Shokrollah-Babaee v EFG Private Bank Limited [2023] EWHC 3270 (Ch)

The Defendant lender sought strike out or alternatively, summary judgment in a claim issued against it alleging breaches of the Mortgage Conduct of Business Rules (“MCOB”) and breach of a common law duty of care in relation to mortgage offers it made to the Claimant and valuation report carried out for it by Savills.

The Claimant sought £5.18m comprising of £3.25m of overborrowing which was invested in unsuccessful property development, interest on the borrowings and the difference between the interest charged and the alleged true cost of the credit.

The Key Facts

In 2012, the Claimant entered into an agreement with the Defendant to refinance a property for 2 years for £4.7m and a second loan of £1.25m, with £1m to be invested with an affiliate of the Defendant with the proceeds servicing the loans.

The Claimant alleged that the purpose of the first loan was to give him capital for a “career changing move” into residential property development and that the estimated value of the property was £8.5m.

The non-advised regulated mortgage was made on the basis of an offer letter signed and accepted by the Claimant which “…among other things, (a) said that the defendant had not recommended the mortgage to the claimant and that it was a matter for the claimant whether he accepted the mortgage; (b) gave an estimated value of £8.5m for the Property; (c) required the claimant to provide as security (i) first priority legal charges over both the Property and the French apartment; (ii) a first legal charge over a cash deposit in the minimum sum of £250,000; and (iii) a first legal charge over the EFGAM investment portfolio; and (d) imposed a number of Conditions Precedent on the drawdown of the facility including “a Valuation of [the Property] reflecting an aggregate market value on a vacant possession basis of not less than £8,500,000.’”

The Defendant obtained a valuation report from Savills which stated it would be for the sole use of the Defendant for the purpose of loan security and expressed that “it only accepted responsibility in respect of its valuation to the defendant”.

In 2014, the loans were not repaid or called in and in 2015 an extension was discussed. Savills provided a second report, which valued the property at £8.5m again. The Claimant could not recall whether he received the 2015 report but was aware of it and the valuation figure. As part of the negotiations, the Claimant signed a ‘High Net Worth Mortgage Customer – Opt Out’ form, which stated that he was not being provided with advice on the suitability of the mortgage and that the mortgage was a “Non-Advised (Execution Only) basis” and on acknowledged that his categorisation as a “High Net Worth Mortgage Customer” resulted in him losing the protection of the FCA’s suitability rules.

The Claimant alleged that from 2012, he had entered residential property development and invested £3.5m of the loans in “speculative property development” and that he would not have done so, but for the Defendant’s alleged breaches of duty.

The Loans were not repaid on the expiration of the facility and bankruptcy proceedings were instigated by the lender and adjourned pending determination of this claim.

The Claimant alleged that had the 2012 report been prepared with reasonable skill and care and or the offer complied with MCOB rules, he would have rejected the offer and put on hold his plans to move into property development. Further, he says that the defendant would have offered him a smaller loan.

In relation to the 2015 valuation, the Claimant’s position was, that had an accurate revaluation of the property been given (on his case being some £2.5-£3m less), he would have rejected the offer and negotiated payments on the 2012 loans or secured alternative funding.

The Defendant alleged that:

• all of the claims were time-barred;
• the Claim Form only contained a single claim for breach of a statutory duty in relation to valuations carried out by Savills for the Defendant;
• the remainder of the claims in the Particulars of Claim were not within the Claim Form, which with limitation having expired, could not be amended;
• the valuation was carried out for its own risk purposes and no common law duty was owed to the Defendant;
• the allegations of breach of MCOB and negligence were “fundamental factual errors (which are demonstrably wrong), internally inconsistent, hopeless on their face and unsupported by the available evidence”; and
• the purpose of the claim was an improper collateral purpose to frustrate the bankruptcy proceedings.

The Decision

Miles J held that the claims had a 6-year limitation period from when the Claimant first suffered damage under s.2 of the Limitation Act 1980 (“the 1980 Act”), with it being “arguable” that the breach of statutory duty claim under s.138D of the Financial Services and Markets Act 2000 (“FSMA”) also was subject to section 9 of the 1980 Act

The Court held that time ran from 2012 and 2015. The Defendant was unable to rely on s.14A of the 1980 Act in relation to the s.138D FSMA claim on the basis that it was a claim for a breach of duty existing by virtue of a statutory provision and not an action for damages for negligence and so the claims were limitation barred.

In relation to the common law claims, the Court held that the Claimant was not owed any advisory duty, if the Savills reports were provided to the Claimant it would have been clear that the reports were for the lender’s own purposes and did not give rise to a duty of care to the Claimant.

The MCOB provisions requiring any estimated valuation to be a reasonable assessment based on all facts available at the time of valuation did not give rise to a common law duty of care to take reasonable care in relation to such an estimated valuation, which in any event the Defendant took by obtaining the report and did not delegate their duty in doing so.

The common law negligence MCOB claims and the APR claim were not included within the claim form, only the particulars. The Judge held that there was no ambiguity or errors which would justify reading the claim form together with the particulars and both were new claims with neither arising from the matters alleged in the claim form.

Comment

Notwithstanding the hopelessness of the s.138D allegations, the case is noteworthy for its helpful summary of the existing principles in relation to the position of lenders’ duty of care in the context of allegations of breaches MCOB, and for clarity over the 6 year period of limitation for claims under s.138D of FMSA.

Article by Jaysen Sharpe