[2025] EWHC 2750 (Ch)

The Power of Sale

Section 101 of the Act sets out the statutory powers which are incident to the estate or interest of a mortgagee where (as here) the mortgage was made by deed (“S.101”). It provides as follows (so far as relevant):

“(1)

A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act, have the following powers, to the like extent as if they had been in terms conferred by the mortgage deed, but not further (namely):

(i)

A power, when the mortgage money has become due, to sell, or to concur with any other person in selling, the mortgaged property, or any part thereof, either subject to prior charges or not, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title, or evidence of title, or other matter, as the mortgagee thinks fit, with power to vary any contract for sale, and to buy in at an auction, or to rescind any contract for sale, and to re-sell, without being answerable for any loss occasioned thereby; and

(ii)

A power, at any time after the date of the mortgage deed, to insure and keep insured against loss or damage by fire any building, or any effects or property of an insurable nature, whether affixed to the freehold or not, being or forming part of the property which or an estate or interest wherein is mortgaged, and the premiums paid for any such insurance shall be a charge on the mortgaged property or estate or interest, in addition to the mortgage money, and with the same priority, and with interest at the same rate, as the mortgage money; and

(iii)

A power, when the mortgage money has become due, to appoint a receiver of the income of the mortgaged property, or any part thereof; or, if the mortgaged property consists of an interest in income, or of a rentcharge or an annual or other periodical sum, a receiver of that property or any part thereof; and

(iv)

A power, while the mortgagee is in possession, to cut and sell timber and other trees ripe for cutting, and not planted or left standing for shelter or ornament, or to contract for any such cutting and sale, to be completed within any time not exceeding twelve months from the making of the contract.

(2)

Where the mortgage deed is executed after the thirty-first day of December, nineteen hundred and eleven, the power of sale aforesaid includes the following powers as incident thereto (namely):—

(i)

A power to impose or reserve or make binding, as far as the law permits, by covenant, condition, or otherwise, on the unsold part of the mortgaged property or any part thereof, or on the purchaser and any property sold, any restriction or reservation with respect to building on or other user of land, or with respect to mines and minerals, or for the purpose of the more beneficial working thereof, or with respect to any other thing:

(ii)

A power to sell the mortgaged property, or any part thereof, or all or any mines and minerals apart from the surface:—

(a)

With or without a grant or reservation of rights of way, rights of water, easements, rights, and privileges for or connected with building or other purposes in relation to the property remaining in mortgage or any part thereof, or to any property sold: and

(b)

With or without an exception or reservation of all or any of the mines and minerals in or under the mortgaged property, and with or without a grant or reservation of powers of working, wayleaves, or rights of way, rights of water and drainage and other powers, easements, rights, and privileges for or connected with mining purposes in relation to the property remaining unsold or any part thereof, or to any property sold: and

(c)

With or without covenants by the purchaser to expend money on the land sold.”

S.101(3) provides that these powers may be varied by the mortgage deed and S.101(4) provides that the section only applies if and so far as no contrary intention is expressed in it. The section applies to all mortgages executed after 31 December 1881. Section 103 regulates the exercise of the power of sale (which is why mortgage deeds often include express powers). Ms Coyle accepted in oral submissions that S.101 did not confer an express power upon a mortgagee by deed to surrender the Properties and she relied upon the express powers in the Mortgage (as the Appellant had pleaded in the Defence).

