Neutral Citation Number: [2011] EWCA Civ 542
Case No:A3/2010/2290 & 2290(A) 
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT 
CHANCERY DIVISION, 
The Hon Mr Justice Newey 
Case No HC09C00868
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11/05/2011
Before :

THE MASTER OF THE ROLLS
LADY JUSTICE SMITH
and
LORD JUSTICE ELIAS 
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Between:

	CHARLES CLELAND HELDEN	Appellant	
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	STRATHMORE LIMITED	Respondent	

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Mr David H. Christie (instructed by Morgan Hall) for the Appellant
Mr Fred Philpott (instructed by Neumans) for the Respondent

Hearing date: 11th April 2011
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Judgment

Lord Neuberger MR: 
1.	This is an appeal brought by Charles Helden against a decision of Newey J, who held that a charge which he had granted to Strathmore Limited was enforceable against him, notwithstanding the facts that it was defectively drafted and it was entered into in breach of the Financial Services and Markets Act 2000 (“FSMA”). Mr Helden also appeals against the Judge’s award of indemnity costs against him.
 
The facts as agreed or found by the Judge

2.	Mr Helden initially worked as a commercial conveyancing clerk, and then as a mortgage broker until 1999, when he gave up work to look after his dying first wife. In 2002, he joined forces with Mr John Jordan, an experienced house builder and property developer, and they embarked on a business of developing property, mainly in London.

3.	In 2004, through one of their companies, “C & J”, Mr Helden and Mr Jordan were negotiating the purchase of 23 Catherine Place (“Catherine Place”). Mr Helden asked Mr Neil Wright, a solicitor at Coldham Shield & Mace, whether he knew of a source of funding, and Mr Wright suggested Mr and Mrs Ashton.

4.	Mr Ashton initially worked in finance for ten years, and in 1986 he started working for himself as a property investor and developer. He set up Strathmore Limited (owned at all material times by Mr and Mrs Ashton) as a vehicle through which to build up a portfolio of commercial properties, which were then mostly sold off. He also had another company called Sandworth Limited. The Judge said that “Mr Ashton has very considerable financial acumen. However, he has never attended any courses on financial matters, nor acquired any post-school qualifications” - [2010] EWHC 2012 (Ch), para 10.

5.	As a result of Mr Wright’s introduction, C & J was subsequently lent £300,000 by Sandworth to assist with the purchase of Catherine Place. Later in 2005, Sandworth made a loan of some £5.4 million to enable another company owned by Mr Helden and Mr Jordan to buy a property in Belgravia (“Belgravia”). Mr Jordan also borrowed money from Sandworth to acquire a house at Tewin Wood in Hertfordshire in the name of a third company. 

6.	By late 2005, Mr Helden wished to buy 58 Chelsea Crescent (“the property”) as his home. Mr Helden originally intended to buy the property through a company, but he abandoned that idea when he realised that it would make re-mortgaging difficult. He approached Mr Ashton for funding, and the Ashtons agreed to make him a loan of £1 million (“the main loan”). £50,000 was initially advanced in December 2005 for the deposit, and a further £995,462.83 was advanced on 31 March 2006, when the purchase was completed. 

7.	A contemporaneous note made by Mr Ashton recorded that the main loan was to bear interest at 7.5% per annum and would be repaid in a year, and Mr Helden accepted that in his evidence. 

8.	An agreement (“the December 2005 agreement”) was entered into by Strathmore and Mr Ashton on 19 December 2005. One of the recitals to this agreement stated that “Ashton intends to make a loan of approximately one million pounds … through Strathmore to [Mr Helden]”, and that the purpose of this loan was “to enable” him “to purchase … the Property at an initial interest rate of 7.5% p.a”. The recital also stated that the period of the main loan was to be “for one year from the date of completion of the purchase of the Property”, and that “in the event that the Loan is not repaid within that time at a rate to be negotiated”. The December 2005 agreement also stated that the main loan would be secured by a charge over the Property, and that Strathmore would hold the charge and any moneys received from Mr Helden on trust for Mr Ashton.

