England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/06/2008

Mr Justice Patten :

Introduction

1. This action concerns the sale of four freehold properties in the ownership of Dimple Property Limited ("the Company") which took place in July and August 2000. The properties were sold under a single contract for a combined purchase price of £775,000 to Peninsula & Century Properties Limited ("PCPL") by the first and second Defendants, Mr Long and Mr Thompson, acting as administrative receivers appointed by HSBC under a fixed and floating charge over the company's assets dated 19 April 1995. Mr Long and Mr Thompson were partners in the third defendant Pannell Kerr Forster (A firm) ("PKF"). I shall refer to them as "the Receivers".
2. The Claimant, Mr Bell, was a director and majority shareholder in the Company. He was not however a guarantor of its indebtedness to HSBC.
3. There is no challenge to the validity of the Receivers' appointment. Formal demand for repayment of the Company's facility with HSBC (then in the sum of £645,339.21) was made on 13 January 2000 and it is accepted that re-payment was not made and could only be made through the sale of some or all of the properties. But Mr Bell alleges in his amended particulars of claim that the sale price was significantly lower than the market value of the four properties at the time of sale which his expert (Mr David Isherwood) considers to have been some £1.241m. He contends that if sold for their true market value at the time only three of the four properties need have been disposed of to re-pay the indebtedness and to meet the costs of the receivership.
4. On this basis Mr Bell makes two separate but related allegations. The first is that Mr Thompson conspired with PCPL and with the selling agents Weatherall Green and Smith North Limited ("Weatheralls"), the fourth Defendants, to defraud the Company and its shareholders by selling the properties at what they knew was an undervalue. The second claim is a more conventional one that in disposing of the properties the Receivers failed to carry out their duty to obtain the best price then reasonably obtainable for the properties in the open market.
5. As originally formulated, both claims were made against each of the Defendants, but Mr Bell later accepted that in the light of the decision of the Court of Appeal in Raja v Austin Gray [2002] EWCA Civ 1965 it was not possible to contend that Weatheralls owed him or the Company any direct duty in equity in relation to the marketing and sale of the mortgaged properties. The duty to obtain a proper price was owed to the Company by the Receivers but they are, of course, fixed with the conduct of Weatheralls as selling agents and cannot escape liability merely by showing that they relied on the agent's advice in good faith.
6. Mr Bell brings these proceedings both in his personal capacity and as the assignee from the liquidator of the Company of its cause of action in equity against the Receivers. He, I think, now accepts that in the claim based on an alleged sale at an under value he can only succeed (if at all) by relying on the duty owed to the Company. He has no personal claim for damages or compensation. It follows that any award will be limited to the difference between the net price actually realised and the return which should have been made to the Company by the Receivers had the properties been sold at a proper price. It appears from the final accounts filed by the Receivers at Companies House that the total receipts (including some £31,000 of rent from the properties prior to disposal) amounted to £807,072.44 After payment of the expenses of the sale and the receivership this resulted in a return to the Company of £35,000. If a proper price for the properties would have been some £1.124m as alleged, then the claim by the Company against the Receivers could amount to some £350,000.
7. To protect themselves against possible liability on this basis the Receivers have issued a Part 20 claim against Weatheralls seeking an indemnity. Weatheralls accept that if the claim against the Receivers succeeds solely because of negligence on the part of Weatheralls in advising on the marketing and sale of the properties then they have no defence to the Part 20 claim on its merits. They do not suggest that the properties were sold to a single purchaser for £775,000 against their advice. They therefore make common cause with the Receivers in denying that there was any breach of the Receivers' duty to the Company in relation to the sale price. The only issue in the Part 20 proceedings is a defence based on limitation but in order to simplify and shorten the trial it was agreed by counsel for the Receivers and for Weatheralls that I should postpone any consideration of the limitation issue until after deciding whether the Receivers are liable to the Company for any breach of duty in respect of the sale.
8. That leaves the claim in fraud. As indicated earlier, this involves an allegation of dishonesty and conspiracy against Mr Thompson, Weatheralls and PCPL. Mr Bell indicated in opening his case that he made no allegation of fraud against Mr Long. There has been an ongoing dispute which lasted until the first day of the trial as to whether Mr Bell has properly particularised his claim in fraud. Various attempts have been made to produce particulars but it remained the position of Mr Chapman on behalf of Weatheralls that there were still no adequate particulars of the alleged parties to the conspiracy, its date or what form exactly the conspiracy is alleged to have taken. I gave Mr Bell an opportunity to address these issues and he summarised what his case was. Mr Thompson was, he said, the organiser and the other parties were Mr Dry (of Weatheralls) and Mr Swimer (the director of PCPL). The conspiracy took place prior to 7 April 2000 which was the date when Mr Dry advised the Receivers to sell all four properties as part of a portfolio rather than individually. Mr Bell was unable to provide any further degree of particularisation.
9. Although clearly unsatisfactory in many ways counsel for the Receivers and for Weatheralls took the pragmatic view that it was better to proceed with the evidence rather than to waste further time by adjourning the trial in order to allow Mr Bell to re-formulate his pleadings. The evidence was therefore called. Mr Thompson and Mr Swimer did not give evidence but Mr Dry did. There was also oral evidence from Mr Nicholas Ikin, one of the senior managers in PKF, who had day to day charge of the receivership from its inception up to the sale.
10. Mr Bell put no questions to any of these witnesses which were relevant to the allegations of conspiracy. His cross-examination of Mr Dry was entirely directed to the quality of the sales and valuation advice which he gave and to whether the properties were properly marketed. It was never suggested to him that his advice was dictated by some prior conspiracy or plan to dispose of the properties to PCPL at an under value. When at the conclusion of the evidence counsel for the Defendants submitted that Mr Bell had failed to address or produce any evidence supporting the alleged conspiracy, he accepted this and the claim has been effectively abandoned. I did not therefore trouble Mr Allen or Mr Chapman to address me on the fraud claim and I do not propose to deal with the allegations further in this judgment.
11. The abandonment of the fraud claim does however significantly narrow both the issues in the action and the scope of the financial claim. By relying on the allegation of conspiracy Mr Bell was able to widen his case to include a claim by him as a shareholder for the personal loss he says that he suffered as a result of the Company's loss of its assets and his own subsequent bankruptcy. These included lost commercial opportunities by the Company said to be worth some £525,000; damages for distress of £250,000 and financial loss resulting from the sale of the Claimant's home of some £300,000. Whether these losses could properly be said to have been caused by the alleged fraud is very much in issue in the proceedings and is outside of the scope of this judgment or the evidence given at trial. In the event, these are not matters which necessitate an inquiry even if the properties were in fact sold at an undervalue. They are relevant only to the claim in fraud. The two issues for me are whether there was a breach of duty by the Receivers to the Company and if so, what was the price which the properties are likely to have realised on the open market in July and August 2000.

