Defendant receivers conducting sale of hotel premises on behalf of mortgagee – Claimant mortgagor urging that property be marketed as going concern – Defendants following estate agent’s advice to contrary – Whether defendants in breach of duty to claimant – Defendants applying for summary judgment – Whether claim having any real prospect of success if matter allowed to go to trial – Judgment for defendants
In 1988 the claimant acquired two properties, which she subsequently charged in favour of a bank under all-moneys charges. Thereafter, the claimant operated one of the properties, Leigh House, as an hotel. By 1992, significant sums were owed to the bank, and in February of that year it appointed the defendant accountants as joint receivers, pursuant to the charges and the Law of Property Act 1925. Neither the bank nor any receiver appointed by it had the power to carry on any business conducted from either property.
In May 1992 the defendants, writing with the authorisation of the bank, informed the claimant that proceedings would be taken for her eviction. The claimant asked for time to carry out fire-precaution works essential to the lawful continuation of the hotel business. In August 1992 the claimant intimated through solicitors that she would co-operate in the sale of Leigh House, but only if it were marketed as a going concern. In September 1992 an estate agent (Druce) engaged by the defendants advised them that any business value would be unlikely to exceed the bricks-and-mortar value.
In November 1992 the bank obtained orders for the possession of both properties. In January 1993 the claimant, still in occupation, wrote to the bank, repeating her assertion that the sale should be upon a going-concern basis. In the same month, the bank informed the defendants that the claimant should not be allowed to control sales and that the bank would rely upon the defendants’ advice. In February 1993 the defendants took possession on behalf of the bank. In April 1993 Druce furnished the defendants with a report, valuing Leigh House at £160,000 and advising against any attempt to reopen it for trading as an hotel. In September 1993 Leigh House was sold, on the advice of the defendants, for £160,000.
In or about June 1999, the claimant took proceedings alleging that the defendants had acted in breach of duty, and/or had not acted in good faith, by failing to obtain a proper price for the properties. She contended, inter alia, that Leigh House should have been sold as a going concern. The defendants applied for summary judgment under CPR Part 24.
Held: The defendants’ application was allowed.
1. The claim could not be said to be misconceived as a matter of law. While clearly required to exercise their powers in good faith, both mortgagee and receivers were additionally subject to specific duties, including a duty, upon selling, to take reasonable care to obtain a proper price: see the observations of Sir Richard Scott V-C in Medforth v Blake [1999] 2 EGLR 75 (CA), reviewing Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 (PC). For the purpose of summary proceedings, it was, at the very least, arguable that, as a matter of fairness, circumstances could arise where it would be a breach of duty not to co-operate in the sale of a property as a going concern: Palk v Mortgage Services Funding plc [1993] Ch 330 and AIB Finance Ltd v Debtors [1998] 2 All ER 929 considered.
2. However, on the evidence before the court, the defendants were justified in selling the property without the business being carried on by the claimant. They could not be expected to continue the business for a substantial period at risk to themselves. Moreover, as stated by Druce, such value as the business did possess was attributable, not to the property, but to the personal goodwill enjoyed by the claimant in the locality. In those circumstances, the claimant did not have, in the words of r 24.2, any “real prospect of succeeding”: see the observations of Lord Woolf MR in Swain v Hillman unreported 21 October 1999, distinguishing such a prospect from a fanciful prospect of success.
Richard Ritchie (instructed by Georgallis & Alexandrou) appeared for the claimant; Amanda Harington (instructed by Fladgate Fielder) appeared for the defendants.
Alan Cooklin, barrister