Purewal v Countywide – Duties of an LPA receiver

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Do receivers owe a duty of care to a bankrupt mortgagor? The Court of Appeal clarified the legal position in Purewal v Countrywide.

The claimant had a loan over a buy-to-let residential property that was secured by way of a first legal charge. When the claimant fell into arrears, the lender appointed a Law of Property Act 1925 (LPA) receiver (or, a fixed charge receiver) over the property, to manage and realise any income from the asset.

The receiver advised the claimant to cancel his building insurance policy as the receiver would take out a policy. The claimant was subsequently declared bankrupt. During the period of bankruptcy the property suffered a leak and, although the claimant informed the receiver, the receiver failed to remedy the leak or claim on the insurance. The claimant was eventually discharged from the bankruptcy and undertook the repairs at his own expense, even though the trustee in bankruptcy’s transfer of the property back to the claimant had not been completed and the property was not therefore vested in him.

The claimant then issued a claim against the receiver for breach of duty for its failure to submit an insurance claim. The key question for the court was whether the receiver owed a duty of care to the claimant at the time he incurred the loss and expense of repairing the leak.

The Court of Appeal confirmed that an LPA receiver owes a duty of care to a person with an interest in the equity of redemption (that is the person who, on full repayment of the secured debt, has the right to recover the assets which are subject to the mortgage). As the property was still vested in the trustee in bankruptcy at the time of the repairs, the LPA receiver’s duty at the relevant time was to the trustee, and not to the claimant.

As an ancillary point, it is worth noting that the Court of Appeal would have dismissed the claim in any event, because it found that there was no causation. As there was insufficient evidence that the lender would have agreed for the receivers to use any monies on repairing the damage as opposed to reducing the mortgage debt, it could not be said that the receiver’s failure to submit an insurance claim had caused the claimant’s loss.

The full judgement can be seen at: [2015] EWCA Civ 1122.