SBP 2 S.À.R.L v 2 SOUTHBANK TENANT LIMITED

A contractual forfeiture provision incorporating the statutory concept of inability to pay debts on a cash-flow or balance-sheet basis requires that inability to have been proved to the satisfaction of the court before the right of forfeiture arises, unless the contract clearly provides otherwise. The statutory words must be construed in their contractual context, but commonly used insolvency wording should ordinarily bear the same meaning in comparable commercial leases. The question whether a breach is remediable is assessed at a relatively high level of abstraction, assuming that the tenant is willing and able to remedy it. Whether a reasonable time has elapsed under section 146 is fact-sensitive and normally unsuitable for summary determination where material factual or valuation issues remain.

The claimant landlord sought forfeiture of commercial premises let to the defendant under a long lease. The lease contained insolvency-related forfeiture provisions concerning the tenant and its guarantor. Following a corporate restructuring of the guarantor in the United States, the claimant served a section 146 notice alleging, among other matters, that the resulting guarantor was unable or deemed unable to pay its debts under sections 122 and 123 of the Insolvency Act 1986.

The defendant applied under CPR rules 24.3 and 3.4(2)(a) for summary dismissal or strike out. The principal issue was whether the lease required a prior judicial determination of inability to pay debts before the right of forfeiture arose. The alternative issue was whether a reasonable time had elapsed between service of the notice and service of the possession claim.

1. Summary judgment. The court applied the approach in Easy Air Limited v Opal Telecom Limited [2009] EWHC 339 (Ch). A claim should not be summarily determined where a real prospect of success remains or where further evidence may affect the outcome, but a suitable short point of construction should be decided where the evidence is sufficient and the parties have had a proper opportunity to argue it.
2. Construction. The lease was a complex, formal contract. Its wording had to be construed as a whole and in its factual matrix. The reference in clause 6.1.2(d) to being unable or deemed unable to pay debts within the meaning of sections 122 and 123 of the Insolvency Act 1986 incorporated the statutory language into the contractual provision.
3. The events under sections 123(1)(e) and 123(2) require inability to pay debts to be proved to the satisfaction of the court. In the lease, the relevant forfeiting event was therefore a prior judicial determination of cash-flow or balance-sheet insolvency. This construction gave effect to the statutory words and created a certain and workable scheme. Since no such determination had occurred, the right of forfeiture had not arisen.
4. Remediability. The question whether the harm caused by breach is retrievable within a reasonable time must be considered without reference to the tenant’s actual means, ability or willingness to remedy. Those matters may be relevant to the period allowed for remedy or to relief from forfeiture. The claimant had a real prospect of proving that the alleged insolvency breach was irremediable, because the issue involved factual and valuation evidence.
5. Reasonable time. The period after a section 146 notice is assessed objectively by reference to the time a tenant in the relevant position ought reasonably to have been afforded. Whether the period of fewer than four working days was reasonable required trial-level factual assessment. If the breach were remediable, that period would not realistically have been sufficient to procure a cash injection or debt-for-equity swap. The proposed Billson exception was arguable but was not determined summarily.

Summary judgment was granted dismissing the second forfeiture claim.