Calvert v Clydesdale Bank Plc & Ors

A receiver appointed under a valid mortgage is not dependent on the mortgagor’s continuing mental capacity. The statutory agency deemed by section 109(2) of the Law of Property Act 1925 is unusual, special and limited. It arises from the original security and is not terminated by the mortgagor’s later incapacity or death. Mental capacity protections apply when the indebtedness, liability or security is created, rather than to its subsequent enforcement. A sale at an undervalue requires evidence capable of showing that the lower court’s reasoning was wrong and that recoverable loss resulted. Permission to appeal should be refused where the proposed grounds have no reasonable prospect of success.

The claimant, acting as personal representative of the deceased mortgagor, challenged the appointment of receivers and the sale of a commercial property securing company liabilities. She alleged that the mortgagor’s mental incapacity invalidated the receivers’ appointment and sale, and that the property had been sold at an undervalue.

His Honour Judge Behrens struck out the claim on several grounds, including lack of evidence supporting the undervalue claim and the effect of a second secured debt. Kitchin J refused permission to appeal on paper. The claimant renewed the application orally before the Court of Appeal. The central issues were whether mental incapacity prevented enforcement through statutory receivers and whether the proposed undervalue challenge had a reasonable prospect of success.

1. Permission refused. Lord Justice Lloyd dismissed the renewed application for permission to appeal because none of the proposed grounds had a reasonable prospect of success. The protective costs order application was also dismissed because it would arise only if permission were granted.
2. Undervalue allegation. The claimant had not produced valuation evidence capable of showing that the sale price should have generated net proceeds exceeding the total secured debt. Her alternative argument, based on the advertising price and a rateable value, depended on material not before the lower court and did not demonstrate that its reasoning was wrong.
3. Statutory receivership and incapacity. The bank’s mortgage rights arose when the mortgage was validly executed while the mortgagor had legal capacity. Section 109 of the Law of Property Act 1925 created a statutory, unusual and limited form of agency. The receiver’s authority did not depend on a fresh act of consent by the mortgagor and was not terminated by later mental incapacity.
4. The court applied the reasoning in Re Hale [1899] 2 Ch 107 and Sowman v David Samuel Trust [1978] 1 WLR 22. Rights and powers arising from security were proprietary rights of the mortgagee, rather than property of the mortgagor. Their enforcement therefore remained effective despite incapacity and did not require appointment of a receiver under the Mental Health Act 1983.
5. Section 22 of the Law of Property Act 1925 applied when the mortgage was executed, not to its later enforcement. The receivers’ appointment and sale implemented the bank’s existing proprietary rights and did not amount to an impermissible contracting out of statutory protection, a breach of public policy, or a breach of the Unfair Contract Terms Act 1977 or the Unfair Terms in Consumer Contracts Regulations.
6. A failure to comply with case-management directions did not prevent the defendants’ application being heard where the claimant had sufficient notice of it and of the supporting material.

1. Court of Appeal (Civil Division) refused permission to appeal on 27 June 2012 and dismissed the protective costs order application.
2. High Court Kitchin J refused permission to appeal on paper in October 2011.
3. Leeds District Registry His Honour Judge Behrens made an order dated 21 April 2011 striking out the claim against the bank, the receivers and the estate agents.