Decision In Taylor v L&G Case Sets Useful Precedent For Interest-Only Mortgage Mis-Selling Claims
By Lewis Toohey, Head of Legal
As one of the few cases of its kind to actually reach full trial in the High Court, Taylor & Anor v Legal and General Partnership Services Ltd [2022] EWHC 2475 (Ch) (“Taylor v L&G”) has been hailed as a potentially landmark decision for interest-only mortgage mis-selling claims.
The decision saw L&G defeat the claim on virtually all grounds, and sets a useful precedent for advisers in any future claim where they have been made aware of the borrower’s intention to enter into a separate investment.
While elements of the decision are specific to the facts, Taylor v L&G strongly suggests that a broker doesn’t have a duty to provide advice in connection with a proposed investment. Nor do they have to decline to make a recommendation until the borrower has obtained independent legal advice regarding that proposed investment.
The decision also touched on the issue of limitation, and provided a useful example of when constructive knowledge may be found to exist.
The facts
Mr. and Mrs. Taylor took out a mortgage in connection with fundraising for a development scheme. The mortgage was brokered through L&G.
The broker explained the effect of an interest-only mortgage and checked how the Taylors intended to repay the capital at the end of the term (the future sale of offshore properties or, as a backup, use of their surplus income).
The broker stated that they could not provide advice in connection with the development scheme and advised the Taylors that they should seek independent advice on that subject. This was all recorded in the Mortgage Record of Suitability.
Unfortunately, the development scheme later turned out to be a Ponzi scheme.
The claim
The main subject of the Taylors’ claim was that the broker had acted negligently, and that they should not have recommended a mortgage before ensuring that the Taylors had taken independent financial advice in respect of the development scheme.
If the Taylors had sought such advice, they would not have proceeded with the mortgage and would not have suffered a loss.
The judgement
The Judge found against virtually all aspects of the Taylors’ claim.
Scope of duty under the MCOB rules
The broker was not under a duty to refrain from making a recommendation until after the Taylors had obtained independent advice regarding the development scheme. The Taylors had autonomy and were aware of the risks.
Additionally, the broker had clearly recorded their advice that they could not comment on the development scheme. Further, even if the broker did have such a duty, the facts are that the Taylors:
- would more than likely have invested (even if independently advised against it); and
- had been clear about having a backup plan in the form of their surplus income
This means that their claim of loss caused by the negligent advice was simply not supported by the facts.
Limitation
Although finding that the claim did not have merit as stated above, the Judge went on to also consider the issue of limitation. The Judge found that, even if the claim did have merit, it was time barred in any event. The Taylors were aware of their loss from fraud more than three years before the claim was brought.
Mr. Taylor had accepted in cross examination that, by late 2016 or early 2017, he knew the investment had become “highly risky” and it was “probable” that he and his wife would lose a lot of money. This showed his actual knowledge in 2016/2017 of the damage that had occurred. It was also shown that the Taylors knew in 2016 that other investors in the development scheme were making claims in respect of the mortgage advice they had received. This was found to demonstrate his knowledge (via “constructive knowledge”) that such damage was attributable to the acts or omissions of the broker.
Once again, these comments regarding limitation were only made “in obiter” - essentially the Judge providing his thoughts on this issue, even though other aspects of the case made this point irrelevant.
Key takeaways
Many useful comments were made by the Judge when delivering the judgement in this case. He confirmed the supremacy of written records of advice (for example, the suitability letter) over individual recollections of conversations. The additional comments from the Judge concerning limitation and the knowledge of the Taylors are also a good source of precedent for future claims.
Overall, however, the findings on the scope of duty under the relevant MCOB rules is probably the most interesting. These findings will be relevant to any future claims where it is alleged that brokers should have advised on the suitability of a borrower’s intended investment.
Taylor v L&G shows that there is seemingly no duty to decline to provide a recommendation until the borrower has taken independent advice.
Click here to read the judgement in full.