Sale of land by mortgagee company — Deal negotiated by appellant mortgagor — Director of mortgagee company having interest in purchaser — Whether breach of duty under section 103A of Property Act 1952 to achieve best price reasonably obtainable — Appeal dismissed
Each of the appellants was a wholly owned subsidiary of the same company, AFL, and each owned a parcel of land comprising part of 200 acres of apple orchards. Each of the appellants had mortgaged its share of the orchards to the first respondent, DH, as first mortgagee, to secure borrowings by AFL, and had later taken out a second mortgage to another company for the same purpose.
AFL later sought to sell the land in order to be relieved of the secured debts, and it set about devising an appropriate deal with DH. After extensive negotiations, an agreement was concluded whereby DH, as first mortgagee, would sell the land to a joint enterprise partnership via a holding company, which would also purchase the mortgage debt owing under the second mortgagee. The total cost of these transfers was to be £13.7m, and, in return, AFL’s debts to both mortgagees, amounting to £21m, would be written off.
AFL subsequently brought proceedings, claiming that DH had breached its duty, under section 103A of the Property Act 1952, to take reasonable care to achieve the best price reasonably obtainable for the land. It relied upon the fact that a director of DH had had an interest in the deal as purchaser, since his family owned one of the companies involved in the joint enterprise partnership. AFL further argued that, in such circumstances, the section 103A duty required DH to satisfy the court that it had indeed taken reasonable care to obtain a proper price. The claim was dismissed at first instance and subsequently by the Court of Appeal, whereupon the appellants appealed further.
Held: The appeal was dismissed.
The appellants’ complaint ignored the fact that the section 103A duty was a duty to the mortgagor, and that the mortgagor was entitled to agree the terms upon which the mortgagee sold with the mortgagee. In the present case, the mortgagee sale by DH implemented a transaction that had been initiated by AFL, in a form devised on behalf of AFL, all the terms of which had been agreed by the company. Against that background, the proposition that DH had failed to satisfy section 103A offended both equity and common sense, and was to be rejected.
Furthermore, on the findings of the judge at first instance, the price of £13.7m was the market value of the land at the time of the sale, so any inquiry as to damages would produce a nil result. Breach of the section 103A duty was not actionable without proof of damage, and which the appellants had failed to show: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 applied.
Julian Burnside QC and John Fogarty QC (both of the New Zealand Bar and instructed by John FS Cabot) appeared for the appellants; Michael Camp QC and Alan Bruce (both of the New Zealand Bar and instructed by Alan Taylor & Co) appeared for the defendants.
Sally Dobson, barrister
