The Financial Conduct Authority v London Property Investments (UK) Limited (t/a LPI Emergency Property Finance) & Ors

The court has a wide discretion under the Financial Services and Markets Act 2000 to select remedial or restitutionary relief for contraventions of the general prohibition. Remedial and restitution orders are not mutually exclusive, but a remedial order should respect the statutory requirement for restitution when an agreement is treated as unenforceable. Where losses have crystallised, restitution ordinarily reflects all proven losses, subject to just adjustments for benefits obtained and costs that would have been incurred independently. In mortgage cases, the value of continued occupation of the property is credited against the increased debt caused by the contravention. In sale-and-rent-back cases, the appropriate measure was lost equity at the transaction date, less avoided repossession and sale costs; rent paid under the unenforceable arrangement was not itself recoverable without restitution of the tenancy benefit.

The Financial Conduct Authority brought proceedings against two companies and their controllers concerning unauthorised regulated mortgage and sale-and-rent-back activities. An earlier judgment, [2022] EWHC 2862 (Ch), determined liability in relation to 45 consumer groups and adjourned the question of further relief.

The present trial concerned the appropriate remedies for those consumers and liability in 26 additional regulated mortgage cases. The court also considered the extent of contraventions and knowing involvement in the additional cases. The central issues were the appropriate measure of loss, the interaction between remedial and restitution orders, and whether sale-and-rent-back transactions should be unwound or compensated.

1. The court found that the additional cases involved regulated mortgage contracts and that the relevant exclusions did not apply. LPI agreed to arrange regulated mortgage contracts, made arrangements with a view to them, and in most cases arranged for them to be entered into. It advised on a particular product only in the cases of Allan Toney and Jennifer Bower. Tony Stevens and Daniel Stevens were knowingly concerned in the contraventions.

2. Agreements made in contravention of the general prohibition were declared unenforceable under s.26 of the Financial Services and Markets Act 2000. Restrictions remaining on four titles were to be removed by remedial orders against LPI and Daniel Stevens. The earlier injunction was continued.

3. Under ss.380 and 382, the court has a broad discretion to choose the remedy and amount that is just, having regard to losses, profits and the statutory consumer-protection purpose. A remedial order may mitigate the effect of a contravention, but remedial and restitution orders may be combined provided there is no double recovery.

4. In regulated mortgage transaction cases, loss was measured by the increase in secured debt caused by the transaction, less an allowance for repossession and sale costs that would have arisen in any event and the rental value of the property during the period of continued occupation. The court rejected deduction by reference to hypothetical alternative accommodation costs.

5. In non-transaction cases, the recoverable loss generally comprised fees and expenses paid as a result of the contravention. A restitution order for £42,380 was made against LPI in the exceptional Baylis and Kreuder case because LPI had obtained that profit even though it had not caused the consumers’ loss.

6. For sale-and-rent-back cases, a deferred remedial order based on future equity and rent was unsuitable. It was uncertain, complex and could produce an unfair result. The appropriate measure was the equity lost at the date of the transaction, less £29,827 for avoided repossession and sale costs, with any additional proven loss added. Rent paid was not recoverable because the consumer had received the benefit of the tenancy and had not elected to rescind and make restitution under ss.26 and 28.

7. Restitution orders were made against LPI, Tony Stevens and Daniel Stevens for losses suffered by the regulated mortgage individuals, and against NPI only for losses suffered by the sale-and-rent-back individuals, as requested by the FCA. Further consequential and interest matters were left for determination at hand-down.