Medforth v Blake
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE SWINTON THOMAS,LORD JUSTICE TUCKEY |
| Judgment Date | 26 May 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0526-2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | QBENF 98/1624/1 |
| Date | 26 May 1999 |
[1999] EWCA Civ J0526-2
The Vice-Chancellor
(Sir Richard Scott)
Lord Justice Swinton Thomas
Lord Justice Tuckey
QBENF 98/1624/1
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(His Honour Judge McGonigal sitting as a Deputy High Court Judge)
Royal Courts of Justice
The Strand
London WC2
MR P SMITH QC and MISS L ANDERSON (Instructed by Messrs Dibb Lupton Alsop, Leeds LS1 5JX) appeared on behalf of the Appellant
MR P HAMLIN and MR T WATKIN (Instructed by Messrs Drivers, York YO1 8LR) appeared on behalf of the Respondent
The issue on this appeal is whether a receiver and manager of a pig farm, appointed by a mortgagee, owes any duty to the mortgagor, over and above a duty of good faith, as to the manner in which he conducts the pig farming business. The appeal is from the judgment of His Honour Judge McGonigal given on 20 November 1998 on a preliminary issue.
The proprietor of the pig farming business is Mr Medforth, plaintiff in the action and respondent in this Court. The judge described Mr Medforth as "a pig farmer on a very large scale". In April 1982 Mr Medforth had 2,000 sows which, by February 1984, had increased to 3,000 sows. He had also 120 boars and 11,000 weaners or thereabouts. In 1985, the turnover of the business was over £2 million. These figures demonstrate the scale of the business.
In order to finance this business, Mr Medforth had borrowing arrangements with his bankers, Midland Bank plc. His borrowings were secured by two Agricultural Charges both dated 13 July 1982 and made under the provisions of the Agricultural Credits Act 1928. One was to secure his current account overdraft; the other was to secure his indebtedness on a loan account. They were in identical terms.
Each Charge entitled the Bank to appoint receivers of the property subject to the Charge and provided that the receivers should have power (inter alia):—
"(a) To take possession of collect and get in any property hereby charged …;
(b) to carry on manage or concur in carrying on and managing the business of the Farmer and … to raise or borrow any money that may be required upon the security of the whole or any part of the property hereby charged;
(c) to sell or concur in selling all or any of the property hereby charged …;
…
(g) to do any such other acts and things as may be considered to be incidental or conducive to any of the matters or powers aforesaid and which he or they lawfully may or can do as Agent for the Farmer".
Each Charge provided also that:—
"any Receiver or Receivers so appointed shall be deemed to be the Agent of the Farmer and the Farmer shall be solely responsible for his or their acts or defaults and for his or their remuneration".
By February 1984 Mr Medforth's indebtedness to the Bank exceeded £800,000. The Bank, on 21 February 1984, appointed Mr Blake and Mr Jones, partners in Robson Rhodes, Chartered Accountants, "to be the Receivers of all the property comprised in the said Charge(s) with all the powers conferred on a Receiver thereby". The appointments expressly said that "the Receivers shall be the Agents of the Farmer who alone shall be responsible for their acts and defaults".
On 1 May 1987, following Mr Blake's retirement, another Robson Rhodes partner, Mr Hore, was appointed Receiver in his place. Mr Blake has since died. The defendants named in the title to these proceedings are Mr Blake, Mr Jones and Mr Hore. The action against Mr Blake has presumably abated, but nothing turns on that. They, or, more accurately, Mr Jones and Mr Hore are the respondents to this appeal.
After their appointment the Receivers exercised their power to carry on the farming business. Their accounts for the period 22 February 1984 to 30 April 1985 showed a net profit of £251,836. That profit was applied in reduction of Mr Medforth's secured overdraft. The next trading year appears to have been less successful. A net loss was incurred. The secured overdraft was reduced to £23,896 but the Receivers' own overdraft rose to £106,498.
A very substantial element in the trading costs consisted of the cost of feed for the pigs. In the first accounting period sales of pigs produced £2, 473,171 and out of the total cost of sales of £1,359,513, the cost of feed stuff comprised £1,193,919.
In September 1988, by which time Mr Medforth's secured indebtedness to the Bank was £537,944 odd, the Bank entered into new financial arrangements with him under which the secured indebtedness was repaid. The Receivers were then discharged.
