Mortgagees exercising a power of sale, and their receivers, cannot escape liability for sales at undervalues by claiming that they entrusted the sale to apparently competent professionals. The obligation to sell at the best price reasonably obtainable is not delegable: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 949 and Raja v Austin Gray [2003] 1 EGLR 91. Does this rule apply to administrators too?
Hyde & another (joint liquidators of One Blackfriars Ltd) v Nygate [2021] EWHC 684 (Ch); [2021] PLSCS 61 concerned land in London. The company that owned the land defaulted on its obligations to its lenders – and they appointed administrators, who instructed agents to market the site with an existing planning permission for development. The property was eventually sold for £77.4m to a developer. It obtained planning permission to vary the existing planning consent and the subsequent valuation of the land that appeared in its accounts caused the company, which was, by now, in liquidation, to claim that the site was sold at an undervalue.
In the litigation that followed, the court was asked whether the non-delegable duty of mortgagees and their receivers applies to administrators too. The administrators relied on Davey v Money [2018] Bus LR 1903, in which Snowden J refused to extend the duty to administrators. However, the company’s liquidators claimed that the judge’s ruling – that administrators were not liable if they had reasonably relied on professional advice that appeared to be competent – was incorrect.
But the judge ruled that the liquidators’ arguments fell a long way short of demonstrating that Snowden J had been wrong. The key point was that administrators act as the agents of a company in administration and any sales or marketing agents engaged by the administrator act as its agents too. Thus, while it made good sense to hold administrators liable for any negligence in their choice of agent, if an apparently competent sales or marketing agent causes loss to a company while acting on its behalf, that was a cause of action that vested in the company. However, administrators must do more than demonstrate that their agents appeared competent and that they had followed the advice received. They must also show that they had reasonably relied on the advice given.
Was it appropriate for the administrators to have appointed selling agents who had previously advised the company’s lenders? The judge ruled that there was nothing to suggest that there had been a conflict of interest, or that the agents’ views were unreliable, and was not persuaded that no reasonable insolvency practitioner would have agreed to their appointment. Furthermore, it had not been wrong to sell the site unconditionally, without an overage provision. Bidders had not been precluded from making conditional offers and an overage provision would have substantially reduced the price and been difficult to agree, while a sale conditional on planning permission would have led to unacceptable risk, delay and uncertainty.
The sale was the result of a properly conducted free and open marketing and sale process and there was no better evidence of the market value of land on the day of sale than the price achieved as a result of such a process. The company had not found an investor to outbid the developer, or to take the company out of administration, which suggested that, if the developer had secured a bargain, it had spotted something that no-one else with the resources to develop the site had seen.
Allyson Colby, property law consultant
