Property – Mortgage – Regulation – Respondent granting loan to appellants secured by legal charge on property – Appellants failing to repay loan – Respondent obtaining order for possession – Whether loan being “regulated mortgage contract” under Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 – Whether respondent being “authorised person” under Financial Services and Markets Act 2000 – Whether loan unenforceable as breaching general prohibition on “unauthorised persons” carrying on regulated activities – Appeal dismissed
The respondent granted a £2.6 million one-year loan facility to the appellants secured by a first legal charge on a property at 15, Cliveden Place, London SWI. The loan was arranged for the purpose of refinancing, and in substitution for, the appellants’ existing indebtedness secured on the property. The property was divided into three flats but was to be converted into a single dwelling house. In the application form, against the question “Who will live at the property?”, the answer “N/A” appeared. The appellants gave their residential address as Rome, although they told the respondent that they stayed in one of the flats while in London. The area of that flat constituted less than 40% of the overall area of the property. On the basis of the information provided, the respondent took the view that the loan facility fell outside regulation for the purposes of the Financial Services and Markets Act 2000.
When the appellants failed to repay the loan, the respondent appointed a receiver and commenced proceedings for possession. Before the hearing of the possession claim, the respondent indicated that it would ask the court to make an order for possession forthwith, but was willing to allow some further time for the appellants to vacate or finalise any feasible new lending. They proposed a consent order for possession in 28 days and judgment for the sum due. A consent order was made to that effect but neither payment nor delivery of possession were made. The respondent obtained and executed a possession warrant and the county court refused to set aside the consent order. That decision was upheld by the High Court.
The appellants appealed contending that the loan was a regulated mortgage under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and, as the lender was not an “authorised person” under the 2000 Act, the loan was in breach of the general prohibition under section 19 on unauthorised persons carrying on regulated activities. Accordingly, it was unenforceable under section 26. Furthermore, the consent order was itself unenforceable since entering into it constituted the regulated activity of “administering a regulated mortgage” under article 61(2) of the 2001 Order.
Held: The appeal was dismissed.
(1) Read alone, the words “taking any necessary steps for … recovering payments due under the contract”, in the definition of “administering” in article 61(3)(b)(ii), might include the taking of legal proceedings. However, making a compromise of the proceedings did not amount to a “necessary step” as a litigant could always proceed to trial. Further, the taking of legal proceedings was expressly removed from the ambit of article 61(3)(b)(ii) by the words “a person is not to be treated as administering a regulated mortgage contract merely because he … exercises, a right to take action for the purposes of enforcing the contract”. If taking action to enforce the contract was not administering it, compromising such enforcement action could not be administering it. Apart from the obvious public interest in enabling the compromise of legal proceedings, it seemed unlikely that Parliament intended such a compromise to be a criminal offence under section 23 of the 2000 Act.
(2) Neither party had approached this appeal on the basis that the question for the court was whether the judge/judges below had erred in principle in the exercise of his/their discretion. However, it could not have been wrong for either judge to refuse to set aside the consent order. The appellants had chosen not to contest the issue that they themselves had raised and entered willingly into an agreement for the consent order because they were confident that the loan would be repaid by new finance. It was wrong in principle for them now to seek to argue that at a trial they would have won their point. In the light of the agreement made, the ability of the court to interfere was limited. The appellants had had their opportunity to contest the enforceability of the loan agreement and chose, for their own commercial reasons, not to take it. There were degrees of unenforceability. The holding of a party to a consent order to preclude further reliance on a possible argument that a mortgage was a regulated mortgage and that the consent order itself was therefore “administering” a regulated mortgage did not appear to be an obvious affront to the public policy of the 2000 Act. Further, the evidence said by the appellants to show that the respondent knew that the statements in the application and in the special conditions were false was tenuous There was no evidence of any substance to suggest that the respondent was not entitled to rely upon the positive representations made by the appellants in the documentation that they would not be occupying the property as a dwelling: Dickinson v UK Acorn Finance Ltd [2015] EWCA Civ 1194; [2015] PLSCS 333 followed. Weston v Dayman [2008] 1 BCLC 250 and Community Care North East v Durham City Council [2010] EWHC 959 (QB) considered.
(3) The court would decline to direct a trial of an issue whether the entry into the mortgage or the consent order were activities regulated by the 2000 Act. That would involve trial of issues of fact as to the appellants’ intentions, the state of knowledge of such intentions on the part of the respondent’s employees/officers and as to the state of the property (now sold), now already over five years after the relevant events. Such a trial, only ventilated for the first time on the appeal, would be a highly unsatisfactory exercise.
Andrew Onslow QC (instructed by Keystone Law) appeared for the appellants; Simon Popplewell (instructed by Brightstone Law) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read transcript: Fortwell Finance Ltd v Halstead and another
