evidence should be admitted if it is probative and otherwise admissible and unless it would unfairly prejudice the defendants to do so or there is other good reason to exclude it. This is demanded by the principle underlying the Civil Evidence Act, 1995 explained by Lord Nicholls in Polanski v Corde Next Publications, [2005] UKHL 10 at para 36: that "in general the preferable course is to admit hearsay evidence and let the court attach whatever weight may be appropriate, rather than exclude it altogether". See too paras 72 and 80 per Baroness Hale.
- As I have indicated, the application was resisted by Ms Siggins and Mr Coppel. Ms Siggins' main point was that it would be unfair for the FSA to adduce the evidence because, when she was interviewed, she had been led to believe that it would lead to meaningful exchanges with a view to the FSA settling its claims against her, that she would receive a transcript of the interview to review and that the FSA would prepare a statement of her evidence based on her answers. She had prepared a written statement of her arguments, which depended on without prejudice exchanges before the interview between the FSA and Mr Craig McAdam, a solicitor with Russell Jones & Walker who then acted for her and ESL. Ms Siggins told me that she did not claim privilege in them, and the FSA waived its privilege. There was apparently dispute between Ms Siggins and the FSA about what had been said in the exchanges. I therefore (unusually on an application of this kind) heard evidence about this from Ms Siggins and from Mr Guy Wilkes, a manager with the FSA, and Ms Siggins asked to call further evidence from Mr McAdam. I did not adjourn or defer determining the application to allow this because the (relatively limited) differences between Ms Siggins' evidence and that of Mr Wilkes did not affect my decision, and I was prepared to decide the application on the basis of Ms Siggins' account. But in fairness to Mr Wilkes, I observe that his evidence is supported by what was said at the start of the interview by Mr Edwards in the presence of Ms Siggins and Mr McAdam.
- I shall therefore suppose that Ms Siggins understood from what the FSA had said that, if she agreed to be interviewed, it would enter into meaningful discussions to settle the dispute and that it did not do so before the trial. This would not be a reason for her to give untruthful answers, and nobody suggested that it was. At most, Ms Siggins said, she was unsure about whether all her answers were accurate: this goes to the weight of the evidence, but is insufficient reason for not admitting it. Secondly, Ms Siggins' complaint that she was not given a chance to review a transcript of the interview: it seems likely that in fact she was sent a transcript at about the beginning of October 2012 with other evidence that the parties exchanged, but in any case she told me that, had she reviewed it, she would have commented on what she called the "format" of the transcript but not on its accuracy "too much". As for her third complaint, that the FSA did not draft a witness statement for her, I do not understand why, even assuming that the FSA promised to do this, it would therefore be unfair to admit the evidence. Ms Siggins could, had she so wished, still have given evidence. (Indeed, at the start of the trial she proposed to present the whole transcript of the interview in evidence, but she had changed her mind by the time that I heard the FSA's application.) I therefore reject Ms Siggins' arguments that it would be unfair to admit the evidence.
- Mr Coppel submitted that the FSA should not be allowed to rely upon the evidence because, if Ms Siggins were herself giving evidence and asked the interview questions, she might invoke her privilege against self-incrimination or her right to silence, and therefore to admit the evidence would be wrong and in breach of her right to a fair trial under article 6 of the European Convention. He argued that evidence of an interview under section 173 of FSMA is admissible only so long as it also complies with any requirement governing its admissibility in the circumstances in question. Ms Siggins did not herself invoke the privilege, but even had she done so there are, to my mind, two answers to this submission: firstly, the answers that I ruled admissible would not attract the privilege: there is no real or appreciable risk that the answers would incriminate Ms Siggins, judging the matter by reference to "the ordinary operation of law in the ordinary course of things", the established test of Cockburn CJ in R v Boyes, (1861) 1 B&S 311,330. This is unsurprising because, as I have said, the FSA relies on this evidence to support its case against the represented defendants, and the relevant answers are really about Mr Banner-Eve rather than Ms Siggins (or ESL). I consider the supposed risk to Ms Siggins of self-incrimination unreal in respect of the answers (leaving aside what I have refused the FSA permission to adduce for other reasons). Secondly, a claim to the privilege does not go to admissibility: privileged evidence is not compellable, but it is admissible.
- Mr Coppel also submitted that the answers should not be admitted because Ms Siggins might face criminal charges in relation to what she was asked. Since her answers themselves could not be adduced against her by the prosecution or the FSA because of section 174 of FSMA, that protection should not, Mr Coppel argued, be undermined by admitting evidence of them in these proceedings since that evidence could be used in a criminal trial. I reject that argument. As I interpret section 174(2), the prosecution could not adduce such evidence from these proceedings against her in a criminal trial: "no evidence relating to the statement may be adduced … by the prosecution…". In any case, the criminal court would not allow evidence against Ms Siggins if it would be unfair to do so, and it has power under section 78 of the Police and Criminal Evidence Act, 1984 to ensure that any trial is fair and respects article 6 of the European Convention.
- Mr Coppel suggested that, if Ms Siggins were tried in a criminal court with Mr Banner-Eve or another person, a co-defendant might be able to adduce the evidence, section 174(2) being about only evidence adduced by the prosecution. However, this argument would apply equally to evidence of the interview itself: I do not understand how the position would be affected by hearsay evidence of answers being admitted at this trial. In any case, it would be for the judge at a criminal trial to ensure that it is fair. If necessary, the indictment could be severed, but I doubt whether it would need to be.
- Mr Coppel next complained that the application is late and at the PTR the FSA indicated that it would not rely on the hearsay evidence. It is not clear to me quite what was then said, but even if the application represents a change of stance, that is insufficient reason to exclude evidence on the issues in dispute, unless the procedural history would cause irremediable prejudice to ALI-UK, Mr Banner-Eve or others. I do not consider that it would: Mr Coppel had ample time to take instructions on the evidence and to prepare to deal with it.
- I concluded that there was no reason to depart from the general approach to the admissibility of hearsay evidence explained in the Polanski case except to the extent that I have explained. Mr Coppel applied under CPR 33.4 to cross-examine Ms Siggins on the contents of the statements that were admitted, and I granted it: there was no good reason to refuse this, and the application was not opposed.
- The represented defendants applied for claims against them to be struck out as an abuse of process in so far as they allege contravention of the FSMA (or being knowingly concerned in breaches of others) by reason of marketing and selling plots to investors before 15 November 2008. (During the exchanges Mr Coppel accepted that the application might more exactly be to exclude claims in relation to investments made, that is to say for which a deposit was received by ALI-UK, before 15 November 2008, but in view of my decision the exact formulation is not important.)
- The application arose from an exchange of correspondence in 2007 and 2008 between the FSA and ALI-UK's then solicitors, Messrs S J Berwin. On 3 April 2007 the FSA wrote to the directors of ALI-UK expressing concern that it might have established and be operating a CIS without authorisation and so be contravening the FSMA. On 18 May 2007 S J Berwin responded that ALI-UK had "always been sensitive to the question of whether its activities could amount to regulated activities under FSMA", but that they had advised ALI-UK to make changes with a view to ensuring that there would be no "pooling" of plots by investors and so ensuring that the scheme was not covered by section 235 of FSMA. They explained how ALI-UK proposed to restructure the business for the future (although in the event those proposals were not implemented); and they said that letters would be written to existing investors inviting them to keep their plots on the basis that ALI-UK would not apply for planning permission in relation to them and otherwise on terms apparently designed to prevent the scheme being a CIS, and offering them other options including that of selling their plots back to ALI-UK. On 27 June 2007 the FSA commented on these proposals and on 29 August 2007 S J Berwin explained them further. They told the FSA that "ALI[-UK] will not be lobbying for a change in designation in relation to any of its sites and does not make representations or give indications to its customers that it will lobby on their behalf"; and that they would provide to the FSA in draft a letter to be sent to investors in the United Kingdom who had bought plots. On 19 October 2007, the FSA provided its comments on the letter.
- Apparently neither the FSA nor S J Berwin pursued the matter until July 2008. On 18 July 2008 S J Berwin sent the FSA what they called an "update relating to existing customers of ALI". They wrote that ALI-UK instructed them that "there are a total of 64 plot owners", some of whom were "based" in the United States of America, and that the customers had been informed by telephone and a follow-up letter that "it was necessary to alter the previous arrangements and that [ALI-UK was] not able to apply for planning permission. Plot owners were offered the choice of exchanging their existing plot for a plot that was larger in size and had access to services and roads, which would make it possible for a plot owner to apply for planning permission in respect of their individual plot (an "enhanced plot"), or selling their existing plot back to [ALI-UK] for the price paid". They continued that of the 64 owners one had chosen to sell his plot back and the other 63 opted for an enhanced plot. S J Berwin sent the FSA a copy of the "telephone script" and the letter said to have been sent to investors. They explained that ALI-UK had omitted to advise investors that they might have rights under section 26 of the FSMA and therefore proposed to send a further letter, a copy of which they sent to the FSA.
- In a response of 12 September 2008 FSA sought further information about how ALI-UK intended to operate in the future and criticised the letter to investors, specifically that it was an "over simplification of the arrangements" to say that ALI-UK had "discussed the fact that [it was] no longer able to apply for planning permission in respect of [the investor's] plot", and commented that "It would be enough if participants in a scheme expected the operator to do these things for the operator's own plot in circumstances in which the participant could reasonably expect that the result would be re-designation or granting of planning permission for the participants' own plots…". On 8 October 2008 S J Berwin responded to this criticism that "the company does not retain land at sites where it sells plots other than that required for roads, services and communal areas…".
- On 15 November 2008 the FSA sent S J Berwin a letter upon which ALI-UK and Mr Banner-Eve particularly rely, and which I set out at length (references in it to ALI being to ALI-UK):
- Before the pre-trial review on 10, 11 and 12 October 2012, Aegis Tax LLP, the solicitors acting for the represented defendants, wrote to the FSA proposing that the court determine two preliminary issues, the second of which was whether, on the material facts pleaded by the FSA, it was "estopped or otherwise precluded from relying on sales made by [ALI-UK] up to 15 November 2008 as arrangements for the purposes of this claim"; and that in, the absence of agreement, they would apply to the court for preliminary issues. The FSA responded on 19 September 2012 as follows:
- On 15 October 2012 the represented defendants requested particulars of the FSA's case, including these: "… is the FSA alleging some or all of ALI-UK's conduct prior to 15 November 2008 forms part of the "contravening activities" upon which it relies in this claim? If "yes", which upon [sic] pre-15 November 2008 conduct does the FSA rely and upon which does it not rely?" There was no reply, but Mr Coppel told me that, although particulars were sought, it was not anticipated that they would depart from the FSA's position in the letter of 19 September 2012. However, the request reflects some uncertainty about the position.
- Before the trial Mr Penny and Mr Hinks sent the FSA's written Opening Submissions to the Court and to Mr Coppel and Ms Tanchel on 18 October 2012 (or possibly on 19 October 2012 – the exact timing is unimportant). They wrote this at paragraph 104:
- These Opening Submissions were exchanged for those of Mr Coppel and Ms Tanchel, at paragraphs 50 and 51 of which they wrote:
- Mr Coppel submitted that it is an abuse of process for the FSA to pursue a case inconsistent with that presented in its letter of 19 September 2012, and applied for a stay of any claim relating to statements or representations made or any understanding formed by an investor before 15 November 2008. Mr Penny submitted that the FSA should be allowed to pursue complaints about all of the defendants' dealings in relation to the sites, including the early sales of land at South Godstone. He therefore resiled not only from what the FSA wrote in its letter but also from his written opening. (Although it referred to a clarification of the letter, it was a change of position.) He relied on a witness statement of Ms Beatrice Schady, an associate employed by the FSA, who explained that the letter was mistaken: she had thought that in the letter of 15 November 2008 the FSA had first expressed its concern that ALI-UK was operating an unauthorised CIS.
- Mr Coppel cited the speech of Lord Bingham in Johnson v Gore Wood & Co (a firm), [2002] 2 AC 1 at 31, and submitted that the FSA was abusing or misusing the court's process in that it sought to raise an issue that it could and should have raised previously, and that the court should not allow this. He argued that this was so even if the letter had not influenced how the defendants conducted the proceedings, but in fact his clients had prepared for trial on the basis of the letter of 19 September 2012.
- I rejected Mr Coppel's argument. I have power to strike out the FSA's pleading (or part of it) as an abuse of the process of the court, but the court exercises it only when it is just and proportionate to do so: Fairclough Homes Ltd v Summers, [2012] UKSC 26 at para 65. I do not think that it would be just or proportionate to strike out any part of the FSA's pleading. Essentially, the complaint against the FSA is that it wishes to withdraw an admission or concession: generally the court allows parties to do so provided that they act (and have acted) in good faith and it does not cause prejudice to another party or other unfairness in the judicial process: Stoke on Trent CC v Walley, [2006] EWCA 1137 (Civ), paras 34-35. It is not, I think, alleged that the FSA had acted in bad faith, and there would be no proper basis for such an allegation. The error made in the letter of 19 September 2012 is unfortunate, and the FSA is open to criticism for not correcting it clearly and promptly when it was appreciated, but its bona fides cannot be questioned. Nor do I accept that the error significantly affected the defendants' preparation for the trial or how it has been conducted. There was no real prospect that the court would have ordered a preliminary issue about whether the FSA could pursue allegations about earlier operations, especially since Mr Prosser rejected another preliminary issue proposed by the represented defendants: it would have been inappropriate, not least because, as I shall explain, this issue cannot be determined without examining whether the nature of ALI-UK's operations changed as the FSA was led to believe in its correspondence with S J Berwin.
- In any case, it would be quite disproportionate to strike out allegations for this reason. It is apparent from the request for particulars that the represented defendants did not take it as settled that they would not have to deal with any allegations relating to operations before 15 November 2008, and I do not accept that the preparations for trial were influenced by any misunderstanding of this kind. At the trial, the represented defendants knew the case against them, and I allowed sufficient time before Mr Banner-Eve gave evidence for him and his advisers to be properly prepared. There was no unfairness in allowing the FSA to advance all the pleaded allegations, and I do not accept that any defendants suffered prejudice as a result of the letter of 19 September 2012 or of any delay in correcting or withdrawing what it said. It would not be a just or proportionate response to the letter or Mr Coppel's other criticisms of the FSA to preclude any part of the claim: to do so would have been contrary to the overriding objective to deal with cases justly.
- The represented defendants applied in the course of the trial (and when it became apparent that the letter of 19 September 2012 did not properly state the case that the FSA pursued) to amend (or more precisely to re-amend) their defence so as to plead that in the exchange of correspondence in 2007 and 2008 the FSA represented to them that, having made investigations, it had decided to end them on the understanding that ALI-UK would conduct future sales on the basis that it would not apply for planning permission and not ask planning authorities to allocate the land for housing; and that in reliance upon this ALI-UK continued to market plots, which otherwise it would not have done. (When the application to amend was first made the draft pleading referred to representations in "discussions" as well as in correspondence, but that part of the proposed amendment was not pursued.) Moreover, according to the draft pleading, as far as Mr Banner-Eve was aware ALI-Panama had not sold plots on any other basis. Accordingly, as it is pleaded, it would be inequitable for the FSA to contend that the represented defendants contravened the FSMA by operating a CIS before or on 15 November 2008, or on the basis of any statement or representation made or understanding formed by an investor before 15 November 2008; and the FSA is estopped or otherwise precluded from making any such allegation.
- By the proposed amendment the represented defendants also sought to introduce into their defence matters designed to answer the FSA's allegation that ALI-UK made statements when marketing plots that "ALI-UK would manage the process of obtaining planning permission for [sites] as a whole including the investors' sub-plots" and the investors so understood the schemes, and that brokers made statements to investors (or potential investors) that Asset Land would be responsible for planning permission for the site, including individual plots, and arrange for the sale of the whole site and the distribution of profits to the investors. They sought permission to plead:
- As I made it clear during the trial, I allow these amendments. The parties told me that they did not require detailed reasons for my decision, but I must still provide what I consider sufficient reasons to justify it: see Re L-B, [2012] EWCA 984 Civ, para 58. (I do not understand that Rimer L J's injunction against deferred reasons is to be applied entirely literally: it is very common not to interrupt a trial or other hearing to give detailed judgment.) Essentially, given the pace at which this trial came on, it is perhaps the more understandable that the original defence did not fully plead the defendants' case. More importantly, the FSA had a fair opportunity to meet the amended defence and was not prejudiced in any significant way by its lateness. Although Mr Penny argued that some of the new defences could not succeed, they were not so obviously doomed that they should not be advanced. The overriding objective required that the amendment should be permitted and that I should adjudicate upon the merits of the defences. Therefore the represented defendants are entitled to advance the new arguments, which I label an "estoppel defence, a "disclaimer" defence, and an "authority" defence.
- Mr Banner-Eve had no experience on land-banking before ALI-UK was incorporated, although he had made some investments in property. He had met Mr Cohen (then called Stuart Knight) on a holiday in 1995 and they became friends. Mr Cohen began to work part-time as a salesman in a furniture business called Mondital, in which Mr Banner-Eve had an interest. According to Mr Banner-Eve, from 2001 Mr Banner-Eve lent Mr Cohen and Ms Siggins large sums of money. From about 2003 Mr and Ms Banner-Eve, Mr Cohen and Ms Siggins were partners in a business called Crown Properties or Crown Partnership, and from about 2004 joint shareholders and fellow directors of a company called Crown Central Limited. In 2005, when Mondital went into administration, Mr Banner-Eve, apparently inspired by what he had seen at the Ideal Home Exhibition, conceived the idea of selling land for which planning permission might be granted and ALI-UK was incorporated on 25 April 2005. (It was incorporated as Asset Land Associates Limited, but the name was changed on 13 January 2006.) It was owned as to 95% by Mr and Ms Banner-Eve, and Mr Banner-Eve was a director from the date of incorporation. His wife was appointed to the board on 9 January 2006 and Ms Calladine on 1 February 2008. Other shares were owned by Mr Nigel Lord, who was a chartered accountant, a business associate of Mr Banner-Eve and a director of ALI-UK from 17 March 2006. He provided tax and auditing services through Nigel Lord Associates, and his firm also provided a company secretary. Mr Cohen was the sales manager and Ms Siggins assisted with administration. The registered office was at Caxton House, Loughton, Essex. Initially ALI-UK operated from the Mayfair office, and later moved to offices at Warlies Park House in Upsure, Essex (the "Warlies Park offices"). The company's bank account was with National Westminster Bank, and was registered to Mr Banner-Eve's home: there is no reliable evidence that the company had any other account.
