England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		31st July 2002

Mr Justice BUCKLEY :

1. The Claimant brings this action as Administratrix of the estate of Mohammed Sabir Raja, against the Defendant firm of valuers. The Claim is for damages for negligence.
2. On 27th April 2001 Master Rose ordered an issue to be tried separately, as to whether the Defendant owed a duty of care to the late Mr. Raja as set out in the Particulars of Claim dated 18th January 2001. The alleged duty is pleaded at paragraph 11:

“In the position of valuing the properties for the Receivers, in seeking offers for the properties and negotiating thereon, in considering the most suitable method of sale and in advising the Receivers, the Defendant owed the Deceased a duty of care at common law to exercise the skill and care of a reasonably competent chartered surveyor.”

Background

3. In 1994 Mr. Raja was the legal and beneficial owner of various properties, sixteen of which he had charged to Development Finance Ltd. (“DFL”) as security for a series of loans. DFL itself had borrowed money from the Midland Bank (“Midland”) secured by a debenture.
4. On 26th September 1994 Midland appointed joint administrative receivers in respect of DFL’s assets. By that time, or shortly after, DFL had become entitled to exercise a power of sale over the properties and in April 1995 the receivers instructed the Defendant to carry out valuations and act and assist generally in the sale of the properties. This it did and the properties were finally sold (completion) in November 1995. The receivers alleged that Mr. Raja remained indebted to DFL. Mr. Raja alleged that the properties had been sold at an undervalue and commenced proceedings against the receivers, to which DFL were added. Those proceedings were settled in 1997 on terms unknown to me. DFL remains in administrative receivership and in July 1999 Mr. Raja was murdered. I was told that one of his alleged murderers, who were standing trial at the Central Criminal Court, was approached to buy the property portfolio. At the time of writing this judgment two individuals have been convicted of Mr. Raja’s murder. This dramatic background is agreed for present purposes.
5. The factual situation may be illustrated by the following chain:

Mr. Raja mortgaged the properties to DFL as security for loans;

DFL granted a debenture to Midland as security for a loan;

Midland appointed receivers;

Receivers instructed the Defendant.

It is also admitted, and for present purposes must be assumed, that the Defendant knew that the properties were owned by Mr. Raja (to be more precise that he was interested in the equity of redemption); were charged to DFL to secure Mr. Raja’s borrowing; the receivers were selling the properties to discharge that borrowing and that the sale proceeds would directly affect Mr. Raja’s interests. I should note that the Defendant in its Defence does not admit that it knew precisely how Mr. Raja’s interests would be affected by the price realised on sale, since it appears that Mr. Raja may himself have expressed interest in buying the properties through various agents.

The Parties Contentions

6. Mr. Douthwaite, for the Claimant, relied upon the Defendant’s knowledge that Mr. Raja, among others, would be affected by the advice on value and submitted that the circumstances would satisfy any of the tests for a duty of care at common law, which the courts have considered and used in several cases. I was referred to BCCI (Overseas) Ltd v. Price Waterhouse (1998) PNLR 564 in which those tests were conveniently considered. He suggested the “three-fold test” (foreseeability, proximity and that the duty contended for is fair, just and reasonable) was the most appropriate on the present facts, that White v. Jones (1995) 2 AC 207 was a good analogy and that foreseeability and proximity were plainly satisfied here. In support of the contention that a duty would be “fair, just and reasonable” he recognised that one consideration might be whether Mr. Raja had any prospect of recovery against any other parties and suggested he had not. He identified the receivers and DFL as the only other realistic Defendants and submitted that the receivers would have a good defence since they were only ever agents for DFL, had taken expert advice and were not liable for any negligence by the Defendant. As to DFL as mortgagee, even assuming a duty of care owed to Mr. Raja as mortgagor to obtain a proper price, any claim against it would be valueless and DFL could also rely on the employment of apparently competent receivers and the Defendant. He submitted that the interests of the receivers and Mr. Raja where substantially co-terminous in that manifestly, both wanted the best price.
7. Mr. Lawrence QC for the Defendant, whilst accepting that an action by a debtor (mortgagor) against a creditor (mortgagee) or receiver, claiming a sale at an undervalue was unremarkable, pointed to two unusual features in this case:

First, the analogy should be that DFL was the mortgagor not Mr. Raja. Mr. Raja’s remedy, if any, was for an adjustment of his account with DFL.

