Helden v StratHMore Ltd

An activity may be carried on “by way of business” under Financial Services and Markets Act 2000, even though the activity does not itself constitute a separate business. The court must assess the commercial reality, including continuity, scale, regularity, profit motive, the relationship between the regulated activity and the person’s other activities, and the nature of the activity. Unauthorised lending secured on a dwelling may therefore breach the general prohibition. Relief from unenforceability is discretionary. The court must decide whether enforcement is just and equitable, having regard to the lender’s reasonable belief, but that factor is not decisive. Separate agreements may be considered separately, and enforcement may be allowed for some while refused for others.

The claimant borrowed approximately £1 million from the defendant to purchase his home. Further sums of £25,000 and £91,509 were subsequently said to have been secured by the same charge. The defendant was neither an authorised nor an exempt person under Financial Services and Markets Act 2000.

The claimant sought declarations that the lending agreements were unenforceable under sections 19 and 26. The defendant disputed that its lending was carried on by way of business and alternatively sought relief under section 28(3). The central issues were whether the lending constituted regulated activity and, if so, whether enforcement was just and equitable.

1. Regulated activity. Entering into a regulated mortgage contract as lender was a specified activity under article 61(1) of the Regulated Activities Order. The relevant lending concerned credit to an individual, secured by a first legal mortgage over land used as the borrower’s dwelling.
2. “By way of business”. The expression in section 22(1) did not require the regulated activity itself to amount to a standalone business. The narrower “carrying on the business” test in article 3A of the Business Order had to be distinguished. The court assessed the Ashton interests and their companies collectively. The significant number, duration, scale and regularity of the loans, their profit motive, the commercial origin of the relationships, the use of security and records, and Strathmore’s corporate character showed that the lending was carried on by way of business.
3. The lending therefore breached the general prohibition in section 19, making the relevant agreements unenforceable under section 26 unless relief was granted.
4. Section 28(3). The court considered the three transactions separately. The lenders’ reasonable belief that FSMA did not apply was a material factor, but satisfaction of section 28(5) did not require relief. Other relevant circumstances included the claimant’s use of the property or money, the benefit obtained, the absence of exploitation, the agreed interest rates, the claimant’s experience, and the absence of identified prejudice.
5. It was just and equitable to enforce in full the agreement for the approximately £1 million loan, including interest and security, and the agreement concerning the £25,000 loan. Relief was refused for the £91,509 agreement because the debt had grown from a £35,000 company loan to an extremely high amount and had originally been lent to C & J rather than to the claimant. The question whether that agreement was in any event a regulated mortgage contract was left open.
6. Interest on the enforceable loans was payable at the rates found by the court, with quarterly compounding.

First-instance decision. No prior appellate decision is stated in the judgment.