{"id":562664,"date":"2026-04-14T23:48:35","date_gmt":"2026-04-14T21:48:35","guid":{"rendered":"https:\/\/kohenavocats.com\/jurisprudences\/brinphar-ltd-ors-v-ever-bright-inn-ltd-ors\/"},"modified":"2026-04-14T23:48:35","modified_gmt":"2026-04-14T21:48:35","slug":"brinphar-ltd-ors-v-ever-bright-inn-ltd-ors","status":"publish","type":"kji_decision","link":"https:\/\/kohenavocats.com\/zh-hans\/jurisprudences\/brinphar-ltd-ors-v-ever-bright-inn-ltd-ors\/","title":{"rendered":"Brinphar Ltd & Ors v Ever Bright Inn Ltd & Ors"},"content":{"rendered":"
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HHJ TINDAL: Introduction 1. \u2018If something seems too good to be true, then it probably is\u2019. I\u2019m sure the Claimants in this litigation have ruefully reflected on that old adage, having entrusted their hard-earned savings to a property investment scheme which sadly went disastrously wrong. They each bought a lease of a hotel room or rooms (for anywhere between \u00a340,000-\u00a3170,000 apiece), then sub-let the room back to the company running the particular hotel to use, in return for the promise of a \u2018guaranteed\u2019 annual income. There was a supposed \u2018failsafe\u2019 in Sch.5 of the leases that if the sub-leases were \u2018determined for whatever reason\u2019, the investors would receive 50% of the income (net of expenses) from the booking-out of their room(s) from the hotel (\u2018the profit share\u2019). All went well until the hotels\u2019 companies, all in the Northern Powerhouse Developments (\u2018NPD\u2019) Group, went into administration in Autumn 2019. Their administrators disclaimed the sub-leases in Spring 2021 and later in 2021-2022 sold the freehold (or headlease) of the hotels to the various Defendants (unconnected to NPD). They have not paid the Claimants any profit share as they are concerned (and the Claimants allege) the scheme is unlawful under the Financial Services and Markets Act 2000 (\u2018FSMA\u2019) and its Regulated Activities Order 2001 (\u2018FSMO\u2019). 2. There is no formal Group Litigation Order in place, but at CMC on 8th August 2025, HHJ Williams agreed to the trial of 16 preliminary issues in respect of four hotels now owned by the First, Second and Third Defendants (with part of one now owned by the Fourth), with evidence to be given on behalf of the four Defendants and \u2018lead Claimants\u2019 for each of the hotels concerned. In the absence of a GLO, my decisions on the preliminary issues only bind the individual lead Claimants and Defendants relating to the four hotels, but it is anticipated this should practically resolve the near-identical position on the preliminary issues for all 61 Claimants; and if any issues remain to be resolved, further hearings can then be planned to resolve them. 3. The 16 preliminary issues can be summarised into five broad \u2018topics\u2019: (1) What was the effect of the leases; and in particular did their disclaimer have the effect of \u2018defeasing\u2019 (ending) them, or converting them into licences ? (2) Did the Defendants take on the freehold (or headlease) of the hotels subject to the Claimants\u2019 leases, or if defeased subject to their contractual rights ? (3) Was the scheme and does it remain an (Unlawful) Collective Investment Scheme (\u2018UCIS\u2019) under s.235 FSMA ? (4) If so, have the Defendants \u2018operated\u2019 any UCIS under Reg.53ZE FSMO ? (5) What remedies (if any) are in principle available to the respective parties ? 4. The four hotels, Defendants and lead Claimants presently involved are as follows: a. The Llandudno Bay Hotel (\u2018the Llandudno Bay\u2019) located on the sea front in Llandudno, north Wales, which has as freeholder the Second Defendant Aloe Vera Hotel Ltd (\u2018Aloe Vera\u2019) whose managing director is Mr Ma; and in which the lead Claimant Brinphar (a company owned by Dr Bruyniks) and 23 other claimants all claim they a room lease with a profit share. b. The Belmont Hotel (\u2018the Belmont\u2019), again on Llandudno sea front, which has as freeholder the First Defendant, Ever Bright Inn Ltd (\u2018Ever Bright\u2019), whose managing director is again Mr Ma; and in which the lead Claimant Mr Duncan alone claims a room lease with a profit share. c. The Queens Hotel (\u2018Queens Hotel\u2019) again in Llandudno with Ever Bright as long-leaseholder, in which Mr Rimmer claims two room leases and profit share; and Queens Hotel Lodge (\u2018Queens Lodge\u2019), its long-leaseholder the Fourth Defendant H&M Llandudno Ltd (\u2018H&M\u2019), again both Mr Ma\u2019s companies – in which Mr and Mrs Jeffs claim three room leases and a profit share. There are 6 other claimants who claim the same in each of these. d. Finally, the unconnected Caer Rhun Hotel (\u2018Caer Rhun\u2019) in rural Snowdonia whose freeholder is the Third Defendant Tokyo Industries (Snowdonia) Ltd (\u2018Tokyo\u2019), whose managing director is Mr Mellor; and in which the lead Claimants Mr and Mrs Howson (and 21 other Claimants) claim a room lease and profit share; and in which Mr Duncan (and 2 other claimants) have registered a unilateral notice and profit share in planned rooms in an annex. 5. Whilst I have a bundle running to 1260 pages, I was referred to relatively few documents and only heard brief evidence from Dr Bruyniks, Mr Howson, Mr Rimmer, Mrs Jeffs and Mr Duncan as lead Claimants; and slightly longer evidence from Mr Ma and Mr Mellor for the Defendants. They were all honest witnesses trying to assist the Court. But the facts are largely undisputed, so it was unnecessary for the advocates to go through the documents in any detail, except the lease and sub-lease; and I will take the same approach in my findings of fact on the balance of probabilities (reminding myself the burden of proof is on the Claimants). I will then turn to the submissions of Mrs Swaffield for the Claimants and Mr Clegg for the Defendants and my own conclusions on the five \u2018topics\u2019 set out above. Findings of Fact The Original Scheme 6. A very similar scheme as in these claims has been analysed by DHCJ Gleeson in FCA v Forster [2023] EWHC 1973 (Ch) about room leases in care homes run by the MBi Group run by Robin Forster, initially the business partner of Gavin Woodhouse who ran the hotel side of their business and in 2016 founded NPD: \u201c[5] [C]apital was raised from private investors by selling them a leasehold interest in a room in a rented commercial property \u2013 care homes, student accommodation and hotels \u2013 at a very substantial overvalue…[T]hat\u2026 was not concealed \u2013 the sales pitch [was that] the surplus funds\u2026would be used to renew and refurbish the property concerned, thereby improving its rental yield. [What] made this offer attractive to investors was MBI\u2026was prepared in effect, to guarantee the returns. The typical offering indicated that investors would receive a guaranteed rental of 10% of their investment per annum for the first twenty-five years, and that at various points during that period the operator would be prepared to repurchase their room for at least 115% of their initial investment, regardless of the commercial performance of the actual business concerned, and regardless of whether the specific room leased by the investor was in fact let or not. [6] The legal structure was a standard opco\/propco [operating company \/ property company] arrangement. The propcos\u2026took in money from investors and acquired assets (in this case the care homes). The propcos employed the opco\u2026to manage the assets. The opco collects the revenues from customers, pays its operating expenses, and shares the resulting profit in some manner with the propco for distribution amongst investors. [7] Part of the appeal of this \u2018model\u2019 to investors was that it appeared to offer enhanced security. At least part of their payment would be applied in the acquisition of a long lease of a specific room\u2026.registered in their name with the Land Registry. The evidence of that registration, as provided to them, gave the appearance of securing at least part of their investment. [8] The Company and its auditors took the view that it was not required to recognise its obligations to investors under these guarantees as liabilities on its balance sheet. The argument seems to have been that these obligations might not arise – each room might have generated the necessary revenue, and the repurchase option might not be triggered – so the obligations were mere contingencies. A company with no capital was therefore able to raise funds from retail investors at high promised rates of return without recognising its liabilities under those promises to those investors on its balance sheet. If those liabilities had been recognised at any time, it would have been transparently clear the company was hopelessly balance sheet insolvent. However, because this was not done, the \u2018lease model\u2019 appeared to be a viable financial structure. [9] An important feature of this structure was that it did not require any investment at all from its originator. Because the sales were at an overvalue, each sale created an accounting profit which appeared to constitute capital of the company. Thus, once sufficient sales were made, the result was an apparently well-capitalised and solvent company. What was happening in reality, of course, was that investors were taking all the risk of the commercial operation of the property concerned.\u201d Unlike in Forster, the facts here are largely agreed and I will deal with them comparatively briefly. I note Woodhouse was found liable for dishonest breach of directors\u2019 duties to NPD companies in NPD v Woodhouse [2023] EWHC 3124 (Ch) in which there is a very helpful corporate structure of Woodhouse\u2019s \u2018Propco\u2019s including all the hotels here in the NPD Group (which I shall refer to as the NPD companies\u2019 although they were set up before 2016). Evidence about the NPD hotel scheme was given by Dr Bruyniks, Mr Howson, Mr Rimmer and Mr Duncan. 7. At various times between 2013 and 2016, the lead Claimants were all looking for investment opportunities and approached investment agent companies who made them aware of the \u2018Lease Model\u2019 with lease-and-sub-lease-back of rooms (or in Caer Rhun Annex, planned rooms) in hotels in north Wales. Brochures offered the security of a long lease in the room, but with \u2018guaranteed\u2019 returns of 10% over the 10-year sub-lease of the room, with illustrations of full 10% returns if the price was paid in full, or 5% returns for payment of 50% of the price with the rest supposedly \u2018funded\u2019 by the developer. I have not been referred to or seen any brochure or sales material about the \u2018failsafe profit share\u2019 central to this case. In any event, generally, the Claimants felt the package was a good balance and proceeded. 8. For example, Dr Nicolaas Bruyniks and his wife Dr Renata Bruyniks live in Austria, but when looking for UK investments discovered the \u2018Lease Model\u2019 for the Llandudno Bay. The agent\u2019s email in April 2014 promised: \u201c- Insurance indemnity to protect investors\u2019 initial capital input, to cover up until completion of the refurbishments. – built and operational [hotel]. – 10% return pa for 10 years. – Low entry level from \u00a327,500. – Two weeks\u2019 personal use pa. – \u00a31 million renovation due to commence in October 2014. – Developer deferred payment options. – No management or maintenance costs.\u201d The brochure made similar promises, but also added the investor could defer payment (with an illustration of a 10% return for full price or half price where the 5% return would be retained until the balance was paid) and a developer buy-back option at 125% of the price for the first 10 years. The credibility of the project was highlighted with reference to a \u2018full feasibility study\u2019 and \u2018delivery by globally-recognised and proved professionals\u2019, including well-known financial auditors. There was even a quick and easy purchase process with a \u00a31,000 deposit, exchange of contracts within 14 days with the balance or (part-balance) then payable, with conveyancing by the hotel\u2019s nominated solicitors, which most of the investors took. 9. The Bruyniks decided to buy a \u2018room lease\u2019 in Llandudno Bay via their own company Brinphar Ltd (\u2018Brinphar\u2019). Llandudno Bay was owned by Llandudno Bay and Spa Ltd (\u2018LBS\u2019), whose original directors were Woodhouse and Forster. In May 2014, Brinphar paid \u00a390,000 (\u00a345,000 up front with \u00a345,000 to be deducted from income and secured on a charge against the room) for a 125-year lease of a sea-view room in the Llandudno Bay, Room LB302 (which was not dated and registered at the Land Registry until April 2016). A sub-lease for 10 years then let the room back to LBS with an \u2018annual payment\u2019 of 10% of the price (i.e. \u00a39,000). With deductions for the deferred payment and element for not using the room, Brinphar received c.\u00a34675 in 2016 and c.\u00a34,800 in 2017 and in May 2019 was offered c.\u00a3105,000 by the hotel to buy-back the room, that surely the Bruyniks have regretted not taking. 10. Brinphar\u2019s lease is typical of all the \u2018room leases\u2019 for the Claimants, which are effectively identical. In the lease, the landlord is the hotel company (here, LBS) and the tenant is the investor (here, Brinphar). In many respects, it is a standard long-lease. In addition to stating the term of 125 years from 1st September 2014 and the premium of \u00a390,000, the demise with full title guarantee was \u2018the Premises\u2019 defined as Room LB302 in the Llandudno Bay (which was \u2018the Building\u2019 and \u2018Estate\u2019 defined by its title number, along with the internal walls, ceilings, windows, doors and other structural features of the room within the hotel. Key aspects of it were: a. Landlord covenants, including standard lease covenants to allow quiet enjoyment, to insure (in provisions in Sch.4), but also this in Clause 4.3: \u201cTo operate the Building as a Hotel & Spa at all times and not to use the Retained Parts [i.e. the rest of the hotel] for any purpose other than a use ancillary to the primary use of the Building as a Hotel & Spa.\u201d b. Tenant covenants included annual rent of \u00a3100 to be paid each 1st January (enforceable by a landlord\u2019s power to re-enter for non-payment of rent in Clause 5.1), but also: to indemnify the landlord for various costs and loss by the tenant\u2019s breach, a repair covenant for the room, to allow landlord entry for inspection and repair in standard terms in Sch.3; and for the tenant not to make alterations or additions. Another standard term was Clause 3.6: \u201cAt the termination of this Lease or at such later time as the Landlord recovers possession of the Premises from the Tenant quietly to yield up the Premises (with all additions and improvements to the Premises and all fixtures in the Premises) in accordance with the Tenant's Covenants in this lease.\u201d The tenant also had a right of early determination of the Lease if the building was rendered unfit for occupation by an insured risk under Clause 21. All this was standard, but unusually, the tenant\u2019s use of the room was restricted to use as a hotel bedroom by Clause 3.9.1 and Clause 3.9.2 required them: \u201cNot to occupy the Premises, or suffer any other persons to occupy the Premises, other than in accordance with the Management Provisions\u201d [i.e. the crucial Sch.5 quoted below]. Clause 3.10 prohibited the tenant from assigning, charging, underletting or granting rights to third parties, save this at cl.3.10.6: \u201cThe Tenant has agreed with the Landlord to grant the Sub-Lease to the Landlord immediately following the grant of this lease to enable the Landlord to deal with the Building as a whole. The Sub-Lease contains provision for the Landlord (the tenant of the Sub-Lease) to renew the Sub-Lease at the end of its term. If the Landlord does not renew the Sub-Lease then the Management Provisions will apply.\u201d 11. The Management Provisions in Sch.5 of the lease are central to all five \u2018topics\u2019 in this case (if not to all 16 preliminary issues too) and so require setting out in detail: \u201cThese provisions are intended to apply in the event that the Sub-Lease of the Premises, which is to be granted on the date of this lease by the Tenant to the Landlord (or its nominated Hotel Management Company) for a period ending 10 years after the date of the Agreement, has either been determined for whatever reason or has not been renewed by the Landlord (or its nominated Hotel Management Company). Under these provisions the Tenant shall irrevocably appoint the landlord (or its nominee) to act as his Undisclosed Agent in the letting of the Premises In return for letting the Premises to Guests the Tenant shall receive from the landlord 50% of the Room Income (defined below) and that the landlord shall receive the remaining 50% of Room Income together with the whole of the cost of the Hotel Services provided by the landlord to the Guest. 1. DEFINITIONS In this Schedule the following definitions apply 1.1 Landlord Services 1.1.1 Accommodation Services Supply of the following services to a Guest: 1.1.1.1 use of the Common Parts and all facilities available within the Building and\/or the Estate for Guests generally to enjoy 1.1.1.2 keeping the Premises and all tenant's fixtures in good and substantial repair and condition and, when necessary, renew or replace them 1.1.1.3 keeping the Premises regularly and properly cleaned internally with the internal and external surfaces of alt windows being cleaned at least once a month; 1.1.1.4 renewing and replacing any landlord's fixtures and conduits forming part of the Premises which become incapable of repair or cease to operate correctly with fixtures and conduits of equivalent modern specification and quality as those which they replace; 1.1.2 Hotel Services 1.12.1 The supply of the following services to a Guest: {a) Provision of food and drink (b) Laundry and cleaning (c) Free to air television reception and internet connection 1.1.3.2 The supply of these services for Guests within the Building and Estate (a) Reception, (b) security and (c) mobility assistance 1 1 3 3 The supply of the following services within the Building and Estate: Heat and light in the Premises, the Building and the Estate 1.1.3.4 The payment of: (a) any Council Tax or Business Rates charged on the Premises, the Building or the Estate; and (b) The payment of insurance as defined in Schedule 4 And such other services and facilities as the Landlord may from time to time in its reasonable discretion provide or as the Guests may reasonably require 1.1.4 Letting Services The supply of the following services to the Tenant; 1.1.4.2 Marketing, sales, booking and reserving the Premises as a Hotel Bedroom and collecting the fees payable by Guests\u2026 1.1.4.3 Repair, replacement and renewal of furniture in the Premises; 1.1.4.4 Such other services as may be reasonably required for the proper and effective operation of a Hotel in the Building 1.2 Tenant Services Provision of the Premises for occupation by a Guest 1.3 Cost of Hotel Services The cost determined by the Landlord of the Hotel Services provided by the Landlord to the Guest 1.4 Letting Fee 50% of Room Income 1.5 Room Income The total sum paid by a Guest during his or her period of occupation of the Premises excluding VAT (if any) for Tenant Services and Landlord Services less the Cost of Hotel Services 1.6 Guest Any person other than the Tenant or the Tenant\u2019s Personnel who uses the Premises as a Hotel Bedroom 1.7 Tenants' Bank Account The bank account opened by the Landlord on behalf of the Tenant and the tenants of the other Bedrooms 1.8 Tenant\u2019s VAT Value Added Tax chargeable by the Tenant on any taxable supplies made by the Tenant under this agreement (if applicable) 1.9 Hotel Fee The amount paid by a Guest for the provision of Landlord Services and Tenant Services 2 LANDLORD\u2019S COVENANTS The Landlord covenants with the Tenant and with all the other tenants of the Bedrooms as follows: 2.1 to act as agent for the Tenant and perform obligations and responsibilities described herein as an undisclosed agent [for] the Premises 2.2 at all times to exercise a reasonable level of skill and care in relation to the performance of its obligations under this Lease 2.3 Not to do any act or thing or omit to do any act or thing which may place the Tenant in breach of the terms of this Lease 2.4 to provide Accommodation Services and Hotel Services to Guests 2.5 to provide the Letting Services to the Tenant 2 6 to pay the cost of the\u2026Utilities and the Outgoings for the Premises 2.7 When supplying the Premises to a Guest to: 2.7.1 Act as Tenant's undisclosed agent and make all arrangements and to do all such things as may be necessary for this purpose; 2.7.2 Collect the Room Income from each Guest acting as agent for the Tenant and pay such sums into the Tenants\u2019 Bank Account where it shall be held on the Tenant\u2019s behalf by the Landlord as trustee. 2.7.3 Prepare statements on receipt of Room Income and keep proper accounts and records of all Room Income received for the Tenant Such accounts and records shall be distinguishable from those maintained by the Landlord acting either on its own account or as agent for any other person and copies of such accounts and records shall, if requested by the Tenant, be provided to the Tenant upon reasonable notice 3 TENANTS COVENANTS AND OBLIGATIONS The Tenant covenants with the Landlord to observe and perform the following provisions:- 3.1 the Tenant shall make the Premises available to the Landlord as the Tenant\u2019s undisclosed agent for use as a Hotel Bedroom for a Guest. 3.2 For so long as this Lease shall remain in force the Tenant shall not advertise, market or instruct an agent to rent out the Premises and shall not let out or grant any occupation rights in respect of the Premises save as expressly permitted by this Lease and save by way of a transfer of this Lease 3.3 The Tenant permits the Management Company to enter and remain upon the Premises at all times to enable the Management Company to perform its obligations under this Lease 3.4 The Tenant shall provide vacant possession of the Premises 3.5 The Tenant shall not: 3.5.1 Change the decor or redecorate the Premises; 3.5.2 Remove any item of the furniture from the Premises; or 3.5.3 Install any other items or keep any chattels in the Premises 3.6 Each Tenant shall: 3.6.1 Co-operate with the Landlord to enable the Landlord to carry out its obligations under this Lease 3.6.2 Pay to the Landlord the Letting Fee in accordance with Paragraph 7 4 MANAGEMENT OFTHE HOTEL 4.1 Use of the Premises, The Landlord shall be entitled, acting as the Tenant\u2019s undisclosed agent and on the Tenants behalf, to supply the Premises as a Hotel Bedroom to Guests on such terms as the Landlord acting reasonably may consider appropriate without further consent or approval from the Tenant but on the basis that a consistent and logical pricing policy is adopted for the Premises 4.2 Tenant's Income and VAT 4.2.1 From the date hereof the Tenant has the right to receive the Room Income and subject to such deductions as may be required by the provisions of this Lease 4.2.2 The Tenant authorises the Landlord to use the Tenants' Bank Account to pay the Landlord the Letting Fee out of the Room Income at the times set out in this Lease provided in the event that the Room Income is insufficient to pay the Rent and the Letting Fee the Tenant will be liable to pay the balance of the Rent and the Letting Fee directly to the Landlord within a reasonable period of written demand 4.2.3 The Landlord will collect and hold the Room Income on trust for the Tenant and the Tenant shall be beneficially entitled to all sums which it is entitled to receive pursuant to the terms of this Lease. 4.2.4 The Landlord shall pay to the Tenant the balance of the Room Income (after the deduction of the Rent and the Letting Fee and any amounts of tax required by law to be withheld or deducted at source and any further deductions in accordance with this clause or any other provision of this Lease) annually in arrears 4.2.5 The Landlord shall keep proper accounts and records of Room Income received for the Premises Such accounts and records shall be distinguishable from those maintained by the Landlord acting either on its own account or as agent for any other person and copies of such accounts and records shall, if required by the Tenant, be provided to the Tenant upon reasonable notice 4.3 Landlord\u2019s Income The Landlord will collect and receive from a Guest the Hotel Fee and shall be entitled to deduct the Hotel Costs and the Letting Fee before paying to the Tenant his 50% share of the Room Income\u2026 6 LIMITATION OF LIABILITY 6.1 Save where occasioned by the act, omission, negligence or default of the Landlord (or its personnel) the Landlord shall not be liable to the Tenant for:- 6.1.1 Failure to provide the Letting Services to the extent that the Landlord is prevented from doing so by damage or destruction to the Building by an Insured Risk 6 .1.2 Any loss, damage or inconvenience which may be caused by reason of: 6 1.2 I The failure of any appliances, equipment or systems on the Premises or in the Building which may be managed by the Landlord due to any software or operating system malfunction: 6 .1.2.2 Temporary interruption of services during periods of inspection, maintenance, repair and renewal; 6.1.2.3 Breakdown of or defect in any plant and machinery, services or conduits in any of the Premises, the Building or neighbouring or adjoining property; 6 1.2.4 Events beyond the reasonable control of the Landlord\u2026 6.1.2.5 The temporary closure of the Premises or the Building to after, reconstruct or modify in any way such parts; Provided that in all cases the Landlord has taken all reasonable steps to mitigate such loss, damage or inconvenience 6.1.3 Any liability of the Landlord shall be limited to the professional indemnity insurance in force at that time, which the Landlord shall maintain for the duration of this agreement for a minimum amount of 5m 6.2 Save where occasioned by the act, omission, negligence or default of the Landlord (or its personnel), [it] shall not be responsible to the Tenant or the Tenant's Personnel nor to any other person for any: 6 2 1 Accident, happening or injury suffered in the Premises and\/or the Building; or 6.2.2 Damage to, or loss of, any goods or property sustained in the Premises and\/or the Building 7 FEES 7.1 The Landlord shall be entitled to receive the Letting Fee from the Tenant and each Tenant shall pay to the Landlord the Letting Fee\u2026 10 FORCE MAJEURE The Landlord shall not be held liable for any failure or delay in performing its obligations under this Lease and conditions where such failure or delay is caused by events beyond its reasonable control and not arising directly or indirectly from the Landlord\u2019s act, neglect, omission or default.\u201d 12. Under the sub-leases (which are less critical), the investor sub-let the room back to the hotel (with the Llandudno Bay, its Opco MBI Hotel Management Ltd) for a term of 10 years (for Brinphar from 10th May 2014). This was in return for an \u2018annual payment\u2019 of 10% of the lease premium, so as Brinphar\u2019s was \u00a390,000, this was \u00a39,000 pa, less deductions under the deferred payment scheme (resulting in the figures mentioned above). The hotel-sub-tenant had the benefit of the investor-sub-landlord\u2019s covenant of quiet enjoyment, but also had covenants to keep the room in repair etc. But the investor-sub-landlord could also terminate early under Clause 13: \u201c13.1 The Landlord may re-enter the Property (or any part of the Property in the name of the whole) at any time after any of the following occurs: a. The Annual Payment is unpaid 21 days after becoming payable whether it has been formally demanded or not; b. Any material breach of any\u2026tenant covenant, in this Sub-Lease; c. Where the Tenant is a corporation. [entering an insolvency Voluntary Arrangement, applying for or the making of an Administration Order, or presentation of Winding-Up Petition etc in relation to the Tenant]\u2026 13.2 If the Landlord re-enters the Property (or any part of the Property in the name of the whole) pursuant to this clause, this Sub-Lease shall immediately end, but without prejudice to any right or remedy of the Landlord in respect of any breach of covenant by the Tenant\u2026.\u201d Subject to that, there was an option for the hotel-sub-tenant to renew at Clause 20.1: \u201cProvided that the Tenant is not in default under the terms of this Sub-Lease then the Landlord agrees to grant the Tenant an Option\u2026to renew the Sub-Lease for successive terms of ten years at a time\u2026.\u201d Otherwise, the sub-lease would terminate at the end of the 10-year term (cl.2.1\/20.7) 13. For present purposes, there are three critical differences between the operation of the scheme under the original \u2018lease\/sub-lease model\u2019; and under the \u2018Sch.5 model\u2019 for \u2018investors\u2019 (as I call the tenant\/sub-landlord) and \u2018hotels\u2019 (landlord\/sub-tenant): (1) Firstly, whilst it is unusual to long-lease a hotel room, the \u2018lease\/sub-lease model\u2019 creates two orthodox estates in land protectable by registration binding third parties. By contrast, the \u2018Sch.5 model\u2019 has a similar practical effect but a different legal form. Rather than two registrable estates in land, there is one apparent \u2018lease\u2019 which has already been registered, but it includes a triggered \u2018profit share \u2018of the room between the investor and the hotel that is running it. (2) Secondly, in neither model does the investor have unencumbered occupation of their room. Under the \u2018lease\/sub-lease model\u2019, whilst the lease itself entitles the investor to legal \u2018exclusive possession\u2019 of the room, the 10-year sub-lease is \u2018carved out\u2019 from it, so the investor has no right to occupy the room as such (although the arrangements permitted them to book the room for free for a short period each year: Brinphar received a small payment for not doing so). Likewise, under the Sch.5 model, Clause 3.4 explicitly requires \u2018the tenant to provide vacant possession\u2019 of the room, which Mr Clegg argues removes the tenant\u2019s essential right to \u2018exclusive possession\u2019 and so defeases the lease. (3) Thirdly, there is one important practical difference for the investor between the \u2018lease\/sub-lease model\u2019 and the \u2018Sch.5 model\u2019. Under the former, the investor was entitled under the sub-lease to the annual payment of 10% of the lease premium, whether or not the room was booked out to guests. Sch.5 itself apparently only entitles the investor to 50% of their \u2018room income\u2019 if booked out to a guest. As the hotel controls which rooms are booked out and it will be rare for the hotel to be fully-occupied except at high season, Sch.5 gives no \u2018guaranteed income\u2019: it is a profit share entirely in the hands of the hotel. For those reasons, to which I return in more detail later, it is crucial whether Sch.5 is \u2018triggered\u2019, which is governed by the opening paragraph of Sch.5 of the lease: \u201cThese provisions are intended to apply in the event that the Sub-Lease of the Premises, which is to be granted on the date of this lease by the Tenant to the Landlord\u2026.for a period ending 10 years after the date of the Agreement, has either been determined for whatever reason or has not been renewed by the Landlord\u2026.\u201d (my italics) 14. Turning more briefly to the other Claimants, their leases and sub-leases were effectively identical (except that the sub-lease was simply back to the same company that held the hotel) and it is unnecessary to quote or summarise them. However, not all investors simply accepted the sales pitch and trusted the solicitors. For example, in July 2015, Mr Colin Rimmer questioned the scheme\u2019s financial assumptions and he was told by one of their sales staff that for a \u00a360,000 lease of a room for an outlay of \u00a340,000 under the deferred-payment model, \u2018the buyer invests \u00a340K, during the next 10 years the buyer receives \u00a338K income\u2019. The sales rep also said whilst the 125% buy-back in the first 10 years would not be much of a return after 10 years, it would probably be available after 5 years. Although he was persuaded by May 2016 to proceed with two rooms in the listed Queens Hotel in Llandudno, Mr Rimmer wisely instructed his own solicitors before he purchased leases in room 202 (for \u00a365,000) and room 108 (for the discounted figure of \u00a350,000 of which he funded \u00a335,000) in August 2016 from the Queens Hotel Llandudno Ltd (\u2018QHL\u2019), which were registered. He received \u00a320,000 over the next two years. 15. Around the same time in August 2016, Mr and Mrs Jeffs bought leases (later registered) in rooms QL106, QL208 and QL209 for \u00a375,000, \u00a350,000 and \u00a350,000 from QHL at the Queens Lodge, which was then called the Harrison Hotel, a small annex over the road from the Queens Hotel. They were sent a \u2018welcome pack\u2019 which gave an illustration of the 125% buy-back offer after 10 years on the \u00a350,000 room for \u00a362,500 with annual returns of \u00a350,000, giving a total projected return of \u00a3112,500. In fact, over the next few years, the Jeffs received \u00a330,000 in cash. 16. Only one of the 61 Claimants invested in the final Llandudno seafront hotel, the Belmont: Mr Andrew Duncan. He paid Belmont Hotel Management Ltd (\u2018BHM\u2019) \u00a340,000 for a \u00a360,000 room on the developer-funded model, signing the lease and sub-lease on 14th April 2015, later registered at the Land Registry. Between 2016 and 2019, Mr Duncan received \u00a34,000 and decided to buy a room lease in the Caer Rhun Annex for \u00a375,000. According to a 2016 email to another Annex investor, the plan was to turn dilapidated classrooms in the old accountancy school into a two-storey annex. Mr Duncan\u2019s second floor room has even now not yet been built. 17. The main building at Caer Rhun is a beautiful 19th Century country house in the Conwy Valley in Snowdonia, according to a 2015 brochure from when the previous accountancy school had sold it to Caer Rhun Hall Ltd (\u2018CRH\u2019), a Woodhouse-related company. Mr and Mrs Howson first visited the Belmont and Queens Hotel but in early 2016 visited Caer Rhun. They did see the Annex (which was in a fairly dilapidated state but it did have a roof). However, they decided to purchase two rooms in the main hall for \u00a3170,000 (room CR107) and \u00a3110,000 (CR102) using their lifetime of savings and Mr Howson\u2019s Army pension. The purchase was completed in April 2016 and they received \u00a328,000 a year. They visited in October 2019 and took photographs, including of the work to the Annex which had started. The Insolvencies 18. Sadly, the good times for the hotels and their investors would not last. By the time the Howsons visited Caer Rhun Hall in October 2019, CRH had already gone into administration on 29th August 2019. The Administrators, Mr Duffy and Mrs Bell from Duffy and Phelps LLP, immediately realised the NPD \u2018lease model\u2019 which encumbered Care Rhun Hall\u2019s rooms made it difficult to sell as a going concern (which was their statutory task), although they had managed to keep it running. In Autumn 2019, Caer Rhun\u2019s Administrators received an offer to purchase it as a going concern but on the basis it would be free of the leases, so on 4th December 2019, they applied to Insolvency and Company Court Judge Jones for permission to sell on the basis the investor leases would be expunged \u2013 and raised their potential illegality under FSMA. However, ICCJ Jones refused, pointing out that even were that the case, the leases appeared to be estates in land which were registered and bound third parties that he had no power to expunge; and whilst he gave directions for the Administrators to formulate their case, they did not pursue this further. 