Mortgagee bank exercising right to sell claimants’ property – Claimants claiming loss by reason of bank’s failure to achieve proper market price – Whether bank taking reasonable care to obtain a proper price – Claim dismissed
The claimants were partners who owned and operated a serpentine quarry in Cornwall, which they had acquired in 1991 for £300,000. The defendant bank was the mortgagee of the quarry. By 1993, the claimants could not continue to operate the quarry profitably and they decided to sell it. The bank initially allowed the claimants time to explore the market and sell the quarry assets in a manner most advantageous to them, provided that the bank was covered. Around 18 months later, the bank instructed Chestertons to conduct an open market valuation of the quarry. It was valued at £150,000. In April 1994 B made an offer of £100,000, which was rejected by the bank. By the beginning of June 1994, there were three offers for the quarry. The claimants wrote to the bank objecting to the sale to B.
On 27 June the bank instructed a company of chartered surveyors to test the market for the sale of the quarry. The claimants sought more time, but the bank refused on the grounds that debt was building up, no further repayments had been made and the claimants had been attempting to sell the quarry for 18 months. The quarry was finally sold to B in October 1994 for £255,000. The claimants sought to recover damages or equitable compensation from the bank on the basis that they sustained loss by reason of the bank’s failure to achieve the proper market price for their property.
Two surveyors gave evidence as to the open market value of the quarry in October 1994. The methodology adopted by each party’s expert was similar and was based upon the capitalisation of the mineral royalties, assuming that the quarry was let by the owner. The principal factors reflecting investment risk included the estimated reserves of a workable mineral, the royalty figure per tonne and the strength of the market for quarry products. The judge preferred the approach of the bank’s valuer, who gave a worst case and best case scenario. On the worst case scenario he valued the capitalised annual royalties at £224,000, and on a best case scenario,at £280,000. It was found that such an approach was helpful where factors such as geological conditions, hydrology, reserves and future market conditions were the subject of great uncertainty and assumption.
Held: The claim was dismissed.
Applying the principles in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, as summarised in Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295, the bank had a duty to take reasonable care to obtain a proper price. It was for the claimants to prove that the bank had breached that duty. For a quarry to be sold for the best possible price, it should be exposed to the market for six to 12 months to enable investigations to be made of both the mineral and waste-fill potential. The quarry was so exposed to the market by the claimants. It would have been unreasonable, in 1994, to expect the bank to pursue the potential of possible alternative uses of the quarry, when to do so would involve considerable delay and, in effect, the removal of the defendant’s right to realise its security at a time of its choosing. In light of all the circumstances, the bank was not in breach of its duty. The price obtained was the best price reasonably obtainable and represented the quarry’s proper market price. It fell between the two valuations of the bank’s expert valuer.
Romy Tager QC and Hugh Jackson (instructed by Mishcon de Reya) appeared for the claimants; William Blair QC and Amanda Green (instructed by Cameron McKenna, of Bristol) appeared for the defendant.
Sarah Addenbrooke