Collateral Purpose

In Quennell v Maltby [1979] 1 WLR 318 the landlord and mortgagor entered into an arrangement with the bank to pay off the mortgage and for his wife to take a transfer of the mortgage herself. Their motive for this arrangement was to bring possession proceedings against the sitting tenants who would otherwise have been protected under the Rent Acts. The landlord had not sought the bank’s consent before letting the property and his wife relied on the absence of consent justify taking possession. The Court of Appeal overturned the trial judge’s decision to make an order in her favour and Lord Denning MR (with whom Bridge and Templeman LJJ agreed) stated as follows at 322B-323A:

“Now it has been held that, when the bank holds a charge and there is a clause in it whereby there are to be no tenancies granted or surrendered except with the consent of the bank in writing, then in those circumstances, if the mortgagor does thereafter grant tenancies without the consent of the bank, then those tenancies are not binding on the bank, and the tenants are not entitled to the protection of the Rent Acts. That was decided in Dudley and District Benefit Building Society v. Emerson [1949] Ch. 707. Mrs. Quennell relies on that case. She says that, as transferee of the legal charge, she stands in the shoes of the bank and can obtain possession.

The judge accepted that submission. His decision, if right, opens the way to widespread evasion of the Rent Acts. If the owner of a house wishes to obtain vacant possession, all he has to do is charge it to the bank for a small sum. Then grant a new tenancy without telling the bank. Then get his wife to pay off the bank and take a transfer. Then get the wife to sue for possession.

That indeed was what happened here. In October 1977, when Mr. Quennell went to the bank, he told them about the tenancies. They said that they did not intend to take proceedings. So he got Mrs. Quennell to do it. In evidence, she said:

“I paid £2,500. This was for my husband. I took the charge to make the debt to his bank less onerous. I was aware he wanted to obtain possession of the house to sell it. I merely paid off the charge. These proceedings have been brought to get possession to sell.”

So the objective is plain. It was not to enforce the security or to obtain repayment or anything of that kind. It was in order to get possession of the house and to overcome the protection of the Rent Acts.

Is that permissible? It seems to me that this is one of those cases where equity steps in to mitigate the rigour of the law. Long years ago it did the same when it invented the equity of redemption. As is said in Snell's Principles of Equity , 27th ed. (1973), p. 376:

“The courts of equity left the legal effect of the transaction unaltered but declared it to be unreasonable and against conscience that the mortgagee should retain as owner for his own benefit what was intended as a mere security.”

So here in modern times equity can step in so as to prevent a mortgagee, or a transferee from him, from getting possession of a house contrary to the justice of the case. A mortgagee will be restrained from getting possession except when it is sought bona fide and reasonably for the purpose of enforcing the security and then only subject to such conditions as the court thinks fit to impose. When the bank itself or a building society lends the money, then it may well be right to allow the mortgagee to obtain possession when the borrower is in default. But so long as the interest is paid and there is nothing outstanding, equity has ample power to restrain any unjust use of the right to possession.

It is plain that in this transaction Mr. and Mrs. Quennell had an ulterior motive. It was not done to enforce the security or due payment of the principal or interest. It was done for the purpose of getting possession of the house in order to resell it at a profit. It was done so as to avoid the protection which the Rent Acts afford to tenants in their occupation. If Mr. Quennell himself had sought to evict the tenants, he would not be allowed to do so. He could not say the tenancies were void. He would be estopped from saying so. They certainly would be protected against him. Are they protected against his wife now that she is the transferee of the charge? In my opinion they are protected. For this simple reason, she is not seeking possession for the purpose of enforcing the loan or the interest or anything of that kind. She is doing it simply for an ulterior purpose of getting possession of the house, contrary to the intention of Parliament as expressed in the Rent Acts.”

In Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 the plaintiff held a second ranking debenture over a company’s assets and appointed a receiver and manager over its assets. The First Defendant took an assignment of the first ranking debenture from the bank and appointed its own receiver, the Second Defendant, for the purpose of disrupting the management of the security by the receiver appointed by the plaintiff. The trial judge found that he had acted for an improper purpose and held that he was liable for negligence. The Privy Council upheld his decision on the basis that the mortgagee and receiver were acting in breach of their equitable duties: see 317F-319C. Lord Templeman (who had been a member of the Court of Appeal in Quennell v Maltby and gave the judgment of the Board) stated that there was “overwhelming evidence” that the receiver’s conduct was “inspired by him for improper purposes and carried on in bad faith, ultimately verging on fraud”: see 317F. He articulated the general duty of a mortgagee and of a receiver appointed by a mortgagee at 312C-313A:

