This case concerned an Application for permission to appeal against an Order for a money judgment at the conclusion of mortgage possession proceedings.

This case highlights the importance of complying with all the limbs of the Financial Markets and Services Act 2000 (Regulated Activities) Order 2001 (“FMSA”), should lenders wish to be exempt from regulated activities.

Background Facts

The Claimant, Capital Bridging Finance Limited (Capital), brought an action against Mrs Wood (Wood) regarding mortgage possession proceedings. The Judge at first instance granted Judgment in the sum of £151,883.34 with interest at 3% pursuant to terms under a Loan Facility Agreement (the “Agreement”) between the two parties.

Wood was an old lady who had spent most of her life living at 4 Hardwicke Road, Beeston (the “Property”). Her son-in-law, Mr Johnson (“Johnson”), wished to obtain funds for the purpose of his business and requested that Wood apply for a business bridging loan from Capital, giving a mortgage over the Property as security. This loan was obtained in the sum of £64,000 for six months. Capital were in the business of making unregulated loans (unregulated under the Consumer Credit Act 1974 (CCA) and FMSA).

Section 16B of CCA contains a presumption excluding the regulation of consumer credit agreements for credit over £25,000 if obtained for the purpose of carrying on business. Section 16B(2) creates this presumption if there is a specified declaration by the debtor and 16B(3) dis-applies the presumption should the lender know or have reasonable cause to suspect that the agreement was not entered into wholly or predominantly for the qualifying business purpose.

The Agreement contained a declaration, which was subsequently signed by Wood, stating that the purpose was for business. All parties involved at the signing of the Agreement were aware that Wood intended to obtain funds for a family member to use for the purpose of business. Therefore, Capital was at no time misled or deceived by Wood.

The Judge at first instance found that Wood had dishonestly participated in the deception of Capital, as she was, in fact, no longer living at the Property and had falsified bank statements. The mortgage deed signed by Wood was defective as it had not been properly witnessed.

Johnson failed to pay the monies to Wood and subsequently left for North Cyprus with his family, leaving Wood to face the consequences on her own. At trial, Wood’s case was that she had borrowed no money and had merely signed the documentation as a witness. The Judge rejected this case but agreed that the deed was ineffective and could therefore only take effect as an equitable mortgage.

The claim for possession was unsuccessful as Capital had failed to comply with the legal requirements for entering into a mortgage by way of a legal charge, meaning that the mortgage was an equitable mortgage and took effect as a condition precedent rather than a contractual obligation. Therefore, Capital sought a money judgment against Wood.

Wood’s appeal was on the basis that the Agreement was regulated and not exempt as it was not for the purpose of her business and, as it did not comply with the form and content that is required under the CCA, it was unenforceable without the Court’s permission, which Capital had not applied for under section 127.

The appeal was brought on two points:

  1. A serious procedural irregularity by the Judge for not adjourning the money judgment claim as it was made so late; and
  2. That the Judge was wrong in law to come to his decision on a purely contractual basis as the Agreement was a regulated activity.

The Decision

Briggs LJ allowed the appeal and decided that the Agreement qualified as being regulated and was not exempt. It was found that, as no enforcement order had been applied for under section 127, the money judgment was to be set aside. However, proceedings were not dismissed and Capital was granted permission to apply to the Court for an enforcement order under section 127.

Comment

The Court of Appeal’s decision highlights the clear scope for business use exemption in the CCA: that it must be for credit over £25,000 and be entered into wholly or predominantly for the purposes of the borrower’s business or intended business.

This case acts as a warning to lenders to ensure that all limbs of any exemptions are strictly satisfied (now contained within FSMA) if a lender wishes to take advantage of exemptions to regulated agreements. Failure to adhere may result in the Court rendering the agreement unenforceable.