Helden v StratHMore Ltd [2010] EWHC 2012 (Ch)

Case No HC09C00868[2010] EWHC 2012 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 30/07/2010
Before
MR JUSTICE NEWEY
Between
CHARLES CLELAND HELDENClaimantSTRATHMORE LIMITEDDefendant
Mr David H. Christie (direct access) for ClaimantMr Fred Philpott (instructed by Neumans) for DefendantHearing Hearing dates: 20, 21, 24 and 25 May 2010
Judgment
[1]These proceedings principally concern a loan to the Claimant, Mr Charles Helden, of about £1 million. Mr Helden borrowed the money to enable him to buy an apartment at 58 Chelsea Crescent, Chelsea Harbour in London.[2]It is Mr Helden’s case that the agreement for the loan infringed the Financial Services and Markets Act 2000 (“FSMA”) and is, as a result, unenforceable. The Particulars of Claim also include a claim for damages (of £1,250,000) for loss which Mr Helden says that he has suffered as a result of the breach of FSMA.[3]By its Defence, the Defendant, Strathmore Limited (“Strathmore”) denies any breach of FSMA but asks that, if necessary, it should be allowed to enforce the loan agreement notwithstanding any breach. A Counterclaim seeks an order for possession of 58 Chelsea Crescent and also judgment for the sums said to be due from Mr Helden. In this connection, Strathmore alleges that additional loans of £25,000 and £91,509 were secured on 58 Chelsea Crescent.[4]On 29 July 2009 Master Moncaster directed that issues relating to Mr Helden’s damages claim should be dealt with after the other issues in the case.

The facts

[5]This section of the judgment contains an account of the factual history.[6]Until 1983, Mr Helden was a commercial conveyancing clerk specialising in leases. He then became a mortgage broker, but he gave up work for a period after his first wife was diagnosed as suffering from cancer in 1999. Following his wife’s death in 2002, Mr Helden decided to undertake property development on a full-time basis.[7]In 2004 Mr Helden joined forces with Mr John Jordan, an experienced house builder and property developer. The two acquired a company called C & J Construction Limited (“C & J”). Mr Helden and Mr Jordan each held 50% of the shares, and both were directors.[8]Strathmore’s only shareholders are Mr Peter Ashton and his wife Mrs Pauline Ashton. In the past, Mr Ashton was the company’s sole director and Mrs Ashton its secretary. On 24 July 2006, Mrs Ashton was appointed as a director in Mr Ashton’s place, and the Ashtons’ son Stephen as secretary. When giving evidence, however, Mrs Ashton described herself as “just a signatory” and said that she was reliant on her husband.[9]Mr Ashton left school aged 16 and became an insurance clerk. By the early 1970s, he was managing the dollar trading desk of a leading discount house. In about 1976, he moved to a Swiss investment company in the West End of London, before running the London office of Lombard Wall International Limited from about 1981 to 1986. At that stage, he decided to work for himself, and he subsequently used Strathmore as the vehicle with which to build up a portfolio of commercial properties. From the late 1990s, however, the portfolio was reduced, and Strathmore is now left with only one small industrial unit. Another family company, Sandworth Limited (“Sandworth”), was set up for a one-off property transaction.[10]It is plain that Mr Ashton has very considerable financial acumen. However, he has never attended any courses on financial matters, nor acquired any post-school qualifications.[11]Mr Helden was introduced to Mr Ashton through Coldham Shield & Mace, a firm of solicitors in Chingford. Mr Helden had used Coldham Shield & Mace for a couple of years, and Mr Ashton had used them for many years. In the autumn of 2004, Mr Helden and Mr Jordan were seeking to buy some premises at 23 Catherine Place, London through C & J but needed additional funding. Mr Helden asked Mr Neil Wright, a solicitor who was then at Coldham Shield & Mace, whether he knew of anyone whom C & J could approach for funding. Mr Wright suggested the Ashtons, and C & J was subsequently lent £300,000 by Sandworth to assist with the purchase of 23 Catherine Place. Later in 2005, Sandworth made a loan of some £5.4 million to enable Rye Enterprises Limited, another company associated with Mr Helden and Mr Jordan, to buy a property at 63 Eaton Square in Belgravia. Mr Jordan also borrowed money from Sandworth to acquire a house at Tewin Wood in Hertfordshire in the name of WBB Property Services Limited.[12]By late 2005, Mr Helden wished to buy 58 Chelsea Crescent as his home. He asked Mr Ashton for funding, and the Ashtons agreed to make a loan of £1 million. An initial payment of £50,000 was made in December 2005, in respect of the deposit on 58 Chelsea Crescent. A further £995,462.83 was advanced on 31 March 2006, when the purchase was completed. Mr Helden explained in evidence that he approached the Ashtons for reasons of speed.[13]Mr Wright said, and I accept, that it was initially envisaged that Mr Helden would effect the purchase through WBB Property Services Limited but that the idea was abandoned when it was realised that this would make re-mortgaging difficult.[14]Some manuscript notes made by Mr Ashton appear, on their face, to date from this period. The notes read as follows:
“Chelsea Harbour – £1m –5% [deposit] + delayed 3 [month] completion –offer £950. Loan 1 [year] @ 7½% –agreed PSA/PHA [i.e. Mr and Mrs Ashton] 8/12/05 –told NW [i.e. Mr Wright] 9/12/05”
The last two lines are in red ink, the earlier part in blue.

