Summary
The Claimant defaulted on a loan secured by a mortgage on a warehouse building. It disagreed with the Receiver's approach to marketing the building and applied unsuccessfully to the Court for an order giving it conduct of the mortgagee sale. It's subsequent appeal to the Court of Appeal included appealing the Judge’s refusal of expert evidence. The Court of Appeal upheld the Judge’s decision as it was not clear how the report would provide any real assistance with resolving the question before the Judge of whether the conduct of the sale should be taken away from the Receivers.
Learning points for instructing parties
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If you wish to rely expert evidence, seek the Court’s permission as soon as possible. Do not wait until the hearing.
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It would be wise to ensure that your application addresses:
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Whether the expert evidence is necessary,
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If not, whether it will be of assistance to the Court, and
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If so, whether it is reasonably required to resolve an issue.
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The Court of Appeal will not lightly interfere with case management decisions, such as decisions on applications to rely on expert evidence, in the absence of an error of principle or a flawed decision.
The case
The Claimant defaulted on a loan owed to the first Respondent which was secured by a mortgage on a warehouse building. The Claimant disagreed with the Receiver’s proposed approach to selling the building and applied, unsuccessfully, to the Court for an order giving it conduct of the sale.
The Claimant/Appellant then appealed this decision to the Court of Appeal. Since there was no dispute between the parties that the property should be sold, the only question was who should have the conduct of the sale.
Grounds of appeal
The Appellant’s grounds of appeal were:
(1) The Judge was wrong to accept the proposition that where the mortgagee is actively exercising its power of sale the Court would only exceptionally exercise its discretion in favour of the mortgagor.
(2) The Judge was wrong to hold that the Appellant had failed to demonstrate that it would suffer unfairness, and erred in requiring it to prove on a balance of probabilities that the price at which the Receivers proposed to sell would be an undervalue.
(3) The Judge was wrong to hold that restraining the imminent sale of the Property would cause prejudice to the 1st Respondent.
The Appellant also appealed the Judge’s decision to refuse expert evidence on the grounds that she was wrong to do so.
Refusal of expert evidence
The Receivers had obtained market valuations from agents of £4.8m and £4.75m and two “Red Book” valuations from different chartered surveyors of (1) £4.8m to £5.3m and (2) £4.6 to £5m. They marketed the property on the basis that they were seeking in excess of £4.75m, which generated a number of offers and an expectation by the Receivers that they would sell the property for in excess of £5m. The Receivers subsequently received bids of just over £5m.
The Respondent disagreed with the Receiver’s approach to marketing the property and replied to the witness statements for the Receivers with a witness statement exhibiting what it purported to be an expert report from Mr F, a chartered surveyor. The report was drafted as an expert report and complied with CPR Part 35. It was mainly concerned with Mr F’s valuation of the property, which he valued the property at £7.23m. He had summarised his instructions as being to provide an Expert Valuation Report. The report also included some additional comments on the Receivers’ marketing strategy, noting that marketing at a low guide price to stimulate interest was not a standard method for selling a property of this type.
The Defendants’ solicitor wrote to the Court objecting to the report as one for which no permission had been given. A few days before the trial, the Respondents made an application, which was opposed by the Defendants, for permission to rely on Mr F’s report.
The Judge dealt with the application to adduce Mr F’s report at the outset. It was common ground that the relevant test was that in British Airways plc v Spencer [2015] EWHC 2477 (Ch), [2015] Pens LR 519 at [68]. In that case, Warren J identified three questions:
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whether expert evidence was necessary to resolve an issue;
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whether it would be of assistance to the Court in resolving an issue; and
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whether it was reasonably required to resolve an issue.
While both parties had accepted that Mr F’s report was not necessary, the Claimant/Appellant had argued that the report was reasonably required to counter the suggestion that the highest bid of just offer £5m was a reliable indication of the property’s value. However, the Judge had not been persuaded that it would assist her or that it was reasonably required, noting that “it as not clear to me what value it would add to the case”.
The Court of Appeal agreed that the Judge was entitled to come to the view she did. The Court noted that this was a late application made at the hearing itself and that asking for permission at the hearing put the Defendants at a disadvantage. In these circumstances, the Judge was right to be cautious about admitting the evidence and to consider whether the evidence was either reasonably required or would really assist in the resolution of the issues. It was not clear how the report would have provided any real assistance with resolving the question before the Judge of whether the conduct of the sale should be taken away from the Receivers.
The Court noted that the Judge had not been asked to admit the evidence as a basis for finding that the Receivers’ marketing strategy was wrong, which would have required giving the Defendants the opportunity to cross-examine Mr F and they might have wished to adduce further evidence of their own, and possibly even convert the proceedings to a Part 7 claim.
The Court of Appeal concluded that:
“In those circumstances I think [the Judge’s] decision was one that she could quite reasonably come to. It is well established that this Court will not lightly interfere with case management decisions in the absence of any error of principle, and the decision by the Judge here, involving as it did an evaluative exercise, seems to me a classic example of one which this Court will be very slow to disturb unless demonstrably flawed. I do not think the Judge committed any error of principle or reached a flawed decision, and there is no basis for overturning it.”