Medforth v Blake

Medforth v Blake [2000] Ch 86

MORTGAGES – RECEIVERSHIP – RECEIVERS EXCERISING POWER TO MANAGE BUSINESS – WHETHER RECEIVERS OWE MORTAGGOR A DUTY OF CARE

Facts

In 1984 the defendants were appointed as receivers over the pig-farming business of the plaintiff. After the receivership had ended in 1988, the plaintiff brought an action alleging that the receivers had been negligent in their conduct of the business, that they had owed the plaintiff a duty of care and that their failure to request and obtain discounts for the purchase of pig-feed constituted a breach of that duty. On the trial of a preliminary issue, the judge ruled that the receivers owed the plaintiff a duty of care when conducting the business.

Issues

Whether a receiver, when exercising the power of sale under a legal charge, owes an equitable duty of care to a mortgagor beyond that of good faith; whether there is a conceptual difference between the power to sell and the power to manage when seeking to discern the duties properly applicable to either role; whether the power to manage a property was ancillary to the power of sale and, if so, whether the equitable duty applied equally to both.

Decision/Outcome

The duty owed by B included, but was not limited to, a duty of good faith; a receiver’s principal duty was to attempt to engineer a situation whereby the debt and interest under the mortgage could be repaid. Where the receiver took on the conduct of the borrower’s business in order to do so he thus had a duty to try to run it profitably and with due diligence; the ability to manage was independent and not an adjunct to the power of sale. Actions that were neither dishonest nor tainted by allegations of bad faith could not amount to a breach of the duty of good faith. Moreover, negligence as a concept in analogous circumstances must be differentiated from fraud or bad faith.