Houssein & Ors v London Credit Ltd & Ors

Factual and Procedural Background

The case concerns a refinancing dispute involving a portfolio of residential properties owned by a married couple, referred to here as Mr and Mrs Houssein, and their corporate vehicle, CEK Investments Ltd ("CEK"). Over several years, the couple acquired various properties, some jointly owned, some individually, with mortgages securing loans used for acquisition or refinancing. The family home at 71 Hamilton Road was not mortgaged.

In June 2020, a secured Bridge Loan to Bridge Invest Ltd was due for refinancing under challenging circumstances, including Mr Houssein’s poor health and the Covid-19 pandemic. The couple sought assistance through a family connection, leading to engagement with an intermediary, Mr Liondaris of Premier Finance Ltd ("Premier"), who introduced them to a lender, LCL, an unregulated moneylender.

The refinancing loan was arranged through CEK, with Mr and Mrs Houssein as its directors and shareholders. LCL required that the borrower not reside at any secured property, including 71 Hamilton Road. An inspection on 29 July 2020 was conducted to verify vacancy, attended by LCL’s representative, Mr Stylianides, and Mr Liondaris, along with members of the Houssein family.

Despite representations, the Housseins had not vacated 71 Hamilton Road at drawdown on 7 August 2020. Upon discovery, LCL instructed its solicitors to require vacation of the property, which was refused, leading to appointment of receivers and the initiation of these proceedings.

Legal Issues Presented

1. Whether the intermediary, Mr Liondaris, acted as agent for LCL or for the Housseins.
2. Whether the loan agreement constituted a sham to disguise a regulated loan.
3. Whether LCL waived the non-residence provision by knowledge of the Housseins’ continued residence at 71 Hamilton Road.
4. Whether the default interest rate imposed under the loan agreement constitutes an unenforceable penalty.
5. Whether undue influence was exercised on Mrs Houssein and whether LCL had constructive notice of such undue influence.
6. Whether the Housseins qualify as consumers under relevant consumer protection legislation.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court conducted a detailed factual analysis focusing heavily on witness credibility, finding that some witnesses, notably the intermediary Mr Liondaris and LCL’s representative Mr Stylianides, gave dishonest or unreliable evidence. The court found that the Housseins had not vacated 71 Hamilton Road at the time of loan drawdown and that the inspection on 29 July 2020 was staged to create a false impression of vacancy. The knowledge of these facts by Mr Stylianides was imputed to LCL, resulting in waiver of the non-residence clause.

Agency was determined to lie with the Housseins for Mr Liondaris and Premier Finance Ltd, based on their role as brokers acting on the borrowers’ behalf, their conduct, and the absence of evidence of authority from LCL.

The court rejected the claim that the loan was a sham designed to disguise a regulated loan, noting the transparency of the loan documents and LCL’s genuine intention to enforce the non-residence provisions.

The default interest rate was assessed under the leading penalty test from Cavendish Square Holdings BV v Makdesi. The court concluded the default rate was a penalty, unenforceable because it did not protect a legitimate interest of the lender, was uniform across breaches, and was disproportionate to typical market rates.

Regarding undue influence, the court found no evidence that Mrs Houssein was subject to undue influence by her husband. It noted her intelligence, the presence of independent legal advice (albeit with some evidential gaps), and the fact that her son acted as agent and was aware of key terms but withheld information from his parents. The court also applied the principles from Royal Bank of Scotland v Etridge (No 2) concerning the lender’s constructive notice and found no basis to set aside guarantees or charges.

Consumer claims under the Consumer Rights Act 2015 and Consumer Credit Act 1974 were abandoned or rejected because the borrower was a corporate entity and the parties were engaged in a business refinancing.

Holding and Implications

The court’s final decision was as follows:

• Refused declarations sought under section 26(1) of FSMA; the loan was validly made to CEK with personal guarantees and charges from Mr and Mrs Houssein.
• Held that LCL waived its right to enforce the non-residence provision by knowledge of the Housseins’ residence at 71 Hamilton Road at drawdown.
• Determined that the default interest rate was an unenforceable penalty and thus not recoverable.
• Ruled that no event of default arose from residence at 71 Hamilton Road, rendering enforcement steps void and ineffective.
• Dismissed claims to set aside guarantees and charges for undue influence as to Mrs Houssein.

The Facility Letter remains in place, with any outstanding debt owed by CEK, secured by personal guarantees and charges over the properties. No new legal precedent was established; the decision primarily resolves the specific factual and contractual disputes between the parties.