South Bank Hotel Management Company Limited v Galliard Hotels Limited & Ors

An uncompleted, specifically enforceable contract for the sale of land can confer a beneficial interest on the purchaser as between the contracting parties, although it does not enable the purchaser to grant proprietary rights to third parties. A subsequent lease may convert that interest for the purposes of section 21(1)(b) of the Limitation Act 1980, even where the purchaser later acquires the freehold and seeks compensation. A majority shareholding is unnecessary for conversion to a director’s use where a minority interest is combined with control. A contractual right to use common parts may be a continuing obligation, producing fresh breaches and recoverable loss. Section 44(5) of the Companies Act 2006 protects only a purchaser acting in good faith; actual knowledge of defective execution prevents reliance on the deeming provision.

South Bank appealed from the judgment of Richards J in the High Court, reported at [2024] EWHC 2484 (Ch). The proceedings arose from the development and operation of a hotel. South Bank claimed against Mr Conway for breach of fiduciary duty, against Galliard Hotels for breach of room leases, and challenged the validity of a lease and underlease of an annex. Lodgeshine had separately claimed arrears of rent under the underlease. The High Court rejected South Bank’s claims and ordered payment of rent arrears. The principal issues on appeal were whether South Bank’s claim against Mr Conway was within section 21(1)(b) of the Limitation Act 1980, whether the room leases imposed a continuing obligation, and whether defective execution of the lease and underlease was cured by statute or estoppel.

Appeal allowed unanimously. Newey LJ gave the judgment, with which Asplin and Miles LJJ agreed. The relevant parts of the High Court order were set aside, costs were to be revisited, and the following matters were remitted.

1. Under the freehold sale contract, South Bank had a beneficial interest in the site. An uncompleted contract for the sale of land does not give the purchaser power to confer proprietary rights on third parties, but beneficial ownership is divided between vendor and purchaser in a qualified and provisional sense. The grant of the annex lease left the property in a legal state different from that which South Bank had contracted to acquire.

2. The grant of the annex lease could therefore amount to conversion of South Bank’s pre-existing beneficial interest and contractual entitlement for the purposes of section 21(1)(b) of the Limitation Act 1980. A claim for compensation for that conversion was capable of being a claim to recover trust property, despite South Bank later acquiring the freehold. The claim concerned pre-existing company property and was not merely a Class 2 constructive-trust claim for unauthorised profits. A majority shareholding was not required: a minority interest combined with control could establish conversion to Mr Conway’s use. Ratification was not established because there was no objectively manifested, unqualified agreement by the sole shareholder. The merits of the claim and possible relief under section 1157 of the Companies Act 2006 were remitted.

3. Clause 9 of the room leases imposed a contractual obligation on Galliard Hotels to allow South Bank to use the common parts rent-free. It was a continuing obligation, breached afresh when South Bank was denied that use. Continuing breach did not require repeated activity or worsening damage. If South Bank had to pay rent to obtain use of the annex, it suffered loss recoverable as damages.

4. The lease and underlease were not executed in accordance with section 44 of the Companies Act 2006. Section 44(5) operated only in favour of a purchaser who chose to rely on it and acted in good faith. South Bank could not be compelled to invoke it. Actual knowledge, attributable through Mr Conway, that no director had signed prevented either purchaser from relying on the deeming provision. Title estoppel did not prevent a challenge based on defective execution. The questions whether the documents took effect in equity and whether the register should be rectified were remitted.

• Court of Appeal (Civil Division) — South Bank’s appeal allowed. Parts of the order were set aside, costs were to be reconsidered, and issues concerning Mr Conway’s liability, damages, equitable effect and rectification were remitted. [2026] EWCA Civ 56.
• High Court of Justice, Business and Property Courts, Chancery Division — Richards J rejected South Bank’s claims and ordered payment of rent arrears under the underlease. [2024] EWHC 2484 (Ch).