- On 2 February 2006 ALI-UK made for a total of £310,000 two of the three purchases of land that comprised the South Godstone site, and became their registered proprietor by 12 June 2006. Its solicitors for this and other purchases were Messrs Harris Waters. The third purchase that completed the site was not made until October 2007. On 30 April 2008 ALI-UK acquired the Liphook site for £105,000.
- I infer from bank statements in evidence that ALI-UK began to sell plots at South Godstone and receive payments for them from shortly soon after 2 February 2006. It sold plots at trade exhibitions and through telephone sales. Its brokers included a Mr Gary Collins, who had a brokerage in or near Brighton. In 2007 ALI-UK began to sell properties through off-shore brokers, and Mr Collins had moved from Brighton to a brokerage called Services Global Destinations ("Global") in Spain. One of its employees was Ms Caroline Starbuck, and Mr Angelo Strange was also associated with it. Ms Tina Taylor, who had previously worked with ALI-UK in the Mayfair office, ran another Spanish brokerage called Equity Land SL. On 22 June 2007 ALI-UK paid £21,210 to Global and on 7 November 2007 they paid £7,000 to Ms Taylor. The first payments were therefore made to off-shore brokers only after the FSA had written to ALI-UK expressing its concerns: the FSA submits that ALI-UK then arranged to conduct its business through brokers outside the United Kingdom. On the face of it this perhaps seems likely, but the evidence is not sufficient for me to make such a finding.
- ALI-Panama (incorporated in March 2008) acquired the Lutterworth site for £181,500 on 11 August 2008, and bought the Newbury site for £175,000 on 20 March 2009. On 14 May 2010 it bought the Harrogate site for £115,000, and the Stansted site in June 2011 for a price which is not in evidence. According to the FSA, Mr Banner-Eve arranged the purchase of these four sites, and they were bought in the name of ALI-Panama in order that he should be distanced from them and the sales of plots to investors. Mr Banner-Eve denied this: I shall come to this issue later.
- I did not hear detailed submissions about how much Asset Land received from investors by way of payments for plots at the various sites. It is not important for present purposes and I do not make specific findings about that. But, except in the case of the Stansted site where few plots had been sold when these proceedings were brought, Asset Land's receipts undoubtedly far exceeded what they paid for the sites.
- ESL was incorporated on 28 April 2008 and Ms Siggins was its only director from its incorporation. She had already carried out administrative work for Asset Land, and she continued such work for ALI-Panama. At first, ESL's registered office was at Caxton House, but in May 2011 it was changed to Ms Siggins' home address in Isleworth, Middlesex. ESL and ALI-UK both operated from the Warlies Park office and at least some of those working there, including Ms Calladine, Ms Smeed-Hughes, Ms Pauline Somers and Mr Daniel Ben-Haim, worked for both ALI-UK and ESL.
- The investors' evidence shows how Asset Land sold plots between July and August 2007, when Mr Lipman and Mr Wisker first spoke to its representatives, and 2012. A representative telephoned the potential investor, often by way of a "cold call" but sometimes in response to an interest in making an investment or buying land expressed over the internet or elsewhere. Among those who received unsolicited calls, for example, were Ms Prior, Mr. Millington, Mr. Broadwith and Ms Patel. There generally followed several telephone discussions between Asset Land and the investors. They were given extravagant expectations about the profit that they were likely to make from a short term investment, often within no more than a year or two. Some, but by no means all, potential investors were sent brochures in hard copy (for example, Mr Broadwith and Mr Francis) or electronically (for example, Ms de Montes and Mr Donnelly). They typically included information such as the following, which I take from a brochure sent to Mr Broadwith and was under the heading "Important questions and answers":
- If the investor agreed to invest in a plot (or plots), he or she paid a "deposit", generally of 10% of the price, and the FSA contends that then, if not before, the investor entered into an "arrangement" within the definition of a CIS in section 235 of FSMA (even though they had not entered into a contract to buy a plot). Before paying a deposit, most investors had received at least one letter from Asset Land, and the represented defendants rely upon wording in small print by way of a "footer", and its wording was similar to that on the so-called "check-box form", to which I refer at paragraph 68 below, where I set out the wording.
- Some time after paying their deposit, the investors were required to pay the rest of the price. After they had done so, Asset Land, or ESL on behalf of Asset Land, sent them two copies of a contract for the purchase of the plot(s) that they were buying. It was not Asset Land's practice for investors to have a copy of the contract before they had fully paid for their plot(s): I so conclude although Mr Coppel submitted that the FSA had not proved this. On 2 December 2010, Ms Taylor, the broker, asked Mr Banner-Eve in an email, "… client ready to go with a deal but wants to look at the contract first. I know you have made a rule of not sending it but we don't really have anything to lose, do we, so you never know he might go?? Can you let me know either way please?"; and Mr Banner-Eve replied, "My vote is send the odd one out after checking out the client". He sought in cross-examination to explain his answer as being a flippant reply to indicate that he was unconcerned about the procedures of ALI-Panama, but it was not: it says that he was content for an "odd" departure from the "rule" if the client had been "check[ed] out".
- Asset Land's procedure is also apparent from a draft letter prepared in November 2011 for a potential investor in a plot at Newbury with ALI-Panama, a Mr Dixon: it described the land as "currently awaiting re-zoning before onward sale to a developer", and described a procedure whereby (in summary) Asset Land would take a 10% deposit and withdraw the plot from the market; after confirmation of the investor's details by the "compliance department", Asset Land would send an invoice for the balance; the investor would then be sent "all relevant land registry paperwork and contract" to sign and upon its receipt the land would be transferred by the land registry into the investor's name and the investor sent the title deed; "re-zoning [was] anticipated for 2-3 years"; after re-zoning, the land would be "entered into the LDF (Local Development Framework)"; and the land would then be "available to developers to purchase".
- Mr Coppel argued that the FSA cannot properly rely upon the draft letter because Mr Penny had not asked Mr Banner-Eve about it in cross-examination, invoking the rule in Browne v Dunn, [1894] 6 R 67 HL and citing the statement and application of it in Markem Corp v Zipher Ltd., [2005] RPC 31. It is the more understandable that Mr Penny did not cross-examine about the draft because it was sent by Ms Somers to Mr Cohen and Ms Siggins and not to Mr Banner-Eve. I do not accept Mr Coppel's argument. First, the rule in Browne v Dunn, as widely accepted in common law jurisdictions, is that a party is required to challenge in cross-examination the evidence of a witness if he wishes to submit that the evidence should not be accepted. Mr Banner-Eve did not give evidence in chief about the draft letter. Moreover, the rule is flexible, directed to ensuring procedural fairness in litigation: in Browne v Dunn itself Lord Morris (at p.79) cautioned against a "hard-and-fast rule as regards cross-examining a witness as a necessary preliminary to impeaching his credit": see too Phipson on Evidence (17th Ed, 2010) at para 12-12, and Cross & Tapper on Evidence (12th Ed, 2010) p.314. I do not consider that it resulted in any unfairness to the represented defendants that Mr Banner-Eve was not asked about the draft letter. In any case, Asset Land's general practice about letting investors have a copy of the form of contract only after they had paid their money is proved by the email exchange of 2 December 2010. As this exchange shows, the procedure was not invariable: Ms de Montes was an exception. But the FSA proved the general practice of Asset Land; the evidence directly concerned ALI-Panama, but it was not suggested that ALI-UK might have had a different procedure and I infer that it did not.
- Investors were required to have their signature to the contract witnessed: some were told that the witness should be a solicitor (for example, Mr Millington, Ms Williams-Gormlie and Mr Atherton), but not all were told this and some had it witnessed by a non-lawyer (for example, Ms Chirimuta, Mr Wisker and Mr Charnley). None was encouraged to seek legal or other professional advice about the investment, and those who spoke of using a solicitor were told by Asset Land that it was unnecessary to do so (for example, Mr Beckman and Ms de Montes).
- Investors were sent with the contracts forms that were referred to during the trial as "check-box" forms. They were to be completed and signed by the investor and returned to Asset Land. They stated that "By checking the boxes below, [the investor] confirm[ed] the following", and thereby the investor acknowledged (among other things) that he agreed to the "contractual information" that he had signed and that he had read and understood the "disclaimer written below and agree[d] to its terms and conditions". The "disclaimer written below" was by way of a "footer" in smaller print at the bottom of the form. There were at least two versions of it and they had similar wording to the footers to the letter paper of ALI-UK and ALI-Panama. Both began as follows:
- The contract was for the sale and purchase of land and was between one of the Asset Land companies as seller and the investor as buyer. Two versions of contracts were used, but the differences are not relevant for present purposes. They both provided that the Law Society's Standard Conditions of Sale (Fourth Edition) should be deemed incorporated into the contract as far as they were applicable to a sale by private treaty and were not varied by or inconsistent with other conditions in the contract. The wording of the contracts did not wholly fit the transaction between the parties: for example, it stated that a sum that was to be paid as a deposit and the investor was to pay interest on outstanding sums although, when the contract was signed, the investor had usually paid both the deposit and the rest of the price.
- Mr Coppel relied upon two terms in the contracts:
- The FSA's case about Asset Land's dealings depended on the evidence of the investors about what they were told by Asset Land's representatives. The FSA accepts that different investors were given different understandings about quite how the schemes operated and their arrangements with Asset Land, including about how the planning status of the land might be enhanced to make it more attractive to developers, how plots were to be sold and whether investors might dispose of their individual plots. The FSA submits, however, that the differences were about relatively minor details, and overall the investors' evidence shows that they shared a consistent understanding of the structure of the scheme:
- I accept the FSA's submission about that. With regard to planning, most investors were told and understood that Asset Land would be responsible for seeking to obtain planning permission for the site: they included Ms Patel, Ms Williams-Gormlie, Mr Millington, Mr Wisker, Ms Ogilvy-Hobbs and Mr Charnley. Mr Francis and Mr Atherton were told that Asset Land would arrange for Greenwood Bell to deal with planning permission (and Mr Atherton was given the impression that Greenwood Bell was an associated company of Asset Land). Mr Beckman was led to believe that it was "standard procedure" for Asset Land to be responsible for planning permission. Ms Prior and Mr Broadwith understood that Asset Land would seek to have the sites designated or "re-zoned" for residential development. but would not apply for planning permission. (Mr Hedges explained that planning authorities generally decide applications for permission in accordance with the designation of land in the strategy development plan approved by the local authority, unless other material considerations countervail: thus, while "re-zoning" a site for housing would not guarantee the grant of planning permission, it would, as Mr Hedges put it, be a "major step in that direction", and would therefore, of course, make the site more attractive to developers and more valuable.) Mr Lipman spoke of "mixed messages" about who was to deal with re-zoning and planning permission: he said that Asset Land's representatives sometimes spoke of Asset Land doing so and sometimes of the developers being responsible.
- But despite these differences it is clear that Asset Land's brokers consistently told investors that they would not need to deal with the planning authorities, and that the scheme was that the value of their plots should appreciate from an enhanced planning status without them having to do anything themselves. Ms de Montes, who dealt with Mr Cohen rather than a broker and bought the Harrogate plots in order to build a home, had a rather different understanding: she thought that Asset Land would "assist [her] and [her] fellow investors with [her] planning permission and so on", but she too thought that Asset Land would organise the plot-holders to apply together. As she said in relation to her Newbury investment plots, "I couldn't just go and seek planning permission for 180 square metres, because that would be ludicrous". This observation was echoed by other investors and reflected the obvious common-sense of how the schemes that they had been invited to join would operate. Some were uncertain whether they were legally entitled to apply for planning permission for their own plots, but most did not think about that and those who did were unconcerned: they understood that the scheme was for the whole site to be developed and never contemplated doing anything about planning permission by themselves.
- Different investors also had different understandings about quite how the sale of the plots would be organised, but essentially they understood that Asset Land would arrange the sale of all the plots in a site to a developer: for example, Ms Patel was led to believe that Asset Land would "manage the whole process"; Mr Donnelly that it would take care of selling the land; and Ms Williams-Gormlie that Asset Land would "handle" the onward-sale to a developer. (On 16 August 2010 Mr Ingram, who described himself as a "land agent" for Asset Land, wrote to her that "we have been approached by 3 major developers with a view to buying the Newbury site. We have been advised that they start their bidding at (£60 per square foot) to which they have agreed once the land is re-zoned".) Apart from Ms de Montes in relation to the Harrogate site, all the investors understood that each site would be sold "in its entirety" (as Mr Millington put it, although in cross-examination he also spoke of sales of several plots, "20, 30 or 50 plots", for a lump sum), or "as a whole" (Mr Broadwith) or as a "group thing" (Ms Chirimuta). Mr Beckman and Mr Lipman, who perhaps had more experience of business than some others, were told that Asset Land would sell by way of sealed bids. Not all investors had the same understanding about how they might deal with their plots: some, such as Mr Millington and Ms Chirimuta, understood that they could do nothing until Asset Land arranged a sale. On the other hand, Ms Prior understood that she could bequeath the plots in her will and Mr Lipman that he could transfer his land or sell it to his pension fund.
- The investors understood that, when developers bought the site, they would each receive part of the proceeds. Ms Prior was told that she would receive her "proportion"; Mr Millington said that the payment for the site would be by way of a lump sum; Mr Francis thought that investors would be paid out according to the size of their plots (for "so much per square foot"); Mr Broadwith understood that Asset Land would sell the sites "as a whole" and "pay out the returns".
- Thus, despite the different understandings about the details, all the investors who gave evidence and, as I infer, the other investors who dealt with Asset Land, understood from what they were told that their investments with Asset Land had the three features that the FSA identified: see para 71 above.
- Other evidence corroborated that the experience of the investor witnesses was typical of others who invested in the schemes, although I should have so concluded from the evidence of the investors alone. Mr Edwards said in cross-examination that some 150 persons who invested with Asset Land contacted the FSA, and that their accounts were broadly similar, albeit "with differences":
- The FSA's case is also at least consistent with and, I think, supported by Mr Mansfield's evidence. Mr. Mansfield wanted to "run a story about land-banking" for Sky News, and contacted Asset Land in the guise of a potential investor. In or about April and May 2012 he had three secretly recorded telephone conversations with a Ms Jennifer McKenna and one with Ms Starbuck, and then he had two meetings with Mr Cohen, which he also recorded on a hidden camera. When he first telephoned Ms McKenna, she encouraged him to invest in land and they discussed the Harrogate and the Stansted sites and an investment of some £15,000 or £20,000. Ms McKenna explained how Asset Land operated:
- After Mr Mansfield had agreed to invest £17,820 in the Harrogate site, he was telephoned by Ms Starbuck so that he could send a deposit to Asset Land's bank. He arranged to visit Asset Land's offices in Knightsbridge to discuss the investment and he met Mr Cohen. Mr Cohen emphasised to him that he would have the title deeds to his plot and that he was "in control of it, regarding the land". He confirmed that, as Ms McKenna had said, he could have his investment repaid at any time and (unlike Ms McKenna) indicated that, as well as the value of his plot, he would probably receive a return of at least 8% pa. Mr Cohen also said that "All we do is re-zone [the land], get a percentage of the value lifted and then, that's it, we're out of it…", and that "people who buy it, normally construction companies come in and buy it and they put in for the planning and everything". With regard to selling, Mr Cohen said that, when an offer was made, all the investors with a plot were made aware of it, and they "had to agree to that price [that was offered]" because otherwise an investor would be "left out in the cold anyway because [the developers would] just leave [his plot] as gardens". He explained that, "You couldn't have two or three people saying 'Oh no, we're not going to sell', so it holds the process up for everybody else", and that "What we normally do is say it's 50% who say yes" and then "in the contract you have to agree". At the same time he assured Mr Mansfield that the investor would be "in control of it regarding the land". At the end of this meeting, Mr Mansfield promised a cheque for his deposit, and later arranged to bring it to another meeting with Mr Cohen. In the course of the second meeting, others from BSkyB burst in to confront Mr Cohen, accusing him of "ripping off pensioners" and "conspiracy to defraud".
- I have set Mr Mansfield's evidence out at some length because Mr Coppel submitted that the meetings with Mr Cohen demonstrate how Asset Land intended the schemes to operate better than the evidence of the investors. He rightly observed that Mr Cohen made clear (as had Ms McKenna) that Asset Land was not concerned with planning permission applications and that the investors could ultimately refuse an offer to buy their plot. However, consistently with the FSA's case, the scheme explained to Mr Mansfield was that (i) Asset Land would seek to have the sites re-zoned, and (ii) Asset Land would arrange for a third party, in all likelihood a developer, to make an offer for the site as a whole. Mr Cohen recognised that a minority were legally entitled to refuse the offer, but the scheme operated on the basis that it would make no financial sense to do so and in reality they would have to sell.
- What of the evidence of Mr Hedges and Mr Brettel, on which the FSA also relied? Mr Hedges acted for Asset Land to seek to have the Newbury site re-zoned: he was first instructed in December 2008 to advise about the development potential of the Newbury site, and wrote to the West Berkshire Council in July 2009 requesting that land at the site be included in the next phase of allocations of land for housing development. Arthur J Hedges were not, as Mr Coppel pointed out, involved with any application for planning permission, but their involvement reflects that Asset Land sought to enhance the prospects of the site obtaining permission in the future. To that extent, Mr Hedges' evidence provides some support for the FSA.
- I do not consider that the evidence of Mr Brettel materially assisted its case. He was first instructed by Mr Banner-Eve in relation to the South Godstone site. Mr Banner-Eve introduced him to Mr Cohen, whom he assumed was a "junior partner of Mr Banner-Eve's company, [ALI-UK]", and thereafter had only occasional dealings with Mr Banner-Eve. His dealings were with Mr Cohen and were conducted by telephone. He did work for both ALI-UK and ALI-Panama, and was engaged to assess demographic need and sustainability, assessments that could have been used to support requests for re-zoning. However, Greenwood Bell did not prepare requests for re-zoning for Asset Land or make applications for planning permission or to approach developers about the sites. Mr Brettel's evidence is, to my mind, consistent with Greenwood Bell simply advising Asset Land about what land was likely to be re-zoned and therefore to prove a good investment.
- I come to Mr Banner-Eve's evidence. He said that, when the business started, ALI-UK took legal advice and its documentation, which Mr Banner-Eve described as "a very, very heavy, thick, complex document", was drafted and reviewed by counsel. The intention was that ALI-UK should sell some of the plots on the first site at South Godstone and retain others for its own profit, and then work to have the site re-zoned for housing development. On its website ALI-UK stated this (by way of information provided in question and answer form): "Who arranges planning permission? We take care of all aspects of planning application, you do not need to do anything" (although it made clear that it did not guarantee planning permission).