Mr Medforth was dissatisfied with the manner in which the Receivers had carried on the farming business. He had a number of complaints, of which only one remains relevant. His complaints led to the commencement of proceedings in February 1990. The one remaining issue relates to the arrangements made by the Receivers for the purchase of feed for the pigs.
The Receivers, as Mr Medforth had done when he had been running the pig farm, purchased their supplies mainly from two sources. One was the B.O.C.M. Group of Companies, in particular, United Agricultural Merchants Ltd; the other was Dalgety Agriculture Ltd. As to this, Mr Medforth's pleaded case included the following allegations:—
(i) that B.O.C.M. and Dalgety offered, or were willing to allow, discounts to large-scale purchasers such as the Receivers;
(ii) that Mr Medforth had, prior to the appointment of the Receivers, bought pig feed from B.O.C.M. and Dalgety to a value of between £10,000 and £15,000 a week upon which weekly discounts of about £1,000 a week had been allowed.
(iii) that the Receivers purchased pig feed exclusively from B.O.C.M. and Dalgety;
(iv) that the obtaining of discounts from feed suppliers was normal commercial practice and, in any event, that Mr Medforth had frequently reminded the Receivers of the availability and importance of discounts; and
(v) that the Receivers had made no attempt to obtain any discount from either B.O.C.M. or Dalgety until early 1988.
The Amended Statement of Claim alleged (in paragraph 5) that in conducting the farm business the Receivers had owed Mr Medforth a duty of care and that their failure to request or obtain the discounts was a breach of that duty. In the alternative, if the Receivers' only duty to Mr Medforth was a duty of good faith, it was accepted that the Receivers' failure to do anything about the discounts was not a result of any deceit or of any conscious or deliberate impropriety, but nonetheless it was alleged that the failure was a breach of that duty.
The Receivers, in their Amended Defence, contended that they owed Mr Medforth only a duty to exercise their powers in good faith and denied that their failure to do anything about the discounts constituted a breach of that duty.
The pleadings dealt also with Mr Medforth's other complaints against the Receivers but, as I have said, each of those has, for one reason or the other, fallen by the wayside and I need not complicate this judgment by referring to them.
The trial of the action was due to start in September 1998 but the parties asked for the issue whether the Receivers owed Mr Medforth a duty of care or simply a duty of good faith in their conduct of the pig farming business to be dealt with as a preliminary issue. They asked that the trial date be vacated and that the trial be re-listed after the court had dealt with the appeal from the judge's decision on the preliminary issue. An appeal on the issue was apparently regarded as inevitable. The judge agreed to the request and expedited the hearing of the preliminary issue.
The formulation of the preliminary issue was as follows:—
"Assuming that the plaintiff can prove the facts pleaded in the Amended Statement of Claim and Reply:—
(1) Did the Defendants in the course of the receivership of the plaintiff's farm owe to the plaintiff only a duty of good faith when —
(a) exercising their powers of sale; and/or
(b) exercising their powers of managing the business; and/or
(c) otherwise acting (if there is such a case) in the factual circumstances alleged in the Amended Statement of Claim and Reply?
(2) If the Defendants owed only a duty of good faith in cases (a) and/or (b) above (and (c) if appropriate), what is the nature and meaning of good faith in those cases?
(3) If the Defendants' duties in cases (a) and/or (b) (and (c) if appropriate) are not limited to good faith, did the Defendants owe to the Plaintiff in those cases where it is not so limited a duty of care (whether in equity or at common law) and what is the standard) and scope of such duty in the factual circumstances alleged in the Amended Statement of Claim and Reply?"
In a judgment running to some 60 pages and containing a careful analysis of the relevant cases, the judge expressed the following conclusions on the preliminary issue:—
(1) that the Receivers, when exercising their power of sale, owed Mr Medforth, over and above a duty of good faith, an equitable duty of care, (paragraphs 4.3.1.2 and 4.3.3.4).
(2) that the standard of that duty of care was the standard of a reasonably competent receiver (paragraph 4.3.4.6).
(3) that no sensible distinction could be drawn between the exercise of a power of sale and the exercise of a power to manage a business, that the power to manage was ancillary to the power of sale and that the equitable duty of care was applicable to both (paragraphs 6.11 and 6.13).
These conclusions answered paragraphs (1) and (3) of the preliminary issue and made paragraph (2) irrelevant. But the judge dealt with paragraph...
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