AIB Finance Ltd v Alsop & Anor

A mortgagee owes an equitable duty to take reasonable care to obtain a proper price when exercising a power of sale. That duty does not generally require the mortgagee to preserve goodwill or a business before obtaining possession and control of the mortgaged property. Where the business has already closed and the goodwill has ceased to exist before possession, no arguable breach arises from failing to preserve or sell it as a going concern. A request for information about intended enforcement does not, without more, impose a duty to co-operate in procuring such a sale. An arguable complaint about the sale price alone is insufficient where it cannot meet the statutory threshold for setting aside a statutory demand.

The respondents had borrowed money from AIB Finance Ltd, secured by a mortgage over business premises, the business goodwill and related assets. After arrears arose, possession proceedings were brought. The business closed, the Post Office concession was lost and the respondents left the premises before AIB obtained possession and sold the freehold.

A district judge set aside statutory demands, finding that the respondents appeared to have a counterclaim equal to or exceeding the debt. Carnwath J allowed AIB’s appeal, accepting an arguable breach of mortgagee’s duty but finding that the counterclaim was insufficient. The issue before the Court of Appeal was whether any arguable breach existed, particularly concerning preservation of the business and goodwill before possession.

1. Appeal dismissed unanimously. The respondents had no arguable counterclaim capable of supporting the setting aside of the statutory demands under rule 6.5(4)(a) of the Insolvency Rules 1986.
2. Lord Justice Mummery, whose judgment Lord Justice Potter and Lord Justice Nourse agreed, held that the going concern had ceased to exist before AIB obtained possession. The Post Office concession had been lost, the newspaper round had been sold, the business had closed and the respondents had left the premises. There was therefore no goodwill for AIB to preserve when it took possession.
3. The court found no general duty requiring a mortgagee to preserve the value of mortgaged security before obtaining possession and control. Without possession, AIB had no reasonable means of preserving or disposing of the business as a going concern. The evidence also disclosed no arguable breach of the duty to act fairly before possession.
4. Lord Justice Nourse separately emphasised that the equitable duty recognised in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 and Parker-Tweedale v Dunbar Bank Plc [1991] Ch 12 concerns taking reasonable care to obtain a proper price when the mortgagee exercises its power of sale. It does not impose a duty to preserve the business before possession. The respondents’ letter of 18 September 1995 was only a request for information and did not require AIB to co-operate in a sale as a going concern.
5. Any arguable complaint about the later sale of the freehold could not alone satisfy the statutory threshold. The appeal was dismissed with costs, subject to the legal-aid orders under section 18 of the Legal Aid Act 1988.

• Court of Appeal (Civil Division): Appeal from Carnwath J dismissed. The court held that there was no arguable counterclaim based on AIB’s alleged failure to preserve the business or goodwill before obtaining possession.
• High Court, Chancery Division (in bankruptcy): Carnwath J allowed AIB’s appeal from the district judge, discharged the order setting aside the statutory demands and authorised bankruptcy petitions: [1997] 4 All ER 677.
• Brighton County Court: District Judge Fawcett had set aside the statutory demands on the ground that the respondents appeared to have a counterclaim equal to or exceeding the debt.