Mortgage mis-selling claim dismissed in recent judgment

On 7 October 2022, HHJ Cawson KC handed down judgment in Taylor & Taylor v Legal and General Partnership Limited . The claim, which included allegations of interest only mortgage mis-selling, was dismissed on all grounds.

There have been a number of interest only mortgage mis-selling claims issued by various claimant law firms over the last couple of years (issued against lenders, brokers, or both). Many of these claims have been struck out on limitation grounds and so it is helpful to have a clear judgment considering the various heads of claim raised in these cases. The findings on the scope of MCOB and the position on limitation also provide useful clarification.  

Background

Mr and Mrs Taylor (the Claimants) were the unfortunate victims of an investment fraud. In March 2007, they granted a mortgage (the Mortgage) over their property as security for an advance made to them by Platform Home Loans Limited (the Lender).

The Mortgage was arranged by Kinleigh Financial Services Limited (KFS) who was the appointed representative of Legal and General Partnership Services Limited (the Defendant).

The Mortgage was to discharge an earlier mortgage and provide further funds to pay a deposit for an “off plan” purchase of a property on a development in St. Vincent in the West Indies (the Investment). The development didn’t complete due to, amongst other things, fraudulent misapplication of monies, and so the Claimants lost their investment.

The claim

The Claimants issued a claim against the Defendant in negligence on the basis they argued the Mortgage should not have been recommended to them before KFS had ensured that they had obtained independent advice on the Investment. They said that if KFS had done what it should have, the relevant transaction would not have gone ahead.

The Defendant accepted it was responsible for the actions of KFS but denied that it was liable to the Claimants on the basis it denied that there was any breach of any relevant duty of care and denied that, even if there was a duty, any breach was causative of any loss or damage. It further denied that any loss or damage suffered by the Claimants fell within the scope of any relevant duty of care, and that, in any event, the claim was statute barred.

The judgment

HHJ Cawson KC dismissed the Claim providing a reasoned Judgment under the following headings:

Duty

It was considered that a mortgage broker will owe a duty of care to the customer/borrower which would, to some extent, be informed by the relevant provisions of the Mortgage Conduct of Business rules (MCOB). However, considering the allegations, the focus was on whether there was any duty on the broker not to recommend the Mortgage until the Claimants had obtained independent financial advice on the Investment.

The requirements under MCOB were intended to guard against customers being introduced to a mortgage that was unsuitable for them and were not intended to guard against a significant reduction in the value of the equity in the property proposed to be mortgaged (as contended by the Claimants).

The Judge therefore did not accept that the broker was under any duty to decline to recommend the Mortgage until the Claimants had obtained independent financial advice in relation to the proposed Investment.

On the evidence, in any event, it was concluded that the Claimants knew what was proposed was not without risk, the Claimants were enthusiastic investors and had a fall-back position in that they had savings / surplus income.

The alternative argument that the broker should have recommended a repayment mortgage rather than an interest only mortgage, despite being a proposed late amendment to the pleaded claim, was also considered to be without merit in any event. The Judge accepted the evidence that the Claimants knew the difference between an interest only and a repayment mortgage, the Claimants had discussed their fallback position (i.e., their savings) on the basis the Mortgage was interest only and that on the documents, the broker had considered the options and recommended an interest only mortgage based on the information provided by the Claimants. The Judge was therefore not persuaded that the broker should have recommended a repayment mortgage over an interest only mortgage.   

Breach

Considering the findings on duty, it followed that there had been no breach of duty.

Causation

 If there had been a duty not to recommend the Mortgage until the Claimants had obtained independent financial advice and if there had been a breach of duty, the Judge accepted a case on causation may have been made out. However, on the evidence provided, the Judge noted the Claimants were enthusiastic about the Investment and so it was considered the Claimants would have proceeded in any event (although this point was noted as academic given the findings on breach and duty).

Damages

 The Judge briefly considered the arguments on loss, but again this was academic in view of the findings on duty. It was concluded that it was difficult to see on what basis the capital loss in respect of the Investment could properly be said to fall within the scope of the duty of care in accordance with the principles explained by the Supreme Court in Manchester Building Society v Grant Thornton.

Limitation

On this issue too, it was noted that any observations were academic. The Mortgage was entered into in March 2007. The parties were alive to the limitation issues as a standstill agreement was entered into on 18 March 2020 and it was accepted that the primary limitation period had expired. The Claimants therefore sought to rely on s14A of the Limitation Act 1980.

The question was therefore when the Claimants had the requisite knowledge (a) of the damage and (b) that the damage was attributable to the broker. On the evidence, the Claimants had accepted they knew a loss was “probable” by late 2016 or early 2017. On the second factor, the Judge found that the Claimants knew other investors were making claims in relation to the advice received in 2016 and so it would have been reasonable for the Claimants to seek legal advice earlier. The Judge therefore concluded any claim, even if there was any merit, was statute barred.