The nature of the duty

12. It is now clearly established that a receiver appointed by a mortgagee to sell mortgaged property in order to recover or reduce the mortgage debt is effectively in the same position as the mortgagee and owes a duty in equity to all those interested in the equity of redemption to obtain a proper price for the property. He is not however a trustee of his power of sale for the mortgagor and accordingly can choose the time of sale even if that turns out to be disadvantageous to the debtor who could have recovered more had the property been sold later.
13. The authorities draw no distinction for these purposes between an LPA receiver (Silven Properties Ltd v Royal Bank of Scotland [2004] 1 WLR 997) and an administrative receiver (Raja v Austin Gray (supra)). The duty is the same.
14. The characterisation of the duty in terms of obtaining a proper price is sometimes put in terms of an obligation to obtain the best price reasonably obtainable at the time of sale. But it is clear from the relevant authorities that this is not an adequate or accurate description of the duty if applied retrospectively as an absolute test of liability regardless of the circumstances prevailing when the decision was taken to sell and the marketing of the property was embarked upon. In Silven Properties the Court of Appeal (at paragraph 14) described the mortgagee's position in these terms:

"14 A mortgagee 'is not a trustee of the power of sale for the mortgagor'. This time-honoured expression can be traced back at least as far as Jessel MR in Nash v Eads (1880) 25 Sol Jo 95. In default of provision to the contrary in the mortgage, the power is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed: see Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] 2 All ER 633 at 646–647, [1971] Ch 949 at 969. A mortgagee is at all times free to consult his own interests alone whether and when to exercise his power of sale. The most recent authoritative restatement of this principle is to be found in Raja ...administratrix of the estate of Raja (decd)) v Austin Gray (a firm) [2002] EWCA Civ 1965 at [55], [2003] Lloyd's Rep PN 126 at [55] per Peter Gibson LJ. The mortgagee's decision is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor: see China and South Sea Bank Ltd v Tan [1989] 3 All ER 839, [1990] 1 AC 536. It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: he is not bound to postpone in the hope of obtaining a better price: see Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54 at 59, [1983] 1 WLR 1349 at 1355."

15. This statement of principle is derived from the earlier decision of the Court of Appeal in Cuckmere Brick where Salmon LJ described the mortgagee's powers and duties as follows:

"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."

16. Cross LJ (at page 969G) put it in these terms:

"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."

17. The obvious conflict between the interest of the mortgagee in an early sale and the desire of the mortgagor for a longer period of marketing and as a result a potentially larger return has been resolved in favour of the mortgagee. Consistently with this there must, in my judgment, be a degree of latitude given to mortgagees and receivers alike not only as to the timing of any sale but also as to the method of sale to be employed. Once the method of sale is chosen then the property has obviously to be properly marketed in whatever way is appropriate to that method of sale. But the extract from Salmon LJ's judgment makes it clear that the mortgagee can have regard to its own interests in deciding how to sell and that if it makes a genuine decision albeit one which resolves any doubts in its own favour then no breach of duty will have occurred. Inevitably decisions on how and when to sell will be complex and multi-faceted and references to the need to obtain the best price reasonably obtainable have to be read in this context.