“The next submission on behalf of the first and second defendants is that, even if a mortgagee owes certain duties to subsequent encumbrancers, a receiver and manager appointed by a mortgagee is not under any such duty where, as in the present case, the receiver and manager is deemed to act as agent for the mortgagor. The fallacy in the argument is the failure to appreciate that, when a receiver and manager exercises the powers of sale and management conferred on him by the mortgage, he is dealing with the security; he is not merely selling or dealing with the interests of the mortgagor. He is exercising the power of selling and dealing with the mortgaged property for the purpose of securing repayment of the debt owing to his mortgagee and must exercise his powers in good faith and for the purpose of obtaining repayment of the debt owing to his mortgagee. The receiver and manager owes these duties to the mortgagor and to all subsequent encumbrancers in whose favour the mortgaged property has been charged.

The next question is the nature and extent of the duties owed by a mortgagee and a receiver and manager respectively to subsequent encumbrancers and the mortgagor.

Several centuries ago equity evolved principles for the enforcement of mortgages and the protection of borrowers. The most basic principles were, first, that a mortgage is security for the repayment of a debt and, secondly, that a security for repayment of a debt is only a mortgage. From these principles flowed two rules, first, that powers conferred on a mortgagee must be exercised in good faith for the purpose of obtaining repayment and secondly that, subject to the first rule, powers conferred on a mortgagee may be exercised although the consequences may be disadvantageous to the borrower. These principles and rules apply also to a receiver and manager appointed by the mortgagee.

It does not follow that a receiver and manager must immediately upon appointment seize all the cash in the coffers of the company and sell all the company's assets or so much of the assets as he chooses and considers sufficient to complete the redemption of the mortgage. He is entitled, but not bound, to allow the company's business to be continued by himself or by the existing or other executives. The decisions of the receiver and manager whether to continue the business or close down the business and sell assets chosen by him cannot be impeached if those decisions are taken in good faith while protecting the interests of the debenture holder in recovering the moneys due under the debenture, even though the decisions of the receiver and manager may be disadvantageous for the company.”

In Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 2, [2016] AC 923 a mortgagee enforced its security in highly contentious circumstances by appropriating shares in a company called Turkcell Holding AS (“TCH”). Bannister J held that no event of default had arisen under the relevant loan documentation but also that the mortgagee had acted in bad faith in seeking to enforce its security for a collateral purpose. Both the Court of Appeal of the Eastern Caribbean and the Privy Council held that an event of default had occurred and that it entitled the lender to accelerate repayment of the loan and then call in the debt. They also held that the mortgagee’s purpose in seeking to obtain control over TCH did not vitiate the exercise of its powers. The Board of the Privy Council delivered a single judgment in which they stated as follows at [69] to [79]:

“The facts

69.

ÇH and ÇFI contend that ATT's decision to appropriate the charged shares was void, even if there was an event of default, because it was vitiated by its improper and collateral reasons. The factual basis of this submission is as follows.

70.

The judge found that ATT had originally entered into the facility agreement and its associated instruments in the expectation that ÇH and ÇFI would default, and with the aim of obtaining de facto shareholder control of Turkcell by enforcing the security.

71.

As mentioned above, he also found that, in the autumn of 2006, ATT deliberately obstructed the declaration of dividends with a view to starving ÇFI of funds, in an attempt to prevent it from servicing the loan and thereby to provoke a default. He also found that after accelerating and calling in the loan, Mr Reznikovich painted an extremely unattractive picture of the Çukurova Group's financial situation at the press conference in Istanbul on 17 April, in order to hamper the Çukurova Group's attempts to refinance. ATT also issued unflattering and defamatory press releases on 30 April and 10 May at least partly with a view to making it difficult for the Çukurova Group to refinance.

72.

