Bristol Alliance Nominee No 1 Ltd and others v Bennett and others

Insolvency – Specific performance – Permission of court – Insolvency Act 1986 — Agreements between appellant landlords and respondent tenant for surrender of leases – Appellants agreeing to release tenant from obligations in return for payment of specified price – Part of price held on escrow by appellants’ solicitors pending completion of agreement – Tenant going into administration without surrendering leases or paying price – Whether appellants entitled to payment of escrow sum – Whether appellants to be granted permission bring proceedings for specific performance of agreements – Appeal allowed in part The third respondent, a women’s fashion retailer, held leases of retail premises in Bristol and Leicester from respectively, the first and second appellants and the third and fourth appellants; those leases dated from 2008 and were for terms of 10 and 15 years. The third respondent traded at a loss and, in May 2010, the parties agreed to reduce the rent under each lease pursuant to an “agreement for surrender and deed of variation”. Under each agreement, the third respondent was to pay a price equal to the original basic rent, plus VAT, in return for the release of its obligations under the original lease; that sum, less the VAT, was to be held on escrow in the client account of the appellants’ solicitors until completion of a surrender of the original leases. The escrow sum was £340,000 for in respect of the Bristol premises and £210,000 for the Leicester premises. The third respondent went into administration in December 2011, without having surrendered the leases or paid the specified price in compliance with notices served by the appellants. The appellants sought to bring proceedings against the third respondent for specific performance of the agreements but, owing to the administration, could not do so without the consent of the first and second respondents, as the joint administrators, or the permission of the court: see para 43(6) of Schedule B1 to the Insolvency Act 1986. The administrators refused consent but later agreed to seek directions from the court. Directions were sought as to whether the appellants: (i) were entitled, in the events that had happened, to be paid the escrow sums; or (ii) should be permitted to bring proceedings for specific performance of the agreements. The appellants were content to accept only that part of the total price represented by the escrow moneys and to prove in the insolvency for the VAT element. The deputy judge ruled against the appellants on both points. In relation to the specific performance claim, he held that the appellants should not be permitted to issue proceedings since their true interest in doing so was not to put an end to the leases, which they could achieve without a surrender by forfeiting them for non-payment of rent, but to obtain payment of the escrow moneys, contrary to the interests of other creditors: see [2012] EWHC 2050 (Ch). The appellants appealed. Held: The appeal was allowed. (1) The solicitors held the escrow moneys as stakeholders, not as trustees, under a tripartite contract between them, the third respondent and the appellants. Pending the occurrence of an event in which the moneys were payable to either the third respondent or the appellants, the solicitors would hold the moneys to the order of both and were bound to pay that or an equivalent sum to them or as they might jointly direct: Rockeagle v Alsop Wilkinson (a firm) [1992] Ch 47 applied. Subject to that, the solicitors were bound to await the happening of the event and then to pay the money to one or other of the parties according to the event. In the instant case, the appellants’ only right to the escrow moneys was as part of the price for the surrender. That money was therefore only payable to the appellants against the execution of the transfer upon completion. Since the surrender agreement had not been completed and, failing any order for specific performance, would not be completed, the appellants had acquired no right to the payment of those moneys. (2) Faced with the administrators’ refusal to complete the surrender, the appellants’ contractual rights were either: (i) to treat such refusal as a repudiation of the agreement and to accept it, so bringing the agreement to an end; or (ii) to seek permission, as it had done, to sue for specific performance of the agreement. In the former case, the appellants would be entitled to claim damages for its loss but would have to prove for them in the company’s insolvency. However, if they were able to sue for, and obtain, an order for specific performance, then, on the working out of that order, they would be entitled to the escrow money against completion of the transfer. On such completion, the event would occur that triggered their entitlement to the escrow money. There was no reason why the appellants should not be permitted to bring proceedings for specific performance. Prior to the administration, the appellants had had a right, on giving appropriate notice, to compel the third respondent to complete the surrender. Had such a claim come to court before the third respondent went into administration, there could have been no good reason to refuse such an order and the consequence of the order would have been to entitle the appellants to the payment of the escrow moneys. The parties to the surrender agreement had intended to achieve precisely that commercial result. The third respondent’s entry into administration had not resulted in any material change of circumstances. The appellants remained as much entitled to an order for specific performance as they had before. The effect of such an order would be to entitle the appellants to the escrow money; it would not entitle them to money that was part of the third respondent’s assets or therefore available for its creditors, and so such an order would not deprive the third respondent of any assets then distributable to such creditors. Consequently, the order would have no impact upon the pari passu principle applicable in insolvency cases. To refuse an otherwise appropriate order for specific performance would promote the interests of the third respondent’s creditors over those of the appellants in circumstances where there was no sound basis for doing so. Although specific performance was a discretionary remedy, such considerations could not be a proper basis for refusing it: In re Bastable, ex parte The Trustee [1901] 2 KB 518 distinguished. Lloyd Tamlyn (instructed by Eversheds LLP, of Birmingham) appeared for the appellants; Tom Shepherd (instructed by Dentons UK MEA LLP, of Milton Keynes) appeared for the respondents. Sally Dobson, barrister