On Demand Information Plc v Michael Gerson (Finance) Plc

Relief from forfeiture may in principle be available for a finance lease of chattels. Possessory rights under the lease may suffice, although purely contractual rights do not. The commercial nature of the transaction and the depreciating character of the goods affect the discretion, not jurisdiction. Relief is directed to continuation of the lease, not rewriting the bargain or obtaining a money payment after the leased goods have been sold. Where the lessee procures an interim sale without securing agreement that its rights will be determined as if no sale had occurred, the sale may make relief impossible.

On Demand Information Plc and its subsidiary entered into four finance leases of video-production equipment from Michael Gerson (Finance) Plc and its associated company. After On Demand went into administrative receivership, the lessors terminated the leases. On Demand obtained an order from Harman J permitting the equipment to be sold, with the proceeds held in escrow, and then sought relief from forfeiture so as to obtain the benefit of the leases’ sales-agency provision.

The deputy judge held that the court had jurisdiction to grant relief for this kind of finance lease and would have granted relief if the equipment had remained unsold, but held that the completed sale prevented effective relief. On Demand appealed that conclusion. The lessors cross-challenged the existence of jurisdiction.

1. Appeal dismissed. By a majority, Robert Walker LJ and Pill LJ held that a finance lease of chattels can attract equitable relief from forfeiture. The rights conferred by the leases were not merely contractual: they gave the lessee continuing possession and qualified the owner’s general property.
2. The jurisdiction remains confined by the principles stated in Shiloh Spinners v Harding [1973] AC 691. The forfeiture provision must secure payment of money or the attainment of a specific and attainable result. The commercial character of the leases and the wasting nature of the equipment were relevant to discretion, but did not exclude jurisdiction.
3. Relief could not be granted after the sale. It is relief against forfeiture of property and is directed to continuation of the lease, not extinction of the lease or payment of a fund substituted for the goods. To grant the relief sought would effectively rewrite the commercial bargain.
4. Sir Murray Stuart-Smith dissented on the effect of the sale order. He considered that the order preserved the parties’ rights as they stood when it was made. The majority rejected that construction.
5. The respondents were awarded 60 per cent of their costs, with an interim payment of £12,000 subject to detailed assessment.

• Court of Appeal: The appeal from the Chancery Division was dismissed by a majority of Robert Walker LJ and Pill LJ. Sir Murray Stuart-Smith dissented on the effect of the sale order.
• High Court, Chancery Division: Mr George Laurence QC, sitting as deputy judge, dismissed the action. His decision is reported at [1999] 2 AER 811.