Bankruptcy – Law of Property Act 1925 – receivers – receivership over property belonging to the bankrupt – mortgages – equity of redemption

Mr Purewal purchased a buy-to-let property and fell into arrears on his mortgage repayments. The bank appointed LPA receivers over the property who told Mr Purewal that he should cancel his buildings insurance policy as the receivers had taken out their own policy over the property. Whilst the property was vacant a water tank leaked. Mr Purewal notified the receivers who took no action. The leak caused serious damage, which Mr Purewal repaired at his own expense. In the meantime, Mr Purewal was adjudged bankrupt.

Mr Purewal issued a claim against the receivers seeking damages for the costs he incurred in repairing the property. He pleaded that they should have made a prompt claim on their policy of insurance to repair the damage caused by the leak. At first instance, the court held that the receivers owed no duty to Mr Purewal. He appealed.

Dismissing his appeal, the Court of Appeal held that, following his bankruptcy, Mr Purewal’s property vested in his trustee. Accordingly, Mr Purewal could only have a cause of action against the receivers if he retained some interest in the property following the bankruptcy order sufficient to justify the receivers’ continuing to owe him a duty.

Following Medforth v Blake [2000] Ch 86, LPA receivers owed an equitable duty of care to take into account the interests of the mortgagor and anyone else interested in the equity of redemption. Mr Purwal argued that the bankruptcy order did not deprive him of his status as mortgagor, especially as he remained liable under the mortgage during the bankruptcy until discharge (albeit that the bank would not be able to take action to enforce this liability given the statutory moratorium).

The Court of Appeal held that the duty in Medforth v Blake was owed by a receiver to a mortgagor only if the mortgagor retained an interest in the equity of redemption. In the case of bankruptcy, the mere matter of timing such that a mortgagor remained liable until discharge was insufficient, as the equity of redemption vested in the trustee.

LPA receivers do not owe equitable duties to a bankrupt mortgagor to manage property with regard to his interests; such duties are owed to the person with an interest in the equity of redemption – in these circumstances, the trustee in bankruptcy.