Helden v Strathmore Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Neuberger MR,Lady Justice Smith,Lord Justice Elias |
| Judgment Date | 11 May 2011 |
| Neutral Citation | [2011] EWCA Civ 542 |
| Docket Number | Case No: A3/2010/2290 & 2290(A) |
| Court | Court of Appeal (Civil Division) |
| Date | 11 May 2011 |
[2011] EWCA Civ 542
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION,
The Hon Mr Justice Newey
Case No HC09C00868
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lady Justice Smith
and
Lord Justice Elias
Case No: A3/2010/2290 & 2290(A)
Mr David H. Christie (instructed by Morgan Hall) for the Appellant
Mr Fred Philpott (instructed by Neumans) for the Respondent
Hearing date: 11 th April 2011
This is an appeal brought by Charles Helden against a decision of Newey J, who held that a charge which he had granted to Strathmore Limited was enforceable against him, notwithstanding the facts that it was defectively drafted and it was entered into in breach of the Financial Services and Markets Act 2000 (" FSMA"). Mr Helden also appeals against the Judge's award of indemnity costs against him.
The facts as agreed or found by the Judge
Mr Helden initially worked as a commercial conveyancing clerk, and then as a mortgage broker until 1999, when he gave up work to look after his dying first wife. In 2002, he joined forces with Mr John Jordan, an experienced house builder and property developer, and they embarked on a business of developing property, mainly in London.
In 2004, through one of their companies, "C & J", Mr Helden and Mr Jordan were negotiating the purchase of 23 Catherine Place ("Catherine Place"). Mr Helden asked Mr Neil Wright, a solicitor at Coldham Shield & Mace, whether he knew of a source of funding, and Mr Wright suggested Mr and Mrs Ashton.
Mr Ashton initially worked in finance for ten years, and in 1986 he started working for himself as a property investor and developer. He set up Strathmore Limited (owned at all material times by Mr and Mrs Ashton) as a vehicle through which to build up a portfolio of commercial properties, which were then mostly sold off. He also had another company called Sandworth Limited. The Judge said that "Mr Ashton has very considerable financial acumen. However, he has never attended any courses on financial matters, nor acquired any post-school qualifications" — [2010] EWHC 2012 (Ch), para 10.
As a result of Mr Wright's introduction, C & J was subsequently lent £300,000 by Sandworth to assist with the purchase of Catherine Place. Later in 2005, Sandworth made a loan of some £5.4 million to enable another company owned by Mr Helden and Mr Jordan to buy a property in Belgravia ("Belgravia"). Mr Jordan also borrowed money from Sandworth to acquire a house at Tewin Wood in Hertfordshire in the name of a third company.
By late 2005, Mr Helden wished to buy 58 Chelsea Crescent ("the property") as his home. Mr Helden originally intended to buy the property through a company, but he abandoned that idea when he realised that it would make re-mortgaging difficult. He approached Mr Ashton for funding, and the Ashtons agreed to make him a loan of £1 million ("the main loan"). £50,000 was initially advanced in December 2005 for the deposit, and a further £995,462.83 was advanced on 31 March 2006, when the purchase was completed.
A contemporaneous note made by Mr Ashton recorded that the main loan was to bear interest at 7.5% per annum and would be repaid in a year, and Mr Helden accepted that in his evidence.
An agreement ("the December 2005 agreement") was entered into by Strathmore and Mr Ashton on 19 December 2005. One of the recitals to this agreement stated that "Ashton intends to make a loan of approximately one million pounds … through Strathmore to [Mr Helden]", and that the purpose of this loan was "to enable" him "to purchase … the Property at an initial interest rate of 7.5% p.a". The recital also stated that the period of the main loan was to be "for one year from the date of completion of the purchase of the Property", and that "in the event that the Loan is not repaid within that time at a rate to be negotiated". The December 2005 agreement also stated that the main loan would be secured by a charge over the Property, and that Strathmore would hold the charge and any moneys received from Mr Helden on trust for Mr Ashton.
On 31 March 2006, Mr Helden executed a legal charge ("the 2006 Charge") in favour of Strathmore. This provided for the Property to be charged "by way of a legal mortgage with the payment to [Strathmore] of the debt to be paid by [Mr Helden]". The 2006 Charge, stipulated that Mr Helden would pay to Strathmore "on [31 March 2007] the amount of the Debt". Against "The Debt" and "Interest Rate" there was written "In accordance with the offer letter". No such letter had in fact been prepared. The 2006 Charge included a provision for Mr Helden's fiancée, now his second wife, to countersign in the presence of an independent solicitor to confirm her consent, which she duly did. The 2006 Charge was duly registered at HM Land Registry.
