The Court of Appeal (CoA) clarified that a defaulting mortgagor cannot easily use Section 91 of the Law of Property Act (LPA) 1925 to wrest control of a property sale from court-appointed receivers, reinforcing that judicial intervention is warranted only in exceptional circumstances to protect the mortgagee’s contractual rights.
Facts:
Fairmont Property Developers UK Ltd. defaulted on a loan owed to the first respondent, Venus Bridging Ltd., which was secured by a second mortgage of an industrial warehouse building let to commercial tenants. Venus appointed the second and third respondents as receivers of the property. The property was also subject to a first mortgage with Coutts & Co.
Upon Fairmont’s default in September 2024, Venus appointed the receivers, who began marketing the property, seeking offers in excess of £4.75m. Fairmont’s director, Mr. Vitale, believed that this price was excessively low, arguing the property was worth over £6m. However, a sale at the receivers’ price would likely result in insufficient funds to clear both the first and second mortgages, leaving a substantial deficit for Fairmont, whereas a sale at Mr. Vitale’s perceived value would yield a surplus.
Fairmont applied to the High Court under Section 91(2) of the LPA 1925 to take conduct of the sale, arguing that the receivers’ low marketing guide price and strategy risked an undervalued sale. The receivers, relying on independent valuations ranging from £4.6m to £5.3m and agent advice, defended their strategy, one which had resulted in a highest bid of just over £5m by the time of the hearing.
The High Court Deputy Judge dismissed Fairmont’s application, refusing to admit Fairmont’s ‘expert evidence’ and finding that the “exceptional circumstances” that were required to override the mortgagee’s contractual rights were not present. Fairmont appealed this decision.
Decision:
The CoA dismissed the appeal and affirmed that the High Court’s decision was based on a strict interpretation of Section 91(2) of the LPA 1925 and the principle of non-interference with a mortgagee’s contractual rights. The primary reason for dismissal was the Court’s agreement that judicial intervention under Section 91 is warranted only in “exceptional circumstances” where the mortgagee (Venus) is already actively exercising its contractual power of sale through appointed receivers.
Fairmont had contractually agreed that, upon default, receivers could be appointed to sell the property. The Court held that it would require “some substantial reason” to interfere with this fundamental contractual scheme and deprive the mortgagee of its rights.
The case diverges notably from Palk v Mortgage Services Funding plc, where the Court intervened because the mortgagee was refusing to sell (to speculate on market recovery), which caused “manifest unfairness” to the mortgagor by accumulating further debt. Here, the mortgagee was actively selling to realise its security.
Implications:
The most crucial implication is the strict interpretation of the Court’s power under Section 91(2) of the LPA 1925. The judgement firmly establishes that the mortgagees’ contractual right to realise their security upon default (by appointing receivers to sell) is paramount. The Court will not interfere unless there are “exceptional circumstances” or evidence of “manifest unfairness”. The case clarifies that “manifest unfairness” is generally not met simply by the mortgagor asserting that the property is being sold at an undervalue, as a mere risk or possibility of undervaluation is insufficient.
A mortgagor attempting to remove a receiver must effectively prove the likelihood that a receiver’s strategy is demonstrably flawed or negligent, and not just that an alternative, higher valuation may exist. Receivers are protected in following a well-documented marketing strategy based on multiple professional valuations and advice, even if that strategy is conservative or results in a price well below the mortgagor’s expectations.
