Fortwell Finance Ltd v Halstead & Anor, Court of Appeal - Civil Division, March 28, 2018, [2018] EWCA Civ 676

Resolution Date:March 28, 2018
Issuing Organization:Civil Division
Actores:Fortwell Finance Ltd v Halstead & Anor

Case No: A2/2016/1463

Neutral Citation Number: [2018] EWCA Civ 676




Mr Justice Picken


Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 28/03/2018






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Andrew Onslow QC (instructed by Keystone Law) for the Appellants

Simon Popplewell (instructed by Brightstone Law) for the Respondent

Hearing date:13 March 2018

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JudgmentLord Justice McCombe:

(A) Introduction

  1. This is an appeal, brought with permission granted by Gloster LJ on 25 January 2017, from the Order of Picken J of 15 March 2016. By his order Picken J dismissed the appellants' appeal from the order of 2 October 2015 of HH Judge Lamb QC, sitting in the County Court at Central London. By his order Judge Lamb had refused the appellants' application to set aside an order, made by consent by Deputy District Judge Wallis on 17 February 2015, for possession of property at 15 Cliveden Place, London SW1 (``the Property'') and for judgment for the respondent against the appellants in the sum of £3,151,421.99.

    (B) Background Facts

  2. The proceedings arise out of a one-year loan facility granted by the respondent to the appellants in the sum of £2.36 million to be secured by a first legal charge on the Property, pursuant to an agreement made on 19 August 2013. The loan was arranged for the purpose of refinancing, and in substitution for, the appellants' existing indebtedness also secured on the Property. The loan was completed on 19 August 2013 and the balance outstanding was due and payable a year later on 19 August 2014.

  3. The issues on the appeal turn upon the appellants' contention that the loan transaction, and indeed the consent order, fell within the statutory regime for regulated mortgage contracts within the meaning of the Financial Services and Marketing Act 2000 (Regulated Activities) Order 2001 (``the 2001 Order''). As the respondent was not an ``authorised person'' for the purposes of the Financial Services and Markets Act 2000 (``FSMA 2000''), the appellants argue that the loan agreement and the consent order were/are unenforceable by reason of the provisions of s.26 of the 2000 Act. I return to these provisions hereafter.

  4. At the time of the loan by the respondent to the appellant and the granting of the legal charge over the Property, the Property had been for some time divided into three flats, but was in the course of conversion into a single dwelling house. As the appellants put it in their skeleton argument for this appeal, through Mr Onslow QC who appears for them, their ``main residence was in Rome, but they kept one flat ... (flat 3) furnished and lived in it while in London''.

  5. From the appellants' further evidence in the proceedings, they say that they acquired flat 1 at the Property in 1988 and at the same time acquired the head-leasehold interest. In 2008, they bought flats 2 and 3: flat 2 in the second appellant's name and flat 3 in the first appellant's name. In March 2013, the appellants surrendered the sub-underleases held by them, leaving only the headlease which they already owned. It is said that the first appellant tended to keep his personal belongings in Flat 3 while the second appellant kept hers in flat 2. At this stage they began the project for the reconversion of the Property into a single dwelling.

  6. In his evidence the first appellant says that finance was not needed until 2013 when the recession in Italy gave rise to a need to raise finance for his consultancy business there. Initial funds came from a lender called ``Montello Capital'', but that lending was found to be insufficient for the appellants' purposes and an approach was made to the respondent for a new loan through a broker. The first appellant said that there was no personal contact between him and anyone for the respondent.

  7. The respondent in its evidence, given by Mr Colin Sanders, the Chief Executive, produced copies of some of the underlying documentation, including the application form for the loan, the loan agreement and the legal charge.

  8. It is pointed out by Mr Sanders that, in the application form, against the question ``Who will live at the property?'', the answer ``N/A'' appears. The form stated that the loan was to facilitate the ``continued refurb of the property and purchase of further investment property in Rome''. The proposed borrowers' current residential address was given as ``Via Lazio 20, 00187 Rome, Italy'' at which they were said to have been for 30 years (in the case of the first appellant) and 62 years (in the case of the second appellant). Immediately above the appellants' signatures on the loan application form was a declaration that it was important that the contents of the form were full and accurate and correct and a warning was given that it was a criminal offence knowingly or recklessly to give false information in the form.