Loan 1 [year] @ 7½%

[15]Mr Christie queried the authenticity of these and other manuscript notes in Mr Ashton’s handwriting. I have no doubt that the documents are what they purport to be. The notes quoted in the previous paragraph, for example, were, in my judgment, made by Mr Ashton at about the time the relevant events were occurring. I reject any suggestion that the notes were concocted by Mr Ashton for the purpose of the present proceedings.[16]Mr Helden accepted that the loan was to be at an interest rate of 7.5% and for a year. At the time, Mr Helden expected to be able to repay within a year.[17]A draft promissory note was prepared in respect of the £50,000 payment in December 2005. This referred to interest at the rate of 7.5% per annum, but stipulated that the debt was to be treated as repaid if Mr Helden entered into “a legal charge in favour of Strathmore Limited for all monies owed to them secured on 58 Chelsea Crescent”. No signed version of the promissory note has been found, Mr Helden denied signing it, and Mr Wright said that he could not remember what had happened as regards the document. The likelihood, I think, is that it was never signed.[18]An agreement dated 19 December 2005 was entered into by Strathmore and Mr Ashton. One of the recitals to this agreement was in the following terms:
“Ashton intends to make a loan of approximately one million pounds … (‘the Loan’) through Strathmore to Charles Cleland Helden (‘Helden’) to enable Helden to purchase 58 Chelsea Crescent … (‘the Property’) at an initial interest rate of 7.5% p.a. the loan period to run for one year from the date of completion of the purchase of the Property and in the event that the Loan is not repaid within that time at a rate to be negotiated with Helden”
. The agreement went on to provide for Strathmore to take a charge over 58 Chelsea Crescent as security for repayment of the loan and for Strathmore to hold both the charge and any moneys received from Mr Helden on trust for Mr Ashton. There was provision for Strathmore to receive a fee of £1,000 on the loan’s repayment.[19]While Mr Wright had no actual recollection of the 19 December 2005 agreement, he said that it looked like his. In my judgment, the document will have been drafted by Mr Wright.[20]On 31 March 2006, Mr Helden executed a legal charge (“the Charge”) in favour of Strathmore. This provided for 58 Chelsea Crescent to be charged “by way of a legal mortgage with the payment to [Strathmore] of the debt to be paid by [Mr Helden]”. “Mortgage provisions” which were incorporated in the Charge stipulated that Mr Helden would pay to Strathmore “on the Payment Day the amount of the Debt”. The “Payment Day” was given as 31 March 2007, but against “The Debt” and “Interest Rate” there was written “In accordance with the offer letter”. No such letter was in fact prepared. Mr Helden’s then fiancée, now second wife, countersigned the Charge in the presence of an independent solicitor to confirm her consent. The Charge was duly registered at HM Land Registry.[21]Mr Wright of Coldham Shield & Mace acted for both Mr Helden and Mr Ashton/Strathmore. Mr Wright said in evidence that he now knew that he should not, in the circumstances, have been acting for both borrower and lender. He frankly accepted that he had made a mistake.[22]No one concerned appreciated at the time that there was any question of FSMA applying. Mr Wright explained that he was not familiar with the requirements of FSMA and so made no mention of it to Mr Helden or Mr Ashton (or anyone else). Neither did Mr Helden, Mr Ashton or Mrs Ashton realise that FSMA could be of any relevance.[23]At about the same time, Sandworth lent C & J about £2.3 million to enable it to repay sums the company had borrowed from United Trust Bank for the purchase of 23 Catherine Place and a site at Ninfield, East Sussex.[24]It was also at about this time that Mr Helden borrowed a further sum of £30,000 on a personal basis. On this occasion, Mr Helden signed a promissory note. By it, Mr Helden promised:
“to pay to STRATHMORE LIMITED … the sum of [£30,000] for value received on or before 30th JUNE 2006 with interest at the rate of 15% per annum on the principal sum”
. In a note to Mr Wright dated 26 March 2006, Mr Ashton (for Strathmore) said:
“Please forward £30,000 (less bank charges) to Charles Helden in respect of a short term loan supported by a promissory note that the Company is making to Mr Helden.”
As instructed, Mr Wright made a payment of £29,970.62 (representing £30,000 less charges) on 28 March 2006. There is no suggestion that this loan was secured on 58 Chelsea Crescent.[25]Within a short period, £50,000 was repaid when Rye Enterprises Limited sold the property at 63 Eaton Square at the end of May 2006. Manuscript notes made by Mr Ashton calculated the amount outstanding on the security of the Chelsea Crescent charge to be £1,009,586.39. This took account of the advances of £50,000 and £995,462.83, of the £50,000 repayment and of interest at 7.5%.[26]By 2006, Mr Helden and the Ashtons were friends. The Ashtons attended the wedding when Mr Helden remarried in Italy on 19 May 2006. Mr Wright and his wife were also guests.[27]Shortly afterwards, a further loan, of £25,000, was made to Mr Helden. When asking the Ashtons for the loan, Mr Helden said:
“as before I accept the flat interest rate of 15%”
. Mr Helden said that he thought that some of the £25,000 went into reducing his overdraft and some into work at 23 Catherine Place. Mr Ashton said, and I accept, that it was agreed between himself and Mr Helden that the Charge should extend to the £25,000 loan.[28]In a letter to the Ashtons of 6 February 2007, Mr Helden said that “the current mortgage to Strathmore Limited will be redeemed on or before the end of this month but certainly not later than the first week in March next”. In the event, the loan was not repaid. Mr Helden said in evidence that he obtained some initial terms from potential lenders, but they were not acceptable. He took the view that he needed to find a lender who would accept capital sum repayments. At one point in cross-examination, Mr Helden said that from his point of view it was a “paramount condition” that he could make lump sum repayments without penalty.[29]Mr Ashton’s manuscript notes include the following:
“6.3.07 higher interest rate to be agreed if longer than 31.3.07 – told Charles … * agreed with CH on 21.3.07 to increase interest rate on main loan to 10% from 31.3.07”
[30]In cross-examination, Mr Helden denied agreeing any increase in the interest rate. I find, however, that, as indicated by the notes, it was agreed between Mr Helden and Mr Ashton on 21 March 2007 that the interest rate on the main loan would rise to 10% (from 7.5%) with effect from 31 March 2007.[31]Some manuscript notes in Mr Ashton’s handwriting are to be found on a print-out of an email to him of 14 September 2007. The email was printed out on the same day. The notes include the following:
“14/9/07 = told Charles that interest rate going up from 10% to 12½% as from 1.10.07. + £50,000 repayment from Ninfield.”
The last line of the notes is written in blue, the earlier words in red. Lower down the page, a further manuscript note made by Mr Ashton (in blue) is in the following terms:
“17/9 – [Mr Clifton] called + discussed Charles [Helden]. Charlie still willing to lend 70% of valuation [so] up to Charles to obtain a fresh valuation. Spoke to Charles who is now doing just that!”
Spoke to Charles who is now doing just that!”[32]In cross-examination, Mr Helden denied that there was any conversation at this stage about interest rates. He also said that there was no discussion of a “£50,000 repayment from Ninfield” and that he did not think that Mr Ashton had spoken to him about obtaining a valuation. In my judgment, however, Mr Ashton’s notes reflect the reality. I find, accordingly, that Mr Helden accepted in a conversation with Mr Ashton on 14 September 2007 that the interest rate would increase to 12.5% from 1 October 2007.[33]Mr Helden made the specific point that no “£50,000 repayment from Ninfield” was in contemplation on 14 September 2007. It seems to me, however, that Mr Helden must be mistaken about this. It is noteworthy that only about two months later Mr Ashton was chasing Mr Helden for news about the Ninfield property because he understood that Mr Helden had been “expecting to exchange on the [N]infield deal today”.[34]It was around this time that there was a run on Northern Rock plc. Writing to Mr Helden on 15 September 2007, Mr Steven Clifton, the principal of Glenarm Mortgage Services, referred to “the panic in the mortgage market” and said:
“I believe there is now only one way forward which is that I will carry out further investigations in order to find a Lender who will grant a ‘no questions asked’ mortgage. The only way that this would be successful is if I can present your application together with the valuation so that there is no doubt about the amount they would make available.”
In a further email to Mr Helden of 14 October, Mr Clifton said:
“… I believe that we have now reached an impasse with regard to your re-finance.”
Mr Clifton went on to explain that there were two options: a “fully non-status remortgage with no evidence of income at all and no reliance on credit references” in respect of which Mr Clifton “could arrange for an offer to be issued prior to [Mr Helden] having to pay the £1,500 + Vat for the valuation” and, alternatively, “a sub-prime re-mortgage” supported by evidence of income. Mr Clifton noted:
“In the light of the current finance climate what is available this week may not be available next.”
[35]One source of controversy was a loan of £35,000 which the Ashtons (via Sandworth) had made to C & J in January 2005. As Mr Ashton explained matters, the original loan was made for a period of nine months at a flat fee of £15,000. In the event, the loan was not repaid within the nine months, but continued for two further nine-month periods and part of a third. As a result, Sandworth became entitled to three fees of £15,000 each (for the three full periods of nine months) and a proportionate part of a fourth £15,000. By late 2007, therefore, C & J owed a total of about £91,000 in respect of the initial loan of £35,000. Mr Ashton said that, at the end of each nine-month period, he and Mr Helden would orally agree that the loan would be renewed for another nine months. They did not expect, he said, the loan to last as long as it did.[36]By October 2007, a buyer had been found for 23 Catherine Place. This led to discussion as to how the proceeds of sale should be applied. On 24 October 2007, Mr Ashton sent Mr Wright an email on this subject, with a copy to Mr Helden. The email read as follows:
“On behalf of Sandworth Limited I hereby confirm that following discussions with Charles Helden and John Jordan of C. & J. Construction that Sandworth Limited will require the sum of pounds 3,060,000 on completion of the sale of Catherine Place. This amount is the final redemption figure subject to completion taking place no later than 8th November, 2007. There is also a further amount of pounds 91,509 owing from this transaction and I confirm that this amount is a private deal with Charles Helden and in no way affects the Catherine Place sale or C. & J. Construction. I have agreed with Charles that this amount will be added to his Chelsea loan on the completion date of the sale of Catherine Place ….”
When, in an email of 16 November, Mr Helden referred to the “balance of the figure yet to be agreed between us”, Mr Ashton responded:
“By the way, you keep referring to the ‘balance yet to be agreed’ as if there is going to be negotiation over the carryover figure of approx. pounds 91,000 from the [Catherine Place] deal. This is set in concrete Charles.”