The judge characterised the press conference and press releases as acts of bad faith on ATT's part, but found that they were irrelevant because the Çukurova Group succeeded in refinancing anyway. In every other respect, the judge considered that ATT could not be said to have acted in bad faith, because it was acting within its legal rights. He therefore rejected the defence raised by ÇH and ÇFI founded on the allegation of bad faith. The Court of Appeal agreed.

Discussion

73.

In the Board's opinion the judge's findings afford no basis for treating the appropriation of the charged shares as ineffective, for essentially the reasons which he gave. In equity, a mortgagee has a limited title which is available only to secure satisfaction of the debt. The security is enforceable for that purpose and no other: Quennell v Maltby [1979] 1 WLR 318, 322H (Lord Denning MR); Downsview Nominees Ltd v First City Corpn Ltd [1993] AC 295, 312G (Lord Templeman). It follows that any act by way of enforcement of the security (at least if it is purely) for a collateral purpose will be ineffective, at any rate as between mortgagor and mortgagee. The reason is that such conduct frustrates the equity of redemption which, as Stuart V-C observed in Jenkins v Jones (1860) 2 Giff 99, 107, a court of equity “is bound to regard with great jealousy”.

74.

In principle, this is straightforward enough, but the facts are rarely simple. The acceleration of the loan on 16 April 2007 in this case was not part of the process of realising the security. It merely brought forward the date of repayment of the loan and ascertained the amount. Given that there was an event of default, there was a contractual right to do this. It follows that the debt of $1·352 billion (plus interest) was repayable in full at the time when ATT satisfied it by appropriating the charged shares.

75.

Under clause 9.3 of the charges, ATT was entitled to “appropriate any charged asset … in or towards satisfaction of the liabilities in accordance with the Regulations”, at its “fair price” (as defined). This means that, by virtue of regulation 18 of the Financial Collateral Arrangements (No 2) Regulations 2003 (“the Regulations”), the lender was entitled to appropriate the security at that price, any difference between the valuation and the liabilities being settled separately.

76.

It necessarily follows from an arrangement on these terms that the lender may satisfy the debt by crediting the borrower with the Fair Value of the security and retaining the charged assets as their own property: see the advice of the Privy Council delivered by Lord Walker of Gestingthorpe: see Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] Bus LR 1613, paras 12–13. As Lord Walker also observed at para 27, this is a remedy new to English law which allowed what was “in effect a sale by the collateral-taker to himself, at a price determined by an agreed valuation process”.

77.

ÇH and ÇFI do not dispute that ATT appropriated the charged shares in order to satisfy the debt. They hardly could do so, since appropriation is a mode of satisfying the debt. Their real complaint is that ATT only wanted to do so because that would enable it to obtain control over ÇFI and ÇTH and indirectly of Turkcell, instead of (say) selling the shares onto the market. Since this was the very thing that the contract and the Regulations permitted, it is impossible for them to contend that ATT was exercising its power of enforcement for a collateral purpose. The acquisition of control was a necessary incident of a permitted mode of satisfying the debt. The fact that it was an incident which was highly attractive to ATT does not mean that the right of appropriation was exercised in bad faith.

78.

That is enough to decide this particular issue in the present case. More generally, however, the Board considers that if a chargee enforces his security for the proper purpose of satisfying the debt, the mere fact that he may have additional purposes, however significant, which are collateral to that object, cannot vitiate his enforcement of the security. If the law were otherwise, the result would be that the exercise of the right to enforce the charge for its proper purpose would be indefinitely impeded because of other aspects of the chargee's state of mind which were by definition irrelevant.”

