Cuckmere Brick Co Ltd v Mutual Finance Ltd

A mortgagee exercising a power of sale is not a trustee for the mortgagor and may choose when to realise the security for its own purposes. It must nevertheless act in good faith and take reasonable care to obtain the true market value of the property at the date selected for sale.

The duty concerns the conduct and preparation of the sale. A mortgagee may be liable where a material feature affecting value is omitted from sale particulars or where a sale is unreasonably continued without proper re-advertisement. The mortgagor must prove resulting loss. Where loss is established but the evidence does not justify a particular valuation, damages should be assessed by inquiry.

The mortgagee sold a charged development site at auction for £44,000 after the particulars advertised permission for houses but did not mention existing detailed planning permission for 100 flats. The mortgagor company and its guarantor alleged that the omission excluded potential flat developers and caused an undervalue.

Plowman J found that the mortgagee had failed to take reasonable precautions and ordered an account on the footing that £65,000, rather than the sale price, should be credited. The mortgagee appealed, challenging both the existence of a duty of care and the findings on negligence and value.

The central issues were the standard owed by a mortgagee selling under its power, whether the sale had been negligently conducted, and whether the evidence justified the assessed loss.

1. The appeal was allowed in part. The court upheld liability for negligent conduct of the sale, but, by a majority of Cross and Cairns LJJ, set aside the assessment of £65,000 and directed an inquiry as to damages.

2. All three judges held that a mortgagee is not a trustee of the power of sale. It may sell when its own interests require and need not wait for a more favourable market. However, per Salmon LJ, it also owes the mortgagor a duty to take reasonable precautions to obtain the true market value at the chosen date of sale. Cross and Cairns LJJ reached the same conclusion, preferring the line of authority represented by Tomlin v Luce and McHugh v Union Bank of Canada to dicta suggesting that good faith alone suffices.

3. Salmon and Cairns LJJ held that the failure to mention the flats permission, and the later refusal to postpone and re-advertise, were negligent. The permission could have attracted a wider range of purchasers and potentially increased the price. The mortgagee itself had participated in the relevant decisions. Cross LJ considered the evidence showed, at most, errors of judgment and would not have found negligence.

4. Cairns LJ held that the evidence established that the mortgagors suffered some loss. It did not, however, establish that the land would probably have fetched £65,000. The valuation depended on uncertain assumptions and no developer had given evidence of a bid at that level. Cross LJ agreed that a further inquiry was required; Salmon LJ would have upheld the trial judge’s assessment.

5. The order for an account was therefore varied by remitting the assessment of damages. The respondents received three-quarters of their appeal costs, while the costs order below remained undisturbed.

• Court of Appeal (Civil Division): Allowed the mortgagee’s appeal only as to quantum. Liability for negligent conduct of the sale was upheld, but damages were remitted for inquiry.

• High Court (Plowman J): Found for the mortgagors on the claim and counterclaim, holding that the mortgagee should be credited with £65,000 rather than the £44,000 realised on sale.