9.	On 31 March 2006, Mr Helden executed a legal charge (“the 2006 Charge”) in favour of Strathmore. This provided for the Property to be charged “by way of a legal mortgage with the payment to [Strathmore] of the debt to be paid by [Mr Helden]”. The 2006 Charge, stipulated that Mr Helden would pay to Strathmore “on [31 March 2007] the amount of the Debt”. Against “The Debt” and “Interest Rate” there was written “In accordance with the offer letter”. No such letter had in fact been prepared. The 2006 Charge included a provision for Mr Helden’s fiancée, now his second wife, to countersign in the presence of an independent solicitor to confirm her consent, which she duly did. The 2006 Charge was duly registered at HM Land Registry. 

10.	Mr Wright acted both for Mr Helden and for Mr Ashton and Strathmore; in evidence he accepted that he should not have done so. Mr Wright did not appreciate that there was any question of FSMA applying to the transaction, as he was not familiar with its requirements, and so made no mention of it to Mr Helden or Mr Ashton. Neither did Mr Helden, Mr Ashton or Mrs Ashton realise that FSMA could be of any relevance. 

11.	Around this time, Sandworth lent C & J about £2.3m to enable it to repay sums which it had borrowed from United Trust Bank for the purchase of Catherine Place and a site in East Sussex. Also around this time, Mr Helden borrowed a further sum of £30,000 from Strathmore on a personal basis, and he signed a promissory note, in which he promised: “to pay to Strathmore … the sum of [£30,000] for value received on or before 30th June 2006 with interest at the rate of 15% per annum on the principal sum.” This loan was not secured on the property.

12.	Within a short period, £50,000 was repaid when Belgravia was sold in May 2006. By that time, Mr Helden and the Ashtons had become friends. The Ashtons attended the wedding when Mr Helden remarried in Italy on 19 May 2006. Mr Wright and his wife were also guests. 

13.	Shortly afterwards, Mr Helden asked Mr Ashton for a further loan of £25,000 (“the £25,000 loan”), saying: “as before I accept the flat interest rate of 15%”. The Judge accepted that the £25,000 loan was made on the agreed basis that it should be secured by the 2006 Charge.

14.	When it became clear that the 2006 Charge would not be redeemed at the end of March 2007, as had been agreed, Mr Helden had discussions with Mr Ashton, as a result of which it was agreed that the interest rate on the main loan would rise to 10% per annum with effect from 31 March 2007. Subsequently, on 14 September 2007, Mr Helden agreed in a conversation with Mr Ashton that the interest rate would increase to 12.5% per annum from 1 October 2007. 

15.	In reaching his conclusions as to the facts summarised above (many of which were in dispute), the Judge was understandably influenced by contemporaneous notes of discussions made by Mr Ashton. In a number of those notes, it appears to have been assumed that interest on Mr Helden's indebtedness fell to be compounded on, broadly, a quarterly basis. It is also relevant to mention that Mr Ashton referred in an email to Mr Helden of 15 January 2008 to interest being “calculated every three months and added to the principal in the normal way”.

16.	Around the end of 2007, a dispute arose over a loan of £35,000 which had been made by Sandworth to C & J in January 2005. As a result of C & J’s failure to repay this loan and the unusual terms of the loan, C & J now owed over £90,000 in respect of the initial loan. The Judge concluded that Mr Ashton and Mr Helden agreed that repayment of this amount (“the £90,000 loan”) should be the personal liability of Mr Helden and should be secured by the Charge. 

17.	In early 2008, while negotiating with Bank of Scotland plc for a re-mortgage of the property, Mr Helden began to investigate whether the 2006 Charge was open to attack under FSMA. This eventually resulted in his issuing the instant proceedings in March 2009. 

18.	In late 2009, three experienced firms of estate agents, Savills, Strutt & Parker and Winkworth, each suggested that the property should be marketed at £1.8 million. 

19.	In addition to their loans referred to above, the Ashtons made loans through Strathmore and Sandworth to members of their family and to a Mr Michael Harrison. As the Judge explained, the loans made to Mr Harrison were not affected by FSMA for two reasons: they were made before the relevant law came into force, and the relevant properties were not used as or in connection with a dwelling by Mr Harrison. 

