Closegate Hotel Development (Durham) Ltd & Anor v McLean & Ors

A company in administration retains authority to challenge the validity of the administrators’ appointment. That authority does not depend on the directors first providing a costs indemnity. A promissory estoppel requires a clear and unequivocal representation. Mere settlement negotiations, agreed stays of related litigation, or a creditor’s willingness to seek a consensual solution do not, without more, suspend the creditor’s rights. An estoppel cannot rest on words reasonably open to several meanings, particularly where the alleged arrangement would be uncertain or commercially impracticable. Where the material communications are known and substantially undisputed, the court may decide the issue summarily.

The applicants, two hotel-development companies, sought a declaration that the respondent bank’s appointment of joint administrators under paragraph 14 of Schedule B1 to the Insolvency Act 1986 was invalid. They argued that paragraph 16 prevented the appointment because the bank’s floating charges were not enforceable.

The alleged lack of enforceability rested on a promissory estoppel. The companies said that negotiations concerning settlement and refinancing, together with stays of related High Court proceedings, meant that the bank had agreed not to demand repayment or enforce its security without reasonable notice. The respondents sought summary disposal under CPR 24.2. The issues were whether the companies had standing to bring the application and whether the evidence disclosed a real prospect of establishing the alleged estoppel.

1. Standing. The directors retained authority under paragraph 64 of Schedule B1 to cause the companies to challenge the logically prior question whether the administrators had any powers to exercise. The concept of a management power was primarily directed to powers which could impede the administrators’ exercise of corresponding powers. It did not prevent a challenge to the validity of the appointment.
2. That authority was not conditional upon an indemnity for costs. Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] QB 814 and Sutton v GE Capital Commercial Finance Ltd [2004] 2 BCLC 662 did not establish such a condition. They indicated instead that outside funding or security for costs might be required as a practical or procedural matter. The court also noted the possible relevance of third-party costs orders under section 51 of the Senior Courts Act 1981.
3. Summary disposal. The issue could be determined summarily under CPR 24.2. The alleged representation was contained in communications known to the companies, and the relevant oral evidence was accepted for the purpose of the application. Disclosure and cross-examination could not be justified by an unparticularised suggestion that further material might emerge.
4. Promissory estoppel. The weight of authority required a clear and unequivocal statement. If words were reasonably capable of several interpretations, one of which did not support the estoppel, they could not found an estoppel without clarification. Participation in settlement negotiations did not itself suspend a creditor’s legal rights. The bank’s express reservation of all rights, the limited and terminable stays of the High Court claim, and the absence of a workable basis for determining when negotiations ended or how long reasonable notice should be made prevented the alleged representation from meeting that standard.
5. The companies therefore had no real prospect of establishing that the bank was estopped from demanding repayment or enforcing its security. The application was dismissed.

First-instance decision. No appellate history was stated in the judgment.