Lord Sumption believed it necessary to create a distinction between a CIS and the provision of management services by an intermediary. He considered Asset Land’s role in selling the site was an act of management if it was empowered to effect a sale on the investors’ behalf, rather than simply putting an offer before them for their approval.
Lord Sumption held that the arrangements amounted to a CIS as the investors’ control over their plots was illusory given the scheme could not work if the investors exercised their right to sell their plot independently.
This is the first Supreme Court judgement considering the CIS definition. It is now clear that the Court will look behind any contractual documentation to examine the true nature of the relationship between the parties, including any pre-contractual representations by sales people.
This is in keeping with Lord Sumption’s statement that technical distinctions must not frustrate the purpose of a regulatory statute, such as FSMA.
The FCA has long taken this approach in relation to CISs. It is notable that the Supreme Court explicitly approved part of the FCA’s guidance on CISs.
This case is helpful in clarifying the CIS definition but largely affirms the existing approach to what constitutes a CIS.
Aidan Campbell is a partner and James Marshall is a lawyer at CMS Cameron McKenna LLP
