The court has considered the duties of fixed charge receivers exercising a power of sale in Serene Construction Ltd v (1) Salata and Associates Ltd (2) Anthony Gene Salata and (3) Anthony Mervyn Jorden [2021] EWHC 2433 (Ch).
A mortgagee is under a duty to take reasonable steps to obtain the “true market value” at the time of sale: Cuckmere Brick Co v Mutual Finance [1971] 2 EWCA Civ 9. A sale at a value believed to be less than true market value is insufficient to give rise to a claim. The mortgagor needs to establish that in failing to achieve market value the mortgagee breached its duty to take reasonable precautions to obtain that value. The same duty is owed by a receiver appointed by the mortgagee.
In January 2012, the second and third defendants (“the receivers”) were appointed by Barclays Bank as fixed charge receivers over an unbuilt residential development site at Bilston in Wolverhampton owned by the claimant (“the site”). The site had been granted planning permission for residential development in 2003 subject to a condition that works commenced within five years. The receivers sold the site for £175,000 in February 2013.
The claimant contended that the receivers were in breach of their duty to take reasonable steps to achieve the best price payable; they had failed to engage independent expert valuers to determine the true market value of the site; and it was marketed to a limited number of potential buyers without a guide price. The claimant argued that the true market value of the site was £575,000 and sought damages of £400,000 plus interest.
The receivers’ had instructed an experienced land agent at Connells, with whom they had worked previously, to value and market the site. The houses in the 2003 scheme were considered to be too upmarket and potentially difficult to sell, which would impact on the willingness of developers to pay for the site, and so the receivers commissioned a planning consultancy to prepare a more appropriate scheme. The strategy was to present the scheme to a number of local developers to identify the level of interest and, failing that, to send details to the remaining local developers on Connells’ database and, if there was still no interest, to undertake a local marketing campaign.
The court was satisfied that it was not unreasonable for the receivers to have instructed Connells, who had the necessary valuation and marketing expertise. The receivers’ valuer assessed the residual value of the site in February 2013 as £200,000, which was supported by the purchaser’s valuation.
The judge accepted the receivers’ evidence that the difficulties of attracting any interest in the market meant that a guide price that was out of line with what buyers were prepared to consider might lead to bids at a lower level and that the site was likely to be of interest only to small local developers to whom it could be directly marketed through Connells. A limited target marketing was only the first step in a recommended strategy adopted by the receivers. The receivers were not in breach of duty by accepting the offer of £175,000.
Louise Clark is a property law consultant and mediator
