Key Points

  • Receivers only owe a duty of care to those parties who hold an interest in the equity of redemption.
  • Upon the making of a bankruptcy order, the bankrupt ceases to participate in any such interest and the equity of redemption vests in the trustee in bankruptcy.

The Facts

The Appellant originally brought proceedings against the receivers of a residential property for damages arising out of breach of duty based on their failure to claim on an insurance policy after the Appellant had identified a leak at the property. The Appellant had subsequently made repairs to the property at his own expense. The Judge at first instance had dismissed the Appellant’s claim on the basis that any such duty owed by the receiver to the mortgagor ceased upon the latter’s bankruptcy.

The Decision

The Judge upheld the decision at first instance. Duty would be owed to the mortgagor if and to the extent that he retained an interest in the equity of redemption. However, on the making of a bankruptcy order this ceases to be the case and the equity of redemption vests in the official receiver or trustee in bankruptcy. Despite the mortgagor retaining legal liability under the charge, this is finite in nature and extinguished upon his discharge from bankruptcy. There was no authority supporting the assertion that receivers owe a duty to a bankrupt mortgagor, neither did the Judge see any justification for imposing any.

Comment

The liability of a bankrupt under a mortgage cannot extend beyond his discharge from bankruptcy and to the extent it continues to exist until then it is more theoretical than real. It would have been interesting to see what would have happened if the Appellant had bought any claim the trustee had against the receivers.

Purewal v Countrywide Residential Lettings Ltd