This judgment was handed down remotely at 2:00pm on 31 March 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Mr Justice Sweeting:
Introduction
- This is an appeal from the order of Master Davison made on 27th March 2024, striking out the claim on the Defendant/Respondent's application. The central point of law in the appeal is whether an employer of LPA receivers can be held vicariously liable for the actions of receivers during a receivership.
Background
- In July 2015, Bethel Retirement Villages-Herne Bay Court Limited ("Bethel") purchased a 9.3-acre site in Herne Bay, Kent ("the property"), from the Methodist Church for £2,885,000, using bridging finance. The site had planning permission for a retirement village.
- To assist with the purchase of the property, Bethel borrowed £2,393,162.39 from Amicus Finance Plc ("Amicus") at an interest rate of 1.25% per month, rising to 3% per month on default. The loan was provided on 17 March 2015 for a term of 9 months, later extended at Bethel's request. Bethel also borrowed money from Niche Capital Limited ("Niche") to acquire the property, with a deed of priority dated 20 March 2015, giving Amicus priority over Niche. By September of 2016 Niche was owed approximately £1.6 million.
- In March 2015, Jones Lang LaSalle Ltd valued the property at £5 million based on its market value with extant planning permission and at £4.5 million assuming a sale in 90 days. On 27 May 2016, Robert Sterling Surveyors LLP valued the property at £5 million in its then condition with extant planning permission, at £4.5 million assuming a 180-day marketing period and at £3.5 million assuming a 90-day marketing period.
- Amicus served a default notice dated 2 August 2016 as the loan, due for payment on 17 July 2016, had not been repaid. At that date some £2,726,803.19 was owed with daily interest of £2,638.84 accruing. As a result of the default, Amicus, exercised its right to appoint LPA receivers to sell the property and recover the outstanding debt under the terms of the facility agreement and mortgage pursuant to ss.101(1)(iii) and 109(1) of the Law of Property Act 1925.
The Receivers
- On 5 August 2016, Mark Getliffe and Diane Hill of CLB Coopers were appointed Joint LPA receivers ("the Receivers") over the property by Amicus. In a letter of the same date, Mr. Getliffe stated that he and Ms. Hill "...hereby accept appointment as the Receivers…in accordance with the Deed of Appointment … dated 5 August 2016 ("the Deed")". On their appointment Mr Getliffe and Ms Hill gave their address as that of their employer. When the Receivers wrote to Bethel to advise it of their appointment they wrote on their employer's notepaper.
- On 19 September 2016, the property was sold for £4,277,696, which was £722,304 less than the £5 million valuation, with the purchaser additionally paying the Receivers' fees of £177,230. The total price including receivership costs and expenses was £4,454,926.17. The purchaser was Xiros Limited. The Appellant asserts there were two other offers at the £5 million valuation, one from an institution, that were not properly considered. The property was, he claims, sold "without exposing it to the market" and the sale was to a "connected person" at a price just sufficient to redeem the mortgages (the two secured loans).
- At the time of their appointment and the subsequent sale of the property, the Receivers, were employed by CLB Coopers Chartered Accountants ("CLBC"). The business and assets of CLBC were subsequently acquired by Baldwins (North West) Limited, pursuant to a sale and purchase agreement dated 14 November 2016 which then changed its name to CLB Coopers Ltd. The business of CLB Coopers Limited was later transferred to the Defendant, Azets Holdings Limited ("AHL").
- AHL provided Mr. Getliffe with a deed of indemnity dated 2 December 2020, indemnifying him in respect of any liabilities incurred in the proper conduct of any of his "appointments". The recitals to the indemnity agreement included the following:
"A. The Insolvency Practitioner is or has been employed by the indemnifier and/or a member of the indemnifier Group.
B. The Insolvency Practitioner holds a licence from a Recognised Professiona1 Body ("RPB") to undertake licensed insolvency work and to use the title Licensed Insolvency Practitioner.
C. All of the relevant economic activity of the indemnifier Group (including but not limited to licensed insolvency work) is conducted by the indemnifier.
D. The indemnifier acknowledges that insolvency appointments are and have been undertaken under the personal name of the Insolvency Practitioner for the benefit of the indemnifier and/or the indemnifier Group, and the value of the work in progress and the fee income derived from this activity belongs exclusively to the indemnifier.
