Fortwell Finance Ltd v Halstead & Anor

The Court of Appeal dismissed the appellants' challenge to a consent order for possession and judgment arising from a one-year bridging loan secured by a first legal charge. Central legal issues were (i) whether the loan and related steps fell within the statutory definition of a "regulated mortgage contract" under the Financial Services and Markets Act 2000 (FSMA 2000) and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (Article 61), and (ii) whether the consent order itself was unenforceable or constituted "administering" a regulated mortgage within Article 61(3)(b)(ii).

The court held that the appellants were bound by express terms in the loan documentation (a special condition and the application answers) that they would not occupy the property as a dwelling and could not now go behind those contractual representations unless the lender knew they were untrue. The court also held that entering into a consent order compromising enforcement proceedings was not "administering" a regulated mortgage for the purposes of the Order, because compromise is not a "necessary step" in collecting or recovering payments and the proviso to Article 61(3)(b)(ii) excludes taking enforcement action from being treated as administering. Public policy considerations weighed against construing compromise agreements as regulated activity. Finally, the court refused to order a trial of the factual issues, given the passage of time and the sale of the property.

This appeal arises from possession and debt recovery proceedings following non-repayment of a one-year bridging loan of £2.36 million granted on 19 August 2013 and secured by a first legal charge on 15 Cliveden Place, London. The borrower-appellants contended that the loan and the consent order reached in the County Court were caught by the FSMA 2000 regime because the property was used, or intended to be used, as a dwelling in excess of 40% of the land and thus constituted a "regulated mortgage contract" under Article 61 of the 2001 Order. The appellants sought to set aside the consent order on that basis and to contend that the lender, being unauthorised, could not enforce the agreement under s.26 FSMA 2000.

• Procedural posture: County Court possession proceedings resulted in a consent order of 17 February 2015. The appellants applied to set the consent order aside; that application was refused by HH Judge Lamb (2 October 2015) and the refusal was upheld by Picken J (15 March 2016). The present appeal to the Court of Appeal was allowed permission and heard 13 March 2018.
• Issues framed: (i) whether the 2013 loan and charge were regulated mortgage contracts within the meaning of Article 61; (ii) whether the lender's agreement to the consent order amounted to "administering" a regulated mortgage and so rendered the consent order unenforceable; and (iii) whether the consent order should be set aside or the matter remitted for trial on those factual issues.
• Court's reasoning: The court accepted that the property was a dwelling for these purposes but emphasised (a) the appellants had expressly represented in the application and special condition that neither they nor family would occupy the property as a dwelling during the loan; (b) a contracting party cannot generally go behind such contractual representations to the detriment of the lender unless the lender knew they were false; (c) the concept of "administering" a regulated mortgage did not sensibly extend to voluntary compromises of enforcement proceedings, which are not "necessary steps" to collect or recover payments, and are expressly distinguished from mere enforcement action by the wording of Article 61(3)(b)(ii); (d) construing compromises as regulated activity would produce unattractive and impractical consequences contrary to public policy; and (e) it was inappropriate to order trial of historical factual issues after sale of the property and delay. The appeal was dismissed for these reasons.

The Court of Appeal dismissed the appeal. The court held that (i) the appellants were bound by their express contractual representations and could not successfully assert the FSMA 2000 defence unless the lender knew the representations were false; (ii) the making of a consent order compromising enforcement proceedings was not "administering" a regulated mortgage under Article 61(3)(b)(ii) and so did not render the consent order unenforceable; and (iii) ordering a trial on the factual issues would be inappropriate given the passage of time and the sale of the property.

County Court at Central London: possession claim; Deputy District Judge Wallis made a consent order for possession and judgment on 17 February 2015. Application to set aside and to stay warrant refused by Deputy District Judge Hughes (21 April 2015). Recorder Brooke-Smith granted permission to appeal (21 May 2015) and directed further hearing. HH Judge Lamb QC refused the application to set aside the consent order (order 2 October 2015, entered 6 October 2015) and refused permission to appeal; Dove J later granted permission to appeal (12 February 2016). Picken J dismissed the appeal from Judge Lamb (15 March 2016). Permission to appeal to the Court of Appeal was granted by Gloster LJ (25 January 2017). This Court (McCombe LJ, Lindblom LJ, Leggatt LJ) dismissed the appeal on 28 March 2018.