Judgments - On Demand Information plc (In Administrative Receivership) and Others v Michael Gerson (Finance) plc and Others

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    32. Accordingly, the sole question is that identified by Sir Murray Stuart-Smith, viz, what was the effect of the sale upon the lessee's claim for relief from forfeiture?

    33. My Lords, Order 29, rule 4 gave the court power to make an interim order for the sale of any property (other than land) which is of a perishable nature or likely to deteriorate if kept or which for any other reason it is desirable to sell forthwith. The Order does not give the court power to make a free-standing order for sale as a form of independent relief. The property in question must either form the subject-matter of the proceedings in which the order is made or be property as to which a question arises in those proceedings. It is the existence of the proceedings or question which gives rise to the difficulty and makes it necessary to invoke the assistance of the court. The paradigm case is where the ownership of the goods is in dispute, so that they cannot be sold except by agreement between the parties or order of the court. The purpose of the court in exercising the power to order a sale is to avoid the injustice that would otherwise result by the property becoming worthless or significantly reduced in value during the interval between the application for sale and the determination of the proceedings or question.

    34. In the present case the leased equipment was not perishable or likely to deteriorate, but there was good reason why it should be sold forthwith before the lessee's claim for relief from forfeiture could be determined. The parties had been unable to agree upon a sale, and neither party could sell without the consent of the other or an order of the court. The lessee could not sell unless and until it obtained relief from forfeiture and brought the leases to an end by the appropriate notices; and the lessor could not sell while the lessee's claim for relief from forfeiture remained outstanding. There was an impasse, which was resolved by the order for sale. Your Lordships are not called upon to consider whether it was properly made, given that the lessee's power of sale had not yet arisen.

    35. The order was not, or not expressly, made by consent, but it bound the lessor as fully as if it had consented to it. Accordingly, the lessor cannot complain that the lessee was in breach of the terms of the leases because the sale was not made pursuant to clause 12 of the leases, or that it constituted a breach of other provisions in the leases, or that it had the effect of bringing the leases to an end without prior notice. They had been determined by a sale of the equipment which was not wrongful.

    36. Given the purpose of Order 29, rule 4, it is clear that the conversion of the property into money effected by the sale is not intended to prejudice the parties' rights. The whole purpose of the sale is to preserve the value of their rights and particularly the rights of the party which is eventually successful in the proceedings.

    37. But while the proceeds of sale are merely a substitute for the property in question, the sale inevitably affects the nature of the remedy which the court can grant. The subject-matter of the proceedings, and therefore of the order which the court will ultimately make at trial, is no longer property but money. In the paradigm case, where the ownership of the property is in dispute, the court can no longer make a declaration of title, or order the party in possession to give possession to the other, or give specific relief in relation to the property. After the property has been sold no such relief is possible. Instead, orders which the court would otherwise have made are replaced by orders for payment out of the money (if in court) or declarations of entitlement to give a good receipt for the money (if in an escrow account).

    38. It is self-evident that the court cannot make an order granting relief from forfeiture of a lease after the lease has been determined otherwise than by the forfeiture in question. Harman J's order did not in itself make it impossible for the court to grant relief from forfeiture; this remained possible until the moment the equipment was sold. But the sale brought the leases to an end independently of the antecedent forfeiture against which relief was sought.

    39. But the fact that by the time the case was heard the court could no longer give the lessee the particular relief claimed in the writ does not mean that it was bound to dismiss its claim. If (i) the lessee would have been entitled to the relief claimed in the writ immediately before the sale and (ii) the only reason that the court could not grant that relief was that the equipment had since been sold pursuant to an order of the court which was not intended to affect the parties' rights, then it should give effect to those rights by making whatever order in relation to the proceeds of sale best reflects them. This is not to ignore the fact that the equipment had been sold or to grant relief as if it had not been sold, but to recognise that the sale was not to affect the parties' substantive rights, and that substantive rights can be given effect in more than one way.

