[2025] EWHC 2750 (Ch)

The Judge identified six issues for determination at the trial. The first two related to the questions whether the Loan and Mortgage were regulated under the Consumer Credit Act 1974, the third was whether the Assignment was valid, the fourth was whether the Appellant was entitled to terminate the Loan and the fifth whether it was entitled to possession. The Appellant succeeded on all five issues and there was no cross-appeal by the Respondent against any of the Judge’s conclusions on those issues.

The sixth issue which the Judge identified was whether Cirrus was entitled to surrender the leases of both Properties and, if so, what the Respondent’s rights were and whether they bound the Appellant. The Judge described this issue as the “most troubling issue of this case” see the Judgment, [93]. He framed the issue at [94] to [107] as follows:

“94.

Cirrus had taken possession of the Claimant’s two apartments, for which he had paid £110,000 or so to the initial developer together with a further £32,000 to the Defendant using the Loan. Long leases of the Apartments were sold by the Defendant shortly after possession was taken for £120,000.

95.

The amount due under the charge was £43,281.81, together with a few days further interest.

96.

So, what happened to the Claimant’s equity?

97.

Rather than sell the apartments as mortgagees in possession, Cirrus surrendered the 999-year leases to the Defendant. The Claimant’s pleaded case is that these surrenders were a “sham”.

98.

As I indicated during the hearing, this looked like a “kamikaze” move on Cirrus’ part. I said that I could see why the Claimant felt that he had been “ripped off.”

99.

As the Claimant put it in his skeleton: “D somehow thinks that as a result of the alleged “breach” he can just pocket the difference and walk away with the £85k extra. D has exploited the fact that most of the investors are foreign and would be unsure of their rights and the law and has unlawfully “extinguished” dozens of investors’ interests and retained illegally significant sums… Even if D had a right as mortgage (sic) in possession, that right does not extend to D retaining all assets and income over and above what was owed…”

100.

The Claimant’s barrister put it even more strongly in the skeleton argument that he filed prior to the hearing on 4th – 5th March 2024 – “As mortgage (sic) in possession D has a duty to realise the assets and discharge the debts with the (significant) remainder being returned to C. This has not happened in C’s case nor dozens of other cases and the manner in which D has dealt with the assets is tantamount to a wholesale criminal enterprise.”

101.

A Companies House search reveals that Mr Monks is the sole director and majority (more than 75%) shareholder in Cirrus. I asked Mr Monks why Cirrus had surrendered the leases on the apartments, rather than selling them, as the Defendant had effectively done shortly afterwards by granting new leases. His answer was that he had signed the documents that were presented to him by his lawyer and that “had we sold the leasehold and accounted to the Claimant for his equity, we could have ended up in litigation.”

102.

At this point, Miss Coyle, representing the Defendant interjected to advise that Mr Monks was giving evidence as a director of the Defendant and not Cirrus and that it would be unfair to Cirrus, who are not a party to this litigation and have not been able to take legal advice to pursue the line of enquiry further. Miss Coyle specifically advised that she has no instructions from Cirrus.

103.

Miss Coyle’s submission was that there is no fetter on a mortgagee in possession’s powers.

104.

She referred me to clause 7.3 of the Charge, which read:

“The Security Trustees shall have the power to lease, make agreements for and accept surrender of leases and to grant options on such terms as it may consider expedient and without the need to observe the provisions of sections 99 and 100 of the [Law of Property Act 1925].”

105.

Her submission was that this provision gave Cirrus the power to surrender the lease and that, whilst it might seem harsh, the Claimant had signed up to the terms of the lease and must face the consequences of that following his default on the Loan.

106.

She agreed with me when I summarised her submission as saying that the Defendant’s case was “Tough. It is a windfall for us, but you signed up for it and you lose.”

107.

Miss Coyle also submitted that, as Cirrus is a separate corporate entity, the Defendant cannot be liable for any rights that the Claimant may have as against Cirrus. She submitted that I could not fairly adjudicate upon matters relating to Cirrus’ actions, as they are not a party to the litigation and have not had the chance to defend their actions or protect their interests.”

The Judge then cited a number of authorities and textbooks for the proposition that a mortgagee may only exercise the remedies under a legal charge for the purpose of securing payment or satisfaction of the debt a number of which I consider below. He then set out his conclusions at [111] to [124]:

“111.

I am not satisfied that clause 7.3 of the charge gave Cirrus the right to surrender the lease. My reading of that provision is that it gave the mortgagee the power to i) Lease; ii) Make agreements for leases; and iii) Accept the surrender of leases.

112.

I do not read the provision as entitling Cirrus to surrender its own lease.

113.

After I circulated a draft of this judgment, Miss Coyle sent a “Table of Suggested Typographical Corrections and Obvious Errors” referring me to Clause 8.3.2(e) of the charge, which gives any receiver the power to surrender as well as accept surrenders of leases and goes on to provide that any consideration received then becomes charged with the payment of monies etc secured by the deed. There was no evidence as to the consideration paid by the Defendant for the surrenders, although Miss Coyle did tell me (after having confirmed this with Mr Monks) that consideration was paid.

