Michalis SA Kallakis v Achilleas M Kallakis & Ors

A mortgagee may exercise a power of sale whenever it chooses, even if waiting might produce a higher price. Its equitable duty is to take reasonable care to obtain the best price reasonably obtainable at the time of sale. That duty protects persons with an interest in the equity of redemption, including the mortgagor, an inferior mortgagee and a guarantor. It is not owed to a person who has only an indirect beneficial or familial interest. A claim also fails where the claimant lacks title to sue, cannot establish actionable misrepresentation, or cannot prove loss. A trustee is not the beneficial owner of trust property. Proceedings brought and controlled by another person through a nominee claimant may constitute an abuse of process.

The claimant alleged that Allied Irish Banks plc had misrepresented its intentions after discovering fraud in a property-financing structure, had sold the property portfolio at an undervalue, and had been unjustly enriched. Claims were also advanced against the claimant’s father, Achilleas Kallakis, and Michael Becker, concerning alleged trust ownership and negligent advice.

The proceedings followed an earlier strike-out application before Moulder J, who struck out some claims but allowed others to proceed to trial: [2020] EWHC 460 (Comm). Following a lengthy trial, the central issues were title to sue, the scope of a mortgagee’s duty on sale, the value reasonably obtainable in November 2008, unjust enrichment, negligence and abuse of process.

1. Disposition. All claims were dismissed. The claimant had no title to sue. The alleged trust was not established and, in any event, the property-owning companies were beneficially owned by Achilleas rather than held for the claimant and his siblings.
2. A mortgagee may sell whenever it chooses once the power of sale has arisen. The fact that the market may later improve, or that the chosen timing leaves a larger shortfall, does not itself constitute a breach. The governing duty is to take reasonable care to obtain the best price reasonably obtainable at the time of sale: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 1 Ch 949.
3. The duty is owed to the mortgagor, an inferior mortgagee and a guarantor, because they have an interest in the equity of redemption. It is not owed to an indirect trust beneficiary, or to a director, shareholder, employee or family member without such an interest. The court applied the reasoning in Parker-Tweedale v Dunbar Bank plc [1991] Ch 12 and Burgess v Auger; Burgess v Vanstock Ltd [1998] 2 BCLC 478.
4. Even if a duty had been owed, the evidence showed that the portfolio was worth substantially less than the outstanding debt in November 2008. The sale price, supported by non-recourse funding, was better than the likely proceeds of an open-market sale.
5. The misrepresentation claim was unpleaded, unsupported by the evidence and incapable of establishing reliance or loss. Section 104(2) of the Law of Property Act 1925 did not assist because the claimant had no proprietary interest in the properties.
6. The unjust-enrichment claim failed because AIB had not been enriched at the claimant’s expense. The negligent-adviser claim also failed on the facts. The proceedings had in substance been brought and prosecuted by Achilleas through Michalis, but the court did not need to dismiss the claims on abuse-of-process grounds because they failed on their merits.

• High Court (Commercial Court)—Following an earlier strike-out application, Moulder J struck out some claims but refused summary dismissal of the entire claim: [2020] EWHC 460 (Comm). After trial, Baker J dismissed all remaining claims.