The Complaint

18. The four properties sold by the Receivers were:

i) Rockfield House, 512 Darwen Road, Bolton;

ii) 96 Chorley New Road, Bolton;

iii) 173/173a Chorley New Road and

iv) 179 Chorley New Road

19. As the addresses indicate three of the four properties are situated on Chorley New Road which is one of the main roads leading out of Bolton in the direction of Horwich. This was once an entirely residential area and all three properties were built as private houses. For some considerable time they (and many similar properties in the area) have been converted to use as offices by solicitors, accountants, architects or surveyors or for other professional use such as doctors or dentists surgeries. At the time of the receivership 96 Chorley New Road was let to the AEE Union; 173/173a was let to a firm of solicitors (Keogh Ritson) and to an architectural practice (Greenhalgh & Williams); and 179 was also let to Keogh Ritson.
20. Rockfield House has been extended from the original dwelling house to provide 13 suites of serviced offices on two floors. Some of these were vacant at the time of the receivership and those that were occupied produced rents varying from £10.60 to £18.15 per square foot. The rent roll was about £35,000 per annum out of which the Company had to pay for cleaning, maintenance and the insurance of the building. The suites were occupied by a variety of small business users.
21. Following their appointment, the Receivers engaged Weatheralls to advise them on the marketing and disposal of the four properties. The first instructions were given on 25 January 2000 in which Weatheralls were asked to provide valuations of the four properties. In his letter to Mr Dry, Mr Thompson acknowledged that the valuations could not be prepared until Weatheralls had sight of all relevant leases and tenancy agreements. The Receivers had requested these from the Company through Mr Bell but say that there was a marked lack of co-operation in providing all the relevant documents. There is a file note of a conversation between Mr Ikin and HSBC on 24 January in which he refers to a lack of co-operation by the directors and to PKF having to approach the tenants direct for copies of their leases. Mr Bell disputed this but I am quite satisfied (if material) that the Receivers did encounter difficulties with Mr Bell and did not receive the measure of co-operation to which they were entitled. This does have some relevance to the purchase price which was ultimately agreed with PCPL but it is clear that the Receivers did manage to obtain copies of the leases of 173 and 179 from the tenants and were told that the offices at Rockfield House were let on 12 month agreements.
22. On the basis of this limited information Weatheralls gave provisional valuations and marketing advice to the Receivers in a letter dated 17 February 2000. This has been referred to in the proceedings as Weatheralls First Report and I shall use that description in this judgment. The valuations of the properties were given on three bases; open market value (OMV); Estimated Realisation Price (ERP) and Estimated Restricted Realisation Price (ERRP). These are, or were at the time, standard RICS bases of valuation.
23. OMV is an opinion as to the best price at which the property could be sold at the valuation date assuming a reasonable period of marketing prior to sale.
24. The ERP is the price at which the property could as at the date of valuation reasonably be expected to be sold on a future completion of an unconditional sale assuming a reasonable period of marketing prior to the date of completion. Weatheralls assumed this period to be in the order of six to nine months on the basis of a sale by private treaty.
25. The ERRP is a valuation on the same basis as the ERP (i.e. the value on a future sale assessed at the date of valuation) but without allowing a reasonable period for proper marketing. Weatheralls assumed for this valuation a period of marketing of only three months.
26. Weatheralls advised that all the properties would suit secondary investors and that the three Chorley New Road properties might also appeal to owner occupiers. The properties were said to be of limited value as investments due to the nature of the tenancies involved. This was because the rental income from the annual leases at Rockfield House was considered to be insecure and (in relation to 173 and 179 Chorley New Road) because the leases to Keogh Ritson were due to expire in the next two years. By the time of the first report plans were well advanced for Keogh Ritson to move into a new building then in course of construction which was due to be completed and ready for occupation by early 2001. The lease of 173 Chorley New Road was due to expire in March 2002 and that of 179 Chorley New Road in August 2000. By contrast 96 Chorley New Road was let to the AEEU on a 20 year lease from 1992 at a passing rent of £25,000 per annum. But the premises were currently vacant and the tenant had been attempting without success to dispose of its lease for the last three years.
27. Weatheralls recommended that all four properties be placed on the open market for sale; that sale boards be erected indicating that they were investment properties; and that sales particulars for each property should be sent to local and regional property agents and to all active secondary investment purchasers. They valued the properties as follows:

i) 173 Chorley New Road :	OMV £325,000 :	ERP £325,000 :	ERRP £200,000
ii) 179 Chorley New Road :	OMV £160,000 :	ERP £160,000 :	ERRP £110,000
iii) 96 Chorley New Road :	OMV £240,000 :	ERP £240,000 :	ERRP £190,000
iv) Rockfield House :	OMV £230,000 :	ERP £230,000 :	ERRP £160,000