20.	On the basis of these facts, the Judge had to consider a number of issues. The first concerned the terms of the main loan and the 2006 Charge, the £25,000 loan, and the £90,000 loan (“the three loans”). The second issue was whether, quite apart from FSMA, those terms were enforceable. The third issue was whether the main loan was unenforceable by virtue of FSMA. The final issue was the question of costs. I shall consider those issues in the same order.

The terms of the three loans

21.	Before the Judge Mr Helden disputed that Strathmore was the creditor in respect of the three loans, a contention which the Judge rejected, a finding against which, very sensibly, there is no appeal. 

22.	More relevantly for present purposes, the Judge held that, although the 2006 Charge was defective in its provisions, because it failed to identify the loan which was thereby secured and the rate of interest it was to carry, as it sought to do so by reference to an offer letter which did not exist, it was clear that the parties had agreed what the loan was and the interest which was to be payable in respect of it. As the Judge said, the point was hardly pleaded by Mr Helden, and his statement of case sought no relief in this connection. However, the point was taken rather more forcefully before us.

23.	In my view, there is nothing in the point. On their respective pleaded cases, both Mr Helden and Strathmore contend that they agreed and intended that the main loan would be the £1m advanced to Mr Helden to enable him to purchase the property, and that they also agreed that the rate of interest would be 7.5% per annum. Those terms are also apparent from the 2005 Agreement. It seems clear that the error in the drafting of the 2006 Charge arose as a result of a mistaken assumption by Mr Wright that there had been an offer letter, and an oversight by Mr Ashton and Mr Helden when they came to sign the 2006 Charge.

24.	The Judge held that Mr Helden was bound by the oral agreement as to the size and identity of the loan secured by the 2006 Charge and the rate of interest payable thereon, as a result of estoppel by convention, and he cited Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 in support. I agree. I also consider that the same result could have been arrived at through ordering rectification of the 2006 Charge.

25.	The Judge also found that the parties had agreed (a) that interest was to be compounded with quarterly rests on the three loans, and (b) that there would be an increase in the rate of interest payable on the main loan – from 7.5% per annum to 10% from 31 March 2007, and to 12.5% from 1 October 2007. In the light of the facts summarised in paras 14 above, I see no basis for challenging finding (b). Finding (a) is a little more controversial in the light of the reference to the “flat interest rate” in the request described in para 13 above, but, given the facts summarised in para 15 above, I am firmly of the view that the Judge was entitled to reach the conclusion that he did.

Section 2 of the 1989 Act and section 53 of the 1925 Act
26.	Mr Christie, on behalf of Mr Helden, contends that it was not open to the Judge to fill the gap, as it were, in the 2006 Charge, in relation to the amount of the main loan or the rate of interest, through estoppel or rectification in the light of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“section 2”), or, alternatively, section 53 of the Law of Property Act 1925 (“section 53”).

27.	Mr Helden’s case on section 2 is hopeless. It proceeds on a fundamental misunderstanding of the reach and purpose of that section, a misunderstanding, it is fair to say, which appears to be not uncommon. Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents which actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future, or a contract for a mortgage in the future, are all within the reach of the section, provided of course the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all. 

28.	As is spelt out in its opening words, section 2 is concerned with “a contract for the sale or other disposition of an interest in land”. Its purpose is also clear from the fact that it replaced section 40 of the Law of Property Act 1925, and from the contents (and indeed the title) of the interesting and full Law Commission report which initiated it – Transfer of Land: Formalities for Contracts For Sale etc. of Land (Law Com. No. 364). The section was directed to tightening up the formalities required for contracts for the creation or transfer of interests or estates in land, and it was not concerned with documents which actually create or transfer legal estates or interests in land. This conclusion is consistent with the view expressed by the Chancellor of the High Court in McLaughlin v Duffill [2008] EWCA Civ 1627, [2010] Ch 1, paras 20-21, approving the reasoning of HH Judge Hicks QC in Target Holdings Ltd v Priestly 79 P & CR 305, para 51.

29.	Mr Helden’s case on section 53 is only marginally less weak. The section does indeed apply to mortgages, as, unlike section 2, it is concerned with the “creat[ion] or disposi[tion]” of any “interest in land”. However, it is far less prescriptive than section 2, which requires every term of the arrangement to be included in a document or identical documents signed by both parties. Section 53 merely requires the arrangement to be in a document signed by the person creating or disposing of the interest. Section 2 therefore may give rise to problems when it comes to estoppel or rectification (as discussed in the thoughtful judgment of Morgan J in Oun v Ahmed [2008] EWHC 545 (Ch), paras 41-55), but no such problems arise in connection with section 53.

