Anonymized Summary of the Court of Appeal Opinion

Factual and Procedural Background

This appeal concerns the conduct of sale of a mortgaged commercial property ("the Property"). The Appellant is the registered freehold proprietor (a special purpose vehicle) which acquired and retained the Property after refurbishment. The Property was let on a long commercial lease to a tenant. The Property was first charged by a first mortgagee ("Company B") and later a second legal mortgage was granted to a short-term lender, secured also by a debenture and a personal guarantee from the Appellant's director ("Director"). That second charge was assigned and is now held by the 1st respondent ("Company A").

The Appellant defaulted on the bridging loan secured by the second charge. Company A appointed two receivers ("Receiver A" and "Receiver B") to the Property, who marketed it and sought offers in excess of a stated guide price. The Appellant complained that the proposed marketing strategy would yield an undervalue and applied to the High Court under section 91 of the Law of Property Act 1925 ("s. 91 LPA 1925") for an order that the Appellant be given conduct of the sale for a period.

The application was heard by a Deputy Judge ("Judge Salimi") on 25 February 2025 who dismissed the application and refused permission to adduce expert valuation evidence. Permission to appeal to this Court was granted by Judge Asplin. The appeal was heard by a panel of the Court of Appeal, which dismissed the appeal and discharged an interim injunction that had restrained the Receivers from selling pending appeal.

Legal Issues Presented

1. Whether the High Court was wrong to treat the exercise of the s. 91 discretion in favour of a mortgagor as appropriate only in exceptional circumstances where the mortgagee (or its receivers) is actively exercising a power of sale.
2. Whether the High Court was wrong to require the Appellant to prove on the balance of probabilities that the proposed sale by the Receivers was likely to be at an undervalue (i.e., whether a lesser threshold such as a real risk would have sufficed).
3. Whether the High Court was wrong to conclude that restraining the imminent sale would cause prejudice to the mortgagee (Company A).
4. Whether the High Court erred in refusing permission to adduce expert valuation evidence at the hearing.

Arguments of the Parties

Appellant's Arguments (presented by Attorney Brooke)

• The Deputy Judge erred in treating the Court's discretion under s. 91 as one to be exercised only in exceptional cases when the mortgagee is actively seeking to realise security; that approach was too restrictive.
• The Judge applied an unduly demanding evidential test by requiring proof on the balance of probabilities that the Receivers' proposed sale would be at an undervalue; it would have been sufficient to show a real risk of undervalue to justify a limited transfer of conduct of sale to the mortgagor.
• The Judge was wrong to find that restraining the imminent sale would prejudice the mortgagee; the Appellant had strong incentive and ability to procure a higher sale and the mortgagee could be compensated for any short-term loss.
• The Judge erred in refusing permission to adduce the Appellant's expert valuation report produced with its reply evidence; the report would have assisted in showing that the Receivers' marketing strategy might produce an undervalue.

Respondents' Arguments (presented by Attorney Morris)

• The discretion under s. 91 is wide but should not lightly be exercised against a mortgagee who is actively exercising contractual rights to realise security; the weight of authority supports caution and intervention only in unusual circumstances.
• The Appellant had not shown that the Receivers' marketing strategy would likely produce an undervalue; the Receivers had obtained agents' advice and two written valuations (the "Red Book" valuations) supporting their pricing and marketing approach.
• Admitting the late expert report at the hearing would have prejudiced the Respondents because they would need to cross-examine the expert, possibly adduce their own expert evidence, and the case could have to be relisted or converted to a different procedure.
• Restraining the sale would cause real prejudice to the mortgagee because buyers were said to be ready to proceed and a delay or re-marketing would involve additional costs and the risk of losing the current buyers.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court addressed in sequence: (i) the refusal to admit expert evidence; (ii) the proper approach to the exercise of the s. 91 discretion where a mortgagee is actively seeking to sell; (iii) the appropriate evidential threshold for showing unfairness/undervalue; and (iv) prejudice to the mortgagee.

