Britel Corporation NV & Anor v First Penthouse Ltd & Ors

A mortgagee’s power of sale may remain exercisable despite collateral contractual obligations connected with the mortgaged property. Where the parties subsequently execute a deed expressly confirming that the charge will come into full force and take effect, that confirmation may be inconsistent with an alleged restriction on exercising the power of sale. An arguable construction point does not justify permission to appeal where a later deed creates an insuperable obstacle to the claim and the appeal would have no real prospect of success.

The claimants sought continuation of quia timet injunctions restraining First Penthouse Limited and ACP Limited from selling or otherwise disposing of a development lease. His Honour Judge Seymour QC refused to continue the injunctions, holding that the claimants had no cause of action, and refused permission to appeal.

The claimants argued that the guarantee made First Penthouse liable as if it were a party to the preliminary development agreement, or alternatively that its proposed sale would prevent ACP from performing its obligations. They also relied on the contractual prohibition on disposal and Landlord and Tenant (Covenants) Act 1995. The central issue was whether the 1999 Deed of Priorities and Further Charge preserved or displaced any restriction on First Penthouse’s exercise of its power of sale.

1. Permission refused. The proposed appeal had no real prospect of success, and the interim injunctions could not continue.
2. Lord Justice Parker held that the construction of clause 2 of the guarantee was plainly arguable. It was therefore unnecessary to decide whether First Penthouse was liable as if it had been named as a party to the Preliminary Agreement.
3. Even on the claimants’ favourable construction, the 1999 Deed of Priorities and Further Charge was decisive. It expressly recognised First Penthouse’s charge as effective and provided that, following discharge of the Varlet charge, it would come into full force and take effect as the first charge, subject to stated limits. That language was inconsistent with an alleged collateral restriction preventing exercise of the statutory power of sale.
4. Lord Justice Chadwick agreed. He considered that Britel might previously have been entitled to restrain exercise of the power of sale, because the charge and collateral agreements were arguably inconsistent. The parties’ subsequent confirmation of the charge’s full force and effect, however, made it impossible for Britel or Meretz to rely on such a restriction after executing the 1999 deed.
5. A charge conferring a power of sale could not sensibly be treated as having full force and effect if that power could never be exercised while development remained incomplete.
6. First Penthouse was awarded its costs, subject to detailed assessment.

• Court of Appeal (Civil Division): Permission to appeal refused. The interim injunctions were not continued and First Penthouse was awarded its costs, subject to detailed assessment.
• County Court: His Honour Judge Seymour QC refused to continue the interlocutory injunctions until trial or further order, held that the claimants had no cause of action, and refused permission to appeal.