28. It is noticeable that the OMV and ERP valuations are the same in the case of each of the properties. The expert witnesses were all agreed that there was no material change in the value of the properties between January and August 2000 and Weatheralls' assumption that this was likely to be the case has proved to be correct. But as I shall come to later Mr Isherwood challenges the accuracy of the provisional valuations.
29. PKF reported the valuations to HSBC on 23 February 2000 together with a summary of the marketing advice. On the basis of a sale at 75% of OMV or more the bank was likely to make a full recovery. On 1 March 2000 Mr Thompson's estimate of the cost of marketing was approved by HSBC. It is implicit in this that Weatheralls' advice to sell the four properties individually on the open market was accepted. It was left that the Receivers would report back to the bank in April.
30. The formal marketing of the four properties did not commence until the end of March. By then Weatheralls had been supplied with the remaining leases and had sufficient information from which to prepare the sales particulars. These were completed on 30 March and sent out a day or two later by post. 173 Chorley New Road was described as providing vacant possession of the majority of the accommodation if required. 179 Chorley New Road was marketed as providing vacant possession by approximately February 2001. The sales particulars of 96 Chorley New Road and Rockfield House gave details of the lettings and the current rent roll but indicated in the case of Rockfield House that there was potential for increased income.
31. But even before the sales particulars were sent out a number of potential purchasers had expressed interest and were provided with details of the properties. On 17 March an offer of £200,000 was received from a Mr Price of Edward Lewis Enterprises for Rockfield House but was rejected as too low. The offer was increased to £220,000 on 21 March but Mr Price was again told that the offer was too low to be accepted. On 28 March an offer of £245,000 was received from a local agent (Storey Sons & Parker) for 96 Chorley New Road on behalf of the pension fund of Mr Ian Thomasson. He gave evidence that in early 2000 he was looking for new office premises in Bolton and was particularly interested in the Chorley New Road area. He learnt from Miller Metcalfe, another firm of local agents, that the three Chorley New Road properties were about to come on to the market and said that 96 and 179 seemed particularly suitable for his purposes. Two bids were put in of £224,000 and £245,000 for 96 Chorley New Road and on 3 April Storey Sons & Parker wrote to Mr Dry of Weatherall asking whether the bid of £245,000 had been accepted.
32. In his witness statement Mr Thomasson says that he heard nothing from Weatherall' in response to his two bids for 96 Chorley New Road. But on examination this proved to be inaccurate. The response from Weatheralls was that the bids were too low. There is a note made by Mr Dry on 26 April of a conversation with Miller Metcalfe in which he explained that the Receivers were by then pursuing a sale of all four properties as a portfolio and that a sale of individual properties would have to be at a price which made Weatheralls confident that the proceeds from individual sales would add up to more. Mr Thomasson said that this message was not passed on to him but he was later informed by Storey Sons & Parker that the properties had been sold as a portfolio to PCPL. He subsequently purchased not 96 but 179 Chorley New Road from PCPL in November 2000 for £237,000; some £77,000 in excess of Weatheralls' February valuation of the property.
33. The first indications that there were potential purchasers in the market interested in all four properties came as early as 21 March when Weatheralls were informed by Mr Thompson of PKF that he had received an offer of £600,000 for the portfolio from a Mr Hanson. Mr Thompson did not give evidence and it is still not entirely clear how and why this offer was made direct to the Receivers. But Mr Dry told Mr Thompson that he thought £600,000 was a bit low bearing in mind that his own ERRP valuation was £660,000 for all four properties. On 23 March Mr Dry wrote to Mr Thompson saying that until the market had been tested by the sales particulars it was difficult for Weatheralls to recommend an offer below even the ERRP. The Receivers should wait. In the meantime he recommended acceptance of Mr Price's offer of £220,000 for Rockfield House.
34. On the same day Mr Thompson received another direct offer for the portfolio from PCPL. They had been given outline particulars of the properties and the current rent roll and had carried out an external inspection. Their offer was £600,000.
