The Financial Conduct Authority v Capital Alternatives Ltd and Others

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Christopher Clarke,Lord Justice Vos,Sir Terence Etherton
Judgment Date25 March 2015
Neutral Citation[2015] EWCA Civ 284
Date25 March 2015
Docket NumberCase No: A3/2014/0764; 0764A; 0766

[2015] EWCA Civ 284




[2014] EWHC 144 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL



Lord Justice Christopher Clarke


Lord Justice Vos

Case No: A3/2014/0764; 0764A; 0766

The Financial Conduct Authority
Capital Alternatives Limited and others

Mr Derek Sweeting QC and Mr Jason Mansell (instructed by Candey LLP) for the 7 th Appellant, Mr Haddow

Mr Andrew Green QC and Mr Paul Luckhurst (instructed by DAC Beachcrofts LLP) for the 9 th, 10 th and 11 th Appellants (African Land Ltd, Mr McKendrick and Mr Meadowcroft)

Mr Jonathan Crow QC, Mr Tim PennyandMr Adam Temple(instructed by the FCA) appeared for the FCA

Hearing dates: 27 th and 28 th January 2015

Lord Justice Christopher Clarke

The question


The question in this case is whether four different schemes constituted "collective investment schemes" ("CISs") within the meaning of section 235 of the Financial Services and Markets Act 2000 (" FSMA"). On 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 the schemes, Nicholas Strauss QC, sitting as a deputy judge of the Chancery Division, held that they were. The appellants contend that he was wrong to do so.


If the schemes are CISs then the establishment, operation and winding up of them are — by virtue of Articles 4 (2) and 51 (1) (a) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001— " regulated activities" within the meaning of section 22 (i) (b) of FSMA; and — by virtue of section 19 thereof – such activities cannot lawfully be carried out by unauthorised persons (such as the promoters and operators in the present case). Whether or not a scheme is a CIS will, also, affect the tax treatment applicable to it.


It is a criminal offence for an unauthorised person to carry on a regulated activity in the UK (section 23) and, subject to exceptions, it is an offence for such a person in the course of a business to communicate an invitation or inducement to engage in investment activity, which includes establishing or operating a CIS (sections 21 and 25 and Schedule 2). By section 26 an agreement by an unauthorised person in the course of carrying on a regulated activity is unenforceable and entitles the other party to recover money or property transferred or compensation for loss. But under section 28 the court has power to allow the agreement to be enforced if satisfied that it is just and equitable in the circumstances of the case. Section 382 (d) of FSMA enables the court to require persons who have contravened the Act, or been knowingly concerned in a contravention, to make appropriate restitution to investors who have suffered loss. Those who have operated and/or promoted the schemes may also be liable to prosecution under s 397 of FSMA in respect of what the FCA claims were misleading statements which led investors to invest.

The schemes


Two types of scheme are in issue: (1) the African Land Scheme; and (2) the Carbon Credits Schemes. The African Land scheme involved the exploitation of a rice farm in Sierra Leone. It had been promoted since about November 2009 and, at the time when proceedings were brought in July 2013, had attracted investment totalling some £ 8.1 million from some 1,160 investors.


The Carbon Credit Schemes related to forest areas in Australia, Sierra Leone and the Amazon. The aim was to generate tradable carbon credits, which could be resold at a profit. This required the scheme to obtain accreditation from the relevant accrediting body. The Australian scheme involved reforestation; the other two schemes involved the preservation of existing forests. These schemes had attracted investments totalling some £ 8.8 million from 919 investors.

The parties


The FCA was previously named the Financial Services Authority ("the FSA") and was established under FSMA with the regulatory objectives set out in ss 2 (2) – (6) in force up to 1 April 2013, namely to further confidence in, and the stability of, the UK financial system, the protection of consumers and the reduction of financial crime.


The positions and roles of the 16 defendants were described by the judge as follows:

" [14] The 1 st to 5 th defendants are the "Capital" companies, which are directly or indirectly involved in the promotion of alternative investments, including the schemes described above, or as receiving agents for operators. The 1 st defendant ("CAL" or " Capital Alternatives" or "D1" promoted a large number of schemes, including the African Land and CCC schemes, and featured in early brochures for them. The 2 nd defendant ("CS" or Capital Secretarial" or "D2") acted as agents to receive investors' funds. The 3 rd defendant ("COL" or " Capital Organisation" or "D3") is said also to have received investors' money and to be responsible for the overall organisation of the Capital companies. The 4 th defendant ("CAS" or " Capital Administration" or "D4") and the 5 th defendants (" MH Trustees" or "D5") also acted as receiving agents at certain times. All these companies, apart from D5, are balance sheet insolvent, according to their latest available accounts.