19. Between Caer Rhun Hotel entering administration at the end of August 2019 and ICCJ Jones\u2019 decision just over three months later, the rest of the hotel companies \u2013 along with the rest of companies in the NPD Group \u2013 all entered administration around the same time. QHL appointed an Administrator on 4th September 2019, BHM on 24th September 2019 and LBS on 25th September 2019, so all the relevant hotels were in the hands of Administrators before ICCJ Jones\u2019 decision. Therefore, as the implications of it in relation to Caer Rhun Hall sunk in for the other hotels, its Administrators closed Caer Rhun and instructed property agents Sanderson Weatherall LLP to try to market it and the rest of the nine former NPD hotels. In late 2019, they produced a brochure to market the hotels \u2013 ideally as a package – which surprisingly made no reference to their encumbrance by the leases: a. The Belmont had a guide price of \u00a31,100,000 for its leasehold with 1,900 years remaining and 2019 year-end turnover of c.\u00a3794,000 from 27 rooms. b. The Llandudno Bay had a guide price of \u00a31.95m for its freehold and 2019 year-end turnover of \u00a31.5m from its 61 rooms. c. The Queens Hotel (and Lodge) had a guide price of \u00a32,250,000 for leasehold with 1,900 years remaining with 2019 turnover of \u00a31.8m from 83 rooms. d. The Caer Rhun Hall (and annex) had a guide price of \u00a31.95m for freehold and 32 current rooms (but no history of use as a hotel). 20. In late 2019, Mr Ma, the controlling director and shareholder of the eventual buyers of all but the Caer Rhun Hall, was interested in expanding his Everbright hotel chain in Cumbria and North Wales into Llandudno. He was interested in the Belmont, Llandudno Bay and Queens Hotels, but when he enquired, he was told about the investor room leases, which put him off them. I am sure that would have been typical for anyone interested in any of the former NPD hotels in Wales and Northern England. To make matters worse, COVID then struck in March 2020. As everyone remembers, hotels round the country \u2013 whether in administration or not \u2013 had to close in repeated lockdowns. These hotels were no different and all closed, most temporarily until purchase, but the Queens Hotel and Lodge have never re-opened. 21. However, the combination of COVID and the investor leases on the hotels did not put off a chef called Mark Morriss putting together a rescue package. He called it \u2018White Knight Hotels\u2019 and it was co-funded by Wrights Biomass Ltd, a heating company, to buy the Llandudno Bay, the Queens, the Belmont and Caer Rhun Hall, along with two other hotels in North Wales. It appears the Administrators contacted the investors in the Llandudno Bay (and possibly those for the other hotels too), encouraging them to enable the sale by surrendering their leases for 33p in the \u00a31. Nothing came of that, but in May 2020, Mr Morris did put the Administrators in contact with Mr Mellor, who had interests in restaurants and clubs, rather than hotels. By August 2020, Mr Mellor was interested in Caer Rhun Hall alone as an events and wedding venue, despite the leases and he began negotiations for it. 22. Whilst Caer Rhun Hall had been advertised by Sanderson Weatherall with a guide price for freehold of \u00a31.95m in late 2019 without mentioning the leases, Mr Mellor accepted he would not have paid that price for it with the leases encumbering it. However, he also accepted that by late 2020, he was aware of the leaseholders, as emails from the time illustrate. As the Administrator Mr Duffy said in July 2020: \u201cThe main issue is how the [t]ransaction completes \u2013 i.e. how does Aaron Mellor sign up to [t]his. There are leasehold interests and he has to take the risk of those leasehold interests when [c]completing this transaction.\u201d Around this time, there was also some discussion of another Court application in relation to the leases and on 17th August 2020, Mr Mellor emailed the Administrator \u201cDid we manage to get any further forward on this ?…I know Mark [Morris] looked at a few solutions but wasn\u2019t convinced even liquidation and [ex parte disclaimer] couldn\u2019t be challenged down the line. Have your team had any further ideas. Did we get any results from the missing leaseholders \u2013\u2026surely we have land registry details and solicitors names don\u2019t we ? What can we do to unlock this ? Frustratingly the hotel would probably be doing quite well with \u2018staycations\u2019 at the moment if it was allowed to open.\u201d 23. Mr Mellor\u2019s frustration was understandable. Instead of paying customers coming for \u2018Staycations\u2019 during the first summer of COVID when Caer Rhun Hall was still in good repair, after its caretaker was made redundant, trespassers began squatting and over Autumn\/Winter 2020 into 2021, the Hall was starting to fall into serious disrepair. Mr Mellor pointed this out to the Administrators in an email in September 2020 when suggesting various options for moving forward with the sale of Caer Rhun, including an idea (which came to nothing) of selling the freehold to him and him leasing the hotel to a holding company for five years to honour the investor sub-leases before putting the hotel into liquidation. The Administrators informed Mr Mellor there were 17 investor leaseholders (13 registered and 4 unregistered) in various jurisdictions (although there are in fact 22 Caer Rhun lease Claimants and 3 Annex Claimants). Mr Mellor was evidently keen to find a way of dealing fairly with the investors without being saddled with their leases \u2013 indeed his offer in late 2020 included \u00a3100,000 in escrow for leaseholders to sue NPD and their solicitors. However, the investors (who by now had organised themselves into campaign groups led by Mr Howson for Caer Rhun and Dr Nico Bruyniks for the Llandudno Hotels) had become seriously concerned. Accordingly, the Caer Rhun investors rejected Mr Mellor\u2019s deal and by December 2020, the Administrators reassured the investors in Caer Rhun Hall that it would be sold with the leases intact. Similarly, in November 2020, Sanderson Weatherall emailed Mr Ma and told him: \u201cUltimately, we are seeking offers for the hotels with the long leases in place \u2013 therefore the buyer would be responsible for either negotiating surrenders with the leaseholders or operating the hotels in accordance with the management provisions of the lease.\u201d 24. However, whilst the Administrators for all the hotels had decided they would have to sell the hotels with the leases as the investors had property rights protected by registration, the sub-leases were different. They gave property rights to the hotels, subject only to paying the annual return to the investors. So, the Administrators did have the power to disclaim the sub-leases as \u2018onerous contracts\u2019 under s.178 Insolvency Act 1986 (discussed below) and to de-register the sub-leases so the buyers could take free of those at least. That would also mean the buyers would not be stuck with a guaranteed \u2018annual payment\u2019, but only with the more flexible room \u2018profit share\u2019 in Sch.5 in the leases. The Administrators for the various hotels disclaimed the sub-leases for Caer Rhun Hall and Annex on 13th January 2021, for the Belmont on 21st April 2021 and the Queens Hotel and Annex on 30th April 2021. (As an aside, the Queens too had fallen into serious disrepair, with weather damage to the roof from the sea storms and serious water ingress, theft and vandalism and sadly as I shall explain, it remains in that state today). For Caer Rhun Hall, Mr Howson said the investors were given notice of the disclaimer of their sub-leases, but on the basis \u2018The Administrators are negotiating the sale of the freehold with the headleases attached\u2019. This is less clear for the Belmont and Queens Hotel \/ Lodge. The position for the Llandudno Bay is more complex because the property company which held the freehold and granted the lease \u2013 LBS \u2013 was different from its operating company which held the sub-lease \u2013 MBI Hotel Management Ltd. The latter had been dissolved for other reasons in June 2017 and the sub-leases are held by the Crown as bona vacantia and have never formally been disclaimed. If the Claimants are right in principle that the leases did not defease on determination of the sub-leases anyway, this does not matter. (I was not addressed about the position of the Llandudno Bay investors with extant sub-leases if the Defendants are right). The Acquisition of the Hotels by the Defendants 25. After the disclaimer of the sub-leases for Caer Rhun Hall, negotiations began over a price for the freehold subject to the leases between the Administrator and Mr Mellor. His company the Third Defendant, Tokyo Industries (Snowdonia) Ltd (\u2018Tokyo\u2019), bought Caer Rhun Hall and the Annex in October 2021 for \u00a3760,000 for the freehold. With an additional element for other property included and an adjoining field, the overall price was c.\u00a3850,000. Nevertheless, Mr Mellor accepted this was far less than the original guide price of \u00a31.95m. Whilst he emphasised that by the time Tokyo bought Caer Rhun Hall it was very run-down (as shown in some photographs in a local paper when it re-opened in January 2023), he also accepted the price was far less than it would have been if it had not been subject to the leases, such as those of Mr and Mrs Howson in the main hall and Mr Duncan in the Annex who lifted their opposition to allow the sale to go through to Tokyo. 26. Meanwhile, by Autumn 2021, Mr Ma was ready to move forward with purchasing the Llandudno Hotels for the North Wales end of his Everbright group. Whilst much was made of Everbright\u2019s corporate structure in Dr Bruyniks\u2019 statement (technically inadmissibly as he had no personal knowledge), it is very common to manage hotels through a \u2018property company\u2019 (\u2018propco\u2019) and \u2018operating company (\u2018opco\u2019) structure. There are various relevant companies: the First Defendant Ever Bright Inn Ltd (I abbreviate it to \u2018EBI\u2019 to differentiate it from the wider Everbright Group and from another group company Everbright Hotels Ltd (\u2018EBH\u2019)), the Second Defendant Aloe Vera Ltd (\u2018Aloe Vera\u2019), the Fourth Defendant \u2018H&M Llandudno Ltd (\u2018H&M Llandudno\u2019), H&M Belmont Ltd (\u2018H&M Belmont\u2019) and H&M Bay Ltd (\u2018H&M Bay\u2019). Mr Ma is a shareholder and director (along with investors) in each. 27. The first Llandudno hotel which Mr Ma bought, through his prop co Aloe Vera (with the opco as H&M Bay), was the Llandudno Bay freehold for \u00a3446,500 on 23rd July 2021, registered later at the Land Registry. Mr Ma accepted this was less than a third of the original guide price of \u00a31.95m. Like Mr Mellor, he admitted this reflected the freehold was subject to the investors\u2019 leases (who under the leadership of Dr Bruyniks agreed to the sale), although partly also the disrepair. Mr Ma said when Aloe Vera bought the Llandudno Bay, the main issue was lack of water pressure to the rooms. There was also water damage to the ground floor public areas. Moreover, many rooms looked rather tired (including Dr Bruyniks\u2019 room from his photographs) and needed full refurbishment, together with other improvements. In the end, the Llandudno Bay did not re-open until Easter 2022, now as a 4-star hotel. 28. The second Llandudno hotel Mr Ma bought was the Belmont, through the propco EBI (though it would be run as \u2018the Belmont Boutique Hotel\u2019 through the opco EBH). The Administrator sold the long leasehold of the Belmont to EBI on 3rd September 2021 for \u00a3318,000, which is the price under which it was registered at the Land Registry on 28th September 2021, although along with its contents the overall sale price was \u00a3380,000. Again, Mr Ma accepted this was much less than the original guide price of \u00a31.1m, which reflected that EBI took subject to the investor room leases (including Mr Duncan\u2019s who agreed to the sale), but also some disrepair with water damage and rather tired-looking bedrooms. Nevertheless, it cannot have been too bad as the Belmont re-opened a month later in October 2021. The Administrators then put the original Belmont company BHM into liquidation. 29. It took longer for the Queens Hotel and Lodge to be sold because they were derelict. As I said, they had fallen into serious disrepair, with weather damage to the roof of the main Queens Hotel from the sea storms and serious water ingress, theft and vandalism. Once again Mr Ma stressed this serious disrepair greatly depressed the price, albeit as well as the long leases being subject to the investors\u2019 room leases (e.g. Mr Rimmer and Mr and Mrs Jeffs who agreed to the sale). Accordingly, rather than the original guide price of \u00a32.25m, the long leases of the Queens Hotel and Lodge were sold on 2nd March 2022 for a total of \u00a3350,000, less than a fifth of their 2019 value. EBI bought the Queens Hotel itself for \u00a3270,000, whilst the Lodge was bought for \u00a380,000 by H&M Llandudno. However, Mr Ma said that once his companies acquired the Queens Hotel and Lodge, the disrepair was even worse than he had feared. There were serious structural defects and indeed, a local newspaper in 2024 showed scaffolding up at the Lodge to stop its fa\u00e7ade falling into the street. Mr Ma said that it proved extremely difficult to undertake any work to either hotel, because both were listed and the local authority proved rather bureaucratic and stymied his plan to reduce the number (and so increase the size) of the rooms. He applied for listed building consent and has undertaken structural work to make the hotels safe, but they remain boarded up with regular security patrols, the water and utilities are turned off and business rates are not paid during closure. Indeed, at trial Mr Ma admitted that recent estimates for the work required were around \u00a34m which was unviable and so he had no current plans to reopen the Queens Hotel or Lodge. Interaction between the Defendants and Claimants 30. Once Mr Ma\u2019s companies had acquired the Llandudno hotels, he arranged for a consultant called Adrian Barsby to deal with \u2018shareholder relations\u2019. As early as May 2021 \u2013 before Mr Ma\u2019s companies had actually completed their purchases for any of the Llandudno hotels, Mr Barsby emailed Dr Bruyniks as the lead figure for \u2018LION\u2019, the investor group he had set up for the Llandudno hotels. In an extremely detailed email, Mr Barsby set out the plans for all of them and for the investors: \u201cIt is important that we have this collective understanding, together with an understanding of what we have not acquired. Specifically, any agreements within any additional subleases \/ buy back options etc that you may have previously had with the previous owners have not been novated to ourselves as the new freeholder, or to the operational management company, as these agreements have either been liquidated in the former company or disapproved [i.e. disclaimed] by the administrators\u2026. \u2022 The original business model of the [Llandudno Bay] and your original involvement was for the property to be renovated and developed using funds provided by the investors. \u2022 Our understanding is that investors purchased a leasehold interest in a bedroom within the property and such bedrooms are subject to 125-year leases in favour of the individual investor. \u2022 As part of the investment, the investors entered into a sub-lease with a connected company that would act as the operating company for the business (OPCO) \u2022 The sub-lease provided for the investor to receive a rental income based upon a percentage of the original investment made. \u2022 Following the insolvency of the hotel freeholder \/ long-leaseholder together with the OPCO being liquidated, the sub-leases in existence have been legally disclaimed by the liquidator\/administrator and is why they have not been novated to the new ownership. \u2022 The effect of the sub-leases being disclaimed and the sale of the freehold to Aloe Vera Ltd [is that] the contractual provisions of the new relationship going forward [are] dictated by the terms within the schedules of of the leases granted to each investor leaseholder. For the purpose of the summary below, much of the new \u2018relationship\u2019 can be found within Sch.5 of the lease. Going Forward As we mention above, the key aspects of Schedule 5 governs the future relationship between the freeholder and the individual investor leaseholder as we go forward and we have included below some of the main aspects: \u2022 The new freeholder of the hotel Aloe Vera will appoint a management company (OPCO) to operate the trading of the business and this will be H&M Bay Ltd. \u2022 The tenant (bedroom leaseholder) will contractually make their premises available for use as a hotel bedroom to a guest. \u2022 The schedule outlines rental income from each leaseholder\u2019s bedroom will be apportioned on a 50\/50 basis between [them] and the freeholder. \u2022 Operating and running costs are to be deducted from the leaseholder\u2019s element of rental income prior to the distribution of funds. \u2022 The hotels have been closed since March 2020. The freeholder is currently assessing a re-opening date. \u2022 It is not possible, at this stage, to accurately forecast a revenue for the bedrooms as the businesss does not have any reservations, is still recruiting staff and is heading into the quieter winter months from a trading perspective. We shall, of course, provide this information as soon as feasible following the hotel re-opening. \u2022 We wish to be clear with you, it is likely that following the initial period of opening and in the first trading year, we anticipate that the hotel will operate at a loss until revenue builds to a trading break-even. It is our estimation that it will be in the trading year 2 before we can provide a more accurate assessment as to the level of leaseholder disbursement. \u2022 We undertake to make provision for any disbursements to leaseholders following completion of the first 12-month[s] and annually following. \u2022 Payment is to be made within 120 days of the end of the financial period \u2022 We undertake to provide quarterly P&L reports to all leaseholders within 45 days of the end of the accounting period\u2026.\u201d The Frequently Asked Questions (\u2018FAQ\u2019s) enclosed re-iterated that whilst the sub-leases had been disclaimed, the leases would be honoured on the basis of Sch.5 and some of the other practical information already quoted, but it also stated this: \u201cCan we refuse the new freeholder and their OPCO access to the bedrooms we have a leaseholding of ? No, please refer to the [lease] agreement you have in place. This is referenced under schedules 3 and 5\u2026.[which appears to be a reference to para 3.4 of Sch.5 \u2018The tenant shall provide vacant possession of the Premises\u2019 and the hotel-landlord\u2019s right of access for inspection and repair under Sch.3] Are there any preferential rates for leaseholders to stay at the hotels ? There is not a provision within the [leases] for this, but we are not unhappy to discuss this matter further with leaseholders.\u201d 31. It is difficult to see how Mr Barsby could have been any clearer \u2013 and reassuring \u2013 to investors. Indeed, after the purchase of the Llandudno Bay, on 21st September 2021, Mr Barsby emailed all its investor-leaseholders explaining that he was the contact-point for them, that neither he nor the new owners (i.e. Mr Ma and his colleagues) had any connection with NPD and added this confirmation: \u201cI can confirm to you that Aloe Vera Ltd has acquired the freehold of the Llandudno Bay Hotel where your bedroom lease-holding rests [and] that Aloe Vera has only acquired the freehold and head lease conditions.\u201d Mr Barsby mentioned the water damage and that it was not yet clear when the Llandudno Bay would open and asked the investors to confirm their leaseholding. Dr Bruyniks attempted to argue that Aloe Vera had also acquired the sub-leases with the guaranteed returns, but its lawyers explained to him in detail on 25th February 2022 that was not the case because the sub-leases had been disclaimed. This was part of an offer to buy-out the leaseholders\u2019 surrenders of the leases which: \u201c[Y]ou can choose to accept the offer or not, in which case our client will simply operate the hotel and rooms pursuant to the terms of Sch.5 of the leases and account to leaseholders accordingly.\u201d Whilst Dr Bruyniks pressed his own interpretation of the sub-lease position and the calculation of the room income split under Sch.5, Aloe Vera\u2019s solicitors disagreed. On 5th March, Dr Bruyniks responded, purportedly on behalf of several Llandudno Bay leaseholders suggesting that 39 out of 47 leaseholders were unhappy with Aloe Vera\u2019s surrender offer (which ranged from \u00a34,000-\u00a312,000 per room), although they were \u2018happy for Aloe Vera to operate the hotel and share the profits until such time as they receive a realistic offer for their leases\u2019. However, he also suggested the covenant of quiet enjoyment meant the hotel had no access to the rooms until they agreed new terms. On 17th March 2022, just before the Llandudno Bay opened, Mr Barsby replied in detail to all the leaseholders, recognising their concerns but reiterating Aloe Vera\u2019s position and that the offers remained open. 32. In October 2022, once the Llandudno Bay had opened, Mr Barsby sent Dr Bruyniks and the other Llandudno Bay investors a template profit and loss account for the operation of the rooms, but rejected any suggestion that they were unlawfully operating a Collective Investment Scheme, pointing out there was no \u2018pooling\u2019 of income and profits \u2013 one leaseholder could benefit even if another did not the former but not latter\u2019s room was let. Dr Bruyniks was sent another statement in February 2023 suggesting his room had been let 13 times since May 2022 generating a total of \u00a31,097.61, but as the hotel was still loss-making, there was no \u2018profit\u2019 to \u2018share\u2019. Neither Dr Bruyniks nor any other Llandudno Bay investors have received profits. 33. Whilst I have not seen similar detailed emails from Mr Barsby for the Belmont, in May 2023, he did send Mr Duncan a profit account suggesting between November 2021 and June 2022, his room at the Belmont had generated bookings and a total room income of \u00a311,839.19, but again he received no profit share as the Belmont was still loss-making. That has continued since. Both he for the Belmont and Dr Bruyniks for the Llandudno Bay Hotel say that Mr Barsby and his colleagues in the Ever Bright companies have misunderstood the way room income is calculated. Mr Ma denied this and said the statements reflected how Sch.5 worked; bearing in mind there was no guaranteed income and rooms were allocated automatically by the hotels\u2019 \u2018Property Management System\u2019 based on customers\u2019 preferences when booking online. Whoever is right, in any event, I am not asked to calculate loss at this stage. 34. However, there is no such issue with the Queens Hotel and Queens Lodge, since such is their state of dilapidation, they have never re-opened and so there has never been any real occasion to discuss potential profit shares. Indeed, it is fair to say that Mr Barsby was rather less assiduous with the leaseholders of the Queens Hotel and Lodge than with those of the Llandudno Bay and Mr Duncan at the Belmont. Indeed, coming into this trial in his recent witness statement, Mr Rimmer genuinely believed that the Queens Hotel and Lodge were being refurbished and would be \u2018opening soon\u2019, as the Everbright website suggested. It must have come as a shock to him with his two rooms at the Queens Hotel, Mr and Mrs Jeffs with their very large investment in the Queens Lodge and the other leaseholders at both to hear in Mr Ma\u2019s evidence for the first time that his view was that it would be unviable to renovate and open either the Queens Hotel or Lodge and he had no plans to do so. Given Mr Ma appointed Mr Barsby who worked hard to keep communications open with leaseholders, his omission to do so with the Queens investors is regrettable. 35. However, at Caer Rhun Hall and Annex, Mr Mellor adopted a rather different approach again with Mr and Mrs Howson and their fellow investors (including Mr Duncan with his planned room in the Annex). It is clear from the evidence of both and the documents that Mr Mellor and Mr Howson (as chair of the leaseholder group for Caer Rhun Hall) were in contact from 2021 up to issue of proceedings in 2024, but unlike Mr Barsby on behalf of Mr Ma\u2019s companies running the open Llandudno hotels, Mr Mellor never expressly said he would implement and operate the profit shares in Sch.5 of the leases for the Caer Rhun leaseholders. On 12th January 2022, whilst Caer Rhun was closed, Mr Mellor emailed Mr Howson saying: \u201cHave the leaseholders been told that the \u2018lease back\u2019 and \u2018buy back\u2019 options have been retained by the administrators and we have only purchased the freehold property with the resting \u2018registered\u2019 leases ?\u201d Moreover, Mr Mellor continued to email Mr Howson in January 2022, including why planned \u2018lodges\u2019 were not viable and nor were the plans to develop the Annex: \u201cI see no way this would be completed and will not be getting completed by ourselves \u2013 the property is part-demolished with no roof.\u201d In evidence, whilst Mr Mellor acknowledged the Annex remains an eyesore, he re-iterated that it was not financially viable to develop. However, whilst he accepted that did not apply to the main hall rooms, he insisted that his approach in January 2022 was not to adopt or implement the profit-share in Sch.5 but to encourage investors to sue their solicitors for negligence, as he had said at the time: \u201c\u2026ch.5 is written with such blatant \u2018premonition\u2019 that some level of insolvency.. was always the malicious intention. This should have been spotted easily by those instructed by investors to protect their investment\u2026.[This] amplifies grounds massively for full recovery under the advisor[\u2018s] professional negligence insurance\u2026.. This puts me in a position where all me paying anything will just reduce the amount the insurers who deserve to pay you have to pay. I really do feel this case is rock solid and I will assist all I can in pursuing this for you.\u201d Mr Howson and Mr Mellor continued to discuss a paid surrender to \u2018crystallise the losses\u2019 for a negligence claim, but Mr Mellor\u2019s nominal offer was not accepted. Whilst there was sporadic further contact, for example in January 2023 when the Caer Rhun Hall finally re-opened, Mr Mellor\u2019s position did not change and neither Mr Howson nor any of the other Caer Rhun Hall leaseholders (still less Mr Duncan and the other Annex Leaseholders) ever received any acknowledgement that the profit share was being operated by Tokyo, let alone any money from it. Whilst the accounts for Tokyo show an increase in the value of Caer Rhun Hall as an asset; and since 2023 its income, none of it has been received by its investor leaseholders. However, Mr Howson has tried to book at the Hall but it has been fully-booked, suggesting his and other leaseholders\u2019 rooms have been used by Tokyo for guests. The Litigation 36. Finally, I can very briefly review the litigation before turning to the legal issues. As Mr Mellor had encouraged and supported with the Caer Rhun leaseholders, both they and the Llandudno hotel leaseholders sued the scheme\u2019s solicitors for negligence. Understandably, I have been told very little about that besides the fact that the leaseholders had settled their claim for modest payments nowhere near the level of their initial investment, let alone their projected returns which they claim. Moreover, ironically, that settlement that does not help the most cautious investors like Mr Rimmer who wisely did not entrust the solicitors with the lease purchase and instructed their own solicitors, whom Mr Rimmer has said he has not pursued. 37. In February 2024, following other NPD litigation and its liquidator\u2019s claim against Mr Woodhouse, the Defendants\u2019 solicitors MSB wrote to Queens hotel and Lodge leaseholders like Mr Rimmer and Mr and Mrs Jeffs demanding the \u00a3100 ground rent under the lease, a contribution to refurbishment costs and threatening forfeiture. It said pending a determination the lease was a UCIS, \u2018our client proceeds on the basis your lease remains enforceable\u2019 which seems to be the only acknowledgement from Mr Ma\u2019s companies that they succeeded to the leases for the Queens Hotel and Lodge. MSB also said they were not \u2018operating\u2019 a CIS merely by acquiring the properties and leases. Indeed, in August 2024, notices of termination were served, but then withdrawn. But then MSB argued the leases had been defeased. 38. On 20th August 2024, the present claims were issued under CPR 8 by \u2018omnibus Claim Form\u2019 (which had recently been affirmed as legitimate by the Court of Appeal in Morris v Williams Solicitors [2024] 3 WLR 693) for a total of 61 Claimants (24 for the Llandudno Bay Hotel, 8 for the Queens Hotel and Lodge, 27 for Caer Rhun Hall and Annex and Mr Duncan for the Belmont). However, some of the Claimants have since settled, as have all the Claimants for another hotel originally part of the action, the Wyncliffe House Hotel (the only one in England). 39. At a hearing before DDJ Dunn in October 2024, she directed the claims would proceed under CPR 7 and after Particulars of Claim, Defences and a Reply were filed, by consent order in January 2025, Amended Particulars of Claim, Defence and Counterclaim were filed in March 2025. The matter was then listed for further CMC before HHJ Williams on 8th August 2025, who directed a trial of preliminary issues, with disclosure in September, statements in October and trial in December. The preliminary issues directed by HHJ Williams in August were as follows: \u2022 Preliminary Issue (\u2018PI\u2019) 1 Whether \u2018arrangements\u2019 between the parties set out in the Lease constitute and\/or are capable of comprising an unregulated collective investment scheme (\u201cUCIS\u201d) as defined by s.235 FSMA \u2022 PI.2 Whether the predecessors in title to the Defendants established or operated a UCIS under section 235 FSMA? \u2022 PI.3 Whether the Defendants have become successors in title to the Leases including schedule 5 \u2022 PI.4 Whether the terms and\/or operation of the Management Provisions in schedule 5 of the Leases constitute a UCIS for the purposes of s.235 FSMA? \u2022 PI.5 [Whether] Defendants are authorised to establish\/operate\/wind up CIS \u2022 PI.6 Whether the Defendants are an \u2018Operator\u2019 within\u2026FSMA 2000. \u2022 PI.7 Where rooms do not exist, whether there is any liability of the Defendants under FSMA 2000 in relation to the operation of a UCIS pursuant to any arrangements. \u2022 PI.8 Whether the Defendants have held themselves out to the Claimants, the public and other businesses as operating a scheme pursuant to [FSMO] and\/or operating or winding up a UCIS, being \u201cspecified activities\u201d for the purposes of section 22 FSMA, including the enforcement of Ground Rent and service charges and have sought to achieve the forfeiture of the Leases \u2022 PI.9 Whether in performing the \u201cactivities\u201d without any reference to, intended compliance with, or implementation of, the UCIS, amounts to a breach of the provisions of the Lease and\/or Schedule 5 \u2022 PI.10 Whether [the Defendants] performing the \u2018activities\u2019 without any reference to, intended compliance with, or implementation of, the UCIS [contravenes] ss.19(1) and 22(1) FSMA and Arts.4(2) and 51ZE [FSMO]\u2026 \u2022 PI.11 What is the effect of s.26(1) FSMA upon the Leases and Schedule 5 \u2022 PI.12 Whether in principle, the Claimants are entitled to their pleaded relief including the declaratory relief that the Defendants are operating and\/or winding up a UCIS and any interim or consequential orders including the prohibition of continuing to operate the UCIS \u2022 PI 13 Whether by reason of the disclaimer of sub-leases by the liquidators or otherwise, there was defeasance of the leases granted to the Claimants by reason of which they ceased to exist and\/came to an end and the consequences thereof. \u2022 PI 14 Whether the Defendants are entitled to a declaration that they are not operating or winding up a UCIS \u2022 PI 15 Whether the Defendants are entitled to the removal of registered titles \u2022 PI[16 previously 18] Whether in principle the Claimants are entitled to relief pursuant to section 26 FSMA 2000 against the Defendants ?\u201d There is considerable repetition and overlap between these issues, which I have grouped into the five overall topics at the start, which I shall explain as I go through. Topic 1: The Effect of the Leases Framing the Issue 40. This topic addresses the Defendants\u2019 overarching \u2018defeasance argument\u2019 at PI13: \u2018Whether by reason of the disclaimer of sub-leases by the liquidators or otherwise, there was defeasance of the leases granted to the Claimants by reason of which they ceased to exist and\/came to an end and the consequences thereof\u2019. As the issue narrowed a little at the start of trial and in submissions, I prefer to put it in simpler terms as: \u2018What was the effect of the leases; and in particular did their disclaimer have the effect of \u2018defeasing\u2019 (ending) them or converting them into licences ?\u2019 41. At the start of the trial, I grouped the 16 preliminary issues together into five topics, I put this second after whether the original scheme was a UCIS. However, on reflection I will address it first for three reasons. Firstly, the Defendants contend (and DDJ Caun accepted) it is potentially a \u2018knock out point\u2019. Secondly, even if the defeasance issue is not a \u2018knock-out point\u2019, it has a substantial \u2018ripple effect\u2019 on all the other issues. Thirdly, as a consequence, the \u2018defeasance\u2019 issue was the most hotly contested but whether the original scheme was a UCIS was the least contested. 42. Accordingly, my analysis of the \u2018defeasance\u2019 issue will be longer and more detailed than for any of the other four \u2018topics\u2019. It may aid understanding of my conclusions on this topic if I put my two distinct answers to it \u2018in a nutshell\u2019 from the start: a. Firstly, I reject Mr Clegg\u2019s \u2018defeasance\u2019 argument. Even if I cannot say in legal principle \u2018once a lease, always a lease\u2019, given the Defendant\u2019s (correct) concessions there were valid leases until the sub-leases were disclaimed; and that even after Sch.5 was triggered there was still an extant legal relationship; I can say that \u2018these were leases and they stayed leases\u2019 \u2013 and indeed they preserved \u2018exclusive possession\u2019 in the requisite legal sense. b. Secondly, I broadly accept Mrs Swaffield\u2019s \u2018interpretation\u2019 argument \u2013 in particular her submission in her Skeleton Argument that \u2018Sch.5 is akin to a licence (to the hotel) within the lease (to the investor)\u2019. That is broadly consistent with my interpretation \u2013 on principles which I shall discuss – of the purported leases \u2018iteratively\u2019 \u2018zooming out\u2019 from the meaning of \u2018vacant possession\u2019 in para.3.4 Sch.5; to the meaning of Sch.5 as a whole; then of the lease as a whole; then of the lease in the context of the original sub-leases; and finally, to the commercial and investment background to them. Defeasance 43. Mr Clegg\u2019s essential argument on defeasance in his Skeleton Argument is this: \u201cBecause the sub-leases were brought to an end by the disclaimer of the liquidator that Schedule 5 of the leases applied. Ds submit that clause 3.4 [\u201cThe tenant shall provide vacant possession of the Premises\u201d] had the effect of bringing an end to the leases. Thus Schedule 5 did not take effect, the lease came to an end and Ds took free from the leases. Defeasance is the undoing of the lease, or the rendering of it as null and void. The fact that the tenants did not have exclusive possession of the premises which were subject of the leases brought them to an end\u2026The touchstone of a tenancy is exclusive possession, Street v Mountford [1985] AC 809 [(HL)]\u2026 [at pg.819]: \u201cThere can be no tenancy unless the occupier enjoys exclusive possession; but an occupier who enjoys exclusive possession is not necessarily a tenant. He may be owner in fee simple, a trespasser, a mortgagee in possession, an object of charity or a service occupier. To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments\u2026\u201d It is submitted that there can be no real issue as to the meaning of clause 3.4. The words and their meaning are clear. Their effect is to provide Ds with exclusive possession of each hotel room. This is inconsistent with the existence of a lease. There is no right in the tenant to exclude the landlord from occupying the room. That is the touchstone of a tenancy and it follows that since there was no provision for such possession a lease cannot exist. The provision thus had the effect of bringing the lease to an end. It is submitted that the consequence of this is that the arrangement for which provision was made by Schedule 5 of the leases cannot exist as a tenancy. As a result, the lease by which a tenancy was granted to the tenant came to an end. The situation is analogous to that of a condition subsequent which has the effect of bringing a tenancy to an end. [This] appears at \u00a74230-4240 of Hill & Redman\u2019s Law of Landlord and Tenant [2025, Issue 153] \u201cA tenancy determines by operation of subsequent, when it is expressed to determine on the occurrence of an event, and that event occurs. There is a theoretical distinction between interests subject to a condition subsequent, such as 'to X, but the interest shall end if he ceases to reside in England', and a determinable interest, such as 'to X as long as he lives in England'. The distinction has certain practical consequences. However, it is in some part a verbal distinction only, and both types of interest are dealt with in this section. Any event may be stipulated, such as the tenant's interest shall determine when he ceases to be employed by the landlord, or upon the death or marriage of some person. However, the event stipulated must be certain.