Court finds mortgage adviser had no duty to investigate underlying investment

The High Court has ruled on a case brought by investment fraud victims in a clarification of mortgage advisers’ duties. The judgment in Taylor & Anor v Legal and General Partnership Services Ltd [2022] EWHC 2475 (Ch) in favour of mortgage advisers is the first High Court decision in a recent increasing trend of interest-only mortgage claims.

Mr and Mrs Taylor invested in an offshore property development scheme run by Harlequin Hotels and Resorts (“Harlequin”). They took out a 20-year interest-only mortgage of £101,000 to refinance their existing mortgage, and used £74,000 of it to invest into the scheme.  They used an Appointed Representative of Legal and General Partnership Services Limited as their mortgage broker. The  adviser, Mr Margetson, completed a ‘Mortgage Record of Suitability’ and a ‘Client Review’, but declined to advise on the Taylors’ investment in the scheme. He advised the Taylors to seek independent advice before placing reliance on the mortgage and using it to facilitate their investment in the Harlequin scheme. After significant investments and mortgage repayments by the Taylors, it was found that Harlequin was run by a businessman who was sentenced to 12 years imprisonment from September 2022 for defrauding investors through the Harlequin scheme.

The Taylors brought a claim against the mortgage adviser, claiming that their losses were caused by Mr Margetson’s recommendation of the interest-only mortgage. They claimed that Mr Margetson should not have recommended a mortgage without independent advice, and that they entered into the mortgage and subsequent Harlequin investments as a result of his recommendation. The Taylors’ claim alleged that they were unaware of the obligations on a mortgage adviser to advise on suitability, leading to a delay in bringing the claim and their subsequent reliance on the Limitation Act 1980.

The Judge held that, while it is not disputed that mortgage advisers owe a duty of care to the borrower as informed by MCOB, it was not Mr Margetson’s duty to withdraw his recommendation until the Taylors had received independent financial advice, nor was it his duty to advise against an investment in the Harlequin scheme. The Judge found that Mr Taylor had admitted that he and Mrs Taylor were aware of the risks involved in their investments, and that there was no evidence of the Taylors’ ignorance about the obligations on a mortgage adviser. The judge went on to say that, even if the adviser had acted in breach of MCOB, the claim would in any event have been statute barred, because the Taylors were aware of the real risk of the failure of the investment prior to the relevant date.

Nicola Radford