Shaw v Doleman

On a liquidator’s disclaimer of a lease, Insolvency Act 1986 section 178(4) ends the insolvent assignee’s liability but preserves the landlord’s rights against a guarantor as though the lease and the assignee’s tenant covenants continued. An authorised guarantee agreement must be construed in that statutory setting. A provision limiting the guarantee to the period while the assignee is bound by the tenant covenants refers to the assignee’s deemed obligation for the purpose of the guarantee, unless the agreement properly provides for liability to end on disclaimer. A contractual option for the landlord to require a new lease is an additional remedy. It does not imply that the existing guarantee ends on disclaimer.

The claimant landlord sued the defendant, the original tenant, under an authorised guarantee agreement made when she assigned a 2004 commercial lease to Ceramic Café Ltd. The company fell into liquidation and its liquidator disclaimed the lease. The landlord claimed rent, insurance rent, costs, fees and interest unpaid by the assignee.

HHJ Barratt QC in the Chichester County Court held that the guarantor remained liable and entered judgment for the landlord for £16,921.87 plus costs. The original tenant appealed. The central issue was whether the guarantee’s defined Liability Period, being the period during which the assignee was bound by the tenant covenants, ended when the lease was disclaimed.

1. The appeal was dismissed unanimously. Mummery LJ gave the leading judgment, with which Stanley Burnton LJ and Elias LJ agreed. Under section 178(4) of the Insolvency Act 1986, disclaimer ended the lease and released the insolvent assignee from its own tenant liabilities. It did not affect the landlord’s rights against the guarantor.
2. Following Hindcastle Ltd v Barbara Attenborough Ltd [1997] AC 70, the lease and the assignee’s tenant obligations were deemed to continue for the purpose of preserved third-party rights and liabilities. The statutory deeming effect therefore had to inform the construction of the authorised guarantee agreement, rather than being disregarded as merely part of the background.
3. The agreement did not provide that the guarantor’s liability ended on disclaimer. Its definition of the Liability Period referred, in the statutory context, to the period during which the assignee was deemed to remain bound by the tenant covenants as against the guarantor. The guarantee therefore continued despite the assignee’s actual release on disclaimer. The court accepted that parties may provide, expressly or by proper construction, for a guarantee to end on disclaimer; this agreement did not do so.
4. The Landlord and Tenant (Covenants) Act 1995 released the original tenant from liability qua tenant after assignment, but permitted the separate authorised guarantee agreement. That statutory release did not displace the continuing guarantee liability determined under section 178(4).
5. Clause 5, which gave the landlord an option to require a new lease after disclaimer, was neither inconsistent with the continuing guarantee nor an exclusive remedy. Basch v Stekel [2001] L.&T.R. 1 was binding authority to that effect. The County Court judgment for the landlord accordingly stood.

• Court of Appeal (Civil Division) Dismissed the original tenant’s appeal and upheld the landlord’s judgment: [2009] EWCA Civ 279.
• Chichester County Court HHJ Barratt QC entered judgment for the landlord on 20 August 2008 for £16,921.87 and costs.