Meretz investments v ACP

Meretz investments NV v ACP Ltd [2007] Ch 197

MORTGAGES – SALE BY MORTGAGEE – WHETHER EXERCISE OF POWER OF SALE IMPROPER – ISSUE ESTOPPEL

Facts

The claimants (M and B) brought an action against the defendants (X, F and T) in connection with the purported sale by F to T of a long lease of a partially completed penthouse development on the roof of a block of flats. M and B were subsidiaries of the same parent company. B owned the freehold of the block of flats and M was the leaseholder of one of the flats. B had granted X a long lease of the roof so that X could develop it. X granted F, its parent company, a first charge over the development lease. F had purported to sell the lease to T, a private individual who was interested in acquiring one of the penthouses. The parties had fallen into dispute, and M and B argued, amongst other things, that F’s power of sale had been improperly exercised.

Issues

Several issues fell for determination, but the primary question was whether F had exercised its power of sale for improper purposes and, if so, whether such a claim by M and B would be barred by issue estoppel.

Decision / Outcome

F had exercised its power of sale for a proper purpose and was not in breach of any equitable duty owed to M. However, it was not an abuse of process for M and B to argue that the power of sale was exercised for improper purposes. It would be an improper exercise of a mortgagee's power of sale if no part of his motive for exercising that power was to recover the debt secured by the mortgage. However, if a mortgagee had mixed motives for exercising that power and one of the motives was to recover the debt secured by the mortgage, his exercise of the power of sale would not be invalidated.