Raja v Austin Gray

JurisdictionEngland & Wales
JudgeLORD JUSTICE PETER GIBSON,LORD JUSTICE CLARKE,LORD JUSTICE KEENE
Judgment Date19 December 2002
Neutral Citation[2002] EWCA Civ 1965
Docket NumberA2/2002/1738
CourtCourt of Appeal (Civil Division)
Date19 December 2002
Mrs Starbibi Raja
and
(Administratrix of the Estate of the Late Mohammed Sabir Raja)
Claimant/Respondent
and
Austin Gray (a Firm)
Defendants/Appellants

[2002] EWCA Civ 1965

Before:

Lord Justice Peter Gibson

Lord Justice Clarke

Lord Justice Keene

A2/2002/1738

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE QUEEN'S BENCH DIVISION

(MR JUSTICE BUCKLEY)

Royal Courts of Justice

Strand

London, WC2

MR PATRICK LAWRENCE QC (instructed by Browne Jacobson, 44 Castle Gate, Nottingham NG1 7G5) appeared on behalf of the Appellants

MR CHARLES DOUTHWAITE (instructed by Healys, 3 Waterhouse Square, 142 Holborn, London EC1N 2SW) appeared on behalf of the Respondent.

Thursday, 19 December 2002

LORD JUSTICE PETER GIBSON
1

I will ask Clarke LJ to give the first judgment.

LORD JUSTICE CLARKE
2

INTRODUCTION

This is an appeal from a determination of a preliminary issue made by Buckley J on 31 July 2002 in which he held that the appellant valuers owed a duty of care to Mohammed Raja as the owner of some sixteen properties which they were valuing. The judge granted permission to appeal. The appeal raises the question whether and in what circumstances valuers appointed by administrative receivers of a company owe a duty of care to the owner of properties when the properties are charged to the company as a security for a loan and the valuers are appointed by the receivers for the purposes of valuing those properties.

BACKGROUND

3

I take the background principally from the judge's judgment. In 1994 Mr Raja was the legal and beneficial owner of various properties, some or all of which were occupied by tenants and sixteen of which he had charged to Development Finance Ltd ("DFL") as security for a series of loans. DFL had itself borrowed money from the Midland Bank ("Midland") secured by a debenture.

4

On 26 September 1994 Midland appointed joint administrative receivers in respect of DFL's assets. By that time, or shortly thereafter, DFL had become entitled to exercise a power of sale over the properties under the relevant charges, and in April 1995 the receivers instructed the appellants to carry out valuations and to act and assist generally in the sale of the properties. We have now seen a letter dated 5 April 1995 in which the receivers gave written instructions to the appellants to value the properties on a certain basis. The letter is entitled: "To DFL in administrative receivership and Mr Raja". The appellants carried out their instructions and the sales of the properties were finally completed in November 1995. The properties, or the majority of them, were sold for a total sum of about £245,000.

5

The receivers said that Mr Raja remained indebted to DFL. Mr Raja, however, alleged that the properties had been sold at an undervalue and commenced proceedings. He first commenced proceedings against the receivers (or, more accurately, one of them) and later added DFL as defendants. Those proceedings were settled in 1997 on terms which were unknown to the judge but a copy of which we have now seen. The settlement involved the action being stayed on various terms including the transfer of a particular property, unencumbered, to the defendants and the extinction of Mr Raja's debt to DFL. The settlement was also reached on the express basis that Mr Raja represented that his liabilities had exceeded his assets from 31 December 1994 and continued to do so and that he would be unable to satisfy any judgment against him. In this appeal we are not concerned with the detail of that settlement.

6

This action is now brought by Mrs Raja as administratrix of Mr Raja because he was tragically murdered in July 1999. Two men have recently been convicted of his murder and one of his manslaughter. This appeal is not, however, concerned with those events.

7

As the judge observed, the factual situation may be illustrated by this chain: Mr Raja mortgaged the properties to DFL as security for loans to him; DFL granted a debenture to Midland as security for a loan from Midland; Midland appointed receivers pursuant to its powers in the debenture; and the receivers instructed the appellants to value the properties and to assist in their sale. By the terms of the debenture, as is common, the receivers were appointed by Midland but were to act as DFL's agents. The sales were made by DFL pursuant to its powers under the various charges to which Mr Raja was a party as mortgagor.

8

The alleged duty of care is pleaded as follows in paragraph 11 of the particulars of claim, which were dated 18 _ January 2001:

"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."

On 27 April 2001 Master Rose ordered an issue to be tried separately as to whether the appellants owed Mr Raja a duty of care in those terms.

9

For the purposes of the preliminary issue, it was assumed that the appellants knew (i) that the properties were owned by Mr Raja or, as the judge put it, to be more precise that he was interested in the equity or redemption; (ii) that they were charged to DFL to secure Mr Raja's borrowing; (iii) that the receivers were selling the properties to discharge that borrowing; and (iv) that the sale proceeds would directly affect Mr Raja's interests. The judge expressly noted that the appellants in their defence do not admit that they knew precisely how Mr Raja's interests would be affected by the price realised on sale, since it appeared that Mr Raja himself may have expressed an interest in buying the properties through various agents.

10

The judge first set out the parties' contentions, to which I will return in a moment. He then said that he was (as he put it) readily satisfied that foreseeability and proximity were satisfied. He said that a professional instructed in such circumstances by a receiver could scarcely be closer to those interested in the equity or redemption or fail to foresee that the manner in which his duties were performed would affect them.

11

The judge then asked whether in all the circumstances it was fair, just and reasonable to impose a duty of care. He said (to my mind correctly) that the cases identify a legion of factors that can influence the answer to that question. He referred in particular to two decisions of the House of Lords, namely Spring v Guardian Assurance plc [1995] 2 AC 296 and Marc, Rich & Co v Bishop Rock Marine Company Ltd [1996] AC 211.

12

The judge expressed his conclusions thus in paragraph 12 of his judgment:

"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."

13

The judge then considered the position of the receivers and what he described as the contractual chain and their existing duties having regard to the approach of Lord Goff in Henderson v Merrett (1995) 2 AC 145 at 195 to 196 and to that of Sir Richard Scott, Vice Chancellor, in Medforth v Blake [2000] Ch 86 at 102, to which I will return in a moment.

14

The judge observed that the appellants are neither mortgagees nor receivers and that, unlike them, the appellants are not subject to any established equitable duty. He then said this:

"17. … 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."

15

In paragraph 19 he answered the preliminary question "Yes", subject to some observations as to...

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