That led Mr Helden to say that he was “not paying £90k for a £35k loan”, and Mr Ashton to reply that he had “told [Mr Helden] enough times now that this repayment figure is not negotiable”.[37]I find that Mr Ashton and Mr Helden agreed that the amount due in respect of the £35,000 loan should be a personal liability of Mr Helden and should be secured by the Charge. I am not satisfied that the amount owing was finally agreed between Mr Ashton and Mr Helden, but I find on the evidence that that amount was £91,509, for the reasons given by Mr Ashton.[38]Early in 2008, Mr Helden sought to re-mortgage with Bank of Scotland. In letters of 15 and 20 February, Enact, which undertook conveyancing for Bank of Scotland, asked Strathmore to forward the title deeds and a redemption figure. Mr Wright, who was by now with Sabir Selby LLP, responded on Strathmore’s behalf on 22 February, stating (among other things) in an email to Bank of Scotland:
“I am instructed that my client has agreed to accept partial redemption of the mortgage in the sum of £1,000,000 with the balance remaining secured by a second charge. I am instructed that as at 29/02/08 the outstanding loan will be £1,315,413.23. My client will only agree to proceed in the manner outlined provided that your client’s charge does not permit any further advances, that your client undertakes to notify my client within 7 days of any failure to make a payment under the terms of the loan and that in the event of a forced sale our client will receive payment in full of the monies owed to it (including accrued interest) together with any costs incurred.”
In a further email to Bank of Scotland, Mr Wright said:
“I forgot to mention that your client will also need to meet my costs in relation to the matter. My charging rate is £300 ph plus VAT. I would estimate that if the matter proceeds smoothly they would be in the region of £600 plus VAT.”
[39]Despite chasing, Mr Wright received no direct reply from Bank of Scotland or Enact. On 6 March 2008, however, a Beth Lowery of Enact sent Mr Helden an email in which she said that she had referred correspondence with Mr Wright to technical services and that they had said the following:
“Even if [Bank of Scotland] would agree to meet the requirements of the 2nd chargees [solicitors] it is outside our [service level agreement] to draft undertakings and deeds of agreement as required by the [solicitors] between both chargees Therefore we cannot proceed and [if] the [borrower] wishes to proceed they will need to instruct their own [solicitors] even then it is unlikely that [Bank of Scotland] will agree to proceed Team to close file.”
On the following day, Mr Helden sent Mr Ashton an email in which he said:
“… I have to congratulate both you and Neil Wright for ‘scuppering’ my proposed favourable mortgage offer from Bank of Scotland. Bank of Scotland have told me that it is not now proceeding giving the following reasons: 1. The conditions that you instructed Neil Wright to impose on [Bank of Scotland]. Such conditions were never [discussed] or agreed between us at our last meeting. 2. Neil Wright’s (my words not [Bank of Scotland]) ridiculous proposed charge of £600.00 plus VAT for a simple redemption and asking the Bank to pay for such charge. [Bank of Scotland] has confirmed in writing that 1 and 2 above is outside their [service level agreement] to draft ….”
Team to close file.”[40]Mr Wright pointed out to Mr Helden that his costs estimate was not based on a “simple redemption”, but both he and Mr Ashton nevertheless contacted Bank of Scotland. In a letter to Bank of Scotland of 10 March 2008, Mr Wright said:
“… On Friday Mr Helden emailed my client and copied to me to say that we had ‘scuppered’ his proposed mortgage offer because of conditions imposed by my client and because of my request for the payment of my client’s costs. I have to say that I am a little surprised that there is any issue with the conditions bearing in mind the sum that would remain due to my client. Even so, I would have expected some attempt to negotiate the terms. Whilst I cannot see what room there is for compromise I am sure that my client would be prepared to consider any proposals you may have. As to the costs, I can see no reason why my client should have to meet these bearing in mind that this is not (despite Mr Helden’s view to the contrary) a simple redemption. A Deed of Postponement or Priority will be needed and I would be required either to draft or approve the same. I have also had a number of emails and telephone calls both to Enact as well as with my client and Mr Helden himself. I re-iterate that my client will consider any sensible proposals to resolve the matter and I would be grateful if you would reconsider what appears to be a hasty decision not to proceed ….”
On 1 April Mr Ashton faxed Bank of Scotland, saying:
“… I would just like to know directly from you as to why the deal hasn’t been completed in case there is still a way to rectify the situation.”
Following a telephone conversation on the next day, Bank of Scotland confirmed to Mr Ashton in an email:
“As 2nd charge holder you were not liable for the non-progression of the case.”
[41]Mr Helden claimed thatEnact’s email of 6 March 2008 led him to suspect that there was “something not quite right” with the Charge. He said in his witness statement:
“The e-mail from the Bank of Scotland’s Solicitors [i.e. the email of 6 March 2008 from Enact] was the first indication that I knew there was something seriously wrong with the Legal Charge dated 31st March 2006 over 58 Chelsea Crescent. On making further enquiries I believe that due to the direct intervention and conditions imposed by Mr Neil Wright acting for Strathmore Ltd … Bank of Scotland made enquiries of the Financial Services Authority and possibly The Council of Mortgage Lenders and discovered that Strathmore Ltd was not authorised to [act] in mortgage related business nor was it registered as a lender with The Council of Mortgage Lenders.”
In cross-examination, Mr Helden said he suspected that there was something not quite right with his mortgage after receiving the 6 March email from Enact.[42]I cannot see how the 6 March email from Enact can have given any indication of any flaw in the Charge. Nor can I see any reason to suppose that the Bank of Scotland approached the Financial Services Authority (“ the FSA”) or the Council of Mortgage Lenders or considered whether Strathmore was “authorised to [act] in mortgage related business” or “registered as a lender with The Council of Mortgage Lenders”. There is, as it seems to me, no evidence of any significance that Bank of Scotland was alive to any issue as to the validity of the Charge.[43]It was, nonetheless, at about this time that Mr Helden began to investigate whether the Charge was open to attack under FSMA. How the idea came to him I do not know. I do not believe that it came from Bank of Scotland or Enact.[44]It is noteworthy in this context that Mr Helden said in an email of 6 March 2008 to a solicitor who was then acting for him:
“Notwithstanding Mr Ashton Strathmore Limited confirming verbally to me that it would accept the sum of £1m only from the remortgage proceeds following completion of the new loan from Bank of Scotland and postpone Strathmore charge for the ‘alleged’ balance I have just received a telephone call from BOS Solicitors stating that their client is unable to proceed with the remortgage given the restrictive conditions upon which Strathmore wants to impose before it agrees with the postponement of [its] charge. Subject to your advice I feel the time has been reached whereby a letter from you to Mr Ashton / Strathmore Solicitors is sent along the lines that in order to give me proper advice the existing Mortgagee should produce and satisfy you that it had all the [necessary] statutory permissions and licences to grant the original loan including carrying out the procedures as stated in my letter to comply with the full FSA Mortgage Regulations.”
The letter to which reference is made is not available. It is fair to infer, however, that the letter was sent before Mr Helden had learned that Bank of Scotland would not be proceeding with the re-mortgage and, hence, that Mr Helden was already considering whether the Charge was vulnerable under FSMA.[45]Mr Ashton’s manuscript notes include the following:
“28/4/08 – told Charles that interest rate down to 10% effective 31.3.08 ….”
I find that, as the notes suggest, Mr Ashton informed Mr Helden that the interest rate would be reduced to 10% from 31 March 2008.[46]Reference was made to FSMA in a letter which Edwin Coe LLP, solicitors, wrote to Strathmore on behalf of Mr Helden and Mr Jordan on 22 May 2008. After referring to the charges granted over 58 Chelsea Crescent and the Tewin Wood property, Edwin Coe said:
“You will be aware that those that carry on mortgage business are required to be licensed under the FSMA. We are not aware that Strathmore Ltd or Sandworth Ltd hold appropriate licences. Perhaps you would confirm whether licences are held. In the absence of formal authorisation, any contract entered into in relation to such mortgage business is unenforceable. Further, it may amount to a criminal offence for mortgage business to be carried on without a licence.”
[47]It was, it seems, shortly after this that Mr Helden and Mr Jordan visited the Ashtons at home. Mrs Ashton gave the following account of this meeting in her witness statement:
“Peter [i.e. Mr Ashton] and I attempted to discuss with [Mr Helden and Mr Jordan] the steps we might be able to take to help Charles [Helden] manage the Chelsea Crescent mortgage and how we might otherwise be able to assist with the loans to their companies, but they were not willing to listen and behaved quite differently to the way they had done when the loans had been made. John [Jordan] told us that because the mortgage over Chelsea Crescent was ‘illegal’ there would be ‘big trouble’ for us unless £400,000 was given to each of him and Charles. They told us that they wanted the money paid into offshore accounts only a few working days later.”
Mrs Ashton adhered to this account in cross-examination. Mr Helden disputed Mrs Ashton’s version of events, but I unhesitatingly accept it.[48]The proceedings now before me were issued by Mr Helden on 20 March 2009.[49]58 Chelsea Crescent was bought for £1 million. In late 2009, Savills, Strutt & Parker and Winkworth each suggested that it should be marketed at £1.8 million.[50]Mr Ashton’s manuscript notes assume that interest on Mr Helden’s indebtedness fell to be compounded on, broadly, a quarterly basis. Mr Helden denied that quarterly compounding had ever been agreed. On balance, however, I have concluded that it was agreed between Mr Helden and Mr Ashton that there should be quarterly compounding. In this connection, it is relevant that Mr Ashton referred in an email to Mr Helden of 15 January 2008 to interest being “calculated every three months and added to the principal in the normal way”.Mr Helden suggested that his reference to “the flat interest rate of 15%” (see paragraph 27 above) was inconsistent with quarterly compounding, but I do not think the phrase can have been intended to refer to compounding. It would otherwise exclude all compounding, even on an annual basis.[51]In addition to their loans to Mr Helden, C & J, Rye Enterprises Limited (paragraph 11) and WBB Property Services Limited (paragraph 11), the Ashtons made loans through Strathmore and Sandworth to members of their family and to a Mr Michael Harrison. The loans made to Mr Harrison were not affected by FSMA because they were made before the relevant law came into force (as to which, see paragraph 66 below) and/or because the relevant properties were not used as or in connection with a dwelling by Mr Harrison.

