Centenary Homes Ltd v Liddell

Fixed charge receivers owe the mortgagor separate equitable duties. Their primary duty is to act in good faith and for a proper purpose, principally securing repayment of the mortgage debt. If they sell, they must take reasonable care to obtain the best price reasonably obtainable. They also owe a secondary duty to exercise care to avoid preventable loss, consistently with their primary duty. These duties do not require proof of bad faith.

Receivers have latitude as to the timing and method of sale. They may sell property in its existing condition and need not improve or regularise it before sale. A later increase in value, or a different judgment in hindsight, does not establish negligence. The court assesses the receiver’s decision prospectively by applying the Bolam standard.

Centenary Homes Ltd had mortgaged two property developments to the Bank of Scotland. After default, the Bank appointed the defendants as fixed charge receivers. The receivers sold several flats at Cubitt Street, managed the building, and returned a surplus to the claimant.

The claimant alleged that the receivers had breached their duties by failing to obtain an indemnity policy concerning planning consent, failing to maintain flats properly, selling flats at an undervalue or unnecessarily, and mistakenly transferring a basement storage room with flat 2. The court considered the nature and scope of receivers’ duties, the method for assessing an undervalue claim, causation and mitigation, and the loss caused by the conveyancing error.

1. Duties of receivers. The receivers’ primary duty was to act in good faith and for a proper purpose, including realising the security and seeking repayment of the secured debt. The duty to obtain the best price reasonably obtainable on a sale, and the secondary duty to avoid preventable loss, were separate and independent duties. Breach of those duties did not require proof of bad faith.
2. Standard and scope. The duty to obtain the best price was assessed by the Bolam standard. A receiver is negligent only if acting as no ordinarily competent receiver, exercising ordinary care and taking competent advice, would act. The court must assess the circumstances broadly. A reasonable choice between available courses is not negligence merely because later events show that another course would have produced a better result.
3. The receivers had latitude as to timing and method of sale. They were entitled to sell the properties in their existing condition and were not obliged to obtain planning regularisation, an indemnity policy, repairs or improvements before sale. The decision to auction flats 1, 2, 4 and 6 was reasonable when assessed prospectively, given the debt, failed sales and marketing difficulties.
4. The claimant’s undervalue case was approached incorrectly. The court first had to decide whether the receivers had breached duty in the steps or method adopted. Expert evidence of a higher counterfactual value could not itself establish breach.
5. The maintenance and insurance allegations failed for lack of proof of breach, causation and loss. The claimant also failed to establish that the leak from flat 11 caused damage beyond flat 7.
6. The mistaken conveyance of the basement storage room was negligent. It transferred part of the freehold common parts without consideration. The appropriate assessment was the value of the lost opportunity to negotiate a sale or rental of the space. The claimant had not failed to mitigate by declining uncertain rectification litigation against third parties. Damages were assessed at £10,000.
7. The claim was otherwise dismissed.