The Court of Appeal in Dickinson & anr v UK Acorn Finance Ltd  EWCA Civ 1194 held that a borrower under a loan that was arguably unenforceable under the Financial Services and Markets Act 2000 (the Act) could not argue the unenforceability of the underlying contract to prevent possession of the charged property. The Court of Appeal in its decision held that it was an abuse of process for the borrower to rely on the Act more than two years after the possession proceedings had started.
In November 2010, UK Acorn loaned £630,000 to the Dickinsons secured by way of a legal charge over a property owned by the borrower to be repaid with interest after six months. When the Dickinsons failed to repay the loan, Acorn issued mortgage proceedings in September 2011. A suspended order for possession was made in Acorn’s favour.
Subsequently, the Dickinsons applied to set aside the order for repossession on the basis (amongst others) that a sub-charge existed which prevented Acorn from exercising its rights. Their application failed and a warrant was issued along with an eviction order.
In October 2013, the Dickinsons commenced new proceedings contending that the mortgage was unenforceable pursuant to s 26 of the Act which made an agreement unenforceable which was entered into to carry out certain ‘regulated activity’ in contravention of the prohibition on carrying out a regulated activity unless the person was an “authorised person” (ss 19 and 26 of the Act).
The Dickinsons’ argument was that the loan was unenforceable under the Act because Acorn was not authorised to offer a mortgage of this kind. In December 2013, Acorn applied to strike out the claim.
Acorn mainly relied on (i) cause of action estoppel; (ii) issue estoppel; and (iii) abuse of process. The Court of Appeal upheld Acorn’s argument in relation to abuse of process but rejected its arguments relating to action estoppel and issue estoppel.
Cause of action estoppel and issue estoppel
Acorn argued that the Dickinsons could not rely on s 26 at this stage in the proceedings and should have raised this claim in the initial proceedings. The Court of Appeal reviewed the decision in Kok Hoong v Leong Cheong Mines Ltd  A.C. 993 where the Privy Council decided that the question of whether an estoppel should be allowed depended on whether the enactment or rule of law relied upon was in public interest or grounds “of general public policy”.
The Court of Appeal held that estoppel cannot be set up against statutory provisions enacted for the protection of certain vulnerable categories of persons or for the protection of others who engage in dealings with such persons. S 26 was a provision for the protection of consumers and Acorn could therefore not rely on either cause of action estoppel or issue estoppel.
Abuse of process
Acorn argued that the Dickinsons’ reliance on s 26 should have been made earlier in the previous proceedings and they were seeking to gain from a technical advantage at a much later stage in the proceedings. To support this argument, Acorn relied on the abuse of process principle in Henderson v Henderson (1843) 3 Hare 100 which states that a litigant should in general bring forward all his claims in one proceeding rather than successively, otherwise a defendant will be doubly harassed by the litigation.
In deciding whether Acorn’s defence could be upheld, the Court of Appeal considered the abuse of process principle and held that one cannot rely on the abuse of process principle to defeat a blanket prohibition and therefore cannot enforce an unenforceable agreement. However, the abuse of process principle may be relied upon to defeat a nuanced prohibition (i.e. where such agreements may be enforced under certain circumstances).
The Court of Appeal further held that a broad merits-based approach was necessary in deciding the case in question and that it would be necessary to balance the provisions of the Act against the abuse of process principle laid down in Henderson v Henderson.
Longmore LJ held that the prohibition under s 26 was a nuanced principle since s 28 permitted enforcement “if the court is satisfied that it is just and equitable in the circumstances of the case”.
The court may reject a borrower’s reliance on a statutory defence where such reliance was made very late in proceedings and the defence is not a blanket bar to enforcement.
However, where the defence imposes an absolute prohibition on enforcement of the underlying contract, the borrower may succeed in its defence.