Relief against forfeiture

On Demand Information Plc and another v Michael Gerson (Finance) Plc and another (H of L TLR 2 May)

The claimant lessees entered into four finance leases for the making and editing of videos granted to them by the defendant lessors. When the lessees went into administrative receivership, the lessor terminated all four leases pursuant to a provision that such an appointment would constitute a repudiatory breach. The leases were each for a primary period of 36 months by the end of which period the lessor would have recouped the cost of the equipment with interest together with other costs and profit. When the primary period expired, which it had, the lessee was entitled to continue the lease indefinitely for successive secondary periods of 12 months for a nominal annual rental payable on the first day of each secondary period. The receivers applied for relief against forfeiture but in the meantime received an attractive offer to sell the business together with the equipment, which could not wait until the outcome of the application for relief against forfeiture. Accordingly, they obtained from the court an interim order to enable the equipment to be sold, giving good title to the purchaser and for the proceeds to be retained in an escrow account pending the hearing of the motion for relief from forfeiture. The trial judge and the Court of Appeal dismissed the application for relief from forfeiture on the ground the court no longer had power to grant such relief because the equipment was no longer in the lessee’s possession so that it was impossible to restore the status quo. The House of Lords disagreed. The sale did not affect the rights of the parties, although it could affect the remedy which the court granted. The court was entitled to make an order in relation to the proceeds of sale so as to give effect to those rights. The question was how to give effect to those rights once the equipment was sold, not pursuant to the provisions of the leases, but to an order of the court which was intended so far as possible to preserve the parties’ rights. There was no real difficulty in formulating an appropriate order in this case.