Standard Chartered Bank Ltd v Walker
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE WATKINS,LORD JUSTICE FOX |
| Judgment Date | 17 June 1982 |
| Judgment citation (vLex) | [1982] EWCA Civ J0617-1 |
| Docket Number | 82/0251 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 June 1982 |
[1982] EWCA Civ J0617-1
The Master of the Rolls
(Lord Denning)
Lord Justice Watkins
and
Lord Justice Fox
82/0251
1981 S. No. 941
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
(MR. JUSTICE BRISTOW)
Royal Courts of Justice.
MR. JOHN LINDSAY, Q.C. and MR. JOHN HIGHAM (instructed by Messrs. Donald Bennett & Legat of Bristol) appeared on behalf of the (Plaintiffs) Respondents.
MR. M.A.F. LYNDON-STANFORD, Q.C. and MR. DAVID MARKS (instructed by Messrs. Wm. Prior & Co.) appeared on behalf of the (Defendants) Appellants.
When a bank lends money to a private company, it usually insists on the overdraft being guaranteed by the directors personally. Especially when a husband and wife are the directors and shareholders of the company. Then, when the company crashes and is unable to meet its liabilities, the bank puts in a receiver. He realises the assets of the company. But not enough to pay off the overdraft. The bank then comes down on the directors on the guarantee. Have they any defence? The directors here say that the assets were sold at a gross undervalue. How far does that give them any defence?
The directors here are Johnny Walker and his wife Gloria. They have been concerned with several private companies using the name "Johnny Walker" but nothing to do with whisky. We are here concerned with the latest one John Walker (Developments) Ltd. They carried on a very specialised business. They had a large workshop and warehouse in Gloucestershire. It was called Vortex Works at Tetbury. They bought huge metal presses and moulding machines secondhand and stored them there. They re-sold them to buyers all over the world. They did it on money borrowed from the Standard Chartered Bank. The bank insisted on a debenture. It was dated the 25th October, 1977. It gave the bank a floating charge on all the assets of the company. It gave the bank power to appoint a receiver who was to have power to take possession of the assets and to sell them. It contained an express provision that:
"Any receiver or receivers so appointed shall be deemed to be the agent or agents of the Company and the Company shall be solely responsible for his or their acts or defaults and for his or their remuneration".
The bank also insisted on a personal guarantee by Johnny Walker and his wife. It was dated the 12th December, 1978. It guaranteed the payment by the company of all its indebtedness to the bank provided that the total amount recoverable from Johnny Walker and his wife was not to exceed £75,000 together with interest thereon.
From 1978 onwards the business was badly hit by the slump in trade which was world-wide. In order to meet wages, rent and other expenses, the company incurred a large overdraft. At one time it was over £275,000. The bank pressed the company to reduce it. They took stringent measures. They cut down the staff greatly and reduced expenses on all sides. By April 1980 the overdraft had got down to £65,751. The bank urged its further reduction to £50,000. Johnny Walker constantly told them of his efforts. He hold them of the sales he hoped to make. But, despite his efforts, the overdraft went somewhat higher. The bank thought of appointing a receiver. On the 1st September, 1980 Johnny Walker wrote:
"To put a Receiver in at the moment, when the company has done so well in streamlining itself, 'digging it's heels' in and preparing to combat the recession, would mean, literally economic suicide…If commonsense prevails and we are allowed to continue to trade, which I may add now is profitably so, it will not be long before we can reduce down within the £50,000 but it is going to take a little longer in time".
Despite Johnny Walker's hopes, things got no better. They got rather worse. The overdraft came to over £80,000. So much so that on the 6th November, 1980 the bank appointed a receiver. He was Mr. Heaford of the well known firm of chartered accountants Touche Ross & Company of Bristol. Johnny Walker saw Mr. Heaford and asked if he could continue to trade through another of his companies. The receiver said:
"As from now, Mr. Walker, you are out of business. My instructions are to be out of here as quickly as possible. I intend to hold an auction sale as quickly as possible".
