COURT OF APPEAL.
IN THE SUPREME COURT OF JUDICATURE
THE COURT OF APPEAL
(From: Mr. Justice Plowman)
B e f o r e :
LORD JUSTICE CROSS
LORD JUSTICE CAIRNS
| CUCKMERE BRICK COMPANY LIMITED
LESLIE ARTHUR FAWKE
|MUTUAL FINANCE LIMITED
(By Original Action)
|MUTUAL FINANCE LIMITED
|CUCKMERE BRICK COMPANY LIMITED
LESLIE ARTHUR FAWKE and ARTHUR REGINALD JOHNSON
Room 392, Royal Courts of Justice, and 2 New Square, Lincoln's Inn, London, W.C.2)
Mr. A.C. SPARROW, Q.C. and Mr. 3.A. SEELEY (instructed by Mr.Leslie A. Fawke) appeared on behalf of the Respondents (Plaintiffs in original action).
Crown Copyright ©
LORD JUSTICE SALMON: Mr. Leslie Arthur Fawke is a solicitor practising in London. He also carries on fairly extensive property development activities through a series of private companies controlled by him. The plaintiff company is one such company which Mr. Fawke used in connection with the acquisition in 1961 of a plot of land adjacent to the Tonbridge Road on the outskirts of Maidstone. This site comprised 2.65 acres. On the 22nd June, 1961, planning permission was obtained for developing this site by the erection of 100 flats/maisonettes each with a garage. This permission was conditional upon detailed plans being submitted and approved within three years. On the 1st August, 1961, detailed plans for this development were approved and, on the 4th September, 1961, the local Planning Authority gave unconditional permission for the development to proceed in accordance with the approved plans.
The defendants carry on a very substantial banking business with assets in the region of £70,000,000. One of their activities since 1954 has been the supply of bridging finance for property development. Mr. Fawke and his companies were customers of the defendants from whom they obtained finance for their development projects. By a mortgage of the 26th July, 1961, and a supplemental mortgage of the 12th December, 1962, the defendants lent the plaintiff company in all £50,000 on the security of the Maidstone site. This was thought to afford the defendants a good margin of security since the value of the land with planning permission for 100 flats was considered to be substantially in excess of £50,000. Mr. Fawke was a party to the mortgage as surety for the due performance by the plaintiff company of its obligations and was also deemed qua the defendants to be a principal debtor for all the moneys and interest outstanding under the mortgage. The terms of the mortgage are fully set out by the learned judge and I need not repeat them in detail. Suffice it to say that the defendants undertook, on certain conditions, to make further advances up to 75 per cent, of the cost of the work to be carried out on the land providing that such further advances did not, in all, exceed £50,000. The plaintiff company covenanted punctually to repay the amounts advanced and certain fees and other expenses at a stipulated rate of interest on the usual quarter-days, to complete the works satisfactorily within two years subject to any extension of time and not, without the consent of the defendants, to carry out any development on the site other than that to which I have referred; finally the plaintiff company by way cf legal mortgagecharged the land and everything built on it with payment of all moneys due to the defendants under the mortgage.
At the end of 1964, in addition to the Maidstone site, Mr. Fawke and his companies were engaged in developing or attempting to develop seven other sites in respect of which they had obtained finance from the defendants. Owing to some mistake by his architect, Mr. Fawke ran into difficulties in respect of a site at Cliftonville. As a result, part of the money which he had intended to use for the Maidstone development had to be diverted to the development at Cliftonville. This left Pr. Fawke short of capital for the Faidstone project.
Although it is far more profitable to use land suitable for flat development by building flats rather than houses, the building of flats requires considerably more capital than does the building of houses. Mr. Fawke therefore decided to develop the Maidstone site for houses and in 1965 obtained detailed planning Permission to erect 35 houses. As I understand it, 33 of them were to be built on the plot charged under the mortgage and two on a small piece of adjoining land. This left room on the original plot for the subsequent erection of a block of flats. Being substantially in the defendants' debt, Mr. Fawke, perhaps not surprisingly, did not give his temporary financial embarrassment as the excuse for his change of plan. He said in his letter of the 17th December, 1964, that it would be "more profitable" and "simpler" to build houses rather than flats on the Maidstone site. The defendants agreed to the proposed change of plan.
By September, 1966, no building had begun on the site and the defendants gave notice calling in the mortgage money. Since it was not repaid, the power of sale became exercisable and the defendants went into possession of the site in December, 1966. They sold it at public auction on the 22nd June, 1967, for £44,000. Mr. Fawke and the plaintiff company brought this action claiming that, but for the defendants' default and failure to take reasonable precautions in relation to the sale, the site would have fetched far more than £44,000 and they asked for an account to be taken on the basis that the defendants should be debited with the price which they could and should have obtained for the site.
The defendants denied any default or negligence on their part and counterclaimed some £14,200, being the balance of all moneys due under the mortgage with interest after crediting the plaintiffs with the proceeds of the sale. The learned judge found for the plaintiffs on the claim and counterclaim. He ordered that an account be taken on the basis that the defendants should be debited not with £44,000 (the price realised by the sale of the site) but with £65,000 the price which he concluded could and should have been obtained for it but for the defendants' default or failure to take reasonable precautions in relation to the sale. The defendants had asked the judge, in the event of his finding negligence against them, to assess the proper figure with which they should be debited in respect of the sale on the evidence called at the trial rather than leave that figure to be assessed on the taking of the account. From this judgment the defendants now appeal.
Mr. Vinelott, who has argued this appeal with conspicuous ability and persuasiveness, bases his submissions on two grounds. He argues firstly that the learned judge's findings of fact are against the weight of the evidence and secondly that the learned judge erred in law by misunderstanding the obligations resting on a mortgagee exercising his power of sale.
On the first point, Mr. Vinelott contends that the evidence does not establish any fault of any kind, not even an error of judgment, on the part of the defendants or their agents; alternatively that if there was any error of judgment it did not amount to a default or a failure to take reasonable precautions in connection with the sale and in any event caused the plaintiffs no financial loss.
In January, 1967, the defendants put this site into the hands of Geering & Colyer for sale by auction. Geering & Colyer are an old-established firm of estate agents, auctioneers, surveyors and valuers carrying on an extensive practice from eight offices in Kent and Sussex, including an office in Maidstone which had been opened in 1963. The sale was originally fixed for the 16thMarch, 1967, but it was postponed, I think as a result of Mr. Fawke's intervention, until the following June. Undoubtedly Mr. Fawke was anxious to obtain yet another postponement and if possible an abandonment of the sale. Preparations, however, went forward for the sale to take place on the 22nd June. Advertisements appeared in the national and local Press, posters were published and particulars of sale sent to land-developers all over the country advertising the sale of this building site comprising 2.65 acres with planning consent for the erection of 33 detached houses. The cover and the first seven pages of the particulars of sale prominently featured this planning consent. The last three pages of the particulars set out merely the Conditions of Sale, the Memorandum and a plan of the site. Nowhere in any of the literature in connection with the sale was any mention made of the existence ofthe planning consent for 100 flats. The evidence shows that land which may be thought by developers to be suitable for flat-development is much more valuable with planning permission for flats than it would be with planning permission only for houses. The site in question, if developed for flats, would have provided 300 habitable rooms but if developed for houses only 132 habitable rooms. None of this was seriously challenged by the defendants.
Whether a site may be attractive for flat-development is, of course, a matter of opinion. In some cases this may be a difficult and nicely balanced question. If, however, it is or ought to be obvious that a site may well be attractive to flat-developers and it has planning permission for flats it would clearly be most imprudent to advertise the site for sale without mentioning this planning permission.
The valuation of a plot of land depends upon the knowledge, experience, expertise and ability of the valuer. Valuation isnot an exact science. Equally careful and competent valuers may differ within fairly wide limits about the value of any piece of land.
In the present case the plaintiffs called Mr. Dann and Mr. St. John. The former was the senior partner in an old-established firm carrying on the same type of business as Geering & Colyer in Sussex and Kent. He had great experience of valuing sites for flat and housing development. He knew Maidstone well and, although he had no office there, he had carried out a number of valuations in Maidstone throughout the years. The latter was a valuer and auctioneer of some 40 years' experience who carried on business at 103 Mount Street, in London. He advised large developers, suchas Wimpey, Waites, Trollope & Colls, about property development all over the country.
