Silven Properties Ltd. & Anor v Royal Bank of Scotland Plc & Ors

A mortgagee may decide whether and when to sell mortgaged property in its own interests. It has no duty to postpone sale, obtain planning permission, grant a lease, or otherwise improve the security, even if those steps may increase the eventual price.

Once a sale is undertaken, the mortgagee must take reasonable care to obtain the best price reasonably obtainable at the date of sale. This includes properly marketing the property and disclosing its development potential.

A receiver appointed by a mortgagee, including one expressed to be the mortgagor’s agent, owes the same equitable sale duty. The special agency does not impose a wider duty to delay sale or incur time and expense to enhance the property before sale.

The claimants had mortgaged a portfolio of properties to the bank. The bank appointed the respondent receivers under mortgages which made them agents of the claimants. The receivers sold the properties.

The claimants alleged that six properties had been sold at an undervalue because the receivers had not pursued planning applications or completed proposed lettings before sale. It was accepted that each sale achieved the best price reasonably obtainable for the property in its actual condition at the date of sale.

Patten J dismissed the claims. The Court of Appeal granted permission on the confined issue whether the receivers owed a duty to delay sale and take value-enhancing pre-sale steps. If such a duty existed and had been breached, loss would require determination on a remittal.

1. Appeal dismissed. The receivers were entitled to sell the properties without awaiting planning permissions or proposed leases. They owed no duty to delay sale in order to obtain an enhanced price through such steps.

2. A mortgagee is not a trustee of its power of sale for the mortgagor. In the absence of a contractual restriction, it may decide whether and when to enforce its security in its own interests. It may sell the property in its existing state and may abandon investigations or steps intended to unlock further value. The contrary timing observations of Lord Denning MR in Standard Chartered Bank v Walker, [1982] 1 WLR 1410, could not stand with later authority.

3. When exercising the power of sale, however, the mortgagee owes an equitable duty to take reasonable precautions to obtain the proper price at the date of sale. It must fairly expose the property to the market and ensure that purchasers are made aware of available development or letting potential. That duty preserves the value available on sale; it does not require the mortgagee to spend money or time creating additional value.

4. A receiver has management duties and must actively protect and preserve the charged property. Those duties may require steps such as triggering an upward-only rent review. They do not ordinarily create a general duty to exercise the power of sale, nor a duty to refurbish, improve, let, or obtain planning permission before sale.

5. The receivers’ designation as agents of the mortgagors did not alter that result. This was a special tripartite agency, created to protect the mortgagee’s security and directed primarily to securing repayment of the debt. The receivers’ fiduciary duty was owed to the bank, the claimants, and others interested in the equity of redemption. Its scope did not require the receivers to pursue the proposed planning and letting initiatives before sale.

• Court of Appeal (Civil Division). The claimants’ limited appeal concerning six sales by the receivers was dismissed.
• Chancery Division. Patten J, on 11 October 2002, dismissed all claims against the bank and the receivers. Permission to appeal was later granted only on the receivers’ alleged duty to defer sale and take value-enhancing steps.