Finally, in Meretz Investments NV v ACP Ltd [2006] EWHC 74 (Ch), [2007] Ch 197 Lewison J rejected an argument that a mortgagee was only entitled to exercise a power of sale where it had “purity of purpose”, i.e. its only purpose was to recover the debt due in whole or in part: see [301] to [314]. He also held that one of the mortgagee’s purposes (and a significant purpose) was to recover what money it could out of the project and there was no appeal on this issue to the Court of Appeal: see [2007] EWCA Civ 1303, [2008] Ch 244 at [35] (Arden LJ). The first instance decision is important in the present appeal because of the following statement of principle which Lewison J set out at [314]:

“Drawing the threads together, it seems to me that none of the authorities to which I was referred gives unequivocal support to Mr Morgan's submission that the mortgagee must have “purity of purpose”. On the contrary, Nash v Eads 25 SJ 95 and Belton v Bass, Ratcliffe & Gretton Ltd [1922] 2 Ch 449 are inconsistent with it. So, too, is the statement in Fisher & Lightwood, Law of Mortgages, para 16.13. A dissection of a mortgagee's motives is likely to be difficult in practice. Moreover, unlike statutory powers conferred for the public benefit, or trustees' powers conferred for the benefit of beneficiaries (which were two analogies on which Mr Morgan relied) a mortgagee's powers are conferred upon him for his own benefit. In such circumstances “purity of purpose” may be difficult to achieve. The cases do support the proposition that a power of sale is improperly exercised if it is no part of the mortgagee's purpose to recover the debt secured by the mortgage. Where, however, a mortgagee has mixed motives (or purposes) one of which is a genuine purpose of recovering, in whole or in part, the amount secured by the mortgage, then in my judgment his exercise of the power of sale will not be invalidated on that ground. In addition I consider that it is legitimate for a mortgagee to exercise his powers for the purpose of protecting his security.”

In both Quennell v Maltby and Downsview Lord Denning and Lord Templeman described the mortgagee’s equitable duty in positive terms as a single duty to act in good faith and for the purpose of enforcing the security in order to repay the debt rather than in negative terms or as two independent duties. In Çukurova (where the trial judge had found bad faith) the Privy Council described the equitable duty of a mortgagee in negative terms, namely, not to act for a collateral purpose. In Meretz Lewison J also expressed the content of the duty and in negative terms. He expressed the view that the exercise of a power of sale will be set aside if it is no part of the mortgagee’s purpose to recover the debt.

This is a familiar debate to company lawyers. Before the Companies Act 2006 came into force there was a question whether a director owed a single duty to act in good faith and not for any collateral purpose or two separate duties, the first to act in good faith and the second to act for proper purposes or, perhaps more accurately, not to act for an improper purpose. For example, in Hogg v Cramphorn [1967] Ch 254 Buckley J accepted that the directors had acted in good faith but also held that they had acted in breach of the proper purposes rule applying an objective standard to their conduct. The Companies Act 2006 adopted the same separation between the same duties.

Even if a mortgagee owes two separate duties, it does not follow that a breach of the duty to act in good faith should be assessed on a subjective basis and the duty not to act for an improper purpose should be assessed on an objective basis. In Eclairs Group Ltd v JXX Oil & Gas plc [2015] UKSC 71, [2015] Bus LR 1395 Lord Sumption traced the proper purposes rule back to the original doctrine of “fraud on a power” and although the principle has nothing to do with fraud, it is concerned with the subjective motive of the directors. He stated this at [15]:

“The important point for present purposes is that the proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope of the instrument creating it as a matter of construction or implication. It is concerned with abuse of power, by doing acts which are within its scope but done for an improper reason. It follows that the test is necessarily subjective. “Where the question is one of abuse of powers,” said Viscount Finlay in Hindle v John Cotton Ltd (1919) 56 Sc LR 625 , 630, “the state of mind of those who acted, and the motive on which they acted, are all important”.”

I was not taken to any authorities in which a similar debate has taken place in relation to the exercise of a mortgagee’s powers. But in my judgment, the same principles ought to apply as they do in company law to the duty under section 171 of the Companies Act 2006. Although the content of the duties of a mortgagee and of a company director are not the same, the source of the principle is the same. It follows, therefore, that the exercise of a power of sale by a mortgagee (or by a receiver appointed by a mortgagee) may be set aside where that power was exercised for an improper or collateral purpose and even though the mortgagee or receiver acted in good faith. Section 171(2) now imposes a duty to only exercise powers for the purpose for which they are conferred.

