Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409 concerned whether receivers had to obtain planning permission or complete proposed lettings before selling mortgaged properties. The Court of Appeal held that they could sell the properties in their existing condition, subject to their duty to take care to obtain the best price reasonably obtainable.
Facts and scope of the appeal
Silven Properties Ltd and Chart Enterprises Incorporated had borrowed from the Royal Bank of Scotland against a portfolio of properties. After demanding repayment in 1996, the bank appointed receivers under the mortgages. The properties were subsequently sold.
The companies claimed that the bank and receivers had sold at an undervalue. Patten J dismissed their claims. Permission to appeal was limited to claims against the receivers concerning six properties.
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For those six sales, it was conceded or established at trial that the properties had achieved the best prices reasonably obtainable at the dates of sale in their existing condition. The complaint was different: the companies said the receivers should have delayed selling to improve what could be obtained.
The receivers had investigated development potential and instructed planning consultants. They later decided to stop that work and sell without waiting for planning permission or the completion of proposed leases for vacant or partly vacant properties.
Obtaining a proper price and improving the property
The judgment distinguished taking reasonable care over a sale from being obliged to improve the asset before selling it.
A mortgagee could choose when to realise its security and was not required to wait for a more favourable market or invest time and money in obtaining planning permission or tenants. Starting investigations into those possibilities did not create an obligation to continue them.
However, the freedom to sell did not permit a careless sale at a price sufficient merely to discharge the debt. The mortgagee had to take reasonable precautions to obtain a proper price at the date of sale. Marketing needed to draw prospective purchasers’ attention to relevant development or letting potential so that their offers could reflect it.
Did the receivers’ agency create a wider duty?
The mortgages described the receivers as agents of the property-owning companies. The companies argued that this required the receivers to act in their best interests and complete value-enhancing steps before selling.
The court rejected the comparison with an ordinary agent appointed to manage property solely for its owner’s benefit. This receivership arose under a security arrangement involving the borrower, lender and receivers. The borrowers could not control the receivers’ appointment, instruct them or dismiss them.
The receivers owed duties to the bank, the borrowers and others interested in the equity of redemption. Their primary management duty was to try to bring about repayment of the secured debt. That did not amount to a guarantee that the debt would be repaid in full.
The receivers’ duties were not identical to a mortgagee’s in every respect. In particular, a receiver could not simply remain inactive where doing so would damage the interests concerned: the property had to be protected and preserved. Nevertheless, when exercising the power of sale, receivers owed the same duty to take care to obtain the best price reasonably obtainable. Their agency did not impose the additional obligation to develop or let the properties before sale.
Decision
The Court of Appeal dismissed the appeal. The receivers were entitled to stop pursuing the planning and letting proposals and sell the properties as they stood. Because the alleged duty did not exist, the court did not need to decide whether abandoning those proposals had caused the companies a loss.
The distinction is between preserving and properly realising existing value, including potential which purchasers should be told about, and undertaking further work to realise that potential before sale. The judgment required the former without imposing the latter.
Other citations: [2004] 1 WLR 997; [2004] 4 All ER 484.
Source: Silven Properties Ltd v Royal Bank of Scotland plc, Court of Appeal judgment, 21 October 2003.
