Mrs Nuray Houssein v London Credit Ltd

Hearing dates: 22 & 23 May 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 28 June 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

This appeal is concerned with the proper construction of the interest provisions in a facility agreement dated 20 July 2020 (the “Facility Letter”) and the costs orders which were made by Mr Richard Farnhill, sitting as a Deputy High Court Judge in the Business and Property Courts. The neutral citation for the judge's judgment following the trial is [2023] EWHC 1428 (Ch) (the “First Judgment”) and reference should be made to it for the full detail of the background to this matter. The challenges made by the Appellants are to the judge's order made after the consequential hearing, dated 19 September 2023 and sealed on 25 September 2023 (the “Order”) and, in particular, to the declarations he made in relation to interest and costs.

In particular: at paragraph 3(iii) it was declared that the default interest rate under the Facility Letter was an unlawful penalty which is unenforceable; at paragraph 3(viii) it was declared that pursuant to clause 12.5 of the Facility Letter, contractual interest is payable after the Repayment Date (as defined in the Facility Letter) on any unpaid sums at the rate specified in clause 6.1, being 1% per month, such interest to be calculated on the basis of a year of 365 days, to accrue on a daily basis and to be compounded monthly; and as a result, at paragraph 3(ix) it was declared that “by consent, the amount of interest on the Repayment Sum calculated at the aforesaid rate and accrued from the Repayment Date to the date of the adjourned Consequential Hearing is £181,116.98 and therefore the total sum payable at the date of the adjourned Consequential Hearing is £811,108.77.”

In summary, the grounds of appeal in relation to those declarations as to interest are that the judge erred in his construction of the Facility Letter, and clause 12.5 in particular, in holding that interest continued to accrue after the Repayment Date at the rate of 1% per month and should have held that no interest accrued after that date.

By a Respondent's Notice and grounds of cross appeal, dated 16 February 2024, sealed on 13 March 2024, amongst other things, the First Respondent, London Credit Limited (“London Credit”) seeks to challenge the declaration at paragraph 3(iii) of the Order. It contends that the default interest rate is not a penalty and is enforceable and accordingly, that contractual interest was payable from the “Repayment Date” on any unpaid sums at the default interest rate.

The Appellants also challenge the costs orders which the judge made. In summary, it is said that he should not have made the costs order at paragraphs 7 – 11 of the Order and, in particular, should not have made an issue based costs order. It is said that he should have awarded the Appellants their costs of the trial on the indemnity basis and that he gave insufficient reasons for his decision. London Credit seeks to uphold the judge's costs orders on additional grounds. I will turn to the costs grounds in more detail below.

Background in outline

By the Facility Letter, London Credit agreed to loan £1,845,000 to the Third Appellant, CEK Investments Limited (“CEK”) on the terms set out therein. By a deed of variation dated 31 July 2020, that sum was increased to £1,881,000. The terms remained the same, however.

The facility was for 12 months from the date of advance with interest on the net advance at the rate of 1% per month. The gross sum included rolled-up interest of £225,720, retained out of the loan, and fees of £75,473. It was secured by: a debenture over the assets of CEK; personal guarantees from CEK's directors Mr Ali Houssein and his wife, the First Appellant, Mrs Nuray Houssein, (“Mrs Houssein”); third-party mortgages over five buy-to-let houses owned by a combination of Mr Ali Houssein, Mrs Houssein and Mr Ali Houssein and Mrs Houssein jointly; and a third-party mortgage over their home at 71 Hamilton Road, Cockfosters, Barnet EN4 9HD. Mr Ali Houssein has since died and his son, the Second Appellant, Mr Houssein Ali Houssein, (“Mr Houssein”) is a party to these proceedings in his capacity as his father's executor.

Before £1,579,807 was drawn down on 7 August 2020, on 29 July 2020, 71 Hamilton Road was inspected on London Credit's behalf in order to ‘verify’ that the property was not occupied. There was a dispute at trial about whether the Housseins were aware of the non-occupation condition in the Facility Letter. It has some relevance in relation to costs. Mrs Houssein and her son contended that they were in occupation of the property at the time and intended to remain there. They said that photographs taken during the inspection had been staged to make it appear that the property was vacant.

In any event, by a letter dated 8 September 2020, London Credit alleged that CEK was in breach of the covenant at clause 10.2(k) of the Facility Letter by reason of the continued residential occupation of 71 Hamilton Road and was also in breach of an FCA declaration signed by CEK confirming that it, or any person related to it would not occupy 71 Hamilton Road for the duration of the loan. London Credit stated that there had been a material breach of covenant constituting an event of default under clause 12.2 (b) of the Facility Letter and as a result, claimed to be entitled to default interest on the outstanding sum from 7 September 2020, pursuant to clause 6.6 until the breach was remedied. CEK was given a month to do so and it was stated that default interest would cease to apply once the breach was remedied. London Credit reserved its rights to issue a demand and to enforce any securities and/or to commence legal action if the breach was not remedied before 8 October 2020.

The Housseins remained in occupation of 71 Hamilton Road and CEK did not pay the sums demanded by way of default interest.

By a letter of 3 November 2020, London Credit referred to an alleged breach of the representation and warranty at clause 11.1(h) of the Facility Letter (no intention to occupy 71 Hamilton Road) and demanded immediate repayment of the full amount advanced pursuant to the Facility Letter together with all interest, fees and any commission pursuant to clause 12. It demanded immediate payment of £1,818,518.27, together with further default interest until payment said to accrue at a daily rate of £2,473.64.

On 27 November 2020, the Second Respondents, Victoria Liddell and Annika Kisby, informed the Housseins that they had been appointed as receivers and managers in the exercise of London Credit's powers under the legal charge over 71 Hamilton Road and thereafter, they threatened to sell the property. I shall refer to Ms Liddell and Ms Kisby together as the “Joint Receivers”. They took no part in this appeal or in the proceedings below.

On 11 March 2021, London Credit appointed the Joint Receivers as joint receivers in respect of the five buy-to-let houses. They were due to be auctioned on 13 May 2021. These proceedings were issued on 29 April 2021. The issues were: whether London Credit had waived the requirement that 71 Hamilton Road should be unoccupied and as a result there was no breach of the Facility Letter and no “Event of Default” allegedly entitling London Credit to demand repayment of all outstanding monies and to charge default rate interest; whether the default rate of interest was enforceable as a common law penalty; whether London Credit's appointment of the Joint Receivers was unlawful; whether the Facility Letter was unenforceable as against Mrs Houssein by reason of undue influence; and whether the Facility Letter was unenforceable against the Housseins and CEK by reason of it being a sham and/or section 26(1) of the Financial Services and Markets Act 2000 (“ FSMA”) and/or sections 140A and 140B of the Consumer Credit Act 1974 and/or section 62 of the Consumer Rights Act 2015.

On 12 May 2021, Falk J granted an interim injunction restraining London Credit and the Joint Receivers from dealing with the five buy-to-let properties and 71 Hamilton Road until trial or further order.

Although £1,200,000 was repaid on 28 May 2021, the balance of the loan was not repaid on the Repayment Date which was 7 August 2021. The balance of £629,991.79 remains outstanding. At the date of the Order, £181,116.98 of interest had accrued and £811,108.77 was due.

The Appellants had made numerous open offers before the Repayment Date:

i) On 16 March 2021, shortly after the Joint Receivers were appointed in relation to the buy-to-let properties, an offer to pay £1.2 million by the middle of April 2021 and a further £650,000 also by the middle of April was made. It was on the basis that all the securities over both the buy-to-let properties and 71 Hamilton Road were discharged and that...