Mr. Dann considered the site in question to be attractive and of great interest to flat-developers. It occupied an elevated position overlooking fields and open country. It was set back from the Tonbridge Road which carried public transport and was only a. mile from the shopping centre of Maidstone. Maidstone itself was a prosperous provincial town with flourishing industries and within easy reach of London by road and rail. Mr. St. John was even more enthusiastic about the site. Both these witnesses clearly took the view that there could be no question as to whether, when the site was advertised for sale, the planning permission for flats should have been mentioned and indeed stressed. They both were firmly of the opinion that it was folly for this not to have been done. Mr. Dann said he would expect that a vendor with such a permission "would wave it from the housetops". Mr. St. John was asked:
"(Q) Do you regard this omission" (of the planning permission for flats) "from the particulars of sale as a matter of importance?
(A) Vitally important. I think it was crazy to go on without it".
It was clear from the evidence called by the plaintiffs and accepted by the learned judge that, because of the omission from the particulars of sale, this site did not come to the attention of flat-developers who otherwise would have been attracted to it. Host developers of residential property specialise in flats or houses. Some large concerns deal in both, but according to the unchallenged and uncontradicted evidence of Mr. Dann, those developers who are interested in both flat and housing development have separate departments for each. These particulars of sale would have been of no interest to those developers who specialised in flat-development and would have been sent to the housing department of those interested both in flat and housing development. Accordingly, the vast majority of those attending or represented at the sale would have made their calculations and come prepared or authorised to bid only on the basis that the site was being sold with planning permission for houses and without planning permission for flats. But for the omission from the particulars of sale, many flat-developers would have attended or been represented at the sale.
According to Mr. Dann, at a conservative estimate, the least that the site would then have fetched was £65,000. Mr. St. John put the figure at £75,000. The learned judge accepted their evidence that the fact that it made only £44,000 was due to the absence from the sale of flat-developers who but for the omission from the particulars of sale would have been there and bidding against each other. As I have already said, valuation is not an exact science. This is so even if there exist any exactly comparable figures, which is rarely the case. Here, there were none. Neither the plaintiffs' nor the defendant company's advisers knew of any similar sites sold in Maidstone with planning permission for flats during the relevant period. The plaintiffs' valuations were based largely on Mr. Dann's and Mr. St. John's wide experience of generally similar sites being sold with planning permission for flats in similar towns at about the same period.
Mr. Dann also produced a sophisticated method of calculation known as a "residual valuation": it is unnecessary for me to go into it in any detail. It is based on 100 flats each of 650 square feet being completed and sold within 3½ years for £3,600 each. It shows the calculated gross proceeds during that period. From that figure, all costs and expenses and the developers' profit are deducted. The residue is the value of the land. This system of valuation can be criticised on the ground that if one figure turns out to be wrong, it may grossly distort the final result. Mr. Dann, however, whilst accepting this criticism of the "residual valuation" method, emphasised that his calculations were made on the most conservative basis so as to arrive at safe figures. He had used his knowledge of Maidstone, the wide enquiries he had made there and his general experience of similar provincial towns.
In a case of this sort a great deal must depend upon the impression made on the judge by the witnesses when giving evidence. Some experts, by the way they give their evidence, as much as by what they say, inspire the judge with confidence. Others fill him with misgiving. This very experienced judge was deeply impressed by Mr. Dann's evidence. He thought that Mr. St. John was a little over-optimistic but broadly he accepted his evidence, particularly when it coincided with Mr. Dann's. It is impossible to form any certain view of the weight and reliability of a witness's evidence merely by reading the cold print of the transcript. Mr. Dann's evidence, however, reads exceptionally well. I am not at all surprised that the learned judge found him to be such an impressively reliable witness.
The learned judge took a very different view of Mr. Marples and Mr. Argent, both partners in Geering & Colyer. They were the only witnesses to give any relevant evidence on behalf of the defendants other than the defendants' managing director. After pointing out that Mr. Marples and Mr. Argent were interested witnesses, the learned judge said: "They were concerned to justify the decisions for which they were responsible and no doubt to obviate any question of personal liability to the defendants. Consequently, though not, perhaps, unnaturally, their partisanship was, I thought, reflected in their evidence. Mr. Marples in particular indulged in a degree of advocacy which would have been better left to Mr. Dewhurst, and both of them were inclined to denigrate the plaintiffs' site and pooh-pooh the evidence of the plaintiffs' experts". The learned judge clearly much preferred the evidence of Mr. Dann and Mr. St. John to that of Mr. Marples and Mr. Argent. He has been criticised because he did not dissect this latter evidence but dismissed it in the passage I have quoted. He was not obliged to dissect it and was entitled to reject it, as he did. It would not be fair to the learned judge to assume that he did not fully consider it. I am sure that he did. I have read and re-read the transcript of that evidence. It is impossible to obtain its full flavour from the printed page. It may have sounded much better than it reads, or even worse. I am not surprised, however, that the learned judge took the adverse view of it which he did, and I can find no reason to disagree with him. Like him, I do not propose to dissect that evidence but I will cite one of a number of instances which do not inspire confidence. I cite this instance not because it is the most glaring but because the evidence relating to it is short. When Mr. Marples was seeking to denigrate the plaintiffs' site which stood on high ground near the Pine Lodge flats, he said:
"The valley is a most attractive and sought-after area, and I would suggest that the attraction of the two areas speak for themselves in that Roseholme" (a block of flats in the valley) "has gone particularly weLl and Pine Lodge has gone slowly and is difficult".
Compare this passage with what Mr. Argent said when he was seeking to justify the view which had been expressed by his firm in a letter to the effect that there was no future for flats in Maidstone anywhere:
"(Q) You said I think that your firm were selling agents for Roseholme?
(A) Yes... They' (that is the developers) "do not regard it commercially as a particularly successful venture".
It appears from the correspondence passing between the defendants, Stevens, Scanlan & Co. and Geering & Colyer in December, 1966, and January, 1967, that Geering & Colyer were instructed to auction the site in question for the defendants as mortgagees, that Geering & Colyer had been told of the outline planning permission of 1961 for 100 flats and garages but misinformed by the defendants or their solicitors that this permission had lapsed in 1964. Geering & Colyer had been informed and obtained a copy of the planning permission for houses of 1965. By a letter of the 30th January, 1967, written by Ir. Harpies, Geering & Colyer appear to have valued the site with the 1965 planning permission at £30,000. In that letter, Ir. harpies said:
"In my opinion the development of the site with flats would not be an economic proposition as there is considerable sales resistance in the Maidstone area to this form of development and there have been difficulties in the selling of flats on the adjoining site. I am aware that this opinion of value is below the mortgage loan but nevertheless I feel that having regard to the present state of the market and the planning approval available you should not anticipate obtaining more than the figure we have suggested".
According to the defendants' evidence, Stevens, Scanlan & Co. were the surveyors upon whose advice they normally relied in respect of their financing of developments throughout the country. By the 3rd March, 1967, Geering & Colyer had apparently increased their valuation of the site to £35,000. By a letter of that date written in somewhat equivocal terms by Stevens, Scanlan & Co. to the defendants they appear to have advised that they still considered that the site with planning permission for flats was worth upwards of £50,000 or perhaps upwards of £70,000. They intimated that flats on an adjoining site similar to those covered by the 1961 planning permission were being sold for £3,650. They stated that the site sold with planning permission for houses should fetch nearer £50,000 than £35,000 but concluded that the site could produce a figure nearer £40,000. It seems to me that with this advice (whether or not it was shown to Geering & Colyer) it was inexcusable for the defendants to allow the sale to go forward without mentioning or indeed stressing in the particulars of sale the existence of the detailed planning permission for 100 flats/maisonettes and garages. Mr. Fawke was certainly not entitled to be consulted about the sale but no one even paid him the courtesy of sending him the draft particulars of sale. He was, however, sent the actual particulars of sale on the 30th Fay, 1967. Strong criticism has been made of him because he passed no comment about these particulars until his letter of the 14th June, 1967. There can be little doubt that he had been hoping to persuade the defendants to abandon the sale or at any rate again to postpone it. He undoubtedly used the omission of the planning permission for flats from the particulars of sale as a. reason for postponing the sale. I think that it is equally clear that he considered that, in any event, it would be absurd for this sale to go forward without that planning permission having been advertised. Whatever his motive may have been, I think that the evidence accepted by the learned judge established that his view was plainly right.
It is clear from the letter of the 19th June, 1967, written by Mr. Argent to the defendants' solicitors, that these solicitors had informed Geering & Colyer that a certain valuer (unnamed) had placed a value of £75,000 on the site with planning permission for 100 flats. In these circumstances, it seems to me that the insistence on proceeding with the sale without advertising the planning permission for 100 flats shows, possibly a degree of arrogance, and certainly a failure to take reasonable precautions that goes far beyond a mere error of judgment.