The issues

[52]By the close of argument, there were issues between the parties as to the following matters in particular: i) The identity of Mr Helden’s creditor; ii) The indebtedness secured by the Charge; iii) Whether FSMA had been breached and, if so, with what consequences; and iv) At what rates and with what compounding interest was payable.[53]In opening, Mr Christie advanced additional arguments, including to the effect that the trust for which the agreement of 19 December 2005 provided was a sham, which he did not ultimately pursue.

The identity of the creditor

[54]Mr Christie argued that it was to Mr Ashton (or perhaps Mr and Mrs Ashton) that Mr Helden owed any money, not to Strathmore.[55]In support of this submission, Mr Christie pointed out that the money lent to Mr Helden had originated with the Ashtons. Further, Mr Christie referred to Strathmore’s Defence, paragraph 10 of which contains the assertion, “the true situation was that the loan [to purchase 58 Chelsea Crescent] had been made by Mr Ashton”. Mr Christie also pointed out that the loan is not included in the balance sheet figures to be found in Strathmore’s filed accounts. He said, moreover, that the agreement of 19 December 2005 (as to which, see paragraph 18 above) did not operate to assign the loan money to Strathmore.[56]On the other hand, in cross-examination Mr Helden identified his creditor as the lender shown on the Charge, namely Strathmore. More to the point, perhaps, is Mr Ashton’s evidence. He referred in his witness statement to having “preferred the idea of having the company transacting with Michael [Harrison] and Charles [Helden] as this gave [him] a degree of privacy”. In cross-examination, Mr Ashton said that Mr Helden owed money to Strathmore, going on to explain that he had lent money to Strathmore which Strathmore had lent on to Mr Helden. With regard to Strathmore’s accounts, Mr Ashton said that he had taken professional advice and been told that the accounts did not need to include loans such as those to Mr Helden. As for the Defence, this is, overall, much more equivocal than might be suggested by the excerpt from paragraph 10 quoted in the previous paragraph.

(d) of the Defence, for example, states:

“The money for the loan was provided by Mr Ashton although the agreement to the loan was made by [Strathmore] with [Strathmore] holding the Legal Charge over 58 Chelsea Crescent ….”
[57]Further evidence that it was Strathmore that lent money to Mr Helden is to be found in the agreement of 19 December 2005. As already mentioned, this recited that Mr Ashton intended to make a loan of approximately £1 million “through Strathmore” and provided for both the charge which was to be taken as security and “any monies received from or on behalf of Helden” to be held on trust for Mr Ashton. The evident intention was that Mr Ashton would provide money to Strathmore which it, Strathmore, would lend to Mr Helden.[58]The likelihood is, I think, that Mr Ashton was not technically correct when he spoke of having lent money to Strathmore. Having regard to the agreement of 19 December 2005, the correct analysis would seem to be, not that Strathmore borrowed from Mr Ashton, but that it undertook to hold the benefit of the loan to Mr Helden on trust for Mr Ashton. It may well be, moreover, that the lending to Mr Helden was omitted from Strathmore’s accounts on the basis that the company was a trustee of the debt. For present purposes, however, it does not matter whether Strathmore was a trustee or a borrower. What matters is that, either way, it was Strathmore that lent money to Mr Helden.[59]In the circumstances, I do not accept Mr Christie’s submissions on this aspect. In my judgment, it is to Strathmore that Mr Helden owes any money.