\u201d Authority is cited, Sifton v Sifton [1938] AC 656, a case concerning a provision in a will. In the same way as condition subsequent may bring a lease to an end so a provision which comes into effect which is inconsistent with the existence of a lease must bring the lease to an end, it is submitted. Ds submit that this is a complete answer to the claim. The tenancies came to an end because of the disclaimer of the subleases and the proposed operation of Schedule 5 and Ds took free of any obligations which arose as between Cs and the original landlord. The tenancies ended on the disclaimer of the leases. The consequence is that, when Ds purchased, they did so free from leasehold covenants. Alternatively, they did so with the right to seek alteration of the register, which would then free them from such covenants, once the register had been updated. In each case this would be because the covenants in question were no longer \u2013 or, after alteration of the register, would no longer be \u2013 transferable leasehold covenants. Instead, they had reverted (or would then revert) simply to contractual obligations enforceable only against the original parties (the first set of hoteliers), or else their successors (the liquidators). As such, Schedule 5 has caused the ending of the leases qua leases. [T]here should be consequential relief\u2026\u201d 44. Consistently with his pleaded case and Skeleton Argument, in closing submissions, Mr Clegg conceded (as I shall explain later, correctly, if not inevitably) firstly that the original \u2018leases\u2019 before the \u2018triggering\u2019 of Sch.5 by the disclaimer of the sub-leases were true leases; and secondly that after Sch.5 (particularly para 3.4 – \u2018The tenant shall provide vacant possession of the Premises\u2019) was triggered, whilst he said it ended the leases as leases, there remained a legal relationship. As he put it in his Skeleton, they ceased to be leases and \u2018reverted simply to contractual obligations\u2019 [most likely, licences] \u2018enforceable only against the original parties (the NPD companies) or their liquidators\u2019, but not binding the Defendants who purchased the hotels. Mr Clegg said that was consistent with a case he cited for the proposition the principles applying to interpretation of contracts apply equally to leases: Mexfield Housing Co-Operative v Berrisford [2012] 1 AC 955 at [107]: \u201cAs I see it, the ordinary principles governing the true construction of a contract apply to tenancy agreements and leases. The principles have been discussed in many cases, notably of course\u2026by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912F\u2014913G and Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101, paras 21\u201426\u2026.[T]hose cases show that the ultimate aim of interpreting a provision in a contract is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the first of the principles he summarised in [West Bromwich] at p 912H, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.\u201d Those words of Lord Clarke were endorsed by the rest of the Court, including in the leading judgment of Lord Neuberger MR (as he then was). He held that an open-ended \u2018sale and lease back\u2019 arrangement of the occupier\u2019s home was a valid lease despite the fact it was not for a \u2018term certain\u2019 because under the Law of Property Act, it was deemed a tenancy for 90 years, determinable on death or in the express termination clauses within it. Moreover, Lord Clarke and Lord Neuberger accepted the occupier\u2019s alternative case in contract, as Lord Clarke said at [109]-[110]: \u201c\u2026If, as a matter of law, the parties have created a licence and not a tenancy, so be it\u2026.[I]t seems to me to be of critical importance to ascertain the contractual position between the parties. It follows that, as I see it, even if the contract does not create a tenancy, it creates rights and obligations between the parties, so that in an appropriate case Ms Berrisford could in principle obtain an injunction against Mexfield for a threatened breach of contract. In the meantime, the contract remains on foot.\u201d 45. However, Mr Clegg said that in this case, the parties had not created a licence rather than a lease from the start (which I will nevertheless consider in my second answer below). Instead, he argued that the investors\u2019 leases on the disclaimer of the sub-leases and triggering of Sch.5 \u2018changed legal character\u2019: from property rights and estates in land, into purely contractual rights – most obviously licences. This was because para 3.4 Sch.5 required the investors to surrender \u2018exclusive possession\u2019, which as explained by Lord Templeman in Street was a necessary (but not sufficient) condition for a tenancy rather than a licence. 46. Mr Clegg characterised his case as \u2018defeasance\u2019 which he said derived from the old French (which was the basis for our historical land law from the time of Henry II in the 12th Century). He accepted it did not have much modern currency. A word search of the online versions of leading textbooks: Woodfall on Landlord and Tenant, Hill & Redman\u2019s Law of Landlord and Tenant and Aldridge on Leases yielded no results for \u2018defeasance\u2019 at all. Moreover, the only mention of \u2018defeasance\u2019 in Megarry & Wade\u2019s \u2018Law of Real Property\u2019 (2024, 10th Ed) is a passing reference at para.3-032 to \u2018clauses of defeasance\u2019 in \u2018fee simple\u2019 (the strictly correct term for absolute freehold) in those rare cases where freehold \u2018defeases\u2019 on the operation of a condition subsequent \u2013 i.e. an express term in a freehold which makes clear that it terminates on a particular event. Indeed, the example given in Megarry and Wade was \u2018Mary Portington\u2019s Case\u2019 in 1613. 47. Therefore, realistically, the best way of putting Mr Clegg\u2019s \u2018defeasance\u2019 argument is in the contemporary language he quoted from Hill and Redman at [4230]-[4240]: \u2018A tenancy determines by operation of [a condition] subsequent, when it is expressed to determine on the occurrence of an event, and that event occurs\u2019. However, the only case cited by Hill and Redman for that proposition is Sifton, which as Mr Clegg says, was a case not about a lease, but about a will. A testator bequeathed his property to his executors on trust for his daughter to pay her sums \u2018only as long as she shall continue to reside in Canada\u2019, which the Privy Council held was a condition subsequent void for uncertainty, quoting at pg.670 a principle stated by Lord Cranworth in Clavering v. Ellison (1859) 7 HLC 707, 725: "[F]rom the earliest times, one of the cardinal rules\u2026has been this: that where a vested estate is to be defeated by a condition on a contingency that is to happen afterwards, that condition must be such that the Court can see from the beginning, precisely and distinctly, upon the happening of what event it was that the preceding vested estate was to determine.\u201d 48. Whilst Clavering and even Sifton itself are now cases of some antiquity, from my own research, that principle remains alive and kicking. It was mentioned by the Supreme Court in 2021 in Rittson-Thomas v Oxfordshire CC [2021] 2 WLR 993 at [29], citing a similar House of Lords case in 2005, although they were both about the interpretation of not leases or even wills, but statutes covering when grants of land for schools terminated by condition subsequent, so I did not refer Counsel to them. However, I did give them a recent Court of Appeal authority about conditions subsequent in leases: Miss Delaney\u2019s Nursery v Avondale Park [2023] L & TR 29. In Avondale, the freeholder granted a head lease to the predecessor in title of Avondale expiring in September 2022, with permitted use as residential. They granted a sub-lease to the claimant nursery business MDNS with a condition subsequent stating: \u2018This lease will be terminated immediately if by 14th December 2014 the Landlord does not produce to the Tenant a certified copy of a completed Deed of Variation of the Superior Lease which\u2026permits the sub-letting of the Property to the Tenant [under] this Lease and varies the Permitted Use under the Superior Lease from residential to the Permitted Use under this Lease\u2019. This was not provided and years later, Avondale tried to forfeit for non-payment of rent. But MDNS successfully got an injunction on eviction on the basis the sub-lease had terminated and it was arguably a periodic business tenant protected by the Landlord and Tenant Act 1954, which the Court of Appeal upheld. Having reviewed a line of authorities on conditions subsequent, Lewison LJ (an editor of Woodfall) said: \u201c[25] There are two particular points to be made about this line of cases. First, whether a clause provides for a contract to be void or voidable on the happening of a particular event is a question of interpretation of the contract. Second, one of the principles of interpretation is that, in the absence of a clear contrary contractual intention, a clause will not be interpreted so as to permit a party to take advantage of his own wrong. This is an ancient principle of interpretation [going] back to Lord Coke's day\u2026 [26] In determining the question, the ordinary principles underlying the interpretation of contracts apply: BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548 at [34]\u2026. [33] Since the sublease was contracted out of Part II the 1954 Act its termination is governed by the common law. There is no conceptual difficulty at common law in the grant of a term of years which determines on the happening of a particular event. The existence of such a lease is expressly recognised by the definition of \u2018terms of years absolute\u2019 in section 205 of the Law of Property Act 1925 and is exemplified by old cases such as Brudnel's Case (1591) and Doe d Lockwood v Clarke (1807) 8 East 185. [34] Clause 9 sets out a condition and its consequence. The condition is that Avondale does not produce to MDNS a certified copy of a completed deed of variation by 14 December 2014. The consequence is that the sublease \u2018will be terminated immediately\u2019. As a matter of ordinary English, I agree with the judge that the consequence is the automatic result of satisfaction of the condition. First, the clause provides that the lease \u2018will\u2019 be terminated not that it \u2018may be\u2019 terminated. I consider that (a) the word \u2018will\u2019 is imperative and (b) is readily explicable by the fact that at the date of the sublease the terminating event lay in the future. Second, the word \u2018immediately\u2019 leaves no room for some indeterminate intermediate period during which one or other party decides whether to terminate the sublease. Third, from the perspective of both parties an immediate termination makes commercial sense. From the perspective of Avondale, it removes the threat of forfeiture of its own lease; and from the perspective of MDNS it relieves it from a liability to pay rent for property that it cannot use on the terms of the sublease. Fourth, in order to make the clause work in the way that [Avondale] contended it worked, a considerable amount of redrafting and implication must be done, all of which depends on an a priori conception of how the clause was supposed to work. I therefore agree with the judge\u2026\u201d Lewison LJ\u2019s distinction between a \u2018condition\u2019 and a \u2018consequence\u2019 is helpful here. 49. Sifton and Clavering illustrate that the meaning of a \u2018condition\u2019 is a matter of interpretation. That can be relevant because if the condition is insufficiently clear, the instrument may be void for uncertainty of term as in Sifton, or it may be incapable of being a lease as it is not for a certain term, as argued but rejected in Berrisford. Here the issue is whether the \u2018condition\u2019 in Sch.5 was met (my italics): \u201cThese provisions are intended to apply in the event that the Sub-Lease of the Premises, which is to be granted on the date of this lease by the Tenant to the Landlord\u2026.for a period ending 10 years after the date of the Agreement, has either been determined for whatever reason or has not been renewed by the Landlord (or its nominated Hotel Management Company).\u201d 50. Whilst it had been common ground that the disclaimers of the investors\u2019 sub-leases had \u2018triggered\u2019 this \u2018condition\u2019 in Sch.5, in argument I suggested the phrase I have italicised in the last sentence could be read in one of two ways, which I illustrate by adding different commas: either that the provisions in Sch.5 applied if the sub-lease of the room (i) \u2018has either been determined for whatever reason[,] or has not been renewed by the Landlord\u2019; or (ii) \u2018has either been determined for whatever reason or has not been renewed[,] by the Landlord\u2019. Reading (i) would trigger Sch.5 if the sub-lease had been \u2018determined for whatever reason\u2019 by anyone or not been renewed by the Landlord. Reading (ii) would trigger Sch.5 if the sub-lease had been \u2018determined for whatever reason\u2019 or not been renewed: either way by the Landlord. 51. This matters as the disclaimers were not the act of either landlord or tenant, but of the Administrators. Whilst s.178 Insolvency Act 1986 empowers liquidators to disclaim onerous contracts, it was agreed it applied in this case. s.178(4) states: \u201cA disclaimer under this section (a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but (b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person.\u201d In Hindcastle v Barbara Attenborough Associates [1996] 2 WLR 262 (HL), it was held that due to s.178(4), a liquidator\u2019s disclaimer of a lease that had been assigned to a company later entering insolvency ended its liability; but would only determine the lease if only two parties were involved, but did not affect the rights and liabilities of third parties such as the original assignor of the lease and their guarantor. (In Shaw v Doleman [2009] L&TR 27 (CA), it was held this still applied to liabilities not governed by the Landlord and Tenant (Covenants) Act 1995). However, in this case there were only two parties to the sub-leases, so the disclaimers not only \u2018determined\u2019 the sub-leases for the insolvent hotels, but also for the only other party: the investors. But does Sch.5 apply ? If reading (ii) is correct, as disclaimer of the sub-leases was not \u2018by the Landlord\u2019 (whether hotel or investor), Sch.5 would not have been triggered. This would mean the Defendants\u2019 defeasance argument would fall away, but it would also remove any obligation on the Defendants to apply Sch.5 either. Therefore, reading (ii) would dramatically undermine each party\u2019s respective cases. So, both Mrs Swaffield and Mr Clegg both urged me to adopt reading (i). 52. As said in Berrisford quoted above, the usual principles of contractual interpretation apply to leases. So, it is legitimate to consider cases not concerning leases, such as Wood v Capita [2017] AC 1173 (SC), which concerned the interpretation of an indemnity clause in a share sale agreement. I return to Wood later, but Mrs Swaffield spotted at [37] there was a debate about the presence or absence of commas. But it did not make any difference in Wood – and I do not think it does here, as either reading (i) or (ii) would involve inserting a \u2018nominal comma\u2019. Nevertheless, on reflection, I agree with Counsel\u2019s joint view that reading (i) is correct, because in the context of the lease and the sub-lease, reading (ii) would be a strained reading of the lease, but also inconsistent with the sub-lease and business common-sense: a. Firstly, \u2018the Landlord\u2019, here means the hotel, not the investor. Therefore, reading (ii) would limit the \u2018triggering of Sch.5 to the actions of the hotel only, yet if that were the intended reading, it would surely have been expressed more clearly e.g. by starting with \u2018if the Landlord determines\u2019 etc. b. Secondly, reading (i) \u2013 meaning \u2018determinations for whatever reason\u2019 can be due to determinations by the hotel, the investor, or for any other reason – fits the sub-leases better. Clause 13.1 of the sub-leases gives a right of re-entry in the sub-lease to the investor (the sub-landlord) for the hotel (sub-tenant\u2019s) failure to make the Annual Payment or for its insolvency, including a voluntary arrangement. It would be strange if the investor (sub-landlord) ending the sub-lease did not trigger Sch.5 in the lease in those circumstances. Indeed, it is not clear that the hotel (sub-tenant) has any clear power itself to determine the sub-lease (as opposed to not renew it), in which reading (ii) of the trigger clause in the leases would be close to otiose. c. Thirdly, accordingly, reading (ii) would be inconsistent with business common-sense and create a lop-sided contractual package between the lease and sub-lease which left the power to switch to Sch.5 in the hotel\u2019s hands despite the fact that it had received a substantial sum from the investor. Therefore, I accept that Sch.5 was triggered if the sub-lease was determined \u2018for whatever reason\u2019, which included the disclaimers, since the effect of them in a two-party sub-lease with no assignments was to determine it: Hindcastle. Nevertheless, that means that Sch.5 was triggered, but also can be triggered in a wide range of circumstances, some of which were out of the hands of either of the original parties. 53. In my view, this is key to interpretation of the \u2018consequence\u2019, which Mr Clegg says was para 3.4 Sch.5 \u2018The Tenant shall provide vacant possession of the Premises\u2019. This is a far cry from the clear and simple consequence in Avondale, where Lewison LJ said that in ordinary English, the condition subsequent clearly terminated the lease if the condition was triggered. After all, it said \u2018this lease will be terminated immediately\u2019, not \u2018this lease may be terminated\u2019, without any need for straining of language; or for either party to rely on their own wrong to trigger the clause (as Lewison LJ explained at [32]); and this reading also made commercial sense. By contrast, reading para 3.4 as a \u2018defeasance condition\u2019, either terminating the lease or converting it into a licence, is in my view strained and unnatural for three reasons. 54. Firstly, as Lord Clarke said in Berrisford at [107], interpretation determines what the parties meant by the language used, by ascertaining what a reasonable person with all the background knowledge available to the parties at the time of the contract would have understood them to have meant. Even assuming in some contexts that \u2018exclusive possession\u2019 means the same as \u2018vacant possession\u2019 (which I consider below) the passing expression \u2018vacant possession\u2019 in cl 3.4 Sch.5 could not be reasonably be understood as converting the lease into a licence. One would expect much clearer contractual language as to consequence (as in Avondale in a different way) \u2013 in effect an express \u2018defeasance condition\u2019. Moreover , if termination of the sub-leases were intended to prompt conversion of the leases into licences, the obvious way to achieve that would be a clear termination clause for the leases (as in Avondale) and the triggering of a third agreement in the \u2018contractual package\u2019 \u2013 a bespoke licence governing the partes\u2019 relationship. A reasonable person would not have understood that to be achieved by a passing reference to \u2018providing vacant possession\u2019. Indeed, as Mrs Swaffield said, para 3.4 Sch.5 is not only not a condition subsequent terminating the lease: it arguably has the opposite meaning, since it practically enables the investor having the right to agree to the continuation of the hotel\u2019s use of the Hotel Room if the Sub-Lease were determined\/not renewed. 55. Secondly, even if a reasonable person might have understood the parties to have intended Sch.5 to change their legal position, the language of para 3.4 Sch.5 was insufficiently clear for the investors to be understood to have agreed to abandon their property rights in the room. Mrs Swaffield relied on \u2018the Gilbert Ash principle\u2019 developed in cases about contractual exclusion clauses and summarised by Lord Leggatt in Triple Point v PTT [2021] 3 WLR 521 (SC): \u201c107 The approach of the courts to the interpretation of exclusion clauses (including clauses limiting liability) in commercial contracts has changed markedly in the last 50 years. Two forces have been at work. One has been the impact of the Unfair Contract Terms Act 1977\u2026The second force has been the development of the modern approach in English law to contractual interpretation, with its emphasis on context and objective meaning and deprecation of special \u2018rules\u2019 of interpretation encapsulated by Lord Hoffmann\u2019s announcement in West Bromwich [at] 912 that \u2018almost all the old intellectual baggage of \u2018legal\u2019 interpretation has been discarded\u2019. 108 The modern view is accordingly to recognise that commercial parties are free to make their own bargains and allocate risks as they think fit and the task of the court is to interpret the words used fairly applying the ordinary methods of contractual interpretation. It also remains necessary, however, to recognise that a vital part of the setting in which parties contract is a framework of rights and obligations established by the common law\u2026. These comprise duties imposed by the law of tort and\u2026norms of commerce that have come to be recognised as ordinary incidents of particular types of contract or relationship and which often take the form of terms implied in the contract by law. Although its strength will vary according to the circumstances of the case, the court in construing the contract starts from the assumption that in the absence of clear words the parties did not intend the contract to derogate from these normal rights and obligations. 109 The first and still perhaps the leading statement of this principle is that in Modern Engineering Ltd v Gilbert-Ash Ltd [1974] AC 689. The question was whether the parties to a building contract had agreed to exclude the contractor\u2019s common law and statutory right to set off claims for breach of warranty against the price. The right allegedly excluded was thus one which would diminish the value of the claim otherwise maintainable against the contractor. Viscount Diplock said (at p 717H): \u201cIt is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law\u2026But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.\u201d Applying the Gilbert Ash principle, given the fundamental legal difference between a lease and a licence, especially in relation to enforceability against third parties and registration under the Land Registration Act 2002 (discussed below), in my judgement, para 3.4 Sch.5 is simply far too slender a basis to draw the conclusion that the parties intended para 3.4 to \u2018defease\u2019 the investors\u2019 legal estate in land into a mere contractual right unenforceable against third parties if Sch.5 were \u2018triggered\u2019 including if outside the parties\u2019 control, for example by insolvency disclaimer. 56. Whilst Mr Clegg objected that the \u2018Gilbert Ash principle\u2019 related to contractual exclusion clauses, not clauses in leases, I do not accept that makes a difference: a. Firstly, as Lord Leggatt explained in Triple Point at [107]-[108], the Gilbert Ash principle is not a \u2018special rule of legal interpretation\u2019 for contractual exclusion clauses, but part of a wider approach to interpreting contracts in their \u2018legal context\u2019. This chimes with the point made in Berrisford that the interpretation of leases is the same approach as to interpretation of contracts. b. Secondly, Lord Neuberger again took the same approach as in Berrisford to another lease interpretation case: Arnold v Britton [2015] 2 WLR 1593 (SC), which was in turn held to be consistent with other contractual interpretation cases in Wood. More specifically in Arnold at [22], Lord Neuberger also applied to leases this approach in a Scottish case about the sale of land: \u201c[I]n some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract. In such a case, if it is clear what the parties would have intended, the court will give effect to that intention. An example.. is Aberdeen City Council v Stewart Milne Group Ltd 2012 SCLR 114, where the court concluded that \u2018any . . . approach\u2019 other than that which was adopted \u2018would defeat the parties\u2019 clear objectives, but the conclusion was based on what the parties\u2019 had in mind when they entered into the contract: see paras 21 and 22.\u201d In the present case, the original parties plainly intended Sch.5 as a \u2018failsafe\u2019 if the sub-leases ended (which is how the investors understood it from their evidence). In other words, Sch.5 was a measure to protect the investors, not a mechanism to undermine their legal rights. To interpret para 3.4 Sch.5 as converting their leases into licences would defeat the parties\u2019 plain intention. That is simply another way of putting the Gilbert Ash principle in this case. c. Finally, even more specifically to conditions subsequent in leases, as discussed, in Avondale, Lewison LJ recognised at [25] the interpretative principle that \u2018in the absence of a clear contrary contractual intention, a clause will not be interpreted so as to permit a party to take advantage of his own wrong\u2019. Whilst the decision by one of the original hotels not to renew the sub-lease so triggering Sch.5 would not engage this principle (and more than it was engaged in Avondale itself), their descent into insolvency in my judgment plainly did so. This benefitted the insolvent companies because it enabled their administrators to disclaim the sub-leases and if this would also have the effect of converting the leases into licences, as the administrators\u2019 efforts showed, this would have made it much easier to sell the hotels for a far higher prince \u2013 effectively at the expense of the innocent investors. For those reasons, the second basis on which I reject the interpretation of para 3.4 Sch.5 as converting the leases into licences is that it is simply insufficiently clear to achieve such a legally-consequential, unintended and unfair result. Indeed, whilst it can make no difference analytically to the interpretation of the leases, I am fortified in that view by the fact it was the clear \u2013 and reluctant \u2013 view of the administrators that the leases remained intact after the sub-leases had been disclaimed. (Indeed, had I not reached that view myself, I might have raised whether the facts raised an issue of estoppel by convention, as also discussed in Avondale at [38]-[70]). 57. Thirdly and most fundamentally, I do not accept Mr Clegg\u2019s premise that \u2018exclusive possession\u2019 in the sense discussed in Street is inconsistent with para 3.4 Sch.5. \u2018The Tenant shall provide vacant possession of the Premises\u2019. In my experience, \u2018vacant possession\u2019 usually refers to a vendor\u2019s obligation on completion to a purchaser to leave the property sold free of physical impediments to possession e.g. belongings and rubbish; and legal impediments, such as tenants, licensees or trespassers (see e.g. Megarry & Wade at p.14-089). By contrast, \u2018exclusive possession\u2019 is a legal characteristic of a tenancy which is not lost even if the tenant sub-lets the premises and therefore is unable to occupy it personally. As Mr Clegg put it, the tenant can \u2018carve out\u2019 from their own demise under the lease a more limited \u2018sub-lease\u2019, even if only more limited by a day. In most of the cases on \u2018exclusive possession\u2019, including Street but also Brillouet v Landless (1995) 28 HLR 836 (CA) Global 100 v Laleva [2022] HLR 20 (CA) and AP Wireless v On Tower [2025] 2 P&CR 5, the real question was whether the undoubted occupation was pursuant to legal \u2018exclusive possession\u2019 amounting to a tenancy, or only amounted to a licence. However, in some cases, that is not the issue, as Johnson J said in On Tower at [97]: \u201cThe concept of possession was considered by the House of Lords in JA Pye (Oxford) Ltd v Graham [2003] 1 A.C. 419. The issue in that case was whether title to land had been acquired by adverse possession, but the explanation of the concept of possession which is to be found in this case is of wider application\u2026.Lord Browne-Wilkinson made extensive reference to the judgment of Slade J (as he then was) in Powell v McFarlane (1979) 38 P. & C.R. 452..at [40]…to identify the two basic elements of possession: "In Powell's case (1979) 38 P. & C.R. 452 Slade J said, at p 470: (1) In the absence of evidence to the contrary, the owner of land with the paper title is deemed to be in possession of the land, as being the person with the prime facie right to possession. The law will thus, without reluctance, ascribe possession either to the paper owner or to persons who can establish a title as claiming through the paper owner. (2) If the law is to attribute possession of land to a person who can establish no paper title to possession, he must be shown to have both factual possession and the requisite intention to possess (\u2018animus possidendi')." [Whilst this] used the word being defined – possession – in the definition itself\u2026Slade J was only adopting a definition used by Roman law and by all judges and writers in the past. To be pedantic the problem could be avoided by saying there are two elements necessary for legal possession: (i) a sufficient degree of physical custody and control (\u2018factual possession\u2019); (ii) an intention to exercise such custody and control on one's own behalf and for one's own benefit (\u2018intention to possess\u2019)." Whilst the other cases did not analyse it in this way, they (including Street and AP Wireless itself) can be seen as \u2018Category 2\u2019 cases turning on (i) \u2018factual possession\u2019 and (ii) \u2018intention to possess\u2019. By contrast, the present case can be seen as Category 1, as the investors were the paper owners of their demise under the leases with the prima facie right to possession for 125 years, who remained in legal (exclusive) \u2018possession\u2019 when they \u2018carved out\u2019 the sub-lease for 10 years. However, they also retained their prima facie right to possession when Sch.5 was triggered because the hotel\u2019s right to occupy (or strictly, let out the room to guests) was as the investor\u2019s agent and conditional on the profit share scheme summarised at the start of Sch.5: \u201cUnder these provisions the Tenant shall irrevocably appoint the Landlord (or its nominee) to act as his Undisclosed Agent in the letting of the Premises. In return for letting the Premises to Guests the Tenant shall receive from the Landlord 50% of the Room Income\u2026and the Landlord shall receive the remaining 50% of Room Income together with the whole of the cost of the Hotel Services provided by the Landlord to the Guest.\u201d 58. Alternatively, the true position on \u2018exclusive possession\u2019 in this case seems to me most clearly explained by reference to the analysis in Megarry and Wade at p.16-017, just after the passage Mr Clegg cited at 16-015. I shall cite both paragraphs: \u201c16-015 In Street v Mountford\u2026 the House of Lords restored the law to its former more principled position. Where, as a matter of fact, a person was granted exclusive possession of land \u2018for a term at a rent\u2019 that grant created a lease. This was so whatever label the parties might attach to the arrangement. The test was one of substance not of form\u2026The legal consequences of what has been agreed is therefore \u2018a matter of law rather than dependent on what the parties intended\u2019\u2026.Although there could be no tenancy in the absence of exclusive possession, an occupier who had exclusive possession would not be a tenant in three circumstances: (i) if there was no intention to create legal relations; (ii) if the occupier\u2019s occupation was referable to some other legal relationship, as where he or she was a freeholder, a trespasser, a purchaser in possession under a contract of sale, an object of charity or where the occupation was pursuant to a contract of employment or by reason of some office; or (iii) where the owner of the land had no power to grant a tenancy. The House accepted that \u2018[T]he court should\u2026be astute to detect and frustrate sham devices and artificial transactions whose only object is to disguise grant of a tenancy\u2019. 16-017 A tenant who has exclusive possession can exercise the rights of a landowner. Exclusive possession entitles the tenant to exclude all others, including the legal owner, from the property, save where the landlord is entitled under the terms of the lease to inspect the premises and, e.g. carry out repairs. Exclusive possession must be distinguished from exclusive occupation, which may or may not amount to legal possession. Sole use is not the same as exclusive possession. Accordingly, even if the grantee is exclusively entitled to occupy the premises, in the sense that no one else is entitled to live there, he or she may not have exclusive possession because the grantor may retain control of the premises. Conversely, a grantee may have exclusive possession, although not personally occupying the property, if he or she is in receipt of the rents and profits as a result of subletting it.\u201d I have underlined those four sentences in p.16-017 as they illustrate the fundamental point that \u2018exclusive possession\u2019 is not concerned with exclusive factual occupation as such, but rather the legal entitlement to exclude others save where they are entitled to enter under the lease; and to receive rents and profits if not occupying. Megarry cites AG Securities v Vaughan; Antoniades v Villiers [1990] 1 AC 417, where in holding one contract for multiple occupation was a licence and other which was plainly a \u2018sham\u2019 was a lease, Lord Templeman said at pg.455 that: \u2018Exclusive possession means either exclusive occupation or receipt of rents and profits\u2019. He had already made a related point about \u2018exclusive possession\u2019 in Street at pg.827 in endorsing the analysis of \u2018exclusive possession\u2019 by an Australian Judge: \u201cThe position was well summarised by Windeyer J. in the High Court of Australia in Radaich v. Smith (1959) 101 C.L.R. 209, 222, where he said: \u201c[A lease] is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given ? