Lloyds Bank plc v Bryant & Ors; Bryant & Anor v Lloyds Bank plc
CHANCERY DIVISION
LIGHTMAN J
(Transcript)
29 FEBRUARY 1996
This is a signed judgment handed down by the judge, with a direction that no further record or transcript need be made (RSC Ord 59, r9(1)(f), Ord 68, r 1). See Practice Note dated 6 July 1990, [1990] 2 All ER 1024.
G Philipps appeared for Lloyds Bank plc; P Havers QC appeared for Mr Bryant, Cores Lion Development Ltd & Villa Properties
No details in original source
LIGHTMAN J
I have before me appeals from orders made on 21 September and 21 December 1995 by Master Winegarten in two actions raising questions as to the duties owed by a mortgagee owed to a mortgagor and in particular whether a mortgagee may be under a duty to mitigate loss.
In the first action, Lloyds Bank plc (“Lloyds”) v Grahame Bryant (“Mr Bryant”) and others, Master Winegarten gave Lloyds summary judgment for #399,273.95 plus interest and costs against the Fourth Defendant a company controlled by Mr Bryant, Cores Lion Development Limited (“Cores”) and for #743,755.77 plus inter-est and costs against another company controlled by Mr Bryant, the Seventh Defendant Villa Properties Lim-ited (“Villa”). In the second action Bryant v Lloyds, the Master struck out certain paragraphs in Mr Bryant’s Statement of Claim and Defence to Lloyds claim against him. Cores, Villa and Mr Bryant appeal against those orders.
I Lloyds claim against Cores
In September 1989 Cores contracted to purchase 4 Rectory Avenue (“the Property”). In October 1989, ac-cording to Cores, Lloyds agreed to fund the purchase and refurbishment of the Property. The purchase was completed on 29 March 1990. Lloyds did finance the purchase, such advance being secured by a charge on the Property. On 7 November 1990 Cores submitted to Lloyds a feasibility study recommending conver-sion/refurbishment work to the Property. On 21 December 1990, Lloyds notified Mr Bryant that they would not fund the refurbishment and wanted the Property sold as soon as possible.
On 18 January 1991 Lloyds instructed agents to market the Property and on this date and again on 18 April Mr Bryant recommended Lloyds to finance the refurbishment instead of selling. On 28 February 1991 Lloyds served a demand on Cores requiring payment of all sums secured. On 26 April the Bank rejected Mr Bryant’s recommendation of refurbishment. On 19 July 1991, the agents notified Lloyds of the best offer received of #110,000 and recommended acceptance if Lloyds “intended to off-load” the Property. Lloyds gave consid-eration to refurbishment. On 29 July 1991 Mr Bryant reminded Lloyds of the offer of #110,000. Lloyds replied that they were seeking the agents’ views. On 2 August Mr Bryant wrote that the agents had already ex-pressed their views in the letter dated 19 July 1991. On 4 September, Mr Bryant sent a reminder. Between the 4th and 10 September (whilst Cores remained in possession) squatters moved into the Property. On 12 September Lloyds decided to accept the offer of #1 10,000 but this was too late: the offer was no longer available. On 21 October 1991 Mr Bryant again suggested refurbishment. In 1993 Lloyds appointed Law of Property Act receivers and on 6 April 1993 the receivers sold the Property for #86,642.
Cores admits the indebtedness secured by the charge of #399,273/95, but maintain that the liability should be reduced to reflect three complaints on the part of Cores against Lloyds.
(a) Failure to Mitigate
The initial complaint is that Lloyds failed (i) to respond promptly and thus reasonably to the offer of #110,000 which was the best offer for the Property and therefore unreasonably failed to sell the Property as they should have done in the summer of 1991; and (ii) promptly to take up and implement Mr Bryant’s proposal that Lloyds finance refurbishment. These failures (it is contended) gave rise to avoidable losses which Lloyds is not entitled to recover.
