Morgan and another v Lloyds Bank plc
Beldam LJ, Auld LJ, Sir John Knox
Bank instructing agent to market mortgaged property – Bank appointing receiver – Whether bank breaching duty to exercise reasonable skill and care in advising client – Whether bank failing to make full disclosure – Whether bank interfering with receivers’ power of sale – Plaintiffs’ claim dismissed
The plaintiffs purchased a property for use as a nursing home in 1985. In 1998 they granted the defendant bank a legal charge on the freehold of the property and the goodwill of the business. The money advanced was repayable within the terms of the formal loan agreement. The plaintiffs also had a trading account with the bank. From July 1989 the bank expressed concern about the level of its security in the face of the increasing overdraft on the trading account, and in December the bank suggested that the home should be sold. In March 1990 L&L were instructed by the plaintiffs to market the property. The bank instructed AK, who prepared an agreement to sell the property on a sole agency. In July 1990 L&L ceased to market the property on behalf of the plaintiffs and, although the plaintiffs claimed they did not consider AK suitable agents, AK were instructed to market the property. An offer was received for £595,000, which the plaintiffs rejected. On June 6 1991 the bank appointed receivers and the property was duly sold. The plaintiffs issued proceedings against the bank. The High Court allowed the bank’s application for the plaintiffs’ action to be struck out, and gave judgment on the bank’s counterclaim for sums due on the plaintiffs’ accounts. The plaintiffs appealed and contended that the bank had been in breach of its duty to exercise skill and care when it had advised the plaintiffs. The plaintiffs also sought to amend their statement of claim to include claims that the bank was in breach of its duty to make full disclosure and to justify their conduct because there was a financial link between the bank and AK, and that the bank was in breach of its duty of care regarding the liability of the mortgagee after the exercise of its power to appoint a receiver.
Held The appeal was dismissed and leave to amend refused.
Bank instructing agent to market mortgaged property – Bank appointing receiver – Whether bank breaching duty to exercise reasonable skill and care in advising client – Whether bank failing to make full disclosure – Whether bank interfering with receivers’ power of sale – Plaintiffs’ claim dismissed The plaintiffs purchased a property for use as a nursing home in 1985. In 1998 they granted the defendant bank a legal charge on the freehold of the property and the goodwill of the business. The money advanced was repayable within the terms of the formal loan agreement. The plaintiffs also had a trading account with the bank. From July 1989 the bank expressed concern about the level of its security in the face of the increasing overdraft on the trading account, and in December the bank suggested that the home should be sold. In March 1990 L&L were instructed by the plaintiffs to market the property. The bank instructed AK, who prepared an agreement to sell the property on a sole agency. In July 1990 L&L ceased to market the property on behalf of the plaintiffs and, although the plaintiffs claimed they did not consider AK suitable agents, AK were instructed to market the property. An offer was received for £595,000, which the plaintiffs rejected. On June 6 1991 the bank appointed receivers and the property was duly sold. The plaintiffs issued proceedings against the bank. The High Court allowed the bank’s application for the plaintiffs’ action to be struck out, and gave judgment on the bank’s counterclaim for sums due on the plaintiffs’ accounts. The plaintiffs appealed and contended that the bank had been in breach of its duty to exercise skill and care when it had advised the plaintiffs. The plaintiffs also sought to amend their statement of claim to include claims that the bank was in breach of its duty to make full disclosure and to justify their conduct because there was a financial link between the bank and AK, and that the bank was in breach of its duty of care regarding the liability of the mortgagee after the exercise of its power to appoint a receiver.
Held The appeal was dismissed and leave to amend refused.
1. In order for a bank to owe a duty to advise with reasonable skill and care, it had to be shown that the bank had given advice which had been acted or relied upon. The bank, in its capacity as mortgagee, had given the plaintiffs a choice and the plaintiffs had chosen, with the benefit of professional advice, a course of action. That was irreconcilable with a claim that the bank, as banker to customer, had given the plaintiffs advice which had been relied on.
2. The principle that a party was to make a full disclosure of its conduct where there was a financial link did not apply because no conflict of interest had been shown, since there was no suggestion that the bank had an interest in seeing the property sold at a low price: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349, distinguished.
3. The bank offered the plaintiffs the choice between either appointing AK initially as joint and later as sole agents or having the bank appoint a receiver. That did not constitute interference comparable to a mortgagee interfering with a receiver whom it had appointed and who was exercising the power of sale.
Michael Tugendhat QC and Sebastion Neville-Clarke (instructed by Freemans) appeared for the appellants; David Waksman and James Evans (instructed by Stephens & Scown, of Exeter) appeared for the respondent.
