Meretz Investments NV & Anor v ACP Ltd & Ors

A mortgagee may exercise a power of sale to recover all or part of the secured debt or to protect its security. Mixed motives do not invalidate the exercise where recovery or protection is a genuine purpose. A mortgagee owes equitable duties to the mortgagor and subsequent encumbrancers, including a duty to act in good faith and obtain the best price reasonably obtainable when selling, but the duty is measured by the interest actually secured.

A purchaser’s title is protected by section 104(2) of the Law of Property Act 1925, subject to actual or imputed knowledge of impropriety. Constructive knowledge alone is insufficient. An option requiring a developer to grant a lease-back on failure to develop was neither security for site payments nor a penalty.

Britel owned the freehold of Albert Court and Meretz held an interest under an introduction agreement relating to a rooftop penthouse development. ACP held the development lease. FP, its parent company, held a first charge over that lease and later acquired the benefit of a second charge.

The development was delayed. FP exercised its power of sale and contracted to sell the development lease to Mr Tamimi, who was also financing construction. Britel and Meretz alleged that the sale was improper, breached contractual and equitable duties, and constituted economic torts. They also claimed damages for failure to complete the development and to grant a lease-back under the Preliminary Agreement.

The court had to determine the effect of earlier litigation and estoppels, the validity and purpose of the sale, the protection available to Mr Tamimi, the nature of the lease-back option, and the parties’ contractual and tortious liabilities.

1. Estoppel and abuse of process. The earlier injunction proceedings created a cause of action estoppel concerning alleged breaches of the Introduction Agreement, Preliminary Agreement and FP Guarantee which might have prevented the sale. The assignment proceedings created an issue estoppel that FP had a mortgage and power of sale. It was also abusive to reargue the effect of the 1999 and 2001 Deeds of Priorities. The improper-purpose allegation, the contractual damages claims, and the precise nature of the lease-back option were not barred.
2. Mortgagee’s power and duties. A mortgagee may act to recover the secured debt or protect its security. It need not have purity of purpose. A genuine purpose of recovering part of the debt or protecting the security is sufficient, even where other consequences or motives exist. FP’s purpose included recovering its lending and avoiding the loss of its security. The sale was therefore proper and FP was not in breach of its equitable duty to Meretz.
3. Purchaser protection. Section 104(2) of the Law of Property Act 1925 protected Mr Tamimi’s title even if FP’s exercise had been improper. Actual or blind-eye knowledge of impropriety could defeat protection, and a solicitor’s relevant actual knowledge could be imputed to the purchaser. Constructive knowledge was insufficient. Mr Tamimi lacked knowledge of any impropriety.
4. Lease-back option. The option was not security for site payments. Its commercial purpose was to prevent ACP retaining undeveloped roofspace for the residue of the long lease. It was not a penalty and was not invalidated by section 38 of the Landlord and Tenant Act 1954. Section 114 of the Law of Property Act 1925 did not transfer the option on the transfer of a registered charge.
5. Economic torts. The defendants lacked the intention required for conspiracy or unlawful interference. Their predominant purpose was protection of their own interests, and the contractual priority arrangements either justified the interference or meant that Britel and Meretz had accepted the relevant risk. The tort claims failed.
6. Contractual liability and damages. ACP breached the development timetable and failed to grant the lease-back. FP was liable to Britel under its guarantee, but not to Meretz. Britel recovered nominal damages of £5. Meretz established a realistic prospect of recovering substantial damages for loss of the chance of commission, to be assessed. All other claims were dismissed.

The judgment records earlier proceedings concerning the same development, including decisions in the debt, injunction, assignment and forfeiture actions. Those proceedings formed part of the court’s analysis of estoppel and abuse of process. This judgment was a first-instance determination of the remaining claims.