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise \u2026.A right of exclusive possession is secured by the right of a lessee to maintain ejectment and, after his entry, trespass. A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with the grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises. All this is long established law\u2026" 59. In this case, Mr Clegg rightly accepts that before Sch.5 was triggered, the investors had \u2018exclusive possession\u2019 in the leases because the sub-leases were carved out from them in return for the annual payment: as Megarry & Wade put it at p.16.017: \u2018A grantee may have exclusive possession, although not personally occupying the property, if he or she is in receipt of the rents and profits as a result of subletting it\u2019. That did not change when Sch.5 was triggered and the investor was required \u2018to provide vacant possession\u2019 under para 3.4. \u2018Exclusive possession\u2019 in the sense discussed in Megarry and Wade at p.16-017 and in Street and Vaughan continued: a. Firstly, as I have said, \u2018vacant possession\u2019 is not necessarily the same as legal \u2018exclusive possession\u2019. After all, the investors gave implicit \u2018vacant possession\u2019 during the sub-leases yet retained their legal \u2018exclusive possession\u2019 by their right to the annual payments \u2013 in effect, a form of rent. Similarly under Sch.5, the investors agreed in para 3.4 to provide factual \u2018vacant possession\u2019 of their rooms in return for the profit share in Sch.5, so legal \u2018exclusive possession\u2019 continued. Indeed, that is reflected in the restrictions the investors agreed on their occupation and use of their room factually (by providing \u2018vacant possession\u2019 under para 3.4 and making available the room to the hotel for guests under para 3.1 and not letting it out or altering it under paras 3.2 and 3.4). Likewise, the investor \u2018permitted\u2019 the hotel and its \u2018opco\u2019 entry to the room to perform its obligations under the lease (para 3.3); and for them to supply the room to guests \u2018without further consent or approval\u2019; (para 4.1). Indeed, Clause 3.9.2 of the main lease required the tenant not to occupy the premises other than in accordance with the management conditions\u2019. These provisions are limited exceptions to and indeed presuppose exclusive possession by the investors, just like the reservation of a limited right of entry\u2019 to a landlord of the kind stated by Windeyer J in Radaich, as endorsed by Lord Templeman in Street. But the investors did not abandon their right to receipt of profits and so exclusive possession as Lord Templeman explained in Vaughan, (even if they were calculated differently under Sch.5 than the previous \u2018annual return\u2019 under the sub-leases). As Mrs Swaffield said, it was still for a certain term: Sch.5 could not last beyond the 125-year duration of the lease: see Berrisford at [33]. Therefore, the way Sch.5 worked was different, but it remained a lease. b. Secondly, that is how the original parties understood the operation of Sch.5. Whilst Mrs Swaffield\u2019s Rebuttal Skeleton said in a passing comment \u2018the parties never contemplated exclusive possession\u2019, it is clear that she meant \u2018exclusive occupation\u2019. The parties clearly did agree that if Sch.5 were triggered, the hotel could use the investors\u2019 rooms for guests (rather than occupy them itself) in return for profit share: which reflects the investors\u2019 \u2018exclusive possession\u2019. That is not a change in relationship between the parties inconsistent with a lease: the lease continues (there is no suggestion of a lack of power to lease of lack of intention to create legal relations). c. Thirdly, this was also the understanding of the Administrators for all the hotels and had the hotels been open during the Administration after the disclaimer, there is little doubt Sch.5 would have operated in that way. This was also the basis on which they were sold to the Defendants as subject to the leases and so the profit share in Sch.5. Indeed, that was how Mr Barsby framed it to the investors in the Llandudno Bay like Dr Bruyniks and Mr Duncan for the Belmont once they were planned to, then did, open. The reason why neither received any actual profit share is because of the way in which that was calculated by the hotels (which I am not asked to resolve at this stage), not because the Llandudno Bay and Belmont were not applying Sch.5 (to which I return later). Whilst that did not happen with the Queens Hotel and Lodge for Mr Rimmer and Mr and Mrs Jeffs, that was simply because it did not open. Indeed, their covenants in Clause 3 of Sch.5 to \u2018make the room available for use as a hotel bedroom by a guest\u2019 and \u2018to provide vacant possession\u2019 etc were effectively irrelevant whilst the hotel remained closed. Indeed, assuming the leases bound the Defendants (which I consider later), whilst the Queens remains closed, in my view of the leases\u2019 express terms (or an implied term), investors are entitled to occupy their (derelict) rooms if they wish. But it is unnecessary to resolve that issue on which I was not addressed. I accept this analysis does not apply the same way to Caer Rhun Hall (as opposed to Annex) that was open yet did not purport to implement Sch.5. However, again assuming the leases bound Tokyo, Mr Howson and other investors in my judgment retained legal exclusive possession and the right to receive profits in principle for the same reason, even if not recognised by Tokyo in its running of Caer Rhun Hall. As Mr Clegg accepted in a different context, if a party with a legal duty does not perform it, it may give rise to a remedy, but does not change their duty. In short, with rights to a profit share if the hotel used the room in return for agreeing to enable that to happen by not occupying it, if anything under Sch.5 investors even more clearly had legal \u2018exclusive possession\u2019 than they had under the sub-leases. Therefore, a lease was not simply a label but the true agreement of the parties: Street 60. For all these reasons, I reject Mr Clegg\u2019s submission that, when triggered by the disclaimer of the sub-leases, para 3.4 Sch.5 of the leases stating \u2018The Tenant shall provide vacant possession of the Premises\u2019, defeased them either totally, or by converting the leases into licences. I do not say such a result is legally impossible \u2013 indeed I have given an example of how that might be achieved by a suitably clear express term in a lease. Indeed, it may not require the \u2018triggering\u2019 of an explicit licence agreement. However, para 3.4 Sch.5 simply cannot bear the heavy legal weight that the Defendants seek to place upon it. I reject their defeasance point. Interpretation 61. I would reach the same conclusion as a matter of interpretation of the \u2018leases\u2019, even without reliance on Mr Clegg\u2019s concession that they were initially genuine leases. I broadly agree with this submission by Mrs Swaffield for the Claimants that: \u201cSchedule 5\u2026. is ancillary to the Lease and more akin to a licence within the grant of the Lease. The jump to confer indefinite exclusive possession ignores the remaining provisions for calculation and sharing of Room Income and\u2026the rights and obligations of the parties\u2026.The creation of an agency agreement confers express authority within Sch.5 within which the Permitted Use [of the room as a hotel room] takes place.\u201d In my judgment, on the proper interpretation of the language of the lease in its context, Sch.5 is an agency agreement appointing the hotel as the investors\u2019 undisclosed agent, with something akin to a licence within the lease from the investor to the hotel and\/or its guests, which is consistent with it remaining a lease. 62. I have already touched on the principles of interpreting leases as being the same as for interpreting contracts, as stated in Berrisford and shown by Arnold (and indeed as recently applied in a contract of sale related to investor \u2018room leases\u2019 but on a different point in South Bank Hotel v Galliard Hotels [2024] EWHC 2484 (Ch)). Furthermore, for contractual interpretation generally, in Wood at [10]-[13] Lord Hodge clarified the focus mainly (but not exclusively, as I said) on the text of a lease in Arnold was consistent with other decisions focussing more on context like Rainy Sky v Kookmin [2011] 1 WLR 2900 (SC). Popplewell J (as he then was) summarised Wood in \u2018The Ocean Neptune\u2019 [2018] 1 Lloyd Rep 654 at [8]: \u201cThe court\u2019s task is to ascertain the objective meaning of the language which the parties have chosen in which to express their agreement. The court must consider the language used and ascertain what a reasonable person\u2026who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. The court must consider the contract as a whole and depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to the objective meaning of the language used. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other. Interpretation is a unitary exercise; in striking a balance between the indications given by the language and the implications of the competing constructions, the court must consider the quality of drafting of the clause and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest; similarly, must not lose sight of the possibility a provision may be a negotiated compromise or that negotiators were not able to agree more precise terms. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences\u2026. It does not matter whether the detailed analysis commences with factual background and implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.\u201d 63. To that I add three interpretative points mentioned by Johnson J in AP Wireless (since upheld by the Court of Appeal at [2025] EWCA Civ 971): \u201c85 As Lord Clarke explained [in Berrisford], construction of a contract involves ascertaining what a reasonable person would have understood the parties to have meant. The relevant reasonable person is one who has all the background knowledge available to the parties in the situation in which they were at the time of the contract. This requires examination of the circumstances in which the agreement was made. Returning specifically to the lease\/licence context and to [Laleva], Lewison LJ confirmed the requirement to consider the surrounding circumstances. At [37] Lewison LJ quoted Lord Templeman, in explaining the requirement to consider the circumstances in which the relevant agreement was made\u2026: "As well as what is written on the page, the court may consider the circumstances in which the agreement was made. In AG Securities Vaughan [1990] 1 A.C. 417, 458 Lord Templeman put it this way: "In considering one or more documents for the purpose of deciding whether a tenancy has been created, the court must consider the surrounding circumstances including any relationship between the prospective occupiers, the course of negotiations and the nature and extent of the accommodation and the intended and actual mode of occupation of the accommodation."\u2026.. 91. The [next] principle is the principle that while documents forming part of the same transaction may be used to construe a document in that transaction, documents outside that transaction cannot be used in the same way; see the judgment of Jessel MR in Smith v Chadwick (1882) 20 Ch. D. 27\u2026 92 The [last] principle is the principle that the conduct of parties subsequent to their entering into an agreement cannot, as a general rule, be relied upon for the purposes of construing the agreement itself; see Sattar v Sattar [2009] EWHC 289 (Ch)\u2026 at\u2026[36], Sales J (as he then was) explained the principle: \u201cIt was common ground that the general rule is that the parties' conduct after the making of a contract cannot be taken into account to indicate what its true meaning is, judged on an objective standard: see e.g. James Miller Ltd v Whitworth Street Estates [1970] A.C. 572; Chitty on Contracts, 13th ed para.12-126. A party's later conduct might indicate what that party's own subjective understanding was of what had been agreed. However, as a matter of principle, the meaning of a contract is not given by reference to the parties' subjective understandings (even if, as it so happens, they might coincide) but by the objective interpretation which the court gives to the words used in their factual and legal context. Conduct of a party after the making of the contract does not provide relevant factual context to explicate the meaning with which the parties used the words at the time they made the contract." In this case, I accept that last principle means that what has or has not actually occurred between the Defendants and the Claimants is immaterial to interpretation of a lease (as opposed to exclusive possession under it which is what I discussed above). As Mr Clegg said, if the Defendants have behaved consistently with the continuation of a lease, that does not mean on true interpretation it was a lease. 64. Indeed, for this purpose, I also prefer to leave aside Mr Clegg\u2019s concessions that the leases were originally valid leases before Sch.5 was triggered; and that even after it was triggered, there remained a legal relationship, most likely a licence. I approach interpretation of what I shall call the \u2018lease\u2019 without preconceptions and \u2018iteratively\u2019 as discussed in Wood. I will \u2018zoom out\u2019 from \u2018vacant possession\u2019 in para.3.4 Sch.5 (which I will deal with briefly as I have already considered it extensively); to the meaning of Sch.5 as a whole; then of the \u2018lease\u2019 as a whole; then of the \u2018lease\u2019 in the context of the original \u2018sub-leases\u2019 (which is permissible context because it formed part of the same transaction: Smith v Chadwick); and finally, to the commercial and investment background to them (in summary what a reasonable person would have understood the parties to have meant by the contract in the light of all the background knowledge they had at the time they made it: Berrisford). 65. I repeat para 3.4 once again: \u2018The Tenant shall provide vacant possession of the Premises\u2019. Whilst I have explained the settled legal meaning of \u2018vacant possession\u2019 differs from \u2018exclusive possession\u2019, as a matter of interpretation, I cannot assume that was what the parties intended. It is a surer footing to start with the \u2018ordinary meaning\u2019 of para.3.4. In isolation, as Mr Clegg says, \u2018The Tenant shall provide vacant possession of the Premises\u2019 could mean \u2018the Tenant shall abandon exclusive possession of the Premises\u2019, especially as leases are usually characterised by possession. But as Mrs Swaffield said, the phrase is \u2018vacant possession\u2019 not \u2018exclusive possession\u2019. Another possible meaning of \u2018vacant possession\u2019 relates to factual possession – in the sense of occupation. Read in that way, all para 3.4 does is to require the Tenant to abandon occupation of the room to allow it to be occupied by others, most obviously to the hotel and its guests, albeit not to give away \u2018exclusive possession\u2019, since the only people truly occupying the room are its guests and in Brillouet a hotel guest for almost three months was held not even a licensee. In that sense, \u2018The Tenant shall provide vacant possession of the Premises\u2019 would mean \u2018the Tenant shall abandon occupation of the Premises\u2019. Consequently, whether \u2018The Tenant shall provide vacant possession of the Premises\u2019 in para 3.4 means the Tenant shall (i) \u2018abandon exclusive possession\u2019 – or (ii) \u2018abandon occupation\u2019 – of the Premises needs to be seen in the light of the rest of the \u2018lease\u2019. 66. I turn to Sch.5. It is quoted at length above so I need not repeat it except the recitals: \u201cThese provisions are intended to apply in the event that the Sub-Lease of the Premises, which is to be granted on the date of this lease by the Tenant to the Landlord (or its nominated Hotel Management Company) for a period ending 10 years after the date of the Agreement, has either been determined for whatever reason or has not been renewed by the Landlord\u2026 Under these provisions the Tenant shall irrevocably appoint the landlord (or its nominee) to act as his Undisclosed Agent in the letting of the Premises In return for letting the Premises to Guests the Tenant shall receive from the landlord 50% of the Room Income (defined below) and that the landlord shall receive the remaining 50% of Room Income together with the whole of the cost of the Hotel Services provided by the landlord to the Guest.\u201d I have already analysed the first paragraph in detail and whether it was triggered. However, the present issue is the interpretation of Sch.5 itself as summarised in the second paragraph. That suggests that if \u2018triggered\u2019, Sch.5 makes the Landlord the Tenant\u2019s agent for letting the room to guests for a profit share. 67. In summary, the structure of the rest of Sch.5 of the lease is as follows: a. Paragraph 1 is the definitions section, which defines \u2018Landlord Services\u2019 comprising \u2018Accommodation Services\u2019 and \u2018Hotel Services\u2019 to guests; and \u2018Letting Services\u2019 to investors (including \u2018marketing, sales, booking and reserving the Premises as a Hotel Bedroom and collecting fees payable by Guests\u2019). \u2018Tenant Services\u2019 by investors are simply \u2018provision of the Premises for occupation by a Guest\u2019. The definitions include key phrases like \u2018Cost of Hotel Services\u2019, \u2018Letting Fee\u2019 and \u2018Room Income\u2019 and \u2018Guest\u2019. b. Paragraph 2 is the \u2018Landlord\u2019s Covenants\u2019, which relate to the individual \u2018Tenant\u2019 of the particular \u2018Premises\u2019 and all the other \u2018Tenants\u2019 of the \u2018Bedrooms\u2019, starting with para 2.1: \u2018to act as agent for the Tenant and perform obligations and responsibilities described herein as an undisclosed agent in respect of the Premises\u2019. This is fleshed-out in para 2.7 which makes clear the Landlord is the Tenant\u2019s undisclosed agent who must keep accounts and collect \u2018Room Income and pay it into the Tenant\u2019s bank account (the investor then pays 50% as the \u2018Letting Fee\u2019 under para 3.6.2). Para 2.4 requires the \u2018Landlord\u2019 to provide \u2018Accommodation Services\u2019 and \u2018Hotel Services\u2019 to \u2018Guests\u2019 and para 2.5 \u2018Letting Services\u2019 to the \u2018Tenant\u2019. c. Paragraph 3 is the \u2018Tenant\u2019s Covenants and Obligations\u2019, including para 3.1: \u2018to make the Premises available to the Landlord as the Tenant\u2019s undisclosed agent for use as a Hotel Bedroom by a Guest\u2019; para 3.2 \u2013 not letting-out their room or granting occupation rights in it save as permitted by the lease; para 3.3 \u2018permitting the Management Company to enter and remain upon the Premises at all times to enable it to perform its obligations under this Lease\u2019; the contested para 3.4: \u2018providing vacant possession of the Premises\u2019; para 3.5 not altering it; and para 3.6 co-operation and paying the Letting Fee. d. Paragraph 4 is the \u2018Management of the Hotel\u2019, including para 4.1 and 4.2.1: \u201c4.1 The Landlord shall be entitled, acting as the Tenant\u2019s undisclosed agent and on the Tenants behalf, to supply the Premises as a Hotel Bedroom to Guests on such terms as the Landlord acting reasonably may consider appropriate without further consent or approval from the Tenant but on the basis that a consistent and logical pricing policy is adopted for the Premises\u2026. 4.2.1 From the date hereof the Tenant has the right to receive the Room Income and subject to such deductions as may be required by the provisions of this Lease.\u201d The rest of paras 4.2 and 4.3 then set out the mechanism for the holding and paying of the Room Income and deductions for the Rent under the Lease and the Letting Fee and the deductions from the Tenant\u2019s profit share of the Hotel Costs and Letting Fee (the practical implications of which are disputed but which I am not asked to interpret definitively at this stage) e. After para.5 (Data Protection), para.6 limits the Landlord\u2019s liability (e.g. for \u2018temporary closure of the Premises or Building to alter, reconstruct or modify\u2019 it); and para.10 is a related \u2018force majeure\u2019 clause. Finally, para 7.1 states \u2018The Landlord shall be entitled to receive the Letting Fee from the Tenant and each Tenant shall pay to the Landlord the Letting Fee\u2019. 68. Despite the reference to \u2018Landlord\u2019 and \u2018Tenant\u2019, Sch.5 is plainly not a freestanding lease, as Mrs Swaffield accepted. Instead, once \u2018triggered\u2019 by the \u2018sub-lease\u2019 being \u2018determined for whatever reason\u2019 or not being renewed by the Landlord as stated in the first recital (as discussed above); Sch.5 works as accurately summarised in the second: the Tenant-investor irrevocably appoints the Landlord-hotel as his or her undisclosed agent to let the room to hotel guests in return for 50% of Room Income (however calculated). In the body of Sch.5, it is not para 3.4 but 4.1 which is key: \u201cThe Landlord shall be entitled, acting as the Tenant\u2019s undisclosed agent and on the Tenant\u2019s behalf, to supply the Premises as a Hotel Bedroom to Guests on such terms as the Landlord acting reasonably may consider appropriate without further consent or approval from the Tenant but on the basis [of] consistent and logical pricing policy.\u201d (my italics) As Mr Clegg says, para 4.1 \u2018entitles\u2019 the hotel to let out the room, it does not \u2018oblige\u2019 it to do so. Whilst Mrs Swaffield suggested the \u2018lease\u2019 as a whole obliges the Landlord to let out the Tenant\u2019s room, it does not \u2013 it only obliges the Landlord to run \u2018the Building\u2019 as a hotel, not to let out any particular room in it. In any event, that cannot change the meaning of the word \u2018entitled\u2019 into \u2018obliged\u2019. The crucial practical effect is that it is not a breach of Sch.5 by the Landlord-hotel not to let out any rooms subject to a \u2018lease\u2019 (i.e. it can let out any unencumbered rooms first), but if it does let out a room subject to a \u2018lease\u2019, Sch.5 applies to the \u2018Room Income\u2019. 69. However, the consequence of that is Sch.5 merely \u2018carves out\u2019 from the investor\u2019s 125-year demise of the room a right for the hotel to use the room with the correlative obligation on the investor to allow the room to be used as a guest bedroom in return for a profit share. That is all that is required of the investor by paras.3.1, 3.2, 3.3, 3.5, 3.6 and indeed 3.4 (\u2018vacant possession\u2019). Indeed, the Landlord\u2019s right of entry in Sch.5 is limited: para 3.3 permits its management company entry only to perform \u2018lease\u2019 obligations and para 3.1 requires the Tenant only to supply the room to the Landlord \u2018for use as a Hotel Bedroom for a Guest\u2019, not for any other purpose (suggesting if the hotel is closed, the Landlord does not have unrestricted use of it). So, both the Landlord\u2019s and the Guest\u2019s right of occupation of the Tenant\u2019s room is \u2018carved out\u2019 of the Tenant\u2019s rights in return for a profit share. As discussed above, that is consistent with the Tenant retaining \u2018exclusive possession\u2019 in law. Sch.5 is merely a more far-reaching \u2018reservation to the landlord\u2019 than the usual \u2018limited right of entry\u2019 (as Windeyer J put it in Radaich endorsed in Street). Moreover, as a matter of practicality, Sch.5 only requires \u2018vacant possession\u2019 in the sense of the investor abandoning occupation to allow guests to occupy. So, Sch.5 is more consistent with para 3.4 meaning \u2018The Tenant shall provide vacant possession of the Premises\u2019 in the sense of \u2018shall abandon occupation\u2019, not \u2018shall abandon exclusive possession\u2019. Indeed, the Defendant\u2019s interpretation of Sch.5 as limiting the \u2018lease\u2019 to a purely contractual right to income for the investor is inconsistent with the language and structure of Sch.5 even in isolation. Far from the hotel-landlord carving out from its exclusive possession such limited contractual rights to the investor-tenant, the latter is agreeing not to exercise their rights of occupation in return for a profit-share, but also prescribing the use the hotel-Landlord can make of the room (i.e. as a hotel bedroom) and its right of entry to it. Landlords are not typically their tenants\u2019 agents for the letting out of the property to third parties. That shows Sch.5 is not a free-standing contract, but a genuine agency agreement about the investor\u2019s property. 70. Indeed, this interpretation – of Sch.5 generally and para 3.4 specifically as limited to the investor-tenant only abandoning factual possession in the sense of occupation not legal exclusive possession – is also consistent with the rest of the \u2018lease\u2019. Not only are there standard lease covenants, such as a demise in Clause 2 of the Premises (the room) for the term (125 years) in exchange for the rent (\u00a3100) in Clause 3 and quiet enjoyment at Clause 4.1. There are also orthodox reservations of the hotel-landlord\u2019s right of entry in clause 3.7 and non-alteration covenants on the Tenant at Clause 3.7. Clause 3.6 at the end of term is also very different than merely \u2018the Tenant shall provide vacant possession of the Premises\u2019 in para 3.4 Sch.5: \u201cAt the termination of this Lease, or at such later time as the Landlord recovers possession of the Premises from the Tenant, quietly to yield up the Premises (with all additions and improvements to the Premises and all fixtures in the Premises) in accordance with the Tenant's Covenants\u2026.\u201d There are also plenty of references in the main body of the \u2018lease\u2019 consistent with the regulation of Tenant use and occupation in Sch.5. Clause 3.9.1 requires a tenant \u2018not to use or permit the Premises to be used except for the Permitted Use\u2019 (\u2018use as a hotel bedroom only\u2019). On a related point, Clause 3.9.2 requires the Tenant: \u201cNot to occupy the Premises, or suffer any other persons to occupy the Premises, other than in accordance with the Management Provisions\u201d. As I have italicised, this reference to \u2018the Management Provisions\u2019 (i.e. Sch.5) shows that it only concerns the regulation of occupation of the room, not its legal \u2018exclusive possession\u2019. Also, the \u2018lease\u2019 obliges the Landlord at Clause 4.3: \u201cTo operate the Building as a Hotel & Spa at all times and not to use the Retained Parts [i.e. the rest of the hotel] for any purpose other than a use ancillary to the primary use of the Building as a Hotel & Spa.\u201d However, this does not conflict with my interpretation of para 4.1 Sch.5 as only \u2018entitling\u2019 the Landlord to supply the Tenant\u2019s room to guests, rather than \u2018requiring\u2019 them to do so. Whilst Clause 4.3 requires the Landlord of the \u2018lease\u2019 to operate a hotel, neither it nor Sch.5 requires the Landlord to use the relevant room. 71. The interpretation of para 3.4 Sch.5 as the investor-tenant only abandoning factual possession in the sense of occupation not legal exclusive possession, is also consistent with the \u2018sub-lease\u2019, which the \u2018lease\u2019 links to Sch.5 at Clause 3.10.6: \u201cThe Tenant has agreed with the Landlord to grant the Sub-Lease to the Landlord immediately following the grant of this lease to enable the Landlord to deal with the Building as a whole. The Sub-Lease contains provision for the Landlord (the tenant of the Sub-Lease) to renew the Sub-Lease at the end of its term. If the Landlord does not renew the Sub-Lease then the Management Provisions will apply.\u201d This makes it clear that the \u2018sub-lease\u2019 is part of the contractual arrangements which shed light on the interpretation of the \u2018lease\u2019 and Sch.5. In the \u2018sub-lease\u2019, Clause 13.1 gave the investor-sub-landlord the power to re-enter the \u2018sub-lease\u2019 for non-payment of the annual payment or the insolvency of the hotel-sub-tenant; and Clause 20.1 gave the latter an option to renew the \u2018sub-lease\u2019. As made clear by Clause 3.10.6 of the Lease and the first recital in Sch.5, that arises as a replacement for the arrangements under the \u2018sub-lease\u2019 if it determines or is not renewed. However, it is different as I said at paragraph 13 of this judgment above and repeat: (1) Firstly, whilst it is unusual to long-lease a hotel room, the \u2018lease\/sub-lease model\u2019 creates two orthodox estates in land protectable by registration binding third parties. By contrast, the \u2018Sch.5 model\u2019 has a similar practical effect but a different legal form. Rather than two registrable estates in land, there is one apparent \u2018lease\u2019 which has already been registered, but it includes a triggered \u2018profit share \u2018of the room between the investor and the hotel that is running it. (2) Secondly, in neither model does the investor have unencumbered occupation of their room. Under the \u2018lease\/sub-lease model\u2019, whilst the lease itself entitles the investor to legal \u2018exclusive possession\u2019 of the room, the 10-year sub-lease is \u2018carved out\u2019 from it, so the investor has no right to occupy the room as such (although the arrangements permitted them to book the room for free for a short period each year: Brinphar received a small payment for not doing so). Likewise, under the Sch.5 model, Clause 3.4 explicitly requires \u2018the tenant to provide vacant possession\u2019 of the room, which Mr Clegg argues removes the tenant\u2019s essential right to \u2018exclusive possession\u2019 and so defeases the lease. (3) Thirdly, there is one important practical difference for the investor between the \u2018lease\/sub-lease model\u2019 and the \u2018Sch.5 model\u2019. Under the former, the investor was entitled under the sub-lease to the annual payment of 10% of the lease premium, whether or not the room was booked out to guests. Sch.5 itself apparently only entitles the investor to 50% of their \u2018room income\u2019 if booked out to a guest. As the hotel controls which rooms are booked out and it will be rare for the hotel to be fully-occupied except at high season, Sch.5 gives no \u2018guaranteed income\u2019: it is a profit share entirely in the hands of the hotel. 72. For those reasons, Sch.5 is a less attractive mechanism to the investors than the \u2018sub-leases\u2019 in terms of financial returns: it is a profit share, not a guaranteed income. However, in practical terms, neither gives the investor practical occupation of the room and in both the \u2018lease\u2019 of it remains extant. But whilst the end of the sub-lease triggered a less advantageous financial return, it did not trigger loss of the investor\u2019s protection of property rights in the land and its conversion to a licence. In my judgment, Sch.5 was a direct replacement for the practical mechanics of the use of the room and the financial return to the investor. As Dr Bruyniks said, it was a \u2019failsafe\u2019. As Mrs Swaffield\u2019s put it in her Rebuttal Skeleton Argument: \u201cThe Claimants agree that Schedule 5 does not create a tenancy. The Claimants do not need one because they are the Leaseholders. Nor does it create a tenancy for the Defendants. It is not a repeat of the Sub-Lease (which could have been drafted). Schedule 5 firstly binds the Defendants as the undisclosed agent of the Claimants and secondly creates a series of obligations: a) vacant possession of the Room b) permission for guests to occupy the Rooms (as distinct from the Defendants) c) permission for the Management Company to run the hoover over and change the towels etc\u2026 The Leasehold estate remains vested in the Claimants and the title and rights to it are unaffected by Schedule 5. The Management Provisions are just that. As above, paras.3.1 and 3.2 which (respectively) make the room available to the Defendant as the Claimant\u2019s undisclosed agent and record the Claimant\u2019s permission for the management company to enter and remain the room to perform its obligations to enable occupation by guests.\u201d In short, Sch.5 is not a replacement for the \u2018lease\u2019, it operates through the \u2018lease\u2019 to replace the \u2018sub-lease\u2019. Therefore, the \u2018lease\u2019 remains \u2013 indeed, it now stands alone. 73. Finally on the \u2018leases\u2019, the interpretation of para 3.4 Sch.5 as the investor-tenant only abandoning factual possession in the sense of occupation not legal exclusive possession, is also consistent with what the reasonable person would have thought the parties meant with all their relevant knowledge at the time they contracted (Berrisford) of the background and context to the \u2018lease\u2019. This is what Lord Templeman in Vaughan called \u2018surrounding circumstances, course of negotiations, nature and extent of the accommodation and actual mode of its occupation\u2019, which I take in reverse order. It was never envisaged that the investors would actually occupy their hotel rooms (except perhaps for a brief period each year \u2018as part of the package\u2019) under both the original lease\/sub-lease model and Sch.5: the rooms were always intended by the parties to be used for guests. This reflected the nature of the accommodation being hotels in North Wales, when investors came from all over the UK and indeed the World. The negotiations were not over the contract itself \u2013 unlike Wood, this was not a case of contractual negotiation at arms\u2019 length. Most of the investors did not even get independent legal advice before signing the leases. The surrounding circumstances were that NPD needed small investors in the hotels and were prepared to give them the security of estates in land to seal the deal; and those investors were only prepared to part with their savings because they thought they were getting that security of an estate in land \u2013 indeed one which would survive the end of the sub-leases, even if the income from the rooms would fall as a result. As Mrs Swaffield put it in her main Skeleton Argument, the purpose of Sch.5 is: \u201c\u2026to enable the continuation of the scheme and the operation of the letting services as a protection for the Claimants\u2019 investments and not for the undisclosed agent to make off with the benefit of the \u2018Permitted Use\u2019 without accounting to its principal. Sch.5 is the \u2018fail safe\u2019 in the scheme.\u201d In short, as Mrs Swaffield put it, \u2018Sch.5 is akin to a licence within the lease\u2019. The investor has the lease under which he allows the hotel to use the room, on terms. 74. Therefore, returning one final time to Street, on my interpretation of the investor\u2019s \u2018lease\u2019, it was indeed a genuine lease from the start and never changed \u2013 whether into a \u2018licence\u2019 or anything else. Legal \u2018exclusive possession\u2019 was preserved not only by the sub-lease being \u2018carved out\u2019 from it, but when the sub-lease ended, by it being replaced by the mechanism in Sch.5, whereby the investor abandoned rights to factual occupation in return for a profit share, which reflected not replaced legal \u2018exclusive possession\u2019. Nor were there any of the other exceptions to the \u2018lease\u2019 being a true tenancy rather than a licence in Street: it was for a fixed term (125 years) and not too uncertain (Berrisford); and for a \u2018rent\u2019 in the form of the original \u00a3100, which remained payable but was offset from any \u2018profit share\u2019. The original landlord had power to grant a tenancy and the parties clearly intended to create legal relations. Moreover, far from the \u2018lease\u2019 being referable to a different legal relationship than genuine landlord and tenant, on the contrary, that was a conscious choice of the parties and an integral part of the scheme to give the investors security. These \u2018leases\u2019 were not mislabelled tenancies, they were and remain genuine leases. 75. For all those reasons, I not only reject the Defendants\u2019 defeasance argument, I also find the \u2018leases\u2019 were and remain genuine leases. I return to Preliminary Issue 13, which I would answer by saying that disclaimer of the sub-leases neither defeased, ended, converted into licences or even fundamentally changed the leases, which remain estates in land. This brings me onto the next topic. Topic 2: Did the Defendants take the hotels subject to the Claimants\u2019 leases ? 76. I can deal with this topic much more briefly, not least because of what I have already decided about the meaning of the leases in this case, as leases bind successors-in-title. But in case I am wrong about defeasance and interpretation, I will consider the issues of the effect of registration of a lease if it ceases to be a lease; and novation of contractual rights. So, this topic covers: Preliminary Issue 3: \u2018Whether the Defendants have become successors in title to the Leases including Schedule 5 ?