114.

Even if Cirrus had the power to surrender the leases, by the circuitous route suggested by Miss Coyle, namely by Clause 7.2 giving Cirrus the receiver’s powers under clause 8 even if it did not appoint a receiver, the same principle applies – enforcement must be to secure satisfaction of the debt and no other purpose.

115.

I need to tread carefully here, given that Cirrus has not been joined as a party to this litigation, but it is blindingly obvious that Mr Monks had a collateral purpose when signing the surrender of the lease, that purpose being to eliminate the Claimant’s equitable rights following the taking of possession of the Apartments.

116.

From Cirrus’ point of view, the surrender of the leases was madness. It can only have been to benefit the Defendant – a linked company – or its owners. As well as being the sole director and 75%+ shareholder in Cirrus, Mr Monks was one of two directors and an owner of between 25% and 50% of the shares in the Defendant.

117.

I find that the deeds of surrender were ineffective to extinguish the Claimant’s equity.

118.

The Defendant clearly had actual knowledge of the Claimant’s equity in the apartments. The Defendant’s initial attempt to get rid of the leases by signing deeds of surrender itself shows that Mr Monks thought that the actions of the two companies were interchangeable.

119.

It would be completely unjust and contrary to any principles of equity for the Defendant to take the surrenders of the leases free from the Claimant’s equity when its director was fully aware of the transactions.

120.

The Defendant, having full knowledge, could not take any greater interest in the apartments than Cirrus had to convey.

121.

I find that the Defendant is bound by the Claimant’s equity, notwithstanding the deeds of surrender. The fact that the Defendant took subject to the Claimant’s equitable interest is the reason why, in my judgment, the Claimant succeeds, notwithstanding that he has not brought proceedings against Cirrus. The Claimant does not seek any remedy from Cirrus.

122.

In the circumstances, it would be unjust for HMLR to register the surrender of the leases until such time as the Claimant’s equity has been satisfied.

123.

We know that long leases of the apartments were sold for £120,000 within days of the surrender of the lease. I can understand therefore why the Claimant values his equity at £85,000 (£120,000 minus £43,281.81 or so). For the avoidance of doubt, I am not making any findings about this.

124.

I will hear further submissions as to how to conclude matters at the hearing when I formally hand down this judgment.”

The Judge recorded in the final paragraph of the Judgment that he declined Ms Coyle’s invitation to provide further reasons for his conclusions at [114] onwards: see [124]. In the Order itself he continued the Injunction until the conclusion of the proceedings or further order and gave further directions for the assessment of the Respondent’s equity in the Properties. The Appellant appeals against the Judge’s findings in relation to the sixth and final issue and against the Order for the following reasons:

“Ground 1

The learned judge erred in law and procedure when concluding that the Appellant, a Freeholder, does not take the surrenders of the leases free from the Respondent’s equity, and that notwithstanding the deeds of surrender, the Freeholder Appellant is bound by the Respondent’s equity because of an alleged collateral purpose:

a.

The learned judge relies on the fact that the Freeholder happens to have a director that is the same as the mortgagee in possession. This, and that the said director was fully aware of the transactions, is the alleged collateral purpose relied upon. Not only is this ill-defined, this position is not supported in law. There does not need to be purity of purpose. The right to enforce a security interest was a legitimate exercise undertaken by Cirrus, the mortgagee in possession, as was the subsequent surrender – there was no “wholly collateral purpose” to render the enforcement and surrender void, see Quennell v Maltby [1979] 1 WLR 318, 322h, per Lord Denning MR; Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295, 312g, per Lord Templeman; Çukurova No 2 [2013] UKPC 2; [2016] AC 923, para 73, Meretz Investments NV v ACP Ltd [2007] Ch 197, paras 300–314, Çukurova No 2 [2013] UKPC 2; [2016] AC 923, paras 77–78 and ABT Auto Investments Ltd v Aapico Investment Pte Ltd and Others [2022] EWHC 2839 (Comm);

b.

Without prejudice to the foregoing, there is nothing in law (nor in the Mortgage Deeds itself) that supports the contention that the equity of a defaulting leaseholder travels from his/her mortgagee that has gone into possession, to a freeholder on a valid surrender by the mortgagee in possession, see Clause 11 of the Mortgage Deeds and the protection to third parties;

c.

The learned judge did not hear evidence about nor was it put to the Appellant’s director in evidence as to whether and what was the collateral purpose of the Appellant and/or Cirrus.”

Ground 1 (above) contains three separate sub-grounds upon which the Appellant relies in support of its case that the Judge was wrong to hold that it remained bound by the Respondent’s equity of redemption. I will refer to them below as “Ground (a)”, “Ground (b)” and “Ground (c)” respectively.