E. In reliance on the indemnity from the indemnifier set out in this Deed the Insolvency Practitioner agrees to accept new, and continue to act in relation to existing, insolvency appointments."
- CLB Coopers Ltd was eventually dissolved in 2022 (having changed its name again to Azets (North West) Limited), and its business subsumed within AHL. For the purpose of the appeal, it is accepted that AHL is the successor to CLBC through acquisition and business transfer, assuming the responsibilities and potential liabilities of the former entity. In this judgment, AHL and CLBC are used interchangeably, depending on the context.
The Assignment
- The Appellant, Mr Yerbury (a litigant in person), brings his claim as assignee of the borrower's cause of action, if any, against the Receivers, by an assignment dated 1 June 2022 from the Liquidator of Bethel. There was no challenge to the validity of the assignment.
- The assignment to the appellant involved the transfer of rights, title, and interest in any "claims" Bethel had against the Receivers regarding a potential claim for negligence, breach of duty, and bad faith. The term "claims" was defined in the assignment as follows:
"In this Assignment "Claims" to the extent that they exist and are actionable, means all and any right or cause of action, claims, right in damages, right of compensation, which the Company may have against Mark Terence Getliffe (as Lead Receiver) and Diane Elizabeth Hill (as Joint Receiver) in respect of a potential claim for negligence, breach of duty and bad faith."
The Litigation
- The Appellant sent a Letter of Claim dated 21 June 2022, to which AHL responded by letter dated 14 October 2022. The response denied the alleged breaches of duty and causation but did not take any point as to the identity of the defendant.
- On 23 January 2023, a claim was issued by the Appellant against AHL alone. The claim related to the conduct of the Receivers in connection with the sale of the Property, and their alleged breaches of duty.
- AHL filed a defence on 7 March 2023. In its defence AHL pleaded that:
a. The claim was brought against the wrong party. The proper defendants should have been the Receivers, Mr Getliffe and Ms Hill.
b. The assignment, on which the claim was based, assigned a claim against the Receivers, not AHL.
- The Appellant served a reply on 4 April 2023. In his reply, Mr Yerbury responded to AHL's defence that he had sued the wrong defendant, primarily arguing that AHL had acknowledged or accepted responsibility. There was no positive assertion that AHL was vicariously liable for the actions of the Receivers.
The Judgment
- On 16 May 2024, Master Davison struck out the claim on the application of AHL. In his judgment the Master concluded that:
a. The assignment was unambiguous in assigning only causes of action against the Receivers and not AHL.
b. The claim was against the wrong party, the accountancy firm of which the Receivers were employees, rather than against the Receivers themselves. The cause of action against the Receivers (if one exists) had not been assigned to the appellant.
c. The Receivers acted in a personal capacity. Master Davison stated that "...it was the Receivers, not the firm that were appointed". He concluded that receivers are appointed as "principals", which is inconsistent with the concept of vicarious liability on the part of their employers.
d. No authority was offered by Mr Yerbury for proposition that an employer of an LPA receiver was vicariously liable for receivers' breaches of duty to a third party. Counsel's diligent research revealed a consistent practice of bringing proceedings against receivers themselves rather than the organisations which employed them or in which they were partners.
e. An application to join the Receivers (which had not been made) would have failed because a claim against them was statute-barred when the proceedings were issued. This was because there had been a standstill agreement for a claim against AHL, but not for a claim against the Receivers themselves.
- Master Davison considered that the Appellant was "caught out by an error in suing the correct defendant in the stipulated limitation period". He noted that AHL did not at the outset explicitly state that the proper defendants were the Receivers, nor did it say that it was not the proper defendant. He considered "on the face of it" this "fell short of their own professional code of conduct" and that the "tenor of the correspondence" suggested that AHL was the proper defendant. The Master said he was "minded to reflect that in the principle of any cost order" and did so. He mentioned that he had reached his decision with a degree of reluctance and considered that there was substance in the allegation of a sale at an undervalue.