By way of justification for the view about the unsuitability of the site for flat-development expressed by Mr. Marples in his letter of the 30th January, 1967, and reiterated in Mr. Argent's letter of the 19th June, 1967, in which he ridicules the valuation of £75,000, Mr. Argent cites a number of flat-developments in Maidstone that he alleges had gone badly. Firstly he refers to the Roseholme estate. According to the plaintiffs' evidence accepted by the learned judge this was far less attractive than -and indeed hardly comparable to - the plaintiffs' site. It overlooked the railway and was surrounded by industrial development. Besides, as already indicated, Mr. Marples said in evidence that Roseholme had gone "particularly well". Mr. Argent then refers to the Pine Wood development, which was comparable with the plaintiffs' site. He points out that three of the flats in the original block were empty but he does not say for how long they had been empty. Apparently the developers were not discouraged because they were in the course of erecting another block of flats. Eighteen of these flats had been completed. Ten were occupied. Two others had "Reserved" slips and one other a "Sold" slip in the window. We do not know for how long the five other unoccupied flats had been completed. Mr. Argent points out that 27 other flats were in an advanced stage of construction but not occupied - which perhaps is hardly surprising. He says that there is no indication that they had been sold or reserved. He does not mention having made any enquiries from the developers or their agents. And they certainly were not called to give evidence. Mr. Argent then refers to three blocks of flats in other parts of Maidstone which according to the evidence were in no way comparable with the plaintiffs' site. Finally he refers to a conversation which he says he had with the District Valuer in which that gentleman confirmed his own views about flats in Maidstone. But the defendants did not call the District Valuer to give evidence.
Mr. Marples and Mr. Argent were no doubt genuinely pessimistic about flat-development in Maidstone. They were not, however, advising buyers about the desirability of buying this site for flat-development. The advice which they would have given to buyers would have been wrong (according to the evidence accepted by the learned judge) but it would not necessarily have been negligent. They were, however, acting for the sellers. They thought (wrongly) that the site was unlikely to fetch more than £35,000 with planning permission for houses. They knew of the planning permission for flats. They must have known that many large companies were interested in flat-development in flourishing provincial towns such as Maidstone and were potential buyers, however unwise Geering & Colyer may have thought it would have been for them to have bought. Developers often buy at high prices and, perhaps surprisingly, make large profits. Sometimes, of course, they get their fingers burnt - as all estate agents must know. Long before the particulars of sale were sent out, the defendants' surveyors had expressed the view in March, 1967, that the site, with planning permission for flats, might well fetch upwards of £50,000 or £75,000. On the 19th June the defendants knew that another valuer had valued the site at £75,000 with such permission. It is hardly surprising that the learned judge held that there was no justification for omitting the planning permission for flats from the particulars of sale and going on with the sale before this permission for flats had been advertised.
One of the matters which I think must have influenced the learned judge — it certainly influences me — is that not a single independent witness was called to support Mr. Argent and Mr. Marples. Apparently no other reputable surveyor and auctioneer could be found who was willing to come forward and say that, in comparable circumstances, he would have considered it reasonable to omit the planning permission for flats from the particulars of sale or to have gone on with the sale without having advertised this permission. The importance of such evidence, were it available, must have been obvious to the defendants' advisers.
It is also a fair inference, in my view, that no one could be found to challenge Mr. Dann's evidence that the site with planning permission for flats was worth at least £65,000. Why else should the defendants have asked the learned judge to make the assessment of the true value of this site on the evidence placed before him at the trial rather than leave that matter to be determined on the taking of the account when fresh evidence of value could have been called? I suppose that the defendants may have realised the risk that were an inquiry held with fresh evidence, it might have shown that Mr. Dann's estimate was, as he suggested, ultra-conservative and that the true market value was nearer £70,000-£75,000. Perhaps the defendants considered that the best they could hope for was that the learned judge might take the easy way out of finding the value at about midway between £44,000 and £65,000. However this may be, the defendants elected to allow the learned judge to assess, on the evidence before him, what sum the site would have realised but for their negligence, if he should hold them to have been negligent. There might, of course, have been more evidence of value on both sides, for example by property-developers. I have, however, had experience of many cases in which the value of land or shares has been assessed by the courts or an arbitrator solely on expert evidence and without any potential buyer being called. The parties in the present case elected to rest on the evidence which had been called. They invited the judge to assess the value on the basis of that evidence alone. The defendants must clearly have recognised the risk that the judge might, though they hoped that he would not, fix the value at £.65,000 or even more. There was certainly ample evidence to support his assessment of £65,000 and he clearly rejected the defendants' evidence on value just as he rejected it on the issue of negligence. Mr. Vinelott, with some courage, now asks us to set aside the learned judge's assessment of value and order the value to be re-assessed on further evidence to be given on the taking of the account. For myself, I do not consider it possible for this Court to adopt that course. Having chosen to stand on the evidence adduced at the trial, it would, in my view, be quite wrong to order an inquiry because the defendants are now disappointed with the assessment made, with their consent, on that evidence.
The defendants have stressed the fact that the purchasers (Webbs) in fact developed the site for houses. I have no reason to doubt that the learned judge took this fact into consideration for what it is worth. For all we know, Webbs specialised in housing development. It is suggested that they were part of a large group which was also interested in flat-development. Perhaps Webbs, having bought the site, were unwilling to pass it on to their associates in the group. Perhaps the group had allocated so much finance for flat-development and so much for housing development and were fully committed for flat-development at the material time. We just do not know. No witness was called from Webbs. I can see no reason why the fact that they erected houses on the site should in any way have shaken the learned judge's confidence in the plaintiffs' evidence.
It has been argued that the learned judge approached this case the wrong way, namely on the basis that it was for the defendants to justify their acts and omissions. I cannot accept this argument. There is one passage in the judgment which if taken in isolation is capable of bearing this interpretation, but I am quite satisfied that the learned judge neither said nor meant anything of the kind. The plaintiffs' whole case at the trial was that a fair price had not been obtained because of the defendants' default and negligence. The plaintiffs naturally accepted that the onus was upon them to establish the default and negligence of which they complained. The learned judge could not have been under any misapprehension on this point. He concluded that the plaintiffs had proved their case. Indeed, without expressing any concluded view on the matter, he thought that the conduct complained of amounted to recklessness. If, by recklessness, he meant gross carelessness and ineptitude, I should be disposed to agree with him, although I do not think that this advances the plaintiffs' case any further. In any event, I can find no justification whatever for disagreeing with the learned judge's view of the evidence. Nor, on the basis (with which I shall deal presently) that, in law, the defendants owed the plaintiffs a duty to take reasonable precautions to obtain the true market value for the site, can I find any ground for reversing the learned judge's decision that the defendants failed in that duty, and that but for this failure the site would have realised £65,000.
I have dealt with the facts, I fear at some length, out of respect for Mr. Vinelott's argument, in which he forcibly stressed the point that the judge's findings of fact were contrary to the weight of the evidence.
I will now turn to the law. It is well settled that a mortgagee is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low, Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee's interests, as he sees them, conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he a trustee of the power of sale for the mortgagor.
Mr. Vinelott contends that the mortgagee's sole obligation to the mortgagor in relation to a sale is to act in good faith; there is no duty of care, and accordingly no question of negligence by the mortgagee in the conduct of the sale can arise. If this contention is correct it follows that, even on the facts found by the learned judge, the defendants should have succeeded.
It is impossible to pretend that the state of the authorities on this branch of the law is entirely satisfactory. There are some dicta which suggest that unless a mortgagee acts in bad faith he is safe. His only obligation to the mortgagor is not to cheat him. There are other dicta which suggest that in addition to the duty of acting in good faith, the mortgagee is under a duty to take reasonable care to obtain whatever is the true market value of the mortgaged property at the moment he chooses to sell it: (compare, for example, Kennedy v. de Trafford (1896) 1 Chancery 762, 1897 Appeal Cases 150, with Tomlin v. Luce (1890) 43 Chancery 191, at page 194).