35. This led to a further telephone conversation between Mr Dry and Mr Thompson on 28 March. Mr Dry's note records his telling Mr Thompson that his bottom line figure was £660,000 (his ERRP) and Mr Thompson questioning whether it was not better to sell quickly as a portfolio thereby reducing management costs. Mr Dry's response was to agree that an early sale could have obvious advantages in terms of cost savings and certainty but that £600,000 was too low an offer.
36. Mr Dry was cross-examined by Mr Bell about this conversation with Mr Thompson and his response to it. He accepted that Mr Thompson's view was that the PCPL offer was a good deal and that he was keen to persuade Mr Dry to endorse it. Potentially at least, the contact between Mr Thompson and Mr Swimer of PCPL whose letter contained the offer were to be relied on by Mr Bell in support of his allegations of conspiracy. But as explained earlier, this allegation was not pursued and there is no evidence to suggest that Mr Swimer's direct approach to the Receivers was anything more than an attempt by PCPL to get in an early offer ahead of the market and to persuade the Receivers to accept it. Mr Dry was not however prepared to recommend it. He told me that it was not unusual in his experience for Receivers to get direct approaches from purchasers of this kind and to be anxious to sell particularly if the purchase price offered was likely to result in a full return to the mortgagee. Pressure of this kind was understandable and not in his view improper. Mr Thompson had a clear preference for a portfolio sale but did not instruct him not to consider offers for the individual properties.
37. Following his conversation with Mr Thompson, Mr Dry then had direct contact with Mr Swimer. They spoke on 29 March. Mr Swimer said he wanted to be told if the point was reached when the Receivers needed to sell the properties as a portfolio for between £650,000 and £700,000. Mr Dry said that he would look at the figures again but at present any offer for all four properties would have to be a long way ahead of £600,000. That was how it was left.
38. The sales particulars were then sent out on 31 March. By then Weatheralls had received Mr Thomasson's offers for 96 Chorley New Road together with an indicative offer of £150,000 for 179 Chorley New Road. This came through Miller Metcalfe who on 22 April confirmed in writing that they were instructed by Henry Knott Associates to offer £150,000 for 179. Despite Mr Dry's assurance to Miller Metcalfe in connection with Mr Thomasson's offer for 96 that the Receivers would still consider individual sales of the properties this offer for 179 Chorley New Road was simply shelved by Weatheralls and not passed on.
39. The reason for this was that by mid-April a decision was taken by HSBC and the Receivers on the advice of Weatheralls to press ahead with a portfolio sale of all four properties. On 31 March Mr Thompson of PKF told Mr Dry that Mr Hanson had increased his offer to £635,000 and asked Mr Dry to consider over the weekend whether he would recommend acceptance of it. By 5 April the offer had been increased to £650,000 but with an indication that it was unlikely to be increased further. At this point, PCPL came back on to the scene. Mr Dry contacted Mr Swimer who increased the PCPL offer to £730,000 and asked Mr Dry to obtain a response from the Receivers. At the same time Weatheralls received an offer of £235,000 from Citypark Properties Limited for Rockfield House. The result was that by 7 April Weatheralls had the PCPL offer of £730,000 for all four properties and individual offers of £235,000 for Rockfield House; £245,000 for 96 Chorley New Road and £150,000 for 179 Chorley New Road. Although the last of these was not then in writing it did (as indicated earlier) become a written offer on 22 April.
40. On 3 April PKF had asked Mr Dry to provide a routine update on the marketing position for inclusion in their April report to the bank. Weatheralls had not been asked in terms to give a recommendation on the PCPL offer or even to advise whether the marketing strategy should change from one of individual sales to the sale of all four properties as a portfolio. But the increased interest from Mr Hanson and PCPL coupled with Mr Thompson's concern to obtain a recommendation about an early portfolio sale meant that the issue could not be avoided.
41. On 7 April Mr Dry wrote to Mr Thompson what has been referred to as his Second Report outlining where the marketing had got to. This letter and the advice it contains is central to Mr Bell's remaining claim. Mr Dry refers to the sales particulars sent out on 31 March and to the offers already received for the portfolio for Mr Hanson and PCPL. He also mentions the offers for Rockfield House and 96 Chorley New Road but not that for 179 Chorley New Road. The critical paragraph in the report reads as follows:

