The Co-Operative Bank Plc v Hayes Freehold Ltd & Ors

On an application to strike out or obtain summary judgment, the court should determine a short legal or construction point where the evidence is sufficient, but the claimant need only show a realistic cause of action. A deed must be construed as a whole. An express statement that a release is unconditional does not necessarily exclude an implied condition precedent affecting the operation of the deed as a composite transaction. Nor does it necessarily allocate the risk of a fundamental common mistake. Where the transaction’s underlying premise fails, the court may find that the entire deed, including consequential releases, is ineffective. Expedition requires a threshold finding of urgency. That threshold may be met where the dispute concerns responsibility for managing property, rather than merely liability for money.

The proceedings concerned a deed by which leases of commercial premises were purportedly surrendered and liabilities under an underlease and guarantee were released. The Co-Operative Bank claimed that the surrenders were ineffective without its consent as chargee. Deutsche Bank brought a Part 20 claim against Sentrum Holdings, relying on an implied condition precedent and common mistake. Holdings applied to strike out or obtain summary judgment. Deutsche Bank applied to amend its claim to include fraudulent misrepresentation and sought an expedited trial. The court had to determine whether the pleaded implied-condition and mistake claims were legally unsustainable and whether expedition was justified.

1. The court dismissed Holdings’ application under Civil Procedure Rules 1998, rules 3.4 and 24.2. Deutsche Bank did not have to establish that its case was correct at that stage. Holdings had to show that the claim disclosed no reasonable grounds or had no real prospect of success. The court had sufficient material to determine the short construction points, while making clear that the trial judge was not bound by its provisional conclusions.

2. The deed was a composite transaction whose fundamental premise was the effective surrender of the Superior Lease and the Underlease. Construed as a whole, the releases in clauses 4, 5 and 6 were consequential upon that premise. The phrase “unconditionally and irrevocably” did not require the court to treat the release of the guarantor as freestanding if the surrenders could not take effect.

3. The court held that Deutsche Bank had a realistic case that an implied condition precedent required Hayes to have power to accept the surrender and Sentrum to have power to effect the Underlease surrender. Without that condition, the transaction would lack commercial and practical coherence. The failure of the underlying premise infected the deed, including the release of Holdings.

4. The same conclusion could be analysed through common mistake. The deed had not allocated the relevant risk to Deutsche Bank merely by describing the releases as unconditional. The inability to effect the agreed surrenders without the Co-Operative’s consent could render the whole deed impossible of performance. The pleaded mistake claim was therefore not manifestly ill-founded.

5. The section 423 claim under the Insolvency Act 1986 was withdrawn and struck out. The amendment application was allowed by consent. Expedition was ordered because the proceedings concerned responsibility for management and letting of the premises, and the threshold condition of urgency was satisfied, subject to directions that preserved Holdings’ ability to defend the claim.