Red River UK Ltd & Anor v Sheikh & Anor

A party who deliberately prevents completion of a contractual transaction cannot obtain specific performance of the part of the bargain which would survive that prevention. Where performance depends on a composite refinancing transaction, the parties may owe an implied obligation to co-operate in good faith. A contractual right to a legal charge does not create an equitable charge unless the contract is capable of specific performance. The court may restrain misconceived or vexatious Land Registry applications where they would improperly interfere with the registered proprietor’s rights, independently of contract.

The claim arose from a settlement agreement concerning the refinancing of property and the grant of security to the defendants. The defendants sought registration and delivery of a second legal charge, relying on the settlement and an undertaking recorded in an earlier order. They also sought discharge of an injunction restraining further Land Registry applications.

The proposed composite transaction failed after the first defendant presented a winding-up petition and sent correspondence to the proposed lender challenging its security and priority. The lender withdrew its facilities. The issues were whether the second charge could still be enforced or treated as an equitable charge, and whether the injunction should continue.

1. Defendants’ application refused. The second legal charge had been prepared and executed in anticipation of the composite transaction, but had not been dated or brought into force independently. The undertaking to register it was, by necessary implication, conditional on completion of that transaction. Since completion had become impossible, the undertaking never became operative.
2. The first defendant’s service of the winding-up petition and near-simultaneous correspondence challenging the proposed lender’s priority caused the withdrawal of the refinancing facilities. Taken as a whole, her conduct deliberately sabotaged the transaction and breached the implied contractual obligation under the settlement and Tomlin Order to co-operate in good faith.
3. That deliberate breach was an equitable bar to specific performance of the surviving security provisions. The second defendant could be in no better position because she had entrusted performance to the first defendant and had made common cause with her. Any surviving remedies were confined to common-law remedies in debt or damages.
4. The defendants did not have an equitable charge arising from the settlement. The equitable principle that regards as done what ought to be done applies only where the contract for the legal charge is specifically enforceable. Here the provision was both impossible to perform and unenforceable because of the defendants’ misconduct.
5. The injunction against further Land Registry applications was continued, subject to variation for a defined period. The court had jurisdiction, independently of contract, to restrain misconceived or vexatious applications which risked improperly interfering with the registered proprietor’s rights and jeopardising alternative refinancing.
6. The defendants were ordered to pay the claimants’ costs of the successful applications on 5 and 9 October. The costs of the 11 October hearing were costs in the defendants’ application.