Bristol Alliance Nominee No 1 Ltd & Ors v Bennett & Ors

The Court of Appeal allowed the landlords' appeal and ordered specific performance of surrender agreements for two leasehold stores. Key legal principles were: the escrow monies were held by solicitors as stakeholders under a tripartite contract (not as trust money); specific performance remains an available remedy against a company in administration where the contract is one typically enforced in relation to land; and the court should not refuse specific performance merely to protect the pari passu interests of unsecured creditors where the order would not deprive the insolvency estate of assets distributable to creditors. The decision rested on the construction of the surrender deeds (including the concurrent obligations to execute the transfer and to pay the "Price"), the stakeholder analysis, and authorities establishing that a purchaser's equitable interest or entitlement to specific performance may bind a company in insolvency.

Background and parties. The company A|Wear UK Limited had leasehold stores in Bristol and Leicester. Each landlord and the company entered into an "Agreement for surrender and deed of variation" whereby the company agreed to surrender the lease in return for a substitute "Turnover Rent" and a negative premium (the "Price"). The landlords paid the bulk of the Price into their solicitors' client accounts as an escrow amount.

Procedural history. The company entered administration on 22 December 2011, and the administrators refused to complete the surrenders. The landlords sought permission under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986 to bring proceedings for specific performance; the deputy High Court Judge ([2012] EWHC 2050 (Ch)) refused permission. The landlords appealed to the Court of Appeal.

Nature of the application. The administrators sought directions on (i) whether the landlords were entitled to the escrow monies held by solicitors, and (ii) if not, whether the landlords should be permitted to bring proceedings for specific performance of the surrender agreements, which, if successful, would entitle them to those monies.

Issues framed.

• How were the escrow monies held by the solicitors (stakeholder contract or trust)?
• Had the landlords become entitled to the escrow monies prior to completion or administration?
• Was specific performance of surrender appropriate despite the company being in administration, and could the court refuse the remedy to protect the pari passu position of unsecured creditors?

Court's reasoning. The Court of Appeal agreed with the judge that the solicitors held the escrow monies as stakeholders under a tripartite contractual structure. The appellants' primary argument that the escrow payment event had already occurred or that an implied term entitling release on tenant default was rejected: the Court held entitlement to the escrow monies arose only upon completion of the transfer on the Completion Date as part of the concurrent obligations comprising the Price. The Court then reversed the deputy judge on the remedy: applying established principles (including In re Bastable and Freevale), the Court held a company in administration remained subject to an order for specific performance regarding land where the contract was of a type normally specifically enforced, and declining specific performance merely to protect future contingent realisations for creditors was not a proper exercise of discretion where the order would not deprive the insolvency estate of assets then distributable.

Subsidiary findings: the landlords could in any event pursue forfeiture and prove in the insolvency for damages, but that route did not justify refusing specific performance.

Appeal allowed. The Court of Appeal held that the solicitors held the escrow monies as stakeholders and that the landlords were entitled to specific performance of the surrender agreements. The court concluded that a company in administration can be ordered to perform contracts for the disposition of land and that denying specific performance merely to preserve a possible future realisation for creditors was not a proper exercise of discretion where the order would not strip the insolvency estate of distributable assets.

Order below: Deputy High Court Judge Mr David Donaldson QC, Companies Court, Chancery Division: [2012] EWHC 2050 (Ch) (order refusing permission for landlords to sue for specific performance). Appeal to the Court of Appeal (Civil Division): [2013] EWCA Civ 1626 (this judgment).