\u2019; and Preliminary Issue 15: \u2018Whether the Defendants are entitled to the removal of registered titles ?\u2019. In short, my answer to the first is \u2018yes\u2019 and the second is \u2018no\u2019. The Leases are legal estates which bind the Defendants 77. The reason Counsel (and I) have spent so much time on whether the \u2018leases\u2019 were and remain true leases rather than \u2018defeasing\u2019 or converting into licences, is because a lease is an estate in land binding successors to the freehold, whilst a licence is purely contractual binding only the original parties. As Hill & Redman says at [23]: \u201cThe distinction between a mere contractual relationship and an estate or interest in land is that the rights created under the former are rights in personam whereas the rights created under the latter are rights in rem. A right in personam is enforceable against certain specified parties only…, whereas a right in rem is enforceable against the whole world. Thus, the rights of a lessee of land are enforceable not only against the lessor\u2026but also against [his] successors in title\u2026.who are not contracting parties.\u201d This is why in Duffy v Caer Rhun Hall Hotel Ltd [2019] EWHC 3617 (Ch) in December 2019, ICCJ Jones rejected the Caer Rhun Hall Administrators\u2019 attempt to \u2018expunge\u2019 the room leases, for the reasons he gave at [2]: \u201c[The Administrators] ask the court for permission to sell the freehold on the basis that existing, registered long leases demising certain individual hotel rooms are expunged. That is \u2026a matter that does not fall within the statutory powers concerning a company in administration\u2019s assets\u2026. The reason for that is that once a lease has been granted, the long lessee has a legal estate in the property. The hotel must be sold in accordance with the registered title. The freehold will be sold subject to the estates created by the long leases. Plainly that will be potentially unattractive to purchasers.\u201d That led to the hotel freeholds being sold on the basis they were subject to the leases. Whilst that is not determinative of the legal position (in the absence of a pleading of an estoppel), as I have found the freeholds and long-leaseholds were subject to the leases, then in fact the true legal position accords with what the Administrators and Defendants thought when the hotels were sold and how Mr Barsby acted later. 78. Moreover, as the leases were for over 7 years (in fact 125 years), they were \u2018registerable dispositions\u2019 under s.27 and s.38 Land Registration Act 2002 (\u2018LRA\u2019). As all the leases were registered as such with title absolute (before the insolvencies, let alone the disclaimers), they also take priority over any prior unprotected interest (s.29 LRA), as well as binding successors in title. I therefore conclude the Defendants acquired all the hotel freeholds\/long-leaseholds subject to the leases. Therefore, they are not entitled to the alteration of the Land Register at all. 79. However, the position is slightly more complex in relation to Caer Rhun Hall Annex and its Unilateral Notices. Those all reflected genuine leases as I have said, but in rooms that did not (and do not) exist. As Arnold J (as he then was) explained in Eason v Wong [2017] EWHC 209 (Ch), a lease in a yet-to-be constructed flat or room can give rise to an equitable lien in relation to the airspace for the planned room to the extent of the payment made, which is a property interest. Miles J (as he was) in Williams v Alter Domus [2023] EWHC 1820 (Ch) clarified the sort of equitable lien discussed in Eason only attached to the particular airspace for the planned flat or room, not to the entire freehold, although it could be registered by way of a unilateral notice under s.35 (by Form UN1) but again should be limited to the airspace which is subject to the lien, not attach to the whole of the freehold. (I invite Counsel to double-check this with the UN1 entries here). Subject to that, the equitable liens (to the extent of payment) based on the leases of investors (like Mr Duncan in Caer Rhun Annex) also bind Tokyo as the successors in title. If the leases defeased, there are exceptional circumstances not to update the Register 80. I turn now to consider the position if I am wrong and the leases defeased on the disclaimer of the sub-leases and so they converted into licences, as the Defendants contended but I have rejected. The Defendants\u2019 case is that from the time of the disclaimer, they ceased to be leases and so the Land Register requires correction under para.2(1) Sch.4 LRA, which states so far as material: \u201c2(1) The court may make an order for alteration of the register for the purpose of (a) correcting a mistake; (b) bringing the register up to date, or (c) giving effect to any estate, right or interest excepted from..registration.\u201d 81. By contrast, the Claimants argue even if their leases defeased (which they and I rejected) they were protected by registration of their leases under ss.26 and 52 LRA: \u201c26(1) Subject to subsection (2), a person\u2019s right to exercise owner\u2019s powers in relation to a registered estate or charge is to be taken to be free from any limitation affecting the validity of a disposition. (2) Subsection (1) does not apply to a limitation (a) reflected by an entry in the register, or (b) imposed by, or under, this Act. (3) This section has effect only for the purpose of preventing the title of a disponee being questioned (and so does not affect the lawfulness of a disposition). 58(1) If, on the entry of a person in the register as the proprietor of a legal estate, the legal estate would not otherwise be vested in him, it shall be deemed to be vested in him as a result of the registration.\u201d 82. However, all these provisions are part of the same statutory scheme of the LRA and are complementary, not contradictory. ss.26 and 58 LRA protect the registered title of a proprietor or land being questioned due to a problem with the title or disposition unless reflected on the Register. However, the corollary is that the Register may be amended under Sch.4 LRA to correct mistakes, bring it up to date or to give effect to unregistrable interests. So, if there is a mismatch between the Register and legal or equitable reality, the Register is determinative, but it can be amended. As Asplin LJ said in Antoine v Barclays Bank [2019] 1 WLR 1958 (CA) at [39]: \u201c\u2026[T]he policy of the 2002 Act is that the register should be a complete and accurate statement of the position in relation to title at any given time and that as a result of section 58 of the 2002 Act, subject to the powers of alteration in Schedule 4, the register is conclusive as to legal title.\u201d 83. Initially, the Defendants sought \u2018rectification\u2019 of the Land Register to remove the leases as registered titles as a \u2018mistake\u2019 under para.2(1)(a) Sch.4 LRA. There was some debate in submissions whether that was apt given that whether a registered title or interest was a \u2018mistake\u2019 under para 2(1) Sch.4 must be evaluated at the time the entry was made, as Asplin LJ also said in Antoine at [39]. I therefore directed short written submissions on this point, as important to the defeasance issue. 84. Mr Clegg recognised that if the leases had \u2018defeased\u2019 after having originally been leases (including when registered), there was no power to alter the Register for a \u2018mistake\u2019 under p.2(1)(a), but there was a power to alter the Register to \u2018bring it up to date\u2019 under p.2(1(b) Sch.4 LRA. He referred to Ruoff & Roper \u2018Registered Conveyancing\u2019 (2025) at p.46-010, which gave the example of the Register being \u2018brought up to date\u2019 to reflect that a registered lease had since been determined: \u201cIn continuing to record the determined estate\u2026the register is simply out of date rather than mistaken. The fact that such a position may subsist is recognised by Sch.4 itself, which provides that alteration of the register to correct a mistake is separate and distinct from alteration to bring the register up to date. Whilst the former may potentially give cause for the rectification and indemnity provisions of the [LRA] to apply, the latter does not.\u201d Ruoff & Roper cites no case, but its analysis of \u2018mistake\u2019 was endorsed in NRAM v Evans [2018] 1 WLR 639 (CA) (itself cited by Asplin LJ in Antoine at [39]). In Evans, Kitchin LJ (as he then was) added at [60]: \u201cParagraph 2(1)(b) of Schedule 4 confers on the Court a power to make an order for the alteration of the register by bringing it up to date; and paragraph 3(3) provides that if in any proceedings the Court has power to make an order under paragraph 2, it must do so, unless there are exceptional circumstances which justify its not doing so.\u201d 85. Therefore, had I been persuaded the leases had defeased, in principle para 2(1) would permit the Land Register to be \u2018brought up to date\u2019 under para 2(1)(b) Sch.4 to expunge the registered entries for the defeased leases. However, the Court has a discretion not to update the Land Register if there are \u2018exceptional circumstances\u2019 (my understanding from Ruoff & Roper is the relevant provision for \u2018updating\u2019 rather than \u2018mistake\u2019 is Land Registration Rule 126). The meaning of \u2018exceptional circumstances\u2019 was explained in Paton v Todd [2012] EWHC 1248 (Ch) by Morgan J at [66]-[67] and approved in Dhillon v Barclays Bank [2020] EWCA Civ 619: 66..\u2026First of all, the paragraph imposes a duty to rectify the register. Secondly, that duty does not apply in a case where there are exceptional circumstances which justify not rectifying the register. Thus\u2026the Court must ask itself two questions: (1) are there exceptional circumstances in this case? and (2) do those exceptional circumstances justify not making the alteration? The first of these questions requires one to know what is meant by "exceptional circumstances" and then to establish whether such circumstances exist as a matter of fact\u2026. 67. \u2018Exceptional\u2019 is an ordinary, familiar English adjective. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual or special, or uncommon; to be exceptional a circumstance need not be unique or unprecedented, or very rare but it cannot be one that is regularly, or routinely, or normally encountered\u2026 Further, the search is not for exceptional circumstances in the abstract but those which have a bearing on the ultimate question whether such circumstances justify not rectifying the register.\u201d In Dhillon, the innocent wife of a mortgage fraudster who had forged her signature on transfers sought to vest the property in her own name removing charges from the register as void and so a true \u2018mistake\u2019 in the Register (Evans). However, the Court held there were exceptional circumstances not to do that because it would create a windfall for her and remove the rights of the equally-innocent mortgage company. 86. Whilst Dhillon was a different case on the facts, the Court declined to correct a mistake in the Register that would give a windfall to one party at the expense of another. As Ms Swaffield said, removing the leases from the Register here would be a windfall to the Defendants at the expense of the Claimants. Not every \u2018windfall\u2019 will be \u2018exceptional\u2019 in the Paton sense. However, in my view, there are \u2018exceptional circumstances\u2019 here because (i) the Claimants were individuals who made substantial investments in the original project on the basis they would be secured by leases binding third parties; (ii) if defeasance did occur (which I do not accept), it was outside of the control of the Claimants and due to the insolvency of the NPD companies; (iii) the Defendants obtained the hotels at a reduced price because of the leases; (iv) the Claimants agreed to the sales because they were told their leases would be honoured; and (v) the Defendants continued to deal with the Claimants as leaseholders (though with the Queens Hotel and Lodge investors, not until the 2024 solicitors\u2019 letters). This combination of circumstances (1) makes the situation \u2018exceptional\u2019 in the Paton sense and (2) justifies not updating the Register because of the windfall for the Defendants at the expense of the innocent Claimants. 87. In any event, even if I am wrong and there are no \u2018exceptional circumstances\u2019 justifying not updating the Register, the power in para 2(1)(b) Sch.4 LRA is to update not back-date the Register. In Evans, the Court of Appeal held that where a valid charge had been accidentally deleted from the Register by the lender, there was no \u2018mistake\u2019 within para 2(1)(a) Sch.4, but the deletion could be corrected by \u2018updating\u2019 the Register within para 2(1)(b) Sch.4. But Kitchin LJ said at [63]\/[65]: \u201c63.\u2026[T]he bringing of the register up to date within\u2026para.2(1)(b) of Sch 4\u2026could not constitute the rectification of the register within the meaning of para.1 of Schedule 4. It also follows that it was not necessary for NRAM to establish [the criteria in] para.3 Sch.4 \u2026. 65. [T]he judge\u2019s order must be varied in so far as it directs that the register be altered\u2026\u2019as if it had never been removed and with the priority originally held\u2019. The judge was purporting to exercise the power conferred by para.8 Sch.4 but, as we have seen, this is limited to cases of rectification. Further and in any event, it is a power to change for the future the priority of any interest affecting the estate and not in some way to backdate the alteration or, in the words of the judge\u2019s order, to re-register the charge \u2018as if it had never been removed\u2019.\u201d 88. Therefore, even if the Court is ordering rectification of a mistake, it only changes the Register for the future, it does not \u2018rewrite history\u2019 and as Kitchin LJ said, even that is not applicable to \u2018updating\u2019 the Register. Therefore, even if I had found the leases had defeased and there were no \u2018exceptional circumstances\u2019, I would only have updated the Register by removal of the leases for the future, I would not have treated the leases as having been expunged at the time of defeasance. I would therefore still have found the Defendants acquired the hotels subject to the leases, even if they were expunged from the Register for the future, so not binding future successors in title of the Defendants. However, all that is academic on my findings. 89. Therefore, whether or not I had accepted that the leases defeased on disclaimer of the sub-leases (which I do not), my answers to Preliminary Issues 3 and 15 are: \u2018The Defendants have become successors in title to the Leases including Schedule 5\u2019 and \u2018The Defendants are not entitled to the removal of registered titles for the leases\u2019. Even if the Defendants are not bound as landlords, they novated the leases as contracts 90. Even if I am wrong about that as well and the Claimants\u2019 \u2018leases\u2019 did not bind the Defendants in property law as extant leases, in my judgment they had contractual effect not just with the original scheme companies, but novated as contracts with the Defendants. On that basis, even if the Defendants are entitled to update the Land Register deleting registration of the leases under Preliminary Issue 15, I would still answer Preliminary Issue 3 that the Defendants are bound by the leases in contract. 91. In Berrisford, the Supreme Court agreed obiter that if an agreement does not take effect as a lease, it can have contractual effect. As Lord Clarke said at [109]-[110]: \u201c\u2026If, as a matter of law, the parties have created a licence and not a tenancy, so be it\u2026.[I]t seems to me to be of critical importance to ascertain the contractual position between the parties. It follows that, as I see it, even if the contract does not create a tenancy, it creates rights and obligations between the parties, so that in an appropriate case Ms Berrisford could in principle obtain an injunction against Mexfield for a threatened breach of contract. In the meantime, the contract remains on foot.\u201d Likewise, as Lord Neuberger MR said (again obiter) in Berrisford at [62]: \u201cIf the agreement is incapable of giving rise to a tenancy for some old and technical rule of property law, I do not see why, as a matter of principle, that should render the agreement invalid as a matter of contract.\u201d If true for an agreement which was never a lease, as being discussed in Berrisford, it can certainly be true for a lease which has \u2018defeased\u2019 (contrary to my finding). 92. The real question is not whether the leases had contractual effect at the start, but whether they novated to the Defendants. The law of novation was helpfully summarised by Recorder Bignell KC in Leggett v AIG [2025] EWHC 278 (Comm) at [124]-[126], but I quote the cases she cited. As she said at [124], Lords Hamblen and Leggatt said in Kabab-Ji v Kout [2021] Bus LR 1717 (SC) at [60]-[61]: \u201c60 Under English law contractual rights may be transferred by an assignment of those rights. An assignment cannot, however, transfer contractual obligations. Both contractual rights and obligations may be assumed by a third party where there is a novation\u2026.A novation involves the substitution of one contracting party by another with the consent of all parties. It does not involve a transfer of rights and liabilities but rather discharge of the original contract and replacement with a new contract, typically on the same terms but with a different counterparty 61 The main differences between assignment and novation were summarised by Aikens J in Argo v Essar [2006] 1 All ER (Comm) 56 [61] \u201cThere are four main differences. First, a novation requires the consent of all three parties involved \u2026 But (in the absence of restrictions) an assignor can assign without the consent of either assignee or the debtor. Secondly, a novation involves the termination of one contract and the creation of a new one in its place. In\u2026an assignment the assignor\u2019s existing contractual rights are transferred to the assignee, but the contract remains the same and the assignor remains a party to it so far as obligations are concerned. Thirdly, a novation involves the transfer of both rights and obligations to the new party, whereas an assignment concerns only the transfer of rights, although the transferred rights are always \u2018subject to equities\u2019. Lastly, a novation, involving the termination of a contract and the creation of a new one, requires consideration in relation to both those acts; but a legal assignment (at least), can be completed without the need for consideration.\u201d 93. As Recorder Bignell KC also noted in AIG at [126], novation by conduct was discussed by the Court of Appeal in Musst Holdings v Astra [2023] EWCA Civ 128: \u201c55. As explained in Chitty\u202634th ed at 22-089ff., a novation takes place where a new contract is substituted for an existing contract. This typically occurs where an existing contract between A and B is replaced by a contract between A and C with C assuming B\u2019s rights and obligations. Consideration is provided by discharge of the old contract, specifically by A agreeing to release B, B providing C in its stead, and C agreeing to be bound. 56. The consent of all parties is required for a novation. Consent can either be provided expressly or can be inferred from conduct. Whether consent has been provided is a question of fact. 57. However, a novation will only be inferred from conduct if that inference is required to give business efficacy to what happened. As Lightman J explained in Evans v SMG Television Ltd [2003] EWHC 1423 (Ch) [181]: \u2018The proper approach to deciding whether a novation should be inferred is to decide whether that inference is necessary to give business efficacy to what actually happened (compare Miles v Clarke [1953] 1 WLR 537 at 540). The inference is necessary for this purpose if the implication is required to provide a lawful explanation or basis for the parties\u2019 conduct.\u201d 58\u2026.[T]he Court of Appeal\u2026in MSC Mediterranean Shipping Co SA v Polish Ocean Lines (The \u201cTychy\u201d (No. 2)) [2001] 2 Lloyd\u2019s Rep 403\u2026 At [22] the court [said] where there is an established contract in existence \u2018clear evidence of an intention to produce a novation is likely to be needed\u2019.. 60. Chitty also explains at 22-096 and 22-097 that a novation need not be of an entire contract, and that C might be substituted for B only in some respects. Some obligations may be novated and others remain\u2026.\u201d Finally on novation by conduct, Recorder Bignell KC herself added in AIG at [125]: \u201cUnless the parties have agreed otherwise consent may be express (whether oral or written) or may be inferred from conduct: see, for example, Evans\u2026 Evidence of actions subsequent to the alleged novation are admissible to establish whether there has been a novation by conduct. Whether there has been consent is assessed objectively. It follows that the parties may not appreciate that their dealings have had the effect of novation, but this does not prevent the novation from being effective.\u201d 94. In this case, some of the factors relevant to \u2018exceptional circumstances\u2019 for not updating the Land Register would not alone or in combination amount to novation by conduct: the Claimants being investors promised a lease; defeasance outside of their control; and the advantage to the Defendants of a reduced price due to the leases. Nevertheless, the Claimants\u2019 agreement to the sales of the hotels and their dealings with the Defendants afterwards are generally relevant with all Claimants. But there are also individual factors with each hotel showing there was novation: a. Most clearly, there is the Llandudno Bay. As discussed above, back in May 2021, even before its acquisition by Aloe Vera in July 2021, Mr Barsby on behalf of Mr Ma\u2019s companies contacted the leaseholders and explained whilst the sub-leases and buy back options \u2018have not been novated to ourselves as the new freeholder\u2019 \u2018the key aspects of Sch.5 governs the relationship between the freeholder and the individual investor leaseholder\u2019. In short, this was not a novation by conduct, it was the express agreement of Aloe Vera to take on the leases, with which the leaseholders led by Dr Buyniks agreed, consideration being accepting the sub-leases had ended. b. Similarly, with the Belmont, whilst the documentary evidence is rather thinner, Mr Duncan said there had been similar contact around its purchase in September 2021 to which he consented; and he was sent profit share accounts later (but not paid). Mr Ma accepted EBI had purchased the Belmont subject to the leases which was reflected in the price of \u00a3318,000 that was not much over a third of the original guide price (very modest disrepair did not stop the Belmont opening within a month of purchase). Whilst the discount itself does not prove novation, it is consistent with an agreement between the Administrators, investors like Mr Duncan and EBI to novate and the investors\u2019 consent to reduced returns as consideration. In any event, even if there was no express novation, in my judgment the dealings with investors like Mr Duncan can only be explained by novation – i.e. that inference of novation by conduct is necessary to give business efficacy to those dealings as discussed in Musst at [57] and Leggett at [125]. c. With the Queens Hotel and Lodge, the position is less clear. EBI bought the Queens Hotel and H&M Llandudno the Queens Lodge and Mr Rimmer (with rooms in both) and Mr and Mrs Jeffs (with rooms in the Queens Lodge only) and their fellow investors did not oppose the sale. But both hotels were derelict on purchase in March 2022, so there was no similar communication at all with the investors about the Sch.5 profit share. Nevertheless, the Administrators sold both the Queens Hotel and Lodge subject to the investor leases to EBI and H&M Llandudno respectively, whose solicitors in 2024 acknowledged they were bound by the leases. Therefore, I infer that novation by conduct is necessary to give business efficacy to the three-party consent to the sale of the hotels with consideration again reduced terms. d. Turning to Mr Mellor and his company Tokyo, their interaction with investors in Caer Rhun Hall was more extensive than with the Queens Hotel and Lodge, but also more ambiguous than Mr Barsby\u2019s communications with investors for the Llandudno Bay and the Belmont (the latter less evidenced). But correspondence between Mr Mellor and the Administrators before the sale in October 2021 is unequivocal that the purchase is subject to the leases. Moreover, Mr Howson recalled when he and his fellow investors were given notice of the disclaimer of their sub-leases, they were told by the Administrators they were \u2018negotiating the sale of the freehold with headleases attached\u2019. Therefore, whilst there less direct communication between Tokyo and investors around the time of the purchase in October 2021, the Administrators had corresponded with both the Claimants and Defendants to say the latter would take subject to the former\u2019s leases. Moreover, as soon as January 2022, Mr Mellor emailed Mr Howson to say: \u201cHave the leaseholders been told the \u2018lease back\u2019 and \u2018buy back\u2019 options have been retained by the administrators and we have only purchased the freehold property with the resting \u2018registered\u2019 leases ?\u201d For those reasons, either there was an express novation of the Caer Rhun Hall leases (albeit through the Administrators rather than directly), or that Mr Mellor\u2019s dealings with Mr Howson as representative of his fellow investors can only be explained by novation and that inference of novation by conduct is necessary to give business efficacy to those dealings. e. However, I take a different view with the Caer Rhun Annex. Again, in January 2022, Mr Mellor told Mr Howson it was not viable to develop it: \u201cI see no way this would be completed and will not be getting completed by ourselves [it] is part-demolished with no roof.\u201d It is one thing to say that Tokyo agreed to novate the leases of existing rooms, but whilst an equitable lien of a lease in airspace is a property right as discussed in Eason, if the leases for the Annex did defease, there was really nothing to which contractual rights could attach, beyond perhaps an agreement to share profits if the Annex was ever developed and Mr Duncan did not say there was an explicit agreement to that effect. Therefore, I do not consider there was novation of contracts in the Caer Rhun Annex, although since I have found the leases did not defease, that is academic. 95. Finally, if I am wrong about novation, whilst it is not a formal issue before me, had I found the leases did defease, I would have asked whether the Claimants sought to amend their Particulars of Claim to argue estoppel by convention. This was also found in Musst in relation to the transfer of clients between investment managers. As Falk LJ said in Musst at [61]-[62], estoppel by convention is established where during contractual or non-contractual dealings, the parties expressly share a common assumption, which each is aware the other shares, influencing one party to rely upon that sufficiently and to their detriment in circumstances where the other party may properly be said to have assumed some responsibility for that and where it would be unconscionable for them to deny it. It is strongly arguable it was the common assumption of the Administrators, Claimants and Defendants that the latter would take subject to the leases and the Claimant relied on that to their detriment. However, that is now academic given I have found the leases bind the Defendants. Topic 3: Was and is the scheme an Unlawful Collective Investment Scheme ? 96. This topic was in fact the main claim within this litigation, although at trial Counsels\u2019 main focus was the Defendant\u2019s defeasance argument. They each relied on their Skeleton Arguments as to whether there was a UCIS under s.235 FSMA. Yet the law on s.235 is complex but also relevant to the key issue of \u2018operation\u2019 addressed below. So, I will \u2018unpack\u2019 s.235 in detail, but I can apply it to the facts comparatively briefly. This topic comprises three preliminary issues: \u2022 PI.1 Whether the \u2018arrangements\u2019 between the parties as set out in the Lease constitute and\/or are capable of comprising an unlawful collective investment scheme (\u2018UCIS\u2019) as defined by s.235 FSMA \u2022 PI.4 Whether the terms and\/or operation of the Management Provisions in schedule 5 of the Leases constitute a UCIS for the purposes of s.235 FSMA? \u2022 PI.5 Whether Defendants are authorised to establish\/operate\/wind up a UCIS I will first consider the legal principles, then examine whether the original scheme before the insolvencies was a UCIS, then whether it remained a UCIS in the Defendant\u2019s hands (and examine later whether the Defendants \u2018operated\u2019 it). The Legal Definition of an \u2018Unlawful Collective Investment Scheme\u2019 (\u2018UCIS\u2019) 97. \u2018Collective Investment Schemes\u2019 are regulated under the Financial Services and Markets Act 2000 (\u2018FSMA\u2019). s.417 states that \u2018collective investment scheme has the meaning given in s.235\u2019. s.235 is key and I set it out and italicise it: \u201c235 Collective investment schemes \u201c(1) In this Part \u2018collective investment scheme\u2019 means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income. (2) The arrangements must be such that the persons who are to participate (\u2018participants\u2019) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions. (3) The arrangements must also have either or both of the following characteristics\u2014 (a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled; [or] (b) the property is managed as a whole by or on behalf of the operator of the scheme. (4) If arrangements provide for such pooling as is mentioned in (3)(a) in relation to separate parts of the property, the arrangements are not to be regarded as constituting a single collective investment scheme unless the participants are entitled to exchange rights in one part for rights in another.\u201d (s.235(5) empowers the Treasury to specify arrangements which are not a CIS, none of which are material in this case). 98. Curiously, s.235 FSMA defines the phrase \u2018collective investment scheme\u2019 when the only specific reference to a scheme being \u2018collective\u2019 is s.235(4), relating to \u2018pooling\u2019 under s.235(3)(a), which as noted below, it is alternative to \u2018managing the property as a whole\u2019 under s.235(3)(b). However, ss.235(1) and (2) both refer to \u2018persons\u2019 participating (i.e. investors) in the plural and the context rebuts the usual rule that the plural includes singular in s.6 Interpretation Act 1978. That is also how \u2018persons\u2019 was interpreted in the similarly-worded predecessor of s.235 FSMA – s.75 Financial Services Act 1986 – by Laddie J in the unreported case of Russell-Cooke Trust v Elliot (2001) at [17]. This \u2018(two or more) persons\u2019 reading is buttressed by the term defined being \u2018collective investment scheme\u2019. It is a principle of statutory interpretation that if a term being defined has a consensus as to its limits in ordinary language (as \u2018collective\u2019 plainly does \u2013 it cannot mean \u2018single\u2019), this can throw light on the interpretation of the definition of that term: R(PACCAR) v CAT [2023] 1 WLR 2594 (SC) at [48]-[49] (to which I return). 99. Aside from lawfulness discussed below, the italicised seven elements of a CIS are: (i) \u2018arrangements\u2019; (ii) \u2018with respect to property\u2019; (iii) with the \u2018purpose or effect\u2019; (iv) \u2018to enable persons to participate in or receive profits or income (or sums paid out of them) (v) arising from the \u2018management\u2019 (etc) of \u2018the property\u2019; (vi) over which \u2018participants do not have day-to-day control over\u2019; and that either (viia) \u2018contributions or profits\/income are pooled\u2019 (subject to s.235(4)); or (viib) \u2018the property is managed as a whole by or on behalf of\u2019 the scheme\u2019s \u2018operator\u2019. 100. Most of the reported cases on s.235 FSMA are enforcement actions by the Financial Conduct Authority (\u2018FCA\u2019) against operators of alleged unlawful CIS (i.e. \u2018UCIS\u2019). I was not referred to any previous case about an alleged successor to a CIS, so I will consider all seven legal elements of a CIS. The leading case is FCA v Asset Land [2016] Bus LR 524 (SC), where investors bought \u2018plots\u2019 in a \u2018land bank\u2019 for development that was held to be a CIS. The Supreme Court endorsed FSA v Fradley [2006] 2 BCLC 616 (CA) (which approved Elliott and involved horse betting) and FCA v Capital Alternatives [2015] Bus LR 767 (CA) (involving a rice farm and a carbon forest in Africa where investors sublet plots). I will also refer to cases applying Asset Land such as the Court of Appeal case Anderson v Sense Networks [2020] Bus LR 1 (about an investment deposit Ponzi scheme), which was quoted in 4VVV Ltd v Spence [2024] EWHC 2434 (Comm) (an investor group action in leases in holiday and student accommodation); and in FCA v Forster [2023] EWHC 1973 the action against Woodhouse\u2019s partner Forster\u2019s care home \u2018room lease\u2019 business. I return to Forster in analysing first the original scheme set up by Woodhouse, then the Defendants\u2019 \u2018arrangements\u2019. 101. The first element of s.235 FSMA is identifying the relevant \u2018arrangements\u2019, as explained by Lord Sumption in Asset Land at [91]: \u201cA collective investment scheme means, as s.235(1) provides, \u2018arrangements\u2019 of the prescribed description. Subsections (1) to (4) all describe the characteristics that the relevant \u2019arrangements\u2019 must have if the resultant scheme is to qualify as a collective investment scheme. \u2018Arrangements\u2019 is a broad and untechnical word. It comprises not only contractual or other legally binding arrangements, but any understanding shared between the parties to the transaction about how the scheme would operate, whether legally binding or not\u2026. It also includes consequences which necessarily follow from that understanding, or from the commercial context in which it was made. In these respects, the definition is concerned with substance and not with form. It is, however, important to emphasise that it is concerned with what the arrangements were and not with what was done thereafter. Of course, what was done thereafter may throw light on what was originally understood. It may for example serve to show that some record of the understanding was a sham. It may found an argument that the arrangements originally made were later modified. But it must be possible to determine whether arrangements amount to a collective investment scheme as soon as those arrangements have been made. Whether the scheme is a collective investment scheme depends on what was objectively intended at that time, and not on what later happened, if different.\u201d \u2018Modification\u2019 of \u2018arrangements\u2019 is shown by Fradley, where Arden LJ (as she was) traced five different \u2018arrangements\u2019 of a horse betting scheme over time, upholding summary judgment on some as UCIS, but allowing others to go to trial. 102. Secondly, these \u2018arrangements\u2019 must be \u2018with respect to property\u2019. Again, Lord Sumption explained this requirement in Asset Land at [93]: \u201c[T]he property referred to in (1) is the property from whose acquisition, holding, management or disposal the profits or income were to be derived.\u201d Therefore, in Asset Land, the \u2018property\u2019 in the \u2018land bank\u2019 was not each investor\u2019s individual plot in the land planned to be developed, but in the whole site. A similar conclusion was reached in relation to the plots in the rice farm in Capital. In Forster, DHCJ Gleeson observed about \u2018the property\u2019 in s.235(1) at [124]: \u201c[T]he underlying property can take any form and can include contributions made by the participants themselves (Fradley at [33], Anderson v Sense Network [2018] EWHC 2834 (Comm) at [175]), as well as any property managed in common with that of investors (Capital Alternatives [48]-[50].