Secured creditor dispute in the Chancery Division – judgment handed down

Stephen Robins KC and Robert Amey acted for the first-ranking secured creditor in a claim brought by the second-ranking secured creditor in connection with the sale of 94 acres of development land in Oxfordshire for £40 million. The second-ranking secured creditor (Brooke) contended that the first-ranking secured creditor (Desiman) should be surcharged for £5 million on the basis of wilful default in a process of equitable accounting and that various expenses incurred by Desiman amounting to almost £3.5 million in total, in respect of which Desiman had claimed an indemnity under the terms of the security documentation, were not properly deductible from the proceeds of sale.

After a four-day trial in the Chancery Division, the judge handed down a judgment holding that (i) Desiman should be surcharged in the sum of at least £1.8 million (and potentially as much as £2.4 million, subject to further argument), either on the basis that it had received an additional non-monetary benefit, or on the basis that it could and should have sold the land for a higher price and (ii) although the expenses claimed by Desiman were largely within the scope of the contractual indemnity clause, it remained necessary to consider whether they had been reasonably incurred and were reasonable in amount.

A number of other issues pleaded by Brooke, potentially worth several million pounds, had been abandoned by the end of trial, and were therefore not considered by the judge. The judgment deals with the process of equitable accounting between mortgagees, the concept of collateral advantages, the ability of the court to surcharge a mortgagee-in-possession on the basis of wilful default, the applicability of ‘but for’ causation in the wilful default context, and the court’s control of expenses charged by a mortgagee under an indemnity clause in a mortgage deed.

The judgment is available here.