However, I agree with Lewison J in Meretz that the exercise of the power will not be set aside where the mortgagee or receiver has mixed motives or purposes one of which is the recovery of the debt or the protection of the security. It may be that there is a difference here between the law of mortgages and company law in that it may be sufficient to set aside the act of a director on the basis that the improper purpose was the dominant purpose or causative of the decision. But this is a difficult and unanswered question in company law: see Palmer’s Company Law (2025 release) Vol 2 at 8.2517.1. For present purposes, I am prepared to accept that in the absence of bad faith, the exercise of a mortgagee’s power will only be vitiated where recovery of the debt or protection of the security was no part of the mortgagee’s purpose.

Third Parties

Section 104(2) of the Act provides protection for a purchaser where there has been an improper exercise of the statutory power of sale (“S.104(2)”). It provides as follows:

“(2)

Where a conveyance is made in exercise of the power of sale conferred by this Act, or any enactment replaced by this Act, the title of the purchaser shall not be impeachable on the ground— (a) that no case had arisen to authorise the sale; or (b) that due notice was not given; or (c)  where the mortgage is made after the commencement of this Act, that leave of the court, when so required, was not obtained; or (d) whether the mortgage was made before or after such commencement, that the power was otherwise improperly or irregularly exercised; and a purchaser is not, either before or on conveyance, concerned to see or inquire whether a case has arisen to authorise the sale, or due notice has been given, or the power is otherwise properly and regularly exercised; but any person damnified by an unauthorised, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.”

As Lewison J pointed out in Meretz, purchaser is defined by section 205(1)(xxi) as a purchaser in good faith for valuable consideration: see [316]. He also accepted that S.104(2) does not apply where the purchaser has actual knowledge of an impropriety in the exercise of a power of sale, that in this context “shut-eye” or “blind-eye knowledge” is the equivalent of actual knowledge and in a conveyancing transaction a solicitor’s actual or “shut-eye” knowledge should be imputed to the client: see [317] to [322]. On the facts, Lewison J found that the power of sale was not exercised by the mortgagee for an improper purpose. But he also held that even if it had been, the purchaser had no knowledge of the improper or collateral purpose. He stated this at [341]:

“Mr Tamimi had actual or imputed knowledge of the various contractual documents. However, the allegation of improper exercise of the power of sale depends on the allegation that it was no part of FP's purpose in exercising the power to recover its debt. Mr Tamimi had no knowledge of the internal discussions by the boards of ACP and FP and only limited access to the privileged communications between Mr Olsson and Mr Hawkins. Mr Hawkins had told Mr Ware in terms on 29 April 2002 that FP was taking action “in order to protect its own position as first chargeholder”. I do not consider that Mr Tamimi had knowledge of FP's motivation, apart from what he was told. Nor did he have any suspicion of impropriety about which he decided not to inquire. If, as I think, the scheme devised by Mr Hawkins was capable of being properly used by a mortgagee, Mr Tamimi was entitled to assume that it would be.”

It is clear from this passage that a purchaser will take free of any impropriety if he has no actual knowledge of the motive of the mortgagee which gives rise to the improper purpose. But in my judgment, ignorance of the law should not be a defence. If the purchaser is fully aware of the terms of the documents and the motive of the mortgagee, it is no defence for the purchaser to say that they did not believe that the transaction was unlawful.

Other Issues

The Burden of Proof

In the course of Ms Coyle’s submissions I raised three issues which had concerned me when reading into this Appeal. The obvious point for the Respondent to take was that the surrender of the lease involved transactions with a connected person and the burden of proof rested on the Appellant to demonstrate that “the sale was in good faith and that the mortgagee took reasonable precautions to obtain the best price reasonably obtainable at the time”: see Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1355 (Lord Templeman). This burden is a heavy one: see Emmet & Farrand on Title (Release 142, June 2025) at 25.110. If this point had been taken, it would have been unnecessary for the Judge to assess whether Cirrus had a collateral purpose for entering into the Deeds of Surrender because the Appellant had not pleaded or adduced evidence to discharge the burden.

