Summary

On the exercise of a power of sale over mortgaged property, the mortgagee or a receiver appointed by the mortgagee were not under a duty to pursue applications for planning permission or complete the grant of leases in order to increase the likely best price reasonably obtainable on sale.

Facts

Appeal by the claimant property companies from the judgment of Patten J dismissing their claims for damages against the first defendant bank ('RBS') and the second and third defendant receivers appointed by RBS, arising from the alleged sale of properties mortgaged by the claimants to RBS at an undervalue. By the terms of the mortgages the receivers were appointed as agents of the claimants. The claimants contended that, in respect of six properties, the defendants had been under a duty to pursue planning applications for the development of the properties in order to obtain the best price obtainable and, in respect of two of the properties, to complete the grant of leases. Patten J concluded that a receiver appointed by a mortgagee had the same obligations to the mortgagor as the mortgagee and that they were not required to incur expense in the improvement of the property in order to sell it at a higher price. On appeal, the claimants contended that: (i) a receiver owed a duty of care to mortgagors in everything done in the course of his receivership if appointed agent of the mortgagor and if he had exclusive control over the property of the mortgagor; (ii) alternatively, a receiver who had pursued an application for planning permission became bound not to abandon it unless a reasonable and prudent person would have done so; and (iii) the duty of mortgagees and receivers to obtain the best price reasonably obtainable included a duty to pursue applications for development of the property.

Held

(1) There was no duty on a mortgagee to postpone exercising the power of sale until after the further pursuit of an application for planning permission or the grant of a lease. (2) A mortgagee was entitled to sell the property in the condition in which it stood without investing money or time in increasing its likely sale value and to discontinue efforts already undertaken with a view to increasing the sale value. (3) A mortgagee's duty was limited to taking reasonable care to obtain a sale price that reflected the added value available on the grant of planning permission and the grant of a new lease, and to ensuring that the potential was brought to the notice of prospective purchasers. (4) The duties in respect of the exercise of the power of sale by mortgagees and receivers were the same. (5) By accepting office as receivers of the claimants' properties, the receivers assumed a fiduciary duty of care to RBS, the claimants and any others interested in the equity of redemption. The appointment of the receivers as agents of the claimants did not affect the scope or the content of that fiduciary duty.

Appeal dismissed.