Fairmont Property Developers UK Ltd v Venus Bridging Ltd & Ors

Section 91 of the Law of Property Act 1925 does not give a defaulting mortgagor a general right to take conduct of a sale from a mortgagee or its receivers.

Where the mortgagee is actively realising its security, intervention requires exceptional circumstances: circumstances out of the ordinary and a substantial justification for overriding contractual rights. A mere possibility or real risk of an undervalue, or the existence of a shortfall, is insufficient. The mortgagor must show that a sale at an undervalue is likely, although the court need not determine the property’s actual value. Comparative prejudice is considered only after that threshold is met.

Fairmont defaulted on a short-term loan secured by a second mortgage over a commercial warehouse. Venus appointed receivers, who marketed the property and obtained a proposed sale. Fairmont disputed the marketing strategy and applied under section 91 of the Law of Property Act 1925 for conduct of the sale to be transferred to it. The Deputy High Court Judge dismissed the application and refused permission for Fairmont to rely on expert valuation evidence. Fairmont appealed, challenging the approach to exceptional circumstances, unfairness, prejudice and expert evidence. The central issue was whether the statutory discretion justified replacing the receivers while the mortgagee was actively pursuing a sale.

The appeal was dismissed. Nugee LJ gave the reasons, with which Lewis LJ and Asplin LJ agreed. The injunction restraining the receivers from selling pending the appeal was discharged.

1. Expert evidence. The relevant test required consideration of whether the evidence was necessary, would assist the court, and was reasonably required. The valuation report was served late and permission was sought at the hearing. If it were relied on to establish that the marketing strategy was flawed, further directions, cross-examination and potentially further evidence would have been required. If relied on only to show that the strategy might be flawed, it would add no real assistance to the issue of who should conduct the sale. The refusal was a permissible evaluative case-management decision and disclosed no error of principle.
2. Section 91 discretion. The discretion under the Law of Property Act 1925 is broad, but the court must give substantial weight to the mortgagee’s contractual rights. Receivers’ primary duty is to realise the security and secure repayment of the debt, rather than manage the mortgagor’s property for the mortgagor. Where receivers are actively selling, conduct should be transferred only in exceptional circumstances.
3. Unfairness. The authorities, including Palk v Mortgage Services Funding plc [1993] Ch 330 and Cheltenham and Gloucester PLC v Krausz [1997] 1 WLR 1558, did not support intervention merely because the mortgagor disputed value or faced a shortfall. Fairmont had to show that a sale at an undervalue was likely. The court was not required to determine actual value, but ordinary uncertainty in Part 8 proceedings was insufficient.
4. Prejudice. The court need not balance potential prejudice to the parties unless sufficient unfairness is first established. In any event, the ready buyer, the costs and risks of renewed marketing, and the possible adverse effect of repeated marketing were tangible detriments to the mortgagee.

• Court of Appeal (Civil Division): dismissed Fairmont’s appeal and discharged the injunction restraining the receivers from selling pending the appeal.
• High Court of Justice, Business and Property Courts: the Deputy High Court Judge refused permission for expert valuation evidence and dismissed Fairmont’s application under the Law of Property Act 1925 to obtain conduct of the sale.