Power of sale over charged properties exercised by receivers appointed by creditor of chargee — Receivers acting on valuations obtained from defendant firm — Claimant owner of properties complaining of sales at undervalue — Whether duty of care owed by defendant to claimant
Under the terms of a debenture deed, the assets of a finance company (DFL) were secured against moneys advanced to DFL by Midland Bank plc (Midland). The assets included the rights enjoyed by DFL as chargee of 16 properties that had been taken as security for loans made by DFL to a property dealer (R). In September 1994, Midland appointed joint administrative receivers pursuant to the terms of the deed. At or about that time, DFL became entitled to exercise a power of sale over the properties. In April 1995, the receivers instructed the defendant firm (AG) to carry out valuations, and, having received its reports, proceeded to sell the properties over the following six months. R complained that the properties had been sold at an undervalue, and commenced proceedings against AG that were eventually pursued by the claimant personal representative*. In April 2001, the High Court master ordered the hearing of a preliminary issue as to whether AG owed R a duty of care, for which purpose it was assumed that it knew of R’s interest in the properties.
Held: The answer was: Yes.
There being no lack of foreseeability or proximity, the central issue was whether the duty contended for was fair, just and reasonable: see the three-fold test considered in Bank Credit Commerce International (Overseas) Ltd (in liquidation) v Price Waterhouse (No 2) (1998) PNLR 564. The cases demonstrated that it was not always easy to weigh up the numerous considerations that could influence the answer to that question: see Spring v Guardian Assurance plc [1994] 3 All ER 129 and Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1995] 3 All ER 307.
Looking at the position of the receivers, it was plain that they were duty bound to take into account the interests of the mortgagor (DFL), “and others interested in the mortgaged property”: see per Sir Richard Scott V-C in Medforth v Blake [1999] 2 EGLR 75. Contrary to what was submitted by AG, the imposition of a similar duty on the receivers’ agent (for whom the receivers were responsible) would not present any real problem of double recovery or multiplicity of proceedings. Nor would it undermine the overall scheme of the contractual arrangements between the parties: dictum of Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at p195 explained. Having been called in to assist in the selling process, AG owed a common law duty in contract and tort to the receivers who had instructed it. The extension, for the benefit of R, of the duty to obtain a proper price would not be contrary to the spirit of the identified equitable duties, nor interfere in any way with the principles behind them.
*Editor’s note: R was murdered in circumstances relating to his business activities.
Charles Douthwaite (instructed by Healys) appeared for the claimant; Patrick Lawrence QC (instructed by Browne Jacobson, of Nottingham) appeared for the defendant.
Alan Cooklin, barrister