Refusal to admit expert evidence: The Appellant had served a valuation report with its reply evidence shortly before the hearing and sought permission to rely on it at the hearing. The Deputy Judge applied the three-part test from the authority on expert evidence (necessity, assistance, reasonable requirement) and concluded the report was not necessary and would not materially assist the quick Part 8 process; admitting it at the hearing would have prejudiced the Respondents who would wish to cross-examine and possibly adduce evidence of their own. The Court of Appeal held that the Deputy Judge was entitled to make that case-management decision and that it was not demonstrably flawed.

Exercise of s. 91 where mortgagee is selling: The Court reviewed the history and authorities. It accepted that s. 91 confers a wide and unfettered discretion (as explained in Precedent A) but emphasised that where a mortgagee (or receivers appointed by it) is actively exercising contractual powers of sale, the Court should be cautious about intervening. The authorities demonstrate that intervention against a mortgagee's wishes is appropriate in out-of-the-ordinary cases, typically where refusal to order a sale would cause manifest unfairness to the mortgagor (for example where the mortgagee wishes to retain and run the property at the mortgagor's expense). The Court concluded that the Deputy Judge properly required something "out of the ordinary" before taking conduct of sale from receivers who were marketing the property.

Evidential threshold — unfairness and undervalue: The Deputy Judge treated the test as requiring identifiable and more-than-trivial unfairness, and concluded that unfairness existed in this case only if the Appellant could show the property was likely to be sold at an undervalue. The Court of Appeal endorsed the Deputy Judge's approach, holding that mere possibility or speculative risk of undervalue in a Part 8 hearing intended for a swift resolution was insufficient. The Court accepted there may often be some uncertainty as to value without full expert evidence, but that uncertainty alone does not justify overriding the mortgagee's contractual rights. Thus the Deputy Judge was entitled to require satisfaction that a sale by the Receivers was likely to realise a price that was too low.

Prejudice to the mortgagee: The Deputy Judge found that restraining the imminent sale would cause real prejudice to the mortgagee because the mortgagee then had buyers ready to proceed and could recoup capital and accrued interest by immediate sale; if the Appellant were given a period to market, there was no guarantee of securing a sale and the Receivers would likely have to re-start marketing, incurring costs and risking loss of purchasers. The Court of Appeal agreed that even if the precise loss could not be quantified, the Deputy Judge was not wrong to regard such prejudice as real. The Court also observed that the question of prejudice became relevant only if a sufficient case for interfering with the mortgagee's rights had been made out, which it had not.

Overall, the Court concluded that the Deputy Judge did not err in principle or approach: the decision to refuse the late expert evidence was within her case-management discretion; the requirement for "exceptional" or "out of the ordinary" circumstances before taking conduct of sale from receivers actively marketing the property was consistent with authority; the evidential threshold applied (likelihood of an undervalue) was not unduly demanding in the context; and the Deputy Judge was entitled to conclude that the Appellant had not shown such a likelihood.

Holding and Implications

Holding: The appeal was DISMISSED. The Court of Appeal agreed with the Deputy Judge's dismissal of the Appellant's application and her refusal to admit the late expert valuation evidence.

Implications:

• Direct effect on the parties: The Receivers retained conduct of the sale and the interim injunction restraining them from selling was discharged (the mortgagee was entitled to proceed with the sale it had arranged subject to the usual duties on receivers).
• The Court emphasised that intervention under s. 91 to remove conduct of sale from a mortgagee or its receivers is exceptional where the mortgagee is actively exercising its power of sale; a mortgagor seeking such relief must demonstrate more than speculative risk of undervalue and, in the present procedural context, must meet the evidential threshold applied by the Deputy Judge.
• No broader new legal principle was established beyond the application and reconciliation of the existing authorities; the decision reinforces a cautious approach to transferring conduct of sale from mortgagees or receivers who are actively marketing the property.

Disposition

The Court dismissed the appeal for the reasons set out above. The judgments of the panel members concurred with this outcome.