Second, the Defendant was not the receiver or mortgagee but a professional engaged by the receiver.

He submitted there were two issues and the Claimant must succeed on both:

i. Did the receiver, who undoubtedly owed a duty to the principal debtor DFL, owe a duty also to Mr. Raja?

ii. Did Austin Gray owe a duty to any one apart from its client, the receiver?

8. Issue i. arose because Mr. Lawrence submitted that if the receivers did not owe a duty to Mr. Raja it should follow that the receiver’s agent, the Defendant, owed no duty to Mr. Raja. Mr. Lawrence very properly referred me to Medforth v. Blake (2000) Ch 86. In particular the words of Sir Richard Scott VC (as he then was) at 102:

“There are duties in equity imposed in order to ensure that a receiver, while discharging his duties to manage the property with a view to repayment of the secured debt, nonetheless in doing so takes account of the interests of the mortgagor and others interested in the mortgaged property.”

He sought to exclude Mr. Raja from “others interested in the mortgaged property” by again emphasising that the relevant “mortgaged property” in the receiver’s hands here was DFL’s contractual rights under its charge; not Mr. Raja’s equity of redemption. He submitted that in the circumstances of the present case the receiver’s duty of care was to DFL and Medforth was not authority for extending it to Mr. Raja. He submitted that the wrong Claimant was suing the wrong Defendant. DFL could sue the receivers and Mr. Raja could adjust his account with DFL.

9. As to issue ii. Mr. Lawrence relied upon a dictum of Cross LJ., as he then was, in Cuckmere Brick Co. v. Mutual Finance Ltd. (1971) 1 Ch. 949 at 973C:

“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 (1869) 20 LT 353 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 an 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 (mortgagee) or (the mortgagee’s agent) were guilty of negligence in connection with the sale, (the mortgagee is) liable.”

10. Mr. Lawrence submitted that since the receivers would be liable to a mortgagor for the negligence of an agent there was no need to hold the agent directly liable. He, of course, challenged the opening words of the quotation. Generally, he submitted that it would only complicate matters to permit a direct claim by Mr. Raja against the Defendant; problems could arise concerning the effect of the receivers’ instructions to the Defendant and whether the receiver’s and Defendant’s duties were identical; not to mention the spectre of double recovery. He pointed to Lord Goff’s warning in Henderson v. Merrett (1995) 2 AC 145 at 195 to 196 concerning contractual chains. He submitted there could be no assumed responsibility by the Defendant here to anyone other than the receivers, nor any reliance. He also identified a point peculiar to this case, namely, that Mr. Raja was himself interested in buying back the properties through nominees, resulting in any balance of his debt to DFL being unsecured and a nice profit to his nominee, in the event of a cheap purchase. Thus Mr. Raja’s interest may not necessarily have been in the receivers obtaining the best price.

