Edward Michael Avery-Gee v Marek Zwiefka Sibley
| Jurisdiction | England & Wales |
| Judge | Pearce |
| Judgment Date | 31 March 2021 |
| Neutral Citation | [2021] EWHC 798 (Ch) |
| Court | Chancery Division |
| Docket Number | CR-2019-MAN-001065 |
| Date | 31 March 2021 |
[2021] EWHC 798 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
HIS HONOUR JUDGE Pearce
CR-2019-MAN-001065
David Mohyuddin QC (instructed by OCCASIO LEGAL LTD) for the Applicants
Muhammed Haque QC and Sam Cheesebrough (instructed by CANDEY LTD) for the First, Second and Third Respondents
Andrew Shaw (instructed by UNDERWOOD SOLICITORS LLP) for the Fourth Respondent
Hearing date: 19 January 2021
This judgment was handed down at 10am on 31 March 2021. I direct that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
| Introduction | |
| Background | |
| The Relevant Contracts | |
| The Application | |
| The Law | |
| The Applicants' Stance | |
| The Fourth Respondent's Stance | |
| The Opposing Respondents' Stance | |
| Discussion | Issue 1 |
| Issue 2 | |
| Issue 3 | |
| Issue 4 | |
| Conclusion |
Introduction
This is my judgment on the application of the Joint Administrators of FundingSecure Ltd (“the Company”) made by Application Notice dated 20 August 2020 (“the Application”), pursuant to which they sought the Court's directions on the true construction of terms and conditions regulating the relationship between the Company and third parties, some of whom claim to be its creditors.
The application was heard on 19 January 2021. At the conclusion of the hearing, I reserved judgment.
The Background
The Company, which was authorised and regulated by the Financial Conduct Authority (“FCA”), promoted and managed short term so-called peer-to-peer loans funded by a large number of lenders. (Such lenders are called “Investors” within the various documents to which the Application relates. I shall adopt that terminology, but should make clear that the name is not intended to indicate that the Investors were investing in the Company itself. The vast majority were not.) Prospective borrowers (called, understandably, “Borrowers” in the contractual documentation) would apply to be promoted on the Company's website, stating the amount that they were seeking to borrow and proposing security for the facility. The Company would undertake due diligence investigations and value the proposed security for the loan. If approved by the Company, the loan opportunity would be advertised on the Company's website, applying a loan to value ratio of no more than 75%. Prospective Investors could then agree to lend money for a period of six months. It would typically be the case that several Investors would be anonymously brought together to fund a particular borrowing request.
Such lending was anticipated to involve a relatively high risk of default by Borrowers. Pursuant to the Terms and Conditions, part of the Company's service was to undertake to enforce the security in the event of default, in which event it became entitled to certain payments. The quid pro quo for the risk was the high rate of interest and other fees payable by the Borrowers, as considered below
The Company fell into financial difficulty. It entered administration on 23 October 2019. During the Administration, several issues have arisen. Initially, there was a question as to whether the Administrators held any money recovered from Borrowers on trust for the relevant Investors, or whether alternatively they held such money in the Administration, the rights of the Investors being limited to those of creditors of the Company for the amount of the lending. That issue was resolved by the Administrators agreeing, with the consent of the Company's secured charge holders, to distribute funds as if they were held on trust for the relevant Investors.
A second area of dispute has been as to the quantification of the Company's entitlement to fees in circumstances where Borrowers have defaulted, as well as the order of priority between such fees and the Investors' right to recoup the loan. It is this area that is the subject of the Application.
The relevant contracts
The scheme of lending established by the Company involved each Borrower and the Company, acting as agent for the Investors as unnamed principals and called the “Lender” in this agreement, entering into a Master Facility Agreement relating to the loan, which created a series of individual loan agreements in identical terms with each Investor as an unnamed principal in each loan agreement. At the end of the loan period (stated to be 182 days), the Master Facility Agreement provided that the loan would be repaid.
