is a
UK insolvency law
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While Bankruptcy in the United Kingdom, UK bankruptcy law concerns the rules for natural persons, the term ''insolvency'' is generall ...
case concerning the duties of a receiver and manager in the United Kingdom, over and above a duty of
good faith
In human interactions, good faith () is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case with , which i ...
, as to the manner in which he conducts a business.
Facts
Medforth conducted
pig farming
Pig farming, pork farming, pig production or hog farming is the raising and breeding of domestic pigs as livestock, and is a branch of animal husbandry. Pigs are farmed principally for food (e.g. pork: bacon, ham, gammon (meat), gammon) and l ...
on a large scale, with a £2 million annual turnover and a herd of 3000 sows, 120 boars and 11000 weaners. His bank appointed receivers who ran the business from February 1984 to September 1988, when Medforth found a new source of finance and repaid the bank. Medforth advised the receivers that they could get large discounts from foodstuffs suppliers, amounting to £1000 a week, which he had previously been able to obtain, but the receivers did not attempt to obtain any such discount until early 1988. In February 1990, Medforth sued them for failure to obtain such commercial discounts either as breach of a
duty of care
In Tort, tort law, a duty of care is a legal Law of obligations, obligation that is imposed on an individual, requiring adherence to a standard of care, standard of Reasonable person, reasonable care to avoid careless acts that could foreseeab ...
, or if the only duty was that of
good faith
In human interactions, good faith () is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case with , which i ...
, such a breach (even though it did not arise from any
deceit
Deception is the act of convincing of one or many recipients of untrue information. The person creating the deception knows it to be false while the receiver of the information does not. It is often done for personal gain or advantage.
Deceit ...
or of any conscious or deliberate impropriety).
In the
Queen's Bench Division
The King's Bench Division (or Queen's Bench Division when the monarch is female) of the High Court of Justice deals with a wide range of common law cases and has supervisory responsibility over certain lower courts.
It hears appeals on point ...
, McGonigal J ruled:
#the Receivers, when exercising their power of sale, owed Mr Medforth, over and above a duty of good faith, an equitable duty of care,
#the standard of that duty of care was the standard of a reasonably competent receiver
#no sensible distinction could be drawn between the exercise of a power of sale and the exercise of a power to manage a business, that the power to manage was ancillary to the power of sale and that the equitable duty of care was applicable to both
The receivers appealed to the Court of Appeal.
Judgment
The Court of Appeal dismissed the receivers' appeal and held that the duty of care in equity was breached.
Scott VC, drawing upon jurisprudence established in such prior cases as ''
Cuckmere Brick Co v Mutual Finance'' and ''
Downsview Nominees Ltd v First City Corporation Ltd'', summarised the law as follows.
However, McGonigal J's ruling, while essentially correct, required some minor qualifications:
:* the power to manage a business is independent of the power to sell, but, in the management of the business, an equitable duty of care is owed
:* the breach of a duty of good faith should, in this area as in all others, require some dishonesty or improper motive, or some other element of bad faith, to be established
Swinton Thomas LJ and Tuckey LJ concurred.
Significance
''Medforth'' revised the position previously taken by the
Privy Council in ''Downsview Nominees'', where a receiver's duty of care to the company was limited to a requirement that he take reasonable steps to obtain a proper price on the exercise of his power of sale. The Court of Appeal effectively stated that:
:* a receiver owes an equitable duty of skill and care to the debtor company, should he decide to continue trading,
:* so long as this does not conflict with his fiduciary duty to act in the interests of the debentureholder.
See also
*
UK insolvency law
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While Bankruptcy in the United Kingdom, UK bankruptcy law concerns the rules for natural persons, the term ''insolvency'' is generall ...
Notes
References
*
*
* {{cite journal , author= Sandra Frisby, year= 2000, title= Making a Silk Purse out of a Pig's Ear - ''Medforth v Blake & Ors'', journal=
Modern Law Review
The ''Modern Law Review'' is a peer-reviewed academic journal published by John Wiley & Sons on behalf of Modern Law Review Ltd. and which has traditionally maintained close academic ties with the faculty of law at the London School of Economic ...
, volume= 63, issue= 3, pages= 413{{endash423, doi= 10.1111/1468-2230.00271, url= http://heinonline.org/HOL/LandingPage?collection=journals&handle=hein.journals/modlr63&div=35&id=&page=, url-access= subscription
United Kingdom insolvency case law
Court of Appeal (England and Wales) cases
1999 in United Kingdom case law