Making a Silk Purse out of a Pig's Ear - Medforth v. Blake &(and) Ors
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Making a Silk Purse out of a Pig's Ear - Medforth v
Blake & Ors
Sandra Frisby*
Introduction
In Downsview Nominees Ltd v First City Corporation Ltd' the Privy Council held
that a mortgagee, and a receiver and manager2 appointed by him, owe no general
duty of care in negligence to a mortgagor or junior encumbrancer in dealing with
the former's assets. Lord Templeman, delivering the judgment of the Board, was
adamant that the importation of tortious obligations into a relationship historically
the province of equitable supervision would be contrary to principle, unnecessary
and undesirable in policy terms. Equity, he asserted, imposes a duty on mortgagees
and receivers to exercise their powers in good faith and for proper purposes, that
duty incorporating an obligation to take reasonable steps to obtain a proper price
when exercising a power of sale.3 Carelessness in the performance of a receiver's
functions except in the sale of the mortgaged property would not, it appears from
the judgment, constitute a breach of duty.
Appearances, however, can prove deceptive, as evidenced by the Court of
Appeal's recent decision in Medforth v Blake.4 Whilst concurring that the duties of
a receiver are equitable rather than tortious, Scott VC concluded that a receiver
owes a duty to manage the mortgaged property with due diligence amounting, as
later expressed, to an equitable duty of care. This affirmation appears novel after
the uncompromising stance of Downsview. Nonetheless it will be argued that there
is a precedent for this proposition and, further, that the judgment of Scott VC in
Medforth should be commended both for restoring a seemingly superannuated
principle of mortgage law and for recognising the commercial exigency for redress
against lax conduct by receivers.
This article will consider how, in Medforth, an equitable duty of care was
constructed on the basis of the 'wilful default' principle, a venerable feature of the
law governing mortgagees in possession, and now expressed to be applicable also
to receivers. It will be explained that 'wilful default' is much closer to 'negligence'
than its name suggests. This will be followed by an evaluation of the extent to
which Medforth changes the law, and an assessment of the merits of such
transformation. Finally, certain questions left unanswered by Medforth will be
posed, and possible answers propounded.
*Department of Law, University of Nottingham.
My grateful thanks to Professor Michael Bridge for his helpful comments on this article.
1 [1993] 1 AC 295 (hereinafter Downsview).
2 Hereinafter references to 'receivers' include those appointed as 'receivers and managers'.
3 Following Cuckmere Brick v Mutual Finance Ltd [19711 Ch 949.
4 [1999] 3 All ER 97 (hereinafter Medforth).
©9 The Modem Law Review Limited 2000 (MLR 63:3, May). Published by Blackwel Publishers,
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Making a Silk Purse out of a Pig's Ear - Medforth v. Blake &(and) Ors
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