"….

We have had little response to marketing in relation to the property at 173 and 179 Chorley New Road. As these are both reversionary investments they are less popular in the market place. There are local investors that purchase such buildings but the demand at present is low because our main tenant Keogh Ritson is planning to vacate all their current offices to move to new purpose built premises in February 2001. Keogh Ritson occupy four other buildings along Chorley New Road all of which have been sold to local investors recently. These investors have bought the premises in order that they can re-let them. This means that there will be a substantial amount of vacant office space coming on to the market and therefore investors are somewhat fearful of purchasing further space as they feel that the likelihood of letting it in the present climate with the increased supply would be difficult. As discussed there is therefore a strong advantage in securing an early sale of the entire portfolio and this is why we would recommend the offer of £730,000 (Seven hundred and thirty thousand pounds) by Peninsula & Century Properties Limited is accepted as they are in a position to proceed immediately and have funds available.

……"

42. The Receivers and through them HSBC accepted this advice and on 19 April PKF informed Weatheralls that they had instructions from the bank to accept PCPL's offer of £730,000 for all four properties. Although each of the properties remained on the market it is clear that from this time on Weatheralls concentrated on a portfolio sale and gave only secondary consideration to the possibility of individual sales. This, I think, explains why the written offer of £150,000 for 179 Chorley New Road was sidelined and why when an expression of interest in 96 Chorley New Road in the sum of £250,000 was received on 14 April from Legendary Property Company they were told by Mr Dry that a sale had been agreed for the entire portfolio.
43. Mr Dry was reluctant in his evidence to concede that the decision to sell the four properties as a portfolio effectively terminated any serious marketing of them as individual properties but both he and the experts accepted that there were obvious difficulties and conflicts involved in maintaining both approaches to a sale. Once a serious offer for all four properties had been accepted it would only be prudent to revert to the alternative of individual disposals if there were serious offers for each of the four properties which in total exceeded the portfolio bid. What the Receivers could not sensibly do was to risk losing a substantial offer for the portfolio by declining to finalise the portfolio sale until there had been an extended period of marketing for the individual properties. At the same time potential purchasers for individual properties were likely to lose interest or find another property to buy if they were told that their offer (whilst acceptable in itself) could only be progressed once suitable offers had been received for the other three properties.
44. These tensions could only be avoided in practice by opting either for a portfolio sale or by declining any offers for the whole portfolio until the possibility of securing individual sales at an acceptable price had been exhausted. Weatheralls original advice was the latter, but by 7 April Mr Dry had changed his mind. This led eventually to a sale to PCPL of the whole portfolio for £775,000 but not before there had been two further rounds of bargaining.
45. On 20 April Weatheralls received an offer for the portfolio from Gordon Moon Properties in the sum of £752,000. In the light of these competitive bids Wetheralls advised that the Receivers should invite all interested parties to put in best and final offers for the portfolio by 12 noon on 2 May. By then Mr Thompson had left PKF for reasons unconnected with this receivership. These and other matters led to disciplinary proceedings against him and he resigned from PKF in 2000. Mr Ikin (who had day to day conduct of the receivership) accepted Mr Dry's advice and was keen to obtain the best price possible for a portfolio sale.
46. Accordingly, on 26 April Mr Swimer was told of the higher offer received for the portfolio and invited to submit his final offer for the four properties. Similar letters were sent to Mr Moon of Gordon Moon Properties and to Storey Sons & Parker who had expressed further interest in the properties on behalf of a client or clients. A Mr David Rose of the Elliott Partnership had also expressed an interest in the portfolio on 27 April and he was invited to submit his best and final offer at the same time.
47. This exercise produced three offers for the portfolio: a bid of £740,000 from Mr Rose; one of £752,600 from Mr Moon and an offer of £805,100 from PCPL. The PCPL offer was then accepted. This bidding process is of course one of the main reasons why the Defendants have always contended that the allegation of a perfected conspiracy between PCPL, Mr Thompson and Weatheralls was both unfounded and bound to fail.
48. The final round of bargaining took place in July. On 7 July PCPL wrote to Weatheralls listing what they described as a number of matters of fundamental concern about the properties in the portfolio. In the case of Rockfield House and 179 Chorley New Road the complaint was that the rent roll was lower than the figures given in the documentation. In the case of 173 Chorley New Road a schedule of condition qualifying the repairing obligations under the lease was missing which might limit recourse to the tenants for the cost of dilapidations. Similar points were made about the lease of 173A. Mr Swimer informed Weatheralls that PCPL was in the light of these matters reducing its offer for the portfolios to £770,000. This led to some further horse trading between him and Mr Dry and eventually a price of £775,000 was agreed. Contracts were exchanged in that sum on 13 July. Completion of the sale of Rockfield House took place on 20 July and in respect of the other three properties on 10 August.
49. It is clear from this recital of events that no real criticism can be made of the Receivers or Weatheralls in relation to the sale of the portfolio as such. The contracts were eventually not exchanged until 13 July by which time all known interested parties had been contacted and invited to participate in a competitive bidding process. Although the sale price was lower than PCPL's winning bid it was higher than any of the rival bids and there is no evidence that a higher portfolio bid was available or could reasonably have been obtained at the time. There is no real dispute between the experts about this.
50. Mr Bell's case therefore concentrates not on the way in which the portfolio sale was handled but on the decision to opt for that method of disposal in April 2000 and thereby effectively (as I have explained) to discontinue serious marketing of the properties on an individual basis. He submits that had Weatheralls' original advice been adhered to and the four properties marketed and sold separately in August 2000 they would in total have fetched something in the region of the £1.24m which Mr Isherwood says was their market value at that time. In particular, he points to the fact that as of late April there were already offers for three of the properties totalling some £630,000 and that the fourth property (173/173A Chorley New Road) had an ERP valuation by Weatheralls in the First Report of some £325,000: a total of £955,000 against the eventual sale price of £775,000.
51. Mr Isherwood puts the difference in valuation in even starker terms. PCPL negotiated the sale on of all four properties between July 2000 and August 2001. Rockfield House was sub-sold to Citypark Properties Limited on 20 July for £235,000. 96 Chorley New Road was sub-sold to a Mr Keane and a Mr Jackson trading as Knightsbridge Property Investments on 10 August 2000 for £270,000. On 24 November 2000 179 Chorley New Road was sold to Mr Thomasson's pension fund for £237,500. They had of course previously made an offer for 96 Chorley New Road. Finally, on 31 August 2001 173/173A Chorley New Road was sold to Namulas Pension Trustees Limited for £392,500. They had been looking for office premises for their own use in the Chorley New Road area but were not interested in purchasing premises without vacant possession. They acquired 173/173A once Keogh Ritson had vacated. Mr Isherwood relies on these transactions as the best evidence of market value except in the case of Rockfield House where (according to his report) he has been informed by Mr Bell that the sale at a price of £235,000 cannot be treated as an open market transaction. This is not further explained in the report and when I asked Mr Bell about it he was unable to point to anything which cast any doubt upon the genuineness of the transaction. There is no evidence that the parties were connected and therefore no basis for rejecting the evidence of the sale as an indication of market value at the time. If therefore one substitutes the figure of £235,000 for Mr Isherwood's valuation of £347,000 his combined valuation of the four properties is reduced from £1.241m to £1.129m.
52. Mr Bell's case is that Weatheralls (and therefore the Receivers) acted negligently in deciding to dispose of the four properties as a portfolio when the only valuation they had was from Weatheralls in the sum of £955,000 and the sales particulars had only been sent out a week earlier. His principal argument is that this was not a fair or adequate test of the market and that had the properties been exposed to something approaching the six to nine months advised in Weatheralls' First Report sales totalling a price equal to or in excess of the Weatheralls' valuation would have been achieved. In this he gets some support from the other two experts called by the Receivers and Weatheralls (Mr McKee and Mr Rands) whose OMV figures for the four properties as of August 2000 were £915,000 and £990,000 respectively. They both however support the decision to switch to a portfolio disposal as a justifiable strategy at the time given the uncertainties in the market.

