Lloyds Bank Plc & Ors v Cassidy

On an application to strike out or obtain summary judgment, a court should not determine genuinely arguable factual disputes or require a claimant to prove every aspect of its case where the application has not fairly raised the issue. A mortgagee or receiver is not generally obliged to exercise a power of sale at a particular time. However, once a decision to sell has been made, the power must be exercised with reasonable skill and care, including taking reasonable steps to obtain a fair price. The boundary between deciding not to sell and exercising the power of sale may require fact-sensitive examination. A possible duty to avoid substantially increasing the borrower’s burden was left open for trial.

The applicant appealed from orders of HHJ Behrens, sitting in the Leeds District Registry Mercantile Court, which struck out substantial parts of his amended defence and counterclaim against Lloyds Bank and receivers appointed over the family farming business. The claims concerned alleged undervalue sales, failures in managing assets, and the rejection of proposals said to have discharged the receivership debt.

The judge considered that the surviving claims could not exceed the bank’s claim and that the proposed duty concerning the rejection of offers was legally untenable. The central issues were whether the pleaded claims were sufficiently arguable to require a trial and whether mortgagees or receivers could owe duties concerning the timing or acceptance of proposals to realise security.

1. The appeal was allowed. Permission to appeal out of time was granted. The struck-out claims were sufficiently arguable to require a trial, and the appellant was permitted to re-amend, subject to the exclusion of the allegation that bankruptcy was the test for the existence of a duty.
2. The judge had applied too demanding a standard on the applications. The evidence raised arguable claims concerning the value and marketing of Bursea Lodge Farm, Sober Hill, Johnson’s Field and Dial House, together with claims concerning crops, ditches and storage buildings. The judge was wrong to make firm factual conclusions from documents which conflicted with the appellant’s evidence, and unfairly criticised matters which had not been challenged by the applications. The court should determine finally, on proper evidence, whether the appellant could recover more than the bank’s claim from the bank or the receivers.
3. The established authorities, including Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 1 Ch 949, China and South Sea Bank Ltd v Tan [1990] 1 AC 536 (PC) and Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295, supported the proposition that a mortgagee or receiver has no general duty to sell, or to sell at a particular time. When the power to sell is exercised, reasonable skill and care must be used to obtain a fair price.
4. Medforth v Blake [2000] Ch 86 concerned the exercise of a management power and did not determine the present issue. The observations in Palk v Mortgage Services Funding plc [1993] Ch 330 raised a potentially relevant boundary between freedom not to sell and duties arising when exercising powers over security. The court left open whether a mortgagee or receiver may owe a duty, in law or equity, where the chosen course would probably and substantially increase the borrower’s burden.
5. The proposed re-amendment was permitted except for the allegation that the likelihood of bankruptcy established the duty. The relevant concern was possible increased liability caused by continuation of the receivership, not bankruptcy itself. Consequential amendment of paragraph 14(ii) was required.

• Court of Appeal (Civil Division): Permission to appeal was granted and the appeal from HHJ Behrens’s orders was allowed.
• High Court, Leeds District Registry Mercantile Court: HHJ Behrens’s judgment dated 26 November 2001, implemented by order dated 4 December 2001, struck out parts of the amended defence and counterclaim.