The Duty of Care

11. In view of the Defendant’s admitted knowledge, which is hardly more than I would have assumed in any event, I am readily satisfied that foreseeability and proximity are satisfied. A professional instructed in such circumstances by a receiver to advise and attend to the sale of properties could scarcely be closer to those interested in the equity of redemption or fail to foresee that the manner in which his duties were performed would affect them. Would it be fair, just and reasonable to impose a duty of care? The cases identify a legion of factors that can influence the answer to this question. Spring v. Guardian Assurance plc (1995) 2 AC 296 and Marc, Rich & Co. v. Bishop Rock Marine Co. Ltd (1996) AC 211 not only well illustrate some of these, but show that weighing up the various considerations and providing an answer is not always easy.
12. It seems to me that it is reasonable and in the public interest to expect professionals, and indeed anyone else offering particular skills for reward, to exercise them with reasonable competence. The Defendant here knew that it was called in to use its expertise to assist in working out the rights of the parties under the two charges in question. To put it more bluntly to obtain what it could for the properties so that DFL would be repaid (in the circumstances largely for the benefit of Midland) any surplus going to Mr. Raja. In view of these considerations it could well be said that to hold the Defendant liable, should its negligence have caused loss to Mr. Raja, would satisfy the fair, just and reasonable test. I do not consider the spectre of double recovery or multiplicity of proceedings to be real problems; our legal procedures are well able to deal with such matters. As to whether the receiver’s duties in and about the sale are the same as the Defendant’s in these circumstances, that, in my judgment is more relevant to the scope of the duties in question than to their existence.

The Receivers

13. Cross LJ. in Cuckmere, to which I have referred, did not need to and did not consider someone in Mr. Raja’s position. He was referring to the mortgagor (DFL here) as opposed to another also interested in the subject matter. However, subject to Mr. Lawrence’s point that Mr. Raja had no interest in DFL’s mortgage rights, the quotation from Medforth (above) clearly states that others, apart from the mortgagor, who have an interest in the subject matter, are owed a duty. Is Mr. Lawrence’s submission that Mr. Raja had no interest in DFL’s mortgage rights one of substance? I think not. His analysis is technically correct. However, the mortgage right in question here was DFL’s power of sale. Clearly Mr. Raja had an interest in how that was exercised. Everyone here, including the Defendant, knew that if a proper price was not achieved, Mr. Raja could suffer. It may be extending the letter of the dictum quoted above from Medforth, but I do not consider it to be an extension of the spirit of it nor the principle behind it. I hold that the receivers did owe Mr. Raja a duty to obtain a proper price for the properties.

Contractual Chain and Existing Duties

14. Paying heed to Lord Goff’s dictum in Henderson, it must be appropriate in a case like this to consider the existing legal framework governing the duties, rights and liabilities of the various parties. There is not here the type of “contractual chain” to which Lord Goff referred, but there are contracts involved and established rules of equity which apply to mortgagees and receivers. If it would be contrary to the overall scheme of the contractual arrangements between the parties, to hold that the Defendant owed a duty directly to the Claimant, that would clearly be a factor against the existence of such a duty. It would also strongly militate against such a duty if it would undermine or otherwise interfere with the existing legal framework governing mortgagors, mortgagees and receivers. It is also relevant to consider whether the Claimant already has a satisfactory remedy because it could then be argued that it would be unnecessary to hold that a further remedy exists. I deliberately put this last point no higher than relevant because there are many examples in law of a Claimant having more than one remedy and more than one potential Defendant to sue. In practice that can be a real and valuable advantage, since one remedy or potential Defendant may not be worth pursuing in particular circumstances. In a case like this, and assuming that Mr. Raja would have been entitled to adjust his account with DFL if there was a negligent sale at an under value, that would not necessarily compensate him fully. If there should have been a surplus but was not, Mr. Raja would have had no effective remedy against his insolvent mortgagee.
15. The contracts in question here are not, in my view, analogous to the contractual chain that Lord Goff had in mind in Henderson. In building contracts and some other situations, the parties from the outset may envisage a contractual chain developing and endeavour to provide for the parties’ rights and liabilities in that event. In such cases it could be said with some force, that to impose a common law duty of care directly connecting the first to the last in the chain would be unfair in that it could be contrary to the reasonable objectives of the parties; but I can see no real grounds here for such an objection.
16. For a long time now equity has imposed duties on mortgagees and receivers when acting pursuant to rights granted by the security in question. The simple objective has been to secure fairness between the parties whilst keeping clearly in mind the nature of the contract (the security) which governs their relationship. Doubtless the facts of future cases will further the debate concerning the precise scope of any such duties. As the Vice-Chancellor said in Medforth at page 102:

“Equity is at least as flexible as the common law in adjusting the duties owed so as to make them fit the requirements of the time.”

