The Financial Conduct Authority v London Property Investments (UK) Limited (trading as LPI Emergency Property Finance) & Ors

The general prohibition in Financial Services and Markets Act 2000 applies to activities concerning regulated mortgage contracts and sale and rent back agreements where the statutory conditions are met, regardless of how the parties document or describe the transactions. “Arrangements” is a question of fact and degree. For the first limb, the arrangements must have sufficient causal potency to bring about the transaction; the second limb concerns the purpose or end in view and has no separate causation requirement.

Advice may be inferred objectively from the circumstances, including the presentation of unsuitable lending as a solution to imminent repossession. A person is knowingly concerned where he has actual knowledge of the facts constituting the contravention and actual involvement, including a managerial or back-office role. Agreements made in contravention of the general prohibition were unenforceable, and remedial and injunctive relief was appropriate.

The FCA brought a civil claim against LPI, NPI and two individuals arising from businesses assisting financially distressed homeowners. It alleged that LPI arranged and advised on regulated mortgage contracts, and arranged and advised on sale and rent back agreements. It alleged that NPI entered into and administered sale and rent back agreements. It also alleged that LPI breached the financial promotion restrictions and that the individual defendants were knowingly concerned in the contraventions.

The defendants’ defence was struck out and they were debarred from defending the claim, but the FCA remained required to prove each element on the balance of probabilities and to make a fair presentation. The court considered 45 affected individuals, the statutory exclusions and business tests, accessory liability, enforceability, declarations, remedial orders, injunctions and the adjournment of claims concerning other potentially affected individuals.

1. RMCs. The secured loans were regulated mortgage contracts because credit was provided to individuals and secured on land used or intended to be used as a dwelling. The article 61A exclusions were not engaged where the borrowers intended to remain in their homes, notwithstanding documents or representations suggesting otherwise. Business-purpose presumptions were rebutted where the true purpose was saving the home from repossession.
2. Arranging and advising. The term “arrangements” has a wide meaning and its application is fact-sensitive. Under the first limb of article 25A, the arrangements must have sufficient causal potency to bring about the transaction. Under the second limb, it is sufficient that the transaction formed part of the purpose or end in view. LPI’s introductions, information gathering, completion of forms, coordination of solicitors and lenders, and other activities engaged both limbs. Its presentation of unsuitable loans, concealment of material terms and assistance in creating a false impression of occupation objectively amounted to advice on the merits.
3. Business test. LPI’s lending activities were central, regular and lucrative parts of its business. It therefore carried on the business of arranging, agreeing to arrange and advising on RMCs under CRAWBO.
4. SRAs. A sale and rent back arrangement may comprise several instruments or agreements. An oral agreement allowing sellers to remain in occupation after sale was inextricably linked with the sale and formed part of the same arrangement. LPI arranged and advised on the SRAs; NPI entered into them and administered them by collecting rent. The activities were carried on by way of business.
5. Financial promotion. LPI’s website communicated invitations or inducements to engage in controlled investment activity. Section 21 could apply although the promoted controlled activity would be performed by regulated brokers rather than LPI itself. The website’s language objectively sought to persuade persons facing repossession to use the promoted services.
6. Accessory liability. Knowingly concerned requires knowledge of the facts on which the contravention depends and actual involvement. Knowledge of the legal effect is unnecessary. TS was directly involved in the transactions. DS had extensive and critical involvement in the businesses and transactions, including a significant back-office role. Both were knowingly concerned in the contraventions.
7. Relief. The relevant Service Agreements and SRA transactions were unenforceable under section 26. It was not just and equitable to permit enforcement because the activities were systematic, exploitative and deliberately designed to circumvent regulation. Remedial orders requiring removal of restrictions, injunctions restraining further contraventions and declarations were granted in principle. The claim concerning other potentially affected individuals was adjourned.

First-instance decision. The judgment records no earlier appellate decision in the same proceedings.