\u201d 103. Thirdly, there is the \u2018purpose or effect\u2019 of the \u2018arrangements with respect to property\u2019 This was not distinctly analysed in Asset Land or in the Court of Appeal cases, though in Forster (followed in Spence), DHCJ Gleeson observed at [126]-[127] that \u2018purpose\u2019 and \u2018effect\u2019 were alternatives, with \u2018purpose\u2019 covering a situation where \u2018arrangements\u2019 including promotional materials had the express purpose of a CIS, even if the operator actually intended to abscond with the money; whilst \u2018effect\u2019 covered a situation where \u2018arrangements\u2019 amounted to a CIS even if that was not the purpose of anyone involved (and as Clarke LJ put it in Capital at [80(d)] irrespective of contractual terms that may not reflect reality). However, whilst Forster and Capital link \u2018effect\u2019 to\u2018the way the scheme was run in practice\u2019, this is not easy to square with what Lord Sumption said in Asset Land at [91] (after Capital but before Forster) that \u2018arrangements\u2019 must be analysed as at the time they were made, not based on what happened later. I suggest the analytical meaning of \u2018effect\u2019 must be assessed at the time of the \u2018arrangements\u2019, although what actually happened later is admissible evidence about that. For example, in Spence at [581], Foxton J (as he then was) noted the \u2018effect\u2019 of the scheme was that income from the \u2018operator\u2019 sub-letting accommodation in which the investors held leases to pay them the promised fixed returns, so that the \u2018purpose\u2019 and \u2018effect\u2019 aligned \u2018for so long as the payments were made\u2019. 104. Fourthly, that \u2018purpose or effect\u2019 of the \u2018arrangements with respect to property\u2019 must be \u2018to enable persons to participate in or receive profits or income (or sums paid out of them) arising from\u2019 management etc of property\u2019. In Spence, Foxton J held at [582] this was satisfied if the investors\u2019 \u2018participation\u2019 was fixed returns: \u201cThat is clear from the use of \u2018participate in\u2019 as an alternative to \u2018receive\u2019 and the fact that it is enough the investor is to participate in or receive \u201csums paid out of such profits or income.\u201d This interpretation has been confirmed by case law [including Anderson at [73] and Forster at [112]]. 105. Fifthly, those \u2018profits or income\u2019 (or the sums paid from them), must \u2018arise from the acquisition, holding, management or disposal of the property\u2019. The key one here is \u2018management\u2019 and in Anderson at [78], David Richards LJ said: \u201c\u2019Management\u2019 is, as Lord Sumption said in [Asset Land] at [98] \u2018a protean word which can embrace a wide range of activities involving varying degrees of control over the property being managed\u2019. See also In re Sky Land Consultants plc [2010] EWHC 399 (Ch) at [77]: \u201cWhat constitutes management is dictated by the property. Some property, [e.g.] short-dated deposits require active and constant management. The management of property of long-term nature may involve only intermittent activity\u2026\u201d (Sky on this point was approved by Lord Carnwath in Asset Land at [19]\/[33]). 106. Sixthly, going onto s.235(2) FSMA, the arrangements must be that \u2018participants\u2019 (e.g. investors) \u2018do not have day-to-day control over the management of the property\u2019, whether or not they have the right to be consulted or give directions in relation to it. In Asset Land, Lord Carnwath at [59] observed that \u2018control\u2019 was not a technical term and again agreed with Richards J in Sky that it involves the \u2018reality\u2019 of how arrangements are to be operated, whether or not legally enforceable. Lord Sumption observed on \u2018control\u2019 in s.235(2) at [94]-[95]: \u201c94\u2026 The test cannot depend on what happens after the arrangements have been made. Nor would a test based on the actual exercise of control be realistic. Some kinds of property require little or nothing by way of management. Some situations do not require any exercise of management control. The question must necessarily be in whom would control be vested were control to be required. For the answer to turn on what exercise of control turned out to be required, would add an arbitrary element to the test which can hardly have been intended. 95\u2026The \u2018property\u2019 over whose management the investors must lack day-to-day control means the property referred to in subs (1) with respect to which the arrangements were made. The question is therefore whether the arrangements were such that the investors had day-to-day control of the management of the whole site\u2026 This cannot refer to the powers of control exercisable by any individual investor [but rather] investors collectively.\u201d Having said that, Arden LJ (as she then was) in Fradley at [46] endorsed the analysis of Laddie J in the pre-FSMA case of Elliott, which she summarised: \u201c[A] scheme will be a CIS even if not all participants in it have transferred day-to-day control of the management\u2026to the operators of the scheme \u2026[As] some\u2026have [done], s 235(2) is satisfied as regards them.\u201d 107. Seventhly \u2013 and relatedly \u2013 I turn to the alternatives in s.235(3) which I repeat: \u201cArrangements must also have either or both the following characteristics (a) the contributions of the participants and the profits or income out of which payments are to be made to them are pooled; [or] (b) the property is managed as a whole by or on behalf of the operator of the scheme.\u201d These are pure alternatives, as Lord Sumption stressed in Asset Land at [96]: \u201cs.235(3) lays down two alternative[s]\u2026(b) operates entirely irrespective of whether there is any pooling. It would be the determinative provision in this case even if the arrangements had been the plots would be individually priced and each investor would receive the price of his own plot.\u201d I consider (b) first as closely related to \u2018day-to-day control over management\u2019. 108. In Asset Land, Lord Sumption at [98] called \u2018management\u2019 \u2018protean\u2019 and added: \u201c97 Subsection (3)(b) provides that what has to be \u2018managed as a whole\u2019 is the property the subject of the scheme, not the scheme itself so far as that is different. Acts by way of management of the scheme are relevant only so far as they involve the management of the property. In a classic collective investment scheme, say a unit trust, the property the subject of the scheme will usually comprise incorporeal property such as securities. But where the property of the scheme comprises physical assets, subs. (3)(b) requires the arrangements to be such that the operator manages the physical assets\u2026. 99 The fundamental distinction underl[ying] the whole of s.235 is between (i) cases where the investor retains entire control of the property and simply employs the services of an investment professional (who may or may not be the person from whom he acquired it) to enhance value; and (ii) cases where he and other investors surrender control over their property to the operator of a scheme so that it can be either pooled or managed in common, in return for a share of the profits generated by the collective fund.\u201d Moreover, Lord Carnwath at [34] endorsed the approach of Vos LJ (as he then was) in Capital at [120], where he also gave helpful illustrations: \u201c\u2026The arrangements that need to have the characteristic of being \u2019managed as a whole\u2019 are those relating to one or more of the acquisition, holding, management or disposal of the property. The question of whether the property is managed as a whole may be answered differently depending on which of these\u2026.arrangements have been made in order to produce the intended profits or income. For example, in the land bank cases, the arrangements relate to the obtaining of planning permission which is the core management activity from which profit is expected to arise on disposal. That is plainly a management of the property as a whole. In the case of a block of flats with different owners, the arrangements from which profits or income are expected to be generated relate to the letting of the flats. If the letting of each individual flat is undertaken separately in consultation with the individual owner on different and flat-specific terms, the arrangements may not have the characteristic of the property (the whole block) being managed as a whole. That will not be likely to be affected even if the common parts are managed collectively.\u201d In Fradley, Arden LJ accepted there could be more than one \u2018operator\u2019 at [37]: \u201c[I]t is convenient to refer to a single set of \u2018arrangements\u2019 as a single scheme. There is no doubt that the expression \u2018operator\u2019 in s 235 includes two or more operators acting as operators of a single scheme: the singular in a statute includes the plural. Likewise, there is no logical reason why, if there are two operators, they should have to be responsible for the entire operation of the scheme. It is enough that they are responsible for separate parts of the entire scheme. But, where two services are offered together, it does not necessarily follow that there was only one set of arrangements.\u201d That said, whilst a single set of arrangements can be split between different operators, the single set of arrangements must together still amount to a CIS under s.235 FSMA. I return to it in discussing \u2018operating a CIS\u2019. 109. Alternatively \u2013 and lastly with s.235 FSMA itself – s.235(3)(a) can be satisfied by \u2018pooling\u2019. There is less authority on it, but as Foxton J noted in Spence at [587]: \u201cIn FCA v Capital Alternatives [2014] EWHC 144 (Ch), [159], Nicholas Strauss KC observed that\u2026\u2019In my opinion, it bears its ordinary meaning. There is pooling where the profit from the investment property provides a fund to be used for the combined or common benefit of all investors\u2019. It is not only profits or income which must be pooled, but contributions as well.\u201d There was no \u2018pooling\u2019 of returns in Capital, but there was from the whole accommodation property in Spence at [589] and in Forster at [139]-[140]. 110. Finally, s.235 does not govern how a CIS is \u2018regulated\u2019. I set out the statutory framework below in addressing \u2018operating a CIS\u2019, but in short – that is a \u2018specified kind of activity\u2019 under Art.51ZE FSMO which under Art.4 FSMO makes it a \u2018regulated activity\u2019 under s.22(1)(b) FSMA, the carrying on of which without authorisation or exemption breaches the general prohibition in s.19 FSMO. Therefore, it is the \u2018operating\u2019 (or \u2018establishing or winding-up\u2019) of a CIS under Art.51ZE without authorisation or exemption which makes it a UCIS under s.19. None of the NPD companies nor the Defendants were authorised or exempt, so it is the meaning of \u2018operating\u2019 in Art.51ZE which is pivotal, which I examine later. Was the original scheme a UCIS ? 111. I deal with this sub-issue briefly as it was not really disputed by Mr Clegg for the Defendants (who of course were not involved in the original scheme). In short, for similar reasons as in Forster involving the similar scheme for \u2018care home room leases\u2019, I have no doubt the original schemes operated by the NPD-linked hotels (\u2018the original arrangements\u2019), all essentially the same, was each a UCIS. 112. Firstly, as discussed in Asset Land, \u2018arrangements\u2019 are not limited to contractual documentation. With all the hotels here, as in Forster at [119], \u2018the original arrangements\u2019 included the leases and sub-leases, but also all the promotional material. I have already discussed it all extensively, but in a nutshell, \u2018the original arrangements\u2019 were long leases to investors of rooms in a hotel for a price (with deferred payment options) and the 10-year sub-lease back to the hotel in exchange for a fixed return (10% of the price as adjusted for the deferred payment). Even though different investors had slightly different options (e.g. % of premium etc), that does not prevent each hotel having one \u2018arrangement\u2019: see Forster at [122]. 113. Secondly, just as in Asset Land at [93] and Forster at [125], \u2018the property\u2019 for the purposes of s.235(1) was the whole of the hotel, not the individual rooms. The \u2018arrangements\u2019 were for the agreed fixed return for investors in the sub-lease funded by the operation of the whole hotel, which is \u2018the property\u2019 from which the profits or income (or sums from them are derived, not the individual rooms. (As I discuss below, the position is more complex under Sch.5). 114. Thirdly, the \u2018purpose and effect\u2019 of the \u2018original arrangements\u2019 coincided \u2013 as in Spence and Forster \u2013 as being (fourthly), participation of investors in sums from the income of the hotel in which they had leased a room. This prospective effect from the \u2018original arrangements\u2019 is evidenced by the fixed returns actually received by the investors until 2019: Brinphar received them in 2016, 2017 and 2018 from the Llandudno Bay, Mr Duncan received returns from the Belmont and used them to buy a lease in the planned Caer Rhun Annex, Mr and Mrs Howson received returns from Caer Rhun Hall, as did Mr Rimmer (and Mr and Mrs Jeffs) from the Queens Hotel and Queens Lodge. All schemes were similar. 115. Fifthly, those returns envisaged in the arrangements and paid in practice \u2018arose from the management of the property\u2019, namely the running of the hotel. Even if in fact investors\u2019 fixed returns were funded from other investors\u2019 money, akin to a Ponzi scheme, what matters under s.235 FSMA is the purpose and effect of the initial \u2018arrangements\u2019 for \u2018the management of the property\u2019, not how they subsequently operated in practice: Asset Land (to which I return on \u2018operating\u2019). 116. Sixthly, since \u2018the property\u2019 under the original scheme was the hotel not the individual rooms, the investors had no \u2018day-to-day control of the management\u2019 under s.235(2) FSMA of the hotel (nor their room, given the sub-leases). That is similar to the nominal plots within the single development sites in Asset Land, or the plots in a single rice farm in Capital. Moreover, just also just as in those cases, seventhly and relatedly, the hotel companies plainly \u2018managed the property as a whole\u2019 under s.235(3)(b) FSMA in the sense of running each hotel as one collective business, rather than like a management company letting out individual flats on a flat-specific basis (which Vos LJ differentiated in Capital at [120]). Therefore, applying Lord Sumption\u2019s distinction in Asset Land at [99], this was a case where the investors \u2018surrendered control over their property to the operator of a scheme so that it can be managed in common, in return for a share of the profits generated by the collective fund\u2019, rather than a situation where \u2018the investor retained entire control of the property and simply employed the services of an agent to let it out\u2019. Even if I am wrong about that latter point, just like the similar room lease model in Forster at [136]-[140], \u2018the original arrangements\u2019 with the NPD companies and their predecessors \u2018pooled\u2019 under s.235(3)(a) FSMA both the rooms (in the hotels) and the profits out of the hotels. Therefore, since the NPD and predecessor companies were not authorised, I have no doubt whatsoever that each of the particular hotel schemes constituted a CIS. Were there new \u2018arrangements\u2019 with each of the Defendants amounting to a CIS ? 117. Whilst it was not really contested that \u2018the original arrangements\u2019 in respect of each hotel with its respective NPD company amounted to a CIS, it was disputed through the litigation that there was a CIS with any of the Defendants. Prior to start of trial, in his Skeleton Argument for the Defendants, Mr Clegg submitted: \u201cDs [deny] they are or have at any time made \u2018arrangements\u2019 within [s.235] or have operated a CIS\u2026.The arrangements were made by the original hotel owners with Cs. Ds have not interacted with Cs\u2026They merely acquired the hotels for which arrangements had been made by the former owners\u2026There is no understanding between Ds and Cs. They were not counterparties to agreements with Cs. Monies were not paid to Ds but to their predecessors in title of the hotels. That Ds acquired the hotels does not lead to the conclusion they made arrangements required by s.235 to give rise to a CIS.\u201d However, in closing submissions, whilst not formally conceding the CIS issue, Mr Clegg recognised that his main point was that any \u2018arrangements\u2019 between the Defendants and Claimants amounting to a CIS has not been \u2018operated\u2019. Instead, argument on the CIS as such focussed on whether the leases (specifically Sch.5) themselves amounted to \u2018arrangements\u2019 constituting a CIS. Since I have found the leases continue to bind the Defendants whether in property or contract law, in my judgement, those extant leases (now including the \u2018triggered\u2019 Sch.5) are new \u2018arrangements\u2019. Just as the same parties can change \u2018arrangements\u2019 between them as in Fradley, so too can different parties reach different \u2018arrangements\u2019 to before. 118. As discussed, because s.235 is \u2018collective\u2019, an individual investor\u2019s lease cannot alone amount to \u2018arrangements\u2019 being a CIS. However, each of the Defendants having two or more (indeed multiple) leases including Sch.5 in their hotel do amount to collective \u2018arrangements\u2019 amounting to a CIS for these reasons: (i) As Lord Sumption said in Asset Land at [91], \u2018arrangements\u2019 are assessed prospectively, not based on what actually later happens. (As I shall explain, \u2018operating\u2019 is different). It is the Defendants succeeding to multiple leases and their legal relationship with the investors which constitute each of their \u2018Sch.5 arrangements\u2019 (they include the whole lease, but Sch.5 is critical). (ii) In relation to \u2018the property\u2019 the individual terms of one lease might suggest it is the room, since that is \u2018the property from whose management the profits or income were to be derived\u2019 (Asset Land at [93]). However, just as in Capital where \u2018the property\u2019 remained the farm despite different yields from fields, as the \u2018Sch.5 arrangements\u2019 are the multiple leases and rooms are let and raise income as part of the hotel, \u2018the property\u2019 remains the hotel. (iii) As to the \u2018purpose or effect\u2019 of the \u2018Sch.5 arrangements\u2019, again one must distinguish the \u2018arrangements\u2019 and their \u2018operation\u2019. The relevant \u2018purpose\u2019 and \u2018effect\u2019 of \u2018the Sch.5 arrangements\u2019 is stated in the Sch.5 recital: \u201cUnder these provisions the Tenant [investor] shall irrevocably appoint the landlord (or its nominee) [the hotel] to act as his Undisclosed Agent in the letting of the Premises. In return for letting the Premises to Guests the Tenant shall receive from the landlord 50% of the Room Income\u2026and that the landlord shall receive the remaining 50% of Room Income together with the whole of the cost of the Hotel Services provided by the landlord to the Guest.\u201d However, para 4.1 Sch.5 means the hotel is \u2018entitled not obliged\u2019 to let out investor\u2019s rooms. So the purpose of \u2018the Sch.5 arrangements\u2019 is that if the hotel lets out an investor\u2019s room, they have a profit share of their room. Even if an investor\u2019s room is not let out, that does not change the purpose of the \u2018Sch.5 arrangements\u2019 which are assessed prospectively as discussed. (iv) As a result, the \u2018purpose\u2019 and \u2018effect\u2019 of the \u2018Sch.5 arrangements\u2019 is clearly to enable multiple investors \u2018to participate in profits or income\u2019 from their rooms, rather than receive fixed returns as with the \u2018original arrangements\u2019. Even though \u2018the property\u2019 is the hotel, the sum for the room is still paid out of the hotel\u2019s income, even if it is related to that particular room. (v) Moreover, \u2018profits or income\u2019 from letting rooms \u2018arise from management of the property\u2019 \u2013 i.e. the hotel under \u2018the Sch.5 arrangements\u2019. (vi) Likewise, in \u2018the Sch.5 arrangements\u2019, as \u2018the property\u2019 remains the hotel, the investors clearly have no control over the management of \u2018the property\u2019, as discussed. Investors have rights under a scheme where the hotel manages their room and they surrender practical control the management of their room and it does not matter what control has been exercised: Asset Land [94]. (Even if \u2019the property\u2019 is \u2018the room\u2019 the investors have no \u2018day-to-day control\u2019 of their room because of para.3.4 Sch.5, the purpose of which is to require investors to \u2018provide vacant possession\u2019 of their room in practice even though it does not remove \u2018exclusive possession\u2019 in law as discussed). (vii) Finally, the \u2018Sch.5 arrangements\u2019 do not \u2018pool\u2019 income and profits as DHCJ Gleeson accepted of the similar leases in Forster at [143]. However, \u2018the property is managed as a whole\u2019 as a hotel by the Defendants, not the investors (I assume for the moment each Defendant was an \u2018operator\u2019 but decide it under Topic 4 below). Even if \u2018the property\u2019 is the investor\u2019s room itself, not only does para 3.4 Sch.5 require vacant possession, but paras 3.1, 3.2 and 3.5 Sch.5 require investors to make their room available to the hotel. Therefore, \u2018the Sch.5 arrangements\u2019 \u2013 specifically Sch.5 of the lease \u2013 are a CIS. Whether those arrangements amount to a \u2018UCIS\u2019 depend on whether individual Defendants (none of whom are authorised to carry out regulated activities or exempt from it under s.19 FSMA) have \u2018operated\u2019 their \u2018Sch.5 arrangements\u2019. 119. All the Defendants have \u2018Sch.5 arrangements\u2019 with their collective leaseholders, but some have supplemented them by communications with those leaseholders: a. For the Llandudno Bay, in May 2021 \u2013 before Aloe Vera acquired it in July 2021, Mr Barsby emailed the leaseholders, including Dr Bruyniks, saying: \u201c[T]he key aspects of Schedule 5 govern the future relationship between the freeholder and the individual investor leaseholder as we go forward and we have included below some of the main aspects: \u25e6 The tenant (bedroom leaseholder) will contractually make their premises available for use as a hotel bedroom to a guest. \u25e6 The schedule outlines rental income from each leaseholder\u2019s bedroom will be apportioned on a 50\/50 basis [with them]\u2026 \u25e6 Operating and running costs are to be deducted from [your] element of rental income prior to the distribution of funds\u2026. \u25e6 We undertake to provide quarterly P&L reports to all leaseholders within 45 days of end of the accounting period\u2026. \u25e6 We undertake to make provision for any disbursements to leaseholders following\u2026the first 12-month[s] [then] annually.\u201d This email and the collective leases are the \u2018Llandudno Bay arrangements\u2019. b. For the Belmont, there is no similar clear email from Mr Barsby; and later P&L reports to Mr Duncan cannot form part of initial \u2018arrangements\u2019 (Asset Land at [91]). But they did not come out the blue and must reflect a similar commitment to Sch.5 from Mr Barsby for EBI before it bought the Belmont in September 2021. But \u2018the Belmont arrangements\u2019 plainly included \u2018the Sch.5 arrangements\u2019 and so plainly amounted to a CIS on that basis alone. c. The Queens Hotel and Queens Lodge were bought by separate companies also controlled by Mr Ma in March 2022: the Hotel to EBI and Lodge to H&M Llandudno. Therefore, these are strictly separate \u2018arrangements\u2019 and CIS, although in neither case is there any evidence of augmentation of \u2018the Sch.5 arrangements\u2019 (the solicitors letters in 2024 are not part of them). d. For the same reason, because the leases bind Tokyo, it has \u2018the Sch.5 arrangements\u2019 for the Hall and indeed the Annex which amount to a CIS in any event. However, the distinction between the Hall and the Annex is that in his email in January 2022, Mr Mellor told Mr Howson that Tokyo would honour the leases, but that the Annex would not be completed. This distinction in my view forms part of \u2018the Caer Rhun arrangements\u2019. 120. It is not possible to answer preliminary issues 1, 4 and 5 with a simple \u2018yes\u2019 or no\u2019 because they presuppose that any CIS is unlawful, i.e. a UCIS. However, as I have explained, that depends on whether the Defendants are \u2018operating a CIS\u2019. Therefore, I shall slightly adjust the questions in answering them as follows: \u2022 PI.1 The \u2018arrangements\u2019 between the parties in the Leases (\u2018the Sch.5 arrangements\u2019 do constitute a collective investment scheme (\u2018CIS\u2019) in s.235. \u2022 PI.4 Specifically, it is the terms of Sch.5 of the leases collectively with leaseholders for a hotel which along with relevant communications with its leaseholders from the Defendant owning the hotel which amount to its CIS. \u2022 PI.5 The Defendants are not authorised to establish\/operate\/wind up a CIS. I turn now to whether they have actually \u2018operated\u2019 their CIS. Topic 4: Have any of the Defendants \u2018operated\u2019 an unlawful \u2018UCIS\u2019 ? 121. This Topic comprises all these Preliminary Issues, though there is much overlap: \u2022 PI.2 Whether the predecessors in title to the Defendants established or operated a UCIS under section 235 FSMA? \u2022 PI.6 Whether the Defendants are an \u2018Operator\u2019 within\u2026FSMA 2000. \u2022 PI.7 Where rooms do not exist, whether there is any liability of the Defendants under FSMA 2000 in relation to the operation of a UCIS pursuant to any arrangements. \u2022 PI.8 Whether the Defendants have held themselves out to the Claimants, the public and other businesses as operating a scheme pursuant to [FSMO] and\/or operating or winding up a UCIS, being \u2018specified activities\u2019 for the purposes of section 22 FSMA, including the enforcement of Ground Rent and service charges and have sought to achieve the forfeiture of the Leases. \u2022 PI.9 Whether in performing the \u2018activities\u2019 without any reference to, intended compliance with, or implementation of, the UCIS, amounts to a breach of the provisions of the Lease and\/or Schedule 5 \u2022 PI.10 Whether [the Defendants] performing the \u2018activities\u2019 without any reference to, intended compliance with, or implementation of, the UCIS [contravenes] ss.19(1) and 22(1) FSMA and Arts.4(2) and 51ZE [FSMO]\u2026 \u2022 PI 14 Whether the Defendants are entitled to a declaration that they are not operating or winding up a UCIS In truth, all these are slightly different ways of examining whether the individual Defendants have \u2018operated a CIS\u2019. I start with the straightforward meaning of that phrase, then its detailed interpretation and last, its application to the Defendants. The Straightforward Meaning of \u2018Operating a CIS\u2019 122. By comparison to s.235 FSMA, Art.51ZE FSMO appears quite straightforward: \u201cEstablishing, operating or winding up a collective investment scheme is a specified kind of activity\u2019. The main reason there is little authority about what \u2018operating\u2019 a CIS means is that it is often obvious. In the reported cases on s.235 FSMA, especially those brought by the FCA like Asset Land or Forster, the issue was whether the scheme obviously being \u2018operated\u2019 met the complex definition of a CIS in s.235 FSMA. Even in an investor claim like this, \u2018operation\u2019 may not be an issue at all or only a brief one. For example, in Spence, along with upholding the investors\u2019 common law causes of action like deceit and unlawful means conspiracy, Foxton J (as he then was), having spent 21 paragraphs to explain why the investor lease scheme for units of student and holiday accommodation met the definition of a CIS in s.235, only needed two short paragraphs to find that the defendant had \u2018operated\u2019 it, for reasons which will often apply to companies practically \u2018running\u2019 a CIS: \u201c593. s.19(1) FSMA provides that no person may carry on a regulated activity in the UK\u2026unless..an authorised or an exempt person. Establishing and operating collective investment schemes is a \u2018regulated activity\u2019 [Art. 51ZE FSMO]. In Angelgate and Baltic House Claimants v Key Manchester Ltd [2020] EWHC 3643 (Ch), the Court held that \u2018establishing\u2019 a collective investment scheme meant setting one up and operating an investment scheme meant \u2018running or managing\u2019 one ([27], [31]). Selling units in a collective investment scheme is also a regulated activity (Art 14 [FSMO]). 594. There can be no doubt that the companies which sold units to investors, the companies which entered into the underleases and the management companies designated in the original contractual documentation were engaged in establishing and operating collective investment schemes. As none of them were authorised to do so, it follows they all breached [s.19].\u201d 123. For very similar reasons, there can be no doubt in this case either that before their insolvencies, the NPD companies that owned the hotels and distributed the fixed returns to investors were each \u2018operating\u2019 a CIS for their particular hotel. Since none of them were authorised to do so, I would therefore find (although it cannot bind them as non-parties) that UCIS were operated: for the Llandudno Bay by the propco LBS and opco MBI Hotel Management (as the sub-lease was in its name); for the Belmont by the original propco BHM, for the Queens Hotel and Lodge (former Harrison Hotel) by the propco QHL; and for Caer Rhun Hall by the propco CRH. Indeed, they each not only \u2018operated\u2019 but \u2018established\u2019 each CIS. 124. What l will call the \u2019straightforward meaning\u2019 of \u2018operating\u2019 was adopted in Angelgate by HHJ Hodge KC (sitting as a Judge of the High Court) following another BPC colleague HHJ McCahill QC sitting as a High Court Judge in the unreported case of FCA v Capital Alternatives in 2008. HHJ Hodge KC said: \u201c12\u2026.[The] proper approach to the question of establishing or operating a collective investment scheme is in the guidance by HHJ McCahill QC \u2026 [He] interpreted \u2018establishing\u2019 a collective investment scheme as setting it up, and \u2018operating\u2019 it as running or managing it. He recorded there appeared to be no dispute over the law concerning definition of those two elements\u2026. 27. In his submissions [which HHJ Hodge KC accepted at [31]], Mr Pooles emphasised it is clear \u2018establishing\u2019 a scheme means setting it up (although he acknowledged that more than one person might do so) and \u2018operating\u2019 a scheme meant running or managing it, the Court being concerned to identify the person or persons (of whom there might be more than one) who were responsible for managing the property as a whole, albeit that person or persons might act by agents and bearing in mind that a mere facilitator is something different from someone fulfilling a managerial role\u2026.\u201d That reflects what Arden LJ (as she was) said about \u2018operators\u2019 in Fradley at [37] in relation to \u2018managing the property as a whole\u2019 as permitting more than one \u2018operator\u2019 between them \u2018operating a CIS\u2019. There is also s.235(3)(b) which states: \u201cThe arrangements must also have either or both of the following characteristics\u2026(b) the property is managed as a whole by or on behalf of the operator of the scheme.\u201d (my italics) (The person \u2018operating the CIS\u2019 in Art.51ZE FSMO is plainly the same person as \u2018the operator of the scheme\u2019 in s.235(3)(b) FSMA, even if there is pooling under (a)). With most CIS, the \u2018straightforward meaning\u2019 of \u2018operating\u2019 will suffice, especially in a case within s.235(3)(b) FSMA, since \u2018the operator of the scheme\u2019 will already have been identified as the person \u2018managing the property as a whole\u2019. (Whilst purely analytically I could not have found there were CIS satisfying s.235(3)(b) FSMA without \u2018an operator of each scheme\u2019, I have preferred to assume that under s.235(3)(b) and to consider the issue in this topic). 125. Indeed, just as many cases will plainly fall within the \u2018straightforward definition\u2019 of \u2018operating a CIS\u2019 in Art.51ZE FSMO as \u2018\u2019running or managing\u2019 a CIS, there will also be cases plainly falling outside that definition. For example, in Angelgate, HHJ Hodge KC refused permission to amend Particulars of Claim to claimant investors in an (arguable) CIS, already suing their own former solicitors for negligence, to plead they had also \u2018operated\u2019 that CIS. He said at [32]: \u201c\u2026[T]he reality is, simply, that the firm were merely acting as conveyancing solicitors for those who wished to proceed with their purchases and that was a facilitative, and not a managerial, role or a role that amounted to establishing or operating a collective investment scheme.\u201d A similar view was taken by Arden LJ (as she was) in Fradley at [37] of solicitors involved in the arrangements of a CIS probably not \u2018operating\u2019 it but merely an agent of the \u2018operator\u2019, even if nominated by them. In short, in most cases, \u2018operating a CIS\u2019 is the proverbial \u2018elephant\u2019: difficult to describe, but we know it when we see it and it causes no analytical difficulty. The Statutory Interpretation of \u2018Operating a CIS\u2019 126. However, the \u2018straightforward meaning\u2019 of \u2018operating a CIS\u2019 may not always give a clear answer with more borderline facts. In such cases, to interpret \u2018operating\u2019 a CIS as synonymous with \u2018running or managing\u2019 it may only beg the question whether a party was \u2018running or managing\u2019 it instead (as Lord Reid said of judicial synonyms for statutory words in Brutus v Cozens [1973] AC 854 (HL) at pg.861). There appears to be no authority on whether a successor to a contract or a lease under which a CIS was operated themselves \u2018operate a CIS\u2019. Mrs Swaffield submitted the Defendants\u2019 operation of the hotels was \u2018operating a CIS\u2019. Indeed, she argued that if I found the leases constituted a CIS (as I now have), merely succeeding to those leases would be \u2018operating a CIS\u2019. By contrast, in his Skeleton Argument, Mr Clegg submitted the Defendants merely succeeding to the leases even if previously operated as a CIS was not itself \u2018operating a CIS\u2019: \u201cThere is no evidence Ds have operated the scheme [under] Schedule 5 of the leases. Indeed, it is the evidence of Ds they have not done that; to the extent the hotels have been operating, it is independently of arrangements put in place by the former owners. If they have not done that they cannot be criticised. They simply decline to commit breaches of the Act which otherwise they would commit attracting potential criminal liability.\u201d Such polarised submissions cannot be resolved by simply asking whether the Defendants have \u2018run or managed a CIS\u2019: that simply begs the question they pose. 127. Therefore, whilst the core meaning of \u2018operating\u2019 a CIS is \u2018running or managing\u2019 it, in this case it is necessary to interpret the statutory expression in more detail. Therefore, I referred Counsel to a recent Supreme Court case on statutory interpretation: R(PACCAR) (cited above), where Lord Sales said at [41]-[44]: \u201c41\u2026[M]odern case-law\u2026emphasise the central importance in interpreting any legislation of identifying its purpose\u2026[In] R(Quintavalle) v SSH [2003] 2 AC 687 (HL), Lord Bingham of Cornhill said at [8]: \u201cEvery statute other than a pure consolidating statute is, after all, enacted to make some change, or address some problem, or remove some blemish, or effect some improvement in the national life\u2026. The Court\u2019s task, within the permissible bounds of interpretation, is to give effect to Parliament\u2019s purpose. So, the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment.