Financial Conduct Authority v Capital Alternatives Ltd & Ors
2014
CHANCERY DIVISION
United Kingdom
CORAM
- Mr. N Strauss Q.C.
Areas of Law
- Administrative Law
- Commercial Law
- Corporate Law
- Banking and Finance Law
2014
CHANCERY DIVISION
United Kingdom
CORAM
AI Generated Summary
The case involves the Financial Conduct Authority's action against the promoters and operators of several investment schemes to determine whether they qualified as collective investment schemes under section 235 of the Financial Services Markets Act 2000. The court held that the African Land scheme and the Carbon Credits Schemes were indeed collective investment schemes, as they either pooled profits or were managed as a whole by the operator. The judgment detailed the interpretation of section 235, relevant previous cases, and the application of the statute to the facts of the case.
Judgment
Introduction
This is the trial of a preliminary issue in an action brought by the Financial Conduct Authority (“the FCA”) in July 2013 against the promoters and operators of four investment schemes, to which I will refer as “the African Land scheme” and “the Carbon Credits Schemes” or “the CCC schemes”.
The issue in each case is whether it is a collective investment scheme (“CIS”) within the meaning of section 235 of the Financial Services and Markets Act 2000 (“FSMA”).
Briefly described, the African Land scheme concerns a rice farm called Yoni Farm, which is situated about 25 miles from Bo, the second largest town in Sierra Leone. Investors buy sub-leases of plots of land at the farm, on the basis that they will receive the profit from the sale of the rice cultivated on the plot sub-leased to them. This scheme has been promoted since about November 2009 and, at the time the proceedings were brought, had attracted investment totalling some £8.1 million from some 1,160 investors.
There are three CCC schemes, relating to forest areas in Australia, Sierra Leone and the Amazon. These too involve the sale to investors of sub-leases or licences, on the basis that the operators will seek accreditation by a relevant body, resulting in tradeable carbon credits which can be re-sold at a profit. The Australian scheme involves reforestation, while the others involve the preservation of existing forest. These schemes have attracted investments totalling some £8.8 million from 919 investors.
Both kinds of investment have been part of the so-called “alternative investment” market, in common with other kinds of investment schemes in land, including land banking, blocks of flats held as investments and fractional sales of hotel rooms, and in diverse other areas such as wine and memorabilia.
Section 235 of FSMA (derived from section 75 of the Financial Services Act 1986) defines a CIS in the following terms:-
“(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