FSMA and Limitation – Limitation cannot start before a claimant has a claim to bring

This appellate decision by Elizabeth Jones QC, sitting as a Deputy High Court Judge, considers some important points in relation to the limitation period for actions brought under sections 26 and 28 of the Financial Services and Markets Act 2000 ("FSMA"). 

The Judge found, by analogy with claims under the Consumer Credit Act 1974 ("CCA"), that the limitation period for a money claim under FSMA sections 26 and 28 is, arguably,  six years from the date the principal sum is repaid, and not from the date that any earlier payments are made in respect of fees or interest.

The background facts concerned a bridging loan taken out by the claimants, the Bhattacharyas, with the defendant, Oaksix Holdings Limited ("Oaksix"):

1. Around February 2012, the claimants(the "Bhattacharyas"), approached Oaksix to provide a nine-month bridging loan of around £4.8m, to be secured by first legal charge over their property (the "First Loan Agreement"). The First Loan Agreement provided that, upon completion of the First Loan Agreement, Oaksix would pay the Battacharyas the amount of the bridging loan, less: £477,711, representing nine months' interest; £61,245 for arrangement fee; and administrative and legal fees. The First Loan Agreement completed on 28 February 2012, and the fees and interest were paid by the Bhattacharyas on the same date. Repayment of the loan was due on 28 November 2012.
2. Before 28 November 2012, the Bhattacharyas and Oaksix agreed to extend the First Loan Agreement by six months (the "First Extension Agreement"). The First Extension Agreement provided for the Bhattacharyas to make a payment to reduce the principal sum by £1.25m, and to pay additional interest and fees (including £220,974 in respect of a further six months' interest payments). Those sums were paid to Oaksix on or around 28 November 2012.
3. On 28 May 2013 the First Extension Agreement came to an end and the loan was due for repayment. However, the parties agreed to extend the term for another two months in return for additional interest payments of £36,829 (the "Second Extension Agreement"). The Bhattacharyas made the additional interest payments on 7 June and 10 July 2013.
4. In July 2013, the Bhattacharyas applied to Oaksix to refinance the existing loan. Oaksix offered a new six-month loan in the sum of £3.1m, again secured by first legal charge over their property (the "Second Loan Agreement"). The Second Loan Agreement again provided that fees and interest of approximately £280,000 would be deducted from the loan amount on completion, which took place on 27 August 2013. On this date, the capital of the First Loan Agreement (as extended) was effectively repaid.  
5. On 27 September 2013, the Bhattacharyas obtained a new loan from a third party and repaid the Second Loan to Oaksix.
6. On 8 August 2019, the Bhattacharyas issued proceedings against Oaksix, seeking:
   1. A declaration that the First and Second Loan Agreements were unenforceable under s.26 of FSMA because they were regulated mortgage contracts, and Oaksix was not an authorised person under s.19 of FSMA; and
   2. A claim pursuant to s.28 of FSMA for repayment of the interest and fees paid to Oaksix under the First and Second Agreements, in the sum of £867,149 and £119,363 respectively.
7. In its Defence, Oaksix argued that the money claims in relation to the First Loan Agreement were statute barred (as well as denying that the First and Second Loan Agreements were regulated); and issued an application for strike out and/or summary judgment in respect of the claims relating to money paid to Oaksix before 9 August 2013.

The strike out application came before Deputy Master Linwood on 15 May 2020, who granted the application, striking out the claim for repayment of sums paid prior to 9 August 2013 and the claim for a declaration relating to the First Loan Agreement, and giving summary judgment in favour of Oaksix on the same issues. 

The Bhatacharyas appealed on a number of grounds and issues, of which the most significant were:

1. Whether the Deputy Master had been wrong to find the claims for money fell within section section 9 of the Limitation Act 1980 (the "Limitation Act"); and
2. Whether the Deputy Master had been wrong to find that for the purpose of limitation, time started to run when each sum was paid to Oaksix. 

Although as an appeal of a strike out and summary judgment the Judge did not have to reach a final determination on the issues, her judgment on these issues raises some important points which may give claimants useful arguments when facing limitation issues.

Limitation Period

The Bhattacharyas argued that the Deputy Master had been wrong to find that their money claims were actions for sums recoverable by statute, and therefore subject to a six year limitation period under section 9 of the Limitation Act.  Instead, they contended that their claims for were actions on a specialty, and fell under the 12 year limitation provided for by section 8(1) of the Limitation Act. 

However, the Judge upheld the Deputy Master's finding that section 9, and the shorter, six-year limitation period, applied. She agreed with the Deputy Master that claims under section 26 and 28 of FSMA were analogous with claims under the extortionate credit bargain provisions of the CCA, to which the six year limitation period applied. Further, the Judge also held that "plainly the Appellants' claim for the payment of money does arise out of and only out of the statue. If it were not for the statute, the Appellants would have no claim." 

Accrual of Limitation

As to the question of when limitation began to run, the Judge recalled that for the purposes of section 9 of the Limitation Act, a cause of action accrues when all the facts have come into existence which "it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court" (Coburn v Colledge [1897]1 Q.B. 702). 

In this regard, she noted that sections 26 and 28 of FSMA do not require a borrower to bring proceedings to obtain relief: under section 28(7), the borrower is simply entitled not to perform the agreement, and further, would be entitled to recover the payments made by the borrower pursuant to the agreement if the principal sum had been repaid. Accordingly, the Judge accepted the Appellant's submissions that until the capital was repaid on 27 August 2013, the Bhattacharya's did not need to bring a money claim. Indeed, she held that they could not have brought a money claim before that date, because until that point they owed more money to Oaksix under the First Loan Agreement than would have been due to them by way of interest and fees wrongly paid to Oaksix. The only claim they could have brought as of 9 August 2013 would have been for a declaration that they were obliged to repay only the balance of the loan amount. The judge determined that "[t]he critical fact which gives rise to a claim for the recovery of money is the repayment of the capital, which took place on 27 August 2013, less than 6 years before the commencement of this action." 

In reaching her conclusion, the Judge referred to the Court of Appeal decision in Rahman v Sterling Credit [2001] 1 WLR 496, concerning a claim under (then) section 139(1) of the CCA. Mummery LJ concluded that a claim for relief from making future payments under that Act was one cause of action to which one limitation applied, and that a claim to recover payments is a different cause of action, to which another limitation period applies. The Judge found that it was arguable that the same reasoning applies to claims under sections 26 and 28 of FSMA, such that the cause of action in respect of the money claim did not accrue to the Bhattacharyas until 27 August 2013, when they repaid the principal sum due under the First Loan Agreement, notwithstanding that earlier payments had been made in respect of fees and interest.

Comment

It should be borne in mind that this judgment was given in the context of an appeal against a strike out and summary judgment and, therefore, the Judge needed only to be satisfied that the matters raised were arguable. However, the clear and compelling analysis, and analogies drawn with well-established case law relating to the CCA should make this determination as to limitation in money claims under FSMA highly persuasive.