High Court hands down judgment in collective investment scheme case

On 28 July 2023, Mr Simon Gleeson (sitting as a Deputy High Court Judge) handed down judgment in the case of FCA v Forster [2023] EWHC 1973 (Ch). Adam Temple of 3VB acted for the Financial Conduct Authority, leading Elliott Cook, and Saima Hanif KC represented Mr Forster pro bono for part of his closing submissions.

The case will be of interest to financial services practitioners concerned with collective investment schemes, the situations in which a person is ‘knowingly concerned’ in contraventions of the Financial Services and Markets Act 2000 and the extent to which legal advice is relevant to whether or not a person is ‘knowingly concerned’.

The FCA took action in relation to investments created and promoted by Qualia Care Developments Ltd and Qualia Care Properties Ltd. Investors purchased long-leases in individual rooms within care homes, on the basis they would receive a fixed return for the term of a 25 year sublease period. The investor had the right to exercise buy-back options at various points during that period, and after the sublease period provisions for management of the property would come into effect.

In total, investors invested approximately £57 million.

The two companies having gone into administration, the FCA issued a claim against Mr Forster, the owner and director of the Qualia companies, together with Fortem Global Limited (a company that promoted the Qualia investments), and Mr Tasker (a director of Fortem).

The Court found that:

• The investments amounted to a collective investment scheme, noting in particular the way in which the investments were promoted under an ‘investment model’ rather than a ‘debt model’.
• The investments were promoted on the basis of false and misleading impressions, including that the Qualia companies owned three particular care homes which they had not yet purchased, and that the investments were sustainable.
• Mr Forster was knowingly concerned in the contraventions.
• A person may not, depending on the circumstances, be ‘knowingly’ concerned if they had obtained legal advice that the activity concerned was not in contravention of the law.

Matters remain unresolved within the case, including an assessment of losses suffered by the investors, and any ‘restitution order’ to be made against each of the defendants.

The judgment is here; and the FCA’s description of the proceedings as a whole can be viewed here.