Serene Construction Ltd v Salata and Associates Ltd & Ors  EWHC 2433 (Ch) reports an unsuccessful claim against receivers for failing to get the right price for land they sold.
The facts were much as in most cases of this kind. The receivers were appointed in 2012 as fixed charge receivers over an unbuilt residential development site owned by the claimant company. In 2013 they completed the sale of the site for £175,000. The claimant contended that the sale was in breach of the receivers’ fiduciary duty to take reasonable steps to achieve the best price available. The receivers’ case was that the price they got was the best realistically available in the circumstances.
HHJ David Cooke reviewed the case law, much of which will be familiar. His inevitable starting point was Cuckmere Brick Co v Mutual Finance, still the classic case on the duty of a mortgagee to a mortgagor when exercising a power of sale, in which the court held that, although the mortgagee is not a trustee of the power obliged to exercise it in the best interests of the mortgagor rather than his own, and so is entitled for instance to sell at a time of his own choosing, he is under a duty to take reasonable steps to obtain “the true market value” or “a proper price” at the time he decides to sell.
He also considered Meah v GE Money Home Finance, in which Mr Alan Steinfeld QC, sitting as a Deputy High Court Judge, observed:
“…the mere fact that a property is sold by a mortgagee at less than a valuer believes was its true market value is not in itself sufficient to give rise to a claim. What the mortgagor has to show is that in failing to achieve that value the mortgagee breached, and as Salmon LJ put it [in Cuckmere Brick] plainly breached, its duty to take reasonable precautions to obtain that value.”
That the same duty is owed by a receiver appointed by the mortgagee was made clear by the Court of Appeal in Silven Properties v Royal Bank of Scotland, in which the duty was described as being “to take care to obtain the best price reasonably obtainable.”
The judge was also taken to to a passage from the judgment of Morgan J in McDonagh v Bank of Scotland Plc:
“When considering whether a mortgagee or a receiver has committed a breach of the equitable duty to take care to obtain the best price reasonably obtainable, the court must recognise that the mortgagee or receiver is involved in an exercise of informed judgment and if he goes about the exercise of his judgment in a reasonable way, he will not be held to be in breach of duty. An error of judgment, without more, is not negligence or a breach of the relevant duty in equity.”
The judge rejected a submission by counsel for the claimant (relying on Mortgage Express v Mardner) that the evidential burden was on the receivers to show what steps they had taken to obtain a proper price, and that these were reasonable:
“[T]hat case, and the Privy Council authority Tse Kwon Lam on which it relied, referred to the onus on a mortgagee who sold the property to a company in which he himself had an interest. No doubt the same would apply if the sale was to a party in which the receivers or their agents had an interest, or perhaps if it were shown that there was some connection, short of an interest, sufficient to imply a real risk of willingness to prefer the buyer’s interests over those of the mortgagee. But that is not the case here…”
As the judge noted, the claimant had not pleaded that there was or adduced evidence of any connection “beyond the prima facie innocuous fact that the developers to whom the site was marketed were known by Connells [the receivers’ agent] through their local experience (including previous sales) to be potentially interested in similar development sites.” In the absence of any connection or interest in the buyer, he held that, as in any claim in negligence or for breach of duty, it was for the claimant to plead and particularise the acts or omissions said to amount to such negligence or breach, and to prove them to the normal civil standard.
The specific allegations against the receivers were:
(1) That they had failed to engage independent expert valuers for the purpose of determining the true market value of the development; and had they done so they would have understood the true value of the development and consequently obtained a better price for it. The valuers were also to act as selling agents. The judge rejected the allegation, holding that the valuers had the necessary experience and had advised within the range contemplated by the expert evidence adduced at trial.
(2) The receivers had only marketed the development to a limited number of potential buyers; had they marketed it to a greater range of potential buyers they would have obtained a better price. Again, the judge rejected the allegation: the marketing approach had not been some kind of shortcut: the first stage, limited marketing, had been just that, and if there had been insufficient interest there would have been a wider targeted marketing and potentially a local advertising campaign.
(3) The receivers had failed to market the development with a guide price, which would have encouraged potential buyers to buy the development for an amount closer to its true market value. Again, the judge found that this had been done for good reason, namely not to put off potential buyers.
Other pleaded allegations were not pursued at trial, nor was what had been a case against the receivers’ company:
“The first defendant is a limited company through which the Receivers conducted their business. Though named as a defendant, no separate case is pleaded against it, and it is now accepted that the Receivers’ appointment was a personal one and the duties relied on were owed by them personally and not by their company. Accordingly [counsel for the claimant] accepted that no claim lies against the first defendant.”
The decision reinforces what we all know: that it is difficult successfully to sue receivers for not getting what is often an optimistic view of what should have been the market price for property: following the judgment of Salmon LJ in Cuckmere, the court will look at the facts broadly in deciding whether the receivers have fallen “plainly on the wrong side of the line.” Where Salmon LJ’s line is to be drawn will depend not just on the broad facts but on the expert evidence, which in this case gave rise to problems for the judge:
“[E]ach party was given leave to rely on the written reports of an expert valuer. There are some difficulties arising from the fact that the instructions given to the respective experts were not consistent with each other, and the opinions they expressed were, not surprisingly, not addressed in all respects to the same matters.”
One is left wondering whether a direction for the appointment of a single joint expert might in this case have avoided what appears to have been a three day trial.