- The business, according to Mr Banner-Eve, was successful in making sales from its first year. Plots were sold through "the Mayfair sales team" and a "remote site" in Brighton, and initially independent brokers were not used. Later Mr Cohen engaged brokers in Tenerife who traded as Global Trading and were run by Mr Strange. Mr Cohen was responsible for training the brokers, and according to Mr Banner-Eve they were given written instructions Sales were processed by an office run by Ms Siggins. Ms Smeed-Hughes was charged with liaising with investors, and ensuring "that our clients were fully aware of the nature of the product that they had purchased and what their obligations were as well as the potential rewards".
- In the first year, Mr Banner-Eve said, Mr Cohen and Ms Siggins withdrew £220,000 although their agreed remuneration was only some £80,000 or, as Mr Banner-Eve put it in cross-examination, "just enough money to live". This was done without his knowledge and he required repayment, which was eventually received in May 2009.
- In April 2007 the FSA wrote to ALI-UK expressing concern that it was operating a CIS in breach of FSMA. By then it had sold 64 plots, and Mr Cohen had recently been to North America and taken deposits from persons there who planned to invest. Mr Banner-Eve said that he was shocked to receive it and suspended ALI-UK's sales: as he told me, "I didn't know what I was doing, I was in murky waters". After discussing the position with Mr Cohen and Mr Lord, he arranged for ALI-UK to take legal advice from S J Berwin. (According to Mr Banner-Eve, they dealt mostly with Mr Lord, although he too was involved.) On their advice, the deposits taken in North America were refunded and ALI-UK withdrew from the sales. It suspended business for some four to six weeks while S J Berwin reviewed whether it complied with the FSMA.
- In accordance with arrangements that had been the subject of correspondence between the FSA and S J Berwin, ALI-UK contacted the 64 investors who had invested at South Godstone before the FSA's letter and the changes. It offered to exchange their plots for "enhanced" plots (larger plots with a right of way to and from them), or alternatively to return their investments with interest of 6% pa. ALI-UK's explanation to investors was that it was "no longer able to apply for planning permission" for the site or the plots there: "This is because if ALI[-UK] were to apply for planning permission or seek to have the South Godstone site redesignated as suitable for development or brought within the local development plan, this may be regarded as ALI[-UK] operating a [CIS], which it is not authorised to do". All but one of the investors took an enhanced plot.
- According to Mr Banner-Eve, "the company was actually mothballed at that time, on the sales side", and then resumed business with important changes. It ensured that all the plots were "enhanced" and abandoned plans to keep plots, retaining only the land required for the rights of way or other so-called "communal" purposes. The complex documentation was replaced by a simpler contract (including the representations clause and the services clause). ALI-UK made other changes to the documentation, the website and the brokers' instructions so as to introduce a different modus operandi designed to satisfy the regulatory regime and the FSA's requirements. In particular, Mr Banner-Eve understood that the FSA was not content that ALI-UK should market plots on the basis that it would work to have the land re-zoned.
- Mr Banner-Eve's evidence was that therefore ALI-UK sold land without providing any "additional service" and "continued to sell under the new selling regime and the remaining plots [at South Godstone] were either sold or at least allocated". He said that he had understood that the FSA's concerns about past investors were resolved and for the future the changes satisfied the relevant legal requirements. Otherwise ALI-UK would "have had to stop trading and just unwind things as best [it] could", but, as it was, it continued its sales at the South Godstone and the Liphook sites. He said that he knew nothing of what, according to the investors' evidence that I accept, they were told by Asset Land's representatives, and insisted that:
- About this time, according to Mr Banner-Eve, he needed to spend less time on the South Godstone project, and began to run another company, Crown Properties Limited, which bought and managed properties mainly for rental: he and his wife were majority shareholders and Mr Cohen and Ms Siggins also had shares in it. In 2009 he set up Alliance, which was authorised to do business by the FSA and apparently started to do so in late 2010. After the changes, according to Mr Banner-Eve, he needed to spend less time on the South Godstone project. According to Mr Banner-Eve, he did not know about ALI-Panama being incorporated, and knew nothing of the company until in about April 2008 Mr Cohen told him of plans to set up a company for North American clients.
- I accept Mr Banner-Eve's account about how ALI-UK conducted its business before the FSA wrote in April 2007. Although it is not corroborated by other evidence and I generally regard Mr Banner-Eve as an unreliable witness, it was not, I think, challenged, and no evidence contradicts it. Two major issues of fact are:
- I am unable to accept that Mr Banner-Eve was not involved with ALI-Panama, and conclude that, although he held no office and had no shares, he was otherwise as fully involved with ALI-Panama as he had been with ALI-UK. It is inherently improbable that Mr Cohen could or would have set up a similar business with a similar name to ALI-UK without Mr Banner-Eve knowing, and, if he was aware of it, he would not have allowed Mr Cohen to do so without his involvement in the company. Ms Siggins in her interview said that she understood that ALI-Panama was set up on the advice of Mr Lord and that its incorporation was "driven" by Mr Banner-Eve and upon his instructions, and that Mr Banner-Eve was a director of ALI-Panama "in all but name". She said that he made all the financial decisions, and was "ultimately in charge" and all the brokers knew that. He knew of complaints made by investors and was consulted about them. In my judgment, her answers give a truer picture than Mr Banner-Eve's evidence, even though she accepted that she did not have first-hand knowledge of ALI-Panama's corporate arrangements, and although, when she told FSA's interviewers that Mr Banner–Eve was "in charge", she did not specifically distinguish between when she worked for ALI-UK and when ESL was working for ALI-Panama.
- This conclusion is corroborated by other evidence. A payment from ALI-UK's bank account confirms that Mr Banner-Eve was aware that ALI-Panama was being incorporated and involved in its incorporation. As I have said, ALI-Panama was incorporated on 9 or 13 March 2007. On 9 March 2007, £10,000 was transferred from ALI-UK's bank account with the National Westminster Bank plc and the details in its bank statement were "BL-D Banner-Eve Asset L I". Mr Banner-Eve told me that he had "no idea whatsoever" what the payment was. I infer from the date and description that the payment was connected with the incorporation. The statement also indicates that Mr Banner-Eve was connected with the payment, but in any case that amount sum would not have been paid by ALI-UK without his knowledge and approval.
- Other evidence of Mr Banner-Eve's involvement with ALI-Panama can be put roughly into three categories: evidence about the acquisition of sites, evidence about the persons working for Asset Land, and evidence of email exchanges involving Mr Banner-Eve.
- The acquisition of the sites: although the Liphook site was bought by ALI-UK, at one time it was planned that ALI-Panama should acquire it. By a letter dated 23 April 2008 Harris Waters wrote to the vendor's solicitors that they had been "asked by our client whether your client will agree to the property being transferred into the name of a Panamanian company, Asset Land Inc in place of Asset Land Investments Plc". In cross-examination Mr Banner-Eve purported not to know about this, but I do not accept that evidence: Harris Waters' letter named him as their client. Although apparently Harris Waters dealt on this purchase also with a Mr Daniel Rudman, who, according to Mr Banner-Eve, worked as a land buyer for ALI-UK at the Warlies Park Offices and then "broke away … and went on his own", I cannot accept that Harris Waters would request of change of this kind without Mr Banner-Eve's approval.
- The documents also show that Mr Banner-Eve and ALI-UK knew of and had expressed interest in sites bought by ALI-Panama. Harris Waters again acted on the purchase of the Lutterworth site. On 25 June 2007 the vendor's solicitors wrote to them "in connection with the sale of the … property to your client Mr Banner-Eve …". On 16 October 2007 Harris Waters wrote to the vendor's solicitors that they were waiting to be put in funds for the deposit and that the land was "now being purchased in the name of" Stuart Cohen. On 17 October 2007 a Panamanian attorney, Mr Eduardo Duran, wrote to Harris Waters, stating that he was Mr Cohen's lawyer. Mr Banner-Eve said that Mr Rudman gave instructions to Harris Waters about this transaction and he recalled no discussions with Mr Cohen about the land being acquired in Mr Cohen's name. Again, I cannot accept that this was truthful. (I add that the FSA submitted that ALI-UK provided the deposit of £10,000 for the purchase sent on 23 October 2007 by Harris Waters to the vendor's solicitors, but Mr Banner-Eve said that he did not recall the source of the deposit or whether he provided it. ALI-UK paid Harris Waters £30,649 on 18 October 2007, and in cross-examination Mr Banner-Eve could not recall any other matter in which Harris-Waters were then acting for ALI-UK, but in re-examination he recalled that they were acting in relation to a purchase of some land at Tandridge in Surrey. I am sceptical about this explanation, but the evidence is not clear and I leave it aside.)
- Mr Banner-Eve's involvement with the purchase of the Lutterworth site by ALI-Panama is shown by a note to Mr Rudman (or possibly to Mr Daniel Ben-Haim, who also worked at the Warlies Park offices: the note is simply addressed "Dear Dan"), which reads "These are the Lutterworth deeds which DBE [Mr Banner-Eve] has asked me to give to you for safe-keeping". Further, his involvement is clear from an email sent by Ms Siggins on 26 February 2010: she wrote, "I spoke to David last night and under NO circumstances is [the Land Registry transfer documentation for the Lutterworth site] or a copy of this …. to be sent to anyone before David returns to the UK". (Ms Siggins confirmed, and I accept, that she was referring to Mr Banner-Eve as "David".) Although Mr Banner-Eve said that he had "no idea" why the email was sent, he was clearly concerned with the Lutterworth site and with ALI-Panama who owned it.
- My conclusion that Mr Banner-Eve was interested in the Lutterworth site (as well as the South Godstone site) is consistent with the way that Asset Land dealt with Mr Atherton. Mr Atherton initially agreed with Mr Jason Wood that he would buy four plots at Lutterworth and paid deposits on them, but when he changed his mind and preferred to buy two Lutterworth plots (from ALI-Panama) and one at South Godstone (from ALI-UK) this apparently caused no difficulty. He dealt with the same representatives throughout and, for practical purposes, the same vendor. For example, on 3 September 2009 Ms Starbuck wrote to him: "You are purchasing 2 x 1,000 sq ft plots at Lutterworth … Payment for these plots will be by cheque which should be made payable to Asset L I Inc and sent to me at 64 Knightsbridge … Also you are purchasing 1 x 9.0 sq ft plot at South Godstone … Payment for this plot will be by cheque which should be made payable to Asset Land Investment Plc and also sent to me at 64 Knightsbridge." Similarly, on 28 September 2009 he was sent a confirmation of payment for the South Godstone plot signed by a Ms Wendy Jarvis on behalf of Ms Starbuck and on 29 September 2009 a similar confirmation about the Lutterworth plots. Mr Lipman too was unaware of the different companies when he invested at South Godstone, Liphook and Lutterworth and contemplated investing in Newbury: he appreciated this only when he was contacted by the FSA.
- I should also mention that the FSA pointed out that Greenwood Bell rendered an invoice to ALI-UK, "fao David Banner-Eve" in respect of "professional fees … for the research and preparation of report for … Lutterworth". This too suggests on its face that ALI-UK was involved with the Lutterworth site, but the evidence about this is not clear: Mr Brettel thought that he might have been using an out-of-date template for invoices.
- The first offer for the Newbury site, which was eventually acquired by ALI-Panama on 20 March 2009, was made by ALI-UK through Harris Waters: on 27 November 2008 Savills wrote to ALI-UK for the attention of Mr Rudman confirming that its offer was accepted. On 1 December 2008, Mr Rudman wrote to Arthur J Hedges about the land and explained that he had not "had a proper meeting with David to discuss an application to slip the land into the Local Plan". I infer that he was referring to Mr Banner-Eve: Mr Banner-Eve accepted that he was interested in the Newbury site "until some adverse planning information came out", but he suggested that any agreement with Savills to buy the land "could have been" made by Mr Rudman, and that Mr Rudman might not then have been employed by or acting for ALI-UK. Mr Banner-Eve's evidence about this was equivocal and, as I conclude, deliberately evasive. Mr Banner-Eve also denied that ALI-UK wanted to have the land "slip[ped] … into the Local Plan", and suggested that Mr Hedges' letter might be also explained by Mr Rudman acting independently: he said that, when he did so, Mr Rudman liked to present himself as acting for ALI-UK because he apparently thought that it enhanced his authority. Mr Banner-Eve sought similarly to explain why Mr Hedges wrote to Mr Rudman on 16 December 2008 that his firm would be pleased to submit a bid to West Berkshire Council for land to be allocated for residential development. I reject these suggestions as far-fetched and they simply beggar belief. Mr Hedges was an experienced, sensible and thoroughly honest professional, and he would not have been confused by posturing on the part of Mr Rudman as Mr Banner-Eve suggested.
- On 23 January 2009 Mr Rudman wrote to Savills that he had been "warned by [his] Financial Director that we may need to complete on the land at Newbury using our UK company instead of our Panamanian Company". Mr Banner-Eve said that by then he was no longer interested in acquiring the Newbury site, and he knew nothing about a Panamanian company being interested.
- Mr Banner-Eve also denied that he was involved in paying for the land. However, on 17 March 2009 Harris Waters wrote that since the completion monies had not come from "Asset" they needed further information in order to comply with money laundering requirements: some funds had come from some accountants called "Sochalls" and other funds from "Equity", which, I infer, was a reference to ESL. Mr Banner-Eve asked Ms Siggins to answer about the money from ESL and Ms Somers to answer about the funds from Sochalls: he said in cross-examination that he did so because Mr Cohen was a friend and he was trying to help, but I cannot accept that explanation.
- I infer that ALI-UK transferred the opportunity to buy the Newbury land to ALI-Panama and this was confirmed by Mr Hedges' evidence. He said that he was initially instructed by Mr Rudman on behalf of ALI-UK to advise about the development potential of the site in December 2008, but on 7 April 2009 Mr Rudman asked him to address all future correspondence and invoices to ALI-Panama at the Knightsbridge address. Mr Banner-Eve denied that he instructed Mr Rudman to do this, but I cannot accept that: Mr Rudman liaised with Mr Hedges on behalf of both companies. Moreover, according to Mr Hedges, whose evidence I accept, Mr Banner-Eve continued thereafter to be involved with the Newbury site. This is confirmed because:
- ALI-UK and Mr Banner-Eve were similarly involved with the Harrogate site, which ALI-Panama acquired on 14 May 2010. On 19 January 2010 Harris Waters wrote to the vendor's solicitors advising that they acted for ALI-UK in connection with the proposed purchase. Mr Banner-Eve denied knowing of this, again explaining that Mr Rudman would use ALI-UK's name to give himself "extra status". Harris Waters' client ledger shows that their client reference for the purchase is that of ALI-UK but the entries include a credit for £750 on 25 January 2010 with the description "Asset Land Panama – on account". Mr Banner-Eve suggested that Harris Waters had been confused, but I cannot accept that. I infer that initially Mr Banner-Eve had it in mind that ALI-UK should purchase the site. His interest in the Harrogate site is confirmed by other documents, including, by way of example:
- Finally, the Stansted site, which ALI-Panama acquired in about June 2011. In a memorandum of exchange of contracts dated 4 April 2011 the vendor's solicitors named the buyer as ALI-UK. Mr Banner-Eve said that he had been offered the site by Mr Rudman and suggested that this was an error for which Mr Rudman was responsible. I cannot accept that: Mr Banner-Eve's interest in the Stansted site is confirmed by an email sent on 26 April 2011 by Mr Gary Collins to Ms Somers and copied to him and Mr Cohen under the heading "Stansted". It set out "'rules for the sales team' on Stansted Park", and was about how brokers were to operate and their rewards. Mr Banner-Eve denied seeing the email, but I infer that he was interested in the arrangements for brokers selling plots at the Stansted site because he was interested in ALI-Panama and involved with its business.
- Secondly, Mr Banner-Eve's case that ALI-Panama's business was separate from that of ALI-UK and he had no involvement with it cannot, to my mind, be reconciled with the evidence of how the businesses were run. As I have said, ALI-UK and ESL both operated from the Warlies Park office and employees worked for both companies from there. Employees who had worked for ALI-UK and moved to be employed by ESL kept their ALI-UK email addresses. This distinctly suggests to me that the two businesses were connected and Mr Banner-Eve had an interest in both.
- Thirdly, email exchanges put beyond doubt that Mr Banner-Eve was involved in every aspect of ALI-Panama's business. I shall confine myself to five examples (although more might be given):
- All these communications were by email, and emails can be read less carefully than hard copy correspondence and replies are sometimes less complete. I make allowance for this. But so many email exchanges evidence Mr Banner-Eve's involvement with ALI-Panama that I cannot accept his explanations for them.
- After ALI-UK had received the FSA's letter of 3 April 2007 and S J Berwin had advised Asset Land about how it might conduct its business without operating a CIS and in compliance with the FSMA, from the summer of 2007 Asset Land used different documentation designed to achieve this purpose. It entered into contracts with investors in the simplified form that I have described, it required investors to complete the check-box form when they did so, it displayed on its letter paper the disclaimer in the footer and its brochures and other literature included the kind of information that I have set out at paragraph 62 above. I also accept that it sold "enhanced" plots with rights of way and the intention was that Asset Land should retain only land to provide such rights of way and other "communal" areas, all the plots being sold to investors. However, when marketing plots Asset Land's representatives still led investors to believe that it would work to enhance the prospect that the planning authorities would allow housing development on the sites, and often they encouraged investors to think that Asset Land would either apply for planning permission for the site itself or arrange for applications by others such as Greenwood Bell. It also led investors to think that (as might be supposed from the nature of the plots) that the whole site would be sold together and the proceeds distributed: that was the obvious way for the plots to be sold and Asset Land's representatives confirmed that this was what would happen.
- Mr Coppel submitted that much of what the investors were told by telephone was by way of "sales patter" that could not be said to give rise to arrangements of any kind. Mr Lipman, for example, agreed that what he was told about the expected return "seemed a little too good to be true" and that the representatives "obviously had a well practised patter"; Mr Millington and Mr Broadwith agreed that there was "sales talk, sales patter"; Ms Patel recognised that there was sales talk; Mr Donnelly said that he suspected that he was being given "sales hyperbole", but not lies. I accept that some of what was said was not offered as truth and should not be criticised as such, but much of what the investors were told cannot be so dismissed. In particular, the investors were entitled to accept as true what was said about planning permission and re-zoning, and about how the property was to be sold and the proceeds distributed. I explain this conclusion in more detail below when I consider (what I loosely and perhaps imprecisely call) disclaimers.
