What We Do
We provide expert opinion to assist both claimant and defendant firms on complex financial litigation matters, these include:
- Negligent mortgage advice
- Negligent loan advice
- Breach of statutory duty (MCOB, COB, CONC)
- Irresponsible lending (MCOB/CCA)
- Breach of fiduciary duty (‘secret’ commission claims)
- Debt management mis-selling
- SIPP mis-selling
- Quantum reports
In 2004 the FSA begun regulation of mortgages in the UK. The Mortgage Conduct of Business Rules (MCOB) created a statutory obligation on mortgage brokers and lenders (where they provided advice) to adhere to the rule book, as well as their high level ‘Principles for Business’.
The rules themselves have changed over time, however, the general position covering the provision of advice is that
(1) The advisor has collated sufficient information to ensure suitability;
(2) Any personal recommendation must ensure that it is suitable in line with the borrower’s personal and financial circumstances;
(3) The borrower can afford the mortgage;
(4) The mortgage suits the borrower’s needs and circumstances;
(5) It takes account of potential interest rate rises;
(6) The advisor ensures debt consolidation mortgages are appropriate
Where the advisor has not met these rules, the borrower has remedies against the advisor pursuant to section 138(d) of the Financial Services and Markets Act 2000.
Examples of negligent mortgage advice are where the borrower:
(1) Could not afford the mortgage
(2) Was advised to enter into a mortgage that was not suitable
(3) Consolidated unsecured debts
(4) Was advised to enter into an interest only mortgage without a suitable repayment vehicle in place
(5) Was advised to take a loan over a longer term than was suitable
We are instructed by both claimant and defendant firms in addition to high volume of direct instructions from borrowers, including high net worth clients. We produce both expert evidence in this field as well as preliminary advice covering merit, causation and quantum, whether verbally at conference or in writing. Our consultants will forensically assess the mortgage file and report on the suitability of advice against both the MCOB benchmarks and that of a reasonably competent mortgage broker operating at the relevant time.
The Consultants at Legal Hub also assist in allegations of negligence advice within the second mortgage sector
RESPONSIBLE MORTGAGE LENDING
All lenders in the UK have a duty to lend in a responsible manner. This would ordinarily include an assessment of both the borrowers’ ability to afford the loan and their credit worthiness generally.
There are a number of statutory and legislative provisions that underpin this assertion. Since 2004, the Mortgage Conduct of Business rules have provided for this both before and after the Mortgage Market Review that was implemented in 2014. Furthermore, both the Office of Fair trading provided guidance on this matter in 1997 and then subsequently in 2011.
In addition to the above, the amendments made to the Consumer Credit Act 1974 in 2006 and implemented in April 2008, set out a new ‘Unfair Relationship’ test. The Courts have wide powers to interrogate the agreement between creditor and debtor by reference to:
1. Any term of the agreement
2. The way the agreement is enforced
3. Anything done or not done by or on behalf of the creditor
Both the regulated and non-regulated lending sectors are therefore vulnerable to claims alleging that their decision to lend was fundamentally flawed.
The Legal Hub’s experienced mortgage lending consultants are well versed in assessing a borrower’s ability to pay the loan provided utilising the affordability models deployed at the relevant time. We will forensically analyse the credit report undertaken at the time of underwriting to establish the extent of the borrower’s affordability and the robustness of the lending decision.
A wide array of affordability models were deployed by the lending sector and it is important to ensure the correct method is used when assessing the quality of a lenders affordability assessment.
Legal Hub’s mortgage and lending consultants will assess the lender’s decision to lend against the prevailing regulatory framework. This will include:
• The Office of Fair Trading’s Non- Status Guidelines 1997;
• The Office of Fair Trading’s Responsible Lending Guidelines 2010/2011;
• The Consumer Credit Source Book;
• The Mortgage Credit Directive Order 2015 implemented in March 2016, and subsequently;
• The Mortgage Conduct of Business Rules
SECOND CHARGE LENDING – CONSUMER CREDIT LOANS
The second charge lending market has been subject to dramatic changes since 2014. First the FCA took over regulation of the industry in 2014 via the Consumer Credit Source Book. In March 2016, the Mortgage Credit Directive Order 2015 (MCD) was implemented bringing second charge lending into the same regulatory framework as its first charge counterparts. Prior to 2014 second charge lending was subject to a licencing arrangement via the now defunct Office of Fair Trading.
The MCD changes moved second charge lending outside of the scope of amendments made to the Consumer Credit Act 1974 in 2008; the critical of which was the ‘Unfair Relationship Test’ found at section 140 of the amended Act.
The Unfair Relationship provisions allow the Courts to re-open an agreement if unfairness is found in any of the following:
1. Any term of the agreement
2. The way in which an agreement is enforced
3. Anything done or not done, for or on behalf of the creditor
A body of case law has developed since their implementation and The Courts interpretation of them favours the debtor on the majority of judgments.