  9. The loan agreement contained a number of ``Special Conditions'' at the foot of which the following appeared:

    ``It is a condition of this loan that that [sic] neither Borrower nor any family member shall occupy nor is intending to occupy the Property as a dwelling (for the purposes of this condition ``family member'' means a person connected with the Borrower as defined by S.16C(4) of the Consumer Credit Act 1972 [sic])''.

  10. Mr Sanders states that, upon receipt of the application, the respondent instructed Savills to prepare a valuation report and to report on the Property's suitability as security. The report (dated July 2013) is produced, including statements that the three flats were in the process of conversion, the total square footage was 2,702 sq. ft. of which 976 sq. ft. comprised flat 3, which (as Mr Sanders points out, although the report did not) amounts to less than 40% of the overall square footage. The final section of the report on ``Property Information Factual'' ended with the following:

    ``There are stated to be no tenancies in existence, and therefore we have valued the Property with the benefit of full vacant possession. At the date of our inspection the property was occupied by the Borrower''.

  11. Mr Sanders' evidence states further that additional documentation was produced, as part of ``due diligence'' procedures, including an HMRC self-assessment statement of 23 June 2013 giving the first appellant's address as the address in Italy, a letter from solicitors stating that the writer confirmed that the appellants' primary residence was also at that address at which the writer had stayed on ``numerous occasions'', a utility bill addressed to the second appellant at the Italian address and a letter from the first appellant to British Gas of 24 June 2013 stating that Flat 1 was uninhabitable and that gas was supplied only to Flat 3 and said ``We are currently living in Rome, Italy and only visit Flat 3 intermittently''. The documentation included an extensive curriculum vitae for the first appellant saying that he was qualified as a barrister and solicitor in New Zealand and Australia and as a solicitor in England; it set out extensive legal and commercial experience.

  12. Mr Sanders states that on the basis of this material, the respondent ``took the view that the loan facility fell outside regulation for the purposes of ...the FSMA''. He says that it was understood that the appellants would not reside in Flat 3 which would ``simply be used intermittently''. In paragraph 11 of his witness statement, Mr Sanders said,

    ``11. At all material times, it was understood that the Borrowers did not and would not reside at the Property, rather that they simply made infrequent visits to a single part of the Property, using Flat 3 as storage, it being noted that the remaining parts were inhabitable. Based upon representations made by Mr Halstead, and on the facts and documents, Omni took the view that the loan facility fell outside regulation for the purposes of the Financial Services and Markets Act 2000 (`the FSMA'). Omni did not think that the Borrowers would reside in Flat 3; rather, it was understood that Flat 3 would simply be used intermittently.'' (``Omni'' was the respondent's previous name)

  13. In contrast to this evidence, the first appellant, after saying that he had no direct contact with anyone from the respondent, says that the appellants signed a loan agreement, with the condition that the Property was not going to be used for residential purposes. He said he queried this with the broker and was told by him that the statement was needed ...

    ``only so that the [respondent] could avoid the impact of mortgage regulation as it was not regulated for residential mortgage lending, but that it would not affect our continuing to use the Property as our residence. Given that the [respondent's] representative had inspected the Property beforehand, and was bound to have seen that Flats 2 and 3 were used as residences, yet no issue was raised on this by the [respondent], I took this as corroborating what [the previous lender] and [the broker] had told me, a formality that also applied to the [previous loan] when our continuing residence was transparent. (At that time Flat 1 was not in use, having been cleared for renovation). On 19 August 2013 the mortgage to the [respondent] was completed..., at which time the property was a single dwelling unlike the [previous loan] when it was divided into 3 flats''.

  14. When the loan period expired in August 2014, the loan was not repaid. Demand for payment was made and, in default of payment, receivers were appointed and these proceedings were issued on 19 December 2014.

    (C) The Proceedings

  15. It appears that, as the loan period was about to expire and thereafter, attempts were being made...

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