Bank mortgagee of drag racing site exercising power of sale – Borrower alleging sale at undervalue – Bank seeking quick sale to enable purchaser to operate from start of drag racing season – Whether site sufficiently marketed in circumstances – Whether sufficient attention given to other inquiries received by bank – Borrower’s claim dismissed
The defendant bank held fixed and floating charges over the assets of two associated companies whose indebtedness was guaranteed by the claimant and another. The principal asset was a 350 acre site (formerly an air force base) in Podington, Befordshire, that was owned by one of the companies and rented by the other, under the name of Santa Pod Raceway (the raceway), for the purpose of promoting drag racing events. The season for such events, at the raceway and elsewhere, began in the Easter of each year.
Towards the end of 1995 it became known in the trade that the bank was anxious to end its involvement with the companies, and, in December of that year, the bank received two tentative offers to acquire the debts (as secured) for prices in the region of £800,000. In January 1996 one of the offerors (the C consortium) changed its proposal and offered to buy the site and certain other assets for £775,000. The bank rejected the offer, having obtained the opinion of a valuer, indicating that the site could fetch around £1.5m if sold at the height of the season as a going concern. However, it was clear to the bank that the raceway would not be ready for the new season unless resurfaced at a cost of no less than £75,000.
In February 1996, having already sent formal demands to the companies, the bank appointed administrative receivers, under the terms of the floating charges, with instructions to find a purchaser who would be able and willing to have the raceway ready in time for the 1996 opening event, the Easter “Thunderball” meeting. A press release followed by an advertisement placed in the Financial Times elicited inquiries from six potential purchasers, but none expressed interest at the price level then being discussed with the C consortium.
Later that month, the bank accepted a revised offer from the C consortium to buy the site for £965,000, and did so upon the recommendation of the receivers, who had obtained a valuation of £925,000 from a leading firm of estate agents. In order to override certain dispositions effected by the claimant, who was anxious to prevent the sale, the bank decided to contract and convey as mortgagee in possession under the fixed charge. Exchange and completion took place in March 1996.
The claimant brought proceedings, contending that the bank had failed to take reasonable care to obtain the true value of the site, and alleged, inter alia, that one of the prospective purchasers had been kept in ignorance of the sale, and was in fact prepared to pay up to £1.6m for the site. That allegation was rejected by the judge, who found that the relevant correspondence and file notes had been “concocted” to make a case that there had been a sale at an undervalue.
Held: The claim was dismissed.
1. In deciding whether the mortgagee had taken reasonable precautions to obtain the true value, the facts had to be looked at broadly, and the mortgagee could not be judged to be in default unless he was plainly on the wrong side of the law: see Cuckmere Brick Co v Mutual Finance Ltd [1971] 2 All ER 633.
2. Given the need to effect a swift sale, it was not unreasonable of the bank to prefer the certainty of a deal with the C consortium to the mere possibility of receiving a higher, properly funded bid from one of the other inquirers: see Fisher & Lightwood, Mortgage (1988) p390. For the same reason, it could not be contended that the bank had failed to expose the property fairly and properly in the market: see Cuckmere (supra); Standard Chartered Bank Ltd v Walker [1982] 2 EGLR 152; and Lightman & Moss, Law of Receivers and Administrators (3rd ed) para 7-32. Moreover, a mortgagee could sell when he liked, even though a better price might be obtained by waiting, and even if the proceeds of an immediate sale would leave no surplus (after discharge of the mortgage debt) for the borrower: see Cuckmere (supra) and Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54.
3. With regard to the need to resurface the raceway, the bank was not required to advance further funds to support the continuation of the mortgagor’s business by the receivers, nor were the receivers required to carry on that business: see Medforth v Blake [1999] 2 EGLR 75.
Andrew Walker (instructed by Vizard Oldham) appeared for the claimant; Stephen Phillips (instructed by Taylor Joynson Garrett) appeared for the defendant.
Alan Cooklin, barrister
