Purewal v Countrywide Residential Lettings Ltd & Anor

An LPA receiver’s equitable duty to take account of a mortgagor’s interests depends on the mortgagor retaining an interest in the equity of redemption. Bankruptcy vests that interest in the trustee, and the bankrupt’s continuing mortgage liability or possible entitlement to a surplus does not preserve a directly enforceable duty owed by the receivers.

A bankrupt mortgagor is not analogous to a guarantor. Further, causation requires proof that insurance money would have been used to repair the property. Under LPA 1925, repair expenditure was not inevitable without evidence of the mortgagee’s direction.

Mr Purewal owned a mortgaged buy-to-let property over which the Bank appointed LPA receivers. After a water leak caused substantial damage, the receivers failed to make a timely insurance claim. The claimant later repaired the property at his own expense and sought damages from the receivers and their employer.

During the relevant period, a bankruptcy order had vested the property in the trustee-in-bankruptcy. HH Judge Worster dismissed the claim, holding that the receivers’ duty was owed to the trustee rather than the bankrupt claimant and that the repairs had been undertaken voluntarily. The appeal concerned whether the claimant retained a sufficient interest in the equity of redemption to enforce a duty, and whether the repair costs were recoverable as loss.

Appeal dismissed. Patten LJ, with Sir Stanley Burnton agreeing, held that the receivers’ relevant equitable duty depended on the claimant retaining an interest in the equity of redemption.

1. As explained in Medforth v Blake [2000] Ch 86, a receiver must manage the security with a view to repayment of the secured debt while taking account of the mortgagor’s interests. The content of the duty is fact-sensitive. Silven Properties Ltd & Anor v Royal Bank of Scotland Plc & Ors [2004] 1 WLR 997 confirmed that the duty is equitable and is owed to persons interested in the equity of redemption.
2. On bankruptcy, the property and equity of redemption vested in the trustee under section 306(1) of the Insolvency Act 1986. The claimant’s continuing liability under the mortgage, its limited enforceability, and his possible entitlement to a surplus under section 330(5) did not give him a continuing interest in the property sufficient to support a direct duty. The relevant duties were owed exclusively to the trustee-in-bankruptcy.
3. The analogy with a guarantor was rejected. Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 and Gaskell v Gosling [1896] 1 QB 669; [1897] AC 575 concerned a guarantor whose liability remained connected with reduction of the secured debt. A bankrupt mortgagor was in a materially different position.
4. In any event, causation required proof that, absent the breach, the property would have been repaired. Sections 108(3) and 109(8) of LPA 1925 did not require the insurance money to be spent on repairs in every case. There was no evidence that the Bank would have directed repairs rather than applying the money towards its mortgage exposure. The causation case therefore also failed.

The county court was right to dismiss the claim.

1. Court of Appeal (Civil Division) heard the appeal with leave and dismissed it: [2015] EWCA Civ 1122.
2. Birmingham County Court HH Judge Worster dismissed the claimant’s damages claim against the receivers and their employer.