Brooke Homes (Bicester Limited) v Portfolio Property Partners Limited (In Administration) & Ors

A mortgagee must account for money, benefits and profits received from, or generated by, mortgaged property. Non-monetary consideration must be valued and brought into the account. Purely collateral advantages remain outside it.

Where a mortgagee is alleged to have failed to obtain the best price reasonably obtainable, the claimant will ordinarily need to establish, on the balance of probabilities and applying but for causation, that a more favourable outcome would have been achieved. A benefit generated by works to the mortgaged land may require a surcharge even where it increases the value of separately charged land.

Brooke Homes was a judgment creditor whose security ranked behind that of Desiman. Desiman sold development land as mortgagee under a contract with Cala, which also required works benefiting adjoining development land in which Desiman had wider security and commercial interests.

Brooke sought an equitable account and the application of marshalling. The principal issues were whether the account should be surcharged for a price reduction or the value of works to an access road, which liabilities were secured under Facilities C and D, and whether various professional fees and expenses were recoverable and reasonable.

1. Mortgagee’s account. The mortgagee must account for receipts, benefits or profits from the mortgaged property or generated by it. Non-monetary consideration must be valued. Advantages which are purely collateral need not be accounted for. The £40 million monetary receipt was properly accounted for.
2. Price reduction. Brooke failed to establish that the alleged £2 million price reduction represented a benefit to Desiman or that a higher price would have been obtained. The account was not surcharged on that basis. In an alleged failure to obtain the best price reasonably obtainable, but for causation ordinarily applies and must be proved on the balance of probabilities. The court may make allowances where evidence is limited, but the test remains whether a more favourable outcome would have resulted.
3. Spine Road extension. Works which Cala agreed to carry out on the Charging Orders Land were a non-monetary benefit generated by that land. The benefit was therefore accountable, notwithstanding that it increased the value of Phases 2 and 3 and benefited Desiman in another capacity. A surcharge of £2.4 million was appropriate, subject to further argument on whether the 75:25 profit split required an adjustment.
4. Facilities. Facility C represented secured lending despite the absence of an executed facility in its restructured form. The previously agreed fees and interest were secured liabilities. Under Facility D, Desiman had waived or varied purpose restrictions so that specified payments for legal and accountancy costs remained secured.
5. Costs and expenses. Contractual indemnities covered costs only where they fell within the contractual scope and were reasonably incurred and reasonable in amount. Further accounts, enquiries and assessments were directed for numerous disputed items, including removal applications, enforcement litigation and administrators’ costs. The court was minded to exclude the additional £200,000 Weil costs.
6. The parties were to address the precise form of the account and consequential directions. The benefit of marshalling in relation to certain overage provisions was to be recorded.

First-instance decision. The judgment records earlier proceedings concerning the underlying claim and administration, but those decisions were not under appeal in these applications.