Financial Services Authority v Fradley & Woodward (2005)
Investment business, an unauthorised collective investment scheme, would be being carried on in the United Kingdom for the purposes of the Financial Services and Markets Act 2000, if the activities in question that took place in the UK were a significant part of the business activity of running the scheme.
The appellant FSA, and the first respondent (F), both appealed against decisions on a summary judgment application ((2004) EWHC 3008 (Ch), (2005) BCLC 479), in relation to whether F and the second respondent (W) had carried on an investment business in the United Kingdom without authorisation contrary to the Financial Services and Markets Act 2000 s.19. F, through his firm (T), and W, through his company (R), had provided a betting service that involved collecting money from the public and placing bets on their behalf on horse races. R provided the tips and T placed bets with bookmakers. Initially members of the public did not have to use T for bet placement, but later the documentation used required participants to use the services of T to place bets. The FSA had applied for summary judgment on its claim that F and W had been operating a collective investment scheme within s.235 of the Act without authorisation or exemption. The judge had found that both F and W contravened s.19 of the Act in both those periods, but not in subsequent periods when it was said that the scheme had been suspended, when different documentation was used and after F had moved out to Ireland. The judge held that s.235(2) had been satisfied in the first two periods because the participants in the scheme did not have day-to-day control over the management of the scheme property. F appealed against the judge's holding that there had been a breach of s.19 in the first period and the FSA appealed against the holding that there had not been a breach in later periods. F argued that T was independent of R and that T acted as a third party agent on instructions given on the client's behalf by R, and that R and T were not operating any arrangements or scheme together because they were separate, independently controlled entities. The FSA argued that the individuals who used T did not have day-to-day control over the management of the scheme and that, since T placed bets on behalf of members of R by simply following the instructions of R, if any one member of R used the services of T, the scheme was a collective investment scheme within the meaning of s.235.
(1) F's appeal against the giving of summary judgment would succeed if he had a real prospect of showing that the tipping service offered by R and the bet placement service offered by T did not constitute a single set of "arrangements" operated by R and T together for the purposes of s.235 or, if they did, that the participants in those arrangements had day-to-day control over the management of the property for the purposes of s.235. Likewise the FSA's appeal would succeed if those issues were determined in its favour in respect of the later periods, subject to the issue of whether the arrangements ceased to be subject to the Act when F moved out of the jurisdiction. (2) The court could not determine whether R and T had been the operators of a joint scheme until all the facts as to the nature of the arrangements between F and W had been fully investigated. It could not be said that F had no real prospect of successfully showing that R and T did not together operate a single set of arrangements constituting a collective investment scheme. F's appeal was allowed and the FSA's appeal failed. (3) If the scheme was a collective investment scheme, the judge should have found that there was no triable issue in relation to the later periods on the issue of day-to-day control. In the first period some participants at least appointed R as their agent for the purpose of deciding which bets to place. A scheme would be a collective investment scheme even if not all participants had transferred day-to-day control of the management of their money to the operators of the scheme so long as some participants had, since s.235(2) would be satisfied in respect of them, Russell-Cooke Trust Co v Elliott (Unreported July 16, 2001) applied. Given that the use of R was mandatory in the second period it was inevitable that the scheme contravened in that period. Nothing had really changed in the later periods, and if R and T were in fact joint operators of the scheme, the requirement that the client's agent should be separate and independent of the scheme was not in reality met. (4) After F moved to Ireland his operation remained subject to the Act. It was sufficient if the activities in question that took place in the UK were a significant part of the business activity of running the collective investment scheme (if any) constituted by the betting services offered by R and T. The communications with clients and prospective clients and the maintenance of a bank account and an accommodation address, all of which took place in the UK, were all business activities and were of sufficient regularity and substance to constitute the carrying on of business in the UK even after F had moved his own office to Ireland.
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23 Nov 2005
Court of Appeal
Ward LJ, Arden LJ, Collins J
LTL 23/11/2005 : Times, December 1, 2005
Rebecca Stubbs QC