- The FSA contends that therefore the investment schemes were CISs, and meet the three requirements of a CIS stated in sections 235(1), 235(2) and 235(3) of the FSMA. Its primary case is that, because of representations and statements of Asset Land's brokers and other sales-people and what the investors therefore understood, the investment schemes were arrangements with respect to the sites the purpose of which or the effect of which was to enable the investors to participate in or receive profit arising from the acquisition, holding, management or disposal of the sites; that the investors did not have "day-to-day" control over the management of the sites; and it was a "characteristic" of the schemes that the sites were managed as a whole by Asset Land. Thus, the FSA's primary contention is that the relevant "property" was each of the sites, and that the arrangements had the "characteristic" defined in section 235(3)(b). (It does not rely upon the alternative "pooling condition" in section 235(3)(a).) Its secondary case is that the relevant "property" was each individual plot, and that the schemes were arrangements with respect to the plots the purpose or effect of which was to enable the investors to participate in or receive profit arising from the acquisition, holding, management or disposal of their plots; that the investors did not have "day-to-day" control over the management of the plots and the plots were managed as a whole by Asset Land.
- The represented defendants dispute this: Mr Coppel submitted that in order for a scheme to be a CIS within the statutory definition six conditions must be met:
- The FSA and the represented defendants agree that the term "arrangements" in section 235 does not cover only arrangements that are legally binding. However:
- I first consider representations clause and the services clause. Three questions arise:
- In considering the meaning and application of the provisions, any ambiguity or uncertainty is to be resolved in favour of the investor. First, regulation 7 of the Unfair Terms in Consumer Contracts Regulations 1999 (the "1999 Regulations") provides that "If there is doubt about the meaning of a written term [in a contract between a seller and a consumer], the interpretation which is most favourable to the consumer shall prevail". Secondly, both limbs of the principle of construction contra proferentem are to much the same effect: Asset Land presented the form of contract to the investor and is proferens in contrahendo, and the Asset Land companies and their directors rely on clauses in the proceedings and are proferentes coram iudice. Thirdly, in so far as the clauses are exemption clauses that purport to limit or to reduce what would otherwise be Asset Land's duty, that is to say "the substantive obligations to which they would otherwise be subject under the contract, for example by excluding express or implied terms, …" (Chitty on Contracts (31st Ed., 2012) para 14-003, they must be expressed clearly to be effective. Fourthly, with regard to the representations clause, this takes effect (if at all) by way of a contractual estoppel: see Springwell Navigation v J P Morgan, [2010] EWCA 1221 (Civ). If a term is to be construed so as to have this effect, clear words are necessary: Standard Chartered Bank v Ceylon Petroleum Corp, [2011] EWHC 1785 (Comm) at para 529.
- With this introduction, I must consider the meaning of the two clauses separately. The FSA advanced three arguments about the scope of the representations clause. First, it argued that it has no application unless both the buyer and the seller have solicitors acting for them on the purchase and sale and the buyer raises written enquiries before contract and the seller provides written responses on a "Property Information Form". I consider that this submission distorts the exception for which the clause provides, and gives it an effect that the words simply do not bear. If the exception does not apply because no enquiries were raised, then the exception is of no effect and the general confirmation given by the buyer is not displaced. (Admittedly if one party or both of them did not use a solicitor, but the buyer raised enquiries and the seller answered on a Property Information Form, the literal wording of the clause might need to be manipulated in order that representations in the answers should be covered by the exception, but I see little difficulty here. That question does not arise in this case.)
- Secondly, the FSA submitted that the representations clause does not apply where, as here, the representations are not terms of the contract between the parties. Again, to my mind this would introduce into the clause a limitation that is not in its wording or in its ordinary and natural meaning.
- Thirdly, the FSA contended that the clause is directed to representations by way of statements of fact and not to statements about what Asset Land was to do in the future. I accept this submission. In my judgment, the statements to investors on which the FSA relies are not within the representations clause: they were promises as to how the scheme was to operate, and not statements of an existing state of affairs such as would be covered by the term "representations". The word "representation" has a well-recognised meaning in a legal context such as this: for example, in Cassa di Risparmio della Republica di San Marino SpA v Barclays Bank Plc, [2011] EWHC 484 (Comm) Hamblen J said at para 125, "A representation is a statement of fact made by the representor to the representee on which the representee is intended and entitled to rely as a positive assertion that the fact is true", a passage cited in Chitty on Contracts (cit sup) para 6-006 fn 23. Of course, the law recognises as a representation a statement about a state of mind, such as an intention, but this was not the point of what investors were told.
- In my judgment, therefore, the representations clause, properly interpreted, does not assist the defendants. I should in any case have so interpreted the representations clause but the principles of interpretation to which I have referred at paragraph 115 above reinforce this conclusion.
- The FSA therefore needs not rely upon its two other arguments about the representations clause, neither of which I find convincing. First, even assuming that ALI-UK could have invoked a contractual estoppel if sued by an investor, it cannot do so against the FSA. The question is what arrangements were made by Asset Land and investors and on any view the representations clause is part of the arrangements. Secondly, the FSA argued that, since there cannot be a contractual estoppel where the effect of the relevant contractual provisions has been misrepresented (see the Standard Chartered Bank case, cit sup, at para 529), the assurances given by Asset Land's representatives if any investor asked about the clause prevent them from relying on it. I do not accept that the evidence establishes the factual basis for the FSA's argument: in general terms, investors who asked about the contract were reassured that they need not be concerned about it, but they were not advised about the legal effect of its provisions.
- Mr Penny submitted that the services clause was unclear and uncertain in that the statement in the first sentence that Asset Land would not apply for planning permission contradicts the second sentence, which states that Asset Land reserved the right to apply for planning permission. I reject that submission: the first sentence is about applications for planning permission for land sold to the investor, whereas the second sentence is about applications for planning permission for other land still owned by Asset Land.
- I therefore consider the provisions of the services clause about applications for planning permission clear, but this does not go far to answer the FSA's case that the schemes were CISs if the arrangements were that Asset Land would seek to have the sites re-zoned, arrange a sale and distribute the proceeds, even if investors did not understand (or did not reasonably understand) that Asset Land would apply for planning permission. These other matters were covered by the services clause, if at all, only by the second half of the first sentence: the provision that "the Seller [will not] provide any … services to the Buyer to the extent that the provision of such services would constitute the carrying on by the Seller of regulated activities for the purposes of the [FSMA] unless the Seller is authorised under that Act and permitted by the [FSA] to carry on the relevant regulated activities". To my mind it is strongly arguable that the court will not give effect to a provision of this kind because it is too vague, just as a provision that a restraint of trade "for as long as permitted by law" has long been held ineffective because of uncertainty: Davies v Davies, (1887) 36 Ch D 359, Chitty on Contracts (cit sup) Vol 1 para 16-106.
- Was what the representatives told investors about re-zoning and the intended sale of the land and distribution by way of statements about "services" that Asset Land was to provide, so as to be within this part of the services clause? I am not persuaded that it was. While investors were given to understand that Asset Land would enhance the planning status of the sites and arrange sales, it is not clear that this was presented as a service to investors. Investors would simply benefit because Asset Land would work to this end for its own profit, as owners of parts of the sites: until they were sold to developers, Asset Land was to retain parts of the sites, the parts over which there were rights of way and which were to serve other communal purposes. I do not consider that the expression "provide any other services to the Buyer" is apt to cover a request to the planning authorities for re-zoning or a sale arranged by Asset Land in these circumstances. If there be uncertainly about this, two considerations reinforce my conclusion: first, the approach to interpretation explained at paragraph 115 above, and second that a provision that Asset Land was not to arrange a sale would not be introduced into the written contract "for the avoidance of doubt".
- I therefore do not consider that the services clause, as a matter of its proper interpretation, answers the FSA's case. However, neither of these points was advanced in the FSA's submissions and therefore Mr Coppel did not have an opportunity to answer them. Therefore, I do not put my decision on either of these bases: as I shall explain, in my judgment the FSA has another answer to this part of the represented defendants' case.
- Next, to the extent that the provisions are applicable to the FSA's contentions on their wording, were they effective? The FSA submits that neither the representations clauses nor the services clauses nor the written agreements of which they were part were contractually valid because the investors had already paid for their plots and no consideration moved from the investors when the written contracts were signed. I reject that argument. The first answer is that the FSA's argument depends, I think, on it establishing that before the written contract Asset Land and the investors were already legally committed to the sale and purchase of the plot: any money paid by way of the price would otherwise have been recoverable until the written contract was made. The general rule under section 2(1) of the Law of Property (Miscellaneous Provisions) Act, 1989 (the "LPA 1989") is that, "A contract for the sale or other disposition of land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each". However, the FSA advances three arguments that the statements made by Asset Land's representatives before the written contracts were legally binding:
- When I sought fully to explore in the course of closing submissions the ambit of section 2(5)(c) in view of the potentially wide implications of a decision on this point, counsel was unable to assist upon the history, purpose or scope of this exception to section 2(1) (which was understandable in view of the number of legal points that had emerged in the course of the hearing). I therefore asked for supplementary written submissions, and after the hearing Mr Penny wrote that the FSA was not in a position to advance detailed argument on the point. In view of its potential importance, he invited me not to determine it in this judgment, and, if I need to decide it, to hear further submissions at a separate hearing. I do not need to decide the question and do not do so: there are other reasons to reject the FSA's argument that the representations clause and the services clause are not contractually binding because the written contracts were not supported by consideration. Even if the parties were previously committed to selling and buying the plot, both entered into further undertakings in the written contract: for example, it stipulated a completion date, that the seller "sells with full title guarantee" and would give full vacant possession on completion, and that the buyer entered into covenants, for example, not to grant third party rights over the plot.
- The FSA also argued that the representations clause and the services clause are "unfair" within the meaning of regulation 5 of the 1999 Regulations, and so not binding on investors: regulation 8(1). The 1999 Regulations apply in relation to unfair terms in contracts concluded between a seller and a consumer, including contracts involving the grant or transfer of an estate in land: R v Newham LBC ex p. Khatun, [2004] EWCA 55 (Civ). None of the investors who gave evidence dealt with Asset Land as part of a business that they carried on, and I infer that very few, if any, investors who bought plots from Asset Land did so. The 1999 Regulations therefore apply to the contracts for the sale of plots by Asset Land to investors.
- Regulation 5(1) provides as follows:
- Regulation 6 is about the assessment of whether a term is unfair:
- Schedule 2 to the 1999 Regulations has an "indicative and non-exhaustive list of terms which may be regarded as unfair": regulation 5(5). It is sometimes called a "greylist" because it is not a "blacklist" of terms that are necessarily to be regarded as unfair but illustrates of terms that might be found to be unfair. The list includes at paragraph 1(n) "Terms which have the object or effect of: … Limiting the seller's or supplier's obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality".
- Hence two questions:
- As for the first question, neither the representations clause nor the services clause relate to the matters specified in regulation 6(2)(a) or 6(2)(b). Mr Coppel did not argue that the representations clause does, but submitted that the services clause relates to the definition of the subject matter of the contract or alternatively to the adequacy of the price as against what was supplied in exchange. I am not so persuaded: the contracts were for the sale and purchase of land, and that was their main subject matter. I do not see how, even if Mr Coppel is correct that the services clause "defines the scope of the service which [Asset Land] is to provide", it could be said to relate to the main subject matter of the contracts. Moreover, the written contracts expressly stated that the price was paid for the property: "The Seller shall sell and the Buyer shall buy the property …. for the price…". The services clause did not relate to the adequacy of the price as against what was supplied in exchange. But however this may be, I do not consider that the services clause is drafted in plain, intelligible language: in particular, for reasons that I have explained at paragraph 123 above, it is not plain what "services" are covered by the second half of the first sentence. (If I am wrong that the representations clause has the meaning that I give it in paragraph 118 above but some wider meaning so as to cover the statements on which the FSA relies, I would conclude that that too is not in plain intelligible language.)
- This leads to the question whether the clauses are therefore to be regarded as unfair under regulation 5. This arises only if they have the meaning that Mr Coppel advocates: otherwise the FSA does not need to rely on the 1999 Regulations at all. I also shall assume (in favour of the defendants) that the statements made to investors on which the FSA relies did not give rise to "rights and obligations arising under the contract" within the meaning of regulation 5(1). This is not to assume that I should reject the FSA's arguments of collateral contract and estoppel (see para 120 above), but even if these arguments are accepted, it does not follow that the consequent rights and obligations "aris[e] under the contract" of sale and purchase of the plot. The parties did not consider this question in their submissions, and I can and do deal with the question whether the clauses are to be regarded as unfair on the basis more favourable to the defendants.
- Nevertheless, I am unable to accept that, as Mr Coppel submitted, what he called the "telesales pitch" is not to be regarded as within the expression "all circumstances attending the conclusion of the contract" and so considered on the assessment of unfairness: the European Court has made it clear that this expression shows that the regulation "gives a particularly wide definition of the criteria for making such as assessment": Perenicova & Perenia v SOC financ spol sro, [2012] EUEJC-453/1, Chitty on Contracts (cit sup) Vol 1 para 15-084. Nor do I accept that they would be irrelevant if the representatives had no authority to say what they did to potential investors, although, as I explain at paragraphs 147ff, I reject the authority defence.
- As Mr Penny rightly observes, the question whether a clause causes significant imbalance under regulation 5(1) requires consideration of the potential unfairness to which it could give rise: Chitty on Contracts (cit sup) Vol 1 para 15-080. Thus, the FSA points out that the representations clause purports to exclude liability for all forms of representation (in that it purports to prevent the purchaser asserting reliance), the only exception being in respect of written representations that the parties knew would not apply to Asset Lands sales.
- Because of regulation 6(1), when deciding whether a term is to be regarded as unfair under regulation 5(1) the court should consider the nature of what was sold and the circumstances in which the contract was made. The contracts in this case were for the sale of isolated plots of land which generally (and with the exception of unusual cases such as that of Ms De Montes) were not, as Asset Land knew, of any use to the purchasers other than as investments. The circumstances of the sales were that the plots were marketed as investments, often investments for no more than two years or so, and the statements supposedly of no effect because of the representations clause and the services clause were exactly what led the purchasers to decide to invest in the plots and they were made to induce them to do so. The nature of the plots was that their investment value was as a small part of sites that it was hoped would be made available for development and as such attract a developer. The statements and the sales were generally made to persons who were not financially experienced or sophisticated, who, as Asset Land's representatives knew, had no financial, legal or other relevant advice, and who were discouraged from seeking legal advice. Importantly, Asset Land deliberately conducted its business on the basis that the investors should not see the written contract and learn of the representations clause and the services clause until they had paid Asset Land the whole price; and then Asset Land did not transfer the plot, the consideration for what it had been paid, unless and until the investors signed the contracts. The "footers" on Asset Land's letters to some extent foreshadowed the substance of the services clause, but they were in small print and readily overlooked.
- As Lord Bingham explained in Director-General of Fair Trading v First National Bank plc, [2001] UKHL 512, para 17 (in relation to the predecessor of the 1999 Regulations), regulation 5(1) requires the application of a composite test, assessing both the making and the substance of the contract. I conclude that, on the represented defendants' interpretation of the clauses, each causes a significant imbalance in the parties' rights and obligations under the contract and that it operates to the investor's detriment. Each operated only in Asset Land's favour and against the investor: neither clause purports to prevent Asset Land from relying on pre-contractual representations or exchanges. Its effect is to tilt the balance of the contract against the investor because it detracts from the investment potential of the purchase. I also conclude that each term is contrary to the requirement of good faith, which "requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's … lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position…" (per Lord Bingham, loc cit): by introducing the representations clause and the services clause after investors had paid, Asset Land did just that.
- Mr Coppel advanced these arguments against this conclusion:
- The FSA also submits that the representations clause is of no effect because of the Misrepresentation Act, 1967. Section 3 of the Act provides as follows:
- The FSA submits that by the representations Asset Land seeks to exclude or to restrict liability for misrepresentation in respect of what investors were told before signing the contract. If I am right in my conclusion at paragraph 118 above, the relevant statements were not representations and for this reason they are not covered by the clause and the clause does not, as a matter of interpretation, assist Asset Land. I shall therefore only say that, if I am wrong about this, I would conclude that the clause does not satisfy the requirement of reasonableness. In substance, this conclusion is driven by the same considerations as those relevant to the 1999 Regulations: all the considerations to which I have referred were, or certainly should have been, in the parties' contemplation when the written contracts for the sale of the plots were concluded.
- I conclude that the representations clause does not assist the defendants because on its proper interpretation it does not cover what the brokers told investors, because it is not binding under the 1999 Regulations and because it is of no effect under the Misrepresentation Act, 1967. I also conclude that the services clause does not assist the defendants because, even assuming that it is sufficiently certain to be contractual and covers what the brokers said on its proper interpretation, it is not binding under the 1999 Regulations.
- As I have said, the FSA contends that what the brokers told investors:
- I shall deal with these questions only briefly because the arguments were really raised by the FSA, I think, to respond to the reliance that the represented defendants placed upon the clauses in the written contract.
- A contract collateral to another contract that has to be in writing (or evidenced by writing) does not itself have to be written, and an oral contract may be collateral to one for the disposition of an estate in land. However, the court is cautious before it finds a collateral contract in these circumstances and will not do so if "the promise said to be binding as a collateral contract is in truth one of the terms of the same or other disposition in land": Business Environment v Deanwater, [2007] EWCA 622 Civ at para 42. Sir Andrew Morritt said at para 43 that:
- In Inntrepreneur v East Crown, [2000] 2 Ll L R 611, 615 Lightman J identified the principles relevant to whether statements should be held to give rise to collateral warranties, pointed out that the parties must have objectively evinced the intention that they do so, and observed that "A representation of fact is much more likely intended to have contractual effect than a statement of future fact or a future forecast." Mr Penny submitted that nevertheless I should infer from the evidence that the statements to investors typically gave rise to collateral contracts whereby "the relevant [Asset Land] company agreed that it would apply for the re-zoning of the sites as a whole and/or would apply for planning permission and/or would endeavour to sell the sites as a whole, including all the individual plots, to a developer, and that it would distribute profits to investors following such a sale". The formulation of the submission seems to me to demonstrate the unsatisfactory nature of this part of the FSA's argument. The question whether Asset Land entered into a collateral contract with any particular investor and if so in what terms is fact-sensitive. Sometimes what the investor was told was too uncertain to be contractual: for example, the "mixed messages" given to Mr Lipman about approaching the planning authorities would not have been contractual, nor, I think, would what Mr Millington was told about the land being as a whole or in groups of "20,30,50 plots": such phraseology does not seem to me to evince an intention to create legal relations. It might be that in some cases there were promises that the investor could have enforced as collateral contracts, but I am not persuaded that this was the general picture.
