Vanessa Tanfield & Anor v Meadowbrook Montessori Ltd

Relief from sanctions may be granted where a breach is serious and lacks a good reason if, considering all the circumstances, refusal would be manifestly unjust and disproportionate. In winding-up proceedings, the petition should be dismissed where the petition debt is bona fide disputed on substantial grounds or the company has a strongly arguable cross-claim equal to or exceeding the debt.

A dispute requires more than assertion: it must have substance and rational prospects of success. A contractual forfeiture clause does not dispense with the common-law requirement of formal demand for rent unless that intention is sufficiently clear. Clauses concerning notices and deemed service may have a more limited function. The court may also consider waiver arising from a landlord’s subsequent demand for rent or presentation of a petition treating the lease as continuing.

The petitioners presented a winding-up petition against Meadowbrook Montessori Ltd for alleged rent arrears under a lease of school premises. The company admitted approximately £41,000 but disputed the balance, contending that historic alleged arrears represented disguised consideration for the transfer of shares.

After the petition was presented, the petitioners purported to forfeit the lease by peaceable re-entry without prior notice. The company contended that the re-entry was unlawful and advanced a cross-claim for damages substantially exceeding the petition debt.

The company applied for relief from sanctions so that late evidence concerning the cross-claim could be relied upon. The issues were whether relief should be granted and whether the petition should proceed in light of the disputed debt and cross-claim.

1. Relief from sanctions. Relief was granted under Civil Procedure Rules 1998, rule 3.9. The breach of the November 2023 order was serious and significant. The company had not established a good reason within the second stage of Denton v TH White Ltd, because inability to fund legal advice and acting in person were not, by themselves, good reasons. Nevertheless, the third stage required consideration of all the circumstances. The petitioners had long known the substance of the unlawful-re-entry case, declined an adjournment, and suffered no material evidential prejudice. Refusal would have been manifestly unjust and disproportionate.
2. Disputed petition debt. A winding-up petition should be dismissed where the debt is bona fide disputed on substantial grounds. The balance of the alleged arrears, apart from approximately £41,000, was strongly arguable not to be rent but the disguised purchase price for shares. The documentary and accounting evidence made the issue unsuitable for summary determination in winding-up proceedings.
3. Cross-claim. The company had a strongly arguable cross-claim exceeding the petition debt. The lease did not clearly dispense with the common-law requirement of formal demand before forfeiture for non-payment of rent. Clause 19.1’s reference to immediate re-entry and clause 22.1’s provisions on notices and deemed service did not have that effect. Forfeiture provisions were to be construed strictly, and the company had a strongly arguable case that presentation and service of the petition waived forfeiture rights for earlier quarters.
4. The alleged unlawful re-entry supported an arguable claim for general damages of at least £546,000 and potentially exemplary damages. The petition was therefore dismissed. Costs and related matters were reserved for submissions at hand-down.