The answer to these contentions is that (1) the liability of Cores to Lloyds was in debt for the sums due pur-suant to a contract to repay, and not for damages for breach of contract (see Joachimson v Swiss Bank Cor-poration [1921] 3 KB 110), and the common law rule requiring a party suing for damages for breach of con-tract to mitigate loss does not apply to a claim in debt (see Jervis v Harris [1996] 1 All ER 303 at 307j – 308c); and (2) any duty owed by Lloyds to Cores as mortgagor is equitable only and, the general principle is clear that (in absence of some contractual provision to the contrary) a mortgagee owes no duty to the mortgagor positively to exercise any of his rights or powers as mortgagee eg. to sell (see China and South Seas Bank Ltd v Tan Soon Gin, George alias George Tan [1990] 1 AC 536, [1989] 3 All ER 839 and Downsview Nomi-nees Ltd v First City Corp [1992] AC 295, [1993] 3 All ER 626); still less can a mortgagee owe a duty to fi-nance a refurbishment of property he holds as security. Mr Havers for Cores contends that this general prin-ciple does not apply when the mortgagee has been professionally advised to exercise a power eg. to sell and he seeks to find support for this proposition in a passage in Lightman & Moss, The Law of Receivers of Companies 2 Ed p 116 where it is stated: “But the failure to seek expert advice may in certain circumstances constitute negligence.” If a mortgagee fails to obtain legal advice before he exercises his power; his failure may expose the mortgagee to liability to the mortgagor; but a mortgagee will not incur liability for failure to exercise his powers merely because he is professionally advised to exercise them. The mortgagee is free to decline to exercise his powers howsoever he is advised and however advantageous the exercise of his pow-ers may be to the mortgagor or himself or both. The remedy in a situation such as the present, if a sale was obviously appropriate, was for Cores as mortgagee to seek an order for sale from the Court: see Palk v Mortgage Funding Services plc [1993] Ch 330, [1993] 2 All ER 481. Cores could only secure refurbishment if Cores had itself financed it.
(b) Mismanagement by the receivers
Complaint is made by Cores of mismanagement by the Law of Property Act receivers appointed by Lloyds as mortgagee of other properties at 9 and 19 High Street Burnham which were let to commercial tenants. This mortgage also secured Cores debt and the value of this security (accordingly to Cores) and the interim re-ceipts of rent were reduced by reason of this mismanagement. Such mismanagement however, even if proved, could not assist Cores in any claim against Lloyds. Such receivers were agents of the mortgagor and not Lloyds, albeit appointed by Lloyds, and accordingly there can be no liability or responsibility on the part of Lloyds for any loss alleged to have resulted from the conduct of such receivers.
© Breach of financing contract
Cores applied to amend its pleadings to add a further complaint which reads as follows:-
“6.7. Further in or about October 1989 Mr Waldron on behalf of [Lloyds] orally agreed that [Lloyds] would fund the purchase and refurbishment of the [Property] but in breach thereof Mr Waldron and Mr Robson, at a meeting held on the 21st December 1990, notified Mr Bryant that [Lloyds] would not fund the refurbishment in consequence whereof [Cores] have suffered loss and damages in that but for the said breach they would have been able to repay from the ultimate proceeds of sale of the refurbished property much if not all of the sums then owed by them to [Lloyds]”.
Mr Bryant in his affidavit sworn on behalf of Cores deposed to the existence of this agreement. On the other side, Mr Waldron denied it.
This amendment as a pleading by reason of lack of particularity is totally unsatisfactory in a multitude of re-spects. Mr Havers told me that, because of the lapse of time since 1989, Mr Bryant could give no further par-ticulars as to the date or place of the alleged agreement, but he says that it is implicit that Lloyds accepted a totally open ended commitment as to the finance to be provided; the standard of refurbishment was to be what was reasonable; nothing was said or agreed as to the terms of the advance or its duration; and Lloyds was to have no right to oversee or monitor how the refurbishment was to proceed or indeed any safeguards whatsoever. This is particularly startling since the alleged agreement pre-dates the feasibility study. Mr Hav-ers had initially submitted that the advances were to be secured by a charge on the Property. Indeed at the time of the alleged agreement, there were neither plans, nor planning permission, no costings and three of the flats at the Property were still occupied by tenants. I raised with Mr Havers for Cores whether any such agreement, if the finance to be advanced was to be secured by a charge on the Property, since it was not in writing would be void under s 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. Mr Havers now responded that it was not a term of the agreement for the loan that there should be any security: the advances would be unsecured.
