Helden v StratHMore Ltd

The court held that Strathmore's lending to Mr Helden involved activity of a specified kind under the Regulated Activities Order and was "carried on by way of business" for the purposes of section 22 of the Financial Services and Markets Act 2000 (FSMA). As Strathmore was neither authorised nor exempt, agreements entered into were unenforceable under section 26 FSMA unless the court granted relief under section 28. The court exercised its discretion under section 28(3) to allow enforcement of the loan used to purchase 58 Chelsea Crescent (about £1 million) and the separate £25,000 loan, finding it just and equitable to do so. The court refused relief in respect of a £91,509 claim derived from an earlier £35,000 loan because the increase was equivalent to an extremely high effective rate of interest and the original loan had been to C & J rather than to Mr Helden.

Background and parties:

• The claimant, Mr Charles Helden, alleged that loans from Strathmore Limited (funded by Mr and Mrs Ashton) to enable him to buy 58 Chelsea Crescent infringed FSMA and were unenforceable; he also claimed damages. Strathmore counterclaimed for possession and sums due under the legal charge.

Nature of the claim / relief sought: Mr Helden sought a declaration that the loan agreements were unenforceable under FSMA (section 26) and damages. Strathmore sought to enforce the charge and recover sums due.

Issues framed: (i) the identity of the creditor, (ii) the indebtedness secured by the legal charge, (iii) whether there was breach of FSMA (in particular whether the lending was a regulated activity "carried on by way of business"), (iv) whether the court should allow enforcement under section 28(3) FSMA, and (v) the applicable rates and compounding of interest.

Key factual findings:

• Strathmore (acting for and holding funds on trust for Mr Ashton) provided the loan and the legal charge was executed in favour of Strathmore. The court accepted the Charge secured the sums lent to acquire 58 Chelsea Crescent.
• Additional sums of £25,000 and a carried-over £91,509 (derived from an earlier £35,000 loan to C & J) were said to be secured; oral agreements were found for those sums to be covered by the Charge, but no formal amendment was made.
• The parties did not appreciate at the time that FSMA might apply; solicitors acting did not advise otherwise.

Legal analysis and reasoning:

• The court analysed FSMA, the Regulated Activities Order (articles including article 61, 25A and 53A) and the Business Order. It concluded that "entering into a regulated mortgage contract as lender" under article 61(1) is a specified activity and that the relevant question was whether that activity was "carried on by way of business" under section 22. The court rejected reliance on Moneylenders Act authorities as of limited relevance and treated the Consumer Credit Act authority (Tamimi v Khodari) and the FSA Perimeter Guidance as informative.
• On the facts the court found the lending was carried on by way of business: loans were made with regularity over years, substantial sums were advanced, there was a profit motive, records and solicitors were involved and the activity formed part of a chain of similar transactions.
• Accordingly the general prohibition in section 19 applied and the agreements were unenforceable under section 26 unless relief was available under section 28(3). In considering section 28(3) the court had regard to whether Strathmore reasonably believed it was not contravening the prohibition (section 28(5)) and to the wider "just and equitable" test. The court found it reasonable that the Ashtons/Strathmore did not realise FSMA applied and that this was a weighty factor in favour of relief.

Disposition: The court allowed enforcement under section 28(3) in respect of the main loan to purchase 58 Chelsea Crescent and the £25,000 loan, including agreed interest rates and quarterly compounding; it refused relief in respect of the £91,509 carried-over sum.

At first instance the court found that Strathmore's lending to Mr Helden amounted to a regulated activity "carried on by way of business" under section 22 FSMA, rendering the contracts unenforceable under section 26 unless relief was granted under section 28. The court, applying section 28(3) and having regard to section 28(5), allowed enforcement of the agreement relating to the principal loan for 58 Chelsea Crescent (including interest and security) and of the £25,000 loan, because it was just and equitable to do so; the court refused to allow enforcement of the £91,509 sum because the effective increase was excessive and the underlying loan had been to C & J, not to Mr Helden.