Helden v Strathmore Ltd

An executed mortgage is an actual disposition of an interest in land. It is therefore outside section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which governs contracts for future dispositions. Section 53 of the Law of Property Act 1925 does not prevent agreed mortgage terms from being established by estoppel by convention or rectification.

Whether lending is carried on by way of business is inferred from all relevant circumstances. An unauthorised regulated mortgage is initially unenforceable, but the court may permit enforcement where that is just and equitable. In the absence of a contractual costs clause, no presumption of indemnity costs arises merely because such clauses are usual in mortgages.

The appellant borrowed £1 million from the respondent to buy his home and granted it a registered legal charge. The charge referred to a non-existent offer letter when identifying the secured debt and interest rate. Further advances were subsequently brought within the security.

Newey J held in [2010] EWHC 2012 (Ch) that the charge's terms could be established, that the lending contravened the Financial Services and Markets Act 2000, but that enforcement of the principal loan and a £25,000 loan should be permitted under section 28(3). He refused relief for a separate £90,000 liability and awarded the respondent indemnity costs.

The borrower appealed against enforceability and costs. By a respondent's notice, the lender challenged the finding that the lending had been carried on by way of business. The central issues were the effect of the defective drafting, the statutory formality requirements, the regulatory status and enforceability of the lending, and the appropriate costs order.

1. Appeal dismissed on the substantive issues but allowed as to costs; respondent's notice dismissed. Lord Neuberger MR, with whom Smith and Elias LJJ agreed, held that the registered charge was enforceable in respect of the principal loan and the £25,000 loan. The order for indemnity costs was replaced by an order requiring the borrower to pay 60% of the lender's costs on the standard basis.

2. The defective reference to a non-existent offer letter did not prevent the agreed debt and interest rate from being established. The parties' pleaded cases and the December 2005 agreement showed agreement on the £1 million loan and the initial rate of 7.5%. Estoppel by convention bound the borrower, and rectification offered an alternative route.

3. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 applies to contracts for the future creation or transfer of interests in land. It does not apply to an instrument which itself transfers, creates or assigns the interest, including an executed mortgage. Section 53 of the Law of Property Act 1925 applied to the mortgage but required only signed writing by the person creating or disposing of the interest. It presented no obstacle to estoppel or rectification.

4. Whether an activity is carried on by way of business is a secondary fact or inference for the trial judge, determined from all relevant circumstances. The judge was entitled to treat the lender, its associated company and its owners as a composite unit. The number, duration, regularity, scale, profitability, commercial origin, record-keeping, security and corporate context of the loans supported the conclusion that the regulated mortgage activity was carried on by way of business.

5. The mortgage therefore contravened the general prohibition in the Financial Services and Markets Act 2000. Nevertheless, enforcement of the principal loan, charge and £25,000 loan was just and equitable under section 28(3). The borrower had enjoyed the property and its increased value without paying interest, the lender had lost an investment return, the borrower was experienced and had not been exploited, and the agreed rates were not exorbitant. Enforcement was justified even assuming that ignorance of the regulatory prohibition could not constitute a reasonable belief under section 28(5). The construction of section 28(5) was left open.

6. The indemnity costs order rested on the mistaken assumption that the mortgage contained a customary contractual costs clause. Where no such term exists, the ordinary costs discretion applies without a special presumption. The lender's substantial success was balanced against its failure on regulatory applicability and its need to obtain discretionary statutory relief.

1. Court of Appeal (Civil Division): By [2011] EWCA Civ 542, dismissed the borrower's substantive appeal and the lender's respondent's notice, but allowed the appeal against indemnity costs. The borrower was ordered to pay 60% of the lender's costs on the standard basis.
2. High Court, Chancery Division: Newey J held in [2010] EWHC 2012 (Ch) that the defective charge was enforceable, that the regulated lending contravened the Financial Services and Markets Act 2000, and that enforcement of the principal and £25,000 loans was just and equitable. Relief was refused for the £90,000 liability, and indemnity costs were awarded to the lender.