Michael Gerson (Leasing) Limited v Loach & Ors

Permission to appeal is appropriate where a proposed contractual-construction challenge is properly arguable; the permission stage does not resolve the merits. The issue identified was whether a leasing agreement’s reference to interest on all arrears covered only accrued rental arrears, or also future rentals accelerated and discounted following termination. The court held that this construction argument was properly arguable and directed that it be heard as a short appeal. It made no determination of the correct construction.

Gerson obtained judgment in the High Court against three personal guarantors following termination of a sale and lease-back arrangement. His Honour Judge Langan QC rejected, among other matters, a non est factum defence and an attack on the valuation evidence, and entered judgment for just over £160,000.

The defendants’ application for permission to appeal was out of time, although an extension had already been granted. Their amended notice raised only the calculation of interest under clause 9(c)(iv) of the leasing agreement. The central question was whether interest on all arrears included future rentals accelerated and discounted under clause 9(c)(ii).

1. Permission granted. Lord Justice Aldous allowed the application for permission to appeal. The court did not determine the merits of the contractual construction issue.
2. The claim arose from a sale and lease-back agreement between Gerson and S&J Loach Ltd, supported by personal guarantees from the defendants. Following termination for non-payment, Gerson claimed a termination sum comprising accrued rental arrears, discounted future rentals, less the open market value of the equipment, together with contractual interest.
3. The amended appeal concerned the application of clause 9(c)(iv). That provision required interest on all arrears. The applicants submitted that this referred back only to the accrued rental arrears in clause 9(c)(i), because future rentals under clause 9(c)(ii) were accelerated payments rather than arrears. They also relied, if necessary, on construction against Gerson’s interest.
4. The court concluded that the submission was properly arguable before the Court of Appeal. The issue therefore required determination on the substantive appeal. The matter was suitable for the short warned list and was estimated to require no more than half a day.
5. Costs of the permission application were made costs in the appeal. Enforcement was stayed in respect of any sum exceeding £95,885.50, with liberty to apply on notice to discharge the stay.

• Court of Appeal (Civil Division) — In [2002] EWCA Civ 450 , Lord Justice Aldous granted permission to appeal on the interest-calculation issue and made related case-management and enforcement orders.
• High Court of Justice, Chancery Division, Leeds District Registry — His Honour Judge Langan QC, sitting as a deputy High Court judge, rejected the defendants’ defences and entered judgment for Gerson for the claimed termination sum.