The proposition that the mortgagee owes both duties, in my judgment, represents the true view of the law. Approaching the matter first of all on principle, it is to be observed that if the sale yields a surplus over the amount owed under the mortgage, the mortgagee holds this surplus in trust for the mortgagor. If the sale shows a deficiency, the mortgagor has to make it good out of his own pocket. The mortgagor is vitally affected by the result of the sale but its preparation and conduct is left entirely in the hands of the mortgagee. The proximity between them could scarcely be closer. Surely they are "neighbours". Given that the power of sale is for the benefit of the mortgagee and that he is entitled to choose the moment to sell which suits him, it would be strange indeed if he were under no legal obligation to take reasonable care to obtain what I call the true market value at the date of the sale. Some of the text-books refer to the "proper price", others to the "best price". Mr. Justice Vaisey, in Reliance Permanent Building Society v. Harwood-Stamper (1944 1 Chancery at pages 364 and 365), seems to have attached great importance to the difference between these two descriptions of "price". My difficulty is that I cannot see any real difference between them. "Proper price" is perhaps a little nebulous, and "the best price" may suggest an exceptionally high price. That is why I prefer to call it "the true market value". In Tomlin v. Luce_ (supra), the first mortgagees by mistake misdescribed the property being offered for sale. It was knocked down for £20,000. When the buyers discovered the mistake they refused to complete unless they were allowed £895 off the purchase price. This allowance was made and the price accordingly reduced to £19,105. The second mortgagees, who can be treated as in the same position as mortgagors, brought an action against the first mortgagees claiming that those mortgagees were responsible for the mistake of their auctioneer, that as a result of this mistake £895 had been deducted from the purchase price, and that this deduction ought not to be allowed in taking the account between the first and second mortgagees. The trial judge found in favour of the plaintiff and disallowed the whole of the £895. This was obviously wrong because the first mortgagees could only be answerable for any loss occasioned by the misdescription. The question should have been: But for the misdescription, would the land have sold for anything and if so how much more than £19,105? The judge's order was accordingly varied in the Court of Appeal. Lord Justice Cotton, after pointing out the judge's mistake, said: "The defence seems really to have been....directed to this, that the first mortgagees, selling under their power, employed a competent auctioneer and were not answerable for any blunder which the auctioneer committed. There they were wrong, and that point was not, I think, argued before us.... What we think is this -that the first mortgagees are answerable for any loss which was occasioned by the blunder made by their auctioneer at the sale". Lords Justices Bowen and Fry concurred. Although the point was not argued in the Court of Appeal, the passage in Lord Justice Cotton's judgment which I have read must be treated with the greatest respect. He was a master in this branch of the law, and he and the other members of the Court as well as counsel treated the point as too plain for argument. Indeed it had long been so regarded by the courts: see Wolff v. Vanderzee (20 Law Times Reports (1869) 353) and National Bank of Australasia v. United Hand-in-Hand and Band of Hope Company (1879 - 4 Appeal Cases 391) in which the Privy Council expressed the clear view that a mortgagee is chargeable with the full value of the mortgaged property sold if, from want of due care and diligence, it has been sold at an undervalue. It would seem, therefore, that many years before the modern development of the law of negligence, the courts of equity had laid down a doctrine in relation to mortgages which is entirely consonant with the general principles later evolved by the common law.
Then came Kennedy v. de Trafford (with which I will presently deal) in which none of the authorities to which I have referred were cited. After that case came McHugh v. Bank of Canada (1913 Appeal Cases 299), in which Kennedy v. de Trafford was not cited. In the McHugh case, Lord Moulton, in giving the opinion of an exceptionally strong Board, said:
"It is well settled law that it is the duty of a mortgagee when realising the mortgaged property by sale to behave in conducting such realisation as a reasonable man would behave in the realisation of his own property so that the mortgagor may receive credit for the fair value of the property sold".
In that case the plaintiffs recovered damages because of a depreciated price having been realised for mortgaged horses on account of the negligent manner in which the mortgagees had had driven them to market. Mr. Vinelott argues that this case was concerned only with the duty of a mortgagee to take care to preserve the mortgaged property when he goes into possession so as not to prejudice the equity of redemption and has nothing to do with the mortgagee's duty upon a sale. I am afraid that I cannot accept that the case is susceptible of being explained away in the manner which Mr. Vinelott suggests.
I now come to Kennedy v. de Trafford, which is the linch-pin of the defendants' case on the law. Carswell and Dodson were tenants in common in fee simple of certain freehold property and in 1877 they mortgaged it to Sir Humphrey de Trafford for £.60,000 with a provision for redemption and re-conveyance to the mortgagors as tenants in common with the usual power of sale after six months' notice. In 1886 Carswell was adjudicated bankrupt and Kennedy was appointed his trustee. Sir Humphrey de Trafford having died, his executors gave notice to pay off the mortgage. Kennedy having refused to redeem, the mortgagees gave him and Dodson notice of their intention to sell if they could obtain the principal interest and costs outstanding. Having advertised for tenders without result, the mortgagees in 1889 sold to Dodson for a sum equal to the principal interest and costs, £54,000 being left on mortgage and the residue paid off. Before the sale Kennedy was informed of all particulars except the name of the purchaser. In 1891 he discovered that the purchaser was Dodson. He did nothing until 1895, when he brought proceedings against the mortgagee, Dodson being joined as a defendant, to set aside the sale as invalid, alternatively for damages for negligence. Kennedy won at first instance but lost in the Court of Appeal. From that decision he appealed to the House of Lords. The House did not take time for consideration but dismissed the appeal out of hand, Lord Herschell and Lord Macnaghten observing that it was as hopeless an appeal as they had ever heard. There was no allegation of bad faith against the mortgagees and the Court of Appeal and the House of Lords concluded that there was no evidence of negligence, nor that any better price could have been obtained than the price paid by Dodswell. Mr. Vinelott strongly relies, however, upon certain observations made in that case by Lord Justice Lindley in the Court of Appeal at page 772 and by Lord Herschell in the House of Lords at page 183. The passage in Lord Justice Lindley's judgment appears to me to be rather equivocal. In that passage he seems perhaps to be resiling from what he had said in Farrar v. Farrars Ltd. (40 Chancery Division at page 411), namely, that the duty of a mortgagee is to take reasonable precautions to obtain a proper price. I agree with Mr. Vinelott that the word "recklessly in the context of those passages connotes something akin to bad faith and more than gross carelessness. It means not caring whether or not the interests of the mortgagors are sacrificed. I do not regard these passages, however, as overruling Tomlin v. Luce and the earlier authorities to which I have referred. Indeed they were never cited in Kennedy v. de Trafford. Lord Kerschell, in the first part of the passage relied on by I"r. Vinelott, certainly expresses grave doubt as to whether a mortgagee in exercising a power of sale is under any duty except to act in good faith. I think, however, that in the second part of that passage he expressly refrains from deciding whether or not in such circumstances a mortgagee owes a duty to take reasonable precautions as well as a duty to act in good faith. It was certainly unnecessary for him to decide that question for the purpose of the case he was considering because, as he points out, the mortgagees in that case had taken all reasonable precautions in exercising their powers of sale and no allegation of bad faith was made. In my view, therefore, Kennedy v. de Trafford does not weaken the effect of the other cases to which I have referred. I accordingly conclude, both on principle and authority, that a mortgagee in exercising his power of sale does owe a duty to take reasonable precaution to obtain the true market value of the mortgaged property at the date on which he decides to sell it. No doubt in deciding whether he has fallen short of that duty, the facts must be looked at broadly and he will not be adjudged to be in default unless he is plainly on the wrong side of the line.
The only other matter that remains to be considered is Mr. Vinelott's submission that even if the defendants were under a duty to take reasonable precaution, they discharged that duty by going to reputable auctioneers and estate agents and leaving the sale in their hands. Nr. Vinelott submits that the defendants are not responsible for any blunder which their agents may have committed. That submission certainly cannot be squared with Lord Justice Cotton's judgment in Toplin v. Luce. I do not think, however, that it is necessary for me to express any concluded view upon it. The point was not taken below. Indeed the learned judge expressly states that the defendants did not seek to suggest that they were not responsible for any blunder committed by their agents. Had the point been taken below, the plaintiffs' cross-examination of the defendants' managing director might have gone very differently. There are certain passages in his evidence in which he seems to be saying that he was an expert in property development and the decisions originally to omit the planning permission for flats from the particulars of sale and then to go on with the sale without advertising that permission were his alone and based on his own judgment. There are other passages in which he seems to be saying that he left everything to his agents. There was no point in exploring this matter in cross-examination because the defendants were conducting their case on the basis that they were responsible for any blunder which may have been made by their agents. In these circumstances it mattered not whether the blunder was made by the defendants' managing director or by their agents. Accordingly it would not be fair, in my judgment, to allow the point to be raised for the first time in this court.
Since, for the reasons I have indicated, I am against the defendants on the law and consider the learned judge's findings of fact and assessment of value to be altogether unassailable, I would dismiss the appeal.
