Michael & Ors v Miller & Anor

A mortgagee exercising a power of sale must take reasonable care to obtain the best price reasonably obtainable at the time. The duty requires reasonable steps and informed judgment. It does not impose an absolute obligation to achieve the price later found to be the market value.

A court may use a bracket or acceptable margin of error when deciding whether the mortgagee reasonably assessed market value or another matter affecting the sale. The bracket concerns breach of duty. Once breach is established, damages are assessed by reference to the court’s finding of the true market value.

A finding of liability should not be made on a materially unpleaded claim where the resulting issues were not adequately investigated at trial.

The appellants had mortgaged an agricultural estate to the respondents. After obtaining possession, the respondents sold it by private treaty for £1.625 million. The appellants alleged that the respondents had failed to obtain the best price reasonably obtainable, both for the land and for extensive lavender and herbal plantings.

The High Court found a market value of £1.75 million for the land, within an acceptable valuation bracket of £1.6 million to £1.9 million. It found no negligence by the selling agent, but awarded £25,000 for an unauthorised price reduction and directed an inquiry into loss from failing to market the plants separately.

The appellants appealed on the valuation-bracket and marketing issues. The respondents cross-appealed against the finding of liability concerning the plants because a separate lifting-and-sale claim had not been pleaded or adequately tried.

1. Appeal dismissed and cross-appeal allowed unanimously. Jonathan Parker LJ delivered the judgment, with which Scott Baker and Auld LJJ agreed.

2. A mortgagee exercising a power of sale owes a general duty to take reasonable care to obtain the best price reasonably obtainable at the time. The expressions “best price reasonably obtainable”, “proper price” and “true market value” describe the same standard. The obligation is one to take reasonable steps, rather than an absolute obligation to achieve the price which a court later identifies as market value.

3. Subject to the mortgage deed, the mortgagee may choose the mode of sale, the advertising, and the time allowed for marketing. Those choices require informed judgment and depend upon the circumstances. There is no absolute duty to advertise widely. A prudent mortgagee will obtain suitably qualified advice where appropriate.

4. A bracket or acceptable margin of error may be used when assessing breach. Where the mortgagee’s informed judgment involves an assessment of market value or another matter affecting the sale, the mortgagee acts reasonably if that assessment falls within an acceptable margin. This does not determine damages. Once breach is established, damages depend upon the loss caused by the error, for which the court must determine the true market value.

5. The judge was entitled to take account of the finding that £1.65 million fell within an acceptable valuation bracket. The selling agent reasonably continued the preceding agent’s campaign, used limited further advertising and accepted an offer subject to contract while marketing continued. The finding that the agent was not negligent was plainly right.

6. The finding of liability concerning the lavender plants was set aside. A claim that the mortgagees should themselves have severed, marketed and sold the plants separately had not been pleaded, and the relevant questions of power, duty, market, expert advice and commercial viability had not been adequately investigated.

7. The inquiry was widened to determine those liability issues before addressing any recoverable net sum. The court strongly encouraged mediation because a full inquiry would be disproportionate.

1. Court of Appeal (Civil Division): The appellants’ appeal was dismissed and the respondents’ cross-appeal was allowed. The liability finding concerning the plants was set aside, and the inquiry was widened to determine power, duty, reasonableness and any resulting loss: [2004] EWCA Civ 282.

2. High Court, Chancery Division, Bristol District Registry: His Honour Judge Weeks QC held that the selling agent had not acted negligently, but that the mortgagees were liable for a £25,000 price reduction and for failing to market the plants separately. He ordered a credit of £25,000 and an inquiry concerning the plants. The order was dated 23 May 2003; no citation is stated.