First appellant employee of mortgagee in possession — Appellants purchasing property from mortgagee in possession in contravention of provision of first appellant’s employment — Whether such purchase in “good faith” for purposes of sections 104 and 205(1)(xxi) of Law of Property Act 1925 — Appeal allowed
The first and second respondents owned a property that consisted of land, a farmhouse, a barn and outbuildings. In 1990, they remortgaged the property to the third respondent (Halifax). In 1992, an order for possession was made and Halifax instructed a firm of estate agents to market the property. The first appellant, who was an employee of Halifax, submitted an offer. This was subsequently withdrawn, since, under the terms of his employment, the first appellant was prohibited from purchasing a property in possession. However, he subsequently circumvented this provision by purchasing the property through the agency of a relative, having obtained the property at a price that was slightly lower than that offered by another party. Halifax disciplined the first appellant but took no steps to set aside the sale. The respondents instigated proceedings against Halifax on the ground that the property had been sold at an undervalue to one of its employees.
At first instance, the judge set aside the sale. He found that Halifax had sold at an undervalue in breach of its duty. He further found that the appellants were not purchasers in good faith within the definition of “purchaser” contained in section 205(1)(xxi) of the Law of Property Act 1925. Consequently they could not take the benefit of section 104(2) of the 1925 Act, which provided that, between contract and completion, a purchaser was not obliged to investigate the manner of the exercise of the power of sale. The appellants appealed.
Held: The appeal was allowed.
1. The appellants’ deception of Halifax did not confer upon the respondents any special right to have the sale set aside. It might have rendered the sale voidable at the instance of Halifax, but that was irrelevant to the respondents’ position. In order to establish the “good faith” of a purchaser for the purposes of section 205(1)(xxi), it was relevant to consider both the motive of that purchaser and at whom the good faith was directed. The lack of good faith in the instant case was directed at Halifax, and was immaterial to the interests of the respondents. The judge had therefore erred in setting aside the sale on the basis that the appellants were not protected by section 104(2) of the Law of Property Act 1925.
2. Equity would not intervene in such a case unless there were some element of impropriety or bad faith on the part of the mortgagee in the exercise of its power of sale. The allegation that the property had been sold at an undervalue contained no substance because it was a genuine oversight on the part of the estate agent or Halifax, and the appellants had no knowledge of the undervalue. The appellant’s dishonesty did not relate to any aspect of the sale other than to the identity of the purchaser and was directed only at Halifax.
3. The judge at first instance should have taken account of the substantial prejudice caused to the appellants by the tardiness of the prosecution of the claim. In a rising housing market, in particular, a claimant had a duty to expedite with the action so that the defendant would not be unduly prejudiced in the housing market.
Thomas Jefferies (instructed by Ward, of Bristol) appeared for the appellants; Philomena Harrison (instructed by Bevan Ashford, of Bristol) appeared for the first and second respondents; Neil Levy (instructed by Hammond Suddards Edge, of Leeds) appeared for the third respondent.
Vivienne Lane, barrister