LORD JUSTICE CROSS: I shall first deal with the law applicable to this case. A mortgagee exercising a power of sale is in an ambiguous position. He is not a trustee of the power for the mortgagor for it was given him for his own benefit to enable him to obtain repayment of his loan. On the other hand, he is not in the position of an absolute owner selling his own property but must undoubtedly pay some regard to the interests of the mortgagor when he comes to exercise the power.
Some points are clear. On the one hand, the mortgagee, when the power has arisen, can sell when he likes, even though the market is likely to improve if he holds his hand and the result of an immediate sale may be that instead of yielding a surplus for the mortgagor the purchase price is only sufficient to discharge the mortgage debt and the interest owing on it. On the other hand, the sale must be a genuine sale by the mortgagee to an independent purchaser at a price honestly arrived at.
Suppose, however, that the mortgagee acts in good faith but that through the negligence either of the mortgagee himself or of an agent employed by him a smaller purchase price is obtained than would otherwise have been the case? In 1869, in Wolff v. Vanderzee (20 Law Times 353), Vice-Chancellor Stuart held that a mortgagee was accountable to the mortgagor for the loss in purchase price occasioned by the negligence of the auctioneer employed by him in stating that the property was let at a rent lower than the rent in fact being paid by the tenant. It is to be observed that in deciding that case the Vice-Chancellor relied on the case of Marriott v. The Anchor Reversionary Company (3 De Gex Fisher and Jones 177), where a mortgagee who had taken possession of a mortgaged ship with a view to its sale was held accountable for a loss incurred by the improvident working of the vessel in the period between the taking of possession and the sale.
In 1888 in Farrar v. Farrars Ltd. (40 Chancery Division 395) (which was not a claim for damages for negligence but an unsuccessful attempt by the mortgagor to set aside the sale on the ground that one of the mortgagees was a shareholder in the company which was the purchaser) Lord Justice Lindley said, at page 411, that if in the exercise of his power the mortgagee "acts bona fide and takes reasonable precautions to obtain a proper price" the mortgagor has no redress even though more might have been obtained if the sale had been postponed.
In 1889, in Tomlin v. Luce (41 Chancery Division 573), Mr. Justice Kekewich, applying the same principle as that applied by Vice-Chancellor Stuart 20 years earlier, held that a mortgagee was liable to account to those interested in the equity of redemption for loss occasioned by a negligent misdescription of the property by their auctioneers.
The Court of Appeal (Lords Justices Cotton, Bowen and Fry, 43 Chancery Division 191) varied the order made below on the ground that the method of calculating the loss adopted by the judge was wrong. The mortgagees seem not to have argued in the Court of Appeal that they were not liable to account at all for an innocent mistake made by their auctioneers, and the Court of Appeal plainly thought that the judge was right on this point.
In 1896 came the case of Kennedy v. de Trafford (1896 1 Chancery 762, and 1897 Appeal Cases 180), which is the sheet-anchor of the appellants' submissions of law and which, accordingly, it is necessary to consider in some detail. The mortgage there was by two tenants in common (one of whom subsequently became bankrupt) and the sale was by the mortgagee to the other tenant in common for a purchase price equal to what was owing under the mortgage, the greater part of the purchase price being left on a fresh mortgage. The trustee of the bankrupt mortgagor took proceedings against the mortgagee and the purchasing mortgagor, claiming to have the sale set aside or, alternatively, for damages against the mortgagee for negligence.
The judge of first instance held that the mortgagee acted in good faith and that the sale was not at such an undervalue as to be evidence of fraud; but he also held (a) that the mortgagee had not made reasonable efforts to get a better price before selling to the other mortgagor and (b) that the relationship between the purchasing mortgagor and the mortgagee on the one hand and the other mortgagor on the other was such as to put the purchasing mortgagor in the position of a trustee and to justify the setting aside of the sale.
In deciding against the mortgagee on the first ground as well, the judge relied on the words used by Lord Justice Lindley in Farrar's case which I have cited above. In his judgment in Kennedy v. de Trafford, as I read it, Lord Justice Lindley explained that when he had spoken of the mortgagee taking "reasonable precautions to obtain a proper price" he did not mean to imply that the mortgagee would be liable for mere negligence on his own part or on that of his agent, but simply that he must not "fraudulently or wilfully or recklessly" sacrifice the interests of the mortgagor. He went on, however, to say (at page 773) that on the facts of the case before him the mortgagor had not failed to take any step which it was reasonable and proper for him to have taken.
In the House of Lords, Lords Herschell and Macnaghten both expressed the view that a mortgagee who acts in good faith is not liable for mere negligence in the exercise of his power of sale. But they both added (as had Lord Justice Lindley) that if the mortgagee as well as acting in good faith was under a duty to take reasonable precautions in the exercise of the power, the mortgagees in the case before them had taken reasonable precautions.
There are several points to be observed about this decision. The first concerns the use by Lord Justice Lindley and Lord Herschell of the word "recklessly". Mr. Justice Plowman, as I read his judgment in this case, thought that they meant by the word no more than "with gross negligence". With all respect to him, I cannot agree. They indicated that a man who acted "recklessly" in their sense of the word would not be acting in good faith. This shows, to my mind, that they were using the word in the sense of simply not caring whether what he did injured the mortgagor or not. Secondly, it is not, as I see it, possible to treat the views expressed by Lord Justice Lindley and Lords Herschell and Macnaghten to the effect that the only duty of the mortgagee is to act in good faith as limited to cases where the mortgagor is seeking to have the sale set aside and as not covering cases where he is simply asking that the mortgagee should be charged in his accounts with any loss attributable to his negligence.
There was in fact an alternative claim for damages in Kennedy v. de Trafford, but in any case the language used is quite general. Whether the mortgagor can or cannot have the sale set aside will depend on whether the purchaser had notice of the breach of duty, but the standard of duty cannot vary with the nature of the remedy available for the breach of it.
Thirdly, it is to be observed that though the view that the mortgagee's duty is simply to act in good faith is inconsistent with Wolff v. Vanderzee and Tomlin v. Luce, those cases were not referred to either in the argument or the judgment. It is a curious fact that the text-books do not comment on the inconsistency, but, while stating Lord Justice Lindley's view of the law — namely that the mortgagee need only act in good faith — continue to refer to Tomlin v. Luce as an authority for making him liable for mere negligence.
The only other case to which it is necessary to refer is the Privy Council decision of McHugh v. Union Bank of Canada (1913 Appeal Cases 299), where the mortgage security was a number of horses. The mortgagor did not allege that the mortgagee had been guilty of any breach of duty in connection with the actual sale of the horses. The points at issue were, first, whether he was liable in damages for the manner in which he had dealt with the horses between the time when he took possession of them and the date of the sale and, secondly, as to the amounts with which he was entitled to charge the mortgagor in respect of expenses.
The opinion of the Board, delivered by Lord Houlton, does, however, contain the following general statement which is inconsistent with the views expressed by Lord Justice Lindley and Lords Herschell and Macnaghten in Kennedy v. de Trafford. He said at page 311:
"It is well settled law that it is the duty of a mortgagee when realising the mortgaged property by sale to behave in conducting such realisation as a reasonable man would behave in the realisation of his own property, so that the mortgagor may receive credit for the fair value of the property sold".
Lord Macnaghten was a member of the Board which heard the case but:, as Lord Justice Cairns pointed out in the course of the argument in this case, he died on the very day (17th February, 1913) on which the opinion of the Board was delivered, and it would be wrong to assume that he gave his approval to the manner in which the mortgagee's duty is stated in the passage quoted above.
Counsel for the appellant submitted - rightly, as I think -that even if Messrs. Geering & Colyer were guilty of professional negligence they did not act "recklessly" within the meaning of that word as used by Lord Justice Lindley and Lord Herschell in Kennedy v. de Trafford. They may have been hopelessly wrong, but they directed their minds to the question at issue and tried their best to answer it.
Counsel next submitted that we should accept the views expressed by Lord Justice Lindley and Lords Herschell and Macnaghten as an authoritative definition of the duty of a mortgagee exercising his power of sale and allow the appeal on that ground. I am not prepared to accede to this second submission. In the confused state of the authorities we are, I think, entitled — indeed, I think that we ought — to treat the views in question, though deserving of the greatest respect, as not essential to the decision in Kennedy v. de Trafford, and to consider for ourselves whether we prefer them to the views expressed in Wolff v. Vanderzee and Tomlin v. Luce.