- For my part I do not consider that I am in a position to make any assessment of the merits of the substantive case. It was made clear by counsel for the Respondent that AHL did not accept Mr Yerbury's serious allegations of a lack of probity on the part of the Receivers, its former employees, in relation to the sale. It was prepared to defend the substantive claim if it had to. Mr Smiley drew my attention to the fact that it had been suggested to the respondent promptly that he should seek legal advice before proceeding.
- Master Davison refused an application for permission to appeal. Permission was later granted by Sir Stephen Stewart, but only in respect of the issue of vicarious liability; issues of estoppel and limitation have therefore fallen away and were not part of the appeal before me.
The Arguments on Appeal
The Appellant
- Mr Yerbury argued that AHL is vicariously liable for the actions of its employees when acting as receivers. He bases that argument on a conventional, and in some ways attractively simple, approach to vicarious liability. He argues that the employed Receivers were undoubtedly acting 'in the course of their employment' with AHL, since AHL provided a receivership service as part of its business, and there would be no reason why in those circumstances it should not be liable for their actions during the receivership. He relied upon a number of features of the way in which AHL conducted its business as supporting that conclusion. I summarise them as follows:
a. There was no direct payment of any remuneration to the Receivers; they were remunerated as employees of AHL.
b. AHL provided office accommodation and all other support facilities, including staff.
c. AHL bore the risk of loss and chance of profit, not the Receivers.
d. The Receivers were under the control of AHL as employees.
e. The Receivers were contractual employees and fully integrated into AHL's business. Mr. Getliffe was the Head of Reconstructions at AHL.
f. Licensed insolvency work, including receiverships, was part of AHL's business.
g. The fees and work in progress belonged to AHL. AHL therefore received the economic benefit of making employees available as receivers and should bear the risk of the wrongs committed by the Receivers.
h. The Receivers had professional indemnity insurance under a policy taken out by their employer.
i. There was no evidence that the Receivers were in business on their own account or could be considered to be independent contractors.
j. The terms of the Indemnity indicated clearly that all of the Receivers' work had been carried out as employees for the benefit of the employer.
- The Appellant's core argument was therefore that, as the employer, AHL, benefited from the Receivers' activities and should bear the risk of any wrongdoing committed during those activities. He contended that there was nothing about the nature of receivership which took the activity outside of the straightforward analysis of an employment relationship giving rise to vicarious liability on the part of the employer. He relied on the general principle which he argued can be found in Lord Burrows' judgment in Trustees of the Barry Congregation of Jehovah's Witnesses v BXB [2023] UKSC 15; [2024] AC 567 that an employer who benefits from the activities of an employee (or person integrated into the employer's organisation) should bear the risk of wrongs committed by that person.
- The Appellant suggested in his written submissions that it was common for claims to be made against the employer when receivers are employees of a company. It would be fair to say that this was an assertion rather than a submission based on evidence and was contested by the Respondent. In addition, Mr Yerbury argued that such legal authority as could be found was neutral as to the existence of vicarious liability in the circumstances which arise in this case, so that the point was effectively undecided.
- Although some of the Appellant's written and oral arguments suggested that there was no primary liability on the part of the Receivers, he accepted in the course of argument that it was necessary for there to be such a liability in order for his case as to vicarious liability to be made out.
- The Appellant argued that the assignment from the liquidator permitted a claim against the employer because AHL were joint tortfeasors, on the basis of their vicarious liability, so that an assignment of a right of action against the Receivers was implicitly an assignment of the right of action against their employers. He submitted that the assignment ought to be seen in its context and construed as such; the intention behind the assignment was to recover compensation for losses caused. The assignment was made because the liquidator felt he could go no further and had assigned the rights against the Receivers to the appellant on a profit-sharing basis.
The Respondent
- On behalf of the Respondent, Mr Smiley submitted that a claim based on vicarious liability had no legal basis in the context of LPA receivers or receivership more widely. He argued that receivers are appointed personally as principals, not employees (or agents) of their contractual employer. The nature of this personal appointment, recognised in the statutory framework governing receivership, was, he argued, fundamentally inconsistent with the concept of vicarious liability. That is why, he suggested, in this case and generally the deed of appointment does not refer to the firm by which the Receivers were employed at the time but rather to each of them personally. Equally, the deed of indemnity between the employer and Mr. Getliffe reflected the personal nature of the potential liabilities incurred in the conduct of the appointment and provided indemnities which are neither necessary nor common in the context of the provision of other professional services.
