Red River (UK) Ltd & Anor v Sheikh & Anor

The court will not require a party apparently entitled to security for a contractual debt to surrender that security in exchange for uncertain future payments, particularly where those payments represent less than the amount secured. Recasting the application as one to vary solicitors’ undertakings does not alter its substance. A possible cross-claim for damages does not invalidate or displace existing security. Whether to release security in these circumstances is ordinarily a matter for the secured party’s commercial judgment, not an order the court should impose.

Red River sought variation of undertakings given by its solicitors under a consent order, so that documents enabling the removal of restrictions and a unilateral notice from the title to development land could be released to the Land Registry. The proposed consideration was payment of £300,000, and potentially a further £100,000, into court from a proposed sale and development.

The restrictions and undertakings appeared to protect the Sheikhs’ contractual entitlement to payment and security under a settlement agreement. Red River relied additionally on a pleaded cross-claim for damages arising from an alleged breach of an implied obligation to act in good faith. The central issue was whether the court should compel release of the security on those terms.

1. Application dismissed. The court assumed, without deciding, that it had power in an appropriate case to vary undertakings contained in a consent order.
2. The substance of the application was nevertheless an attempt to require the Sheikhs to surrender rights which at least arguably secured contractual sums due under the settlement agreement and consent order. The proposed payments were uncertain, conditional on a sale and development, and amounted to less than one third of the sums due. It would therefore be wrong to compel the Sheikhs to give up their security.
3. The court’s jurisdiction to vary undertakings could not properly be used to defeat or materially diminish an arguable contractual entitlement to security. Whether the Sheikhs should release that security, and on what terms, was a matter for their commercial judgment.
4. A possible cross-claim for damages did not invalidate the Sheikhs’ security. Even if Red River had a substantial claim, that was a separate matter. The evidence was also insufficient to establish either the alleged breach of the implied term or the claimed loss before trial.
5. An adjournment to improve the evidence on quantum was refused. The application had been pending for sufficient time, the value of the cross-claim was central to the proposed shortfall, and there was no certainty that adequate evidence would become available.

First-instance decision. The judgment refers to earlier decisions in the same litigation, including [2008] EWHC 1380 (Ch), but no appellate history of the present application is stated.