Financial Services Authority v Watkins (t/a Consolidated Land UK)
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE PROUDMAN |
| Judgment Date | 28 June 2011 |
| Neutral Citation | [2011] EWHC 1976 (Ch) |
| Court | Chancery Division |
| Date | 28 June 2011 |
| Docket Number | Case No: HC10C01754 |
[2011] EWHC 1976 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mrs Justice Proudman
Case No: HC10C01754
MR M SMITH (Legal Group The FSA) appeared on behalf of the Claimant
Approved Judgment
This is an application brought by the Financial Services Authority for summary judgment. It relates to an alleged land banking scheme, said to have been operated by the defendant. The FSA issued proceedings on 25 May 2010, having sought an interim injunction restraining the defendant who traded under the name Consolidated Land UK from selling land in the course of business. The defendant gave relevant undertakings until trial.
On 28 September 2010 the FSA requested further information from the defendant which he did not produce. On 25 January 2011 Master Bowles made an Unless Order in relation to the provision of that information. The order was not complied with and the defendant has accordingly been debarred from defending the claim. In any event he does not appear today and is not represented, although his solicitors, Saunders Law Partnership LLP remain on the record. The defendant has been served with notice of today's hearing.
The trial is currently listed for eight days in a five-day window commencing on 28 November 2011. A defence has been filed but there has been no response to this application for summary judgment which was made on 27 April 2011 and which was adjourned by Briggs J on 11 May 2011 to be heard as an application by order. A bankruptcy petition has been presented against the defendant and it is due for a first hearing in the Croydon County Court on 26 July 2011.
Background
The claim is that the defendant's business was an unauthorised collective investment scheme in that potential purchasers were told that the defendant would seek planning permission for, or would arrange a sale to a developer of, the entire site of which each plot offered for sale formed a part. It is said that the defendant's modus operandi was a typical land banking scam, involving high pressure telephone sales of small plots of allegedly development land to mainly unsophisticated investors in circumstances where there was never any realistic prospect of obtaining planning permission or of selling the land on for profit. Indeed it has been a plank in the defendant's case that he never intended to obtain planning permission or sell the land on for profit.
Certain types of financial activities require FSA authorisation or exemption. It is trite that consumers dealing with unauthorised firms do not enjoy the protection that they would enjoy if they were dealing with an authorised firm. Such protection includes access to the Financial Ombudsman and compensation through the Financial Services Compensation Scheme. Importantly, an authorised person has had his honesty and financial acumen checked by an independent body acting in the public interest.
The so-called "general prohibition" is contained in section 19 of the Financial Services and Markets Act 2000. This provides that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is authorised or exempt.
Section 22 of FSMA provides that an activity is a regulated activity if it is (a) carried on by way of a business, and (b) is an activity of a specified kind, and (c) either it relates to an investment of a specified kind, or in relation to some activities, it is carried on in relation to property of any kind.
Regulated activities are specified by the Financial Services and Markets Act 2000 (Regulated Activities) Order, SI 2001/544 as amended by SI 2001/3544. They include establishing, operating or winding up a collective investment scheme, whatever the underlying property: see Articles 4 and 51 of the order.
Section 235 of FSMA prescribes what constitutes a collective investment scheme. As Arden LJ pointed out in FSA v Fradley and Woodward [2006] 2 BCLC 616 at [32], section 235 is drafted in an open textured way at a high level of generality, using words such as "arrangements" and "property of any description" which have a wide meaning.
By section 235(1) the purpose or effect of the arrangements must be to enable those taking part in them to participate in or receive profits or income arising from the acquisition, management or disposal of the property or sums paid out of such profits or income. By section 235(2) 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. By section 235(3) the arrangements must also have either or both of the following characteristics. The contributions of the participants and the profits or income out of which payments are to be made to them must be pooled, and/or the property must be managed as a whole by or on behalf of the operator of the scheme.
The court has wide powers where satisfied that there has been or it is reasonably likely that there will be a contravention. Under section 380(1) of FSMA the court can restrain a contravention which is reasonably likely to continue. The court also has its general power under section 37 of the Senior Courts Act 1981. By virtue of section 382 of FSMA the court can order restitution, that is to say to pay such sum as the court thinks just having regard to the profits accruing or the loss suffered as a result of the contravention. It also has power to order accounts and information to be provided in order to enable such a figure to be established and calculated.
Evidence
I have read the evidence of Ms Whitelam, an investigator, Mr Dawes, a barrister, Mr Baum, a solicitor, and Mr Francis, an accountant, all of the FSA's Enforcement and Financial Crime Division. The defendant has admitted that he is not authorised by the FSA to conduct regulated activities. He has also admitted that he bought land, divided it into plots, and sold it to members of the public by way of business. The evidence shows that the FSA received a number of consumer complaints about high pressure telephone sales. It sent out a large number of questionnaires to investors whom it had identified and received 43 questionnaires back. Of these, 38 respondents said they had been told that the defendant would manage the land by applying for planning permission for marketing and selling the land, or both. The other respondents could not recall or were not sure. There are also 3 recorded telephone calls from other investors to much the same effect as the 38. There is further evidence from 11 of the 38 as to representations made to them to induce them to enter into the scheme. None of this evidence has been substantively answered.
The defendant's only substantive answer to the claim is therefore what he has said in his defence. He says that he neither sought nor purported to seek planning permission or to arrange any on-sale of the land to a developer. He also says that he expressly forbade his employees or agents from making any representation to the contrary.
However (a) the evidence from investors (investing a total of over £900,000) is in my judgment overwhelming that employees or agents of the defendant made representations as to planning permission and the sale of the site as a whole to developers. So many investors were told the same thing by apparently different sales people that it beggars belief that they had been told not to do so by the defendant. He is anyway (b) responsible under agency principles for what was said by those acting on his behalf in the course of business but in any event, (c) he has not answered the claims and (d) he is now debarred from doing so.
The FSA sought under its compulsory powers to elicit details of the defendant's brokers in order to corroborate or otherwise his defence but he has not responded with any useful answers to the questions he was asked. For the purposes of section 235 of FSMA the arrangements are what was agreed and understood between the consumer and the operator viewed objectively. Section 235(1) directs attention to the purpose and the effect of the arrangements. In any event, the general prohibition catches activities that purport to be regulated activities as much as activities that are in fact regulated activities.
The arrangements were such that the investors did not have day to day control over the...
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