Lexi Holdings v Pooni & Anor

A mortgagee generally owes no duty to sell mortgaged property and may decide whether and when to exercise its power of sale, while considering its own interests. Proper marketing will ordinarily be required before a sale, and exceptional circumstances may require delay, but non-sale alone does not create a claim for damages. Where a purported sale is set aside, the sale is avoided ab initio and the parties’ prior legal positions are restored. A prospective damages claim by the mortgagor is not an answer to the mortgagee’s claim for possession. Summary judgment may therefore be given where the defence and proposed counterclaim have no real prospect of success.

Lexi Holdings plc, in administration, claimed possession of No Man’s Land fort, of which it had been registered as proprietor following an earlier order setting aside a purported sale to Charyn. It was subsequently common ground that Lexi had been only mortgagee when that sale occurred. Bobs Leisure Limited, the former registered proprietor, applied to be joined and sought re-registration as proprietor, damages for fraud and breach of duty, and an account concerning redemption. Mr Pooni, a director of Bobs, resisted possession.

The claim had been transferred from Portsmouth County Court to the High Court. The court considered the effect of setting aside the sale, the alleged mortgagee’s duty to sell, Bobs’ proposed counterclaim, and the jurisdictional issue arising from the dwelling-house on the fort.

1. Jurisdiction. The dwelling-house on the fort engaged the county court jurisdiction provisions in County Courts Act 1984, including section 21(3). The proceedings were amended to include a claim for sale, bringing them within section 21(4). The alternative arguments based on transfer to the High Court and section 42(2) were not accepted.
2. Effect of avoidance. Setting aside the sale to Charyn avoided it ab initio. Since Lexi had sold only as mortgagee, Bobs’ title had not been overreached. Bobs was therefore entitled to be re-registered as proprietor, while Lexi was entitled to be re-registered as legal mortgagee in order to restore the status quo ante.
3. Mortgagee’s duty. A mortgagee owes no general duty to sell and may consider its own interests when deciding whether, and when, to sell. Proper marketing will generally precede a sale, and exceptional circumstances may require delay, such as a strongly rising market. Those qualifications did not alter the basic right not to sell. The period during which Lexi did not make a valid sale therefore gave Bobs no claim for damages. Barclays Bank plc v Kingston [2006] 2 Lloyds Rep 59 supported that conclusion.
4. Possession and summary judgment. Bobs had no real prospect of proving recoverable loss, and its proposed cross-claim could not in any event answer Lexi’s claim for possession. The principles in National Westminster Bank v Skelton [1993] 1 WLR 72 and Ashley Guarantee v Zacaria [1993] 1 WLR 62 were applied.
5. Bobs was joined and re-registered as proprietor. Lexi was re-registered as legal mortgagee, obtained an order for sale with vacant possession and summary judgment against Bobs and Mr Pooni, subject to the detailed orders and a further hearing concerning rectification of the register.

The claim was transferred from Portsmouth County Court to the High Court. The judgment was a first-instance determination; no appeal history was stated.