Nuray Houssein & Ors v London Credit Limited & Anor

A lender may waive a contractual non-residence requirement by election where its agent knows, before drawdown, that the secured property is occupied and the borrowers intend to remain there. The lender’s knowledge is assessed through the agent whose knowledge is legally imputed to it.

A default interest provision is unenforceable as a penalty where it does not protect a legitimate interest, is applied uniformly to materially different breaches, and imposes a disproportionate increase over the ordinary rate. A corporate borrowing structure is not a sham merely because the corporate borrower makes an onward loan to individuals, where the documents accurately record that arrangement and the lender genuinely intended to enforce the relevant restrictions.

The claim concerned a bridging refinancing arranged for a family property portfolio. CEK Investments Ltd was the borrower. Mr and Mrs Houssein guaranteed the loan and charged six properties, including their family home at 71 Hamilton Road.

The claimants alleged that the transaction was sham, that the lender had breached or could not enforce regulatory restrictions, that default interest was a penalty, and that Mrs Houssein’s guarantees and charges were procured by undue influence. They also advanced consumer and statutory claims.

The central issues were whether the lender had waived the contractual prohibition on residence, whether the default rate was enforceable, and whether the guarantees and charges could be set aside.

1. Waiver and enforcement. The non-residence provisions were waived by election. At the 29 July 2020 inspection, LCL’s representative knew that the Housseins remained in residence at 71 Hamilton Road and that the apparent evidence of vacancy had been staged. His knowledge was LCL’s knowledge. The subsequent false report did not alter that position. There was therefore no breach, no event of default, and no right to appoint receivers.
2. Agency. The intermediary, Premier Finance Ltd, and Mr Liondaris acted as agents of the Housseins, not LCL. Their knowledge was accordingly imputed to the Housseins rather than to LCL. By contrast, Mr Stylianides acted for LCL, so his knowledge was imputed to it.
3. Sham. The sham allegation failed. The Financial Services and Markets Act 2000 did not require the court to treat the transaction as disguised lending to individuals. The Facility Letter openly recorded CEK’s onward loan to Mr and Mrs Houssein, the guarantees and the security. LCL genuinely intended to enforce the non-residence restriction. The use of a corporate borrower and a non-residence requirement was a belt-and-braces structure, not a sham.
4. Default interest. Applying the approach in Cavendish Square Holdings BV v Makdessi, the additional 3% monthly rate was a penalty. It did not protect a legitimate interest connected with the non-residence provision or the particular credit risk. It applied identically to materially different breaches, was centrally fixed without regard to the security or borrower, and exceeded the market evidence without sufficient justification. The ordinary 1% monthly rate remained enforceable.
5. Undue influence and consumer claims. There was no presumption of undue influence between spouses. Mrs Houssein was intelligent and capable, had independent views, and was not induced by Mr Houssein to execute the documents. The consumer claims failed because the transaction concerned the claimants’ property-rental business and the borrower was CEK.
6. Orders. The declarations under section 26(1) of Financial Services and Markets Act 2000 were refused. The enforcement steps were void and ineffective. The Facility Letter remained in force, with the outstanding debt secured by the guarantees and charges.