Section 1 of the Master Facility Agreement provided for the payment of an Arrangement Fee by the Borrower and went on to provide for the payment by the Borrower of a further sum referred to as an Administration Fee in these terms:
“The Borrower shall pay to the Lender an administration fee of 0.50% per month on the Loan (Administration Fee) which is to be calculated on a pro rata basis by reference to the amount of the Loan outstanding from time to time and the number of days that the loan is outstanding. The Administration Fee shall be repaid in full on the Repayment Date.
If the Borrower fails to repay the Loan on the Repayment Date, the Administration Fee will continue to be charged at the rate specified until the Loan (and all other sums outstanding under this Agreement) are repaid in full.”
Clause 8 of the terms and conditions of the Master Facility Agreement, is headed “Default Fee” and provides:
“ If the borrower fails to pay any amount payable by it under a Finance Document on its due date, a default fee shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate which is 0.5% per calendar month higher than the Administration Fee which would have been payable pursuant to section 1 (key terms) if the overdue amount had, during the period of non-payment, constituted the Loan. Any default fee accruing under this clause 8 shall be immediately payable by the Borrower on demand by the Lender.”
The relationship between the Company and individual Investors was governed by contractual terms (“the Terms and Conditions”). It is common ground that Version 2.4, which appears in the bundle, governed the relationships which are relevant to the Application.
Clause 6 of the Terms and Conditions deals with “Repayments, Defaults and Renewals.”
(a) Clause 6.1 deals with early repayment of loans. It is not relevant to this dispute.
(b) Clause 6.2 provides:
“ If the Loan Term has elapsed and the balance outstanding under the Loan Agreement has not been repaid, FundingSecure, acting on behalf of the Investors, undertakes to enforce the default procedures set out in the Loan Agreement including those set out in clauses 6.2.1 to 6.2.7.”
(c) Clauses 6.2.1 and 6.2.2 set out how the Company was to go about enforcing the default procedures. In essence, the Company would send a letter to the Borrower explaining the process by which it proposed to sell the “Assets” (defined by clause 14.1 as “ those assets which are secured by a pledge as security for a Loan”) by way of auction. Clause 6.2.2 gives an alternative power to the Company to sell the Assets by private sale instead of sending to auction, provided that the price achieved by such a sale exceeded fair market value.
(d) Clause 6.2.4 provides:
“An additional administration fee of 5% of the Loan value will be deducted from the net proceeds of sale of the Asset and paid to FundingSecure (after deduction of all selling expenses such as commission).”
(e) Clause 6.2.5 provides:
“Net proceeds of sale of Assets shall be used to settle amounts due in the following order:
i. Principal amount of Loan which was funded by, and is repayable to, the Investors (allocated pro rata in accordance with the proportion of the Loan amount which each Investor invested);
ii. Direct costs incurred by FundingSecure through the setting up and the administration of the Loan including, but not limited to, storage costs, referral fees and valuation fees up to the date of sale;
iii. Interest due to the Investors up to the date of sale (allocated pro rata in accordance with the proportion of the Loan amount which each Investor invested);
iv. Administration fees due to FundingSecure not recovered through clause 6.2.5(ii) above;
v. The balance (if any) will be returned to the Borrower.”
Clause 8 of the Terms and Conditions provides:
“ 8.1 FundingSecure charges Borrowers an administration fee on every Loan depending on the Loan amount. The rates charged are per month on a daily basis for the duration of the Loan.
8.2 The administration fees may vary from time to time and are listed on our website.
8.3 FundingSecure does not charge Investors any fees or commissions.”
The phrases “administration fee” and “administration fees” are not defined in the Terms and Conditions. It will be noted that Clause 8.1 of that document states that the “administration fee” there referred to is a rate charged per month. This appears to be a reference to the Administration Fee as set out in section 1 of the Master Facility Agreement rather than the “ additional administration fee of 5%” set out in clause 6.2.4 of the Terms and Conditions (which is a one-off fee). To avoid confusion, I shall adopt the terminology used during the hearing of describing the fee in clause 6.2.4 of the Terms and Conditions as “ the 5% Fee”.
Clause 14.15 defines “Loans” as “ the loan made to a Borrower on these Terms and Conditions and a Loan Agreement” (sic – this may be...
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