Mr Wright acted both for Mr Helden and for Mr Ashton and Strathmore; in evidence he accepted that he should not have done so. Mr Wright did not appreciate that there was any question of FSMA applying to the transaction, as he was not familiar with its requirements, and so made no mention of it to Mr Helden or Mr Ashton. Neither did Mr Helden, Mr Ashton or Mrs Ashton realise that FSMA could be of any relevance.
Around this time, Sandworth lent C & J about £2.3m to enable it to repay sums which it had borrowed from United Trust Bank for the purchase of Catherine Place and a site in East Sussex. Also around this time, Mr Helden borrowed a further sum of £30,000 from Strathmore on a personal basis, and he signed a promissory note, in which he promised: "to pay to Strathmore … the sum of [£30,000] for value received on or before 30 th June 2006 with interest at the rate of 15% per annum on the principal sum." This loan was not secured on the property.
Within a short period, £50,000 was repaid when Belgravia was sold in May 2006. By that time, Mr Helden and the Ashtons had become friends. The Ashtons attended the wedding when Mr Helden remarried in Italy on 19 May 2006. Mr Wright and his wife were also guests.
Shortly afterwards, Mr Helden asked Mr Ashton for a further loan of £25,000 ("the £25,000 loan"), saying: "as before I accept the flat interest rate of 15%". The Judge accepted that the £25,000 loan was made on the agreed basis that it should be secured by the 2006 Charge.
When it became clear that the 2006 Charge would not be redeemed at the end of March 2007, as had been agreed, Mr Helden had discussions with Mr Ashton, as a result of which it was agreed that the interest rate on the main loan would rise to 10% per annum with effect from 31 March 2007. Subsequently, on 14 September 2007, Mr Helden agreed in a conversation with Mr Ashton that the interest rate would increase to 12.5% per annum from 1 October 2007.
In reaching his conclusions as to the facts summarised above (many of which were in dispute), the Judge was understandably influenced by contemporaneous notes of discussions made by Mr Ashton. In a number of those notes, it appears to have been assumed that interest on Mr Helden's indebtedness fell to be compounded on, broadly, a quarterly basis. It is also relevant to mention 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".
Around the end of 2007, a dispute arose over a loan of £35,000 which had been made by Sandworth to C & J in January 2005. As a result of C & J's failure to repay this loan and the unusual terms of the loan, C & J now owed over £90,000 in respect of the initial loan. The Judge concluded that Mr Ashton and Mr Helden agreed that repayment of this amount ("the £90,000 loan") should be the personal liability of Mr Helden and should be secured by the Charge.
In early 2008, while negotiating with Bank of Scotland plc for a re-mortgage of the property, Mr Helden began to investigate whether the 2006 Charge was open to attack under FSMA. This eventually resulted in his issuing the instant proceedings in March 2009.
In late 2009, three experienced firms of estate agents, Savills, Strutt & Parker and Winkworth, each suggested that the property should be marketed at £1.8 million.
In addition to their loans referred to above, the Ashtons made loans through Strathmore and Sandworth to members of their family and to a Mr Michael Harrison. As the Judge explained, the loans made to Mr Harrison were not affected by FSMA for two reasons: they were made before the relevant law came into force, and the relevant properties were not used as or in connection with a dwelling by Mr Harrison.
On the basis of these facts, the Judge had to consider a number of issues. The first concerned the terms of the main loan and the 2006 Charge, the £25,000 loan, and the £90,000 loan ("the three loans"). The second issue was whether, quite apart from FSMA, those terms were enforceable. The third issue was whether the main loan was unenforceable by virtue of FSMA. The final issue was the question of costs. I shall consider those issues in the same order.
The terms of the three loans
Before the Judge Mr Helden disputed that Strathmore was the creditor in respect of the three loans, a contention which the Judge rejected, a finding against which, very sensibly, there is no appeal.
More relevantly for present purposes, the Judge held that, although the 2006 Charge was defective in its provisions, because it failed to identify the loan which was thereby secured and the rate of interest it was to carry, as it sought to do so by reference to an offer letter which did not exist, it was clear that the parties had agreed what the loan was and the interest which was to be...
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