Mis-sold mortgage litigation: The Court of Appeal decides in Emptage v Financial Services Compensation Scheme

21 Jun 2013

Last year, I flagged up Mis-Sold Mortgages as the next big thing. The decision of the Court of Appeal in the case of Emptage v Financial Services Compensation Scheme possibly brings his prediction a big step closer.

As will be recalled, the High Court found in favour of Emptage last year when judicially reviewing the decision of the FSCS to only pay her approximately £11,000 in compensation, following ther sale of an unsuitable mortgage product by a broker, who had since ceased operating. Although the FSCS had accepted liability, its determination of the level of compensation was held to have been wrong as it had failed to offer compensation for the negligent mortgage advice.

The Court of Appeal in a judgment handed down last week has confirmed the decision of Mr Justice Haddon-Cave and gave a ringing endorsement to his analysis that what was "essential" in order to achieve "fair compensation"  was for the FSCS to compensate Emptage for the unaffordability of the mortgage itself.

The Court of Appeal has said that the loss suffered by Ms Emptage flowed from the bad advice in relation to mortgaging her home, which was a regulated activity. Once it is accepted (as it was) that the breach of duty consisted in recommending a mortgage which was unsuitable because it exposed Emptage to the risk of being unable to repay the loan at maturity, it is difficult to see how it is possible to assess fair compensation without taking into account the loss caused by the occurrence of that risk.

In short, the Court recognised that

(a) since affordability was an essential element of suitability, the broker's negligent advice recommending a mortgage which was unsuitable, needed to be compensated, and

(b) the compensation that needed to be awarded had to take into account the loss caused by the occurrence of the risk of the claimant being an unable to repay the loan at maturity; namely the whole loan.

The confirmation that the giving of negligent advice as to the suitability of a mortgage has to be compensated by an award to reflect the increased mortgage liability will be very well received by the mis-sold mortgage lawyers, many of whom are getting their volume litigation lawyers ready for an assault on this huge potential litigation market. 


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