LCP Retail Ltd v Segal

A landlord’s abandonment of a distress is determined objectively by the landlord’s intention, as established by the evidence. The tenant’s belief that the distress has been discharged is irrelevant. Omitting the distress from a proof of debt may surrender the security for the general benefit of creditors under the Insolvency Rules 1986, unless the court grants relief for inadvertence or honest mistake. Such an omission, together with an absence of protest when distrained goods are removed, may support an inference that the landlord intended to abandon the distress. An appellate court will not interfere with the first-instance factual conclusion unless satisfied that it was wrong.

Premier Karting World Ltd entered liquidation after its landlord had distrained goods at the company’s premises under a walking possession agreement. The company later removed and sold some of those goods without the landlord’s permission. The net sale proceeds were held by the auctioneers.

The liquidator applied for directions as to whether the proceeds belonged to the landlord or should be paid into the liquidation. The Registrar held that the landlord had abandoned the distress and, alternatively, that it would be inequitable to allow the landlord to complete it. The landlord appealed, challenging the finding of abandonment and the reliance placed on its letter, its failure to protest, and its proof of debt.

1. The appeal was dismissed. The Registrar’s order directing payment of the net proceeds to the liquidator stood.

2. Whether a distress has been abandoned depends on the landlord’s intention, as shown by the evidence. The company’s or director’s belief that payments and the rent deposit had discharged the distress was irrelevant. The court relied on Swann v The Earl of Falmouth (1828) 8 B&C 456, Kerby v Harding (1851) 6 Exch 234, Bannister v Hyde (1860) 2 E&E 627, and Lumsden v Burnett [1898] 2 QB 177.

3. The landlord’s proof of debt was particularly significant. Under rules 4.67 and 4.70 of the Insolvency Rules 1986, the rules governed proofs for voting. Rule 4.67(4) restricted a secured creditor’s vote to the balance after deducting the value of its security. Rules 4.75(1) and 4.76 permitted details of security to be required. Rule 4.96(1) provided that a secured creditor omitting its security surrendered it for the general benefit of creditors, subject only to relief for inadvertence or honest mistake.

4. The landlord had left the security box blank and produced no evidence explaining the omission. Its failure to mention the distress, protest at the removal of the goods, or qualify its request that the premises be cleared was consistent with an intention to abandon the distress. Its later assertion of the distress did not displace that inference.

5. Having concluded that the distress was abandoned, it was unnecessary to decide the alternative issues of equitable restraint or estoppel.

1. High Court (Chancery Division): The appeal from the order of Registrar Derrett dated 30 March 2006 was dismissed.