In Tse Kwong Lam v Wong Chit Sen (above) Lord Templeman acknowledged that where the mortgagee fails to discharge the burden of proving that it has taken reasonable steps to obtain the best price reasonably obtainable or that the connected party purchased the property at such a price, the Court will as a general rule set aside the sale and restore to the borrower the equity of redemption of which they have been unjustly deprived: see 1359H-1360A. However, he also stated that the mortgagor would be left to their remedy damages if it was inequitable to set aside the sale and, on the facts of that case, the Privy Council upheld the trial judge’s decision that it was inequitable to set aside the sale for inexcusable delay: see 1360B-G.

Execution of the Deeds of Surrender

The second point which I raised was that Mr Monks did not purport to execute the Deeds of Surrender on behalf of the Respondent or in exercise of the power of attorney in clause 14 of the Mortgage. Cirrus was not registered as the proprietor of the Mortgage (and was restrained by the Injunction from registering the Deeds of Surrender). It is at the very least arguable that Cirrus could not surrender the lease of either of the Properties without exercising the power of attorney in Clause 14 and that they were ineffective because it failed to do so: see Skelwith (Leisure) Ltd v Armstrong [2015] EWHC 2830 (Ch), [2016] Ch 345 at [69] to [75]. In that case, however, Newey J also held that the assignee of a mortgagee who had not been registered had the power to enter into contracts for sale because it was entitled to be registered as proprietor of the charge.

Ms Coyle submitted that unlike a sale by a mortgagee to itself, a sale by a mortgagee to a connected person is not automatically invalid or ineffective, that it was for Cirrus and not the Appellant to plead or prove that it acted in good faith and took reasonable precautions to obtain the best price reasonably obtainable and that since the Respondent had elected not to join Cirrus as a party, the issue did not arise. I agree that it might have been better for the Respondent to join Cirrus as a party. But I see no reason why the Respondent could not have put the Appellant to proof on this issue or why he would not have been entitled to have the transaction set aside if the Appellant had made no attempt to discharge the necessary burden. In those circumstances, the critical issue for the Judge would have been whether the Appellant was able to bring itself within either S.104(2) or clause 11 of the Mortgage.

Although there was a lively debate between both counsel and the Court in relation to both issues, I consider that it would be unjust for the Court to decide the Appeal on either of them. Although he pleaded that the Mortgage was ineffective, the Respondent did not plead that the burden of proof was on the Appellant to demonstrate that Cirrus acted in good faith and took reasonable precautions to obtain the best price reasonably obtainable. If he had done so, the Appellant could have addressed this in its Defence and might well have chosen to call additional evidence. In particular, it might have called Mr Buck and chosen to waive privilege. The Respondent might also have been put to his election to join Cirrus at a much earlier stage of the proceedings. Nevertheless, I make it clear that the Judge cannot be criticised at all for failing to address these points. He clearly took the view that the Deeds of Surrender excited suspicion and might well have reached the same conclusion by a different, and much simpler, route if the point had been taken.

Likewise, it would be unjust to decide this Appeal on the power of attorney point. The Appellant pleaded Skelwith in its Defence as authority for the proposition that Cirrus had the power to enter into the Deeds of Surrender even though it had not been registered as proprietor of the Mortgage: see paragraph 44. Ms Coyle also took this point in the context of the validity of the Assignment. It was incumbent, therefore, for the Respondent to serve a Reply and rely on the power of attorney point if he had wished to do so. In my judgment, however, it was (and remains) legitimate for the Court to attribute weight to the fact that Cirrus did not purport to be acting on behalf of the Respondent in entering into the Deeds of Surrender in considering whether any part of its purpose in doing so was either to protect its security or recover the loan.