Mortgage — Sale by mortgagee — Appointment of receivers — Whether respondent mortgagee or receivers under duty to pursue planning permission and grant leases prior to sale — Appeal dismissed
The appellant companies mortgaged various properties to the first respondent bank to secure their indebtedness. The bank later appointed the second and third respondents as receivers of the properties, pursuant to the terms of the mortgage, and all the properties were sold. The mortgage provided that the receivers should act as agents for the appellants.
The appellants brought a claim for damages, contending that the respondents had sold the properties at an undervalue in breach of their duties to the appellants. They did not dispute that the prices obtained had been the best reasonably obtainable for the properties in their then current condition. Instead, they argued that the receivers should not have sold the properties in that state, but had been under a duty to pursue planning applications for development of the properties and to proceed with the grant of leases, deferring sale until these goals had been achieved.
The judge dismissed the claim on the ground that, as a matter of law, the receivers had no duty to delay the sale for the purpose proposed by the appellants, and had been entitled, whether or not it was reasonable, to sell the properties without delay. The appellants appealed.
Held: The appeal was dismissed.
1. When and if a mortgagee exercised a power of sale, it came under a duty in equity (not tort) to the mortgagor to take reasonable precautions to obtain a fair and true market value for the mortgaged property at the date of the sale. There could be no duty to postpone exercising the power of sale until after the further pursuit of an application for planning permission or the grant of a lease of the mortgaged property, even if the outcome of the application and the effect of the grant of a lease might be to increase the market value of the property and the price obtained on sale. A mortgagee was entitled to sell the property in the condition in which it stood without investing money or time in increasing its likely sale value; it was entitled to discontinue those efforts already undertaken. Its duty was limited to taking reasonable care to obtain a sale price that reflected the added value that would be available on the grant of planning permission and the grant of a lease of a vacant property and to ensure that this potential was brought to the notice of prospective purchasers: Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, Standard Chartered Bank v Walker (1982) 262 EG 345, Palk v Mortgage Services Funding plc [1993] Ch 330 and Downsview Nominees Ltd v First City Corp Ltd (No 1) [1993] AC 295 considered.
2. With regard to the receivers, they had, by accepting office as such, assumed a fiduciary duty of care to the bank, the appellants and any others interested in the equity of redemption: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 applied. The appointment of the receivers as agents of the appellants, having regard to the special character of that agency, did not affect the scope or content of the fiduciary duty. The scope and content had instead to depend upon and reflect the special nature of the relationship between the bank, the appellants and the receivers under the terms of the mortgages, particularly the role of the receivers in securing repayment of the secured debt and the primacy of their obligations in that regard to the bank. Those circumstances precluded any obligation to take the pre-marketing steps contended for by the appellants. Nor could any such obligation arise from the steps that the receivers had in fact taken for a period to investigate applications for planning permission. They were at all times free to halt those steps and to exercise their right to proceed with an immediate sale of the mortgaged properties as they were: Cuckmere, Gomba Holdings (UK) Ltd v Homan [1986] 1 WLR 1301, Downsview, Kelly v Cooper [1993] AC 205 and Medforth v Blake [1999] 29 EG 119 also considered.
Michael Driscoll QC and Michael Michell (instructed by Kenneth Elliott & Rowe, of Romford) appeared for the appellants; Christopher Nugee QC and Daniel Bayfield (instructed by Linklaters) appeared for the respondents.
Sally Dobson, barrister