The effect of FSMA on the loans: the background 

30.	As the Judge explained at [2010] EWHC 2012 (Ch), para 64: 
“Section 19 of FSMA bars anyone but an ‘authorised person’ or an ‘exempt person’ from carrying on a ‘regulated activity’ in the United Kingdom (the ‘general prohibition’). Section 22(1) provides that an activity is a ‘regulated activity’ if, among other things, it is ‘an activity of a specified kind which is carried on by way of business’ and either (under section 22(1)(a)) ‘relates to an investment of a specified kind’ or (under section 22(1)(b)) ‘in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind’. The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 … specifies kinds of activity for the purposes of section 22 of FSMA (see article 4). The activities specified include certain activities relating to ‘regulated mortgage contracts’, [an expression] defined in article 61.”

31.	Mr Helden’s argument, which was accepted by the Judge, is that, insofar as Strathmore agreed to provide credit to Mr Helden on the security of the 2006 Charge, it entered into a regulated mortgage contract, because the underlying main loan was secured on land to be used, “in connection with a dwelling by the borrower” – see para (1) of article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (“article 61”).

32.	Section 23(1) provides a breach of the general prohibition is an offence, and conviction can lead to a fine, imprisonment, or both. Section 23(3) states that it is “a defence for an accused to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence”. 

33.	So far as the civil consequences of a breach of the general prohibition are concerned, the relevant provisions for present purposes are sections 26 and 28. Section 26 states: 
“(1)     An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party.
(2)     The other party is entitled to recover—
(a)     any money or other property paid or transferred by him under the agreement; and
(b)     compensation for any loss sustained by him as a result of having parted with it.”
As the Judge said at [2010] EWHC 2012 (Ch), para 69, accepting a point made by Mr Philpott, who appears for Strathmore, the way in which section 26(2) is framed is more obviously suited to a case in which the “other party” has made an investment than one where, as here, he has been lent money.

34.	Section 28 is in the following terms: 
“(1)     This section applies to an agreement which is unenforceable because of section 26 ….
(2)     [Deals with the amount of compensation].
(3)     If the court is satisfied that it is just and equitable in the circumstances of the case, it may allow—
(a)     the agreement to be enforced; or
(b)     money and property paid or transferred under the agreement to be retained.
(4)     In considering whether to allow the agreement to be enforced or (as the case may be) the money or property paid or transferred under the agreement to be retained the court must—
(a)     if the case arises as a result of section 26, have regard to the issue mentioned in subsection (5); ….
(5)     The issue is whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement.
…   
(7)     If the person against whom the agreement is unenforceable—
(a)     elects not to perform the agreement, or
(b)     as a result of this section, recovers money paid or other property transferred by him under the agreement,
he must repay any money and return any other property received by him under the agreement. … .”

35.	There is, rightly, no challenge to the Judge’s conclusion that the provision of £1m secured by the 2006 Charge amounted to “an activity of a specified kind”. However, by way of Respondent’s Notice, Strathmore challenges the Judge’s conclusion that it made the main loan pursuant to the 2006 Charge as “an activity of a specified kind which is carried on by way of business”. And Mr Helden, by way of appeal, challenges the Judge’s decision, pursuant to section 28(3) that it was “just and equitable in the circumstances of the case” to allow Strathmore to enforce the main loan and the 2006 Charge. 

36.	Similar issues arise in connection with the £25,000 loan. There are no issues in relation to the £90,000 loan as the Judge concluded that he should not grant relief to Strathmore in relation to that loan under section 28(3), as it was not just and equitable to do so, and Strathmore does not challenge that conclusion. 

