Sheila Burns v Fred Bridge & Anor

A deed of priority referring to a maximum capital sum plus interest and costs ordinarily gives priority for the lender’s properly recoverable debt, interest and enforcement costs, subject to the stated capital cap. Compound interest remains interest and does not become capital merely because it is added to the balance outstanding. The word costs may encompass costs, charges and expenses properly recoverable by a mortgagee, not only legal costs. A mortgagee in possession must take reasonable care to obtain the best price reasonably obtainable at the date of sale. A valuation difference alone is insufficient where the evidence falls within an accepted margin of error and reasonable marketing methods were used.

Sheila Burns had sold development property to Fred Bridge, leaving part of the purchase price outstanding and secured by a second mortgage. Property Funding Limited later financed the development and obtained priority over Mrs Burns under a 2019 Deed of Priorities.

After taking possession as mortgagee, PFL sold three houses. Mrs Burns sought declarations as to the meaning of Lender’s Debt, an account of the sale proceeds, and compensation for an alleged failure to obtain the best price reasonably obtainable. The central issues were whether the deed’s reference to interest included compound interest, whether costs extended beyond legal costs, and whether PFL had breached its equitable duty on sale.

1. Construction. The deed was construed objectively, giving primary weight to the language used in its contractual context and, where genuine ambiguity existed, to commercial common sense. The £850,000 figure capped the capital sum securing PFL’s priority. It did not cap interest that remained properly characterised as interest.
2. Interest. “Interest” meant the compound interest PFL was entitled to charge Mr Bridge under the 2019 Loan Agreement. Inland Revenue Commissioners v Oswald established that capitalisation does not alter interest’s character. Imperial Life Assurance Company of Canada v Efficient Distributors Limited was confined to its statutory context and did not justify treating the interest as capital.
3. Costs. “Costs” was capable of encompassing costs, charges and expenses properly recoverable by a mortgagee enforcing or preserving its security. PFL was not limited to legal costs. Whether every deduction was reasonably and properly incurred remained an accounting issue.
4. Sale at undervalue. The equitable duty required PFL to take reasonable precautions to obtain the best price reasonably obtainable at the date of sale. PFL’s continued use of competent agents, its engagement with the marketing strategy, and the use of Rightmove satisfied that standard. The alleged shortfall against the expert valuation was only about 3% outside the expert’s 10% margin of error and did not establish breach.
5. Disposition. The undervalue claim failed. An account remained potentially available regarding recoverable costs. The compound-interest calculation had to be recalculated from the 2019 facility’s opening balance of £713,500, including specified further advances, while later advances totalling about £34,500 were excluded from the relevant interest calculation.

First-instance judgment. No prior appellate decision was stated.