The indebtedness secured by the Charge

[60]During his closing submissions, Mr Christie queried whether the Charge secured any indebtedness given that, as mentioned above (paragraph 20), it referred to an “offer letter” which was never in fact prepared.[61]This point is not really raised by the pleadings. The Particulars of Claim do not include any claim for relief in this respect.[62]In any case, it seems to me that, whatever else it may or may not secure, the Charge does (subject to the FSMA issues) secure the £1 million odd lent for the purchase of 58 Chelsea Crescent. If needs be, Strathmore could invoke estoppel by convention (compare e.g. Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84). There can be no doubt that the parties proceeded on the basis of a shared assumption that the Charge secured the money which Mr Helden borrowed to buy 58 Chelsea Crescent.[63]Turning to the other sums which Strathmore claims are secured by the Charge, I have found (see paragraphs 27 and 37 above) that it was orally agreed between Mr Ashton and Mr Helden that the £25,000 and £91,509 debts would be so secured. No amendment was, however, made to the Charge to give effect to these agreements. The implications of this were neither addressed in the pleadings nor fully explored in argument before me. It may be, moreover, that they do not affect the relief sought in either the Particulars of Claim or the Counterclaim. In the circumstances, I shall at this stage make no findings as to whether the £25,000 and £91,509 debts are (or would be, subject to FSMA) validly secured by the Charge. If, though, one or both parties contend that the question is of significance, I shall hear further argument on it. Breach of FSMA The Financial Services and Markets Act

Breach of FSMA

[64]Section 19 of FSMA bars anyone but an “authorised person” or an “exempt person” from carrying on a “regulated activity” in the United Kingdom (the “general prohibition”). Section 22(1) provides that an activity is a “regulated activity” if, among other things, it is “an activity of a specified kind which is carried on by way of business” and either (under section 22(1)(a)) “relates to an investment of a specified kind” or (under section 22(1)(b)) “in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind”. The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“the Regulated Activities Order”) specifies kinds of activity for the purposes of section 22 of FSMA (see article 4). The activities specified include certain activities relating to “regulated mortgage contracts”. The expression “regulated mortgage contracts” is defined in article 61 in the following terms:
“In this Chapter— (a) a contract is a ‘regulated mortgage contract’ if, at the time it is entered into, the following conditions are met— (i) the contract is one under which a person (‘the lender’) provides credit to an individual or to trustees (‘the borrower’); (ii) the contract provides for the obligation of the borrower to repay to be secured by a first legal mortgage on land (other than timeshare accommodation) in the United Kingdom; (iii) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling by the borrower or (in the case of credit provided to trustees) by an individual who is a beneficiary of the trust, or by a related person; but such a contract is not a regulated mortgage contract if it is a regulated home purchase plan …. (c) ‘credit’ includes a cash loan, and any other form of financial accommodation ….”
By virtue of articles 73 and 88 of the Regulated Activities Order, “Rights under a regulated mortgage contract” are investments specified for the purposes of section 22 of the Act.[65]Articles 25A, 53A and 61 of the Regulated Activities Order, among others, identify particular activities relating to “regulated mortgage contracts” as specified kinds of activity. Article 25A (which was inserted into the Regulated Activities Order in 2003) provides as follows:
“(1) Making arrangements— (a) for another person to enter into a regulated mortgage contract as borrower; or (b) for another person to vary the terms of a regulated mortgage contract entered into by him as borrower after the coming into force of article 61, in such a way as to vary his obligations under that contract, is a specified kind of activity. (2) Making arrangements with a view to a person who participates in the arrangements entering into a regulated mortgage contract as borrower is also a specified kind of activity.”
Article 53A (which, like article 25A, was added in 2003) states as follows:
“(1) Advising a person is a specified kind of activity if the advice— (a) is given to the person in his capacity as a borrower or potential borrower; and (b) is advice on the merits of his doing any of the following— (i) entering into a particular regulated mortgage contract, or (ii) varying the terms of a regulated mortgage contract entered into by him after the coming into force of article 61 in such a way as to vary his obligations under that contract ....”
Article 61 states as follows:
“(1) Entering into a regulated mortgage contract as lender is a specified kind of activity.(2) Administering a regulated mortgage contract is also a specified kind of activity, where the contract was entered into by way of business after the coming into force of this article.”
[66]The provisions relating to “regulated mortgage contracts” came into force on 31 October 2004. It is to be noted that articles 25A, 53A and 61 of the Regulated Activities Order had no equivalents in the Financial Services Act 1986, which FSMA replaced. The Financial Services Act 1986 did not extend to mortgages.[67]The Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (“the Business Order”) limits the circumstances in which arranging and advising on regulated mortgage contracts will constitute a “regulated activity”. Article 3A of the Business Order states as follows:
“A person is not to be regarded as carrying on by way of business an activity of the kind specified by— (a) article 25A of the Regulated Activities Order (arranging regulated mortgage contracts); (b) article 53A of that Order (advising on regulated mortgage contracts); or (c) article 64 of that Order (agreeing), so far as relevant to any of the articles mentioned in sub-paragraphs (a) and (b), unless he carries on the business of engaging in that activity.” unless he carries on the business of engaging in that activity.”
[68]In this context, as in some others within the financial services legislation, a distinction is drawn between(a) an activity “carried on by way of business” and(b) carrying on “the business of engaging in that activity”. Whereas arranging or advising on regulated mortgage contracts will be a specified activity only if the person in question “carries on the business of engaging in that activity” (within the meaning of article 3A of the Business Order), “entering into a regulated mortgage contract as lender” or “administering a regulated mortgage contract” is a specified activity if the activity is merely “carried on by way of business” (within section 22 of the Act) (provided that, in the case of “administering a regulated mortgage contract”, the relevant contract was “entered into by way of business” – see article 61(2) of the Regulated Activities Order).[69]Sections 26 of FSMA addresses the position where an unauthorised person enters into an agreement in breach of the “general prohibition” contained in section 19. Section 26 provides as follows: “(1) An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party. (2) The other party is entitled to recover—(a) any money or other property paid or transferred by him under the agreement; and(b) compensation for any loss sustained by him as a result of having parted with it. (3) ‘Agreement’ means an agreement— (a) made after this section comes into force; and (b) the making or performance of which constitutes, or is part of, the regulated activity in question. (4) This section does not apply if the regulated activity is accepting deposits.” (Mr Philpott commented, with justification, that the way in which section 26(2) is framed is more obviously suited to a case in which the “other party” has made an investment than one where, as here, he has been lent money.)[70]Section 28 of FSMA deals with agreements made unenforceable by section 26 (or section 27) of the Act. It is in the following terms:
“(1) This section applies to an agreement which is unenforceable because of section 26 or 27. (2) The amount of compensation recoverable as a result of that section is— (a) the amount agreed by the parties; or (b) on the application of either party, the amount determined by the court. (3) If the court is satisfied that it is just and equitable in the circumstances of the case, it may allow— (a) the agreement to be enforced; or (b) money and property paid or transferred under the agreement to be retained. (4) In considering whether to allow the agreement to be enforced or (as the case may be) the money or property paid or transferred under the agreement to be retained the court must— (a) if the case arises as a result of section 26, have regard to the issue mentioned in subsection (5); or (b) if the case arises as a result of section 27, have regard to the issue mentioned in subsection (6). (5) The issue is whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement. (6) The issue is whether the provider knew that the third party was (in carrying on the regulated activity) contravening the general prohibition. (7) If the person against whom the agreement is unenforceable— (a) elects not to perform the agreement, or (b) as a result of this section, recovers money paid or other property transferred by him under the agreement, he must repay any money and return any other property received by him under the agreement. (8) If property transferred under the agreement has passed to a third party, a reference in section 26 or 27 or this section to that property is to be read as a reference to its value at the time of its transfer under the agreement. (9) The commission of an authorisation offence does not make the agreement concerned illegal or invalid to any greater extent than is provided by section 26 or 27.”