- The FSA's estoppel argument faces a similar difficulty: the fact-sensitive nature of the question whether there was an estoppel in any particular case. I do not doubt that (subject to the authority defence) there is no legal obstacle to exchanges between the brokers and investors giving rise to an estoppel by convention (such as that in Helden v Strathmore Ltd., [2011] Bus L R 1592 at para 24) or by representation. It might be that some individual investors could establish such estoppels in their own cases, but the evidence does not establish more than that. Since this point was hardly developed by Mr Penny and it does not affect my decision, I say no more about it.
- By the authority defence, the represented defendants contend that, if ALI-UK's representatives said what the FSA alleges, they had no authority from ALI-UK to do so and so their statements did not affect any arrangements made by ALI-UK. The FSA maintains that the representatives acted within their authority, but, even if they did not, (i) they had apparent authority to say what they did and (ii) in any case ALI-UK ratified what they said. I reject the authority defence as inconsistent with the evidence and without proper legal foundation.
- The relevant representatives included sales-people working from ALI-UK's Mayfair office until the first half of 2008, and brokers working with Mr Collins in Brighton until the middle of 2007 and thereafter for Services Global Destinations and other brokers in Spain. No written instructions to brokers or other representatives are in evidence and no such instructions are alluded to in documents that are in evidence. There is no reliable evidence of oral instructions. Mr. Banner-Eve said that he believed that there were written instructions "as to what they should or should not say", and that they were produced "Prior to [ALI-UK] initiating [their] relationship with the brokers and then they would have been reviewed as different things happened with Berwins and the FSA". I reject that evidence: it was vague and given for the first time in cross-examination, and had it been true the instructions would have been reflected in the documents.
- The representatives were engaged to persuade potential investors over the telephone that they should buy plots at the sites. As I have explained, Mr Banner-Eve was aware that Asset Land was engaged in attempts to have sites re-zoned: for example it paid Arthur J Hedges – Planning to deal with the West Berkshire Council for this purpose, and I have concluded that Mr Banner-Eve was aware of this. ALI-UK and ALI-Panama were similarly concerned to have other sites re-zoned, and again, as I conclude, Mr Banner-Eve knew this. It would have made no business sense to direct brokers not to tell potential investors that Asset Land was doing this. The brokers must have been expected to market plots on this basis and ALI-UK, through Mr Banner-Eve, must have authorised them to do so.
- I also conclude that Mr Banner-Eve knew that brokers were telling investors that sites would be sold as a whole, and the obvious inference was that Asset Land would arrange the sales. I need refer to only three emails:
- I do not accept Mr Banner-Eve's explanations for his responses to these emails. They are entirely uncorroborated: had he been as concerned as he professed about what brokers were telling investors, this would have been reflected in the documents. They reflect no such concern on behalf of investors: on the contrary, when on 8 June 2010 Ms Smeed-Hughes wrote to him that she "must have had 10 phone calls today from clients wanting an update on their land", he replied "LOL" (laugh out loud). He sought to explain his reply as "light-hearted" because Ms Smeed-Hughes had headed her email "going mad", but he acknowledged that he did not do anything to answer the investors' concerns. More generally, I accept Ms Siggins' evidence that Mr Banner-Eve was always made aware of investors' complaints and consulted as to what should be done about them. Apparently he generally left brokers to deal with them, but I cannot accept that in these circumstances he did not know what was being said by brokers. I conclude that he knew what they said when they marketed plots for ALI-UK, and through him ALI-UK authorised the brokers so to sell plots. Even if ALI-UK did not authorise what was said, it ratified it. I acknowledge that there is not direct evidence that Mr Banner-Eve knew that sometimes brokers told investors that ALI-UK would apply for planning permission, but I infer from the evidence as a whole that he did, but in any case the FSA's case does not depend upon investors being told that ALI-UK would make or arrange applications for planning permission, and it suffices for its purposes that ALI-UK authorised or ratified what was said about re-zoning.
- The FSA therefore does not need to rely upon its alternative argument that brokers had ostensible authority to speak to investors as they did, but, had it been necessary, I would uphold this argument too. The brokers were appointed to market plots to investors and as part of that appointment they were clearly authorised, impliedly if not expressly, to inform potential investors what intentions Asset Land for the site and its expectations about what opportunities the purchase of a plot offered. They were therefore held out as having authority to make statements of the kind that the FSA alleges and, in my judgment, has proved.
- Finally before coming to the issues ordered by Mr Prosser, I refer to the judgment in In re Sky Land Consultants Plc, [2010] EWHC 399 (Ch), on which the FSA particularly relies, its primary case reflecting David Richard J's analysis in that case of section 235 of the FSMA. The case concerned a petition to wind up a company brought by the Secretary of State because it appeared to him expedient in the public interest to do so, mainly because it was operating a CIS without authorisation. David Richards J concluded that it was and granted the petition. The FSA contends that company's operations were similar to Asset Land's. The company acquired options over two sites designated for agricultural use, under which it could either acquire the sites themselves or could require the owners to transfer the sites in plots of 300 square metres to third parties (investors), the company being granted enduring powers of attorney in order to effect such transfers. Initially investors were required to enter into a marketing agreement with the company, appointing the company as their agent to sell their plots. After the FSA intervened because of concern that this constituted a CIS, the company's documentation was changed and the investors no longer entered into such an agreement. David Richards J concluded (at para 70) that:
- David Richards J observed that none of the three requirements in section 235(1), 235(2) and 235(3)(b) depended upon the legal relationship entered into by the investors: he considered that the word "arrangements" put the focus on how schemes operated in practice and that "the arrangements in question need not … be legally binding" (para 16). As for the condition in section 235(2), he observed that it might be satisfied even if investors had the right to give directions and that the question whether they had day-to-day control over the management of the property looked to the "factual position, rather than to any right of control" (para 14). Similarly, the condition in section 235(3)(b) was "directed to the way in which the arrangements in fact operate, rather than requiring there to be an enforceable right of management", and that, since the question is whether this is a "characteristic" of the arrangement, the investors and the operator must share the intention that in practice management of the property would be in the hands of the operator (para 15). The corresponding provision of Australian legislation was interpreted similarly by Marin J in Enviro Renewable Resources Pty Ltd v ASIC, (2001) 36 ACSR 762. And the same approach was adopted by Hamblen J in Brown v InnovatoreOne Plc, [2012] EWHC 1321 (Comm), specifically to section 235(2): "It is necessary to look beyond documents which may provide for "day to day control" by investors and to consider how the scheme was designed to and did operate in practice" (at para 1168). I adopt the same approach: the purpose of the FSMA is, in part, to protect investors and the intention of the legislation must, in my judgment, have been to give them practical protection that does not depend upon an overly technical analysis of the contractual terms of their investments.
- David Richards J accordingly concluded that the arrangements marketed and operated by the company were within the definition of a CIS, and I set out his reasons at some length because the FSA says that they exactly state its case and contends that there is no proper basis for distinguishing Asset Land's schemes:
- Mr Penny urged that, even if I disagree with this reasoning, it would be wrong for me, at first instance, to depart from it. He cited Maugham J in Vincent v Smith, [1930] 1 Ch 88,99 and Lornamead Acquisitions v Kaupthing, [2011] EWHC 2611 (Comm) at paras 51 to 55. I accept that, especially because in broad terms the judgment is in line with FSA v Watkins, [2011] EWHC 1976 (Ch) per Proudman J. In any event I agree with David Richard J's reasoning. Although, as I have said, because contravention of the general prohibition in section 19 is a criminal offence of strict liability (albeit with a "due diligence" defence), the relevant provisions of FSMA must be interpreted to cover only cases fairly within them, the interpretation of section 235 in the Sky Land Consultants case does not, to my mind, exceed that limit.
- Were there arrangements with respect to property the purpose or effect of which was to enable persons taking part in the arrangements to participate in or receive profits arising from their acquisition, holding, management or disposal of such property, within the meaning of section 235(1) of FSMA? I conclude that, as the FSA submitted, the brokers (or other sales representatives) of Asset Land and investors with Asset Land made arrangements when plots were marketed and investors paid a deposit that they should acquire land at a site, and that the object of the arrangements (as evinced in the exchanges) was that Asset Land should achieve a sale of the site (or a substantial part of it) after it had sought to enhance its value and so the price that it would attract by improving the prospects for housing development (through the site being re-zoned, if not granted planning permission), the price paid for it being shared between the owners of the land. Such arrangements are covered by section 235. I accept Mr Penny's submission that what David Richards J said at paragraph 75 of his judgment largely applies here, and I adopt his reasoning, including his view that the "property" with respect to which the arrangements were made is the sites acquired by Asset Land. I observe that, as in the Re Sky Land Consultants case, Asset Land retained some of the sites, even if only the land over which plot owners had rights of way or retained for similar reasons, but it does not seem to me that the reasoning depends upon whether the original owner retained land. I acknowledge a difference from the Re Sky Land Consultants case in that here some investors understood that Asset Land would not be applying for planning permission, but that it would only seek to have the sites re-zoned (itself or through Greenwood Bell), but this does not affect whether the arrangements fall within section 235(1): it would not do so even if all investors had been given this understanding. (In its letter of 15 November 2008 the FSA made it clear that ALI-UK should have no "involvement in … seeking designation of land for development", and this was reflected in the letter that ALI-UK sent to the 64 investors offering an enhanced plot or the return of their investment.)
- I should consider four main objections to the FSA's allegation that Asset Land made "arrangements" within the meaning of section 235(1). First, different investors had different understandings about how the schemes would work. In my judgment, the differences do not matter: first, each entered into arrangements with Asset Land that were covered by section 235(1); nothing in the section requires that all participants share an understanding of what the arrangements were (and I do not take David Richard J's use of the expression "shared understanding" at para 73 of his judgment to indicate that he thought otherwise). Secondly, in any event the investors all had a shared understanding of the essential features of the schemes that bring them within section 235(1) and that I have stated in paragraph 71 above.
- Next, Mr Coppel argued that the investors did not enter into anything that constitute arrangements within the meaning of section 235(1). While accepting that there does not have to be a contractual agreement in order for there to be arrangements, he submitted that there cannot be arrangements unless there is a shared understanding, and so disputed the FSA's case that there were arrangements in that, because of what they were told by brokers and other sales-people, investors understood that Asset Land would improve the prospects for development of the land and arrange its sale. As Mr Coppel put it, unilateral understandings or misunderstandings cannot found "arrangements", and there must be "some sort of mutual expectation of adherence to what those involved have planned".
- I accept that a (mis)understanding or expectation held by only one person involved in a matter does not amount to an "arrangement" about it. But there can be an "arrangement" without both (or all) parties sharing an intention or expectation (just as a person can make a contract without intending to keep it). The FSA's case, that I have upheld, is not that there would be arrangements if investors simply leapt to their own understanding about their investments or misunderstood what they were being told: it is that the investors' understanding was based, and reasonably based, on what they were told by Asset Land's representatives. Thus, arrangements were made even if Asset Land had no intention of acting in accordance with them and even if their representatives knew this when they made the arrangements. Mr Coppel accepted that a fraudulent scheme can be an arrangement, but explained this on the basis that the parties to it have "mutual expectations", the fraudulent party expecting the innocent party to adhere to it and the innocent party likewise expecting the fraudulent party to do so. I reject that argument; the parties to a fraudulent scheme do not have an arrangement because of such mutual expectations or because of any subjective expectations or intentions, but because of what they have arranged objectively.
- This leads to Mr Coppel's next argument, based on what I have called the "non-contractual disclaimers": that objectively the parties cannot be said to have made arrangements because of what was said in the footers to Asset Land's letters and elsewhere. I reject the argument: I accept that the footers stated that Asset Land did not "pursue re-zoning or planning permission" (although they said nothing to displace what the investor had been led to understand about how the land was to be sold and the statement that planning permission was not guaranteed did not contradict what the investors were told about the "arrangements"). But the footers were verbose and not prominently presented: it is only realistic to recognise that many investors of the kind with whom Asset Land dealt would not have read them, and many would not have understood them if they did. Asset Land must have known that. Those who asked about the disclaimers were reassured that they did not change the scheme presented to them. It was explained to some that Asset Land would have to engage Greenwood Bell to deal with the planning authorities, and so the footer was (literally) accurate. Investors cannot be regarded as unreasonable if they accepted such assurances, even if they recognised some of what the brokers had told them about the likely level of returns as sales hyperbole. The investors reasonably continued to rely on what they had been told.
- Nor do I accept that those investors who received brochures or other sales literature such as I have described at paragraph 62 should reasonably have had a different understanding of the investment from that presented to them by the brokers. I recognise that the brochures said that investors could sell their plots themselves or through an agent or developer, but the whole structure of the scheme called for plots to be sold together and this could be coordinated only by Asset Land. What the brochures said about the "choices available" to investors could not sensibly be understood to suggest otherwise.
- I should refer specifically to the footer at the bottom of the check-box form, because investors typically acknowledged that they had read and understood it and accepted its terms and conditions. They did so only after making the arrangements with Asset Land that I have described. In so far as the represented defendants deny that there were arrangements falling within section 235 because investors signed the check box form, first the disclaimer on the form is consistent with Asset Land arranging (or seeking to arrange) for the development prospects for the sites being enhanced by a consultant such as Greenwood Bell; and secondly I do not consider that an agreement of this kind would displace the arrangements that had been made, any more than they were displaced by the terms of the legal contract, the basis of Mr Coppel's other main argument that there were no arrangements within section 235. I have already decided that the argument based on the contracts cannot succeed because of the proper interpretation of the representations clause and the services clause, but in any case it would not, in my judgment, assist the defendants.
- While it is common ground that "arrangements" are not of necessarily legally binding agreements (although agreements are a species of arrangements and contracts are a sub-species of agreement), Mr Coppel submitted that Asset Land and its investors cannot have entered into arrangements that were contradicted by their contracts or inconsistent with them. I cannot accept this argument: it is, in my judgment, wrong to regard arrangements (either in the context of section 235 or more generally) as inchoate or imperfect contracts that are displaced if the parties enter into a different (perhaps superior) form of understanding, a contract. People do not live their lives only by reference to their legal rights, and often manage their affairs, and make arrangements, on the basis that the legal framework in which they operate will not be invoked, or is unlikely to be invoked. Much business is done on this basis: Mr Donnelly, for example, understood that Asset Land made disclaimers that might protect it in the event of matters "going legal" (in his words), but he was not troubled because he expected his investment to operate in accordance with his arrangements with Asset Land and without matters "going legal". Non-legal arrangements are commonly made in parallel with legal contracts: they do not operate only outside territory occupied by contractual arrangements. Nor are non-contractual arrangements and contracts "inconsistent" if they express differences about what the parties are to do: they operate on different levels and the parties to an arrangement can reasonably expect that nobody will abide by the letter of the contract except in the unlikely event that one party decides to stand on his rights. Non-contractual arrangements do not fall within section 235 only where there is no contract; indeed it is difficult to envisage circumstances in which there would be a CIS without participants entering into a contract, but the section is worded to include their parallel non-contractual arrangements.
- The FSA had another answer to this point: even if it be supposed that the written contracts displaced inconsistent arrangements that had previously been made, Asset Land nevertheless contravened FSMA in that it carried on activities that comprised CISs until the contracts were made. I do not consider that the FSA needs to rely on this argument, and prefer not to put my decision on this basis.
- There is another question. If I am right that there were arrangements, was the purpose or effect of them to enable those taking part in them to participate in or receive profits or income arising from acquiring, holding, managing or disposing of the property? Mr Coppel submitted that, although the value of the land would have increased if it was re-zoned and increased the more if planning permission was granted, this unrealised increment in value would not constitute profits or income within the meaning of the section. But even if this is so, the purpose of the investors' arrangements with Asset Land was to enable them to participate in profits from acquiring the land and then disposing of it when its value had been so increased.
- Of course a few investors such as Ms de Montes and her partner did not plan to sell their plots and realise profits from them, but they still participated in arrangements that fall within section 235(1): this depends on the nature of the arrangements in which the participants were involved taken as a whole, and not on the intentions of individual participants. The purpose of the schemes, as presented by Asset Land, was to enable all investors (including any such as Ms de Montes) to receive profits from their acquisitions when they sold them, and that means that the arrangements are within section 235(1): the investors' own plans are irrelevant.
- The second issue is whether, if there were arrangements within section 235(1), they were such as to mean that the investors did not have day-to-day control over the management of the property, whether or not they had the right to be consulted or to give directions: see section 235(2) of FSMA. Under Asset Land's schemes the investors did not have day-to day control over the management of the property. This is clearly so if I am right that the "property" in this case is the site where each investor invested in a plot or plots: none of them had any control over the site as a whole. But even if I am wrong about this and the relevant property in the case of each investor is his own plot or plots, I would still conclude that section 235(2) does not prevent the arrangements that Asset Land made being CISs.
- Whether the "property" be each site or each plot, the arrangements depended on the sale of land: that is where the investors' profit was to come from. The key features of management of an investment of this kind are those to do with enhancing the value of development status of the land before sale, deciding on when, how, to whom and at what price it should be sold and distributing the proceeds between investors. The arrangements were that Asset Land was to manage these matters. Of course, as Mr Coppel submitted, once an investor owned a plot, (s)he had the right to deal with it by way of selling it, leasing it, mortgaging it, occupying it and so on. Equally investors were entitled to apply for planning permission or to approach the planning authorities for the plot or the site to be re-zoned for development: nobody needs property rights to do so. But section 235(2) is not about what legal rights investors had over their plots. First, as Hamblen J said in the InnovatorOne case (loc cit at para 1170), it is not sufficient that investors were in a position to decide what to do with their plots: while section 235(2) refers to participants not "hav[ing] day-to-day control", the subsection is directed to having actual control, and requires that the investors "must actually exercise that control sufficiently to be regarded as being in effective control". Secondly, as David Richards J emphasised in the Re Sky Land Consultants case (loc cit at para 76) section 235(2) is about what the arrangements were and "the reality of how [they] are operated". In reality the arrangements described by Asset Land's representatives and therefore contemplated by the investors could not work if investors in fact exercised the rights to which Mr Coppel referred.
- Again, it is no answer that some investors in the position of Ms de Montes planned to build on their sites and so have day-to-day control of them, even if their arrangements with Asset Land reflected this. Sub-section 235(2) is satisfied only if all the participants have day-to-day control over the management of the property, and it does not matter that one or some of them do: see Russell-Cooke Trust Co v Elliott and ors (16 July 2001, unreported, Ch D) at para 26, cited with approval in FSA v Fradley and anor, [2005] EWCA Civ 1183 at para 46. Unless the arrangements are such that all participants have such control, the condition in section 235(2) is met even as regards those who do.
