Helden v Strathmore Ltd

The Court of Appeal upheld Newey J's finding that a legal charge executed by Mr Helden in favour of Strathmore was enforceable despite defective drafting and a contravention of the Financial Services and Markets Act 2000 (FSMA). The court held that the parties had agreed the identity and amount of the main loan and the interest rate, and that those agreed terms could be given effect by estoppel by convention (and could alternatively be rectified). The court rejected the argument that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 or section 53 of the Law of Property Act 1925 prevented filling the drafting gap. It further held that, taking Strathmore together with associated persons and companies, the provision of the loan amounted to carrying on a regulated activity "by way of business" under FSMA, but that it was nonetheless just and equitable under section 28(3) of FSMA to permit enforcement of the charge. Finally, the court allowed Mr Helden's challenge to an indemnity costs order, substituting an order that he pay 60% of Strathmore's costs on the standard basis.

This appeal concerned the enforceability of a legal charge given by Mr Charles Helden to Strathmore Limited securing a loan to enable him to purchase a dwelling. The appeal came from a decision of Newey J in the Chancery Division (reported at [2010] EWHC 2012 (Ch)). Mr Helden argued the charge was unenforceable because it was defectively drafted and because Strathmore had contravened FSMA by entering into a regulated mortgage contract while not an authorised person. Strathmore sought to enforce the charge and recover costs on an indemnity basis.

The court summarised the factual background: Strathmore (and associated entities and persons) had made a £1m loan to Mr Helden secured by the 2006 Charge, but the charge failed to identify the secured loan and interest rate by reference to a non-existent offer letter. Contemporaneous evidence and conduct demonstrated the parties had agreed a £1m loan at 7.5% later increased to 10% and then 12.5%, and that interest was compounded with quarterly rests. There were also separate smaller loans (£25,000 and a disputed £90,000 liability) and other lending activity by the Ashtons and their companies.

The issues framed by the court were: (i) the proper terms of the three loans (main loan, £25,000, and £90,000); (ii) whether, apart from FSMA, those terms were enforceable despite defects in the charge; (iii) whether the main loan was unenforceable by virtue of FSMA (including whether the activity was "carried on by way of business"); and (iv) costs.

On the terms, the court accepted the judge's findings that the parties agreed the loan identity and rates and that estoppel by convention (Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84) or rectification could cure the drafting gap. The court rejected a contention based on section 2 of the 1989 Act, explaining that section 2 governs contracts for future dispositions of land, not documents effecting an immediate legal mortgage; section 53 of the 1925 Act was less restrictive and did not bar the court's approach.

On FSMA, the court accepted that a regulated mortgage contract was involved (article 61 of the Regulated Activities Order) and that a contravention of the general prohibition rendered the agreement prima facie unenforceable (sections 19, 22, 26). Treating the Ashtons, Strathmore and Sandworth as a composite unit, the court agreed with Newey J that the lending activity was carried on by way of business: the lending was substantial, regular, over years, for profit, and formed part of a chain of similar transactions. Nonetheless, applying section 28(3) of FSMA, the court upheld the judge's exercise of discretion that it was just and equitable to allow enforcement of the main loan and the £25,000 loan (but not relief in respect of the £90,000 loan). The court did not finally resolve a difficult interpretative point about section 28(5) (whether ignorance of the prohibition can amount to a reasonable belief of not contravening it) but considered that, even if the judge had erred on that sub‑point, his wider reasoning justified the result.

On costs, the court held Newey J erred in awarding indemnity costs because the 2006 Charge did not contain a contractual provision entitling Strathmore to recover indemnity costs. Exercising its own discretion, the Court of Appeal substituted an order that Mr Helden pay 60% of Strathmore's costs assessed on the standard basis.

The appeal was dismissed in substance. The Court of Appeal upheld the judge's findings that (i) the parties had agreed the identity and terms of the main loan and interest (capable of enforcement by estoppel or rectification), (ii) the lending activity (taken with associated persons and companies) amounted to carrying on a regulated activity "by way of business" under FSMA, and (iii) it was just and equitable under section 28(3) of FSMA to allow enforcement of the 2006 Charge and the obligation to repay the £25,000 loan (but not the £90,000 liability). The court allowed the appeal only on costs, ruling that indemnity costs were not recoverable because the charge contained no contractual costs provision and substituting an order that Mr Helden pay 60% of Strathmore's costs on the standard basis.

Appeal from the High Court, Chancery Division (Newey J) (HC09C00868), reported at [2010] EWHC 2012 (Ch); judgment of the Court of Appeal delivered [2011] EWCA Civ 542.