The Financial Conduct Authority (A Company Ltd by Guarantee) v Avacade Ltd ((in Liquidation)) (trading as Avacade Investment Options)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Popplewell,Lord Justice Peter Jackson,Sir Geoffrey Vos, MR |
| Judgment Date | 04 August 2021 |
| Neutral Citation | [2021] EWCA Civ 1206 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2020/1387; A3/2020/1502 |
[2021] EWCA Civ 1206
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Adam Johnson QC (Sitting as a Deputy High Court Judge)
Stephen Houseman QC (Sitting as a Deputy High Court Judge)
Royal Courts of Justice,
Strand, London, WC2A 2LL
Sir Geoffrey Vos, MASTER OF THE ROLLS
Lord Justice Peter Jackson
and
Lord Justice Popplewell
Case No: A3/2020/1387; A3/2020/1502
David Berkley QC and Steven McGarry (instructed by Zakery Khub Solicitors) for the Second, Third and Fourth Defendants/Appellants
Nicholas Vineall QC and Adam Temple (instructed by The Financial Conduct Authority) for the Claimant/Respondent
The First and Fifth Defendants did not appeal
Hearing dates: 7 and 8 July 2021
Approved Judgment
Introduction
The Third Defendant (“CL”) and Fourth Defendant (“LL”) are father and son. They were directors of the Second Defendant (“AA”), and together with the Fifth defendant, Mr Fox, directors of the First Defendant (“Avacade”). Between 2010 and 2016 Avacade, and subsequently AA, operated a business scheme by which individuals were persuaded to transfer their pensions into self-invested personal pensions (“SIPPs”), and to direct the purchase of investments within those SIPPs into assets such as trees in Costa Rica and bonds relating to property developments in the USA and Brazil. Avacade and AA principally made its money from the commissions on these investment products, paid to them by the promoters of the investments. Avacade's activities led to 1,943 consumers transferring a total of about £87 million of pension funds into SIPPs, of which some £68 million was placed into investment products from which Avacade received commissions. The commissions amounted in total to over £10.5 million. AA's activities led to at least 59 consumers transferring a total of about £4.8 million of pension funds into SIPPs, of which around £905,000 was placed into a single product known as the Paraiba bond. Together with commissions on other investments, including the trees which had featured in the Avacade scheme, AA's commission amounted in total to £715,000. The consumers were not typically well-off: the average value of the pension pots in the Avacade scheme was about £45,000 and the average value for the AA scheme about £88,000.
CL, LL and Mr Fox constituted the core senior management of the business operation and worked together as a closely-knit group until CL and LL fell out with Mr Fox late in the life of the Avacade scheme. CL and LL each personally made some £2.5 million from the schemes. Mr Fox made some £1.7 million. The largest investment product across both schemes was in tree plantations in Costa Rica. Significant damage to the plantations was caused by Hurricane Otto in late 2016 and the Financial Services Compensation Scheme has made payments to UK investors on the basis that the underlying investment has nil value. Avacade and AA made over £5 million in commissions from this investment alone.
None of Avacade, AA, CL, LL or Mr Fox was an authorised person under the regulatory regime established by the Financial Services and Markets Act 2000 (“ FSMA”) and the Financial Services Act 2012 (“FSA”). The Financial Conduct Authority (“the FCA”) brought proceedings against them for regulatory contraventions, seeking declarations and restitution orders and injunctions. Following the first part of a split trial, Adam Johnson QC, as he then was, sitting as a Deputy High Court Judge, (“the Trial Judge”) held that the schemes involved:
(1) contraventions of s. 19 of FSMA by (a) arranging deals in investments within the meaning of Article 25(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“the RAO”); and (b) advising on investments within the meaning of Article 53 of the RAO;
(2) contraventions of s. 21 of FSMA by making financial promotions; and
(3) contraventions of s. 89 of FSA (and in Avacade's case its predecessor, s. 397 of FSMA, in force prior to 1 April 2013) by making false or misleading statements to investors.
The Trial Judge further held that for the purposes of any restitution order to be made under s. 382 of FSMA, CL and LL were knowingly concerned in the contraventions of FSMA and FSA by Avacade and AA; and Mr Fox was knowingly concerned in the contraventions by Avacade.