The effect of FSMA on the loans: “carried on by way of business”
37.	Article 3A of the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 (“article 3A”), provides that a “person is not to be regarded as carrying on by way of business an activity ...unless he carries on the business of engaging in that activity.”. As the Judge explained, at [2010] EWHC 2012 (Ch), para 69: 
“In this context, as in some others within the financial services legislation, a distinction is drawn between (a) an activity ‘carried on by way of business’ and (b) carrying on ‘the business of engaging in that activity’. Whereas arranging or advising on regulated mortgage contracts will be a specified activity only if the person in question ‘carries on the business of engaging in that activity’ (within the meaning of article 3A …), ‘entering into a regulated mortgage contract as lender’ or ‘administering a regulated mortgage contract’ is a specified activity if the activity is merely ‘carried on by way of business’ (within section 22 of [FSMA]) (provided that, in the case of ‘administering a regulated mortgage contract’, the relevant contract was ‘entered into by way of business’ – see article 61(2) …).”
38.	In the court below, Mr Philpott relied on a number of cases dealing with the now repealed section 6 of the Moneylenders Act 1900, but I agree with the Judge that they are not of much assistance as they were concerned with a differently worded provision in a somewhat different statutory context.

39.	Mr Philpott also relied below, as he did before us, on one case on Section 189(2) of the Consumer Credit Act 1974, Tamimi v Khodari [2009] EWCA Civ 1042, which the Judge thought was of some assistance. In my view, that case helps to the extent of emphasising the point that, whether a person carries on the business of engaging in a specific activity is a matter of secondary fact, or inference, which is essentially for the trial judge, who must determine the issue by reference to all the relevant facts of the case.

40.	The Judge’s conclusion on this issue is to be found at [2010] EWHC 2012 (Ch), paras 87-89. In the first two of those paragraphs, the Judge set out a concession, and the principal submissions, made on behalf of Strathmore on this point, and repeated before us. Mr Philpott realistically accepted that the issue had to be judged by treating the Ashtons, Strathmore and Sandworth as a composite unit. However, he pointed out (i) that, apart from the loans to Mr Helden, no other regulated activity had been carried on by them, (ii) that those to whom they lent money were friends and family, (iii) that all such transactions were conducted informally, (iv) that there was no business “set-up”, and (v) that Mr Ashton saw himself as making personal investments rather than carrying on a business. 

41.	The Judge nonetheless concluded that the making of each of the three loans to Mr Helden involved the ‘carr[ying] on by way of business’ within the meaning of FSMA, for the following reasons:

“i) Even excluding loans to members of the Ashton family, Strathmore/Sandworth made a sizeable number of loans. … Mr Harrison explained that he was assisted with the purchase of around 100 properties, albeit that many of the properties were acquired in portfolios of up to 25 properties; 
ii) The loans were made over a period of years and with some regularity. The first loan to Mr Harrison dates from 2002. Thereafter, as Mr Ashton said in his witness statement, he ‘made a series of very short term loans to [Mr Harrison] to assist him to build up a buy to let portfolio’. Money was advanced to Mr Helden, Mr Jordan and companies associated with them between 2004 and 2006;
iii) Substantial amounts of money were advanced. Sandworth lent as much as £5.4 million in connection with the purchase of [Belgravia]. C & J came to owe upwards of £3 million on the security of … Catherine Place. Mr Helden was lent more than £1 million. Mr Harrison reckoned that he never owed more than about £1 million at any time, but £1 million is a considerable amount;
iv) The loans were made with a view to profit. During his oral evidence, Mr Ashton referred more than once to having tried to get the best possible return on his money. … ;
v) Mr Ashton came to meet Mr Helden and Mr Jordan because they were seeking funding. The Ashtons' friendship with Mr Helden and Mr Jordan grew out of their financial relationship, not the other way round. Likewise, the relationship between Mr Harrison and the Ashtons began as a ‘purely professional’ one … ;
vi) It is possible to exaggerate the informality with which matters were conducted. Solicitors were often instructed. The loans were generally secured. Mr Ashton kept a record, even if in manuscript, of the transactions. In any case, informality is not necessarily inconsistent with business;
vii) The loans to Mr Helden formed part of a chain of not dissimilar transactions, albeit that they were the only ones involving ‘activity of a specified kind’; and
viii) Strathmore is a limited company with, I understand, commercial objects.”