I reject this complaint on the part of Cores against Lloyds on three grounds: –
(1) the alleged agreement (if made) was plainly void for uncertainty, in particular in the absence of agree-ment of the terms of the loan to be made to fund the refurbishment;
(2) I am quite satisfied that no such agreement can ever have been concluded. It is totally improbable. I bear in mind that Lloyds had on previous occasions financed Cores and Mr Bryant both in respect of the purchase price and refurbishment costs of property; that Lloyds knew that Cores required funding from some source to pay for refurbishment; and the risk assumed by Cores if they proceeded with the purchase would without securing the commitment to finance refurbishment. But it is to be noted that Cores committed itself to the purchase before the date of the alleged agreement, and Cores could well have proceeded in the confident hope of securing finance for the refurbishment as it entered into the contract to purchase in the confident hope of securing the finance to complete the purchase. The contemporary documents offer no hint of a sug-gestion by Mr Bryant that Lloyds had accepted a binding legal commitment to make this advance and Mr Bryant never made any suggestion that there was any such commitment in his original defence or at any time prior to his affidavit sworn in July 1995. This was, he says in his affidavits, a deliberate decision: he thought it tactically unwise to remind Lloyds of its commitment as he hoped to achieve his goal of securing finance for refurbishment from Lloyds by persuading Lloyds of the logic of Lloyds financing refurbishment. I do not find this explanation or evidence credible. It is inconceivable that Lloyds should have entered into the commitment suggested.
(3) If any such agreement was made, plainly it must have been a term of the agreement (express or implied) that the advances both of the purchase price and of the refurbishment costs should be secured by a charge on the Property. An agreement for a loan to be secured by a charge on land is in my view a contract for the disposition of an interest in land, namely the creation of the charge, within the meaning of s 2(1) of the Law of Property (Miscellaneous Provisions) Act 1969, and the alleged oral contract (if made) was accordingly void.
I may add that Cores’ pleading makes no effort to quantify the loss alleged to have been occasioned by the alleged breach of contract, and I am not satisfied that any loss can be shown.
No complaint can be made by Cores against Lloyds that the sale itself was at an undervalue, for the sale was by the receivers as agents for Cores.
I accordingly hold that all the claims of Cores against Lloyds have no substance and the appeal by Cores must be dismissed.
II. Lloyds Claim Against Villa
Subject to Villa’s entitlement on its claim against Lloyds, Villa admit its indebtedness to Lloyds in the sum of #743,755.77
The facts are very simple. Villa was incorporated to acquire the freehold factory premises at 17 Ashbridge Road Chesham (“the Property”) with the assistance of advances by Lloyds secured by a mortgage of the Property. Lloyds made demand for repayment on 1 October 1990. On 9 April 1992 the Bank appointed Law of Property Act receivers of the Property. These receivers on 24 September 1994 sold the Property and Lloyds received the net proceeds of #167,500. The complaint made is that the sale was at an undervalue. The only evidence to this effect is a passage in an affidavit of Mr Bryant. He expresses this view on the basis of his calculation of the likely proceeds of sale if the Property had been sold refurbished. His evidence in this respect lacks any real weight. In any event, since the sale was by receivers, Lloyds cannot be responsible unless they interfered with the exercise by the receivers of their power of sale. Mr Havers conceded that there was no evidence as yet available of any such interference, but contended that he was entitled to leave to defend in case evidence of such interference was uncovered on discovery. Such a “hope” of a successful fishing expedition is not of itself a sufficient ground for giving leave to defend. In any event, it later appeared that discovery has in fact taken place and revealed nothing. There is accordingly no substance in Villa’s complaint against Lloyds, and Villa’s appeal must likewise be dismissed.