Approaching the problem in that way, I have no hesitation in saying that I prefer the latter. There is no doubt that a mortgagee who takes possession of the security with a view to selling it has to account to the mortgagor for any loss occurring through his negligence or the negligence of his agent in dealing with the property between the date of his taking possession of it and the date of the sale, including, as in the McHugh case, steps taken to bring the property to the place of sale. It seems quite illogical that the mortgagee's duty should suddenly change when one comes to the sale itself and that at that stage if only he acts in good faith he is under no liability, however negligent he or his agent may be.
Counsel for the appellants further submitted that even if we should be of opinion that a mortgagee was liable to account to the mortgagee for loss occasioned by his own negligence in the exercise of his power of sale, it was not right that he should be liable for the negligence of an agent reasonably employed by him. It may well be that this point is not open to him in view of the way the argument proceeded below - but in any case I do not accept the submission. In support of it, counsel pointed out that a trustee is not liable for the default of an agent whom it is reasonable for him to employ. But the position of a mortgagee is quite different from that of a trustee. A trustee has not, qua trustee, any interest in the trust property, and if an agent employed by him is negligent his right of action against the agent is an asset of the trust. A mortgagee, on the other hand, is not a trustee and if he sues the agent for negligence any damages which he can recover belong to him. Of course, in many cases the mortgagee may suffer no damage himself by reason of the agent's negligence because the purchase price, though less than it should have been, exceeds what is owing to the mortgagee. In such circumstances it may be that nowadays the law would allow the mortgagor to recover damages directly from the agent although not in contractual relations with him; but that was certainly not so a hundred years ago when Wolff v. Vanderzee was decided. In those days the only way to achieve justice between the parties was to say that the mortgagee was liable to the mortgagor for any damage which the latter suffered by the agent's negligence and to leave the mortgagee to recover such damages, and also any damage which he had suffered himself, from the agent.
I do not think that we can say that the mortgagee used to be liable to the mortgagor for the negligence of his agent but that that liability disappeared at some unspecified moment of time when the law had developed enough to allow the mortgagor to sue the agent himself.
In my judgment, therefore, if either the appellants or messrs, Geering & Colyer were guilty of negligence in connection with the sale, the appellants are liable to compensate the respondents for any damage which they have suffered by reason of that negligence.
I turn now to the facts of the case. The judge accepted the evidence of Mr. Dann and Mr. St. John - finding the former to be a particularly impressive witness. From their evidence it follows that if the auction particulars had contained a reference to the fact that detailed planning permission for the erection of 100 flats had been obtained, developers who were not attracted by the particulars actually sent out might well have attended the auction and that bids in excess of £44,000 might well have been obtained.
One must next consider whether the fact that the particulars contained no reference to flats was a result of negligence on the part either of Messrs. Geering & Colyer or of the appellants themselves. I do not think that the evidence established that Messrs. Geering & Colyer were guilty of professional negligence in forming and adhering to the view that a developer interested in erecting flats would have been well advised not to touch this site or at all events not to pay as high a price for it as it would fetch as a site for houses. The plaintiffs' witnesses do not suggest that in forming that opinion Mr. Marples and Mr. Argent left out of account any fact which had they had it in mind should have led them to form a different opinion. It was common ground that the only comparables were "Pinehurst" and, to a lesser degree, "Roseholme", and that the relevant matters to estimate were (a) the prices likely to be obtained for flats to be erected on the site and (b) the period of time which would elapse before they were all sold. Dann's estimates were £3,600 and 3½ years. Geering & Colyer's estimates were £3,000 and 5 years. There is no doubt that if the latter figures were right their conclusion that the property was worth more as a site for houses than for flats would have been justified.
Mr. Marples and Mr. Ardent gave reasons for having made the estimates they did, such reasons being, in the case of the price, the prices at which flats in "Pinehurst" were changing hands at the relevant time and, in the case of the period, what they knew, as selling agents, of the rate at which flats at "Roseholme" were being sold off, and the conclusions which Mr. Argent drew from inspection as to the way in which flats in the new block at "Pinehurst" were going.
In the light of the evidence given by the plaintiffs' witnesses it may be that Messrs. Geering & Colyer were wrong in forming so pessimistic a view of the property as a site forilats, but their mistake - if mistake it was - was in my view only an error of judgment.
One must next consider whether, though not negligent in forming that pessimistic view, they were negligent in being so confident of its correctness as not to see to it that the planning permission for flats was mentioned in the particulars in the hope that it might attract some developers who might have bid more for the property than in their view it was really worth.
This enquiry divides itself into two parts: (1) whether Mr. Marples, who did not then know of the existence of the planning permission for the flats, was negligent in not investigating the position in that regard before the brochure was sent out, and (2) whether Mr. Argent was negligent in not advising that the auction should be postponed until September when the existence of planning permission for flats was brought to his attention in June.
As to Mr. Marples, it is I think relevant to observe that Mr. Lovell did not show him Mr. Graves' letter of the 3rd March, which, though not very clearly worded, appeared to indicate that the writer thought that the site had value as a site for flats and might well fetch more than Messrs. Geering & Colyer thought it would. If Mr. Marples had been shown that letter but in spite of it had failed to enquire into the position with regard to development for flats, I can well see that he might be held guilty of professional negligence. But in fact he did not see Graves' letter, and if I am right in thinking that he was not guilty of negligence in forming the pessimistic view as to the value of the property as a site for flats that he did form, I find it difficult to see that it was negligent of him not to have envisaged that others might not agree with him and to have investigated on his own account what the exact position was with regard to flat permission. It was certainly unfortunate that he did not do so, since then the planning permission would have been mentioned in the brochure, but was it more than an error of judgment?
Mr. Argent in June was, of course, in a different position. He knew that detailed planning permission had been obtained and that Mr. Fawke was urging that the auction should be postponed in order that fresh particulars might be circulated. On the other hand, there were obvious dangers in postponing the auction. Possible bidders might be put off; the market for property generally might deteriorate; interest would be mounting up, and the mortgagor might be unable to meet the difference between what was due under the mortgage and what the property would realise.
Mr. Lovell did not show Mr. Argent Graves' letter of the 3rd March, though he was apparently told by the solicitors that some unspecified agent had valued the property at £75,000. If the decision not to postpone the sale was wrong, as in the light of the plaintiffs' evidence it may well have been, did it amount to professional negligence?
One must, of course, bear in mind in considering this question both as it relates to Mr. Marples and as it relates to Mr. Argent that no single independent witness was called by the defendants to support their view as to the value of the property as a site for flats. That is undoubtedly a circumstance which tells heavily against them. But having re-read the evidence and the correspondence I am bound to say that I am not satisfied that the evidence showed that what Mr. Marples and Mr. Argent did or failed to do amounted to more than errors of judgment, though as my Lords both think that they were negligent I realise that I am very likely to be wrong.
I turn now to the position of the appellants themselves, which means, for practical purposes, that of Mr. Lovell. There is no doubt on the evidence that he associated himself with the relevant decision and did not simply rely on Messrs. Geering & Colyer. He said that he had personally considerable experience in property values and that in March he had sent down an independent agent to enquire into the position as regards flats and had received a most adverse report. The appellants were, of course, themselves interested in selling the property for a higher price than Messrs. Geering & Colyer thought that it would fetch, and to hold that they were negligent would be to hold that Mr. Lovell, a very experienced business man who clearly directed his mind to the point in issue, did not know his own business. In fact it was not argued either below or before us that the appellants were themselves guilty of negligence; but if and so far as the matter ought to be considered by us, I do not think that they were. The only point, as I see it, which could be made against Mr. Lovell was that he did not show either to Mr. Marples or to Mr. Argent Mr. Graves' letter of the 3rd March. Not to have done so may have been an error of judgment, but it would to my mind be going too far to say that it showed such negligence by Mr. Lovell in the conduct of the appellants' affairs as to make them liable to the respondents.
It remains to consider whether the evidence given on behalf of the respondents established on the balance of probability that if the particulars of sale had mentioned the permission to build flats, the property would have fetched at least £.65,000. The judge appears not to have drawn any distinction between the value of the evidence of Mr. Dann for the purpose of showing that it was foolish not to mention the permission in the particulars and its value for the purpose of quantifying the damage flowing from the omission. But, as I see it, the two things are very different, Mr. Dann candidly admitted that if either of his estimates of £.3,600 as the selling price for the flats and 3½ years as the period over which they could all be sold was even slightly too favourable to the respondents, his value of £65,000 would be seriously affected.
The plaintiffs did not call any developer to say that if he had known that the property had the benefit of a detailed planning permission for the erection of 100 flats he would have given more than £44,000 for it, nor did the appellants call any developer to support the view of Mr. Marples and Mr. Argent, not even the purchaser who in fact erected houses on the site, though, according to the evidence, they had built flats on other sites.