The parties’ cases in summary

[71]It is common ground that Strathmore was neither an “authorised person” nor an “exempt person”, as defined in FSMA. It is Mr Helden’s case that, as a result, Strathmore’s lending to Mr Helden was in breach of the “general prohibition” imposed by section 19 of FSMA and, hence, that each relevant contract is unenforceable under section 26 of the Act.[72]Insofar, Mr Christie says, as Strathmore agreed to provide credit to Mr Helden on the security of the Charge, it entered into a regulated mortgage contract as lender within article 61(1) of the Regulated Activities Order and so carried on a regulated activity. Any such contract was a “regulated mortgage contract” because it involved the grant of credit to an individual (Mr Helden), the borrower’s obligations were to be secured by a first legal mortgage on land (58 Chelsea Crescent) and that land was to be used by Mr Helden as a dwelling.[73]Mr Christie also argued that Strathmore had administered, or made arrangements for Mr Helden to enter into, a regulated mortgage contract, with the result that articles 25A and 61(2) of the Regulated Activities Order were engaged. However, it seems to me that on the facts of the present case articles 25A and 61(2) add nothing of significance. I cannot see that Strathmore can have engaged in activity within the scope of article 25A or article 61(2) without also coming within article 61(1). In contrast, article 61(1) could apply without article 25A or article 61(2) being in point, especially having regard to the limitation on article 25A which is to be found in article 3A of the Business Order.[74]For its part, Strathmore does not dispute that its lending to Mr Helden involved “activity of a specified kind” for the purposes of FSMA. Mr Philpott contends, however, that the activity was not “carried on by way of business” and so did not constitute “regulated activity” (within the meaning of section 22(1)) and did not infringe the section 19 “general prohibition”. In the alternative, Strathmore argues that the Court ought, pursuant to section 28(3), to allow the relevant contract(s) to be enforced.[75]The principal issues I have to decide in this context are thus: i) Was the activity of “Entering into a regulated mortgage contract as lender” “carried on by way of business” within the meaning of section 22(1)? ii) If it was, is it nevertheless appropriate to allow enforcement under section 28(3)? “Carried on by way of business”[76]Mr Philpott submitted that, in considering the meaning of the expression “carried on by way of business”, assistance could be derived from authorities concerned with the (now repealed) Moneylenders Act 1900. Section 6 of that Act provided as follows:
“The expression ‘moneylender’ in this Act shall include every person whose business is that of moneylending, or who advertises or announces himself or holds himself out in any way as carrying on that business ….”
However, section 6(d) excluded: “any person … bona fide carrying on any business not having for its primary object the lending of money, in the course of which and for the purposes whereof he lends money”.[77]One of the more recent Moneylenders Act cases to which I was taken was Winser v Donnelly, an unreported decision of the Court of Appeal on 26 July 1982. In that case, Griffiths LJ, with whom Watkins LJ agreed, said the following:
“We have been helpfully referred ... to the judgment of Mr. Justice McCardie in Edgelow v. MacElwen [[1918] 1 KB 205]. In the course of his judgment Mr. Justice McCardie said this at page 206: ‘A man does not become a money-lender by reason of occasional loans to relations, friends, or acquaintances, whether interest be charged or not. Charity and kindliness are not the bases of usury. Nor does a man become a money-lender merely because he may upon one or several isolated occasions lend money to a stranger. There must be more than occasional and disconnected loans. There must be a business of money-lending, and the word ‘business’ imports the notion of system, repetition and continuity.’ I accept that passage as a helpful definition of the business of a money lender and, when the facts of this case are analysed, what we have here are loans at the rate of a little more than one a year. They are disconnected, they are not dealing with the same subject matter and I find it quite impossible to say that there is that system, repetition and continuity that one looks for when one is asking oneself the question ‘is this man carrying on a business?’ The short answer, on this evidence, is that he quite clearly was not carrying on the business of a money lender ....”
Ormrod LJ, agreeing, observed: “The question is not whether or not these loans were made in the plaintiff’s private capacity; the question is whether he was carrying on the business of money lending.” ‘A man does not become a money-lender by reason of occasional loans to relations, friends, or acquaintances, whether interest be charged or not. Charity and kindliness are not the bases of usury. Nor does a man become a money-lender merely because he may upon one or several isolated occasions lend money to a stranger. There must be more than occasional and disconnected loans. There must be a business of money-lending, and the word ‘business’ imports the notion of system, repetition and continuity.’[78]Mr Philpott accepted that this and other cases concerned with the Moneylenders Act had to be looked at with care, but he contended that they were nevertheless useful. I do not myself consider, however, that they are of any real assistance. The terms of the Moneylenders Act and the financial services legislation are insufficiently alike for comparison to be helpful for present purposes. While the issue of whether a person “was carrying on the business of money lending” (which Ormrod LJ identified as the relevant point in Winser v Donnelly) may bear a resemblance to that of whether someone “carries on the business of engaging in that activity” (within the meaning of article 3A of the Business Order), the question I have to decide is the different one of whether an activity was “carried on by way of business”. There is, in that context, no exception comparable to that for which section 6(d) of the Moneylenders Act provided.[79]Mr Philpott also relied on Tamimi v Khodari [2009] EWCA Civ 1042. This concerned, among other things, section 40 of the Consumer Credit Act 1974, which at the relevant time provided, in section 40(1), that:
“A regulated agreement, other than a non-commercial agreement, if made when the creditor or owner was unlicensed, is enforceable against the debtor or hirer only where the OFT has made an order under this section which applies to the agreement”
. The expression “non-commercial agreement” is defined in section 189(1) to mean:
“a consumer credit agreement ... not made by the creditor ... in the course of a business carried on by him”
. Section 189(2) goes on to provide as follows:
“A person is not to be treated as carrying on a particular type of business merely because occasionally he enters into transactions belonging to a business of that type.”
[80]In the Court of Appeal, Wilson LJ, with whom Pill and Hooper LJJ expressed agreement, noted (in paragraph 33) that section 189(2) “does not go on to provide that a person is to be treated as carrying on a business when he enters into transactions belonging to such a business more than occasionally”. Accordingly, Wilson LJ said, “on the face of it, the regularity of such transactions is a necessary but not a sufficient condition of the carrying on of a business”.[81]Wilson LJ went on to state as follows (in paragraphs 35-38): “[35] So the features of the transactions between the parties must be weighed in order to discern whether, taken as a whole, they entitled the judge to conclude that they were not made in the course of a business carried on by the Claimant. In my view the balance sheet reads as follows. [36] Indicative of a business are the following features:(a) the Claimant made numerous loans to the Defendant;(b) they were made over a period of almost five years;(c) they totalled in the region of £7,000,000; and(d) a substantial profit, reflected in the 10% fee, accrued to the Claimant by virtue of them. [37] Contra-indicative of a business are the following features: (a) although occasionally he made loans to two others, almost all the Claimant's loans were made to only one person, namely the Defendant; (b) the loans were made ad hoc, in response to the Defendant's sudden requests for immediate, temporary assistance; (c) the Claimant acceded to the requests because he wanted to foster the goodwill of the Defendant as an important client of his bank; (d) there is nothing to indicate that the Claimant would have made loans to persons with whom he was unacquainted;(e) neither the loans nor the repayments were recorded in writing between the parties;(f) security for repayment was neither tendered nor sought;(g) the time for repayment of each loan was never identified;(h) the 10% fee was not related to the time for which each loan remained outstanding; and(i) the Claimant had no business premises, kept no paraphernalia apt to a business and neither advertised nor otherwise published terms upon which he was prepared to make loans. [38] In my view a weighing of the rival features, in particular the necessary attribution of substantial weight to the informality surrounding the loans between the parties, fully entitled the judge to infer that the Claimant did not make loans in the course of a business ….” [36] Indicative of a business are the following features:

[37] Contra-indicative of a business are the following features:

[82]Tamimi v Khodari is, as it seems to me, of more relevance than the Moneylenders Act cases. Even so, it has to be remembered that the legislation with which it was concerned was by no means in the same terms as the provisions I have to interpret. Section 189(2) of the Consumer Credit Act has no direct parallel in the financial services legislation. The Consumer Credit Act does not distinguish (as the financial services regime does) between(a) an activity “carried on by way of business” and(b) carrying on “the business of engaging in that activity”.[83]The parties referred me, too, to the FSA’s “Perimeter Guidance Manual”. As is stated in the Manual itself, this merely represents the FSA’s views and does not bind the Courts. Comments made in the Manual are still of interest. With regard to whether an activity is “carried on by way of business”, the FSA expresses the following view (in paragraph 2.3.3 of the Manual):
“Whether or not an activity is carried on by way of business is ultimately a question of judgement that takes account of several factors (none of which is likely to be conclusive). These include the degree of continuity, the existence of a commercial element, the scale of the activity and the proportion which the activity bears to other activities carried on by the same person but which are not regulated. The nature of the particular regulated activity that is carried on will also be relevant to the factual analysis.”
As for when a person “carries on the business of engaging in” an activity, paragraph 4.3.6 of the Manual states as follows:
“The 'carrying on the business' test in the Business Order is a narrower test than that of carrying on regulated activities 'by way of business' in section 22 of the Act as it requires the regulated activities to represent the carrying on of a business in their own right. Whether or not the business test is satisfied in any particular case is ultimately a question of judgement that takes account of a number of factors (none of which is likely to be conclusive). The nature of the particular regulated activity that is carried on will also be relevant to the factual analysis. The relevant factors include: (1) the degree of continuity; (2) the existence of a commercial element; and (3) the scale of the activity and, for the 'by way of business' test, the proportion which the activity bears to the other activities carried on by the same person but which are not regulated. In the case of the 'carrying on the business' test, these factors will need to be considered having regard to all the activities together.”
[84]The FSA suggests (in paragraph 4.3.3 of the Manual) that the difference between the two tests “should have little practical effect”. However, it goes on to note (in paragraph 4.3.7) as follows:
“The main factor that might cause an activity to satisfy the 'by way of business' test in section 22 but not the narrower 'carrying on the business' test in the Business Order is that of frequency or regularity. As a general rule, the activity would need to be undertaken with some degree of frequency or regularity to satisfy the narrower 'carrying on the business' test. Conversely, the 'by way of business' test in section 22 could be satisfied by an activity undertaken on an isolated occasion (provided that the activity would be regarded as done by 'way of business' in all other respects).”
[85]Taken in isolation, it may be that the phrase “an activity of a specified kind which is carried on by way of business”, as used in section 22(1) of FSMA, could be taken to refer to carrying on the “activity of a specified kind” as a business and, hence, to apply only where the activity of itself represents a business. Such a construction would, however, mean that there was no real distinction between(a) an activity “carried on by way of business” (within section 22(1)) and(b) carrying on “the business of engaging in that activity” (within, say, article 3A of the Business Order). Yet I agree with the FSA that the “carrying on the business test” in the Business Order is supposed to be “a narrower test than that of carrying on regulated activities ‘by way of business’ in section 22”. As the FSA observes, the former test “requires the regulated activities to represent the carrying on of a business in their own right”. The section 22 test, in contrast, cannot be intended to mean that the relevant activity should itself represent a business. Section 22 must extend to cases where an “activity of a specified kind” is carried on in the course of a wider business, not limited to undertaking that activity.[86]Suppose, to take an example with similarities to the present case, that a money-lender whose dealings did not normally fall within FSMA (say, because most loans were to companies) entered into “regulated mortgage contracts” from time to time. It seems to me that section 22 would be capable of applying to the “regulated mortgage contract” transactions. That view is, as I see it, consistent with the FSA’s comment (see paragraph 84 above) that “the 'by way of business' test in section 22 could be satisfied by an activity undertaken on an isolated occasion”. There may possibly be a tension between that comment and the fact that the FSA identifies (see paragraph 83 above) “the proportion which the [regulated] activity bears to the other activities carried on by the same person but which are not regulated” as a factor for the “by way of business” test. Be that as it may, I doubt whether “the proportion which the [regulated] activity bears to the other activities carried on by the same person but which are not regulated” would be of importance in a case such as I am assuming in this paragraph.[87]Was then the lending to Mr Helden “carried on by way of business”? It is to be noted in this context that Mr Philpott accepted that it is appropriate to consider Strathmore, Sandworth and the Ashtons collectively, rather than to focus exclusively on Strathmore itself; the Court should look, Mr Philpott said, at the entirety of the reality of the situation.[88]Mr Philpott argued that the lending was not “carried on by way of business”. Amongst the points he made were that (aside from the loans to Mr Helden) there was no question of any regulated activity having been carried on, that those lent money were friends and family, that matters were conducted informally, that there was no business “set-up” and (while he accepted that the test was objective) that Mr Ashton saw himself as making personal investments rather than carrying on a business.[89]I have nonetheless come to the conclusion that the lending to Mr Helden was “carried on by way of business” within the meaning of section 22. My reasons include the following: i) Even excluding loans to members of the Ashton family, Strathmore/Sandworth made a sizeable number of loans. Loans made to Mr Helden, Mr Jordan and companies associated with them are detailed earlier in this judgment. Mr Harrison explained that he was assisted with the purchase of around 100 properties, albeit that many of the properties were acquired in portfolios of up to 25 properties; ii) The loans were made over a period of years and with some regularity. The first loan to Mr Harrison dates from 2002. Thereafter, as Mr Ashton said in his witness statement, he “made a series of very short term loans to [Mr Harrison] to assist him to build up a buy to let portfolio”. Money was advanced to Mr Helden, Mr Jordan and companies associated with them between 2004 and 2006; iii) Substantial amounts of money were advanced. Sandworth lent as much as £5.4 million in connection with the purchase of 63 Eaton Square. C & J came to owe upwards of £3 million on the security of 23 Catherine Place. Mr Helden was lent more than £1 million. Mr Harrison reckoned that he never owed more than about £1 million at any time, but £1 million is a considerable amount; iv) The loans were made with a view to profit. During his oral evidence, Mr Ashton referred more than once to having tried to get the best possible return on his money. He also spoke of using spare funds to obtain a better rate of interest than he would obtain by leaving the money in a bank; v) Mr Ashton came to meet Mr Helden and Mr Jordan because they were seeking funding. The Ashtons’ friendship with Mr Helden and Mr Jordan grew out of their financial relationship, not the other way round. Likewise, the relationship between Mr Harrison and the Ashtons began as a “purely professional” one (to quote from Mr Harrison’s witness statement); vi) It is possible to exaggerate the informality with which matters were conducted. Solicitors were often instructed. The loans were generally secured. Mr Ashton kept a record, even if in manuscript, of the transactions. In any case, informality is not necessarily inconsistent with business; vii) The loans to Mr Helden formed part of a chain of not dissimilar transactions, albeit that they were the only ones involving “activity of a specified kind”; and viii) Strathmore is a limited company with, I understand, commercial objects.[90]In the circumstances, I take the view that the lending to Mr Helden did involve breach of the “general prohibition”. As a result, the relevant agreements must be unenforceable by Strathmore unless relief is granted under section 28(3) of FSMA.