- Mr Smiley's research in the reported cases had revealed a clear and consistent practice of suing receivers personally for alleged breaches of duty in the conduct of a receivership, rather than claims being brought against their employers. He gave as examples the cases of Centenary Homes v Liddell and Gershinson [2020] EWHC 1080 (QB), McDonagh v Bank of Scotland [2018] EWHC 3262 (Ch), and Devon Commercial Property Ltd v Barnet and Belcher [2019] EWHC 700 (Ch). It was also evident from the other authorities referred to in submissions that where receivers were sued as named individuals their employers were not sued alongside them.
- The two cases Mr Smiley had come across where an employer was also joined, Bell v Long and Others EWHC 1273 (Ch) and Purewal v Countrywide Residential lettings [2016] HLR 4, did not explore the issue of vicarious liability, since the claims failed in their entirety. The latter was an appeal in which the point had not been argued whilst the judgment of Patten J. (as he then was) in Bell is articulated entirely in terms of a claim against the receivers. Whilst the absence of authority, is not itself authority the Respondent's submission was that the practice necessarily reflected the law.
- In Bell, Patten J. summarised the duties of a receiver in relation to obtaining a proper price as follows:
"12. It is now clearly established that a receiver appointed by a mortgagee to sell mortgaged property in order to recover or reduce the mortgage debt is effectively in the same position as the mortgagee and owes a duty in equity to all those interested in the equity of redemption to obtain a proper price for the property. He is not however a trustee of his power of sale for the mortgagor and accordingly can choose the time of sale even if that turns out to be disadvantageous to the debtor who could have recovered more had the property been sold later.
13. The authorities draw no distinction for these purposes between an LPA receiver (Silven Properties Ltd v Royal Bank of Scotland [2004] 1 WLR 997) and an administrative receiver (Raja v Austin Gray (supra)). The duty is the same."
- Mr Smiley also relied upon Ramsey v Leonard Curtis (a firm) [2001] BPIR 389, [1999] All ER (D) 891 where the Court of Appeal considered an appeal by the claimants who were directors and shareholders of Toy and Hobby International Limited. They were made redundant by administrative receivers from Leonard Curtis. They later sued Leonard Curtis, alleging a breach of duty. The claimants sought to amend their claim, after the limitation period had expired, to correct the name of the party being sued. Their application was refused at first instance. The central issue was whether the mistake in naming the defendant was a genuine mistake and whether the amendment should have been allowed. The claimants argued that their mistake in naming the partnership as the defendant was genuine because the administrative receivers used partnership notepaper. The significance of the case for the present appeal lies both in the fact that no claim based on vicarious liability was advanced and in the observations made by the Court of Appeal as to the nature of the error (the judgment is not paragraph numbered):
"This claim, as set out in the Statement of Claim, assumes that the partnership was liable, directly or vicariously, for the breaches of contract of the administrative receivers. For this to be so, the administrative receivers would have to be liable as partners. And their liability was personal. They had no liability as partners. Nor were their partners vicariously liable for the administrative receivers' actions. The claim as pleaded disclosed no cause of action, and was doomed to strike-out unless amended […]"
"Therefore, to succeed the claimants must obtain leave to amend, which involves saving the original pleading in order to preserve its date, the day before the limitation period expired. Starting again therefore is not an option. The necessary saving amendment requires the partnership ceasing to be the defendants, and the two administrative receivers ceasing to be defendants as partners, but becoming defendants in their capacity as receivers"
"The claimants here sued the partnership in the erroneous belief that the partnership and the individual partners were liable as partners for the actions of the administrative receivers. They were not, and the rule is not there to correct that category of mistake."
- As Mr Smiley submitted there is no logical distinction between the position of an administrative receiver and a Law of Property Act receiver in relation to the point that was being made (see Bell above). It is evident that the Court of Appeal considered that the partnership could not be liable, expressly or impliedly ruling out any suggestion of vicarious liability and contemplating that the individuals were carrying on a separate activity once appointed as receivers, distinct from their role as partners of their firm.