\u201d\u2026. The purpose and scheme of an Act of Parliament provide the basic frame of orientation for the use of the language employed in it. 42 It is legitimate to refer to Explanatory Notes which accompanied a Bill\u2026 through Parliament..reproduced..when the Act is promulgated. But external aids to interpretation such as these play a secondary role, as it is the words of the provision itself read in the context of the section as a whole and in the wider context of a group of sections of which it forms part and of the statute as a whole which are the primary means by which Parliament\u2019s meaning is to be ascertained [R(O) v SSHD [2023] AC 255], paras 29-30. 43 The courts will not interpret a statute so as to produce an absurd result, unless clearly constrained to do so by the words that Parliament has used: R v McCool [2018] 1 WLR 2431 (SC) paras 23\u201425\u2026 includ[ing] virtually any result which is impossible, unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief\u2019\u2026. [T]he Courts have to be careful [not] to substitute their view of what is reasonable for [that of] the legislature\u2026. 44 In certain circumstances, subordinate legislation made pursuant to powers in a statute can be an aid to interpretation of the statute\u2026[I]n Deposit Protection Board v Dalia [1994] 2 AC 367 the House of Lords held that it is permissible to refer to contemporaneous subordinate legislation as an aid to interpretation\u2026.In my view, on this basis and in line with the position for Explanatory Notes, the [subordinate legislation in that case] is admissible as an aid to interpretation both for such light as it might throw on an assessment of the purpose of the primary legislation and to assist in resolving any identified ambiguity in a provision in that legislation.\u201d It is well-established that applies even more forcefully the other way around \u2013 primary legislation (like FSMA) is a clearly admissible aid to interpretation of contemporaneous secondary legislation made under it (like FSMO). Therefore, it is necessary to put Art.51ZE in context of the rest of FSMO and indeed FSMA. 128. In setting out the crucial statutory framework, I will start with the key statutory provision containing the word in dispute \u2018operating\u2019 – Art.51ZE FSMO itself: \u201cEstablishing, operating or winding up a collective investment scheme is a specified kind of activity\u201d. For convenience and context, I repeat the key parts of s.235 FSMA: \u201c(1)\u2026\u2018Collective investment scheme\u2019 means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such…. (2) The arrangements must be such that the persons who are to participate (\u2018participants\u2019) do not have day-to-day control over the management of the property [whether or not they have rights to be consulted or give directions]. (3) The arrangements must also have either or both of the following characteristics (a) the contributions of participants and the profits or income out of which payments are to be made to them are pooled; (b) the property is managed as a whole by or on behalf of the operator of the scheme…\u201d Going back to FSMO, a \u2018specified kind of activity\u2019 in Art.51ZE links to Reg.4(2): \u201cThe kinds of activity specified by Arts. 51ZA, 51ZB, 51ZC, 51ZD, 51ZE, 52 and 63\u00a0are also specified for the purposes of s.22(1)(b)..(and accordingly any activity of one of those kinds, when carried on by way of business, is a regulated activity when carried on in relation to property of any kind).\u201d (Arts.51ZA-D FSMO relate to various EU-regulated investments, Art.52 to pension schemes and Art.63 to regulated mortgages). s.22(1) FSMA itself states: \u201cAn activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and (a) relates to an investment of a specified kind; or (b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind.\u201d As already noted, s.19(1) FSMA is the \u2018general prohibition\u2019 (s.19(2)), stating: \u201cNo person may carry on a regulated activity in the UK, or purport to do so, unless he is (a) an authorised person; or (b) an exempt person.\u201d s.23 FSMA makes breach of \u2018the general prohibition\u2019 a criminal offence, but s.19 also engages remedies for \u2018agreements\u2019 in breach of the general prohibition in s.26 FSMA that I discuss later. This includes enabling under s.26(2) FSMA return of money paid etc under \u2018the agreement\u2019, which is defined in s.26(3)(b) as an agreement \u2018the making or performance of which constitutes, or is part of, the regulated activity\u2019. Moreover, s.19 is not the only prohibition in FSMA, as Arden LJ noted in Fradley at [3], there is also s.21 FSMA which she considered at [55]. This prohibits under s.21(1) an unauthorised person from communicating an invitation or inducement to \u2018engage in investment activity\u2019 defined by s.21(8)(a) as including \u2018entering an agreement\u2019 \u2013 again: \u2018the making or performance of which by either party constitutes a controlled activity\u2019 (which under.21(9) includes \u2018activities of a specified kind\u2019, such as \u2018operating a CIS\u2019 under Art.51ZE FSMO). The upshot is that s.21(8) and 26(3) FSMA both appear to envisage that with an agreement, it is the \u2018making or performance\u2019 of it – not just its existence – which \u2018constitutes\u2019 all or part of a regulated activity, including \u2018operating a CIS\u2019. 129. I would make three observations in relation to the wording of Art.51ZE FSMO in the context of both Art.4 FSMO but also ss.19, 21, 22, 23, 26 and 235 FSMA: a. Firstly, as a matter of language, Art.51ZE distinguishes \u2018establishing\u2019, from \u2018operating\u2019 and from \u2018winding-up\u2019, a CIS. \u2018Establishing\u2019 relates to \u2018setting up\u2019 at the start of a CIS and \u2018winding-up\u2019 to its end. However, \u2018operating\u2019 in the sense of \u2018running or managing\u2019 the CIS relates to its lifespan. It also entails activity. \u2018Operating a CIS\u2019 is not the same as \u2018supervising\u2019 or even \u2018acquiring\u2019 a CIS. Nor is \u2018operating\u2019 prospective \u2018arrangements\u2019 (Asset Land [91]). On the contrary, in normal language, \u2018operating a CIS\u2019 depends on whether \u2018arrangements\u2019 amounting to a CIS are in practice being actively \u2018operated\u2019, in the sense of being \u2018run\u2019 or \u2018managed\u2019 (Angelgate). This points against mere succession to a lease amounting to \u2018operating\u2019 a CIS. b. Secondly this interpretation of the language of Art.51ZE is supported by the \u2018scheme\u2019 of the legislation as Lord Sales put it in PACCAR at [41], including s.21 and 26 FSMA. Whilst \u2018regulated activity\u2019 is not limited to the \u2018making or performance\u2019 of an \u2018agreement\u2019, merely succeeding to a lease in property law is neither \u2018making\u2019 nor \u2018performing\u2019 it. Indeed, it is arguably not even \u2018entering\u2019 it, which suggests some voluntary act, since (as discussed earlier), a key aspect of property law is that a registered lease binds third parties who succeed to the land even without active \u2018novation\u2019. This suggests that whilst \u2018arrangements\u2019 under s.235(1) need not be contractual (Asset Land at [91]), at least where a CIS is only comprised of a contractual \u2018agreement\u2019, such as \u2018the Sch.5 arrangements\u2019, it is the making or performance of that agreement by either party which, at least primarily, constitutes \u2018operating\u2019 the CIS. c. Thirdly, I do not consider \u2018operating\u2019 only part of \u2018the arrangements\u2019 of a CIS (e.g. \u2018managing property\u2019) is itself \u2018operating a CIS\u2019. Art.51ZE FSMO covers \u2018operating\u2019 a collective investment scheme (defined by s.235 FSMA), not simply \u2018operating\u2019 \u2018the property\u2019 at the heart of that CIS. \u2018Operation of a scheme\u2019 is not necessarily the same as \u2018management of property\u2019, as Lord Carnwath said in Asset Land at [7]: \u201cPart 1.2 Australian Corporations Act 2001\u2026 refers\u2026to investors\u2019 control not over \u2018management of the property\u2019, but over the \u2018operation of the scheme\u2019. Such differences make it advisable to keep the discussion within the ambit of the United Kingdom statute\u2026\u201d Indeed, Lord Sumption said of s.235(3)(b) specifically in Asset Land at [97]: \u201c[s.235(3)(b)] provides that what has to be \u2018managed as a whole\u2019 is the property the subject of the scheme, not the scheme itself so far as that is different. Acts by way of management of the scheme are relevant only so far as they involve the management of the property.\u201d Of course, as Arden LJ said in Fradley at [37], which for ease I repeat: \u201c[I]t is convenient to refer to a single set of \u2018arrangements\u2019 as a single scheme. There is no doubt that the expression \u2018operator\u2019 in s 235 includes two or more operators acting as operators of a single scheme: the singular in a statute includes the plural. Likewise, there is no logical reason why, if there are two operators, they should have to be responsible for the entire operation of the scheme. It is enough that they are responsible for separate parts of the entire scheme. But, where two services are offered together, it does not necessarily follow that there was only one set of arrangements.\u201d So, providing there is a single set of \u2018arrangements\u2019 constituting a CIS, a \u2018propco\u2019 may \u2018manage the property as a whole\u2019 whilst an \u2018opco\u2019 \u2018operates the CIS\u2019. Indeed, that was very much the NPD model. However, somebody must \u2018operate the CIS\u2019 \u2013 the key point is that merely \u2018managing the property\u2019 is not the same as \u2018operating the CIS\u2019. Indeed, in my judgment, as a matter of the statutory language of FSMA and FSMO, a CIS is not \u2018operated\u2019 unless all the \u2018arrangements\u2019 constituting that CIS under s.235 are being \u2018operated\u2019, even if by one or more \u2018operators\u2019 (Fradley). So, to \u2018operate a CIS\u2019, not only \u2018the property\u2019 must be \u2018operated\u2019 in sense of \u2018run or managed\u2019, but also the part of the \u2018arrangements\u2019 \u2018enabling participation in profits or income of managing the property or the sums paid out of it\u2019. Accordingly, in my judgement, the statutory language and structure of FSMA and FSMO is contrary to Mrs Swaffield\u2019s submissions that the Defendants\u2019 mere succession to the leases, or management of the hotels, as such \u2018operate their CIS\u2019. I also accept Mr Clegg\u2019s point that a Defendant here merely acknowledging it is bound by investor leases is not itself enough to constitute \u2018operating a CIS\u2019. 130. Those conclusions on the statutory language and structure of FSMO and FSMA are reinforced by their purpose, external aids and presumptions, which Lord Sales referred to in PACCAR at [41]-[43]. These contextual issues with s.235 FSMA were analysed by Lord Sumption in Asset Land at [77]-[90], although rather than quoting at length, I will link that to the following five observations on context: a. Firstly, the \u2018external aid\u2019 to statutory interpretation Lord Sales mentioned in PACCAR at [41] is an Explanatory Note accompanying in Parliament draft primary legislation. FSMA\u2019s Note has no relevant guidance on s.235. But FSMO\u2019s \u2018Explanatory Memorandum\u2019 (as it is secondary legislation) explains that Part II of the original FSMO in 2001 specified various types of investment activity, including \u2018establishing etc a \u2018collective investment scheme\u2019 alongside specific types of investments. This underlines the focus of regulation in FSMA\/FSMO is only on investment schemes which involve specified assets or a CIS, as Lord Sumption stressed in Asset Land at [87]. b. Secondly, this point is reinforced by the legislative history of FSMO. In the original FSMO promulgated in 2001, Art.51ZE\u2019s predecessor was Art.51: \u201c(1) The following are specified kinds of activity (a) establishing, operating or winding up a collective investment scheme; (b) acting as trustee of an authorised unit trust scheme; (c) acting as the depositary or sole director of an open-ended investment company.\u201d So, Parliament considered \u2018operating a CIS\u2019 as comparable to being the trustee of a unit trust scheme. This linkage with unit trusts is explained by the legislative history of s.235 FSMA Lord Sumption stated in Asset Land at [77]-[86]. 1950s statutory regulation of unit trusts led to a 1984 Report recommending overhauling investor protection for all investments, except in physical property (including land) over which investors had control. A 1986 White Paper led to the Financial Services Act 1986 (\u2018FSA\u2019), which 15 years later was overhauled in FSMA. It still reflected that distinction made in the 1984 Report, as Lord Sumption explained in Asset Land at [86]: \u201c[FSMA] regulates only the indirect sale or holding through collective investment schemes of non-specified assets [such as land]. It has no application to the[ir]…acquisition, management or disposal.\u201d As Lord Sumption explained in Asset Land at [73], [77] and [79], s.235 FSMA largely re-enacted s.75 FSA, albeit that \u2018establishing, operating or winding up\u2019 a CIS had been in para.16 Sch.1 FSA (there is no authority on that either), but that was placed in FSMO along with some exceptions to s.235 FSMA which had originally been in s.75 FSA itself. After FSMA and FSMO came into force in 2001, by 2008 a Committee Report noted some difficulties with how s.235 FSMA worked. I have found that report which also noted uncertainty about the meaning of \u2018operating\u2019 a CIS after Fradley allowed multiple \u2018operators\u2019. It debated whether \u2018operating a CIS\u2019 involved running the whole CIS including its property as the FCA believed, or only managing financial aspects but not the property. The FCA\u2019s view is clearly now established, not just by Fradley but also by Angelgate. However, notably it was never suggested to that 2008 Committee that merely managing the property in the CIS was itself \u2018operating the CIS\u2019. However, the FCA were clearly satisfied that \u2018operating\u2019 spoke for itself, as it was not clarified when Art.51ZE was enacted in 2013 along with the EU measures noted in Art.4(2) FSMO, also splitting off CIS from unit trusts. c. Thirdly, this legislative history and the FSMO Explanatory Memorandum underpin the statutory purpose of the provisions of s.235 FSMA and FSMO, which Lord Sumption stated in Asset Land at [88]: \u201c[I]t is important when construing a regulatory statute of this kind not to allow technical distinctions to frustrate the purpose of the legislation. But [FSMA] cannot be construed on the assumption that it was intended to regulate every kind of investment in which members of the public are liable to have advantage taken of them by an unscrupulous intermediary. In the first place\u2026. most regulatory legislation is a compromise between the protection of consumers and the avoidance of regulatory overkill. In a statute such as [FSMA] which deliberately sets out to regulate some forms of investment but not others, the omission of some transactions from the regulatory net cannot of itself be regarded as compromising the efficacy of the statutory scheme. Secondly, there is, as the [1986 White Paper]\u2026 pointed out, a tension between the need to provide certainty for practitioners, customers and investors, and the need to cast the net wide enough to ensure consistency of treatment between different financial services\u2026.It must, moreover, be interpreted in a way that provides intelligible criteria which can be applied by professional advisers considering schemes in advance of their being marketed.\u201d As I have said, I would interpret \u2018operating a CIS\u2019 in Art.51ZE as requiring active operation of all the \u2018arrangements\u2019 constituting that particular CIS under s.235, even if by one or more \u2018operators\u2019 – not just the \u2018operation\u2019 (or managing) of \u2018the property\u2019, but also the \u2018operation\u2019 (or \u2018running\u2019) of the part of the \u2018arrangements\u2019 \u2018enabling participation in profits or income of managing the property or the sums paid out of it\u2019. However, I italicise \u2018enabling\u2019 because \u2018operating a CIS\u2019 does not actually require distribution of profits, income or sums out of it. In my judgment, this strikes the right balance between consumer protection and regulatory overkill. It avoids over-reach, bearing in mind there are other consumer protections in FSMA, such as the \u2018pre-emptive\u2019 s.21. But it is also consistent with the rest of FSMA (e.g. unit trusts) which cover \u2018regulated activities\u2019 even without investor returns (indeed it is those which do not yield returns which most require regulation). It also provides clear and intelligible criteria in advance to advisers: in short, interpreting \u2018operating a CIS\u2019 as \u2018operating\u2019 all the s.235 arrangements, even if by multiple \u2018operators\u2019, enables advisers to give guidance to clients as to what is and is not unlawful. By contrast, interpreting \u2018operating a CIS\u2019 as including even only succeeding to a lease under which a CIS was previously operated by someone else, or merely operating the property but not the \u2018participation arrangements\u2019, would be \u2018overkill\u2019 and lead to confusing inconsistencies between CIS and the rest of FSMA. d. Fourthly, to put that last point another way, as Mr Clegg submitted, the Claimants\u2019 suggested interpretation of \u2018operating a CIS\u2019 would create \u2013 if not \u2018absurd\u2019 results, then at least unworkable, impractical, anomalous and disproportionate ones which Parliament cannot have realistically intended: engaging \u2018the presumption against absurdity\u2019 discussed in PACCAR at [43]. In particular, not only would it create confusion and uncertainty about \u2018operating a CIS\u2019 worse than the concerns expressed in the 2008 Report, it would create a positive disincentive to succession to leases and contracts under which CIS were previously run, for fear of \u2018inheriting liability\u2019. This would actually risk of reducing the value of the investors\u2019 investments. e. Finally, as Lord Sumption also emphasised in Asset Land at [88]: \u201cThe consequences of operating a collective investment scheme without authority are sufficiently grave to warrant a cautious approach to the construction of the extraordinarily vague concepts deployed in section 235. Arden LJ was surely right in Fradley at para 32, to say that the section \u2018must not be interpreted so as to include matters which are not fairly within it\u2019.\u201d As DHCJ Gleeson observed in Forster at [101]-[103], that does raise the question of what is \u2018fair\u2019 in this context, bearing in mind that penal sanctions must be balanced against consumer protection. A similar point was made by Popplewell LJ in FCA v Avacade [2021] Bus LR 1810 (CA) at [46] about Art.25 FSMO (\u2018making arrangements\u2019 about buying or selling investments), where he also pointed out the criminal offence for breach of s.19 in s.23 FSMA has a \u2018due dilligence\u2019 defence rather than being \u2018strict liability\u2019. Therefore, this is not a case of the full-blown \u2018penal presumption\u2019 requiring Mens Rea, most famously in Sweet v Parsley [1970] AC 132 (HL). Nevertheless, as Lord Sumption put it in Asset Land at [88], it requires a \u2018cautious approach to vague language\u2019. I consider \u2018operating a CIS\u2019 in Art.51ZE is not vague or ambiguous and in statutory context, it conveys the narrower scope of \u2018operating\u2019 I have explained. However, if I am wrong and it is ambiguous, that narrower reading should be preferred anyway. For all those reasons, I consider the true interpretation of \u2018operating a CIS\u2019 in Art.51ZE FSMO, at least in the context of succession to an \u2018agreement\u2019 such as a lease or contract containing the \u2018arrangements\u2019 amounting to a CIS such as here, requires not merely succession to the agreement, nor only managing the property nor even operating general parts of the leases. \u2018Operating the CIS\u2019 requires active operation of all the \u2018arrangements\u2019 constituting that CIS under s.235, even if by one or more \u2018operators\u2019: not only \u2018operation\u2019 (or managing) of \u2018the property\u2019, but also \u2018operation\u2019 (or \u2018running\u2019) of parts of \u2018arrangements\u2019 \u2018enabling participation in profits or income of managing the property or the sums paid out of it\u2019, but does not require the actual distribution of such income, profits or sums to investors. In short in this case, \u2018operating a CIS\u2019 requires \u2018operating\u2019 the \u2018Sch.5 arrangements\u2019. Did any of the Defendants \u2018operate\u2019 their CIS ? 131. I turn to my conclusions about the individual Defendants: once again examining the dealings between them and their investors, albeit from a \u2018different legal angle\u2019. I start with the Queens Hotel and Lodge, which stand or fall together even though they are separate CIS as bought in March 2022 by separate companies the Hotel by EBI and Lodge by H&M Llandudno. As they were derelict at the time of their purchase and have remained so (indeed if anything have deteriorated); and there have been no meaningful dealings between either and investors like Mr Rimmer (in both) and Mr and Mrs Jeffs (in the Lodge), their CIS in each case is limited to \u2018the Sch.5 arrangements\u2019. It is clear these CIS have not been \u2018operated\u2019: a. Firstly, mere ownership of the hotels and succession to the investor leases cannot without more amount in this case to \u2018operating the CIS\u2019 \u2013 they are no more than EBI\u2019s and H&M\u2019s \u2018Sch.5 arrangements\u2019 themselves \u2013 the CIS, not the \u2018operating\u2019 of it, still less enabling participation in profit etc from it. b. Secondly, as I said the communication between EBI and H&M and investors in the Queens Hotel and Lodge has been effectively absent, to the regrettable extent that Mr Rimmer and Mr and Mrs Jeffs heard it first in Mr Ma\u2019s evidence he has no plans to renovate either hotel, which I accept is true. c. Thirdly, in fairness, this also pulled the rug from under Mrs Swaffield\u2019s submissions that EBI and H&M had \u2018held themselves out\u2019 to the public or investors as operating a CIS in relation to the Queen\u2019s Hotel or Lodge by describing them as \u2018opening soon\u2019 on the Group website, or even publicly suggesting in the local press in late 2024 an opening date in 2025 (which has since been and gone). This is mere marketing, not \u2019operating a CIS\u2019. d. Fourthly, Mrs Swaffield also submitted that EBI and H&M had \u2018operated\u2019 CIS through expenditure on refurbishment, or security or listing\/planning applications. In my view, none of this has anything to do with \u2018operating a CIS\u2019. It is no more than \u2018managing property\u2019, namely the buildings (I hesitate to call them \u2018hotels\u2019: since falling derelict, they are \u2018former hotels\u2019). e. Finally, Mrs Swaffield relied on EBI and H&M\u2019s solicitors\u2019 letters in February 2024, demanding the ground rent of \u00a3100, contribution to refurbishment costs and threatening forfeiture. Indeed, in August 2024, the solicitors gave notice of re-entry to Mr Rimmer saying: \u2018from the date of this latter your lease has ended\u2019. This was very shortly afterwards withdrawn and instead the solicitors argued that defeasance had occurred during the Administrations. I certainly accept this amounts to \u2018operating\u2019 \u2013 or indeed \u2018winding-up\u2019 – the leases. However, I do not consider that it amounts to \u2018operating\u2019 or even \u2018winding-up\u2019 the CIS in \u2018the Sch.5 arrangements\u2019. Seeking to forfeit leases collectively constituting a CIS for unrelated legitimate reasons (e.g. non-payment of ground rent) is not \u2018winding-up a CIS\u2019. That interpretation would \u2018lock-in\u2019 innocent successors to leases constituting a CIS they were trying to end, not \u2018operate\u2019. It is an ordinary landlord and tenant dispute of the kind that characterises long-leasehold and it is in reality the opposite of \u2018operating a collective investment scheme\u2019. In truth, these features mean EBI and H&M were and remain bound by the investor leases (subject to their lawful termination on their own terms), but in relation to the Queens Hotel and Lodge, neither has ever suggested there is a possibility of operating \u2018Sch.5 arrangements\u2019 and profit share in derelict hotels. Therefore, with genuine sympathy to Mr Rimmer and Mr and Mrs Jeffs, I am driven to the conclusion they have no remedy under FSMA against EBI or H&M. 132. I emphasise this conclusion is not based on any finding that Mr Rimmer\u2019s and Mr and Mrs Jeffs\u2019 rooms in the Queens Lodge \u2018do not exist\u2019. I have no evidence whether the rooms have in fact collapsed and in any event, that is not the issue. Even if their particular rooms had ceased to exist so that it would be impossible to operate the Sch.5 profit share in respect of them, if the rest of the Queens Lodge was open and operating \u2018the Sch.5 arrangements\u2019 with the rooms of other investors, H&M would still be \u2018operating a CIS\u2019, even if not with those rooms. The state of the hotel does not legally terminate the CIS or prevent its operation in legal theory, it is simply the practical context for the fact H&M have and are not \u2018operating a CIS\u2019 in respect of a derelict former hotel held up by scaffolding. Stewardship of such property is not \u2018operating a collective investment scheme\u2019 133. However, with Caer Rhun Annex, there is a more basic problem. The rooms not only do not practically exist, they have never existed and Tokyo has no plans for them to exist. In evidence Mr Mellor re-iterated that and said that due to the leases, it would cost \u00a33.5m to build the Annex which is not viable, which I accept. Indeed, in January 2022, Mr Mellor had told Mr Howson this from the start: \u201cI see no way this would be completed and will not be getting completed by ourselves [it] is part-demolished with no roof.\u201d Whilst Mr Howson has no \u2018room\u2019 in the Annex, Mr Duncan\u2019s UN1 secures an equitable lien over airspace: Eason \/ Williams. Whilst this binds Tokyo and the \u2019airspace leases\u2019 are assets for Mr Duncan and the others, they are incapable of being \u2018operated\u2019 as a hotel, let alone a CIS based on \u2018the Sch.5 arrangements\u2019 and the letting-out of rooms. However, that is not necessarily fatal to the Annex claims, as unlike Queens Lodge and Queens Hotel, the Caer Rhun Annex is not suggested to be a separate \u2018CIS\u2019 to the Hall. Therefore, if the Hall is indeed being \u2018operated as a CIS\u2019, even excluding the Annex, that may be enough. 134. Whether Tokyo is \u2018operating a CIS\u2019 at Caer Rhun Hall itself is not clear-cut: a. On one hand, as Mrs Swaffield said, Mr Mellor did specifically confirm to Mr Howson and his fellow leaseholders that Tokyo would honour their leases; unlike the Annex the Hall exists; and unlike Queens Hotel and Lodge, it is a functioning hotel. Rooms have been let out since it re-opened in January 2023 \u2013 and as Mr Howson has tried to book but it has been full, I infer on occasion that his own and others\u2019 investors rooms have been let. b. However, on the other hand, as Mr Clegg pointed out, Mr Mellor has been extremely careful not to say to Mr Howson or anyone else that he would operate what I am calling \u2018the Sch.5 arrangements\u2019, or indeed other parts of the leases. Unlike Mr Ma\u2019s companies, Tokyo has not asked for the ground rent or service charges which are due, or sought to forfeit the leases. Mr Mellor has preferred to wait for their status to be resolved as I now have. It is clear this is not simply reluctance to share the Hall\u2019s income with the investors, but out of a concern the leases are unlawful. Back in December 2020, before Tokyo bought Caer Rhun Hall, Mr Mellor said to Mr Howson: \u201c[NPD] told the FSA that it was not a collective investment scheme-when it most certainly was\u2026they have basically lied and that will make it even worse for them – there is caselaw on this now. It 100% was a collective investment scheme \u2013 what else could it be ?\u201d Therefore, the position is that Mr Mellor has deliberately decided that Tokyo should not \u2018operate \u2018the Sch.5 arrangements\u2019. Of course, that does not necessarily mean Tokyo has not done so, especially as I found \u2018the Caer Rhun arrangements\u2019 are slightly broader and included Mr Mellor\u2019s acknowledgement of Tokyo being bound by the leases. As I say, Tokyo has let out investors\u2019 rooms. But there is no evidence it has ever run the profit share arrangements under Sch.5, or even acknowledged investors\u2019 entitlement to it, still less to any sum under Sch.5 itself. 135. There was debate whether the Claimants were trying to \u2018have their cake and eat it\u2019: to contend that the Defendants have unlawfully \u2018operated a CIS\u2019 but then to criticise them for not operating it, at least properly. There is a tension between the Claimant\u2019s case under FSMA and under the leases. Preliminary Issue 9 states: \u201cWhether in performing the \u2018activities\u2019 without any reference to, intended compliance with, or implementation of, the UCIS, amounts to a breach of the provisions of the Lease and\/or Schedule 5 ?\u201d (my italics) The Claimants have pleaded common law damages and an equitable account for breach of the lease. Whilst there was debate about clause 4.3 of the main lease (to operate the building as a hotel), Tokyo is doing so; and as I have explained, para 4.1 Sch.5 (\u2018The Landlord shall be entitled…on the Tenant\u2019s behalf to supply the Premises as a Bedroom\u2019) entitles but does not oblige the hotel to use investors\u2019 rooms. However, if the hotel does so, paras 4.2.1 and 4.3 Sch.5 are clear: \u201c4.2.1 [T]he Tenant has the right to receive the Room Income and subject to such deductions as may be required by the provisions of this Lease\u2026 4.3\u2026The Landlord will collect and receive from a Guest the Hotel Fee and shall be entitled to deduct the Hotel Costs and the Letting Fee before paying to the Tenant his 50% share of the Room Income\u2026\u201d As I have found the Defendants are bound by the leases, to the extent that Tokyo has booked out investors\u2019 rooms but not paid them Room Income, unless the lease is unenforceable under s.26 FSMA, Tokyo is also liable to account to the Claimants for their share of that (which I am not asked to calculate at this stage). 136. However, does Tokyo\u2019s operation of the hotel and use of the investors\u2019 rooms without paying them the due Room Income amount to \u2018operating the CIS\u2019, whether \u2018the Sch.5 arrangements\u2019 or \u2018the Caer Rhun arrangements\u2019 including the acknowledgement of being bound by the leases ? As I have explained, \u2018operating the CIS\u2019 requires active operation of all the \u2018arrangements\u2019 constituting that CIS under s.235, even if by one or more \u2018operators\u2019: not only \u2018operation\u2019 (or managing) of \u2018the property\u2019, but also \u2018operation\u2019 (or \u2018running\u2019) of parts of \u2018arrangements\u2019 \u2018enabling participation in profits or income of managing the property or the sums paid out of it\u2019, but does not require the actual distribution of such income, profits or sums to the participants. On balance, I consider Tokyo has not \u2018operated a CIS\u2019 for three distinct reasons: a. Firstly, as Mr Clegg submitted, it is trite common law that a decision by a party to a legal instrument (lease, contract etc) not to operate particular terms of it (here Sch.5) may give rise to common law liability, but it cannot be deemed as \u2018operating\u2019 those terms when they are deliberately not being operated. Of course, it would be open to Parliament in FSMA or FSMO to deem certain conduct or omissions as \u2018operating a CIS\u2019 but it has not done so. On the contrary, the statutory context to ss.19 and 22, especially ss.21 and 26, envisages that it is the making or performance of an agreement that constitutes all or part of the \u2018regulated activity\u2019 such as \u2018operating a CIS\u2019. In my judgement, by acknowledging the leases Tokyo did not \u2018make\u2019 them (its predecessor CRH did that) and it is deliberately not \u2018performing\u2019 them. b. Secondly, as Mr Clegg also said, in the case of Tokyo, Mr Mellor has made a conscious decision not to operate \u2018the Sch.5 arrangements\u2019 and which he has acknowledged the leases, he has not \u2018operated\u2019 them generally either, because he wanted to see where Tokyo stood legally first. Of course, if there was evidence that Tokyo had not just let out investor rooms, but despite Mr Mellor\u2019s intention, had inadvertently \u2018operated\u2019 parts of Sch.5 or even made plans to do so, it may be different, but there is no evidence of that. c. Thirdly, irrespective of either the common law position, or Mr Mellor\u2019s intentions (given there is no \u2018presumption of Mens Rea\u2019 like Sweet) one can simply ask the relevant legal question as a matter of fact. \u2018Has Tokyo alone or with others actively \u2018operated\u2019 all the \u2018Sch.5 arrangements\u2019 or \u2018Caer Rhun arrangements\u2019, not just to manage property but to \u2018enable participation in profits or income from the property or sums from it\u2019 ? In my judgement, the answer on the facts I have found is \u2018no, it has not\u2019. It has chosen to acknowledge, but not to perform the leases and not to operate the CIS. Therefore, I find Tokyo is not liable under FSMA, but is liable to pay to investors their profit share under Sch.5 in relation to the lease of their room. To be clear \u2013 that will be a liability under a Court judgment, not \u2018the operating of a CIS\u2019. It may be Mr Mellor it believes better to break the lease than to break the law, but either way, Mr and Mrs Howson do have a remedy against Tokyo, but not under FSMA. 137. I can deal with the Llandudno Bay more quickly because I have no doubt Aloe Vera was the other side of the line and did unlawfully \u2018operate a CIS\u2019. However, ironically that was out of the best of motives \u2013 Mr Ma\u2019s honourable recognition the Llandudno Bay and Belmont investors had been badly served by NPD and Mr Barsby\u2019s understandable (but legally unwise) desire to be fair in his 2021 email: \u201c[T]he key aspects of Schedule 5 govern the future relationship between the freeholder and the individual investor leaseholder as we go forward and we have included below some of the main aspects\u2026 \u25e6 The tenant (bedroom leaseholder) will contractually make their premises available for use as a hotel bedroom to a guest. \u25e6 The schedule outlines rental income from each leaseholder\u2019s bedroom will be apportioned on a 50\/50 basis [with them]\u2026 \u25e6 Operating and running costs are to be deducted from [your] element of rental income prior to the distribution of funds\u2026. \u25e6 We undertake to provide quarterly P&L reports to all leaseholders within 45 days of end of the accounting period\u2026. \u25e6 We undertake to make provision for any disbursements to leaseholders following\u2026the first 12-month[s] [then] annually.