Summary

The High Court has affirmed its approach when considering whether to use its discretion to exercise rights to grant an order under Section 91 of the Law of Property Act 1925 (LPA) for the sale (or restraint of a sale) of a mortgaged property, namely that the grant of any such order should be undertaken with caution and only in exceptional circumstances. 

The February 2025 judgment in Fairmont Property Developers UK v Venus Bridging Limited, Hinesh Varsani, Matthew Perrett [2025] 2 WLUK 453 was delivered in response to an application for an order under Section 91 of the LPA by the claimant, Fairmont Property Developers UK Ltd (Fairmont).

Relevant facts

Fairmont, a UK-based real estate developer, was the owner of the freehold of a warehouse property located in Milton Keynes (the Property). Fairmont was the registered proprietor of the Property and had entered into debt arrangements with Coutts LLP, who were the beneficiary of a first ranking registered charge over the Property but chose not to take part in the proceedings, and separately with the first defendant, Venus Bridging Limited (Venus), who held a second ranking registered charge over the Property. 

Fairmont faced financial challenges and entered into receivership in September 2024 and Venus appointed the second and third defendants respectively, Hinesh Varsani and Matthew Perrett, to act as its receivers (the Receivers). Following their appointment, the Receivers began marketing the Property for offers around £4.75 million. 

Fairmont disagreed with this approach, believing the Property should have been marketed for in the region of £7.2 million on the basis of a valuation of the Property from January 2023 and therefore considering a potential sale of the Property for approximately £4.75 million as a sale at an undervalue. In January 2025, the High Court granted an interim injunction prohibiting the Receivers from selling the Property until a further order was determined.

Expert Report

A secondary but related application was made by Fairmont in respect to the admission of an expert report submitted by Fairmont primarily regarding the marketing of the Property (the Expert Report). Saira Salimi (sitting as Deputy High Court Judge) noted that the appropriate test to apply was that in British Airways v Spencer (set out in the White Book), being "whether the expert report is necessary or reasonably required to determine the issue before [the High Court]". Both parties accepted that the Expert Report was not necessary, and the judge was not persuaded that the Expert Report was reasonably required to determine the proceedings before the High Court, namely being which party should conduct the sale of the Property and for how long, and so the Expert Report was dismissed. 

Principles in the exercise of the Section 91 discretion

In considering the High Court's proper exercise of its discretion under Section 91 of the LPA, Judge Salimi considered both the literal interpretation of the statute, and the principles extracted from preceding authorities in respect of similar subjects. 

In particular it was noted that:

• The pure statutory interpretation of Section 91 of the LPA, supported by the dicta of Morgan J in NatWest v Hunter [2011] EWHC 3170, is that any order under such section should be used in a situation where the parties do not agree whether the Property should be sold; "it is a power to direct a sale irrespective of the views of the mortgagee". However, the judge did not consider this as determinative that an order must be granted solely in the situation where the parties were in disagreement, but noted that Section 91 of the LPA provides "an unfettered discretion to be used judicially" (Toor v State Bank of India [2010] EWHC 1097 per David Cooke).
• The High Court should exercise caution when applying discretion in relation to its powers under Section 91 of the LPA, as noted in Cheltenham & Gloucester v Krausz [1997] 1 WLR 1558, where Millet LJ attempted to confine the Palk v Mortgage Services Funding plc [1993] CH 330 decision, pursuant to which an order for sale was granted where unfairness and injustice would otherwise follow (despite objections from the mortgagees), to its unusual facts; namely that the property in question was a residential property where the mortgagor was in possession and trying to avoid eviction and the mortgagee was taking active steps to obtain possession. 
• The High Court should exercise its "unfettered" discretion provided for in Section 91 of the LPA "only in exceptional circumstances". This was supported by the policy reasons identified by Phillips LJ in Cheltenham & Gloucester v Krausz and the Judge's consideration that undertaking Part 8 CPR proceedings (whereby a claimant is seeking a legal determination or interpretation, rather than a resolution on factual disputes) in respect to this application "increases the risk of doing an injustice because not all the facts are before the court" on the basis there were competing assertions as to the valuation of the Property. 

Application of the principles and decision

Following analysis of the facts involved in this case, the High Court found:

• This was an ordinary commercial case where the mortgagor had defaulted its debt arrangements, receivers had been appointed and taken steps to market the Property and the mortgagee was entitled to exercise its rights over the Property. None of these facts were in dispute. 
• On the issue of the sale at a potential undervalue, the fact that the sum realised from the sale of the Property at approximately £4.75 million was likely to leave a shortfall with respect to Fairmont's debt arrangements was not by itself sufficient unfairness to reach the threshold referred to in Palk v Mortgage Services Funding plc and for the High Court to make an order under Section 91 of the LPA . The requisite unfairness would only be present if the submissions that the Property was likely to be sold at an undervalue were correct; the burden being on Fairmont to provide evidence of the same. 
• With respect to the Property valuation, Fairmont relied on the January 2023 valuation of £7.2 million and three associated offers (none of which resulted in a sale) as evidence for its attestation that the Receivers were going to sell the Property at an undervalue. However, evidence from Autumn 2024 was submitted, in particular two separate valuations and inquiries received by the Receivers, that indicated a substantially lower figure than £7.2 million (with some inquiries received by the Receivers being for lower than the £4.75 million valuation the Receivers procured). Therefore, the High Court could not find on the balance of probabilities that the proposed sale was likely at an undervalue. 
• The mortgagee would face risks if the order were granted, namely (i) the loss of the current proposed sale, (ii) the risk that no sale would materialise from Fairmont's attempts to sell, (iii) the additional costs of further marketing for the Property and (iv) the delay in recouping capital and accrued interest. 

The High Court dismissed Fairmont's application for an order under Section 91 of the LPA and the interim injunction previously granted was discharged, which allowed Venus and the Receivers to proceed with their sale of the Property. 

Key takeaways

• The High Court restated its reluctance to interfere with mortgagees' rights (both statutory and contractual) in commercial property security arrangements, particularly where the facts of the mortgagor's default, appointment of receivers and the mortgagee's rights to exercise its rights are not in contention. 
• Any exercise of the High Court's rights under Section 91 of the LPA for an order in relation to a proposed sale should be undertaken with caution and discretion to exercise such rights should be utilised only in exceptional circumstances. This highlights the High Court's hesitancy in opening the floodgates to claims concerning commercial property in which the mortgagors consider that the property in question is being sold at an undervalue.
• A mortgagor seeking to restrain a sale under Section 91 of the LPA must demonstrate that the property is likely to be sold at an undervalue based on the most recent valuations of the property. The High Court felt that Fairmont had failed to provide sufficient evidence in this respect and found that merely disagreeing with the valuation reached by a mortgagee or contending that a sale for such a value would not allow a mortgagor to discharge the debts they owe in full were not persuasive arguments on this point. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team in London.