Receivership – Sale of mortgaged property on behalf of mortgagee – Receivers initially marketing four properties individually – Receivers later proceeding with sale of all four as portfolio on advice of selling agent – Whether individual sales would have achieved higher total sale price – Whether breach of duty to mortgagor to obtain best price reasonably obtainable – Claim dismissed
The claimant was a director and majority shareholder of a company that owned four properties in Bolton. They had originally been built as private houses but had been converted for use as professional offices and let as such. In early 2000, the company was unable to meet a formal demand by a bank for repayment of £645,339. The bank appointed as the receivers the first two defendants, who were partners in the third defendant firm, pursuant to a fixed and floating charge that it held over the company’s assets. The receivers appointed the fourth defendant as a selling agent to advise on the marketing and disposal of the four properties.
When the sales particulars were distributed at the end of March 2000, various potential purchasers had already expressed an interest. The properties were initially marketed individually and several offers were received, but the selling agent advised that they should be rejected as being too low. Offers were also received to purchase all four properties as a portfolio, but the agent’s advice to the receivers was to wait and test the market. By April, offers totalling £630,000 had been received for three of the properties and an offer of £730,000 had been received for the portfolio. On the selling agent’s advice, the receivers decided to proceed with a portfolio sale. Further portfolio offers were received, in the light of which all the interested parties were invited to submit their best and final bids. After further bidding, a sale of all four properties was secured and completed for £775,000 by August 2000.
The claimant, as the assignee of the company’s cause of action, brought proceedings against the defendants for breach of the duty to secure the best price reasonably obtainable for the properties. He contended that the receivers should not have opted for a portfolio sale since if they had continued to market the properties individually, they could have been sold separately in August 2000 for around £1.24m. He submitted that the receivers had acted negligently in deciding to dispose of the four properties as a portfolio at a time when: (i) their only valuation was that of the selling agent; and (ii) the sales particulars had been sent only a week earlier and the market had not be adequately tested.
Held: The claim was dismissed.
A receiver appointed by a mortgagee to sell mortgaged property owed a duty in equity to those interested in the equity of redemption to obtain a proper price for the property. However, he was not a trustee of the power of sale for the mortgagor and he could choose the time of sale even if that turned out to be disadvantageous to a debtor that could have recovered more had the property been sold at a later date: Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2003] 3 EGLR 49; [2003] 50 EG 96 and Raja (administration of the estate of Raja (deceased)) v Austin Gray (a firm) [2002] EWCA Civ 1965; [2003] 1 EGLR 91; [2003] 13 EG 117 applied. A degree of latitude was to be given to mortgagees and receivers not only as to the time, but also as to the method of sale to be employed; although the property had to be marketed in the way appropriate to the chosen method, the mortgagee could have regard to its own interests in deciding how to sell. Such decisions would inevitably be complex and multifaceted, and the duty to achieve the best price reasonably obtainable had to be understood in that context.
Once a serious offer for all four properties had been accepted, it would not have been prudent to revert to the alternative of individual disposals unless there were serious offers for each of the four properties that in total exceeded the portfolio bid. The receivers’ options were either to proceed with a portfolio sale or to decline any offers for the entire portfolio until the possibility of securing individual sales at an acceptable price had been exhausted. Although the selling agent had originally advised the latter, it had subsequently changed its mind. That advice had not been negligent. The receivers had proceeded with a portfolio sale only after several rounds of competitive bidding. Their preference for the certainties of a portfolio sale over the uncertainties of a longer period of marketing against a background of changing market conditions was one that they were entitled to adopt consistently with their right to choose the time of the sale. They were not bound in law to take the risk of waiting for an indefinite period in the hope of obtaining a higher return when they had a competitive bid for all the properties that exceeded any individual offers.
The claimant appeared in person; Scott Allen (instructed by Barlow Lyde & Gilbert LLP) appeared for the first to third defendants; Graham Chapman (instructed by Weightmans LLP, of Manchester) appeared for the fourth defendant.
Sally Dobson, barrister