\u201d Not only did Aloe Vera operate the Llandudno Bay and use investors\u2019 rooms in doing so as Tokyo did, it took the opposite legal choice to honour the leases including the profit share arrangements in Sch.5. Whilst it did not \u2018make\u2019 the leases, again its predecessor LBS did that, Aloe Vera through Mr Barsby unquestionably \u2018performed\u2019 the leases, including \u2018the Sch.5 arrangements\u2019. Therefore, Dr Bruyniks on behalf of Brinphar (and I do not doubt other Llandudno Bay investors as well) received those \u2018P&L Reports\u2019 recording the letting-out of their room and the effect of the profit-share. Even without payment of sums, Mr Barsby on behalf of Aloe Vera was plainly \u2018operating the CIS\u2019 in the sense of \u2018running it\u2019 by operating all \u2018the Sch.5 arrangements\u2019, indeed also the \u2018Llandudno Bay arrangements\u2019 by providing those reports to investors. It makes no difference that the Claimants say Aloe Vera did not operate it properly and\/or in breach of the leases because it miscalculated the sums due for use of investor rooms. I am not asked to resolve that now but, subject to election to enforce under s.26, if leaseholders have not received the correct Room Income, it is recoverable under the lease. However, in any event, Aloe Vera clearly \u2019operated a CIS\u2019. 138. Lastly, for the Belmont, as I said there is less well-evidenced documentation. Nevertheless, even without such a detailed email from Mr Barsby, EBI acknowledged the leases with the Belmont (although not with the derelict Queens Hotel as I said). Whilst that was not the \u2018making\u2019 of the leases as I have said, they were \u2018performed\u2019 and there was \u2018running\u2019 of all \u2018the Sch.5 arrangements\u2019 (and \u2018Belmont arrangements\u2019). Mr Duncan received similar P&L statements as Dr Bruyniks had for the Llandudno Bay. Clearly, whilst there was no explicit commitment to operate the \u2018Sch.5 arrangements\u2019 constituting a CIS, in fact that is what Mr Barsby did for the Belmont too. So, largely the same reasons as for the Llandudno Bay, I find EBI \u2018operated a CIS\u2019 in relation to the Belmont. Any shortfall is recoverable if the leases are enforced under s.26. 139. This leads to an ironic result. Aloe Vera and EBI are liable for operating a CIS (as they were unauthorised, therefore a \u2018UCIS\u2019 in breach of s.19 FSMA) in relation to the Llandudno Bay and Belmont honourably to respect investor rights. But EBI (and H&M) are not liable for operating a CIS in relation to the Queens Hotel and Lodge, having failed properly to communicate with the investors at all. Moreover, Tokyo are not liable under FSMA (but are in common law) for using the investors\u2019 rooms but not making any attempt to assess their entitlement. Nevertheless, in my judgment, these results are consistent with the statutory scheme of FSMA\/FSMO in that they only capture actively \u2018operating a CIS\u2019. Whilst I have considerable sympathy with Mr Rimmer and Mr and Mrs Jeffs, I have sympathy of a different kind with Mr Ma. In truth, responsibility for all this lies with Woodhouse. Be that as it may, my answers to Preliminary Issues are: \u2022 PI.2 The predecessors in title to the Defendants did both establish and operate a UCIS under section 235 FSMA. \u2022 PI.6 Aloe Vera in relation to the Llandudno Bay and EBI in relation to the Belmont (but not the Queen\u2019s Hotel) are \u2018operators\u2019 of a CIS. H&M Llandudno and Tokyo are not \u2018operators\u2019 in respect of their hotels. \u2022 PI.7 Where rooms do not exist at the Queens Lodge and Caer Rhun Annex, there is no liability under s.19 FSMA of H&M Llandudno and Tokyo, but this is because they have not \u2018operated a UCIS\u2019 in any event. \u2022 PI.8 Only Aloe Vera and EBI have \u2018operated a CIS\u2019, the \u2018holding out\u2019 as doing so is immaterial, as are the attempts to enforce the leases. What matters is the \u2018operation of the CIS\u2019 itself as discussed in each case. \u2022 PI.9 To the extent Aloe Vera and EBI have let out investors\u2019 rooms, they are bound under Sch.5 of the lease to provide profit share, subject to election to enforce the agreements under s.26 FSMA. Tokyo is liable under the lease in any event to account for unpaid \u2018Room Income\u2019 to Mr and Mrs Howson. \u2022 PI.10 Aloe Vera and EBI in relation to the Belmont breached the general prohibition in s.19 FSMA because they \u2018operated a UCIS\u2019. The other Defendants did not \u2018operate a UCIS\u2019 and so did not breach it. \u2022 PI 14 Tokyo, H&M Llandudno and EBI (in relation to the Queens Lodge only) are entitled to a declaration they are not operating or winding up a UCIS. Aloe Vera is not. Against the context of those conclusions, I turn finally to the last topic: remedies. Topic 5: Remedies 140. That now only leaves the following preliminary issues to be resolved: \u2022 PI.11 What is the effect of s.26(1) FSMA upon the Leases and Schedule 5 \u2022 PI.12 Whether in principle, the Claimants are entitled to their pleaded relief including the declaratory relief that the Defendants are operating and\/or winding up a UCIS and any interim or consequential orders including the prohibition of continuing to operate the UCIS \u2022 PI[16 previously 18] Whether in principle the Claimants are entitled to relief pursuant to section 26 FSMA 2000 against the Defendants ?\u201d I am not asked to award any remedies at this point, but rather to determine the remedies in principle under s.26 FSMA. I will answer the questions after setting out the statutory framework for remedies and explaining how they apply to successors to agreements in breach of the general prohibition. The Remedy Framework under ss.26, 27 and 28 FSMA 141. Whilst the focus is on s.26 FSMA, I also set out ss.27 and 28 for some context. They all provide so far as material as follows: 26 Agreements made by unauthorised persons. (1) An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party. (2) The other party is entitled to recover (a) any money or other property paid or transferred by him under the agreement; and (b) compensation for any loss sustained by him as a result of having parted with it. (3) \u2018Agreement\u2019 means an agreement\u2014(a) made after this section comes into force; and (b) the making or performance of which constitutes, or is part of, the regulated activity in question\u2026 27 Agreements made through unauthorised persons. (1) This section applies to an agreement that (a) is made by an authorised person (\u2018the provider\u2019) in the course of carrying on a regulated activity, (b) is not made in contravention of the general prohibition, (c) if it relates to a credit-related regulated activity, is not made in contravention of s.20, and (d) is made in consequence of something said or done by another person (\u2018the third party\u2019) in the course of (i) a regulated activity carried on by the third party in contravention of the general prohibition\u2026 (1A) An agreement to which this section applies is unenforceable against the other party. (2) The other party is entitled to recover (a) any money or other property paid or transferred by him under the agreement; and (b) compensation for any loss sustained by him as a result of having parted with it. (3) \u2018Agreement\u2019 means an agreement (a) made after this section comes into force; and (b) the making or performance of which constitutes, or is part of, the regulated activity in question carried on by the provider. 28 Agreements made unenforceable by section 26 or 27: general cases. (1)This section applies to an agreement which is unenforceable because of section 26 or 27, other than an agreement entered into in the course of carrying on a credit-related regulated activity. (2) The amount of compensation recoverable as a result of that section is (a) the amount agreed by the parties; or (b) on the application of either party, the amount determined by the court. (3) If the court is satisfied that it is just and equitable in the circumstances of the case, it may allow (a) the agreement to be enforced; or (b) money and property paid or transferred under the agreement to be retained. (4) In considering whether to allow the agreement to be enforced or (as the case may be) the money or property paid or transferred under the agreement to be retained the court must (a) If the case arises as a result of section 26, have regard to the issue mentioned in subsection (5); or (b) If the case arises as a result of section 27, have regard to the issue mentioned in subs (6). (5) The issue is whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement. (6) The issue is whether the provider knew that the third party was (in carrying on the regulated activity) contravening the general prohibition. (7) If the person against whom the agreement is unenforceable (a) elects not to perform the agreement, or (b) as a result of this section, recovers money paid or other property transferred by him under the agreement, he must repay any money and return any other property received by him under the agreement. (8) If property transferred under the agreement has passed to a third party, a reference in section 26 or 27 or this section to that property is to be read as a reference to its value at the time of its transfer under the agreement. (9) Commission of an\u2026offence does not make the agreement concerned illegal or invalid to any greater extent than is provided by section 26 or 27.\u201d 142. I would highlight three aspects of this statutory framework on remedies: a. Firstly, ss.26-28 FSMA (as clear from the heading of the group of ss.26-30) relates not to compensation to individual investors from breach of the s.19 general prohibition, but to \u2018the enforceability of agreements\u2019 in breach of it. Indeed, this seems to be a Parliamentary choice, since there are provisions in FSMA which make breach of provisions, or FCA rules under them, actionable in damages like breach of statutory duty, e.g. s.138D on FCA rules and most relevantly s.241 making breach of s.238 by an authorised person inducing participation in a UCIS actionable breach of statutory duty. b. Therefore, there is no statutory right to compensation in a general sense for \u2018operating a UCIS\u2019 in breach of the general prohibition. However, a breach of s.19 that way could be the \u2018unlawful means\u2019 in a claim for unlawful means conspiracy, or amount to other causes of action like deceit, as in Spence, or for sums sue under the leases, if they are enforceable under s.26. c. Instead, the statutory remedy under s.26\/28 FSMA is focused on \u2018the agreement made\u2019 in breach of the general prohibition, such as predecessors of the NPD companies entering the original leases and sub-leases with the investors. s.26(2) FSMA states the agreement is unenforceable against the \u2018other (i.e. innocent) party\u2019, although they can enforce the agreement against the infringing party: Re Whiteley Insurance [2009] Bus LR 418 (HC) (cited in Spence at [596] and [615]. Or the innocent party can claim the remedies under s.26(2) of: \u2018(a) any money or other property paid or transferred by him under the agreement; and (b) compensation for any loss sustained by him as a result of having parted with it\u2019. Each is a remedy for the loss of property when entering the original agreement, not compensation for wider loss. 143. In Whiteley at [25], David Richards J (as he was) summarised how s.26 works in the context of a claim by travel policyholders against a broker in breach of s.19: \u201cThe policyholders may elect between enforcing their policies or claiming their entitlement under s.26(2). Under s.26(2) the policyholders are entitled to recover the premiums paid and compensation for any loss sustained by them for having paid the premiums. This is subject to two qualifications [in] s.28. First, under s. 28(3) the Court may, if satisfied that it is just and equitable in the circumstances, allow the premiums to be retained by [the broker]. Secondly, if a policyholder recovers the premiums paid by him, he must under s.28(7) repay any claims under the policy that have been paid…\u201d Having noted Richards J\u2019s analysis in Whiteley, Foxton J said in Spence at [613]-[618] that s.26(2)(b) covered losses from \u2018parting with the money or property\u2019, including loss of interest (indeed compound interest) and other \u2018lost fruits\u2019, or borrowing costs of the money. But it probably did not cover: (i) \u2018indemnity for losses or liabilities incurred by the purchaser in making or following the sale\u2019; or (ii) \u2018losses caused not by the transfer itself, but by entering into the transaction which the court has held to be unenforceable \u2013 whether those losses comprised pre-transaction costs such as legal fees, or liabilities to third parties\u2019. 144. Given the Claimants are seeking remedies against the Defendants, the successors to the leases, it is useful to consider their remedies against the NPD companies: a. The Claimants could have elected to enforce the agreements – to recover unpaid returns under the sub-leases from the NPD companies, provided the Court considered it was just and equitable under s.28(3)(a), by considering under s.28(4)(a)\/(5) whether the infringing party had reasonably believed he was not contravening the general prohibition; or b. The Claimants could instead have elected to claim return of the lease premiums paid for their rooms under s.26(2)(a); and loss from parting with the money under s.26(2)(b), but would have to give \u2018counter-restitution\u2019 under s.28(7) for the money they had received in the fixed returns. Remedies against Successors to the Agreement 145. There is a debate at High Court level about the meaning of s.28(8) in providing that \u2018if property transferred under the agreement has passed to a third party\u2019 ss.26-27 should be read when referring to property to mean value at the time of the transfer. Does that mean remedies under s.26 are available against non-parties to the original agreement ? 146. In Brown v Innovator One [2012] EWHC 1321 (Comm) (disapproved by Asset Land at [94] on the meaning of s.235, but not on the approach to s.26 FSMA), Hamblen J (as he then was) held at [1231]-[1239] that investors could only recover under s.26 for breach of s.19 relating to a UCIS against their contractual counterparties, not the third party recipients of money paid under it. He said: \u201c1235. The context of s.26(2) is an agreement made between a person in the course of carrying out a regulated activity and \u2018the other party\u2019 (s.26 (1)). That agreement is rendered unenforceable against the \u2018other party\u2019. It could only ever have been enforced by a party to the agreement and therefore must be referring to a [contravening] contractual counterparty\u2026. 1236. When s.26(2) then refers to the \u2018other party\u2019s right to recover money or property or compensation\u2019 it is naturally to be read as referring to a right to recover it from the counterparty to the agreement referred to in s.26(1). This is reinforced by the reference to the right being to recover money paid \u2018under the agreement\u2019. It is also reinforced by s.28(8) which provides that if property transferred under an agreement to which s.26 applies has passed to a third party, then references in that section and s.28 to property are to be read as a reference to its value at the time of its transfer under the agreement: this suggests that third parties are outside the scope of s.26. 1237. Further, under s.28(5) the right to relief from the compensatory or restitutionary remedy depends upon \u2018whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement\u2019. This clearly shows it is the person who made the agreement against whom the remedy may be obtained since he is the person\u2026who may seek relief against such a claim. If it were otherwise, it would mean relief could be obtained by the person who made the agreement and was contravening the general prohibition, but not by the third party recipient who made no such agreement and was not so in contravention. That would be an absurdity. 1238. Yet further, the consequence of the Claimants\u2019 argument is remarkably far reaching. On the Claimants\u2019 case full recovery can be made against a non-counterparty who never held the monies beneficially and have long since parted with the monies in accordance with lawful instructions. Recovery can also be made against a third-party seller acting in good faith and provided value for the monies received. The same would apply to a third party purchaser for value of property transferred acting in good faith.\u201d 147. By contrast, in Dhillon v Orchard [2025] 3 WLR 517, Miles J (as he then was) held where homeowners (\u2018B\u2019) sold their home to a A in a \u2018sale and rent back agreement\u2019 which breached the general prohibition in s.19 FSMA; but A then sold the property to C, B could pursue a proprietary claim to recover their property from C, similar to an innocent party seeking recission of a voidable contract, which as B remained in actual occupation could bind successors in title: \u201c114 I am unable to agree with the observation [in Brown] at para 1236 that the entitlement to recover property given by section 26(2) would be defeated by the mere transfer of the property to a third party. It appears to me that the entitlement of the innocent party under section 26(2) is intended to be an enforceable right to recover specific property\u2026. I see no reason to conclude that the right of recovery given by section 26 should automatically be defeated by a transfer of that property by the offending party to a third party. It appears to me that sections 26 and 28 should be read against the background of general principles of law governing title to property (which includes the ability of a party under a contract to seek to set aside the contract and reclaim property passing under it). It appears to me that sections 26 and 28 fall to be read against the background of the law of rescission and they make greater sense (and promote legal coherence) if the right given by section 26(3) is capable of binding third parties (subject to defences of bona fide purchaser etc). Indeed, that the power of the court under section 28 to determine that transfers of the property should be left undisturbed where this is just and equitable, can be seen to place the third party defence on a statutory footing. 117\u2026[I]t appears to me that the issues of construction identified by Hamblen J are concerned with the position as between A and B, and not with those arising from the transfer to C. Hence, section 28(5) requires the court to consider whether A reasonably believed he was not contravening the general prohibition (and the court does not consider the position of C). There is no absurdity in that; it makes sense that the focus should be on the state of mind of A. It also makes sense that if relief would have been granted to A, the claim against C will also fall away. In any case section 28(3) does not limit the court to the matters set out in section 28(5): it requires the court to consider what is just and equitable. It appears to me that this would allow the court to consider the position of C\u2026 121 [I]t is not entirely clear [in Brown] whether the claimants in that case advanced proprietary claims to the money they had paid under the relevant contracts or whether they were seeking to bring personal claims against the relevant defendants on the basis that they had received money under those agreements. The judgment suggests that the argument turned on whether the relevant defendants could be brought within the ambit of section 26. In any event, while I consider that Hamblen J was correct in analysing the personal claims available to parties under section 26 of FSMA, I am unable to conclude that section 28 means that the mere transfer of relevant property to a third party extinguishes the statutory right of the claimant under section 26 to seek its recovery. If that is what Brown decided, I consider it is wrong and I decline to follow it for all the reasons given above. (\u2026.I have followed the principles concerning decisions of co-ordinate jurisdiction).\u201d 148. As Miles J said at the end of that passage, Judges sitting in the High Court should follow High Court decisions unless they are satisfied they are wrong. ICCJ Barber stated in Changtel v G4S [2023] BCC 143 at [118]: \u201c[A Court] decision binds [the same] Court unless there is a later decision of a Judge of equal rank in conflict with it. Where there are two conflicting decisions of [equal] Courts\u2026 the later decision is to be preferred, provided it was reached after consideration of the earlier decision, unless the third Judge is convinced that the second was wrong in not following the first\u2026[I]t is not enough for third Judge to conclude that the second Judge was wrong in some unimportant particular; the third Judge must be convinced that the second was wrong in not following the first.\u201d 149. Applying this principle, I do not consider that Miles J was wrong and indeed, I respectfully agree with him, so I should follow Dhillon. In any event, it is reconcilable with Brown on the basis stated by Miles J in Dhillon at [121]. Brown decided personal claims under s.26(2) FSMA are limited to the counterparties to the agreement and not recoverable from third parties. Dhillon decided proprietary claims for the return of property transferred under s.26(2)(a) FSMA could in principle be pursued against third parties \u2013 in essence that the statutory framework in s.26 and 28 permitted claims in property law, but subject to safeguards. As Miles J said in Dhillon at [118], s.28(8) specifically contemplates recovery of property from third parties, but limits its value to the date of the original transfer. That is consistent with the statutory language and its context and purpose \u2013 as Miles J said in Dhillon at [115], consumer protection. In any event, the balance between that and \u2018regulatory overkill\u2019 (as Lord Sumption put it in Asset Land at [88]) can be found in s.28(3)-(6) FSMA. As Miles J explained in Dhillon at [117], when exercising its \u2018just and equitable\u2019 discretion under s.28(3) whether to allow a consumer\u2019s property to be retained by a third party, even if the Court finds under s.26(4)(a) and (5) the original counterparty did not reasonably believe he was not contravening the general prohibition, it may still be \u2018just and equitable\u2019 to allow the third party to retain the property. In my judgment, it is unlikely to be \u2018just and equitable\u2019 to allow recovery of property from an innocent third party in the situations discussed in Brown at [1238]. Indeed, in Dhillon, Miles J suggested the usual rules about bone fide purchasers applied and went on to hold the homeowner\u2019s claim to recovery of their property was a \u2018mere equity\u2019, which given their actual occupation, took effect as an overriding interest in the ordinary way. In my judgement, this approach is also supported by s.27 and s.28(4)(b) and (6), which cover cases where the authorised provider is blameless but there is a contravention of the general prohibition by a third-party: s.28(6) focusses on whether the provider knew that third-party was in breach. So, again, ss.26-28 do not impose strict liability on one party for the actions of another. Indeed, this is consistent with Anderson at [60]-[64], holding one business is not vicariously liable at common law for breach of FSMA by another independent business. Remedies against the Defendants 150. The preliminary issues on remedy are limited to the availability of s.26 remedies in principle, not their calculation. Indeed, Mrs Swaffield said the Claimant would wish to review the position before making an election between enforcing the leases and the s.26 remedies. However, that presupposes the Claimants have them. As I said, none of the Defendants \u2018made\u2019 the leases, they succeeded to them as a matter of property law. Aloe Vera and EBI \u2018performed\u2019 the leases for the Llandudno Bay and the Belmont, but it is the \u2018making\u2019 of the agreements that is key to s.26(1) and (2) FSMA. However, that does not matter, since I have also found all the leases were \u2018made\u2019 (and the CIS \u2018operated\u2019) by the NPD companies, in breach of the general prohibition under s.19 FSMA. Therefore, I accept s.26(1) FSMA applies, but not because of the Defendant\u2019s conduct (even Aloe Vera and EBI\u2019s \u2018operation of CIS\u2019) but rather, because of their predecessors\u2019 conduct. Therefore, this is a case where all the Defendants \u2013 even the entirely innocent ones like H&M Llandudno, possibly face s.26 remedies, as in Dhillon. However, as I said, Dhillon was a proprietary claim in relation to a dwelling which bound a third party as an overriding interest \u2013 an entirely orthodox property law claim. 151. By contrast, here the Claimants did not transfer real property to the NPD companies, they paid them money which went into companies later made insolvent. It is unnecessary to get into the complexities of tracing (on which I was not addressed), because it was not pleaded \u2013 and for good reason, as it cannot be argued the Defendants have \u2018retained\u2019, indeed ever had, the Claimant\u2019s property. The NPD companies did not transfer the Claimant\u2019s money to the Defendants, their Administrators transferred the NPD companies\u2019 land \u2013 and the Claimant\u2019s leases. The Claimants have property rights in their leases, not in the original money they paid for them. Therefore, this case is totally different from Dhillon. 152. Instead, the Claimant\u2019s pleaded case is for restitution or equitable compensation for breach of s.19 FSMA is on the basis the Defendants \u2018stand in the shoes of the NPD companies\u2019 as the successors to the leases. However, that is simply not how s.26 FSMA works. As I have explained: it relates to an election whether to enforce the agreement or unwind the agreement and recover money or property and loss. However, as Hamblen J held in Brown (and Miles J accepted in Dhillon at [121]), in the absence of a proprietary claim, s.26 is limited to claims against the original contractual counterparty. The Claimants could pursue the NPD companies through their liquidators, but presumably that now would be futile. Nor have the Claimants pleaded any other common law cause of action except for unpaid sums under the lease (neither unlawful means conspiracy nor unjust enrichment), nor any equitable claims other than an account (such as constructive trust etc). So, I find the Claimants do not have any s.26 FSMA remedies against the Defendants. 153. However, if I am wrong in my approach to s.26 FSMA and the Claimants are entitled to recover against Defendants themselves liable under s.19 FSMA \u2013 Aloe Vera for the Llandudno Bay and EBI for the Belmont, I still do not consider s.26 (as opposed to other causes of action) affords the Claimants any real remedy. Those Defendants cannot be expected to \u2018restore\u2019 money they never had. Even if in principle they could be required to compensate the loss from having parted with the original money\u2019, the losses available discussed in Spence have nothing whatsoever to do with the Defendants\u2019 breaches, so it is simply not causative in any meaningful way. There is no warrant in s.26 for so unorthodox an award. The only \u2018loss\u2019 the Claimants have suffered from the Defendants\u2019 breach is any loss of unpaid room income, to which they would already be entitled under the lease. 154. Even if I am wrong about that, in my judgment it would plainly not be just and equitable to require any of the Defendants to pay to the Claimants money they never had (or to put it another way round, it would be just and equitable to allow them to \u2018retain\u2019 the equivalent under s.28(3)(b)), especially but not only the Defendants who have not themselves breached the general prohibition at all: a. Firstly, whilst the Claimants would have been entitled to pursue recovery of their money against the original counterparties, the NPD companies, they did not do so before they entered insolvency in 2019, presumably because the Claimants were understandably content to benefit from the fixed returns. b. Secondly, when the NPD companies entered insolvency and Administrators disclaimed the sub-leases, the Claimants\u2019 entitlement to the fixed returns ended \u2013 well before the Defendants acquired the hotels. Instead, they acquired them \u2013 with the Claimants\u2019 consent – subject to the profit share in Sch.5 and indeed the Claimants\u2019 whole leases, which remain valuable assets. c. Thirdly, whilst I have now found that operating the profit share in Sch.5 would be \u2018operating a CIS\u2019 which the Defendants cannot do as none of them are authorised, that finding has resulted from the Claimant\u2019s own claim. Yet I have not been addressed on whether I could allow the leases to be enforced under s.28(3)(a) both ways, effectively permitting Sch.5 to operate. d. Fourthly, even if I could not, I can plainly require the Defendants to account for any unpaid \u2018Room Income\u2019 under the lease, which is the only \u2018loss\u2019 causally connected to any breach of s.19 by the Defendants. e. Fifthly, the Claimants have not been left with nothing to show for their money, they now have property interests in successful hotels (save the Queens Hotel and Lodge), which are an asset that can be sold or surrendered. 155. However, that is academic. I uphold the Claimant\u2019s claims in relation to s.19 FSMA against Aloe Vera and EBI (in relation to the Belmont) and am content to make declarations to that effect if required. I am not convinced it is necessary to make any injunctions, but if necessary, I can have submissions on that. However, but am not persuaded there are any s.26 remedies available for the Claimants to elect. But I would be minded to allow enforcement of leases to recover unpaid Room Income. Accordingly, these are my answers to the last Preliminary Issues: \u2022 PI.11 The effect of s.26(1) FSMA upon the Leases and Schedule 5 is that the Claimants are entitled to enforce the leases if they choose but are not entitled to remedies under s.26(2) against the Defendants. \u2022 PI.12 In principle, the Claimants are entitled to their pleaded relief including the declaratory relief that Aloe Vera and EBI (in relation to the Belmont) are operating and\/or winding up a UCIS. I am not presently minded to make and any interim or consequential orders including the prohibition of continuing to operate the UCIS, but I can hear submissions on that. \u2022 PI[16 previously 18] In principle the only relief under s.26 FSMA to which the Claimants are entitled is the enforcement of their leases. Conclusion 156. Accordingly, my answers to the Preliminary Issues are as follows: \u2022 PI.1 The \u2018arrangements\u2019 between the parties set out in the Leases do constitute a collective investment scheme (\u2018CIS\u2019) within s.235. \u2022 PI.2 The predecessors in title to the Defendants did both establish and operate a UCIS under section 235 FSMA. \u2022 PI 3: All Defendants are successors in title to the leases including Sch.5 \u2022 PI.4 Specifically, it is the terms of Schedule 5 of the leases collectively with leaseholders for a hotel which along with relevant communications with its leaseholders from the Defendant owning the hotel which amount to its CIS. \u2022 PI.5 The Defendants are not authorised to establish\/operate\/wind up a CIS. \u2022 PI.6 Aloe Vera in relation to the Llandudno Bay and EBI in relation to the Belmont (but not the Queen\u2019s Hotel) are \u2018operators\u2019 of a CIS. H&M Llandudno and Tokyo are not \u2018operators\u2019 in respect of their hotels. \u2022 PI.7 Where rooms do not exist at the Queens Lodge and Caer Rhun Annex, there is no liability under s.19 FSMA of H&M Llandudno and Tokyo, but this is because they have not \u2018operated a UCIS\u2019 in any event. \u2022 PI.8 Only Aloe Vera and EBI have \u2018operated a CIS\u2019, the \u2018holding out\u2019 as doing so is immaterial, as are the attempts to enforce the leases. What matters is the \u2018operation of the CIS\u2019 itself as discussed in each case. \u2022 PI.9 To the extent Aloe Vera, EBI have let out investors\u2019 rooms, they are bound under Sch.5 of the lease to provide profit share, subject to election to enforce the agreements under s.26 FSMA. Tokyo is liable under the lease in any event to account for unpaid \u2018Room Income\u2019 to Mr and Mrs Howson. \u2022 PI.10 Aloe Vera and EBI in relation to the Belmont breached the general prohibition in s.19 FSMA because they \u2018operated a UCIS\u2019. The other Defendants did not \u2018operate a UCIS\u2019 and so did not breach it. \u2022 PI.11 The effect of s.26(1) FSMA upon the Leases and Schedule 5 is that the Claimants are entitled to enforce the leases if they choose but are not entitled to remedies under s.26(2) against the Defendants. \u2022 PI.12 In principle, the Claimants are entitled to their pleaded relief including the declaratory relief that Aloe Vera and EBI (in relation to the Belmont) are operating and\/or winding up a UCIS. I am not presently minded to make and any interim or consequential orders including the prohibition of continuing to operate the UCIS. \u2022 PI 13 Disclaimer of the sub-leases neither defeased, ended, converted into licences, or fundamentally changed the leases, which remain estates in land. \u2022 PI 14 Tokyo, H&M Llandudno and EBI (for the Queens Lodge not Belmont) may have declarations they are not operating or winding up a UCIS. \u2022 PI 15: The Defendants are not entitled to the removal of registered titles \u2022 PI[16 previously 18] In principle the only relief under s.26 FSMA to which the Claimants are entitled is the enforcement of their leases. 157. Therefore, I uphold the Claimant\u2019s claims under FSMA against Aloe Vera and EBI (relating to the Belmont only). I dismiss the Defendants\u2019 counterclaims and the Claimants are entitled to declarations in the terms of Issue 15. The parties are also entitled to the other declarations stated in my answers to Preliminary Issues. 158. I am grateful to Counsel for providing a draft order which was ironed out at the consequential hearing, after which I handed-down this judgment. At that hearing I gave a separate judgment on costs at that stage. 159. In particular, I am pleased the parties agreed a stay for the proceedings to attempt settlement, which for the reasons discussed at the consequential hearing was not possible until all parties knew where they stood. They do now and I would strongly encourage them to resolve the litigation and their situation by agreement: in a way whereby the Claimants can recover some of what they have lost and the Defendants can move forward and focus on running successful quality hotels. 160. Finally, I would wish to pay tribute to the skill and dedication of Mrs Swaffield (who has conducted this litigation from letter of claim to trial) and those assisting her; and to Mr Clegg, who stepped in to the case part-way through, but has shown the same mastery of detail and the law as Mrs Swaffield, with the assistance of those that instruct him. Group litigation is not easy to conduct and the lawyers are to be congratulated on making it look so easy at trial, even if their skill has meant I have not found it an easy case to decide. ___________________________________<\/p>\n<\/div>\n

\n

Sources officielles :<\/strong> consulter la page source<\/a><\/p>\n

Open Justice Licence (The National Archives).<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

HHJ TINDAL: Introduction 1. \u2018If something seems too good to be true, then it probably is\u2019. I\u2019m sure the Claimants in this litigation have ruefully reflected on that old adage, having entrusted their hard-earned savings to a property investment scheme which sadly went disastrously wrong. They each bought a lease of a hotel room or rooms (for anywhere between \u00a340,000-\u00a3170,000…<\/p>\n","protected":false},"featured_media":0,"template":"","meta":{"_crdt_document":""},"kji_country":[7608],"kji_court":[7618],"kji_chamber":[],"kji_year":[7610],"kji_subject":[7612],"kji_keyword":[9148,9042,9147,8254,9149],"kji_language":[7611],"class_list":["post-562664","kji_decision","type-kji_decision","status-publish","hentry","kji_country-royaume-uni","kji_court-high-court-chancery-division","kji_year-7610","kji_subject-fiscal","kji_keyword-hotel","kji_keyword-lease","kji_keyword-leases","kji_keyword-property","kji_keyword-tenant","kji_language-anglais"],"yoast_head":"\nBrinphar Ltd & Ors v Ever Bright Inn Ltd & Ors - Ma\u00eetre Hassan Kohen, avocat en droit p\u00e9nal \u00e0 Paris<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/kohenavocats.com\/zh-hans\/jurisprudences\/brinphar-ltd-ors-v-ever-bright-inn-ltd-ors\/\" \/>\n<meta property=\"og:locale\" content=\"zh_CN\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Brinphar Ltd & Ors v Ever Bright Inn Ltd & Ors\" \/>\n<meta property=\"og:description\" content=\"HHJ TINDAL: Introduction 1. \u2018If something seems too good to be true, then it probably is\u2019. 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