[15] The 6 th to 8 th defendants (" Ms Hargous", " Mr Haddow" and " Mr Henstock" or "D6" "D7" and "D8") are individuals involved in the running of the Capital companies. Ms Hargous (who gave evidence) is a director and sole shareholder of Capital Secretarial, Capital Administration and MH Trustees, a director of Capital Organisation and formerly a director of Capital Alternatives. She is a solicitor, and is in effect the in-house solicitor for the Capital companies. She was a straightforward and truthful witness. Mr. Haddow, who is subject to a disqualification undertaking which precludes his acting as a company director, is nevertheless alleged by the FCA to have had a leading role in the running of these companies. Mr. Henstock is a director of Capital Alternatives. Neither gave evidence.

[16] The 9 th defendant (" African Land", formerly Agri Capital Limited or "D9") is the operator of the African Land scheme (sometimes referred to as "the Agri Capital scheme"). Early brochures for the scheme referred to Agri Capital as a "division" of Capital Alternatives. There is also a Sierra Leone company called Agri Capital Sierra Leone Limited ("ACSL"), which was incorporated on 12 th September 2011 and is owned as to 80% by African Land and as to 20% by a local businessman, Mr. Abdul Hamid Fawaz. The precise division of responsibility for the African Land project between African Land and ACSL is not entirely clear, but D9–11 conceded in the course of the hearing that the project is operated by or on behalf of African Land. African Land is balance sheet insolvent according to its latest available accounts.

[17] The 10 th and 11 th defendants (" Mr. McKendrick" and " Mr. Meadowcroft" or "D10" and "D11") are both directors of African Land, and Mr. McKendrick is also a director of ACSL. Both gave evidence. Mr. McKendrick has had a varied career. He worked as a geologist in South Africa for some years and then in the family textile business and in the property market. He has considerable experience of West Africa, having interests in a mine in Sierra Leone and iron ore exploration in Liberia. He decided to set up the rice farming project at Yoni Farm in 2009, and it is clear from his evidence that he is deeply attached to it. Mr. Meadowcroft is a management surveyor with experience in construction and property development and was asked by Mr. McKendrick to become involved in African Land because of his project management expertise, and in particular to oversee the development of the infrastructure of Yoni Farm. In and after 2012, he became more generally involved with farm management and other issues. Both Mr. McKendrick and Mr. Meadowcroft were straightforward and truthful witnesses. Mr. McKendrick was not always accurate on detail and, by his own admission, accounting matters are not his forte.

[18] Ms. Hargous was also a director of African Land from 26 th August to 28 th September 2009. She is also a director of ACSL, having agreed to be appointed because it was thought that a third director was needed. However she played no part in its affairs and had no recollection, when she gave evidence, of her appointment.

[19] The 12 th defendant (" Regency Capital" or "D12") is now the promoter of the African Land scheme, instead of Capital Alternatives, following disputes which arose between African Land and the Capital companies. It may also have some involvement in the CCC schemes. D12 has net assets of £1,336 according to its latest available accounts.

[20] The 13 th defendant, previously Capital Carbon Credit Limited ("Reforestation Projects" or "D13"), is the operator of the CCC schemes.

[21] The 14 th and the 15 th defendants (" Mr. Ayres" and " Mr. Gibbs" or "D14" and "D15") are or were involved in the running of Reforestation Projects. Mr. Gibbs is, and Mr. Ayres was until December 2012, a director, and Mr. Gibbs is a director of Climate Care Global Limited ("CGL"), the Accreditations Specialist for the Sierra Leone and Brazil schemes. According to its latest available accounts, for the year ended on 31 st December 2011, Reforestation Projects has net assets of £40,485.

[16] The 16 th defendants ("D16") are the personal representatives of Mr. Waygood, who was a...

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    • United Kingdom
    • Chancery Division
    • 30 March 2021
    ...Scheme was not a CIS. By the second occasion, in March 2016, the Court of Appeal had given its decision in FCA v. Capital Alternatives [2015] EWCA Civ 284 which changed the picture very considerably, as Mr Anderson QC 29 It was Mr Anderson QC's second advice that led to Belmonte ceasing to......
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    ...this was not what was expected to happen. 11 Other schemes have related to different forms of land exploitation. In Financial Conduct Authority v Capital Alternatives Ltd [2015] EWCA Civ 284, [2015] Bus LR 767 ( Capital Alternatives) the Court of Appeal considered two schemes, one relating......
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    • 4 August 2021
    ...the light of the overall purpose of the section in its statutory framework. See Financial Conduct Authority v Capital Alternatives Ltd [2015] EWCA Civ 284, [2015] Bus LR 767 per Christopher Clarke LJ at [78]–[79]. Agassi is of no relevance, being a decision on particular wording in a diffe......

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