Was the portfolio sale justifiable?

53. It is convenient I think before examining the expert evidence in more detail to refer to Mr Dry's own explanation of his change of mind given in cross-examination by Mr Bell. He accepted that until shortly before 7 April Weatheralls were still pursuing individual sales of the properties and it was unlikely that a full response to the sales particulars would be received in less than a week to ten days of their being sent out on 31 March. What, he said, made the difference and caused the change of direction recommended in his Second Report of 7 April was principally the increase in the offer of PCPL to £730,000 on 6 April. Although in February he had valued the four properties at £955,000 he said that a number of issues had come out since the First Report which led him to believe that the end result would be nearer to the ERRP than to the OMV/ERP valuation. One factor was the lack of information received from the Company about the terms of the tenancies. Another was a growing perception that although the marketing had been limited, the level of interest in the Chorley New Road properties was modest. Coupled with this was a concern (explained in the Second Report) that from an investment point of view the market could be adversely affected by the amount of lettable space coming on to the market following the departure of Keogh Ritson to their new accommodation.
54. He had, of course, to accept that this change of view necessarily discounted the possibility of a longer period of marketing leading to individual sales and was made at a time when the sales particulars had only very recently gone out. But he said that in his mind the certainty of a sale of all four properties for at least £730,000 coupled with the early termination of the receivership with a consequent saving of expense, outweighed the possibility of a higher return to be gained by waiting and attempting to sell each property individually.
55. His assessment of this producing a higher return had, he said, diminished since February. In mid March he had told Mr Thompson that the Receivers should get at least £660,000 for all four properties and might realistically hope for something between £700,000 and £750,000. The latest offer from PCPL was consistent with these expectations. By 7 April there had been offers for three of the four properties totalling £630,000 but no significant interest in and no offers for 173/173A. The other offers were not certain to mature into contracts. Mr Dry's position was that if offers subsequently came in for individual properties they would be considered but (as explained earlier) would not be given preference to a portfolio bid unless there were four offers certain or very likely to lead to contracts in excess of the portfolio price. In the event no offer for 173/173A was received before the sale in July.
56. Mr Bell's criticisms of Mr Dry come to saying that he should have adhered to his February valuations and marketing strategy and should therefore have persevered with that to the exclusion of the offers for the portfolio which led to a contract at £775,000. This criticism has an obvious attractiveness in that we know that Rockfield House was sold for the £235,000 offered by Citypark; 96 Chorley New Road was sold for £270,000 in August and 179 for £237,500 in November. But that was not the picture as it emerged in April and Mr Thomasson's pension fund which purchased 179 had expressed an interest only in 96. The highest offer then received for 179 was the one for £150,000 from Henry Knott Associates.
57. Whatever the weight of the arguments for and against recommending acceptance of the portfolio bid from PCPL I am satisfied that Mr Dry made the decision himself based on his own re-assessment of the market and that the advice contained in his Second Report represented his genuine views of the most prudent course for the Receivers to take. For an allegation that this advice was negligent to succeed it is not enough to produce evidence which shows with the benefit of hindsight that an alternative strategy could or would have produced a higher return. What has to be demonstrated is that no competent valuer standing in Mr Dry's shoes at the time with the information which he had could reasonably have given the advice contained in his Second Report.
58. This takes me to the expert evidence. As mentioned earlier, all three experts have produced open market valuations of the four properties as of February 2000 for purposes of comparison with the valuations provided by Weatheralls in their First Report. Although there are minor variations, the valuations produced by Mr McKee and Mr Rands are broadly in line with those contained in the First Report. Mr Isherwood's figures differ because he has used as a guide the prices realised on the sub-sales made by PCPL. The exception to this is Rockfield House where he has calculated a value of £347,000 based on a passing rent of £41,692 and a yield of 8.33 in preference to the actual price paid by Citypark Properties of £235,000. For the reasons given earlier, there is no justification for ignoring the actual sale price and I regard his valuation of this property as unrealistic.
59. Apart from that, the difference in the valuations is largely attributable to the methodology employed. Mr McKee and Mr Rands have assessed the market rental value for each property using comparable evidence to support the rental values used and capitalising the rental figure using an appropriate yield. Mr Isherwood has not produced evidence of comparable lettings but has relied largely on the sales on of the subject properties applying as a cross-check what is described in the joint experts' report as an investment approach. This also involves capitalising the passing rent and the difference in the valuations is largely due to the use of differing rental figures and different yields.
