Shreeve v Taylor & Anor

A mortgagee’s sale of charged property at an undervalue is actionable by a person interested in the equity of redemption who is prejudiced by the sale. The mortgagees may show that no loss was caused by treating the shortfall as part of the purchase price and applying it in reduction of secured debt. That defence must be pleaded and pursued at trial. Where the pleadings and conduct of the proceedings proceed on the express basis that the sale proceeds discharged the secured debt, a mortgagee cannot after judgment introduce an unpleaded and disputed case that further secured indebtedness eliminates loss, particularly where amendment would be required. The established undervalue was therefore payable to the claimant.

The claimant’s trustee in bankruptcy assigned to him a claim against the defendants, mortgagees who had sold the property to a company connected with them. The trial judge found that the property had been sold for £132,000 when the best reasonably obtainable price was £143,000, creating an £11,000 undervalue. An initial order addressed possible rights of the Cobleys, who held a second charge.

After the Cobleys withdrew their claim, the defendants argued for the first time that further secured indebtedness exceeded the undervalue and eliminated any loss. This contradicted their pleaded case that the sale proceeds were sufficient to discharge the charges and costs. The central issue was whether that new case could be raised after trial and judgment.

Appeal allowed. Mr Justice Lightman delivered the principal judgment, with Lord Justice Jonathan Parker agreeing.

1. A sale of mortgaged property at an undervalue gives rise to a claim by any person interested in the equity of redemption who is prejudiced by the sale. The mortgagees could have avoided prejudice by agreeing to treat the shortfall as part of the purchase price and applying it in reduction of secured debt.
2. The defendants could have pleaded the full secured indebtedness at the outset. If properly pleaded and established, that case might have shown that the claimant suffered no loss. It was not, however, pleaded or argued at trial.
3. The pleadings expressly proceeded on the basis that the £132,000 sale price was sufficient to discharge the charges and costs. The defendants were represented throughout, and their new case depended on unpleaded and disputed indebtedness while contradicting a positive averment in their Defence. It would therefore be unjust to permit them to introduce the case after trial and judgment. The judge erred in accepting it and making an order designed to secure a reduction in a bankruptcy proof.
4. The judge’s concern that the Cobleys might be prejudiced was reasonable, because the original pleading agreement could not bind them. Their subsequent claim to the £11,000 was withdrawn, however, and any entitlement under their charge was to be ignored, applying Adamson v Halifax Plc [2003] 1 WLR 60.
5. The only proper order was payment by the defendants to the claimant of £11,000 and interest. The order made below was accordingly replaced.

1. Court of Appeal (Civil Division) — In [2003] EWCA Civ 1197, the claimant’s appeal was allowed and an order for payment of £11,000 and interest was substituted.
2. High Court, Liverpool District Registry — Mr Recorder Anthony Elleray QC, sitting as a High Court judge, found an £11,000 undervalue. At the restored hearing on 17 January 2003 he ordered the defendants to procure a corresponding reduction in a bankruptcy proof and made no further order on the application.