Purewal v Countrywide Residential Lettings Ltd & Anor

The Court of Appeal dismissed the claimant's appeal against the dismissal of his claim for damages against LPA receivers and their employer for failing to submit a timely insurance claim in respect of water damage. The court held that upon the making of the bankruptcy order the mortgagor's equity of redemption vested in the trustee under s.306(1) Insolvency Act 1986, so any equitable duty owed by receivers was owed to the trustee-in-bankruptcy and not to the bankrupt mortgagor. The judgment applied the principles in Medforth v Blake and Silven Properties, emphasising that the receiver's equitable duty is owed to those with an interest in the equity of redemption.

As an alternative and subsidiary reason the court held the claimant had not established causation: under ss.108(3) and 109(8) Law of Property Act 1925 insurance monies would, on ordinary assumptions and given the available evidence, have been applied to reduce the mortgage indebtedness and there was no evidential basis to show the receivers would have been obliged to spend those monies on repairs.

Background and parties: The appellant, Mr Rajinder Singh Purewal, owned a buy-to-let property subject to a mortgage in favour of the Bank of Scotland. In March 2009 the Bank appointed LPA receivers (the second and third defendants), employed by the first defendant. A bankruptcy order was made against the appellant on 9 September 2009. The appellant discovered water damage at the property on 18 September 2009 and informed the receivers, who did not promptly pursue an insurance claim. The appellant carried out repairs in May 2011 and later sought damages from the receivers for the cost of those repairs; the first defendant was alleged to be vicariously liable.

Nature of the claim and procedural posture: The claim (issued January 2013) sought damages for breach of equitable duties by the receivers in failing to make a timely insurance claim. The claim was dismissed at first instance by HH Judge Worster and the appellant obtained leave to appeal to the Court of Appeal.

Issues before the Court of Appeal:

• Whether the receivers continued to owe an equitable duty to the bankrupt mortgagor after the bankruptcy order, or whether that duty was owed exclusively to the trustee-in-bankruptcy following vesting under s.306(1) IA 1986;
• Whether, on causation, the appellant had established that but for the receivers' breach the property would have been repaired (in particular whether insurance monies would have been applied to repairs rather than to reduce the mortgage debt under ss.108(3) and 109(8) LPA 1925);
• Subsidiary factual issues including whether the appellant's post-bankruptcy repairs were voluntary and whether that affected recoverability.

Reasoning and conclusions: The court concluded that the equitable duty of a receiver to take account of the interests of the mortgagor arises from the mortgagor's interest in the equity of redemption, as explained in Medforth v Blake and confirmed in Silven Properties. On the making of the bankruptcy order that equity vested in the trustee and the bankrupt mortgagor ceased to have an interest in the equity of redemption; accordingly any equitable duty was owed to the trustee, not to the bankrupt mortgagor. The court rejected the analogy to guarantors: a bankrupt mortgagor’s continuing legal liability for the mortgage debt while undischarged did not preserve an equitable interest of the kind required to attract the receivers' duty.

On causation, the court observed there was no evidence that the Bank or receivers would have used any insurance proceeds to fund repairs rather than to reduce the mortgage indebtedness; under ss.108(3) and 109(8) LPA 1925 the likely application of insurance money would be towards the mortgage. The claimant therefore failed to establish that but for the breach he would have been better placed.

Other findings: The court noted limited evidence about the bankruptcy estate and the reasons for re-transfer of the property to the claimant but held that those factual gaps did not alter the legal conclusion. The court also observed that any cause of action could, in principle, have been assigned by the trustee to the appellant but no such assignment occurred and the appellant did not rely upon the later re-transfer as including causes of action.

The appeal is dismissed. The court held that the bankruptcy order caused the mortgagor's equity of redemption to vest in the trustee under s.306(1) Insolvency Act 1986, so any equitable duty of receivers was owed to the trustee-in-bankruptcy and not to the bankrupt mortgagor; alternatively, the claimant failed to prove causation because there was no evidential basis to show insurance monies would have been applied to repair rather than to reduce the mortgage under ss.108(3) and 109(8) Law of Property Act 1925.

Appeal from Birmingham County Court (HH Judge Worster), Claim No. 3BM30358; judgment of the county court dismissing the claim; appeal heard in the Court of Appeal, neutral citation [2015] EWCA Civ 1122.