60. Much of Mr Bell's cross-examination of Mr McKee and Mr Rands concentrated on the adequacy of the comparables they had chosen. Conversely, Mr Isherwood's evidence is criticised as lacking any proper evidential basis beyond the sales on which in the case of 173/173A and 179 Chorley New Road took place some time after the valuation date and it is suggested after the properties may have undergone a certain amount of refurbishment.
61. One of the problems about producing valuations retrospectively is that they are inevitably influenced by comparable transations which took place since the valuation date and which would not have been available to the valuer at the time when the valuations under review were made. Mr Isherwood's disagreement with Mr Dry's valuations in the First Report is largely the product of such a process of hindsight. I am not, however, convinced that the outcome of this case turns on which of the two rival sets of valuations I should prefer, although I am bound to say that if relevant I would have been guided by those of Mr McKee and Mr Rands in preference to those of Mr Isherwood, which in the case of Rockfield House ignores the most obvious transactional evidence and in the case of 173 and 179 Chorley New Road is an extrapolation from transactions which occurred long after the valuation date or the date of sale and in possibly very different market conditions. The real question in this case is whether it was negligent for Mr Dry to have departed from the advice contained in his First Report by recommending a portfolio sale to PCPL on 7 April. Mr Isherwood says in his report that a selling agent is of course bound to review all relevant information which may have a bearing on the value and subsequent marketing of the property but he does not in terms address the competence of the advice contained in the Second Report or the reasons on which it was based. He has simply calculated what he considers the properties were worth in February 2000 by reference to what they were sold on for later that year and in August 2001. That would be highly relevant to a calculation of damages by reference to the likely sale price in July/August 2000 but it does not assist on the question whether the advice given in April was in breach of duty.
62. The other two experts have carried out a similar valuation exercise but they have also considered the question of a portfolio sale. Both agree (as did Mr Isherwood in cross-examination) that on a portfolio or bulk sale some discount in the region of 10 – 15% was common against individual values. This provides an incentive to the purchaser to acquire less attractive properties as part of the portfolio and is in effect the price which the vendor pays for the certainty of being able to dispose of everything he wants to sell. Clearly a portfolio sale might be inappropriate if there had in this case been four certain and more valuable offers for the individual properties at the time. But both Mr McKee and Mr Rands agreed that the uncertainties in the market and in relation to the particular properties referred to by Mr Dry in his Second Report made the advice he gave an acceptable strategy in the circumstances. Mr McKee referred to the advantages in cost savings compared to the uncertainties of individual sales over a potentially much longer period of time. A portfolio sale produced a guaranteed disposal of all the properties and a finite liability for costs and future interests. Mr Rands said that whatever the initial recommendation may have been the agent had to react to offers as they were made and that in his view Mr Dry's assessment of the position as at 7 April even given the limited period of marketing was a reasonable one. In the event, overall offers in excess of the sale price were not received for the individual properties prior to their sale.
63. Mr Isherwood's position at the experts' meeting was not that the decision to opt for a portfolio sale was wrong in terms of Mr Dry's assessment of the market but that there was no need to conclude a sale swiftly because the income from the properties was sufficient to service the debt. I should say that from the figures referred to during the course of the evidence it is by no means clear that this was the case when one takes into account the costs of the Receivership but when cross-examined Mr Isherwood said that the Receivers should have kept the portfolio bids in abeyance for a few months and given Weatheralls more time to explore the market for individual purchasers such as owner occupiers. This would have been a risk he said but one in his opinion that would have been worth taking. But when he was asked by Mr Chapman whether he was saying that the advice to move to a portfolio sale was in his opinion incompetent, he said it was not. It was an option the Receivers could have pursued but one which he felt did not in fact produce the maximum return available.
64. This evidence excludes a finding of negligence in relation to the advice contained in the Second Report. But it also brings back into focus the limits of the Receivers' duties to the Company in these circumstances. Although there is nothing to suggest that Mr Dry's assessment of the situation in April was not a reasonable one, his preference for the certainties of a sale to PCPL at £730,000 (as it then stood) over the uncertainties of a longer period of marketing against a background of changing market conditions was one which the Receivers were entitled to adopt consistently with their right to choose the time of the sale. I do not see how as a matter of law it can be suggested in this case that they were bound to wait for an indefinite period in the hope of obtaining a higher return when they had a competitive bid for all the properties in excess of any individual offers. The duties they owed to the Company do not require them to take those kind of risks. It seems to me that they were entitled to progress the offer to a sale and the reality is that at the time of contract no better offer had been received despite the four properties remaining on the market until that time.

Conclusion

65. For these reasons the claim against the Receivers must in my judgment fail and will be dismissed.