On 7^th October 2022, HHJ Cawson KC handed down judgement in Taylor & Anor v Legal and General Partnership Services Limited [2022] EWHC 2475 (Ch).

This is the first decision in a contested trial heard before a High Court Judge in relation to interest only mortgage mis-selling cases.

It is common place in these types of cases that the claimant will allege that their mortgage broker (or agents), have negligently recommended an interest-only mortgage, when a capital repayment mortgage or no recommendation at all would be more suitable.

Historically these cases have either resolved prior to trial or failed on limitation grounds.

By way of background, this was an unfortunate claim brought by the claimants as victims of an investment fraud.

In March 2007, the claimants refinanced their existing mortgage for the purpose of discharging an earlier mortgage, and providing further funds to pay a deposit for an offshore property development scheme run by Harlequin Hotels and Resorts.

The claimants obtained a 20-year interest-only mortgage of £101,000.00, which was used to refinance their existing mortgage, before putting in an additional £74,000.00 into the offshore property scheme.

The Mortgage broker completed a Record of Suitability, recording the explanation given as to the effect of an interest-only mortgage, and confirming how the claimants intended to repay the capital at the end of the term.  The Broker also confirmed that he was unable to advise the claimants in relation to their investment in Harlequin, and recommended that they take independent financial advice.

The mortgage was concluded but the Harlequin soon began to falter, with it becoming apparent that Harlequin was in fact a Ponzi scheme run by David Ames who was sentenced to 12 years in prison in September 2022 for defrauding thousands of investors.

The claimants brought their claim alleging that the Broker had acted negligently in recommending the mortgage before ensuring they had taken independent financial advice in respect of their investment with Harlequin.

The Judge in ruling that the Broker was not under a duty to make his recommendations until the claimants had received independent legal advice concluded that:

1. The Broker could not have been expected to advise in relation to the Claimants’ investment, or to identify what was a good or bad investment;
2. In any event, the Broker had recorded his advice that he was unable so to advise, which the Judge accepted reflected conversations that actually took place;
3. The Claimants were enthusiastic investors in the scheme and had invested considerable sums even before they entered into the mortgage;
4. It would be un unreasonable restriction on the Claimants’ autonomy as consumers for the Broker to decline the mortgage until they received independent financial advice – advice which the Claimants deemed unnecessary;
5. The Claimants were aware of the risks involved and that it was “plausible” the properties in which they were investing would never be developed with the consequent loss of their investment; and
6. Significantly, the Claimants told the Broker that if the investment failed, they would simply fall back on surplus income, which was realistic given the Claimants’ submission at the time of the mortgage that their income significantly exceeded their expenditure.

In the alternative the claimants argued that the Broker should have recommended a repayment rather than interest-only mortgage, but this argument also failed as it was not pleaded and Mr Taylor gave evidence that he was fully aware of the distinction between the two types of mortgages.

The Judge in finding there was no breach of duty still went onto consider the issue of causation.  In doing so he concluded that the claimants would have proceeded with the investment irrelevant of any independent financial advice they may have received.

The issue of Limitation was also considered.  The Mortgage was taken out in 2007 with a standstill agreement being entered into on 18^th March 2020.  As primary limitation had expired the claimants sought to rely on s14A of the Limitation Act 1980 and argued that they only had the requisite knowledge on or before 18^th March 2017.

The Judge found that the claimants knew in 2016 that other Harlequin investors were making claims in respect of the mortgage advice they had received, and it would therefore have been reasonable for them to seek legal advice at that time.  Accordingly the Judge found that the claimants had the requisite knowledge before 18^th March 2017 and as a result their claim was statute barred.

The claimants claim therefore failed in its entirety.

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If you would like to speak to us or obtain further information then please call us now on 0870 766 9997 or contact Kirsten Roberts by email kirsten@boxlegal.co.uk.