- The arrangements that Asset Land made with investors satisfied the requirement for a CIS specified in section 235(2).
- The third issue is whether the arrangements were such that the property was managed as a whole by or on behalf of the operator of the scheme, within section 235(3)(b) of FSMA. Like section 235(2), section 235(3) is about the arrangements and is directed to whether they had the "characteristics" specified in section 235(3)(a) or 235(3)(b): FSA relies only on section 235(3)(b). As I have said, the essential nature of the schemes was that plots were investments, and the plan was that they were to be sold as part of the sites after their value had been enhanced through planning permission or the prospect of development after re-zoning. The "management of the property" relevant for identifying the "characteristics" of the arrangements is therefore, as I see it, management directed to what David Richards J called in the Sky Land Consultants case at para 78, the "long term goals". The arrangements were that Asset Land would deal with those management matters and the whole structure of the schemes made it obvious that only Asset Land would do so and realistically investors could not do so. (This is so whether the "property" be the sites or the individual plots.)
- I therefore conclude that the condition in section 235(3) was satisfied in relation to Asset Land's schemes. It follows that in my judgment the schemes were CISs.
- Next, "Which (if any) of the corporate Defendants established and/or operated [a CIS], or purported to do so, in contravention of the general prohibition in section 19 of FSMA? In deciding who operates a CIS, the question is who has responsibility for managing the property as a whole. Clearly (and as the represented defendants do not, I think, dispute) ALI-UK operated the schemes for the South Godstone and Liphook sites and ALI-Panama operated them for those at Newbury, Lutterworth, Harrogate and Stansted. They were therefore in breach of the general prohibition in section 19 of FSMA in doing so.
- Which companies (if any) communicated (whether directly or by authorised representatives), in the course of their business, invitations or inducements to participate in a CIS (or CISs) so as to be in breach of section 21 of FSMA? In the course of its business ALI-UK (through brokers or other representatives) communicated invitations and inducements to participate in its two schemes, and ALI-Panama did so for its four schemes. They therefore contravened section 21 of FSMA.
- The sixth issue that I am to determine is this: which (if any) of the Defendants were knowingly concerned in contravention of section 19 and/or section 21 of FSMA by another defendant? The FSA submits that both Mr Cohen and Mr Banner-Eve were "knowingly concerned", within the meaning of section 380(1) of FMLA, in the contraventions of both ALI-UK and ALI-Panama in respect of all six schemes. It is clear, in view of my conclusions of fact, that both were directly concerned in the activities of ALI-UK and ALI-Panama whereby the companies were in breach of FMLA. Mr Banner-Eve could not dispute and did not dispute that he was so concerned in the activities of ALI-UK of which he was a director (see Burton v Bevan, [1908] 2 Ch 240), and, as I have held, he was equally concerned in the activities of ALI-Panama, of which he was a "director in all but name" (as it was put by Ms Siggins, whose hearsay evidence about this I accept). Mr Cohen was a director of ALI-Panama, but he was actively concerned in the activities of both companies that constituted breaches of FMLA: indeed he was, as Mr Banner-Eve explained and I accept, responsible for their sales and managing their brokers.
- A person can be "knowingly" concerned within the meaning of section 380 only if (s)he has the requisite actual knowledge: SIB v Pantell (No 2), [1993] Ch 256, 283G per Steyn LJ. Knowledge that the activities contravened the statute is irrelevant: what matters is knowledge of "the facts which made the act complained of a contravention of the statute": SIB v Scandex Capital Management, [1998] 1 WLR 712, 720G.
- I have explained that I conclude that Mr Banner-Eve knew the basis on which plots were marketed to investors by both companies, and the arrangements made with them. I conclude that he was knowingly concerned in the contraventions.
- I reach the same conclusion about Mr Cohen. The evidence in his case does not, as I have said, include any documents in the agreed bundles: he and ALI-Panama did not agree bundles for the trial, and the FSA cannot rely against them on CPR 32PD 27. I recognise this in considering whether it has established to the requisite standard Mr Cohen's knowledge and other parts of its case against him and ALI-Panama. However, in my judgment it has done so: first, given Mr Cohen's role, explained by Mr Banner-Eve, in managing the brokers for both ALI-UK and ALI-Panama, it would be surprising if he did not know how they were marketing plots. Secondly, there is the evidence of Ms de Montes and Mr Mansfield of what Mr Cohen said to them. Mr Cohen's knowledge of how the schemes were marketed and so of the arrangements that were being made is further demonstrated by emails that Mr Banner-Eve confirmed were sent and so are established by evidence at the trial: I refer by way of example to those explained at paragraph 150
- The represented defendants argue by their estoppel defence that the FSA represented in its letter of 15 November 2008 that it would bring to an end the investigation into the business that ALI-UK had done in the past on a stated basis as to how Asset Land would conduct itself in relation to future sales, and ALI-UK and Mr Banner-Eve acted in reliance on this. According to Mr Banner-Eve, as far as he is aware ALI-UK and its representatives have not since 15 November 2008 sold plots to investors on any other basis. There are four questions:
- Mr Banner-Eve's evidence was that, but for what the FSA wrote, ALI-UK would have not have continued to market plots, and he would not have allowed them to do so. Although I am sceptical about this evidence, it is not contradicted and I accept it.
- The FSA stated in the letter:
- ALI-UK did not offer all those who had bought a plot by November 2008 the choice stated in the letter; it offered the choice to the 64 investors who had bought by April 2007 (when the FSA first wrote to ALI-UK), and by November 2008 many more had bought. Apparently Mr Wisker and Mr Lipman were among those who, having bought from ALI-UK between April 2007 and November 2008, did not receive an offer. (In its opening, the FSA said that by 5 December 2008, ALI-UK sold 319 plots in South Godstone and 12 plots at Liphook, but it does not matter how many additional plots had been sold.) Mr Banner-Eve explained that he understood that the FSA expected ALI-UK to offer the choice only to investors who had bought plots before the changes made in accordance with the advice of S J Berwin. I accept that that was his genuine understanding and it had a reasonable basis: after the changes, investors were sold an "enhanced" plot. However, as I have said, on 8 July 2008 S J Berwin wrote to the FSA that, according to their instructions, there was "a total of 64 plot owners". I conclude that this was a genuine mistake resulting from some misunderstanding between S J Berwin and ALI-UK, and as a result ALI-UK did not comply with the first condition of the FSA's letter. Nor, as I have concluded, did it comply with the second condition. Therefore the estoppel defence must be rejected.
- The law recognises an estoppel by representation only if there has been a clear and unambiguous representation of fact which was of a nature to induce the person invoking the estoppel to act (or not to act) in reliance upon it and was so intended to induce this. The FSA submits that its letter does not amount to such a representation because it reserved "the rights to make future enquiries should new information come to our attention suggesting that ALI may have acted, or be acting, in breach of [FSMA]". I do not accept that this qualification in itself introduces any uncertainty or ambiguity that would have prevented an argument of estoppel if ALI-UK had not so acted, but since I conclude that it acted in breach of FSMA after (as well as before) receiving the letter, I need not consider that question further.
- For this reason I also consider only briefly the FSA's submission that an estoppel cannot defeat a claim of this kind made for breach of the FSMA because "The objective of estoppel may not be intended to render valid a transaction which the legislation has, on grounds of general public policy, … is to be invalid" (per Robert Walker LJ in Yaxley v Gotts, [2000] Ch 162, 172-173), or more generally where "the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some sections of the public" (per Visc Radcliffe in Kok Hoong v Leong Cheong Kweng Mines, [1964] AC 993, 1116). The FSA submits, and I accept, that a purpose of the relevant provisions of FSMA is the protection of investors and they represent a social policy of protecting investors against specified operations of unauthorised persons, and I am inclined to accept that therefore the law would not recognise the estoppel invoked by the represented defendants. But I need not and do not put my decision on that basis.
- I have not dealt with Mr Prosser's last issue for determination at this trial: what (if any) relief should be granted by the Court, and in this regard (i) on what basis should any accounts and inquiries under sections 380/382 be taken; and (ii) what (if any) further directions should be made as to the resolution of any further issues required to be determined in order for any accounts or enquiries under sections 380/382 to be taken. The FSA seeks declarations that ALI-UK and ALI-Panama contravened sections 19 and 21 of FSMA and that Mr Banner-Eve and Mr Cohen were knowingly concerned in the contraventions of both companies. They are entitled to appropriately worded declarations. They also seek injunctive relief, and I shall invite submissions about what injunctive relief is justified and reasonably required, about what inquiries and accounts should be ordered and about whether I should direct interim payments pending accounts and inquiries.
- I therefore uphold the FSA's complaints. I should be grateful for the assistance of counsel in determining the appropriate relief and drafting an order to give effect to this judgment.
Mr Justice Andrew Smith:
Introduction
"Land was acquired by ALI-UK and ALI-Panama, and sub-divided into small plots. Members of the public were contacted by telephone and invited to purchase such plots. The evidence obtained by the FSA establishes that, at the time that plots were sold to consumers, salesmen acting for ALI-UK and ALI-Panama represented to consumers that those companies would seek to obtain planning permission in respect of the site as a whole, or otherwise seek to have the site 're- zoned' or 're-classified' for residential building purposes. The evidence also establishes that salesmen informed consumers that ALI-UK and ALI-Panama would facilitate the onward sale of the site as a whole to developers, at which point consumers could expect to see a substantial return on their 'investments'. Based upon these representations, consumers understood that ALI-UK and ALI-Panama would apply for planning permission for the site as a whole and/or that ALI-UK and ALI-Panama would facilitate the sale of the site as a whole to developers, and that they would thereby derive profits from the scheme as a whole, and on the basis of these representations and understandings they acquired plots of land at the various sites concerned."
The statutory provisions
"The FSMA is a portmanteau statute dealing with all kinds of investment activity, not just activities in traditional investments such as securities. The former system of self-regulation in specific areas has been abolished. Instead, the demanding function of regulating the numerous and disparate activities that take place in the financial services industry in the United Kingdom is now vested in the FSA pursuant to FSMA. Under section 2(2) of FSMA, the regulatory objectives of the FSA are market confidence, public awareness, the protection of investors and the reduction of financial crime. In discharging its functions the FSA has to have regard to a number of factors, including the principle that the burden placed on a person should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction. To enable the FSA to regulate the many different types of activity in the financial services industry, section 19 of FSMA … imposes a general prohibition on the carrying on of regulated activities (as defined in section 22 of the FSMA, …) without authorisation or exemption. Regulated activities include the operation of … a "CIS". This concept is defined in section 235 of FSMA … . At the heart of the concept … is the requirement for the sharing of profit or income by participants who do not have day-to-day control over the management of the property. A paradigm example of a CIS would be a unit trust, but the definition applies in many more situations than that. The general prohibition in section 19 on unauthorised investment activity is buttressed by a number of other prohibitions, including a prohibition on the promotion of invitations to engage in financial activity unless authorised (section 21 …). Finally, the FSA is empowered to seek injunctions to restrain anticipated breaches of the basic prohibition in section 19, and also orders for the disgorging of profits by persons who have contravened FSMA and the payment by them of compensation to persons who have been adversely affected by their contraventions (sections 380 and 382 of FSMA)."
Section 19: The general prohibition
"1) No person may carry on a regulated activity in the United Kingdom, or purport to do so; unless he is -
(a) an authorised person; or
(b) an exempt person.
(2) The prohibition is referred to in this Act as the general prohibition."
Section 21: Restrictions on financial promotion
"(1) A person ("A") must not, in the course of business, communicate an invitation or inducement to engage in investment activity.
(2) But subsection (1) does not apply if -
(a) A is an authorised person; or
(b) the content of the communication is approved for the purposes of this section by an authorised person.
…
(8) "Engaging in investment activity" means -
(a) entering or offering to enter into an agreement the making or performance of which by either party constitutes a controlled activity; or
(b) exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment.
(9) An activity is a controlled activity if -
(a) it is an activity of a specified kind or one which falls within a specified class of activity; and
(b) it relates to an investment of a specified kind, or to one which falls within a specified class of investment.
(10) An investment is a controlled investment if it is an investment of a specified kind or one which falls within a specified class of investment.
…
(13) "Communicate" includes causing a communication to be made.
(14) "Investment" includes any asset, right or interest.
(15) "Specified" means specified in any order made by the Treasury."
By article 4(1) and schedule 1, the FSMA Financial Promotions Order 2005 (S/I 2005/1529) provides that dealing in securities is a controlled activity. Paragraphs 19 and 28 of the schedule define securities as including units in a CIS, and by article 4(2) of the Order units in a CIS are controlled investments.
Section 22: The classes of activity and categories of investment
"(1) An activity is a regulated activity for the purposes of this Act if is an activity of a specified kind which is carried on by the way of business and -
(a) relates to an investment of a specified kind; or
(b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind.
…
(4) "Investment" includes any asset, right or interest.
(5) "Specified" means specified in an order made by the Treasury…"
The Financial Services and Markets Act (Regulated Activities) Order, 2001 (the "2001 Order") provides by articles 4(2) and 51(1)(a) that establishing, operating or winding up a CIS is an activity a specified kind for the purposes of section 22(1)(a) and by articles 73 and 81 units in a CIS are a specified kind of investment.
Section 23: Contravention of the general prohibition
"(1) A person who contravenes the general prohibition is guilty of an offence and liable –
(a) on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both;
(b) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine, or both…"
Section 26: Agreements made by unauthorised persons
"(1) An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party.
(2) The other party is entitled to recover –
(a) any money or other property paid or transferred by him under the agreement; and
(b) compensation for any loss sustained by him as a result of having parted with it."
Section 235: Collective investment schemes
"(1) In this Part "collective investment scheme" means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.
(2) The arrangements must be such that the persons who are to participate ("participants") do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.
(3) The arrangements must also have either or both of the following characteristics -
(a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled;
(b) the property is managed as a whole by or on behalf of the operator of the scheme…"
Section 380: Injunctions
"(1) If, on the application of the Authority …, the court is satisfied -
(a) that there is a reasonable likelihood that any person will contravene a relevant requirement, or
(b) that any person has contravened a relevant requirement and that there is a reasonable likelihood that the contravention will continue or be repeated,
the court may make an order restraining … the contravention.
(2) If on the application of the Authority … the court is satisfied -
(a) that any person has contravened a relevant requirement, and
(b) that there are steps which could be taken for remedying the contravention,
the court may make an order requiring that person, and any other person who appears to have been knowingly concerned in the contravention, to take such as the court may direct to remedy it.
(3) If, on the application of the Authority …, the court is satisfied that any person may have -
(a) contravened a relevant requirement, or
(b) been knowingly concerned in the contravention of such a requirement,
it may make an order restraining … him from disposing of, or otherwise dealing with, any assets of his which is it satisfied he is reasonably likely to dispose of or otherwise deal with.
…
(5) In subsection (2), references to remedying a contravention include references to mitigating its effect.
(6) "Relevant requirement"-
(a) in relation to an application by the Authority, means a requirement-
(i) which is imposed by or under this Act … ."
Section 382: Restitution orders
(1) The court may, on the application of the Authority …, make an order under subsection (2) if it is satisfied that a person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and-
(a) That profits have accrued to him as a result of the contravention; or
(b) That one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention.
(2) The court may order the person concerned to pay to the Authority such sum as appears to the court to be just having regard-
(a) in a case within paragraph (a) of subsection (1), to the profits appearing to the court to have accrued;
(b) in a case within paragraph (b) of that subsection, to the extent of the loss or other adverse effect;
(c) in a case within both of those paragraphs, to the profits appearing to the court to have accrued and to the extent of the loss or other adverse effect.
…
(9) "Relevant requirement" -
(a) in relation to an application by the Authority, means a requirement-
(i) which is imposed by or under this Act … ."
The defendants
i) ALI-Panama was incorporated in Panama on 9 or 13 March 2007 (the documentation appears inconsistent about the date, but it is of no consequence). The FSA says that, in the course of carrying on business in England between 2008 and 2011, it acquired sites of agricultural land at (among other places) Newbury in Berkshire, Stansted in Essex, Lutterworth in Leicestershire and Huby near Harrogate in North Yorkshire, and sold plots on the sites to investors.
ii) Equity Services (London) Limited ("ESL") was incorporated in England and Wales on 28 April 2008. It provided administrative services for ALI-Panama and was paid for doing so.
iii) ALI-UK was incorporated in England and Wales on 26 April 2005. The FSA says that, in the course of carrying on business in England between 2006 and 2008, it acquired sites of agricultural land at South Godstone in Surrey and Liphook in Hampshire and sold plots on the sites in investors. (The FSA's pleading also refers to ALI-UK selling plots at Moreton Pinkney in Northamptonshire, but no allegations of breach of the FSMA or other claim are made about that site.)
iv) Mr Stuart Cohen has since 2007 been the President and Secretary of ALI-Panama and one of its directors. According to the FSA he is and was also its beneficial owner.
v) Mr David Banner-Eve is and has at all relevant times been a director and shareholder of ALI-UK and controlled the activities of ALI-UK on a day-to-day basis. The FSA alleges that he also acted as a shadow director of ALI-Panama or was concerned in its management, but Mr Banner-Eve denies this.
vi) Ms Susan Siggins is and at all relevant times since its incorporation has been the sole director and sole shareholder of ESL. Since about early 2006 she had worked for ALI-UK as an ad hoc administrator at its offices at 7 Old Park Lane, London W1 (the "Mayfair office"). She had a relationship with Mr Cohen from 1984, and they have two adult children. Apparently the relationship ended in around 2006.
Many investors (and others) did not distinguish between ALI-Panama and ALI-UK: representatives often simply said that they were from Asset Land, and they did not say and investors did not know which company they represented. I shall often simply refer to Asset Land in my judgment, meaning whichever company was involved in the transaction in question or sometimes both companies.