- Mr Smiley also placed reliance, as he had done before the Master, on the case of Serene Construction Limited v Salata and Associates Limited and Others EWHC 2433 (Ch), submitting that there was a judicially approved concession that the receivers' appointment was a personal one and the duties relied on were owed by them not their employer:
"...it is now accepted that the receivers' appointment was a personal one and the duties relied on were owed by them personally and not by their company. Accordingly, Mr Pennock accepted that no claim lies against the first defendant (the company)."
- Mr Yerbury attempted to distinguish the facts of Serene on the basis that "the business of the receivers' company was that of chartered surveyors" (relying on its accounts) so "it could not be said that the carrying on of receiverships were part of its business". This was, in my view, a forlorn attempt given that the introductory paragraphs of the judgment recite that "The first defendant is a limited company through which the Receivers conducted their business."
- Mr Smiley's research encompassed leading textbooks in this area namely: (1) Lightman & Moss on The Law of Administrators and Receivers of Companies (6th Ed); (2) Palmer's Company Law; (3) Sealy & Milman: Annotated Guide to the Insolvency Legislation (27th Ed); (4) Totty, Moss & Segal: Insolvency; none of which give any indication that vicarious liability might arise on the part of the employers of receivers.
- Mr Smiley also drew attention to the statutory framework. Section 30 of the Insolvency Act 1986 serves to explicitly disqualify any corporate body from acting as a receiver of a company's property. This provision, in conjunction with section 390 of the same act, establishes that only individuals, and not corporate entities, are qualified to hold the position of a receiver or of any insolvency officeholder. The language of section 109 of the Law of Property Act 1925 is itself only apt to refer to an individual.
- While only a licensed insolvency practitioner can advise on and undertake appointments in all formal insolvency procedures, the Official Receiver and certain receivers/managers are exceptions and do not necessarily need to be licensed. However, where a licence is required the licensing regulations and guidance notes consistently emphasise that the appointment of receivers and insolvency practitioners is fundamentally a personal matter. This is reflected in the definition of a "Licence Holder" as an individual who has been issued and holds a current insolvency license under the regulations and is not tied to a firm or corporation. LPA receivers are in any event expected to comply with the Insolvency Practitioner Code of Ethics, promoting principles such as integrity, objectivity, and professional competence.
- I should add that Mr Yerbury's response to AHL's submissions was, broadly, that it was irrelevant how the receivers had acquired their personal liability because it did not preclude his arguments as to vicarious liability which, as a matter of first principle he argues, must arise in this case.
- Mr Smiley further submitted that the Assignment Agreement is unambiguous in assigning causes of action against the Receivers alone. Where the parties have used unambiguous language, the court, he argued, must apply it (see Rainy Sky SA v Kookmin Bank [2011] UKSC 50). If no claim against AHL was assigned, the Claimant has no title to sue AHL, regardless of any potential vicarious liability.
- In summary, AHL's position is that due to the personal appointment of LPA receivers, the lack of legal authority supporting vicarious liability in this context, the established practice of suing receivers personally and the limitations of the Assignment Agreement, the Appellant's argument for holding AHL vicariously liable for the actions of the Receivers is unsustainable in law.
Discussion and Conclusions
Receivers
- A lender has the authority to choose anyone they deem suitable to be an LPA receiver. In practice an LPA receiver will usually have the necessary qualifications or experience to manage the property they are appointed over, but there is no legal requirement for any specific qualifications or experience and the individual does not need to be a licensed insolvency practitioner. There are however restrictions which demonstrate the personal nature of the appointment. Thus, a corporate body cannot be appointed as a receiver over the property of a company whilst other statutory disqualifications, such as bankruptcy, are only relevant to individuals.
- The statutory powers of an LPA receiver are limited and express, often necessitating the inclusion of wider powers in the mortgage deed. It is common practice to extend the statutory power of the LPA receiver to give them further powers of management and a power of sale, but their role will usually be confined specifically to the land which is the subject of the mortgage.
