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Enforcement of mortgage charge: valid defence was too late

01 February 2016

Failing to diligently assert a defence to enforcement of a charge over property may preclude a borrower from relying on that defence.  The Court of Appeal in Dickinson & anr v UK Acorn Finance Ltd [2015] EWCA Civ 1194, 25 November 2015 decided that a borrower, under a loan that was arguably unenforceable under the Financial Services and Markets Act 2000 (the Act), could not rely on that unenforceability to resist repossession of the charged property.  This was because reliance on the Act, more than two years after possession proceedings had started, was an abuse of process.

In November 2010, the defendant, UK Acorn Finance Limited (Acorn), lent GBP 630,000 to the Dickinsons. The loan was secured by a legal charge over property, with the loan and interest due to be repaid after six months. The Dickinsons failed to repay, so Acorn issued mortgage possession proceedings in September 2011. After an initial (but conditional) possession order was made permitting Acorn to repossess the mortgaged property, the Dickinsons challenged its right to do so on the basis, among others, that a sub-charge precluded the exercise of Acorn’s rights. This challenge failed, so a warrant was issued and an eviction appointment made.

It was not until 29 October 2013 that the Dickinsons commenced proceedings, arguing that the mortgage was unenforceable under s26 of the Act. Section 26 and related provisions render unenforceable an agreement made in the course of carrying on certain “regulated activity” in contravention of the prohibition on carrying out a regulated activity unless the person is an “authorised person” (ss19 and 26).

The Dickinsons argued that the loan was unenforceable under the Act because Acorn was not authorised to offer a mortgage of this type. In dispute was whether the mortgage was a “regulated mortgage contract” (which depended on the percentage of the land used in connection with a dwelling).

In its defence, Acorn relied on (i) cause of action estoppel, (ii) issue estoppel, and (iii) abuse of process. The challenge in respect of estoppel failed, but both at first instance and in the Court of Appeal Acorn’s challenge on the basis of abuse of process succeeded.

Estoppel unavailable to defeat statutory protection

Acorn argued that the borrowers were estopped from relying on s26 on the basis of a cause of action estoppel, or issue estoppel, in view of the procedural history of the matter. The Court of Appeal referred to Kok Hoong v Leong Cheong Mines Ltd [1964] AC 993, where the Privy Council expressed the view that, sometimes, public interest legislation must be given effect, so that an estoppel (being a rule of evidence rather than a substantive right) cannot be asserted against it. The Court of Appeal concluded that cause of action estoppel and issue estoppel cannot be used to defeat statutory provisions designed to protect vulnerable categories of person (such as consumers), or protect others who engage with such persons. Therefore, as s26 is consumer protection legislation, Acorn could not rely on an estoppel.

Abuse of process available

Acorn relied on the abuse of process principle in Henderson v Henderson (1843) 3 Hare 100: “… that a litigant should in general bring forward all his claims in one proceeding, rather than successively, otherwise a defendant will be doubly harassed by the litigation”.

Acorn argued that the Dickinsons’ reliance on s26 was an abuse of process because it was raised too late, and should have been made much earlier.

In deciding whether the Dickinsons’ application was an abuse of process, Longmore LJ drew a distinction between a statutory provision that completely prohibits enforcement and a “nuanced” prohibition:

  • An abuse of process argument cannot be used to defeat a blanket prohibition, because the effect would be to enforce an otherwise unenforceable agreement. 
  • An abuse of process argument could be used to defeat a “nuanced prohibition”, which allows enforcement, but only in certain circumstances.

His Lordship noted that the s26 prohibition falls into the latter category of being a “nuanced” prohibition. This is because s28 of the Act permits enforcement of agreements that are otherwise rendered unenforceable by s26 of the Act in certain circumstances (including, for example, where the court is satisfied it is just and equitable).

Even if the agreement were held to be unenforceable, the Dickinsons would be required to repay the sum advanced anyway (s28 (7) of the Act requires that a person who receives money paid under an unenforceable agreement must repay it). Allowing Acorn’s abuse of process application was thus not defeating a blanket prohibition on enforcement.

The Court of Appeal agreed that the Dickinsons’ application was an abuse of process, so Acorn could proceed with the repossession.


If a borrower relies on a statutory defence which, on public policy grounds, prohibits the enforcement of certain loan agreements, it is unlikely that it will be estopped from asserting that defence late in the proceedings. However, raising the statutory defence late in the proceedings may be an abuse of process where the defence is not a blanket bar to enforcement.

Conversely, a borrower will be entitled to assert valid statutory defences where the relevant defence imposes an absolute ban on enforcement of the underlying contract. This is consistent with the public policy underlying statutes of that type, but may mean that recalcitrant borrowers can refrain from asserting their “best” defences until a late stage as a delaying tactic.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey, or tel +44 20 3088 3710.