The applications for interim restitution orders pursuant to s. 382 FSMA were heard by Mr Stephen Houseman QC, sitting as a Deputy High Court Judge (the “Remedies Judge”). The Trial Judge had recused himself for reasons which are not material to this appeal. The Remedies Judge made interim restitution orders against Avacade in the sum of £10 million; against AA in the sum of £715,000; against CL and LL in the sum of £2.5 million each; and against Mr Fox in the sum of £1.7 million. Those were, approximately, the amounts received by each of them from the schemes.
Avacade, which is in liquidation, and Mr Fox played no part in the trial or remedies hearings, and have not appealed. AA, CL and LL appeal against the order of the Trial Judge on four grounds for which permission was granted by Asplin LJ, permission being refused in relation to the remaining 24 grounds. The appellants also have permission from Asplin LJ to appeal against the order of the Remedies Judge insofar as it is consequential on the success of any appeal against the order of the Trial Judge. The appellants now seek to advance further grounds of appeal, for which they do not have permission, on the basis that the decision of this court in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474, delivered since the two judgments and the decision of Asplin LJ on permission to appeal, provides further reasons for challenging the conclusions of the Trial Judge in respect of the contravention of s. 19 by reason of “making arrangements” within Article 25(2) of the RAO; and for challenging the interim restitution orders made by the Remedies Judge. No appeal is pursued against the Trial Judge's declarations that Avacade and AA contravened s. 19 FSMA by giving advice within the meaning of article 53 RAO; contravened s. 21 FSMA by making financial promotions; and contravened s. 397 FSMA and s. 89 FSA by making false or misleading statements to investors. Nor is there any appeal challenging the decision that CL and LL were knowingly concerned in those contraventions. Although there is no appeal by Avacade against any of the findings, contravention by Avacade is in issue on the appeals by CL and LL because of the appeal by those individuals against the finding that they were knowingly concerned in Avacade's “making arrangements” contravention.
The facts
I take the facts from those found by the Trial Judge in his careful and comprehensive judgment.
Under the Avacade scheme operating between 2010 and 2014, consumers who had existing pensions were contacted by telephone. They were provided with a report on their current pension position. The existing pensions were mostly occupational pension schemes, with a few being personal pensions. A good many of the customers who were contacted transferred their existing pension funds into SIPPs, on Avacade's advice. The SIPP provider initially used was Berkeley Burke Sipp Administration Ltd, but for the bulk of the period of the Avacade scheme the SIPP providers were Liberty and Guinness Mahon. I consider the entities involved and the terms of those SIPP arrangements below. Within those SIPPs, the consumers directed the purchase of the following investments:
(1) Hotpods: these were commercial office spaces, in which £602,470 was invested producing commission of £129,830;
(2) Mosaic Caribe: these were investments in life insurance policies, in which £555,479 was invested, producing commission of £35,216;
(3) Sustainable AgroEnergy: this was green oil from crops in Thailand, Cambodia and the Philippines, in which £1,244,479 was invested producing commission of £203,244;
(4) Ethical Forestry: these were melina trees in Costa Rica, in which £42,600,452 was invested, producing commission of £5,335,260.56;
(5) Global Plantations: these were teak trees in Malaysia and Sri Lanka, in which £12,327,700 was invested, producing commission of £2,579,657.50;
(6) InvestUS and Re-Invest USA (or “ REIUSA”): Avacade's accounting records did not distinguish between these, but they were separate bonds financing US real property transactions; in total, £11,438,600 was invested generating commission of £2,327,415.
Apart from the InvestUS and REIUSA bonds, the investments were made directly in the property concerned, for example the trees or offices themselves, and as such those investment products were not within the definition in the RAO of regulated investments.
The investments in the unregulated products in the Avacade scheme were made by the SIPP providers on an “execution only” basis, that is to say, simply on the customer's instructions without any investment advice from the SIPP provider or an independent financial advisor (“IFA”). The consumers in the Avacade scheme chose those products because they were promoted by Avacade. Before investing in the Avacade bond products (InvestUS and REIUSA), which were regulated investments, investors were referred to Cherish Wealth Management Ltd (“Cherish”) which was the authorised representative of an IFA. The Trial Judge found that Cherish had a limited role...
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