Legal Hub’s team of lending and compliance consultants are well placed to advise consumers and law firms alike on what was and was not to be construed as fair at the given time. This evidence will assist The Court in forensically assessing the relationship between creditor and debtor.
BREACH OF FIDUCIARY DUTY
The question of wether a mortgage broker owes fiduciary duties to its clients has been hotely debated of late. A series of appellate level Court decisions has lent credence to the position that they do in fact owe such a duty.
The classic test in relation to fiduciary duties stems from the Bristol and West Building Society v Mothew  EWCA Civ 533, and it sets out that:
1. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence
2. The distinguishing obligation of a fiduciary is the obligation of loyalty
3. The principal is entitled to the single-minded loyalty of his fiduciary
4. A fiduciary must act in good faith
5. He must not make a profit out of his trust
6. He must not place himself in a position where his duty and his interest may conflict
7. He may not act for his own benefit or the benefit of a third person without the informed consent of his principal
A mortgage broker may be in breach of these duties for a myriad of reasons, however, the most common involves the payments of commission received from the originating lender.
Undisclosed Commission Payments
It was and is common place for mortgage brokers (both first and second charge) to remunerated by way of a commission payment, the receipt of which is entirely uncontroversial. However, where sufficient disclosure has not taken place significant problems may arise.
Both broker and lender alike are under a positive duty to ensure the borrower is aware of both the fact that a commission was paid and the precise amount of remuneration. The precise manner of disclosure is critical, in so much as it will (i) affect the lender and or broker’s ability to defend a claim on the basis of limitation, and; (ii) define the remedies available to the borrower.
The 2007 Court of Appeal decision in Wilson & Anor v Hurstanger Ltd  EWCA Civ 299, 4 April 2007 developed the premise that partial disclosure may not be sufficient to discharge the broker’s duty to ensure he does not act for his own benefit without the informed consent of the borrower. In Hurtanger the broker and lender had informed the borrower that a commission may be paid in certain circumstances, however, this was not enough. The Court found that the borrower ought to have been informed of the amount of commission paid, to sufficiently bring home the potential conflict to him. The mortgage broker was not a defendant in the proceedings, so the lender, Hurstanger, was liable. The Court found that they had procured the broker’s breach of fiduciary duty and were ordered to pay equitable compensation up to the amount of the commission paid plus interest at the agreements prevailing rate.
The principles established in Hurstanger have been the subject of recent judicial scrutiny. In 2015 the decision in McWilliams v Norton Finance (UK) Limited (in liquidation)  EWCA Civ 186 followed the decision in Hurstanger, wrongly according to some legal commentary. However, it has been argued that this decision has now extended the scope of duties owed by credit brokers to include fiduciary ones. This decision was followed by a further Court of Appeal judgment in Nelmes v NRAM plc  EWCA Civ 491 which also looked at the questions of undisclosed commissions, however, in Nelmes the commission was concealed within the lender’s own arrangement fee. Like in McWilliam and Hurstanger before it, the Court quickly found the broker’s duties to include fiduciary ones and found in favour of the claimant, this time pursuant to a breach of section 140 of the CCA.
Legal Hub can be instructed at any point of the litigation process and have acted for consumers as well as law firms. The second charge market is particularly complex and we are often instructed to provide a narrative based background to practices generally within it as well as our opinion on whether the claimant does or does not fall within the non-status guidelines in relation to sophistication.
Legal Hub have been instructed in a wide range of actions alleging a breach of fiduciary duty, these include:
• Allegations that the mortgage broker has selected a lender or product in conflict of his duty of undivided loyalty. Namely that the product and lender did not accord with the borrowers personal and financial circumstances and a cheaper and more suitable product was available;
• Allegations that the broker advised the borrowers to consolidate substantial levels of unsecured debt into an unsuitable second charge loan contrary to his duty to (i) act in good faith (ii) not to profit out of his trust
Legal Hub’s team of seasoned mortgage consultants will forensically assess each stage of the advisory process and report where we deem the duties to have been breached.
NEGLIGENT INVESMENT ADVICE
Legal Hub’s experienced and qualified financial advisors provide a range of services to both investors and law firms.
We will work with our client to first establish if there are grounds for a claim stemming from a breach of the Conduct of Business rules and/or whether the advice met the standard of a reasonably competent financial advisor.
We are able to provide expert evidence in relation to liability, causation and quantum on the following products:
• Stocks and Shares ISA
• Managed Portfolio
• With Profit Bonds
• Investment Bonds
• Personal Equity Plans (PEPs)
• Open Ended Investments
• Unit Trusts
• Capital Protected Bonds
If your firm is already involved in financial litigation, we can provide tailored reports to meet your needs – please see our Instruct Us Page for further information
Equally, we can be instructed to work on a consultancy basis to support your existing infrastructure and maximise your profits on financial based claims – email firstname.lastname@example.org
If your firm does not currently have financial claims as part of your existing client services suite, please see our Financial Litigation Training Page for more info