Bank appointing receivers of mortgaged properties shortly after issuing formal demand — Whether right to do so restricted by alleged assurances given to claimant mortgagors — Whether receivers in breach of duty by selling certain properties without the benefit of planning permission and by marketing others as part of a folio of less attractive properties
The claimants were family-controlled, property-dealing companies. Commencing in March 1988, the claimants acquired a variety of properties under financing arrangements made with the defendant bank, which took a charge over each property. Each charge was on the bank’s standard terms, under which it had the right to repayment on demand, and the right to exercise its power of sale and other powers at any time. On 8 March 1996, the bank received an independent report that confirmed its increasing anxiety about the level of the claimants’ indebtedness. On 16 March 1996, the bank issued a formal demand for repayment, and, between 29 May and 7 June 1996, it appointed two of the defendants (the Coopers defendants) to be the receivers of 21 of the charged properties (the properties). These had been described in the earlier report as “a difficult, low quality portfolio with a few desirable sites within it”.
After the sale of the properties during the following two years, the claimants issued proceedings for loss of profits, claiming, as against the bank, that it had no right to call in the loan when it did. That claim was rejected after the judge had found on the evidence that the bank had given no promise or assurance capable of overriding the rights expressly given by the deeds of charge. The judge then turned to an alternative claim, made against the Coopers defendants, where it was alleged, inter alia, that they had acted in breach of duty by selling: (a) eight of the properties (the A properties) without first obtaining planning consents that would have significantly enhanced their sale value; (b) two of the properties (the B properties) as part of a (larger) folio in circumstances where full value would have been obtained had they been marketed separately.
Held: The claims were dismissed.
On the authorities as they stood, a receiver was under the same (but no greater) obligations to the mortgagor as the mortgagee: see per Lord Templeman in Downsview Nominees Ltd v First City Corporation Ltd (No 1) [1933] AC 295 at p312 and the observations of Robert Walker LJ in Yorkshire Bank plc v Hall [1999] 1 WLR 1713 at p1728. The duty owed to the mortgagor was accordingly imposed, not under the tort of negligence, but under equitable rules for the protection of the mortgagor. These required the defendants generally to act in good faith and specifically, when exercising the power of sale, to take reasonable care to obtain a proper price: see generally Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633. As regards the A properties, neither duty was breached when the defendants, acting in the interests of the bank, decided, in some instances, not to apply for planning permission and, in others, not to pursue applications that had been made: Knight v Lawrence [1991] 01 EG 105 and Medforth v Blake [1999] 29 EG 119 considered. The timing of the sale was a matter for them, unafffected by the wishes of the mortgagor.
While there were arguments for the separate marketing of the B properties, it was not possible to conclude on the facts that the decision to include them in a portfolio was one that could not reasonably have been taken.
Michael Driscoll QC, Luke Norbury and Michael Michell (instructed by Landons, of Brentwood) appeared for the claimants; Jeffrey Onions QC and Graeme Halkerston (instructed by Lawrence Graham) appeared for the first defendant bank in both actions and the second and third defendants in Action 3279; Christopher Nugee QC and Daniel Bayfield (instructed by Linklaters) appeared for the second and third defendants in Action 3531.
Alan Cooklin, barrister