17. At present it may not be entirely clear whether a receiver/mortgagee’s duties in this context should be regarded as equitable only or also arising under a common law duty of care. Perhaps the most forthright recent dictum against regarding them as common law duties, in particular under the tort of negligence, is to be found in the Downsview Nominees case (1993) AC 297. Robert Walker LJ. in Yorkshire Bank plc v. Hall (1999) 1 WLR 1713 at 1728 also expressed the view that a mortgagee’s duty is not a duty imposed under the tort of negligence. (as cited at page 98 of Medforth). On the other hand the Vice-Chancellor in Medforth at page 102 said this:

“I do not accept that there is any difference between the answer that would be given by the common law to the question what duties are owed by a receiver managing a mortgaged property to those interested in the equity of redemption and the answer that would be given by equity to that question. I do not, for my part, think it matters one jot whether the duty is expressed as a common law duty or as a duty in equity. The result is the same. The origin of the receiver’s duty, like the mortgagee’s duty, lies, however, in equity and we might as well continue to refer to it as a duty in equity.”

The then Vice-Chancellor went on to identify the duties owed. In particular, that the extent and scope of any duty additional to that of good faith would depend on the facts and circumstances of the particular case. He also pointed out that in exercising his powers of management the primary duty of the receiver is try and bring about a situation in which the interest on the secured debt can be paid and the debt itself repaid. If a mortgagee or receiver is to be regarded as owing a common law duty to the mortgagor and others interested in the equity of redemption that statement which is based on the nature of the underlying security must be kept clearly in mind in defining the scope of such a duty. However, cogent arguments against such an approach and in favour of regarding the duties as arising in equity have been deployed. I do not believe I am here called upon to contribute to this interesting debate, because the Defendant is neither a mortgagee nor a receiver. It is not directly subject to any established equitable duty to which I have been referred. It may well be that equity could provide an answer just as well as the common law. However, I am only asked to answer the question whether there is a common law duty in the particular circumstances of this case. Unless it has been shown that to hold the Defendant subject to a common law duty of care to Mr. Raja would adversely interfere with the recognised equitable duties of mortgagees and receivers, I would hold such a common law duty to exist in this case.

18. It is clear, on the authority of Medforth, that Midland and the receivers owed an equitable duty to DFL to obtain a proper price. The Defendant was called in to value the properties and assist in the selling process. It owed a common law duty in contract and tort to the receivers who instructed it. I do not consider that a common law duty of care imposed on the Defendant for Mr. Raja’s benefit would be contrary to the spirit of the identified equitable duties or interfere with the principles behind them in any way. Indeed, as I have held, the receivers owed a duty to Mr. Raja to obtain a proper price for the properties, a similar duty on the Defendant would support rather than detract from the principles involved.
19. Thus my answer to the preliminary issue is: Yes, subject only to this reservation. Midland’s duty to DFL was to obtain a proper price for the properties. The receiver’s duty to DFL was, in effect, similar. The Defendant was instructed as a professional valuer, in particular, to value the properties. It also appears to have acted in and about the sale process generally, but I am unclear as to the details. The reference to “advising” the receivers in paragraph 11 of the Particulars of Claim must be limited to advice concerning a proper price and the selling process. It must be borne in mind that the power of sale had arisen and that the receivers were bound to put Midland’s interests under its debenture first. It is thus possible that advice to Midland could conflict with the best interests of DFL or Mr. Raja. That would not of itself be a breach of duty by the Defendant. Having read the pleaded Particulars, I cannot presently see that they go outside the proper ambit or scope of the duty I have held, but it is difficult at this stage to anticipate how the evidence may develop or indeed whether any amendments may be sought. I can do no more than indicate the duty I have found to exist and how I have interpreted the word “advising” in paragraph 11. Further than that it will, of course, be for the trial judge to decide whether any particular allegations that are made good fall within the scope of the duty and are thus a breach of it.
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