42.	No attack has been, or I think could be, made on the accuracy of the eight factors which the Judge identified in that passage. It is, in my opinion, impossible, in those circumstances, to conclude that the Judge was wrong, or at least not entitled as a matter of law, to conclude that, taking Strathmore together with Sandworth and the Ashtons, the making of the main loan and the 2006 Charge were “an activity carried on by way of business”, on the ground that Strathmore “carrie[d] on the business of engaging in that activity.” 
The effect of FSMA on the loans: section 28(3)
43.	The Judge decided that it would be just and equitable to permit Strathmore to enforce the 2006 Charge (and the obligation to repay the £25,000 loan), together with the two increases in the rate of interest agreed in 2007. In reaching that conclusion, he took into account one specific factor, which he set out in [2010] EWHC 2012 (Ch), para 97, and some more general factors, which he identified three paragraphs later.

44.	The specific factor was:
“97. … [I]t was reasonable for the Ashtons (and Strathmore) to fail to realise that FSMA was in point. After all: 
i)	… Strathmore employed solicitors to represent them in connection with the loan for the purchase of [the property], and those solicitors did not inform them that FSMA was (or could be) applicable; 
ii)	The financial services legislation had not until quite recently [October 2004] extended to any mortgages ….;
iii)	Neither the Ashtons nor their companies usually entered into transactions to which FSMA applied. It did not apply, even after 2004, to loans such as those granted to C & J [the other companies in which Mr Helden was interested] or Mr Harrison; and
iv)	Neither Mrs Ashton nor even Mr Ashton had ever attended any training courses on financial matters, let alone a course concerned with FSMA.”

45.	The more general factors which the Judge took into account were explained thus:
“100. The case for allowing enforcement of the agreement relating to the [main] loan is, as it seems to me, particularly compelling. The reasons include these: 
v)	Mr Helden has had the use of the property which Strathmore’s loan enabled him to buy … since 2006 without making any rent or interest payments; 
vi)	The property has increased substantially in value. Whereas it was bought for £1 million, agents last year suggested that it should be marketed at £1.8m … . The loan from Strathmore has thus enabled Mr Helden to achieve a large profit;
vii)	… I accept that … Strathmore would not have been willing to make the loan on an unsecured basis;
viii)	… Strathmore could be expected to have generated a return on the £1 million by investing it elsewhere had it not been lent to Mr Helden. They have lost that potential profit as a result of lending the money to Mr Helden;
ix)	There is no question of Mr Helden having been taken advantage of. He had considerable experience in property matters, including as a mortgage broker. Further, the rates of interest charged were agreed with Mr Helden and were not exorbitant;
x)	Mr Helden preferred not to pursue alternative funding because of his concern that he should be able to make lump sum repayments without penalty …;
xi)	Mr Helden has not identified respects in which he would have been better placed if Strathmore had been an ‘authorised person’ for FSMA purposes; and
xii)	The Ashtons did not realise that FSMA could apply, and it was reasonable for them not to do so.”

46.	In my view, the only possible objection which could be taken to the analysis in paras 97 and 100 of the judgment and the resulting conclusion, is the implicit interpretation of section 28(5) which the Judge appears to have adopted. He seems to have thought that that subsection assisted Strathmore, in the sense that it applied in a case such as this, where the person in breach of the general prohibition was unaware of FSMA or its possible prohibition of the transaction in question, and where it was, in all the circumstances, reasonable for that person to be so unaware. However, there is a powerful argument for saying that a person cannot contend that he “reasonably believed that he was not contravening the general prohibition by making [an] agreement”, if he was wholly unaware of the existence of the prohibition at the time of the agreement. 

47.	It seems to me that there is considerable force in the simple linguistic point that a person cannot “believe that he [is] not contravening [a] rule”, if he is wholly unaware of the rule. Believing that one is not doing something is simply not the same thing as not believing one is doing something: to believe wrongly that one is not committing an act requires a degree of knowledge as to what that act is or entails, whereas wrongly not believing one is committing an act requires a degree of absence of knowledge, which renders it easier to contend that it would apply where one is ignorant of the existence of the act.

