Kenneth Taylor & Anor. v Legal and General Partnership Services Limited

A mortgage adviser’s duty, informed by the Mortgage Conduct of Business rules, concerns whether the recommended mortgage is affordable and appropriate to the customer’s needs and circumstances. It does not ordinarily extend to assessing the commercial merits of an investment funded by the mortgage or requiring independent investment advice before making a recommendation. The scope of duty is fact-sensitive. A borrower’s realistic fallback means of repaying an interest-only mortgage may be material to affordability. Loss arising from the failure of the underlying investment may also fall outside the scope of the mortgage adviser’s duty. For latent damage limitation purposes, knowledge includes facts which the claimant might reasonably have acquired through appropriate expert advice.

The claimants, victims of the Harlequin overseas property investment fraud, borrowed against their home through an interest-only mortgage arranged by the defendant’s appointed representative. They alleged that the mortgage adviser negligently recommended the mortgage without requiring independent advice about the proposed investment, and alternatively should have recommended a repayment mortgage.

The defendant denied duty, breach, causation and recoverability of the claimed losses, and relied on limitation. The court considered the scope of the adviser’s duty, alleged breaches, causation, damages and the alternative limitation case under section 14A of the Limitation Act 1980.

1. Duty and scope. Mortgage advisers owe customers a duty of care whose scope is informed, at least in part, by the relevant MCOB provisions. The protected harm is the introduction to a mortgage which is unsuitable because it is unaffordable or inappropriate to the customer’s needs and circumstances. The duty is highly sensitive to the particular customer and transaction.
2. The adviser was not required to refuse to recommend any mortgage until the claimants obtained independent financial advice about the Harlequin investment. They were enthusiastic investors with previous experience of the development, understood that the investment carried risks, had been warned that the adviser could not advise on the investment’s repayment value, and had a realistic fallback involving surplus income. Requiring investment advice in those circumstances would have imposed an unreasonable restriction on consumer autonomy.
3. The adviser did not breach any duty by failing to investigate the fallback position further. The financial information disclosed a significant surplus, and the claimants ultimately succeeded in using that fallback to redeem the mortgage. The pleaded allegations that no mortgage should have been recommended, that the mortgage was unaffordable, or that the claimants lacked an adequate understanding of the risks were rejected. The unpleaded alternative case for a repayment mortgage also lacked merit.
4. Causation and damages. The claim failed on duty and breach. Alternatively, the claimants were likely to have proceeded even if warned by an independent adviser. The court also observed that the capital loss on the Harlequin investment would not, in any event, readily fall within the scope of the mortgage adviser’s duty applying the principles in Manchester Building Society v Grant Thornton [2022] AC 783.
5. Limitation. Alternatively, by December 2016 or January 2017 the claimants knew that substantial loss was probable and that the investment was highly risky. They knew the mortgage adviser’s identity and that other investors were bringing claims concerning mortgage advice. Under section 14A(10) of the Limitation Act 1980, their knowledge included what they might reasonably have acquired by obtaining legal advice before 18 March 2017. Any viable claim was therefore statute-barred before the relevant standstill date.
6. The claim was dismissed.