All this suggests that the damages ought to have been the subject of an enquiry. But both parties joined in asking the judge to assess them on the evidence put before him and though he might well have refused to do so neither party can now complain of his having undertaken this task. Moreover we were told that counsel for the appellants submitted to the judge not that the plaintiffs had failed to prove any damage but simply that he ought to make some deduction from the £65,000 on the footing that despite Dann's evidence so high a figure might not have been bid. The judge made no such deduction and at first sight the appellants' request made to us that in the event of our upholding the judgment on liability we should order an enquiry as to damages looks somewhat impudent.
"Mr. Marples and Mr. Argent, although experts, were, of course interested witnesses. They were concerned to justify the decisions for which they were responsible and no doubt to obviate any question of personal liability to the defendants. Consequently, though not, perhaps, unnaturally, their partisanship was, I thought, reflected in their evidence. Mr. Marples in particular indulged in a degree of advocacy which would have been better left to Mr. Dewhurst, and both of them were inclined to denigrate the plaintiffs' side and to pooh-pooh the evidence of the plaintiffs' experts".
There is, of course, no doubt that they were interested witnesses in the sense that they would have wished the respondents' claim to fail; but it is far more relevant to observe that the view which they formed - be it right or wrong - that the permission for development for flats was of no value as a selling point was formed at a time when they had no interest whatever to form it and for the same reasons as those which they gave in their evidence, and that their decision not to advise the postponement of the sale was made when motives of self-interest and prudence might well have prompted them to give different advice. Of course, the judge may have thought that the content of their evidence and their manner of giving it were such that he could properly dismiss them as incompetent and irresponsible persons whose views as to the value of property in Maidstone were worthless. But this would have been a strong thing to hold of two partners in a firm of the standing of Messrs. Geering & Colyer and I am not prepared to assume that the judge meant to hold any such thing. I think that he thought that their evidence was suspect on grounds which did not really affect it at all. If one does not dismiss their evidence as worthless then, as I see it, it would be wrong for the judge to accept Mr. Dann's figure of £65,000. He ought either to have insisted on an enquiry, or to have said that the plaintiffs had not proved any damage, or to have made some deduction from Mr. Dann's figure.
In these circumstances I think that justice between the parties could best be achieved by remitting the case for an enquiry as to damages, at which further evidence — in particular the evidence of the purchaser — can be adduced. LORD JUSTICE CAIRNS: The issues in this appeal are:
(1) Does the duty of a mortgagee to a mortgagor on the sale of the mortgaged property include a duty to take reasonable care to obtain a proper price or is it sufficient for the mortgagee to act honestly and without a reckless disregard of the interests of the mortgagor?
(2) Was the advertising of the auction without reference to the planning permission for flats
(b) an error of judgment
(c) negligent or
(3) A similar question in relation to the refusal to postpone the auction.
(4) If anybody on the defendants' side was at fault, was the fault that of the defendants themselves or of their agents Geering & Colyer, or both?
(5) If the fault was that of the agents only, can it be attributed to the defendants?
(6) If there was negligence for which the defendants are responsible did the plaintiffs suffer any damage thereby?
(7) If so, what value is to be attributed to the land in assessing the damages?
(l) I find it impossible satisfactorily to reconcile the authorities but I think the balance of authority is in favour of a duty of care. That there is such a duty was certainly the view of Mr. Justice Kekewich and of the Court of Appeal in Tomlin v. Luce (41 Chancery Division 573 and 43 Chancery Division 191); also of the Judicial Committee in McHugh v. Union Bank of Canada (1913 Appeal Cases 299). It also appears to have been the view of Lord Justice Lindley at the time of his judgment in Farrar v. Farrars Ltd. (40 Chancery Division 395). That judgment was so interpreted by the judge of first instance in Kennedy v. de Trafford (1896 1 Chancery 762), but on the appeal in that case Lord Justice Lindley said (at page 772) that when he had referred in Farrar's case to a mortgagee's duty to take reasonable precautions he had meant merely that the mortgagee must not act fraudulently or wilfully or recklessly; and in the House of Lords (1896 Appeal cases 180, at page 185) Lord Herschell said that he thought it would be unreasonable to require the mortgagee to do more than act in good faith, that is, not wilfully or recklessly to sacrifice the interests of the mortgagor. These expressions of opinion in the Court of Appeal and in the House of Lords were, however, not necessary to the decision. Lord Justice Lindley said that the mortgagees "acted from first to last in an honourable and businesslike manner without in the least sacrificing the interests of the mortgagors". Lord Herschell said:
"My Lords, it is not necessary to give an exhaustive definition of the duties of a mortgagee to a mortgagor because it appears to me that if you were to accept the definition of them for which the appellant contends, namely that the mortgagee is bound to take reasonable precautions in the exercise of his power of sale, as well as to act in good faith, still in this case he did take reasonable precautions".
I therefore consider that Tomlin v. Luce is the stronger authority and I would hold that the present defendants had a duty to take reasonable care to obtain a proper price for the land in the interest of the mortgagors.
(2) I think there was abundant evidence to support the finding that the land should have been advertised for sale as land which had planning permission for building flats. Whatever criticisms can be made of Mr. Dann's and Mr. St.John's calculations, they were experienced surveyors whose integrity was not questioned, who were accepted by the judge as reliable witnesses, and who both considered that if the Permission for flats had been advertised a wider range of buyers might have attended the auction and a better price might have been obtained. The judge was entitled to accept that evidence. If it was right, it means that common prudence would have made it desirable to advertise the planning permission for flats in the interest both of the mortgagors and of the mortgagees. The reason why Geering & Colyer did not mention it in the particulars of sale was that Mr. Marples, although he knew that there had been an outline permission for flat building, attached so little importance to it that he did not direct his mind to the question of whether the permission had been confirmed; and that Mr. Lovell, although he knew that flats could have been built on the land, and was surprised when in 1965 Mr. Fawke abandoned the idea of building flats, thought in 1967 that it would be an uneconomic proposition. A draft of the brochure was sent to Mr. Lovell on the 2nd May, 1967, so he could see, if he thought about it, that flats were not mentioned. There was no deliberate decision not to mention flats. There was simply a failure to consider the desirability of doing so. On the evidence of Mr. Dann and Mr. St.John this was at least an error of judgment.
Was it negligent? This I find a difficult problem. Any idea on the plaintiffs' side of building flats was abandoned in 1965 when they went to the trouble of getting planning permission for houses, Mr. Fawke having told the defendants in a letter dated the 8th December, 1964, that he thought it would be more profitable to use the land for house-building - not merely that he was constrained to this course by financial stringency. Mr. Fawke did not suggest when he saw the brochure (a copy of which was sent to him on the 30th lay, 1967) that it ought to have mentioned flats. Mr. Marples and Mr. Archer expressed in evidence the clear opinion that nobody would have been interested in flat-development because of the sluggishness of the market for flats in Maidstone at the time. This was not a view formed after the event for it had been expressed in a letter written on the 30th January, 1967. It was supported by evidence of the slowing down of sales of flats at "Rosenolme". On the other hand there is an important letter from the defendants' surveyors, Stevens, Scanlan & Co., to Mr. Lovell dated the 3rd March, 1967, which to my mind can only be interpreted as meaning that a better price might be obtained for flat-building than for house-building. No independent evidence was called on the defendants' side to support the view that this opinion was wrong. It would have been the simplest thing in the world to mention the flats permission in the brochure. It could have done no harm. It might have attracted a purchaser whose ideas of the prospects of disposing of flats at Maidstone were more optimistic than those of Mr. Marples and Mr. Archer. I conclude that there was negligence in omitting it.
If it were relevant to consider whether the omission was reckless I should not hold that it was. It can, I think, be taken that the defendants and their agents were, at least, doing what they thought best in the interests of the defendants (which, since they had it well in mind that the price obtained might be substantially less than the mortgage debt, were bound up with those of the plaintiffs). Whatever lapse there may have been in the exercise of skill and judgment, I cannot think that the evidence pointed to a reckless disregard of the interests of either party.
(3) When it came to "the question of whether the auction should be postponed, everybody was fully alive to the existence of the planning permission for flats. If once it is accepted that a better price might have been obtained for flat-building than for house-building, I think it follows that it would have been wise to postpone the auction. And if it was negligent not to advertise the permission in the first instance then it was negligent not to postpone the auction and re-advertise. Not that there were no good reasons for pressing on with the sale: interest was accruing every day, the future of the market in land was uncertain, and people who had already shown some interest in buying might have lost interest if the sale had been put off. These were considerations of weight but I do not think they are sufficient to outweigh, in the mind of a reasonable man, the chance by postponement and re-advertising of getting a better price. I would therefore accept the judge's conclusion that in this respect too there was negligence on the defendants' side. The judge went further and, without giving any specific reason for the view, said that he was if necessary prepared to find that the defendants were reckless in this decision. I do not think that this conclusion can be supported. The defendants were not pressing ahead regardless of the risk of getting a low price. They misjudged what was the best course in the interest of the plaintiffs and themselves. The mis judgment was a blunder but not a reckless blunder.