The proceedings
The standard of proof
The evidence
i) Ms Juliet Prior, who with her husband bought at the Lutterworth site a plot of 1,000 square feet for £15,000 and a "half-plot" of 500 square feet for £7,875. She was contacted in March or April 2011 by a Mr Nicholas (Nick) Walton and spoke to him several times over two months or so before she agreed to buy. She paid for the plots in June and July 2011.
ii) Mr Austin Millington, who with his wife bought a plot at the Harrogate site for £14,547, two plots at the Lutterworth site for £11,750 and £8,125, a plot at Newbury for £12,700 and a plot at Stansted for £10,250. He was first contacted in early 2010 by a Mr Philip Draper of Asset Land, and they spoke about six times before he first agreed to buy. He later dealt with a Mr Jason Wood. He paid for the plots between July and November 2010
iii) Mr Eric Broadwith, who arranged to buy (alone or with his partner or through his self-invested pension plan) seven plots at Harrogate for £111,189. Initially he arranged to buy at Lutterworth, but withdrew and was repaid at least most of his money. He was first contacted about Lutterworth in February 2009 by a representative who introduced himself as "Vince", and was contacted about Harrogate in March 2012.
iv) Ms Savira Patel, who with a friend bought a plot at Newbury for £16,000. She was first contacted in late 2009 by a Mr Walter Jarc, and spoke to Asset Land 10 to 15 times before she agreed to buy. She paid for the plot in around September and October 2010.
v) Mr Jonathon Atherton, who was first contacted in July 2009 by Mr Wood and agreed to invest after six or seven conversations. Initially he intended to buy four plots at Lutterworth, but in the event he bought two Lutterworth plots for £12,000 each from ALI-Panama and one at South Godstone for £11,288 from ALI-UK. He paid for them between July and September 2009. Asset Land later agreed to buy back the Lutterworth sites for what Mr Atherton had paid, but he could not recover his money for the South Godstone site.
vi) Mr Alex Beckman, who bought a plot at Newbury for £18,000, two plots at Lutterworth for £14,400 and £15,230, two plots at Harrogate for a total of £26,000 and another for £15,230. He made initial payments on other plots, but withdrew from those purchases and had his money refunded. He was approached by Mr Jordan Greening in January or February 2010, and started to pay for plots in May 2010.
vii) Ms Esjae Williams-Gormlie, who bought a plot at Lutterworth for £24,200. She was looking to buy land in Kent because she wanted to live there, and she recorded her interest on a website. She was contacted by a Ms Donna Keets of Asset Land, who said that it had no land in Kent, and suggested investing elsewhere so that she could later use the profits to "realize [her] dream of buying land in Kent". She paid for the plot in December 2009 and January 2010. Her husband later bought a half-plot at Newbury, and paid £8,395 for it.
viii) Mr Kim Wisker, who bought a plot from ALI-UK at South Godstone, paying £10,079 for it in September and October 2007. He and his wife also bought a plot from ALI-Panama at Lutterworth for £12,000, for which he apparently paid in about October 2009. He was first contacted in August 2007 by a Mr Thomas Hanlon and Ms Victoria Calladine, who sometimes used the name Victoria Banner-Eve and is Mr Banner-Eve's adopted daughter.
ix) Ms Olgah Chirimuta, who bought a plot at Lutterworth for £16,500, but later switched to an investment (apparently an increased investment) at Newbury. She was first contacted by Asset Land in August 2010 after her aunt had introduced her and Mr Jason Wood approached her. She paid for the proposed Lutterworth plot in August and September 2010 and made further payments after the switch to Newbury in instalments between October 2010 and March 2011.
x) Mr Nicholas Lipman, who bought from ALI-UK three plots at South Godstone for a total of £30,000 and one plot at Liphook, and bought from ALI-Panama one plot at Lutterworth for £19,760. (In March 2008 he had bought for £14,000 a plot at the site at Moreton Pinkey, but at Asset Land's suggestion in February 2009 he exchanged it for one at Liphook.) He also arranged to buy from ALI-Panama a plot at Newbury for £16,830 and paid a deposit of £2,000, but refused to pay more until another of his plots had been sold, which never happened. His first dealings with Asset Land were in July 2007, when he spoke to a Mr Peter Collins. He paid for the South Godstone land in January and February 2008 and his last payment was the deposit for the Newbury plot in March 2010.
xi) Ms Helen de Montes, who with her partner bought from ALI-Panama two plots at Newbury for £40,392 and five plots at Harrogate for £75,025. Their purpose was to buy land at the Harrogate site in order to build a home and their first dealings were with Mr Cohen in January and February 2011. He told them that they could buy at Harrogate only if they also bought land at Newbury as an investment, which they could sell at a profit in order to fund the building works at Harrogate. They paid for the plots between February and September 2011.
xii) Mr David Charnley, who, sometimes with friends, bought four plots of land at Lutterworth for £22,260, £9,880, £25,000 and £9,950. He first dealt with Asset Land in 2008 and paid them in December 2008 and in 2009.
xiii) Mr Brendan Donnelly, who arranged initially to buy a plot at Newbury but then instead bought a Lutterworth plot for £7,625. He first spoke with a man from Asset Land called "Carl" in April 2011 and paid a deposit, intended for the Newbury plot, in May 2011.
xiv) Mr Martin Francis, who bought from ALI-UK two sites at Liphook for £9,945 and £8,300 and from ALI-Panama two sites at Lutterworth for £12,000 and £19,500. A Mr Rubert Button approached him in July 2008 and he paid for the sites between July 2008 and October 2011.
i) Mr Roddy Mansfield, who is a reporter employed by BSkyB Limited ("BSkyB") and in April 2012 posed as a would-be investor in order to report about land-banking.
ii) Mr Arthur Hedges, a Chartered Town Planner and a partner with a Mr David Smith in the firm of Arthur J Hedges-Planning, who have offices in Newbury, Berkshire. He was engaged by Asset Land in relation to the Newbury site.
iii) Mr Paul Brettell, a Development Consultant and director of Greenwood Bell Limited, who have offices in Hertfordshire. He met Mr Banner-Eve in about 2004 or 2005 and was engaged by Asset Land initially in relation to the South Godstone site and then the sites at Lutterworth, Newbury, Harrogate and Stansted.
iv) Mr David Edwards, an associate investigator working for the FSA. Mr Coppel objected to parts of his witness statements being put into evidence, but the real purpose of his evidence was for him to produce documents that he had exhibited to them.
i) Because they called no investor to give evidence, that the dealings described by the investors called by the FSA were typical of what others were told and how they came to buy plots.
ii) Because they called no broker or employee, that the evidence of the investors was reliable; and what they were told was typical of what Asset Land's brokers and sales-people told others.
iii) Because they called no broker or employee, that they knew what investors were being told and authorised it.
"(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.
(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.
(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.
(4) If the reason for the witness's absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified."
The issues
i) Did there exist arrangements with respect to property (whether such property comprises plots of land at the land sites at South Godstone, Liphook, Newbury, Stansted, Lutterworth and Harrogate ("the Sites") and/or the Sites themselves), the purpose or effect of which was to enable persons taking part in the arrangements ("the Participants") to participate in or receive profits arising from their acquisition, holding, management or disposal of such property, within the meaning of section 235(1) of FSMA? If so, what were those arrangements? What is the "property" for the purposes of section 235(1)?
ii) If there were such arrangements, were those arrangements such that the Participants did not have day-to-day control over the management of the property, whether or not they had the right to be consulted or to give directions, within section 235(2) of FSMA?
iii) If so, were the arrangements such that the property was managed as a whole by or on behalf of the operator of the scheme, within section 235(3)(b) of FSMA?
And if (i), (ii) and (iii) are satisfied:iv) Which (if any) of the corporate Defendants established and/or operated a scheme (or schemes) with the characteristics described in issues (i), (ii) and (iii) above, or purported to do so, in contravention of the general prohibition in section 19 of FSMA?
v) Which (if any) of the corporate Defendants communicated (whether directly or by authorised representatives), in the course of their business, invitations or inducements to participate in a scheme (or schemes) with the characteristics described in issues (i), (ii) and (iii) above, in breach of section 21 of FSMA?
vi) Which (if any) of the Defendants were knowingly concerned in a contravention of section 19 and/or section 21 of FSMA, as described in issues (iv) and (v) above, by any of the other Defendants?
vii) What (if any) relief should be granted by the Court, and in this regard:
a) On what basis should any accounts and inquiries under sections 380/382 be taken?b) What (if any) further directions should be made as to the resolution of any further issues required to be determined in order for any accounts or enquiries under sections 380/382 to be taken.
However, during the trial further issues arose because I permitted the represented defendants to plead what I shall call a disclaimer defence, an authority defence and an estoppel defence, and I also determine these.
The application to adduce hearsay evidence from Ms Siggins' interview
Abuse of process
"... From [your letter dated 8 October 2008] and previous correspondence we note that ALI has contacted all existing plot holders and:
(a) offered them a choice to either exchange their current plot for 'enhanced plot' or sell their existing plot back to ALI for the price paid plus interest;
(b) advised all existing plot holders that ALI was unable to apply for redesignation on their plot; and
(c) restructured its activities in an attempt to take its activities outside the definition of a collective investment scheme.
On the basis of your explanation of the current activities of ALI and the information currently in the FSA's possession on this matter, we accept that ALI may be unlikely to have breached the general prohibition in section 19 or the financial promotion restriction of section 21 of the Act. For these reasons, and based solely on the information currently in our possession, we do not propose to seek any further information from you in this matter.
In order to continue not to be in breach of sections 19 and 21 of the Act it is fundamental that ALI adheres to the description of its activities which you have provided us and that no expectation is given to any of the plot holders that ALI will in any way have any involvement in:
(a) seeking designation of the land for development; or
(b) obtaining planning permission by plot holders, either individually or collectively; or
(c) the management of the plots of land owned by the other plot holders.
In writing to you in this manner, the FSA reserves the right to make further enquiries should new information come to our attention suggesting that ALI may have acted, or be acting, in breach of the Act…"
"As for the second question which you raise and wish to decide as a preliminary issue, we do not consider this point to be in dispute. The purpose of referring to the arrangements entered into by Asset Land Investments prior to November 2008 was to provide relevant background to the FSA's case that the Defendants were knowingly concerned in each others' activities following the FSA's intervention in 2008. This information was not included so that the FSA may hold your clients liable for transactions which took place prior to that date."
I was told by Mr Coppel and accept that but for this assurance the represented defendants would have applied at the PTR for this preliminary issue.
"There is one further matter that ought to be addressed at this stage regarding ALI-UK. In their Part 18 Request, ALI-UK and Mr Banner-Eve ask for details as to the date from which the FSA contends that the contravening activity commenced. In correspondence, the FSA has indicated that the relevant date is 15th November 2008 (being the date of the letter sent by the FSA closing its initial investigation into ALI-UK). By way of clarification, it is the FSA's position that CISs were being operated with respect to the South Godstone and Liphook Sites from early 2007, and it is as a result of such contraventions that the FSA first wrote to ALI-UK on 3rd April 2007. In spite of the warnings given by the FSA, and the assurances provided by S J Berwin on ALI-UK's behalf, it is the FSA's case ALI-UK continued to operate CISs at those Sites (in breach of both sections 19 and 21 of FSMA). Notwithstanding the foregoing, the FSA does not seek any financial relief within this claim for contraventions made by ALI-UK in the period preceding 1st January 2008."
The date of 1 January 2008 was adopted to allow ALI-UK a reasonable time to adjust its modus operandi after 3 April 2007.
"It is the [represented] Defendants' case that, in respect of the plots at South Godstone sold prior to 15 November 2008, it is not open to the FSA to resile from its representations to SJ Berwin during 2008. It was as a result of the FSA's encouragement that the [AIL-UK] offered alternative plots and refunds of purchase price. It did so to its financial detriment and in the expectation that a line would be drawn under those transactions. Regardless of what happened after 15 November 2008, what took place up until then cannot be relied upon by the FSA as part of the "arrangements" to make up a claim under s 235 of FSMA. This has been recognised by the FSA, who wrote on 19 September 2012 … [and they cited from the letter set out above].
In relation to the limited number of plots at the South Godstone site that it sold after 15 November 2008, [ALI-UK] adhered to the requirements of the FSA. Again, it is not open to the FSA to resile from its representations to SJ Berwin during 2008. [ALI-UK] was entitled to rely on those representations."
Re-amendment of the defence
i) That the parties' agreement is contained in contracts signed by investors when buying plots and not in any oral statements or representations or understandings formed by the investors. They also sought to plead that the FSA's case is answered by disclaimers in "footers" to Asset Land's correspondence with investors, in "check-list" forms completed by investors when they signed and returned to Asset Land their contracts to buy plots, and in brochures and other material sent to some investors before they agreed to buy plots. Therefore, it is said, such oral statements or representations and any resultant understandings were no part of any arrangements between Asset Land and investors. If the investors so understood the position, they could not reasonably have done so and were mistaken.
ii) If brokers or sales-people made statements or representations as the FSA alleges, they had no authority to do so, and were disobeying their instructions and ignoring warnings given to them by Mr Banner-Eve. In 2006 and 2007 Mr Cohen was responsible for instructing, training and supervising ALI-UK's brokers: Mr Banner-Eve understood that he instructed them not to make statements such as those alleged by the FSA, and had no reason to believe otherwise. Accordingly the represented defendants are not responsible for any contravention of the FSMA that resulted from unauthorised statements.
Asset Land's origins and their sites
Asset Land's operations
"Do I own the land?
Yes. Land is a tangible asset; you own the freehold title and retain day to day control of your plot.
….
Can I sell the plot of land?
As soon as the land registry certificate arrives in your name, you are free to sell, donate, or bequeath your plot of land, or retain it for your own investment.
Can I build on my plot?
At present the land is greenfield which does not allow any type of development, once it is re-zoned to whitebelt land it can be built on (subject to planning permission), past records show that once the land is available for development the value is increased by a staggering 926% making it a spectacular investment.
If the land is re-zoned what choices are available to me?
You will have the choice to sell your plot at a profit either yourself or though (sic) a developer or agent" (or words to that effect).
"[ALI-UK or ALI-Panama] is not authorised or regulated by the [FSA] or any other regulatory body. [The company] does not give investment advice or offer regulated investments products to the public. [The company] offers parcels of land for sale. Having sold the land, [the company] does not pursue re-zoning or planning permission and as such, does not carry on any activities under the [FSMA]. Neither [the company] nor any person connected with it will have any role in pursuing re-zoning or planning permission with respect to either individual plots of land or as a site as a whole as a way of increasing the value of the land."
The form that was apparently usually used by ALI-Panama continued:
"[The company] gives no guarantee that land will in the future by re-zoned for development purposes or that planning permission will be granted. The value of land and any income from it may go down as well as up, and you may not get back the original amount invested. Past performance is not a guide to the future. …".
Another version of the form that was used at least sometimes by ALI-UK (in dealing with Mr Beckman, for example) continued differently:
"Any verbal warranties or written implications that do not form part of the documentation received herewith will not be included as part of the contract whether expressly specified or other."
The reason for the different versions of the form was not explored in evidence: the represented defendants do not rely upon this last version.
i) What I shall call the "representations clause" (clause 14 of one form of contract and clause 11 of the other) provided that:
"The Buyer confirms that there are and have been no representations made by or on behalf of the Seller on the faith of which the Buyer is entering into this Agreement except and to the extent to which such representations are herein expressly set out or form part of written replies by the Solicitors for the Seller to the written Enquiries before Contract raised by the solicitors for the Buyer or the Seller's replies to Property Information Forms."ii) What I shall call the "services clause" (clause 16 of one form of contract and clause 13 of the other) provided that:
"For the avoidance of doubt, the Seller is not obliged to and will not apply for planning permission in relation to the Property or in relation to the land as a whole of which the Property forms part, nor will the Seller provide any other services to the Buyer following the purchase of the Property by the Buyer to the extent that the provision of such services would constitute the carrying on by the Seller of regulated activities for the purposes of the FSMA] unless the Seller is authorised under that Act and permitted by the [FSA] to carry on the relevant regulated activities. Notwithstanding the foregoing, the Seller reserves the right to (but is not obliged to) apply for planning permission in relation to any land owned by the Seller which forms part of the land of which the Property forms part."
i) That Asset Land would seek to progress planning procedures with a view to the sites being used for housing.
ii) That Asset Land would then procure their sale, probably to developers.
iii) That the investors who sold the plots at the site would be paid a share of the total consideration paid by the purchaser.
"Where the differences arose in terms of planning was that in some instances the investors were clear that planning permission itself had been mentioned, whereas others talked about re-zoning rather than planning permission, that [there] was the distinction in the two. With regard to development, onward sale if you like, most of them were pretty clear, or in fact I can't think of one that wasn't off-hand, that a developer would be brought in and that developers were either lined up or certainly that was the plan".
When asked about what they thought they could do with their plots, Mr Edwards said:
"There were some differences there. From recollection, some of the investors were clear that they had, shall we say, the right to sell the plots, they'd been told it was their plot, registered in their name, and they could sell it at any time. Others had been told that they couldn't sell at any time"
But, as he understood it, "they had been told that they had the legal right to sell, and could do so, but whether in practical terms they would or would have entered such an arrangement as this with the intention of doing that is a different question." The investors to whom Mr Edwards spoke had, as he acknowledged, contacted the FSA with complaints, or at least concerns, about how Asset Land had treated them, and he did not dispute that Asset Land had sold to many more. (Mr Coppel suggested 1,200 person when he cross-examined Mr Edwards.) Nevertheless I consider that Mr Edwards' evidence shows how Asset Land dealt with investors generally.
i) About re-zoning, she said "We ... buy land that is going to be in enterprise zones so they go right to the front of the queue when it comes to extra funding from central government and … there's a push … to councils to re-zone them as quickly as possible".
ii) She told Mr Mansfield that Asset Land did not apply for planning permission:
"We buy a site of land, it has to match a strict criteria, so no flooding, no marshland and no contamination. Lots of sort of tick boxes for us. We get what's called a right to build on it and that means that it's almost … it's a certification, it's an agreement, that the land is safe for developers to use. The sites tend to have gas, water and electricity all plugged in so that a developer can get on there and build quickly to maximise his profit margins and get out again. So it's a streamlined process. So the right to build, we then sell on to developers under sealed bids, highest sealed bid would win. They are able to buy the land and that's where you get your profit. If you own a proportion of that land on that site, you know, you're going to get … you pay X, you're going to get Y as a return. Just so … to finish it off so that there's some closure, the developer would then go on with an architect to design a site and they would get outline planning permission. So we are nothing to do with planning permission since we're not involved in construction."In a later conversation Ms McKenna repeated that Asset Land would "not be getting planning permission, that's down to a developer".iii) As for how investments were made, Ms McKenna told Mr Mansfield, he would be buying a freehold interest, "… it's absolutely transparent, we take a deposit of 10%, that takes the plot off the market and it allows us to get all the contracts and title deeds into your name".
iv) As for how an investment might be realised, she said "We always resell on the site as a whole so it doesn't matter where you own it, whether it's in the middle or in the north-eastern corner or to the west". If Mr Mansfield wanted his investment repaid before the site was sold, he could, according to Ms McKenna, ask to be repaid (but would be paid no interest). She also said, "… we will walk you hand in hand right up to the end of the investment and, as I say, we would advise you of a fair and true market offer and to return your title deeds to the developer who will, by return of post, to your bank account put … get the profit".
i) He would not have instructed or allowed them to say that ALI-UK would apply for planning permission.
ii) The contract and other documentation make clear that ALI-UK was not operating schemes such as the investors say were described to them.
i) Whether after the FSA had raised concerns about ALI-UK it made changes to its business as Mr Banner-Eve claimed; and
ii) Whether Mr Banner-Eve was involved with the business of ALI-Panama or whether, as he claimed, he had no interest in it or its business.
