Ahmad & Ors v Bank of Scotland Plc & Ors

Appeal dismissed. A refusal to permit a counterclaim for want of merit, followed by dismissal of that counterclaim, can create cause-of-action estoppel even though the decision was made during ongoing proceedings. A decision is final for this purpose where it conclusively disposes of the claim. Relitigation is barred, subject to fraud or collusion. A final term extension, conditional on properties being placed on the market after expiry, does not without clear words suspend security rights during marketing or bind companies that were not parties. Receivers’ primary duty is to realise security for the mortgagee, with a secondary duty to avoid preventable loss consistently with that task. They need not await improved value. A valuation discrepancy or hindsight criticism does not itself establish breach.

The Bank sued the Ahmad appellants on a personal guarantee in the Leeds Action. District Judge Jordan entered judgment for the Bank and dismissed the counterclaim. His Honour Judge Kaye QC dismissed an appeal and refused permission to amend the defence and counterclaim. Arden LJ later refused permission to appeal.

The Ahmads then brought fresh proceedings, joined by Zanrose Developments Ltd and Zanrose Textiles Ltd, against the Bank and the receivers appointed over the relevant assets. They alleged that a letter dated 27 May 2008 prevented the Bank from appointing receivers and that the receivers had caused losses through asset sales and settlement of an insurance claim. His Honour Judge Purle QC summarily dismissed the claim: [2014] EWHC 4611 (Ch). The central issues were whether the Ahmad claim was barred by cause-of-action estoppel, whether the agreement bound the companies or restrained the appointments, and whether the receivers had a real prospect of being found in breach of duty.

Appeal dismissed. Lord Justice Lewison gave the judgment, with which Lady Justice Gloster agreed.

1. Cause-of-action estoppel. The refusal to permit the Ahmad appellants’ counterclaim was final for res judicata purposes because, without permission to amend, the counterclaim could not be brought. The dismissal of the counterclaim therefore created an estoppel in relation to the same claim concerning the Bollo Properties. Cause-of-action estoppel is absolute as to points decided, subject only to fraud and collusion, applying the principles in [1991] 2 AC 93 and [2013] UKSC 46. The appellant’s reliance on [2000] BCC 368 was misplaced; that decision concerned a different cause of action and did not prevent finality in the present circumstances. Refusal of permission to appeal under Civil Procedure Rules 1998 Part 52.3(6) did not permit relitigation.
2. Construction and scope of the agreement. The letter granted one final term extension until the end of June 2008. It required the Ahmad signatories to place the Bollo Properties on the market if the debts remained unpaid. It did not grant a further marketing period, suspend the Bank’s security rights after expiry, or prevent the exercise of available remedies. The receivers were therefore validly appointed.
3. The agreement was signed by the Ahmads in their personal capacities. It did not bind Zanrose Developments Ltd or Zanrose Textiles Ltd, neither of which was a party or undertook any corresponding obligation. It also contained no promise concerning property other than the Bollo Properties or concerning administrative receivership, and no such terms could be implied.
4. Receivers’ duties. Receivers are agents of the chargor and owe equitable, rather than contractual or tortious, duties. Their primary duty is to realise the security for the mortgagee and secure repayment. Their secondary duty to avoid preventable loss operates only consistently with that primary duty. A receiver may sell property as found and need not await or effect an increase in value or improvement. On a sale, the receiver must generally take reasonable care to obtain the best price reasonably obtainable at the time, and must act in good faith for a proper purpose.
5. Bare assertions that assets could have achieved higher prices, supported only by high-level valuation evidence or hypothetical development scenarios, did not identify an actual breach or establish a real prospect of success. The evidence did not criticise the marketing processes or professional advice materially.
6. For the insurance settlement, the relevant question was whether the administrative receivers failed to take reasonable care to obtain the best settlement reasonably available. Applying the approach in [2005] UKHL 5, including the passage from (1981) 117 DLR (3d) 383, negligence ordinarily required an egregious error rather than a mere error of judgment. No such error was shown. The claim therefore had no real prospect of success, and the appeal was dismissed.

1. Court of Appeal (Civil Division) dismissed the appeal from the summary dismissal of the claims.
2. Chancery Division (His Honour Judge Purle QC) summarily dismissed the claim in [2014] EWHC 4611 (Ch).
3. Earlier Leeds Action District Judge Jordan entered judgment for the Bank and dismissed the counterclaim. His Honour Judge Kaye QC dismissed the appeal and refused permission to amend. Arden LJ dismissed the renewed application for permission to appeal.