- Sir Richard Scott, Vice Chancellor, in Medforth v Blake [2000] Ch 86 at page 102 summarised the core duties of receivers as follows: "In my judgment, in principle and on the authorities, the following propositions can be stated. (1) A receiver managing mortgaged properties owes duties to the mortgagor and anyone else with an interest in the equity of the redemption. (2) The duties include, but are not necessarily confined to, a duty of good faith. (3) The extent and scope of any duty additional to that of good faith will depend on the facts and circumstances of the particular case." Although Medforth concerned a receiver appointed under a debenture (so not strictly an LPA receiver), the principles are applicable to receivers generally.
- Section 109(2) of the Law of Property Act 1925 provides: "A receiver appointed under the powers conferred by this Act, or any enactment replaced by this Act, shall be deemed to be the agent of the mortgagor; and the mortgagor shall be solely responsible for the receiver's acts or defaults unless the mortgage deed otherwise provides." Thus, despite being appointed by the lender, an LPA receiver is deemed the agent of the borrower. The relationship is not however a "true" agency but simply the means by which the mortgagor is made responsible for the receiver's actions (see Silven Properties above).
- The potential impediment which this might pose to a receiver taking action against a mortgagor was considered in the case of Menon v Pask [2020] 2 WLR 43, [2020] Ch 66. The court there determined that while receivers act as agents of the borrower to repay the debt, they can sue for possession in their own name against the borrower. The court reasoned that preventing receivers from seeking possession from the occupier would be illogical. Alternatively, the court suggested that a term could be implied in the mortgage requiring borrowers to relinquish possession to appointed receivers, enforceable under the Contract (Rights of Third Parties) Act 1999. The 1999 Act requires that the relevant third party is identified in the contract, a requirement that Mr Justice Mann considered would be fulfilled because the receivers were clearly identified in person when appointed (and as a class of appointees by express terms prior to their appointment). The receivers in that case were, ultimately, sued in their own names as defendants rather than in the name of the firm to which they belonged as employees.
- Other forms of receivership, such as administrative receiverships, involve a receiver or manager of the whole or substantially the whole of a company's property appointed by, or on behalf of, the holder of any debentures of the company secured by a charge such as a floating charge, or other security. The powers of an administrative receiver are also conferred on them by the instrument under which they are appointed and, provided they are not inconsistent with that instrument, the specific powers set out in The Insolvency Act 1986, Schedule 1. For the purposes of the issues which arise in the present case there is no obvious distinction to be drawn between the position of LPA receivers and administrative receivers.
- In Menon, Mann J. set out the history and development of receivership by reference to the judgment of Rigby LJ in Gaskell v Gosling [1896] 1 QB 669 at 691ff:
"A mortgagor left in possession of the mortgaged property, whether real or personal, had a right to receive the income and apply it to his own use, without becoming liable to account to the mortgagee. If there was no receiver, the mortgagee could only make the income available for keeping down the interest on his security by entering into possession. This entry into possession by a mortgagee was always considered a strong assertion of his legal rights, since he did not come under any obligation to account to the mortgagor except in a suit for redemption. He was accordingly treated with exceptional severity in a suit for redemption and made to account, not only for what he actually received, but for what he might without wilful default have received. This was bad enough when there was only one mortgage; but the position became much worse when the mortgage was a second mortgage, since the second mortgagee could at any moment be turned out by the first, and for the sake of such a precarious possession it could seldom be worth while for a second mortgagee to incur the liabilities of a mortgagee in possession. Still greater were the risks and less desirable the possession when the mortgaged property consisted of or included, as it might do, property embarked in trade and subject to the vicissitudes of commercial business. It follows of course from the almost penal liabilities imposed upon a mortgagee in possession that Courts of Equity were very slow to decide that possession had been taken, and would not do so unless satisfied that the mortgagee in possession took the possession in his capacity of mortgagee without any reasonable ground for believing himself to hold in any other capacity: Parkinson v. Hanbury. The Courts also favoured any means which would enable the mortgagee to obtain the advantages of possession without its drawbacks. Mortgagees began to insist upon the appointment by the mortgagor of a receiver to receive the income, keep down the interest on incumbrances, and hold the surplus, if any, for the mortgagor, and to stipulate often that the receiver should have extensive powers of management. Presently mortgagees stipulated that they themselves should in place of the mortgagor appoint the receiver to act as the mortgagor's agent. This made