The Conditioning House Limited v JBG Enterprises Limited & Anor

A mortgagee exercising a power of sale must take reasonable care to obtain the best price reasonably obtainable. The mortgagee must inform itself sufficiently about the market and exercise an informed judgment about valuation, marketing method, exposure and timing. A valuation prepared for another lender and purpose may be inadequate, particularly where the sale is to a connected purchaser and the mortgagee has been approached by one of two conflicted joint venturers.

Mixed motives do not breach the mortgagee’s good-faith and proper-purpose duties where recovery or protection of the security remains a genuine purpose. A director breaches the Companies Act 2006 duties to promote the company’s success and avoid conflicts by arranging for company property to be transferred to an entity under his control at an undervalue. A mortgagee may be liable for dishonest assistance where it effects that transfer dishonestly, but dishonesty does not itself establish an intention to injure for unlawful means conspiracy.

The claimant company owned a listed property charged to JBGE to secure a £900,000 loan. Following a breakdown between its two joint-venture directors, John Priestley arranged with John Giannotti, JBGE’s controlling director, for JBGE to exercise its power of sale and sell the property for £1 million to Bradford Lofts Ltd, an entity controlled by Priestley.

The claimant alleged unlawful means conspiracy, dishonest assistance in breaches of directors’ duties, and breach by JBGE of its equitable duty as mortgagee to obtain the best price reasonably obtainable. The trial determined liability, the counterfactual consequences of the alleged breaches, and the property’s market value as at 20 March 2019.

1. Mortgagee’s good faith and proper purpose. JBGE had mixed motives, including assisting Priestley to remove the property from the joint venture. However, recovery of the secured debt remained a genuine purpose. The exercise of the power of sale therefore did not breach the duties of good faith and proper purpose. [2019] EWHC 700 (Ch) and [2007] Ch 197 were applied as to the relevant principles.
2. Best price reasonably obtainable. JBGE was required to inform itself sufficiently about the market and exercise reasonable judgment about valuation, marketing, method of sale and timing. The unusual circumstances required independent valuation and marketing advice. JBGE neither obtained sufficient advice nor exposed the property to the market. Reliance on the confidential JLL Zorin Report, prepared for another purpose, was unreasonable. JBGE was plainly on the wrong side of the line and breached its duty.
3. Valuation and remedy. The relevant question was what JBGE would have obtained on 20 March 2019 after proper marketing. The market value was £1,331,000. After deducting the appropriate auction fee, JBGE was required to account for £309,437.80.
4. Directors’ duties. Priestley breached sections 172, 175 and 177 of the Companies Act 2006. He did not act in good faith for the company’s benefit, acted in a conflict of interest by transferring the property to a company under his control, and failed to declare his interest. He lacked authority to bind the company to the repossession and sale agreement.
5. Dishonest assistance. JBGE, but not Giannotti personally, dishonestly assisted Priestley’s breaches by effecting the sale. The relevant assistance was the sale itself, which was more than minimal. Giannotti’s knowledge and dishonesty were attributable to JBGE, but he did not personally exercise the power of sale. After JBGE accounted as mortgagee, no further loss remained recoverable under dishonest assistance.
6. Unlawful means conspiracy. The combination, concerted action, unlawful means and causation requirements were otherwise established. The claim failed because JBGE and Giannotti did not intend to injure the company: they intended to sell the property at a price they honestly, though unreasonably, believed would fully compensate it. Dishonesty and intention to injure were distinct concepts.
7. Settlement credit. The pleaded argument concerning credit for sums received by Muniment under earlier settlement arrangements was abandoned in favour of an unpleaded constructive-trust case. The difficult double-recovery questions therefore did not arise.