Calvert v Clydesdale Bank Plc & Ors

This appeal was an application for renewed permission to appeal against the striking-out of claims asserting that enforcement by receivers appointed under a mortgage was invalid because the mortgagor had become mentally incapacitated and that the receivers had sold the property at an undervalue. The court held that receivers appointed under section 109 of the Law of Property Act 1925 are statutorily deemed to be agents of the mortgagor but that this agency is special, does not depend on the mortgagor’s continuing capacity and does not require a separate Mental Health Act receiver for enforcement. The judge’s decision to strike out was upheld because there was no arguable basis that the bank’s proprietary rights were extinguished by the mortgagor’s incapacity, and there was no adequate evidential basis to show loss from an alleged undervalue given a prior second charge and the absence of valuation evidence.

Background and parties:

• The appellant, Mrs Dolores Calvert, acted as personal representative of her late husband, Mr Peter Robert Calvert, owner of commercial premises known as Crossroads Garage.
• In 1991 Mr Calvert gave a guarantee and a mortgage to Yorkshire Bank to secure company liabilities. By the late 1990s he had become mentally incapacitated.
• In 1999 Yorkshire Bank appointed receivers under the Law of Property Act 1925 who sold the property in 2000 for £55,000. The appellant contended the appointment and sale were invalid and/or at an undervalue.

Procedural history:

• The claim was struck out by His Honour Judge Behrens on 21 April 2011. Permission to appeal was refused on paper by Kitchin J. The appellant sought renewed oral permission to appeal to the Court of Appeal and also issued an application for a protective costs order.

Nature of the claim and issues framed:

• (i) Whether the appointment of Law of Property Act receivers and their subsequent sale was invalid because the mortgagor lacked capacity and therefore a Mental Health Act receiver or equivalent authority was required;
• (ii) Whether the receivers sold the property at an undervalue in breach of duty causing loss to the estate; and
• (iii) Ancillary procedural complaints including non-compliance with case management directions and an application for a protective costs order.

Court’s reasoning and decision:

• The Court of Appeal emphasised that the mortgagee’s rights and the statutory power to appoint receivers arise from the original valid mortgage and guarantee. Section 109(2) deems a Law of Property Act receiver to be the mortgagor’s agent, but that statutory agency is special and does not terminate or require re-creation on the mortgagor’s subsequent incapacity.
• Authority and authorities cited (for example Re Hale and Sowman v David Samuel Trust) support that enforcement by receivers implements the mortgagee’s proprietary rights rather than effecting a disposition of the mortgagor’s property which is vulnerable to the mortgagor’s incapacity.
• On the undervalue point, the court accepted the judge’s finding that even if the sale price was low, the existence of a substantial prior charge (Burmah Oil) and the absence of evidence supporting a higher valuation meant there was no realistic prospect of establishing recoverable loss to the estate.
• The application for permission to appeal was refused as there was no realistic prospect of success, and the protective costs order application was dismissed as moot.

Permission to appeal was refused and the renewed application dismissed. The court held that receivers appointed under section 109 of the Law of Property Act 1925 exercise a statutory, limited agency that does not depend on the mortgagor’s continuing legal capacity, so no separate Mental Health Act receiver was required for enforcement; further, there was no realistic prospect on the undervalue point because of the prior charge and absence of valuation evidence.

Appeal to the Court of Appeal from Leeds District Registry (His Honour Judge Behrens). Permission to appeal had earlier been refused on paper by Kitchin J. The present hearing was a renewed oral application for permission to appeal to the Court of Appeal, which was refused (neutral citation [2012] EWCA Civ 962).