The receiver instructed well known auctioneers Edward Rushton & Co. They examined the stock and estimated that at an auction sale they might sell the whole of the stock for £90,000. They proposed to hold the auction on the 21st January, 1981. Johnny Walker afterwards thought this was too soon and asked for it to be postponed. It was then fixed for Wednesday, 4th February, 1981 at the works at Tetbury.
The auctioneers got to work preparing for the auction. They numbered all the lots. They made up a catalogue containing a description of all the machines. They did some advertising.
On Wednesday, 4th February, 1981 the auction was held. It was a disaster. Only about 70 persons attended—nearly all from places round about. Only one buyer from overseas—although the market for these machines was world-wide. It was a bitterly cold day. They had a few heating stoves, but these made such a noise that the auctioneer could net make himself heard. So they were turned off: and many prospective buyers left. The result in outline was this:
The stock only realised £42,864. The expenses of realisation came to £42,718. That left hardly anything for the preferential creditors who came to £37,139 And nothing at all for the bank whose debt was £88,432. So the result was a disaster for everyone. The receiver had got enough to pay the expenses of the sale and so forth: but nothing for the preferential creditors: and nothing for the bank.
Soon afterwards, on the 8th April,. 1981 the bank issued a writ against Johnny Walker and his wife as guarantors claiming the whole sum of £75,000 and interest at £30 a day. They issued a summons for judgment under order 14. The registrar and the judge gave judgment in favour of the bank. Johnny Walker and his wife appeal to this court.
It is interesting to see that the only affidavit put in by the bank throughout was the formal affidavit under order 14, which just said that in their belief the defendants were justly indebted in those sums. There were affidavits in answer. I will not go into all of them. Mr. Johnny Walker set out his defence. The bank never replied to his affidavits. I will read a passage from one of his affidavits. He said:
"It is apparent from the Affidavits referred to that the prices achieved at auction were much lower than could reasonably have been expected and, indeed, were less than half of the conservative valuation made by the Auctioneer. There were many reasons for this. The main reasons are, in my opinion, that the auction was held at the wrong time of the year, that it was insufficiently advertised, that no notice was given to the. prospective customers on my Company's mailing list by direct mailing, that the viewing arrangements were inadequate and the attendance poor…It will be apparent that the decision by the Receiver to hold an auction quickly and without adequate publicity was taken by him as a result of an instruction received from the Plaintiff"—that is, the bank.
"Messrs Touche Ross & Company of Bristol made a Report to the Plaintiff on the financial affairs of [the company] on 20th October 1980. At about that time, I had a telephone conversation with Roger Bailey who was then the Manager of the Branch of the Plaintiff in Bristol. Mr. Bailey told me during the conversation that the Bank had already made provision to write off the entire…overdraft as a bad debt, that the Plaintiff had decided to appoint a Receiver under its debenture and that the Receiver would be instructed to sell off the stock of [the company] as quickly as possible so that the Plaintiff could recover quickly some of the loss incurred from writing off the overdraft of [the company]".
As I read that defence, it contains an allegation that the assets of the company were sold at a gross undervalue: and, if reasonable care had been taken all the way through, they could have been realised at a much higher value: probably double, if not more: may be up to £130,000. In which case, the company's debt would have been very much reduced. In consequence the guaranteed figure of £75,000 would have been reduced greatly. Such are the facts of the case.
We have had much discussion on the law. So far as mortgages are concerned the law is set out in Cuckmere Brick Co. Ltd. v. Mutual Finance Ltd. (1971) 1 Chancery 949. If a mortgagee enters into possession and realises a mortgaged property, it is his duty to use reasonable care to obtain the best possible price which the circumstances of the case permit. He owes this duty not only to himself—to clear off as much of the debt as he can—but also to the mortgagor so as to reduce the balance owing as much as possible—and-also to the guarantor so that he is made liable for as little as possible on the guarantee. This duty is only a particular application of the general duty of care to your neighbour which was stated by Lord Atkin in Donoghue v. Stevenson (1932) Appeal Cases 562 and applied in many cases since, see Dorset Yacht Co. Ltd. v. Home Office (1970) Appeal Cases 1004 and Anns v. Mertor. London Borough Council (1978) Appeal Cases 728. The mortgagor and the guarantor are clearly in very close "proximity" to those who conduct the sale. The...
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