UK: England and Wales: land-banking and collective investment schemes

The High Court gave judgment last Friday in Financial Services Authority v Asset L I Inc (t/a Asset Land Investment Inc) [2013] EWHC 178 (Ch). The trial judge held that land-banking schemes were collective investment schemes as defined by section 235 of the Financial Services and Markets Act 2000. The judgment contains some interesting discussion of section 235 including the first part of the definition which refers to "any arrangements" in respect of which the trial judge stated (para. [160]):

"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."

Update (13 February 2013): a summary of the case, provided by the ICLR, is available here.