Rajinder Kumar v LSC Finance Limited

A declaration under article 61A of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 must identify the relevant statutory protections with sufficient objective clarity. A declaration referring to regulated credit or hire agreements, rather than regulated mortgage contracts, does not trigger the statutory presumption.

Whether a loan is an investment property loan depends on the objective construction of the contractual documents and the parties’ relevant intentions when the agreement was made. Default interest may replace, rather than supplement, the standard interest rate where that is the proper construction of the agreement.

An unfair relationship may arise from an unjustified refusal to honour a contractual drawdown, even where enforcement steps were contractually permitted. A proportionate remedy may reduce the debt by the refused drawdown.

The claimant, associated companies and family members obtained development finance from the defendant, an unregulated lender. The claimant, together with the third and fourth parties, argued that three personal loans secured on development land were regulated mortgage contracts and were therefore unenforceable. They also alleged unfair relationships under the Consumer Credit Act 1974.

The parties disputed the construction of the loan and guarantee documents, the applicable interest rate, the refusal of a further drawdown, the appointment of receivers and sales of charged properties, and the extent of liability under guarantees. Several pleaded claims based on oral representations and variations were withdrawn at trial. The central issues were the regulatory status of the Pattingham loans, unfairness under sections 140A–140B, the appropriate remedy, and the liability caps in the ADL guarantees.

1. Regulatory status. The declarations in the Pattingham loan agreements satisfied the requirements corresponding to business-purpose and independent-advice statements, but did not satisfy article 61A(3)(ii) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The reference to a “regulated agreement”, combined with headings referring to articles 60C and 60O, would objectively be understood as referring to consumer credit and consumer hire agreements, not regulated mortgage contracts. The statutory presumption therefore did not apply.
2. On the objective construction of the agreements, the loans were intended to be investment property loans. The declaration, the valuation, the planning material and the surrounding contractual provisions showed an intention to develop property for business purposes and sale to third parties. None of the three Pattingham loans was an RMC.
3. Interest. Clause 6.4 of the General Terms provided for interest at 3% per month when a payment was overdue. Properly construed, that rate replaced the standard 1.2% monthly rate and was compounded.
4. Unfair relationship. The court applied the broad approach under sections 140A–140B of the Consumer Credit Act 1974. The refusal of a £13,500 drawdown, despite a supporting monitoring surveyor’s report and without a contractual justification, created an unfair relationship. The appointment of receivers after the contractual repayment date was permitted by the agreements and, in the circumstances, was not unfair. The alleged undervalue sales were not proved.
5. The proportionate remedy under section 140B was to reduce the claimant’s debt by £13,500 as at 15 August 2018, with consequential interest adjustments. No greater financial loss had been established.
6. Guarantees and amendment. Permission was granted for the late amendment raising the “Commitment Point”. The ADL guarantees capped liability at the aggregate contractual commitments, plus sums due under the guarantees. Liability was therefore limited to £1,342,500 for Loan 440 and, additionally, the stated commitments for Loans 466, 505 and 517. Interest on guaranteed debts ran at 1.2% per month until contractual maturity and thereafter at 3% per month. Post-demand borrowing was excluded by concession.

First-instance judgment following a trial in the High Court. No appellate history was stated in the judgment.