Goldhill Finance Ltd v Smyth [2023] EWHC 362 (KB)
Case Summary by Martin Horne, Counsel
Background:
Ms Smyth was the leasehold owner of a 3-bedroom maisonette which was her home and that of her two children. The first mortgage was in favour of Mortgage Express. Ms Smyth also ran a beauty salon.
In September 2018, via a broker, she took out a 6-month bridging loan with Goldhill secured by second charge for a total advance of £66,978.69 comprising a £50,000 advance together with rolled up interest and fees. During the term the interest rate was 2% per month simple. On default, interest accrued at 5% per month compound.
Within the contractual documentation, Ms Smyth completed a series of declarations, one of which stated that the agreement was entered into wholly or predominantly for purpose of a business carried on by her.
Ms Smyth defaulted at the end of its 6-month term and default interest began to accrue.
The proceedings:
Goldhill issued proceedings in May 2019 seeking possession and a money judgment.
Ms Smyth, then acting in person, filed a defence in form N11m and a witness statement. In her defence, Ms Smyth ticked yes to the questions:
- Do you want the court to consider whether or not the terms of your original loan agreement are fair?
- Do you intend to apply to the court for an order changing the terms of your loan agreement (a time order)?’
The narrative preceding such questions read: (Only answer these questions if the loan secured by the mortgage (or part of it) is a regulated consumer credit agreement):
By its reply, Goldhill denied the agreement was a regulated mortgage contract or regulated consumer credit agreement.
The claim was allocated to the multi-track and transferred to the County Court at Central London.
In advance of the CCMC, Ms Smyth appointed solicitors and the parties agreed a case summary of the issues for determination which included asking the court to determine whether the loan was regulated and if regulated, whether the terms were fair.
By the date of trial, £240,000 was outstanding under the loan. By the date of the appeal the debt amounted to £740,000.
Trial:
At trial before HHJ Gerald in June 2021, it was agreed by counsel for Ms Smyth that the judge needed to focus on whether the mortgage was a regulated mortgage contract.
The judge found that the loan was not a regulated mortgage contract. However, he went on to add that the Consumer Credit Act 1974 was immaterial to the enforcement of the loan.
The appeal:
The main issue on appeal was whether the appellant (Ms Smyth) was wrongly deprived of the opportunity to rely on the unfair relationship provisions of s140A-D Consumer Credit Act 1974.
Soole J found that whilst the fairness of the contract terms had been pleaded, a case of unfair relationship had not been pleaded. Moreover, the agreed case summary had put beyond doubt that the question of fairness only arose if the agreement were held to be regulated.
Of note, the judge held that it does not follow that a challenge to the fairness of terms implicitly amounts to a challenge to the fairness of the relationship [93].
As to the new point on appeal, Soole J considered that if the fairness of the relationship had been taken and pursued below, the course of the trial and evidence would have changed as a consequence of the reverse burden of proof and the focus on the overall fairness of the relationship rather than just the fairness of the terms [117].
Accordingly, the appeal was dismissed.
Comment:
RMCs are principally regulated under FSMA which provides that the Financial Conduct Authority (the “FCA”) may make rules governing authorised persons, contravention of which is actionable when the rules so provide. The rules relating to RMCs are contained within the FCA handbook in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) which addresses fairness.
Because of its nature, and Ms Smyth’s declarations, the trial judge was right to find that the loan agreement was not a Regulated Mortgage Contract (“RMC”) per Article 61A(1)(c) of The Financial Services and Markets Act 2000 (“FSMA”) (Regulated Activities) Order 2001 (“RAO”). Further, it was not a regulated consumer credit agreement under s8 Consumer Credit Act 1974 (“CCA ’74”) and Part II RAO because it involved credit of more than £25,000 wholly or predominantly for business purposes.
The unfair relationship provisions of the CCA ’74 apply to both regulated and unregulated consumer credit agreements but they do not apply to RMC’s (s140A(5) CCA ’74). Therefore, it was incorrect for the judge at first instance to say that the Consumer Credit Act 1974 was ‘immaterial’ to enforcement of the loan. Because the loan was not a RMC, the unfair relationship provisions could apply.
Had Ms Smyth pleaded that the relationship was unfair, the burden would have been on Goldhill to prove to the contrary (per s140B(9) CCA ’74).
This case serves to reinforce the importance of proper pleading and agreeing case summaries as Soole J alluded to at [96]:
“The purpose of pleadings is to identify the issues for trial. The purpose of the Summary … was to provide clear and agreed identification of the issues to be determined at the trial.”