Mortgage Express v Mardner

J U D G M E N T

1. LORD JUSTICE PILL: This is an appeal by Mortgage Express against a judgment of His Honour Judge Cox given at the Lambeth County Court on 12th May 2004. They had granted a mortgage on residential property for a to Mr Trevor Anthony Mardner. The property was repossessed and sold by them. They claim the difference between the proceeds of sale and the amount outstanding on the mortgage, including interest. The judge rejected that claim in total.

2. Mr Mardner appeared in person before the county court. He is not present today. We have decided to proceed in his absence. He was told, by a letter from this court of 29th September, of today's hearing and that no further notice would be given. We have a letter from the solicitors to the appellants to Mr Mardner dated 9th December when they, as is now customary, made their claim for costs. In the letter they refer in terms to today as the hearing date. Every effort has been made to contact Mr. Mardner at his place of employment which was disclosed as between solicitors. A message was left there for him to ring back in case there was some short term reason why he has not appeared this morning. No response has been received. For the appellants, counsel applied that the case should proceed. We acceded to that application.

3. Mr Mardner has submitted a detailed skeleton argument. That bears the court stamp as having been received on 13th December -- that is recently -- which indicates his awareness that the case was to come on. The first paragraph reads:

"This response sets out important information which the judge may wish to consider in response to the arguments proposed by the appellant claimant."

That is not an indication that he intended to appear. We have had regard, as he requests, to the skeleton argument that he prepared.

4. On 3rd July 1990 by mortgage deed the appellants granted a mortgage over the relevant property for a loan of £108,120, repayable on an interest only basis. There were defaults in payment and possession was taken on 10th September 2003. Three valuations were obtained by the appellants. Particulars of sale were prepared. They are dated 9th November 1993. There was one offer to purchase which fell through. The appellants then resolved to sell the property to a company with whom they were associated and did so in the sum of £68,000.

5. On behalf of the appellant, counsel submits that the judge was wrong to dismiss the appellants' claim entirely. Alternatively, if the judge formed the conclusion that the sale had been at an undervalue, the only relief which the respondent could have was the difference the price at which the property should have been sold and the outstanding amount on the mortgage. We have been referred to the test to be applied in circumstances such as these (Jonathan Parker LJ in Michael v Miller ,[2004]EWCA Civil 282, paragraph 131):

"It is well settled that in exercising his power of sale over mortgaged property a mortgagee is under a general duty to take reasonable care to obtain the best price reasonably obtainable at the time (see Fisher and Lightwood's Law of Mortgages 11th Edn, paragraph 20.23), [to which we have also been referred]. In this context, 'the best price reasonably obtainable' is synonymous with 'a proper price', (the expression used by Lord Templeman in Downsview Nominees at p. 315 and by Robert Walker LJ in the Yorkshire Bank case at page 1728F), and with 'the true market value of the mortgaged property', the expression used by Salmon LJ in Cuckmere Brick at page 966."

We have also been referred to the decision of the Privy Council in Tse Kwong Lam [1983] 1 WLR 1349, where the Privy Council considered the test to be applied when a mortgagee sold the property to a company in which he was interested. It is incumbent on the mortgagee to show that he had made the sale in good faith and that he had taken reasonable precautions to obtain the best price reasonably obtainable at the time [per Lord Templeman at page 1355]. In that case there was a counterclaim to set aside the sale transaction. The party making it failed to make that good because of the considerable lapse of time which had happened. No such claim was made here by Mr Mardner, and rightly so, having regard to the lapse of time before the present proceedings.

6. Counsel has presented her case fairly and has referred us to appropriate authority. I say that because of the absence of the respondent. She has been subjected to a good deal of questioning by the court in its wish to test the soundness of the claim she makes. She underlines that the test is not to obtain the best price available but to take reasonable steps to do that. She submits that her clients, by obtaining three valuations, in the sums of £67,000, £68,000 and £80,000, and by putting the property on the market with the Woolwich and leaving it on the market for three months, satisfied the test, and that no sale having been achieved, the test was satisfied by the sale to the associated company at £68,000. There was an offer in the sum of £72,000-odd but that offer fell through. The market price stated on the particulars was £74,950.

7. As to the reasonableness of the steps taken, the appellants' difficulty is the absence of any evidence as to what actually happened at the time. Documents are available and we have properly been referred to them, but there is no oral oral or other narrative of the steps taken. We are invited to infer that reasonable steps were taken from such documents as have survived. Apparently no one is now available who was involved in this transaction. No steps were taken at the time to set out in narrative form the steps which were taken.

8. Before the judge there was a joint report, the status of which is in some respects challenged by counsel. That put the value of the property at the material time at £82,500. She submits that the existence of such a valuation, even if it was as a result of joint instructions, does not mean that the appellants were under a duty to obtain that sum. There will often be cases, she submits, and rightly so, where a sum below that of valuation, particularly a retrospective valuation such as this, does allow a mortgagee to say that he has nevertheless discharged his duty.

