Mortgage – Receivers – Breach of duty – Defendant fixed charge receivers appointed by mortgagee bank – Defendants selling property owned by claimant mortgagor – Claimant seeking damages against defendants alleging breach of fiduciary duty – Whether defendants realising best price realistically available – Whether defendants wrongly failing to obtain independent market valuation of site – Claim dismissed
In January 2012, the second and third defendants were appointed by the mortgagee bank as fixed charge receivers over an unbuilt residential development site at Brierley Lane, Bilston owned by the claimant company
In February 2013, they completed the sale of the site for £175,000. The claimant contended that that sale was made in breach of the fiduciary duty owed to it by the receivers to take reasonable steps to achieve the best price available and that if they had complied with that duty, they would have realised at least £575,000, which it said was the true market value. The claimant claimed damages of £400,000 plus interest.
The second and third defendants denied any breach of duty and contended that the price realised was the best realistically available in the circumstances.
The first defendant was a limited company through which the second and third defendants conducted their business. Though named as a defendant, it was now accepted that their appointment was a personal one and the duties relied on were owed by them personally. Accordingly, no claim lay against the first defendant.
The allegations against the defendants were that they failed to obtain an independent market valuation of the site and so failed to understand its true value, and that they failed to advertise it generally or offer it for sale by auction, instead inviting offers only from about 20 developers selected by the agents they instructed and so failed to receive offers reflecting the true value.
Held: The claim was dismissed.
(1) A mortgagee was under a duty to take reasonable steps to obtain “the true market value” or “a proper price” at the time he decided to sell. In deciding whether he had fallen short of that duty, the facts had to be looked at broadly and he would not be adjudged to be in default unless he was plainly on the wrong side of the line: Cuckmere Brick Co v Mutual Finance Ltd [1971] Ch 949 applied.
The mere fact of a sale below the value assessed by an expert was not sufficient itself to give rise to a claim. The market value of the property was only relevant to loss if a breach of the duty to take reasonable steps to obtain a proper price was found. The mortgagor had to show that, in failing to achieve that value, the mortgagee plainly breached its duty to take reasonable precautions to obtain that value. Furthermore, even where the duty had been breached, the compensation had to be assessed on the difference between the price paid and the price at which the property would probably have sold had the duty been discharged, which was not necessarily the market value attributed to the property by an expert: Meah v GE Money Home Finance [2013] EWHC 20 (Ch) followed.
(2) The equitable duty owed by a receiver appointed by the mortgagee was to take care to obtain the best price reasonably obtainable. A receiver was not under any higher duty by virtue of the fact that his appointment constituted him as agent of the mortgagor in exercising his powers, and in particular a receiver did not have any duty to delay sale in the interests of the mortgagor, or to expend money on improving the property or obtaining planning permission so as to enhance its value. Insofar as the receivers had begun steps to obtain a planning permission, they were entitled to halt those steps at any time and sell the property as it was; and were not liable for a failure to continue the application until planning permission was obtained: Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2003] 3 EGLR 49 followed.
When considering whether a mortgagee or a receiver had committed a breach of its duty, the court had to recognise that the mortgagee or receiver was involved in an exercise of informed judgment and if he went about the exercise of his judgment in a reasonable way, he would not be held to be in breach of duty. An error of judgment, without more, was not negligence or a breach of the relevant duty in equity: McDonagh v Bank of Scotland Plc [2018] EWHC 3262 (Ch) followed.
(3) The duty to take reasonable steps to achieve a proper price might include a duty to take suitable advice on matters in which the receiver did not himself have the relevant expertise.
Having decided to take advice, the duty to take reasonable steps required only that the receiver acted reasonably in identifying a suitable person capable of providing that advice. The receiver was then responsible for the advice actually given, so if that advice was negligent, the receiver was himself liable.
(4) In the present case, the defendants were not in breach of duty in taking advice on valuation, or on marketing, from a highly experienced property professional with whom they had worked for many years. The fact that he was a consultant to the receivers’ own firm was not, in itself, a reason why he could not be used.
The duty to take reasonable steps no doubt required appropriate consideration to be given to the value of an asset to be sold, and that in turn might require that advice be taken if the receivers did not themselves have the necessary expertise available to them. But if they did have that expertise, either personally or from an employee, it might be reasonable to rely on that advice, depending on the circumstances, and it could be no less reasonable to use a consultant.
The court would be slow to criticise a receiver who had approached his functions in a considered and responsible manner, even if others might have done so differently.
(5) In all the circumstances, it was not a breach of duty for the defendants not to obtain another opinion as to the market value of the development. Having received an offer of £175,000, it was not a breach of duty to accept that in the circumstances as known to the receivers at the time, including their own view of the likely realisable value.
Ian Pennock (instructed by Glaisyers Solicitors) appeared for the claimant; Henry Bankes-Jones (instructed by Berrymans Lace Mawer LLP) appeared for the defendants.
Eileen O’Grady, barrister