no difference in the receiver's position, and imposed no liability on the mortgagee appointing. Though it was the mortgagee who in fact appointed the receiver, yet in making the appointment the mortgagee acted, and it was the object of the parties that he should act, as agent for the mortgagor. Lord Cranworth, in Jefferys v. Dickson, stated the doctrine of Courts of Equity on the subject to the effect following. The mortgagee, as agent of the mortgagor, appointed a person to receive the income, with directions to keep down the interest of the mortgage, and to account for the surplus to the mortgagor as his principal. These directions were supposed to emanate, not from the mortgagee, but from the mortgagor; and the receiver therefore, in the relation between himself and the mortgagor, stood in the position of a person appointed by an instrument to which the mortgagee was no party. Lord Cranworth, in the case referred to, was speaking of a mortgage of lands; but the same doctrine applies to all kinds of property, being founded, as it is, not upon any considerations peculiar to the law of real property, but upon the contract between the debtor who gives and the creditor who takes the security. Of course the mortgagor cannot of his own will revoke the appointment of a receiver, or that appointment would be useless. For valuable consideration he has committed the management of his property to an attorney whose appointment he cannot interfere with. The appointment so made will stand good against himself and all persons claiming through him, except incumbrancers having priority to the mortgagee who appoints the receiver. By degrees the forms of appointment of receivers became more complicated, and their powers of management more extensive; but the doctrine explained by Lord Cranworth in the case cited was consistently adhered to, and it remained true throughout that the receiver's appointment, and all directions and powers given and conferred upon him, were supposed to emanate from the mortgagor, and the mortgagee, though he might be the actual appointor, and might have stipulated for all the powers conferred upon the receiver, was in no other position, so far as responsibility was concerned, than if he had been altogether a stranger to the appointment. So common did this practice of appointing receivers by agreement between the parties become that, first by Lord Cranworth's Act (23 & 24 Vict. c. 145) to a limited extent, and afterwards by the Conveyancing and Law of Property Act, 1881, in a more general manner, a power to the mortgagee to appoint a receiver, who was to be agent of the mortgagor, was made a usual incident of mortgages, when not excluded by agreement between the parties. The last-mentioned Act extended the power to property of every description, placed the power to revoke as well as to make the appointment in the hands of the mortgagee, gave the receiver considerable powers of management, and yet made the mortgagor solely liable for all his acts and defaults. This Act, however, only applies in default of agreement between the parties. In itself it is useful only as a statutory recognition and approval of the practice of making the mortgagee's appointee the agent of the mortgagor only; but of course any of its provisions may be embodied in, as they may be excluded from, any particular mortgage security by express agreement between the parties."
- Against this background, and as Mr Smiley submitted, both the powers and duties of receivers are vested in them by their personal appointment and are the result of the long development of the law and practice relating to custodial responsibility for property, originally by way of equitable remedies. Receivers step into their role on appointment and relinquish it in a variety of ways depending on the type of receivership. The historical background also provides the context in which the 1925 Act makes the mortgagor solely responsible for a receiver's acts or defaults.
Vicarious liability
- Parties are jointly liable for a tort which they both commit or where the law imputes the same wrongful act to two or more persons at the same time; vicarious liability is an example of the latter.
- Mr Yerbury's attempt to rely on the doctrine of vicarious liability is, regrettably, something of a rearguard action. It was not set out in the original pleadings, and he has been compelled to fall back on it only because he made an error in his choice of party as defendant. There is nothing to indicate that it was a deliberate choice rather than a mistake. It was in fact the same mistake as was made in Ramsey (above) and for similar reasons. When asked to do so, the liquidator, an insolvency professional, assigned a right of action against the Receivers personally in relation to the allegation of a sale at an undervalue. That might have been thought to have been an informed indication as to who the correct parties were. Nevertheless, Mr Yerbury sued AHL alone and, I infer from the pleadings, did not have any argument about vicarious liability in mind at that stage.
- The central legal argument is nevertheless one of legal principle as to whether an employer can be vicariously liable for the actions of personally appointed receivers. I am grateful to Mr Smiley for his wide-ranging research (not all of which I have felt necessary to refer to in this judgment) and his conscientious discharge of the additional responsibilities which fall upon counsel where the opposing party is a litigant in person. I should also acknowledge that I was assisted by Mr Yerbury's courteous and well-structured arguments in court.
