Raja v Austin Gray (a firm)

A mortgagee or receiver exercising a power of sale owes an equitable duty to take reasonable steps to obtain a proper price. That duty protects the mortgagor and others interested in the equity of redemption. It cannot be avoided merely because the mortgagee or receiver appointed a competent professional agent.

However, a valuer appointed by a receiver does not thereby owe a direct common-law duty of care to the mortgagor. The existence of an adequate remedy against the mortgagee and receiver, the absence of sufficient proximity, the contractual setting and the absence of any relevant assumption of responsibility made it neither fair nor just to impose such a duty.

Administrative receivers appointed by Midland Bank over Development Finance Ltd instructed Austin Gray, professional valuers, to value and assist in selling properties owned by Mohammed Raja and charged to Development Finance Ltd. The properties were sold, allegedly at an undervalue.

Buckley J held on a preliminary issue that the valuers owed Mr Raja a common-law duty of care. His estate appealed. The Court of Appeal had to decide whether the receivers owed Mr Raja an equitable duty when exercising Development Finance Ltd’s power of sale and, if so, whether the valuers owed him a separate direct duty of care.

1. Appeal allowed. The order on the preliminary issue was reversed. The respondent was ordered to pay the appellants’ costs, and permission to appeal to the House of Lords was refused.
2. A mortgagee exercising a power of sale owes an equitable duty to take reasonable steps to obtain a proper price. A receiver appointed by the mortgagee owes a similar duty. The duty extends to the mortgagor and others interested in the equity of redemption.
3. Although the receivers were appointed over Development Finance Ltd’s rights under the mortgages, they exercised Development Finance Ltd’s power of sale over properties owned by Mr Raja. Applying Medforth v Blake [2000] Ch 386, the receivers therefore owed Mr Raja the relevant equitable duty.
4. The mortgagee’s or receiver’s duty is not delegable in the sense that liability can be avoided by appointing a reputable agent. The reasoning in Cuckmere Brick Company Ltd v Mutual Finance Ltd [1971] Ch 949, supported by Tomlin v Luce (1889) 43 Ch D 191 and Commercial and General Acceptance v Nixon (1982) 152 CLR 491, was adopted. Negligent valuation by the appellants could therefore place both the receivers and Development Finance Ltd in breach of their equitable duty to Mr Raja.
5. The separate question was whether the valuers themselves owed Mr Raja a common-law duty. Foreseeability was satisfied, but there was insufficient proximity, no relevant assumption of responsibility and no need to fill a remedial gap. Mr Raja had an adequate remedy against Development Finance Ltd and the receivers, subject to the rule against double recovery.
6. The threefold approach of foreseeability, proximity, and whether it was fair, just and reasonable to impose the asserted duty did not justify liability. The assumption-of-responsibility and incremental approaches led to the same result. The reasoning in Huish v Ellis [1995] BCC 462 was preferred to that in Asif v The City (Europe) Ltd, an unreported decision of 25 June 2002.

• Court of Appeal (Civil Division): Raja v Austin Gray (a firm) [2002] EWCA Civ 1965 allowed the appeal and reversed Buckley J’s preliminary determination.
• Queen’s Bench Division: Buckley J, on 31 July 2002, held that the valuers owed the property owner a duty of care.