9. I say at this stage that there is in the joint report a criticism of the particulars of sale at paragraph 10.2, where it is stated that "the sale particulars are confusing and questionable as these indicate four rooms at first floor level and do not mention the top floor." There is no evidence from the appellants and there is no evidence from the Woolwich as to the steps taken to market the property during the three month period. It appears from Tse Kwong Lam that when a sale is then made to an associated company, the mortgagee must show that the sale was in good faith and that he took reasonable precautions to obtain the best price reasonably available at the time.

10. I am not satisfied that the test has been met. Because he is not here, I refer to points taken by the respondent in his skeleton argument. He refers to the interest of the appellants the company to which the property was conveyed. He submits that the appellants had no real intention to obtain the best or the real market value for the property. He refers to the error in the particulars of sale as now identified. He submits that it is immoral to claim that the appellants have made a loss in the circumstances which have occurred, the company to which they transferred the property having made an income out of the transfer. He does not accept the appellants' argument that "a quick cheap sale" was imperative to reduce his liability for interest.

11. I comment that the time factor is one to be taken into consideration. A mortgagee cannot expect defence of his own interests to allow the property to remain on the market for a prolonged period. In this case the period was one of only three months. We have no evidence as to efforts being made, either by the agents or by anyone else, to achieve a sale. The notification of the decision to sell to the associated company is within a week of the withdrawal of the offer which had been made. Counsel accepts that there is a burden on the appellants to justify that conduct. In my judgment, once they agree to a joint valuation going before the court, in a figure substantially in excess of the sum they obtained, then an evidential burden rests on them.

12. In my judgment, on the limited evidence before the court the appellants have not discharged the duty, as expressed by Jonathan Parker LJ, upon them.

13. One further point of some limited materiality is the joint report's indication that by the "early 1990s" the market was recovering very slowly. It cannot be assumed that at the material time there was a falling market which might have justified a rapid sale. However, it does not follow, in the circumstances of this case, that the appellants are entitled to no relief. In my judgment they are entitled to the difference between the price which would have been obtained, on the balance of probability, had they discharged their duty, and the amount outstanding on the mortgage. It is difficult to be precise about the amount that they should have obtained, but I do bear in mind the advantages to the appellants by reason of their link with another company of acting early in their own interests. In that situation they have not discharged the duty upon them and it would not be appropriate, in my judgment, for this court to create its own sum as between the various sums that I have already mentioned and the sum of £82,500 which, in hindsight, is stated in the joint report.

14. Because of the breach of the duty in the respects to which I have referred I would hold that the appropriate sum which ought to have been obtained is the sum of £82,500 as stated by the jointly appointed valuer. I add that we have had no information from the reputable companies who were instructed to value the property in 1993 as to the basis on which they did it.

15. Counsel fairly made the point that that is not the end of the matter, because had the property remained on the market, first, there would be likely to have been the costs of sale, which did not arise because the sale was to an associated company, and also there would have been a longer period, because by definition, if a better price was obtained a longer period on the market would have been necessary. That does not inevitably follow. Had there been intensive or reasonable efforts to market during the three month period, then a sale might have been achieved at that time. That is speculation.

16. I would be prepared to make an allowance for the fact that three further months' interest would have been incurred had the price reasonably to be obtained been obtained. I would reduce the sum to be obtained accordingly. The point is also a fair one as to the costs of sale. I would reduce it by a further sum to reduce the total sum to one of £78,500. The reduction is one of £4,500, £3,000 by way of further interest accruing, and £1,500 by way of the costs of sale. That cannot be and is not intended to be a precise valuation, but in the circumstances that I have described it is a fair figure as between the parties which ought to be taken into account.

17. As to interest, there has been a long delay since the sale and before the present proceedings were brought. We have been referred to the correspondence. That does not assist the appellants' case. They wrote a number of letters to the respondent but no further action was taken. The letters went on over a period of years. A letter was then sent to a different address. At a late stage in 2001 the appellants became aware of a change of address, and the first letter to the new address is dated 18th June 2001 (page 170 of the bundle). The proceedings were only commenced in 2003.

18. In my judgment the appellants are entitled to a sum of interest. I would backdate it from today's date rather than date it forward from the date when the sale occurred. I would allow a total of three years' interest back from today's date. We have been checking the statutory rate. I will refer to that before stating the rate. The arithmetic can be done by counsel.

19. The appellants are entitled to a sum. The appeal will be allowed in part. They are entitled to the difference between the sum due and the sum of £78,000 which I have mentioned. In addition, they are entitled to interest for three years at a rate which I will specify, having conferred further with my Lords.

20. LORD JUSTICE SEDLEY: Subject to the matter that my Lord has reserved, I agree.

21. LORD JUSTICE THOMAS: I also agree.

ORDER: Appeal allowed in part as per judgment; summary assessment of the appellants' costs in the sum of £6,000; appellants entitled to the difference between the sum due and the sum of £78,000 and to interest at 7% simple interest for three years.