48.	Against that, there is some force in the point that it is unlikely that Parliament could have intended that a person who wrongly, but reasonably, believes that he is not contravening a statute should be better off than a person who was, reasonably, unaware that the statute applied. Having said that, the answer to that point may be that people who carry on regulated activity and are ignorant of the law, even if reasonably so, should be more at risk, because they are more of a danger to the public, than those who carry on such activity, and are aware of the law, and reasonably, albeit wrongly, conclude that it does not apply.

49.	In support of his contention that the Judge was right in his apparent interpretation of section 28(5), Mr Philpott referred to the decision of the House of Lords in R v Johnstone [2003] UKHL 28, [2003] 1 WLR 1736. That case involved consideration of the criminal liability for unauthorised use of a registered trade mark under section 92(1) of the Trade Marks Act 1994. Section 92(5) provides that it is a defence for an accused person “to show that he believed on reasonable grounds that the use of the sign in the manner in which it was used, or was to be used, was not an infringement of the registered trade mark.”

50.	At [2003] 1 WLR 1736, para 42, Lord Nicholls of Birkenhead referred to a decision of the Divisional Court, Torbay Council v Satnam Singh [1999] 2 Cr App R 451, where it had been held that section 92(5) was not available as a defence “where the defendant does not know of the existence of the registered trade mark in question”. He then referred to later cases where this holding had been doubted, and said this in the following paragraph:
“I share these doubts. The interpretation adopted in the Satnam Singh case draws a distinction Parliament cannot have intended. The language of the subsection gives no support to this distinction. Section 92(5) is concerned to provide a defence where the person charged has a reasonable belief in the lawfulness of what he did. Those who act honestly and reasonably are not to be visited with criminal sanctions. It makes no sense to confine this defence to cases where the defendant is aware of the existence of the registered trade mark and exclude altogether those cases where the defendant is not. Section 92(5) provides a defence where the defendant believes on reasonable grounds his use of the sign does not infringe a registered trade mark of whose existence he is aware. It would be extraordinary if the subsection does not equally furnish a defence in the stronger case where the reason why the defendant believes his use of the sign does not infringe a registered trade mark is that he reasonably believes no relevant trade mark is registered. Section 92(5) is to be interpreted as including the latter case as well as the former.”

51.	Lord Nicholls was concerned with a case where there were reasonable grounds to believe that a trademark had not been registered. This case is more akin to a defendant who was unaware that there was a system of registration at all. For reasons I have given in paragraph 47 above, it is more difficult to bring ignorance of the law within the scope of section 28(5). Nonetheless, there is some support for the Judge's approach in these observations of Lord Nicholls, in particular where he states that the intention is to provide a defence where the person charged has a reasonable belief in the lawfulness of what he did. Furthermore, there are points of distinction between that case and this. First, no criminal sanction is involved under section 28 of FSMA: section 28 is concerned with enforceability, and has nothing to do with criminality, which is dealt with by section 23, which has its own, not altogether dissimilar, defence in section 23(3). Secondly, section 28(5) identifies one factor which has to be taken into account when carrying out a much more wide-ranging exercise under section 28(3), whereas section 92(5) of the Trade Marks Act sets out a single, binary, potential defence. Thirdly, ignorance of the existence of the legal requirements of FSMA, which is what is being relied on by Strathmore in its argument, is rather different from ignorance of a simple fact, such as the existence of a trade mark.

52.	It is unnecessary to resolve this difficult issue, and I would therefore prefer not to do so, not least because I am not convinced that we have had as full submissions on the point as it may merit. Even accepting in Mr Helden’s favour that the Judge did assume that Strathmore could rely on section 28(5) (which he may well have done) and that he was wrong in so doing (which he may well have been), I consider that he reached the right decision on the question whether Strathmore could rely on section 28(3). In my view the reasons he gave at [2010] EWHC 2012 (Ch), paras 97 and 100, when taken together, make out a strong case for Strathmore being entitled to enforce the 2006 Charge, and the agreement in relation to the £25,000 loan, notwithstanding the breach of FSMA, even if section 28(5) does not assist Strathmore’s case.  

