Pennington & Ors v Crampton & Ors

Where a commercial settlement makes time of the essence and prescribes consequences for late payment, equity will hold the parties to their bargain. Relief against forfeiture is unavailable merely because the agreed consequence appears harsh. A conditional right to acquire shares is not penal simply because it is lost on default. An express undertaking to procure third-party acts may be specifically enforced without proof that the third parties will comply, unless circumstances have changed since the agreement so as to affect relief.

The application concerned a Tomlin Order made by the Court of Appeal on 19 February 2004 to settle disputes concerning shares in Crampton Bros (Coopers) Limited. The order required Mr Hurst to make specified payments, procure a sale notice and perform related obligations. It provided that failure to comply would remove his right to purchase 100 shares and permit the remaining shares to vest in Harold Crampton Junior.

Lloyd J construed the order on 25 March 2004, found breaches including failure to pay £40,000 by the specified date, ordered specific performance of the relevant undertaking and refused permission to appeal and a stay. Mr Hurst applied to the Court of Appeal for permission to appeal and a stay, arguing that equity should relieve against forfeiture or penalty and that specific performance should not require him to procure acts by third parties.

Lord Justice Waller delivered the judgment, with which Lord Justice Chadwick agreed. The application for permission to appeal and the application for a stay were dismissed.

1. Time of the essence. Mr Hurst accepted that the £40,000 payment had not been made to the specified account or made freely available by 18 March 2004, and that time was of the essence. The Tomlin Order was a commercial bargain which expressly specified the consequences of non-compliance. Applying the approach in Union Eagle v Golden Achievement [1997] AC 514, equity would not interfere with that bargain. The forfeiture argument therefore had no reasonable prospect of success.
2. Penalty argument. The agreed arrangement was not penal merely because its consequences were severe. If the bargain was performed, Mr Hurst would acquire 100 shares and Harold Crampton Junior would receive 300 shares. If it was not performed, Mr Hurst would lose the right to acquire the 100 shares and the 400 gift shares would vest in Harold Crampton Junior. That was the commercial allocation of rights agreed in settlement, not a basis for equitable intervention.
3. Specific performance. Paragraph 8(3) required Mr Hurst to procure that other members of the company did not object to or delay the vesting of the shares. The undertaking was unconditional and was not expressed as an obligation to use best or reasonable endeavours. The judge was entitled to infer that Mr Hurst would not have entered into the bargain unless he believed he could procure compliance. In the absence of evidence that circumstances had changed since the agreement, the judge was entitled to order specific performance without evidence that the third parties would in fact comply.
4. Subsequent change of circumstances and stay. The Court of Appeal did not determine disputed evidence about alleged later changes. If circumstances had changed so that the order could no longer be complied with, the proper course was to apply to the judge who made the order. There was otherwise no basis for a stay because there was no reasonable prospect of reversing the decision.

There was no order for costs against Brabners. Harold Crampton Junior’s costs were assessed at £7,500, payable within 28 days.

• Court of Appeal (Civil Division): On 17 June 2004, the court dismissed the application for permission to appeal and the application for a stay: [2004] EWCA Civ 819.
• Liverpool District Registry, Lloyd J: On 25 March 2004, Lloyd J construed the Tomlin Order, found Mr Hurst in breach, ordered specific performance of the relevant undertaking, and refused permission to appeal and a stay.