Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997

Facts

• Silven Properties Ltd mortgaged properties to the Royal Bank of Scotland plc (RBS).
• Silven defaulted on its loan, triggering RBS’s statutory power of sale under the Law of Property Act 1925.
• RBS took possession and sold the mortgaged properties to recover the outstanding debt.
• Silven alleged RBS failed to obtain the best possible price for the properties, resulting in a shortfall and further liability for Silven.
• RBS obtained professional valuations, marketed the properties through reputable agents, and considered all offers received.
• No evidence was alleged or found of RBS acting in bad faith or selling to a connected party at an undervalue.

Issues

1. Whether RBS, as mortgagee, owed a duty to take reasonable care to obtain the best price reasonably achievable in exercising its power of sale.
2. Whether RBS was required to act as a fiduciary for the mortgagor in selling the properties.
3. Whether RBS’s marketing and sale process fulfilled its duty of care to the mortgagor.
4. Whether there was any breach of good faith or duty in the conduct of the sale.

Decision

• The Court of Appeal held that a mortgagee's duty, when selling mortgaged property, is to take reasonable care to obtain the best price reasonably attainable at the time of sale.
• The duty is not an absolute obligation to achieve the highest price, nor does it require the mortgagee to act as a fiduciary for the mortgagor.
• The mortgagee must act in good faith and avoid recklessness or negligence during the sale process.
• In this case, RBS had acted reasonably: it obtained independent valuations, marketed the properties appropriately, and did not act in bad faith or with ulterior motives.
• There was no breach of duty by RBS, and Silven Properties Ltd was not entitled to relief.

Legal Principles

• A mortgagee exercising power of sale must act in good faith and take reasonable care to obtain the best price reasonably achievable; this duty arises under the Law of Property Act 1925 and equitable principles.
• The mortgagee’s obligations do not amount to fiduciary duties; the interests of the mortgagee and mortgagor are to be balanced, but the mortgagee need not subordinate its own interests.
• The duty is not to achieve the highest possible price or to delay the sale for market improvements, but to act as a reasonable mortgagee in marketing and selling the property.
• The onus is on the mortgagor to prove breach of duty or bad faith by the mortgagee.

Conclusion

The Court of Appeal clarified that a mortgagee selling mortgaged property must act reasonably and in good faith to secure the best price reasonably obtainable, but is not required to act as a fiduciary for the mortgagor. In this case, RBS was found to have fulfilled its duty of care, and there was no breach or bad faith in its exercise of the power of sale.