53.	The Judge considered the issue in a careful and thorough way, and, if he did go wrong in his interpretation of section 28(5), it is fanciful to think that that would have affected his ultimate conclusion. His well modulated approach is demonstrated by the contrasting approach that he took to the £90,000 loan, in respect of which he said this at [2010] EWHC 2012 (Ch), para 103:
“In contrast, I have not been persuaded that I should grant relief under section 28(3) … as regards the [£90,000 loan]. The following points in particular militate to my mind against doing so: 
i) The £91,509 derived from a £35,000 loan made less than three years before … . While I understand how the debt came to grow as it did, the increase is still equivalent to an extremely high rate of interest; and 
ii) The £35,000 was lent to C & J rather than to Mr Helden himself.”
The effect of FSMA on the loans: conclusion

54.	Accordingly, I would uphold the Judge’s decision that (i) Strathmore contravened FSMA by entering into the 2006 Charge, and (ii) it was nonetheless just and equitable to permit Strathmore to enforce the 2006 Charge. 
The appeal on costs
55.	After he handed down his judgment dealing with the issues discussed above, the Judge heard argument on various matters, including costs. He delivered an ex tempore judgment on 10 September 2010, in which he awarded Strathmore its costs of the proceedings on an indemnity basis.

56.	His reason for reaching this conclusion may be summarised as follows. A number of cases show that “a mortgagee is generally entitled contractually to recover all costs … in enforcing and preserving his security, and, moreover, to do so on the indemnity basis”, and he “s[aw] no reason why the costs order should not reflect the contractual position”. In particular, the fact that Mr Helden had succeeded in defeating the claim in relation to the £90,000 loan did not alter the Judge’s view, as that issue involved “no significant extra costs”.

57.	In my view, that analysis was fundamentally flawed. It is perfectly true that the majority, probably the great majority, of mortgages contractually provide that the mortgagee should be entitled to recover its costs of enforcing the mortgage on an indemnity basis, and that, in the absence of a good reason to the contrary, the court will give effect to that provision when exercising its discretionary power in relation to costs.

58.	However, in this case, the 2006 Charge did not contain a provision entitling Strathmore to recover the costs of enforcing its rights, on an indemnity basis or at all. In those circumstances, with due respect to the Judge, who gave an excellent judgment on the substantive issues, he went wrong in dealing with costs effectively on the assumption that the 2006 Charge did so provide. Where an agreement contains no provision stating how the costs of proceedings will be dealt with, then it seems to me that it would be wrong in principle for the court to proceed on the basis that there is such a provision, simply because the majority of agreements of the type in question do contain such a provision. If anything, one would presume that the parties intentionally departed from the norm.

59.	It seems to me that the Judge should have proceeded on the basis that he had the normal discretion enjoyed by the court when it comes to costs, namely a discretion to be judicially exercised by reference to the facts of the case, with no special presumption as there would often be if there had been a specific term dealing with costs agreed between the parties.

60.	On that basis, it seems to me that this court must consider for itself what order for costs to make. Strathmore substantially succeeded in the result: insofar as it failed on the £90,000 loan, we should respect the Judge’s view that it was a minor matter. Further, there were many issues of fact, on almost all of which Strathmore succeeded. 

61.	However, there are two important points the other way, First, Strathmore failed on the question of whether FSMA applied, and that involved some investigation of the nature and extent of its business (as well as that of the Ashtons and Sandworth). Secondly, in order to succeed in its claim to enforce the 2006 Charge, Strathmore needed to seek the indulgence of the court under section 28(3) of FSMA: while that is not quite the same as seeking relief from forfeiture or another sanction, it is a significant reason for depriving it of costs.

62.	On behalf of Mr Helden, Mr Christie submitted that the correct order for costs was that Mr Helden should pay 60% of Strathmore’s costs on the standard basis. In my view, that was an entirely reasonable suggestion, and I would adopt it.

Conclusion
63.	In these circumstances, Mr Helden’s appeal is dismissed, save in relation to the issue of costs, and Strathmore’s Respondent’s Notice is dismissed. I would uphold the Judge’s order, save that I would substitute for the provision for indemnity costs against Mr Helden, a provision that he pays 60% of Strathmore’s costs, to be assessed on the standard basis of not agreed. 

64.	No doubt, counsel can agree a form of order, and, if they cannot agree on the costs of this appeal and cross-appeal, we will deal with them on written submissions.
Lady Justice Smith:
65.	I agree.
Lord Justice Elias:
66.	I also agree.