- Establishing vicarious liability involves a two-stage test. The test at the first stage is whether the relationship between the defendant and the person who committed the tort was one of employment or akin to employment. In most cases, determining whether an employer-employee relationship exists will be straightforward because there will be a contractual employer. Identifying a relationship which is "akin to employment" is more complex and will involve a careful examination of the features of the relationship.
- The second stage involves a consideration of whether the tortfeasor's wrongful conduct was so closely connected with acts that the tortfeasor was authorised to do that it can be fairly and properly regarded as having been done by the tortfeasor while acting in the course of their employment or quasi-employment.
- However, the law contemplates that the contractual or "general" employer may not be vicariously liable in some situations including, for example, complete transfers of control ("lent" employees) and liability for the employees of ostensibly independent contractors whose relationship with the defendant who engaged them, and who is not the general employer, can be brought within the "akin to employment" category. Thus, the capacity in which a tortfeasor is acting and the nature of the activities they are carrying out which give rise to a tort can alter the incidence of vicarious liability even where there is no question but that they remain for all other purposes employed by their contractual employer. In both examples (above) the general employer has "provided" the services of the employee but has ceased to be vicariously liable (barring a finding of dual vicarious liability). It is too simplistic to argue therefore that as long as the Receivers were employed by a firm or company offering their services as receivers, liability is made out. Similarly, if the employee is no longer acting in the course of their employment the foundation for liability under the second stage test falls away.
- In fairness to Mr Yerbury, he went further than merely pointing to the fact of employment or the offering of receivership services; relying on the more general policy consideration that an employer or quasi-employer benefiting from the activities of someone integrated into their organisation should bear the risk of wrongs committed by that person in the course of those activities. Whilst in difficult or novel cases, considering whether the outcome aligns with general underlying policy can be a useful final check, in the present case that ignores the overarching significance of the Receivers being appointed as individuals to an office with a raft of duties and powers which are neither defined by nor dependent upon their employment. Theirs was not a role that they were carrying out in their capacity as employees nor in so far as claims were brought against them qua receiver was it an activity that they carried out in the course of their employment.
Assignment
- In general, the assignment of a right of action against one joint tortfeasor does not automatically carry with it the right to sue the other joint tortfeasor. In the context of an assignment by a liquidator one might expect an assignment to be of all causes of action; the language of the assignment is however crucial. The assignment in this case only covered claims against the Receivers, not AHL. There is no other view that could be arrived at on the face of the assignment itself or indeed the context in which it was given. It seems clear however that the reason for that is that the liquidator intended to and did assign the only causes of action which, given my conclusions, were available. The hypothetical question of whether, had there been vicarious liability, the assignment would have carried with it a right to sue the Receivers' employers is academic. Mr Yerbury has equally not attempted to argue that the standstill agreement was with any other party than AHL.
Conclusion
- In respect of the ground of appeal on which Mr Yerbury received permission I conclude:
a. The Receivers were appointed personally under a deed of appointment over Bethels's assets. They owed their duties as receivers to Bethel's creditors, not to CLBC, their employer at the time. Those duties were wide ranging and in discharging them the Receivers were required to act autonomously and independently. That included making independent commercial decisions regarding the sale of Bethel's property.
b. Actions for breach of duty qua receiver are typically brought against the receiver personally, not against the firm that employs them or offers their services. Where this has been considered either directly or tangentially in the reported cases, observations made by the courts suggest that a claim against the employer founded simply on the receiver's breach of duty would not be possible. In my view this reflects the law.
c. The legislative framework means that LPA receivers are appointed personally so that there is a direct relationship, and thus accountability, between the receiver and the borrower, and, by extension, parties interested in the equity of redemption.
d. Since the appointment is personal it does not depend upon receivers maintaining their employment with any particular employer. The law treats receivers as independent agents, not as employees or representatives of their employer during the course of a receivership.
e. For the purpose of an analysis of vicarious liability, once appointed a receiver is acting in the course of their appointment in respect of acts and defaults in the receivership and not in the course of their employment. Thus their employer is not vicariously liable for such acts and defaults.
- It follows that I conclude that the Master reached the correct decision on the application before him. The appeal is therefore dismissed.
END
