High Court finds mortgagee liable for undervalue sale

The High Court has ordered a lender to repay over £300,000 to a borrower after the lender rightfully exercised its power of sale but sold the property at an undervalue. The Court found that lender JBG Enterprises Ltd breached its duty as mortgagee by failing to take reasonable care to obtain the best price reasonably obtainable on the sale of a partially-redeveloped listed property in Bradford, ordering the lender to account to The Conditioning House Ltd for £309,437.80. Joanne Wicks KC, sitting as a Deputy Judge of the High Court, found that although JBG was entitled to enforce its security following default, the property was sold at an undervalue, while dismissing claims of unlawful means conspiracy and limiting the consequences of dishonest assistance findings.

The case arose from the enforcement of a £900,000 bridging loan advanced by JBG to The Conditioning House, secured by a first legal charge over a four-storey former municipal textile building acquired for redevelopment. After development finance failed to materialise and the loan was not repaid at maturity in December 2018, JBG exercised its power of sale and sold the property in March 2019 for £1 million to Bradford Lofts Ltd, a newly-incorporated company connected to Nathan Priestley, one of the directors and ultimate shareholders of The Conditioning House.

The company alleged that the sale price materially understated the property’s true market value and formed part of a broader scheme involving Mr Priestley and the lender. It advanced claims for unlawful means conspiracy, dishonest assistance in breaches of fiduciary duty by Mr Priestley, and breach of the mortgagee’s equitable duty to obtain the best price reasonably obtainable.

After a detailed review of competing valuation evidence, including residual development appraisals, build costs, professional fees, and marketing assumptions, the Court concluded that the property’s market value as at March 20, 2019 exceeded the £1 million sale price. The judge found that JBG had not taken reasonable care in the sales process and was therefore liable, as mortgagee, to account to the company for the difference, quantified at £309,437.80. The Court deferred the issue of interest on that sum to a further hearing.

The Court also found that JBG dishonestly assisted Mr Priestley in breaches of fiduciary duty in connection with the sale structure and communications surrounding the transaction. However, the judge held that once JBG accounted to the company for its breach as mortgagee, there was no additional loss for which equitable compensation for dishonest assistance was payable.

The conspiracy claim was dismissed in its entirety, with the Court finding no combination or intention to injure the company by unlawful means.

Read the decision here.

David Halpern KC of 4 New Square and Gideon Roseman of Ten Old Square (instructed by Helix Law) represented The Conditioning House, while David Simpson and John Yap of 3 Verulam Buildings (instructed by Browne Jacobson) acted for JBG.