III. Mr Bryant’s Complaints Against Lloyds
Mr Bryant has two claims which I shall deal with in turn.
(a) Mr Bryant purchased property (“the Property”) for development with the assistance from Lloyds of finance by way of an additional overdraft facility on his private account. Mr Bryant granted Lloyds a first charge on the Property which secured this overdraft and also substantial other indebtedness – The relevant passages in Mr Bryant’s pleadings relating to his first claim read as follows: –
“13 (7)At all material times [as Lloyds knew] IMr Bryant] intended to retain the developments which had been funded, as aforesaid, by way of increased borrowing on his private account in the long term as part of his personal property portfolio and to finance their retention by mortgaging the same and thereby repaying [Lloyds] the funding which they had made available to him to carry out the developments.
14 .In the premises [Lloyds] owed to [Mr Bryant] a duty thereafter to accept and there arose an implied term of the contractual relationship which obtained between the parties that [Lloyds] would thereafter accept any [objectively] reasonable mortgage offer which [Mr Bryant] might propose to [Lloyds] with a view to repaying their increased borrowing with them aforesaid.”
It is then alleged that Mr Bryant obtained offers of finance to be secured by first charges on the Property from Crusader Insurance Company (“Crusader”) and Alliance and Leicester Building Society (“Alliance”). The of-fers were of sums less than those secured by the Lloyds charge. Lloyds, whilst no doubt willing to accept redemption on repayment of all sums secured, refused to agree that on receipt of the lesser sums so raised to release their charge or to postpone their charge to first charges in favour of Crusader or Alliance. Such refusal, it is alleged, occasioned Mr Bryant loss in the form of the absence of a reduction or extinction of his indebtedness on the overdraft facility which the receipt by Lloyds of the available monies from Crusader or Alliance.
The short answer to the claim is that Lloyds were under their charge entitled to refuse to release or to post-pone their charge until repaid in full, and I can see no basis for any implication of any duty (contractual or otherwise) in derogation of this right. The “implied obligation” is totally inconsistent with the right conferred by the Lloyds charge on Lloyds, and an obligation on the part of Lloyds to accept redemption or postponement in case of any advance negotiated by Mr Bryant with any other lender would devalue Lloyds security to an extent it is difficult to conceive any commercially minded bank could accept. In the circumstances, the al-leged implied obligation is both inconsistent with the express terms of the bargain with Lloyds and unreason-able. Mr Bryant has had at all times the right to repay Lloyds and redeem their charge in full. I should add that I cannot see how acceptance of Mr Bryant’s offer would materially have improved Mr Bryant’s financial position. His debt to Lloyds would have been reduced or extinguished only to be replaced by an equivalent debt to someone else. If a breach of obligation had been established, to have any claim in damages Mr Bry-ant would have had to establish a loss resulting from the breach, and for this purpose (contrary to Mr Havers’ contention) the reduction in the debt to Lloyds would not be the measure of loss: the debt to the replacement creditor would also have to be taken into account.
(b) The second complaint made by Mr Bryant is that the Property was worth #2,645,000 in September 1989 and #1,695,000 in March 1990, and was sold in two parts in August 1994 and April 1995 for a total of #962,000. For the reasons I have already given, there can be no liability on the part of Lloyds for any loss resulting from the delay in selling. Mr Havers however submits that Lloyds is liable for failing to mitigate their loss by failing to accept the alternative mortgage offers. If the offers had been accepted, the sums owing to Lloyds from Mr Bryant would have been reduced by the receipts from the new lenders. But I have already held that the doctrine of mitigation has no application in case of a mortgagee suing for payment of the debt due, and in particular where Lloyds are owed money and hold security, there can be no duty on their part to accept proposals for a different security or payment of less than it secured or indeed any proposals save for redemption by payment in full.
Mr Bryant’s complaint have no substance and the pleadings of his complaints were properly struck out.
IV.Conclusion
I accordingly fully agree in all respects with the decision of the learned Master and dismiss all three appeals.
Appeals dismissed