Mr Banner-Eve's involvement with ALI-Panama
i) On 5 April 2009 Mr Hedges wrote to Mr Rudman referring to a meeting with "the two Davids", namely, he explained, his partner and Mr Banner-Eve. Mr Hedges said that the meeting had taken place shortly before the letter was sent, and that Mr Banner-Eve had asked to discuss "progress" with the Newbury site. Mr Banner-Eve said that the meeting took place in 2008 (when he was still interested in acquiring it), but I prefer Mr Hedges' evidence.
ii) On 11 May 2009 Harris Waters wrote that brothers called Marriage had expressed an interest in renting the Newbury site for grazing and Mr Rudman asked for further details of this approach "so I can discuss all factors with David", a reference, I infer, to Mr Banner-Eve.
iii) On 3 July 2009 Mr Rudman wrote to Mr Hedges after a discussion with "David", another reference to Mr Banner-Eve, and instructed him to apply to have Newbury land allocated for housing.
iv) On 21 January 2010 Mr Banner-Eve gave instructions to Ms Smeed-Hughes about permission that Newbury Council had given to allow building on green belt land.
v) On 16 April 2010 Mr Gary Collins emailed Mr Banner-Eve about an unhelpful statement apparently issued by Newbury Trading Standards which was described as "very prominent when you google Asset Land Inc"; he suggested "bombard[ing] the Internet with articles regarding positive aspects of our business and then optimize these to push them up the list"; and he said that such arrangements had been "set up in Tenerife through Stuart". Mr Banner-Eve replied that he and Mr Cohen were aware of the problem: he referred to possible damage to "our business". As Mr Banner-Eve confirmed in cross-examination, "Stuart" was a Mr Stuart McClean, who was employed by an internet marketing company called Dataforge and who was supposed to be working for ALI-UK on a full-time basis. Other communications that are in evidence confirm that Mr Banner-Eve continued to be involved in responding to bad publicity about the Newbury site emanating from the West Berkshire Trading Standards officers.
vi) On 6 July 2010 Mr Strange asked Mr Banner-Eve about Mr Brettel's report on the Newbury site.
i) An email to him from Mr Cohen dated 24 June 2010 asking that he review plans to release plots, to which Mr Banner-Eve replied that "a commitment on the official release date is not good as we may still have some Newbury left" (emphasis added). I cannot accept that this is explained as advice given to Mr Cohen as a friend.
ii) An email that Mr Banner-Eve sent on 12 July 2010 to Ms Somers that he had been advised that the Harrogate site had a "clean" title. There is no credible explanation for this if he had no interest in the property.
iii) An email from Mr Cohen to Mr Brettel dated 11 May 2012 in relation to the Harrogate site which referred to "David" ("I have not heard from David regarding the car"): Mr Brettel said that he understood this to refer to Mr Banner-Eve, and I accept that it did.
i) On 6 October 2010 Mr Banner-Eve wrote to Mr Strange that his brokerage was apparently selling plots at Newbury to investors in Lutterworth sites on the basis that they could pay from "their Lutterworth money". Mr Strange replied that brokers were selling Newbury plots to investors in the Lutterworth site and what they were "saying as I discussed with you in Spain is 'buy half a plot now and take the remainder of the plot when Lutterworth gets paid out which should be towards the end of the year'." I cannot accept Mr Banner-Eve's evidence that he was trying to mediate a dispute between Ms Smeed-Hughes and one of Mr Strange's brokers, nor that he did not read Mr Strange's email and the reference to his discussions.
ii) On 16 October 2009 Mr Banner-Eve was sent an email by Ms Aruna Raja about a draft brochure including the Newbury site, and replied that ESL's email address should be included. I do not accept his explanation that he was dealing with this matter "just as a personal favour" for Mr Cohen: there is no reason that Ms Raja should ask him to approve the draft unless he was involved with ALI-Panama.
iii) On 13 April 2009 Mr Banner-Eve asked Ms Smeed-Hughes to send him lists of overdue debts of both ALI-UK and ALI-Panama "so that Carolina can show us what she can do". He explained that "Carolina" was Ms Starbuck, but he had no credible explanation for requesting a list of ALI-Panama's debtors.
iv) On 28 October 2010 Mr Strange told Ms Siggins that he had been instructed by "David" when Mr Ingram left his brokerage that he should "get him back, even at the expense of getting him his own office as he can be a disruptive force". I infer that he was referring to Mr Banner-Eve, who was concerned to retain a successful broker for ALI-Panama.
v) In an email dated 9 September 2009 Mr Ben-Haim asked Harris Waters whether they would act for ALI-Panama in relation to an investor who wanted to deal only with a solicitor. They suggested a fee of about £300, invited Mr Ben-Haim to discuss it with "David", and copied the email to Mr Banner-Eve. Mr Banner-Eve replied that their fee should be about half that amount. In cross-examination he explained his reply as a joke, but had no credible explanation for this exchange about ALI-Panama's business.
Did Asset Land change its operations after the FSA's letter?
The parties' contentions about the schemes
i) There must be "arrangements".
ii) The arrangements must be "with respect of property of any description, including money".
iii) There must be persons who take part in the arrangements (whether by becoming owners of the property or any part of it or otherwise).
iv) The purpose or effect of the arrangements must be to enable the participants to participate in or receive profits from the acquisition, holding, management or disposal of the property, or sums paid out of profits or income therefrom.
v) The arrangements must be such that the participants do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.
vi) The arrangements must provide for the property to be managed as a whole by or on behalf of the operator of the scheme (or, which the FSA does not assert in this case, meet the pooling condition).
Mr Coppel disputed that the first, fourth, fifth and sixth conditions are met by Asset Land's schemes. This gives rise to the first three issues identified at the PTR.
i) The represented defendants relied on the written contracts for the sale and purchase of the plots and in particular the representations clause and the services clause, and submitted that, because they define the rights and obligations between Asset Land and investors, the pre-contractual exchanges do not establish the FSA's case. (They also submitted that after the FSA had written to ALI-UK in April 2007 Asset Land made clear in "disclaimers" in other documents that it would not apply for planning permission for the investors' plots or provide other "services", and that it sold plots on this basis; that nothing said by those marketing plots altered Asset Land's legal relationship with investors; and that accordingly the FSA's case, which depends on oral representations and other statements made by Asset Land's brokers and other representatives, cannot succeed: it cannot establish that Asset Land operated CISs on the basis of the investors' understanding as a result of what they were told orally. However, the represented defendants do not contend that the statements made in the footers to letters (para 63 above), in the "check-box" document (para 68 above) and in some marketing brochures (para 62 above) (to which I shall refer as the "non-contractual disclaimers") were of contractual effect, but rely upon them as showing what arrangements Asset Land made with investors: Mr Coppel contended that these written statements carry more weight than oral statements made by representatives who, as was clear and as many of the investors recognised, were to some extent indulging in sales talk. I come to that argument later.)
ii) The FSA argued that the statements made by brokers to investors were of legal effect.
iii) There is also an issue raised by the authority defence about whether, assuming the brokers made the statements that the FSA alleges and I have found, Asset Land has no liability or responsibility for them (whether or not they were of legal effect) because they had no actual or apparent authority to make them.
I shall consider these three matters before returning directly to decide the issues identified by Mr Prosser.
The disclaimer defence: the representations clause and the services clause.
i) What do these clauses mean, and in particular do they cover the statements on which the FSA relies about what Asset Land would do by way of making applications or other approaches to the planning authorities and about selling the land and distributing the proceeds?
ii) In so far as they do, were their provisions valid?
iii) In so far as they were applicable and valid, did they displace the oral statements or make them ineffective?
i) It relied upon section 2(5)(c) which provides that the general rule does not apply to "a contract regulated by the [FSMA], other than a regulated mortgage contract".
ii) It argued that the statements had legal effect so as to bind Asset Land because they constituted collateral contracts in consideration of which investors signed the written contracts.
iii) It was said that Asset Land would be estopped from denying that it entered into agreements in accordance with what the investors were told and led to understand.
The second and third arguments are not relevant for present purposes: the collateral contract argument supposes that the parties did enter into a binding written contract, and the estoppel is not said to preclude Asset Land from refusing to sell the plot, but from denying commitments given orally assuming that the plot was bought and sold. I shall therefore come to these points later.
"A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer."
The representations clause and the services clause were not individually drafted: they were drafted in advance and investors were therefore not able to influence that substance of it: see regulation 5(2).
"(1) Without prejudice to regulation 12, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.
(2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate-
(a) to the definition of the main subject matter of the contract, or
(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange. "
i) Whether the representations clause and the services clause are covered by regulation 6(2) because they are in plain intelligible language and relate to either the main subject matter of the contract or the adequacy of the price or remuneration as against the land supplied in exchange; and
ii) Whether the representations clause and the services clause would cause a significant imbalance in the parties' rights and obligations under the contract to the detriment of the investor contrary to the requirement of good faith.
i) The representations clause is of a kind common in sales of land. I accept that, although I observe that in the Law Society's 2011 edition of Standard Conditions for the Sale of Land the comparable clause is stated not to exclude liability for fraud or recklessness. My decision is not intended to apply to sales of land in normal circumstances, but is driven by the marketing of the plots as investments and the nature of the plots in that their investment value was as part of the sites. For similar reasons I am not persuaded by Mr Coppel's observation that the clause is consistent with the general practice that sales of land are conducted in writing and not orally.
ii) It was said that the representations clause provided a mechanism whereby purchasers could have seller's representations recorded and then rely upon them. That is so, but on its face the clause (i) otherwise leaves the purchaser without a remedy for even fraudulent misrepresentations, and (ii) contemplates a mechanism that would require buyers to engage a solicitor although Asset Land knew that investors were unlikely to do so and discouraged them from doing so.
iii) It was said that the representations clause was the only exempting clause in the contracts and was clear on the face of them. However, as I have said, it was revealed to investors only after their money was paid. Mr Coppel submitted that investors could have refused to sign the contracts and would then have been repaid and suffer only "disappointed expectations", but (i) there is no evidence that this was generally explained to investors and I infer that it was not, and (ii) there is no suggestion that investors would be compensated for loss of use of the money (and Asset Land's enjoyment of the use of their money) pending repayment.
iv) It was said that the services clause could not be unfair because it only excludes any duty for Asset Land to do what statute did not permit, but its purpose was to escape liability when investors were misled about what Asset Land would do and its effect was to impose on investors the uncertainly about what Asset Land might be permitted to do.
v) Mr Coppel observed that it is "inevitable that in a contract of the sale and purchase of land there will be terms and conditions that are more detailed than can be conveyed in a telesales call". I agree, but it is not inevitable that the more detailed terms will contradict such calls.
vi) Finally, although Mr Coppel observed that the fact that the contract was to be witnessed signified their "gravity", but that does not redress the inequality of bargaining power between Asset Land and investors.
"If a contract contains a term which would exclude or restrict-
(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contracts Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does."
Section 11(1) of the Unfair Contract Terms Act 1977 provides that the "requirement of reasonableness … is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made".
Did the brokers' statements have legal effect?
i) Gave rise to collateral contracts, and
ii) Gave rise to estoppels preventing Asset Land from denying that they entered into agreements in accordance with what the investors were told and led to understand.
"In a normal conveyancing transaction in a commercial context with both parties represented by experienced solicitors the usual course of dealing is to ensure that all agreed terms are put into the contract and conveyance, transfer or lease. Accordingly those who assert a collateral contract in relation to a term not so contained must show that it was intended to have contractual effect separate from the normal conveyancing documents. Otherwise it will be invalidated by s.2 Law of Property (Miscellaneous Provisions) Act 1989 even if evidence as to its existence is admitted."
This case is not concerned with what, I think, the Chancellor would have regarded as normal conveyancing transactions, and, as I have said, the FSA has questioned whether the contracts in this case are covered by section 2 of the LPA 1989.
The authority defence
i) By an email dated 18 January 2010 Ms Smeed-Hughes wrote to him and Mr Cohen about an investor in a plot at South Godstone who was told that the land was being sold by sealed bids. Mr Banner-Eve replied that the matter should go "back to Global", the brokers. He said nothing in his reply that indicated that he was surprised or annoyed that investors were being told that land would be sold in this way, but his evidence was that he was "sure that [he] would've spoken to [Mr Strange] about it".
ii) On 19 July 2010 Mr Cohen copied to Mr Banner-Eve his reply to an email in which Ms Smeed-Hughes had said that Global had told an investor that "the land had just been to auction and been sold, the client's share was going to be approximately £37,000". The reply asked Ms Smeed-Hughes why she was using ALI-UK's email address for this exchange. Mr Banner-Eve said that he noticed only that when he received the email, and that he did not read about what the investor had been told.
iii) By an email dated 16 August 2010 to Mr Cohen and copied to Mr Banner-Eve, Ms Smeed-Hughes wrote about what Global were telling investors, and said "There … seem to be different pitches as to how the land will be sold. A favourite one of [G]lobal seems to be the sealed bids routine, or developers already lined up to purchase". Mr Banner–Eve replied that they needed to meet about the matter. His evidence was that, on reading the email, he learned that a broker was apparently making such statements, that he was concerned about this and that he regarded it as "very important" that brokers should only give proper information to investors.
In re Sky Land Consultants Plc
"I am satisfied on the evidence that following agreement with the FSA the company in fact continued as it had before, representing to investors that it would deal with planning and sale of the Winterton land, including their plots, and undertaking activities with a view to both obtaining planning permission for the entire site and selling the entire site."
"73. In my judgment, the arrangements fall within the wide net cast by s235(1). A scheme whereby investors purchase individual plots within a site on the shared understanding that the company will seek planning permission and market the site including the plots are clearly capable of being "arrangements". The arrangements must (i) be with respect to property of any description, (ii) enable the participants to participate in or receive profits or income by becoming owners of the property or any part of it or otherwise, and (iii) have as their purpose or effect the participation in or receipt of profits or income "arising from the acquisition, holding, management or disposal of the property". Each of these requirements appears to be satisfied: (i) the arrangements concern land sold off in small plots to investors, (ii) the investors become owners of the individual plots and (iii) the purpose of the arrangements is to receive profits arising from the sale of the individual plots as parts of the larger site.
"75. … I consider "the property" to be the land comprising the individual plots sold to investors. It is that land, very probably as part of a larger site which includes areas retained by the original owner and areas acquired by the company, for which planning permission and a buyer would be sought by the company. The investors participate by each becoming an owner of part of the property. While it is legally possible for an investor to sell his plot on its own, that is not what is intended or likely to happen. The purpose is to obtain planning permission for, and to sell, the property as a whole.
"76. Section 235(2) requires that the arrangements must be such that the participants do not have day-to-day control over the management of the property. As earlier observed, this is a question of the reality of how the arrangements are operated. In my judgment, there is no real issue on it in this case. There was no aspect of the management of the property over which the investors had day-to-day (or any other) control. Steps with a view to obtaining planning permission and with a view to developing or selling the property were in the hands of the company. The physical management of the land continued, as it had before, to be under the control of those farming the land. … .
"77. As regards s.235(3), arrangements will constitute a collective investment scheme if they satisfy at least one of paragraphs (a) or (b). The Secretary of State relies on paragraph (b), that the property was managed as a whole by or on behalf of the operator of the scheme. If there is a scheme, its operator was the company. The question here is what is meant by "managed". What constitutes management is dictated by the property. Some property, short-dated deposits for example, require active and constant management. The management of property of long-term nature may involve only intermittent activity.
"78. As regards the land in question, management could be said to involve (i) long-term goals, such as planning permission, development and sale, and (ii) the short-term physical stewardship of the land. The latter was of no real concern to the investors. This was not intended to be an investment in agricultural land. In any event, it seems clear that the arrangements envisaged that he original owner would continue to use the land as part of his agricultural business until possession was needed for development or sale. It was the company which in practice had a relationship with the owner and the reasonable inference from the evidence is that the investors were content to leave it to the company to agree the use of the land pending development or sale.
"79. The purpose was to make a profit from the actual or prospective change from agricultural to residential or other use. The management of the property, so far as relevant to the inventors, was taking steps with a view to obtaining planning permission and developing or selling the land. Such activities fall naturally within the ambit of management of land. The respondent's submission that individual participants were left to deal with their own plots as they see fit has no basis in the evidence.
"80. I conclude therefore that the arrangements promoted and operated by the company were at all times a collective investment scheme. The company gave the appearance of changing the scheme comply with the FSA's requirements, by altering the contractual and other documents, but in fact continued to promote and operate the scheme it as it had always done."
Issue 1: were there arrangements within section 235(1)?
Issue 2: were the arrangements such that the investors did not have day-to day control?
Issue 3: were the arrangements such that the property was managed as a whole by or on behalf of the "operator"?
Issue 4: which company (or companies) established and/or operated the scheme (or schemes)?
Issue 5: which companies (if any) communicated invitations or inducements to participate in a CIS?
Issue 6: who was knowingly concerned in contravention of section 19 or section 21 of FSMA?
The estoppel defence
i) Whether the law recognises an estoppel of the kind that ALI-UK assert against a public body such as the FSA.
ii) Whether the FSA's letter of 15 November 2008 contains a representation or other statement that could give rise to such as estoppel.
iii) Whether the conditions that qualified any such representation or statement were met.
iv) Whether ALI-UK and/or Mr Banner-Eve relied on the statement and for this or for some other reason the FSA is precluded from resiling from it.
It is convenient to consider these questions in reverse order.
i) That it was acting on the basis of the information that it had, and specifically said that it had been told in previous correspondence that ALI-UK had advised "all existing plot holders" that it was unable to "apply for redesignation on their plot" and offered them a choice of exchanging their plot for an "enhanced plot" or selling it back to ALI-UK for the price paid plus interest.
ii) That it would end its investigation on the basis that ALI-UK would, in relation to future sales, not give investors any expectation that it would have any involvement in seeking designation of land for development or obtaining planning permission (either for individual plots or "collectively") or in the management of plots owned by others.
The FSA says that the estoppel defence fails because ALI-UK did not so deal with all existing investors and did not so conduct future sales.
Issue 7: relief
Conclusion