Enforcement under section 28(3)

[91]As already mentioned, section 28(3) provides as follows:
“If the court is satisfied that it is just and equitable in the circumstances of the case, it may allow– (a) the agreement to be enforced; or (b) money and property paid or transferred under the agreement to be retained.”
[92]Where (as here) section 26 of FSMA is in point, section 28(4) states that, in considering whether to allow enforcement, the Court is to “have regard to the issue mentioned in subsection (5)”. That issue is “whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement”.[93]An issue aired in argument was whether it is open to the Court to allow partial enforcement under section 28(3). Could a Court, say, determine that an agreement should be enforceable but only at a lower interest rate than the parties had agreed? In the end, neither counsel submitted that partial enforcement was possible. Mr Philpott drew my attention to section 127(2) of the Consumer Credit Act 1974, which stipulates in a consumer credit context that the Court “may in an enforcement order reduce or discharge any sum payable by the debtor or hirer, or any surety, so as to compensate him for prejudice suffered as a result of the contravention in question”. As Mr Philpott pointed out, Parliament did not choose to include anything comparable in FSMA. Section 28(3) of FSMA merely empowers the Court to allow “the agreement” to be enforced; nothing is said about the agreement being enforced in part.[94]Even so, I do not think that the question I have to decide as regards section 28(3) is simply whether to allow Strathmore to enforce the terms on which it agreed to provide credit to Mr Helden. As I say, section 28(3) speaks of allowing “the agreement” to be enforced. In the present case, it seems to me that there are three separate agreements to consider: first, that relating to the loan to purchase 58 Chelsea Crescent; secondly, that relating to the further £25,000 advanced in mid-2006; thirdly, the £91,509 carried over on the sale of 23 Catherine Place.[95]The only case to which I was referred dealing with section 28(3) was In re Whiteley Insurance Consultants (a firm) [2009] Bus LR 418. In that case, David Richards J observed (in paragraph 37) that the fact that the party which had contravened the “general prohibition” knew or ought or should to have known that it was doing so was “a weighty factor against the grant of relief”.[96]I was taken, too, to Estate of Imorette Palmer (decd) v Cornerstone Investments & Finance Co Ltd [2007] UKPC 49, an appeal to the Privy Council from Jamaica. One of the issues in that case was whether relief should be granted in relation to securities which were otherwise unenforceable under the Jamaican Moneylending Act of 1938. However, the facts were very different from those of the present case.[97]In the present case, I have already found that the Ashtons (and, hence, Strathmore) did not appreciate that there was any question of FSMA applying (see paragraph 22 above). I consider, moreover, that it was reasonable for the Ashtons (and Strathmore) to fail to realise that FSMA was in point. After all: i) The Ashtons/Strathmore employed solicitors to represent them in connection with the loan for the purchase of 58 Chelsea Crescent, and those solicitors did not inform them that FSMA was (or could be) applicable; ii) The financial services legislation had not until quite recently extended to any mortgages (see paragraph 66 above); iii) Neither the Ashtons nor their companies usually entered into transactions to which FSMA applied. It did not apply, even after 2004, to loans such as those granted to C & J, Rye Enterprises Limited, WBB Property Services Limited or Mr Harrison; and iv) Neither Mrs Ashton nor even Mr Ashton had ever attended any training courses on financial matters, let alone a course concerned with FSMA.[98]While, however, a person’s failure to satisfy the requirements of section 28(5) will be “a weighty factor against the grant of relief”, the fact that section 28(5) is satisfied will not necessarily mean that relief should be granted. It is not difficult to think of circumstances in which it would be inappropriate to grant relief even though section 28(5) had been satisfied.[99]Is it “just and equitable in the circumstances of the case” to allow the three agreements with which I am concerned to be enforced?[100]The case for allowing enforcement of the agreement relating to the loan for the purchase of 58 Chelsea Crescent is, as it seems to me, particularly compelling. The reasons include these: i) Mr Helden has had the use of the property which Strathmore’s loan enabled him to buy (viz. 58 Chelsea Crescent) since 2006 without making any rent or interest payments; ii) The property has increased substantially in value. Whereas it was bought for £1 million, agents last year suggested that it should be marketed at £1.8 million (see paragraph 49 above). The loan from Strathmore has thus enabled Mr Helden to achieve a large profit; iii) Mr Ashton said, and I accept, that he/Strathmore would not have been willing to make the loan on an unsecured basis; iv) The Ashtons/Strathmore could be expected to have generated a return on the £1 million by investing it elsewhere had it not been lent to Mr Helden. They have lost that potential profit as a result of lending the money to Mr Helden; v) There is no question of Mr Helden having been taken advantage of. He had considerable experience in property matters, including as a mortgage broker. Further, the rates of interest charged were agreed with Mr Helden and were not exorbitant; vi) Mr Helden preferred not to pursue alternative funding because of his concern that he should be able to make lump sum repayments without penalty (see paragraph 28 above); vii) Mr Helden has not identified respects in which he would have been better placed if Strathmore had been an “authorised person” for FSMA purposes; and viii) The Ashtons/Strathmore did not realise that FSMA could apply, and it was reasonable for them not to do so. In all the circumstances, I am satisfied that it is just and equitable to allow this agreement to be enforced.[101]I appreciate that, had I not allowed the agreement relating to the loan for the purchase of 58 Chelsea Crescent to be enforced, Strathmore could still have claimed, pursuant to section 28(7) of FSMA, the return of the money it advanced. However, in my judgment it is just and equitable that the agreement should be enforced in full, including as regards interest and security.[102]For similar reasons, I am satisfied that it is just and equitable to allow the agreement in respect of the £25,000 loan to be enforced. While there is no reason to suppose that Mr Helden has here enjoyed capital appreciation comparable to that at 58 Chelsea Crescent, he has had the benefit of the £25,000 for some four years without paying any interest.[103]In contrast, I have not been persuaded that I should grant relief under section 28(3) of FSMA as regards the agreement relating to the £91,509. The following points in particular militate to my mind against doing so: i) The £91,509 derived from a £35,000 loan made less than three years before (see paragraph 35 above). While I understand how the debt came to grow as it did, the increase is still equivalent to an extremely high rate of interest; and ii) The £35,000 was lent to C & J rather than to Mr Helden himself (see paragraph 35 above). In the circumstances, I am not satisfied that it would be just and equitable to allow this agreement to be enforced notwithstanding breach of FSMA. I gather, however, that Strathmore may wish to contend that, if the £91,509 was not in any event validly secured by the Charge (as to which, see paragraph 63 above), the agreement relating to it was not a “regulated mortgage contract” and so that there was no breach of FSMA. If needs be, I shall hear further argument on this.

Interest

[104]As regards the two agreements which I am allowing to be enforced pursuant to section 28(3) of FSMA, it follows from what I have said earlier in this judgment that the parties agreed the following in relation to interest: i) The sums advanced for the purchase of 58 Chelsea Crescent (of roughly £1 million) bore interest at 7.5% per annum until 31 March 2007, when the rate increased to 10% per annum, rising again, to 12.5% per annum, from 1 October 2007 (see paragraphs 14, 16, 30 and 32 above). The rate has, however, been 10% per annum since 31 March 2008 (see paragraph 45 above); ii) Interest was to be payable on the £25,000 loan at 15% per annum until 31 March 2008, when the rate was reduced to 10% per annum (see paragraphs 27 and 45 above); iii) Strathmore was to be entitled to compound the interest on both loans on a quarterly basis (see paragraph 50 above).

Draft order

[105]I should be grateful if the parties would seek to agree a draft order giving effect to my conclusions in this judgment. I shall hear submissions on any points that cannot be agreed and in particular, if the parties wish, on the matters mentioned in paragraphs 63 and 103 above.

Cited in 10 later judgments

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