Maloney v Filtons Ltd & Anor

A document is a sham only where the parties intended it to create rights and obligations different from those it appeared to create. The court must determine the parties’ true legal relationship from the evidence and the parties’ conduct. A managing agency may bind receivers who derive title through the owners. However, specific performance will ordinarily be refused where enforcement would require an ongoing relationship involving personal service, trust and co-operation. A party who collects money on behalf of receivers must account to them and must not pay those sums to the former owners.

The claim concerned residential apartments held by the McFeely brothers and charged to the Bank of Ireland. The defendants relied on a purported two-year lease from Ashwood Enterprises and claimed entitlement to sublet the apartments and retain rental income. The receivers contended that the lease was a sham or void and that the defendants were only managing agents.

The defendants were permitted to amend their defence to plead alternative rights arising from a tenancy at will or managing agency. The central issues were the validity of the lease, the true relationship between the parties, the duration and effect of any agency, the defendants’ duty to account, and whether they should continue managing the property.

1. Lease. Applying the principles in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, the court held that the purported lease was a sham. Its terms had not been implemented: the defendants had not paid rent to Ashwood, the sublettings did not treat the defendants as landlord, and the rental receipts were accounted for to the McFeely brothers after expenses and commission. Alternatively, the lease was void because Thomas McFeely lacked authority to execute it for Ashwood.
2. True relationship. The parties’ true relationship was that of owners and managing agent. The defendants were entitled to manage the property, grant assured shorthold tenancies and collect deposits, but had to account for rent after deducting proper expenses and 5% commission. The arrangement lasted until 31 October 2012 and was binding on the receivers because they derived title through the McFeely brothers.
3. Alternative tenancy and estoppel. The court rejected the contention that occupation under the void lease had created a tenancy at will which ripened into a fixed-term tenancy. No rent had been paid by the defendants under the purported lease, and the finding that the true relationship was a managing agency prevented that conclusion. Had there been a genuine lease executed by Ashwood, the conduct of the McFeely brothers might have estopped them and the receivers from denying it.
4. Accounting and management. After notice of the receivership, monies formerly payable to the McFeely brothers had to be paid to the receivers. The defendants’ payment of £120,000 to Thomas McFeely was improper and had to be repaid. The defendants also had to account for sums received after the relevant court orders.
5. Specific performance. Although exceptional cases may justify short-term specific performance, the court refused to compel continued management. The arrangement required personal service, trust and co-operation, and the defendants’ conduct showed that they could not safely be entrusted with further management. The defendants were instead to receive 5% commission on lettings achieved by the receivers until 31 October 2012, after deduction of the receivers’ relevant costs, subject to the final order.

The action was tried pursuant to expedited-trial directions made by His Honour Judge Mackie QC on 21 March 2012. Interim injunctive relief was granted by Mr Justice Warren on 14 March 2012 and continued by His Honour Judge Mackie QC on 21 March 2012.