(4) If then there was negligence, whose was the negligence? Geering & Colyer were at fault when in their letter to Mr. Lovell of the 30th January, 1967, they said that in their opinion flats would not be an economic development, with the implication that it was no use offering the land for sale for flat-development. Then when Mr. Lovell received Stevens Scanlan's letter of the 3rd March, 1967, he should have told Geering & Colyer that those surveyors had suggested a possible price for the land of as much as £700 a unit for as many as 110 flat-units. Next Mr. Marples should have enquired whether the planning permission for flats had been confirmed — he no doubt would have done so if he had not wrongly discounted the practicability of flat-development. If he had made the enquiry he would have found that the permission was in full force and he should then have mentioned it in the brochure. Finally, when Mr. Lovell received the draft brochure, especially in the light of the advice of Stevens, Scanlan, he should have requested Geering & Colyer to include a reference to flats in the particulars. When it came to the question of postponing the auction Mr. Marples advised the defendants in a letter dated the 17th June, 1967, not to postpone it, but the actual decision was taken by Mr. Lovell and his fellow-directors and it is clear from Mr. Lovell's evidence that it was their own decision onthe merits, not merely an acceptance of the advice of their agents. In my view there was at both stages negligence on the part of both the defendants and their agents.
(5) The case appears to have been argued in the court below entirely on the basis that the negligence was that of Geering & Colyer only. Since it was there conceded that the defendants would be liable for any negligence of their agents I do not think it is open to the defendants in this Court to contend that they are not so liable. Mr. Vinelott said that the point was not taken below because it was not open to the defendants there, since in Tomlin v. Luce Mr. Justice Kekewich rejected the argument that the mortgagees were not liable for the blunder of their agents, and Lord Justice Cotton, giving the leading judgment in the Court of Appeal, said that in that argument the mortgagees were wrong. The point was not argued in the Court of Appeal in Tomlin v. Luce and it may be that for that reason what was said about it is not strictly binding on us but it is at least of high persuasive authority. If the present defendants wished to keep the point open for argument in this Court this should have been made clear to the judge and closer attention would then have been paid to Mr. Lovell's part in the business. In the circumstances I do not consider that the point is open to the defendants. If it were open I should need more argument to satisfy me that Mr. Justice Kekewich and Lord Justice Cotton were wrong.
(6) It seems to me that in the court below there was a failure to distinguish between the question of whether there was a reasonable chance that people interested in buying for flats would have attended the sale had they known of the relevant planning permission and the question of whether some such person would have made a bid in excess of £44,000. I think, however, that the inference to be drawn from the general evidence of Mr. Dann and Mr. St. John was that if people had come to the sale with a view to buying for flats somebody would have thought that the land was worth more than £44,000 and would have raised that bid. So I am satisfied that it could rightly be concluded that the plaintiffs suffered some damage. It must be remembered that, although the mortgage debt was over £50,000, so that up to that figure the defendants were concerned to realise their security, any sale at an undervalue was damaging to the plaintiffs because their liability on their covenants for any balance due to the defendants would be increased.
(7) It is a very different question whether there was a likelihood of a bid of £65,000. The learned judge was invited to assess the figure instead of directing an inquiry. The only materials he had to go upon were the calculations of Mr. Dann and Mr. St. John, and he clearly based himself on those of Mr. Dann. I do not think that Mr. Dann could be criticised for using the residual method of assessment. In the absence of any information of recent sales of land for flats as distinct from sales of flats it was the only method available. But it is far from being a certain guide to values because a £100 difference in the assumed selling-price of flats or a difference of one a month in the assumed rate of disposal of flats would make a vast difference in the valuation. And I do not think Mr. Dann gave any satisfactory evidence to establish his assumed selling price of £3,600 a flat or his assumed disposal rate of three a month. Once the judge assumed the task of assessing the value he had to do the best he could on inadequate materials but this does not mean that the figure he arrived at is necessarily sustainable. It was for the plaintiffs to prove their case. They called no flat-developer to say he would have offered £65,000 for the land. No doubt if Mr. Dann or Mr. St. John had been consulted they would have advised paying that price but it may well be that other advisers would have been more cautious or that the developers would have realised how shaky that valuation was and would have refrained from bidding so high. To establish the figure of £65,000 it is necessary to assume the presence at the auction of at least two flat-developers who would have bid against each other to push up the price to that extent.
In my view the learned judge was wrong to accede to the request to assess the figure on the materials before him, though I can well understand his doing so as the request was a joint one. If the parties were to be held to their agreement I should feel bound to say that the plaintiffs had not established a probable selling price more than a little in excess of ,£44,000. The defendants have not, however, invited this Court to assess the figure. They have been content to invite us, in the event of our being against them on liability, to direct an inquiry. Though the plaintiffs have resisted any such direction, that has been on the basis of their contention that the judge's assessment of £65,000 must stand. In these circumstances I consider that the course which is fairest to both parties is that there should be an inquiry as to damages on the footing that the price at which the land could probably have been sold is at large. I would so direct.
MR VINELOTT: My Lord, this is, as your Lordships have seen, a very difficult and confused area of law. The appellants would like an opportunity of considering whether they should not take the matter to the highest tribunal. Would your Lordships be disposed to give leave to appeal?
MR VINELOTT: It may be, of course, that the appellants would prefer to go back to an inquiry as to damages and not to pursue the matter further; but would your Lordships allow the matter to remain open?
MR VINELOTT: I was about to qualify it by raying that it remains to be seen whether that qualified victory will yield any fruit. One course that your Lordships could take is either to reserve the costs or to leave the costs to follow the event in the court below.
LORD JUSTICE CROSS: But surely, Mr. Vinelott, if the judge had taken the view which the majority of the Court think he ought to have taken and directed an inquiry, the plaintiffs would have got all the costs below, would they not; and the costs of the inquiry would have been reserved?
MR VINELOTT: I would not have thought that would be necessarily so, because the inquiry might reveal no damage, in which event it would be wrong that the appellants should pay the whole costs of the hearing, if there was simply nothing in the case.
MR SEELEY: My Lord, I would ask for the costs of the appeal. The appellants did not ask in their Notice of Appeal for an inquiry as to damages. They did not take the point at all. They merely took the point that they wanted the claim rejected entirely, on the ground that there were no grounds for finding that the property would have fetched a higher price. Strictly speaking the Notice of Appeal requires amendment to ask for such an inquiry; and if the Notice of Appeal is to be amended I would ask for costs down to the date of the amendment — in other words, until after your Lordships' judgment.
MR SEELEY: Well, no. We have succeeded on the point of law — indeed we have succeeded all the way through; save on the point as to whether in fact the damages were the difference between £44,000 and £65,000. On that point the parties were both agreed — although your Lordships have felt that perhaps the judge nevertheless might have said this was not a proper way to deal with it. The defendants accepted — indeed, I am not sure that they did not themselves propose, but I do not press that because my recollection is not good enough on that point, but they certainly readily accepted — the proposition that the matter should be left open to the judge to find the figure. Now they come back and ask your Lordships to re-estimate, and if they wish to do so at this late stage in my respectful submission they should pay the costs down to date.
MR SEELEY: Yes, my Lord, they are challenging the figure, but they are asking for a complete rejection of it. They are not in any way suggesting that the matter should now be reopened on the basis that if they were wrong in law then the question of damages should be reconsidered.
MR VINELOTT: My Lord, it was not very specifically there: it is only open, if at all, under (c), I think — that £65,000 was not the right figure; and, of course, in so far as your Lordships have held that there was not evidence to support £65,000 and there must be an inquiry I have technically won on that ground of appeal.
MR SEELEY: I am not trying to say that the matter should not now be referred back to the learned judge, or to the court below, because it was not taken in the court below, but I do say on the question of costs that the appellants should not now be allowed costs — that we should have our costs, bearing in mind the late stage at which this has arisen.
(Their Lordships conferred)
LORD JUSTICE SALMON: We think that the fair order for costs, in all the circumstances, would be that the respondents should be awarded three-quarters of their costs of the appeal, and that the order for costs below should be left undisturbed.