    40. The error in the approach of the deputy judge and the majority of the Court of Appeal, if I may say so, lies in the description of the lessee's right as a right to relief from forfeiture. But that was merely a means to an end. It was the remedy, appropriate in the circumstances obtaining at the date of the writ, which the lessee sought in order to secure commercially valuable rights. Those rights included the right to retain 95% of the proceeds of a sale made under clause 12 of the leases, that is to say a sale made after bringing the leases to an end by notice. It was no longer an appropriate or possible remedy when the case came before the court. The reason it was no longer appropriate or possible was that the equipment had been sold, not pursuant to clause 12 but to an order of the court which was intended so far as possible to preserve the parties' rights. The question was how to give effect to those rights, once they had been determined, by an order in relation to the proceeds of sale. The sale brought an end to the lessee's claim to a particular remedy, viz, relief from forfeiture, but not to the rights to which such a remedy would have responded, and substituted a claim to payment out of the fund.

    41. I do not think there is any real difficulty in formulating an appropriate order in this case. Had it been possible to grant relief from forfeiture immediately before the equipment was sold, it would have been on terms that all outstanding rentals were paid and that the administrative receivers should guarantee payment of future rentals. No sale could have taken place until the leases were brought to an end by notice, and accordingly some further secondary rentals would inevitably have become payable. The equipment would have to be sold at the best available price, now agreed to have been £251,617. These are all matters which should be taken into account in deciding the proportions in which the parties are entitled to the moneys in the escrow account.

    42. I would allow the appeal and, failing agreement between the parties, remit the case to the Chancery Division to make such orders as may be necessary to give effect to the judgment of the House.

LORD SCOTT OF FOSCOTE

My Lords,

    43. I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Millett, and gratefully adopt his summary of the facts of the case and its history in the courts below.

    44. It was accepted both at first instance and in the Court of Appeal that immediately before the sale of the video and editing equipment pursuant to the order of Harman J on 5 March 1998, or perhaps immediately before the order was made, the court had jurisdiction to grant the appellants relief from the forfeiture of the finance leases that had been brought about by the entry of the appellants into administrative receivership. I have no doubt that it was rightly so accepted. It was accepted before your Lordships by Sir Roy Goode QC, counsel for the respondents, that if there had been no sale the appellants would have succeeded in obtaining relief from forfeiture on terms that would have included the payment of all arrears of rentals. Sir Murray Stuart-Smith was, therefore, right in identifying the question whether the sale of the equipment pursuant to the court's order defeated the appellants' claim to relief from forfeiture as the critical question.

    45. Harman J's order was made in exercise of the power conferred by Order 29, rule 4 of the Rules of the Supreme Court. Order 29 has been replaced by Part 25 of the Civil Procedure Rules 1998. Rule 25.1(c)(v), in particular, replaces rule 4 of Order 29 and applies to any property, including land, "which is the subject of a claim or as to which any question may arise on a claim": rule 25.1(2).

    46. The effect of an interim order for sale, whether made under Order 29, rule 4 or, now, under CPR 25.1(c)(v), is that once the sale pursuant to the order has taken place the proceeds of sale stand in the place of the property sold for the purpose of giving effect, so far as practicable, to the rights claimed by the parties to the litigation in the property sold.

    47. In the present case the rights claimed by the appellants in the equipment were the right to relief from forfeiture and, subject to relief being granted, the right to possess and use the equipment in specie and the right to take 95 % of the net proceeds of a sale of the equipment under clause 12.

    48. Harman J's order was not intended to prejudice these rights. In particular it was not intended to prejudice the appellants' claim to relief from forfeiture.

    49. If an order for relief from forfeiture were now made it could not revive the contractual rights enjoyed by the appellants under the finance leases. The equipment has been sold. The procedure envisaged by clause 12 can no longer be complied with. Nonetheless the proceeds of sale of the equipment now stand in the place of the equipment.

    50. In these circumstances, and the court being satisfied that an order for relief from forfeiture would have been made if there had been no sale pursuant to Harman J's order, the respective rights that the appellants and the respondents would have had in the proceeds of a clause 12 sale should be given effect to by treating the proceeds of the sale under Harman J's order as the proceeds of a clause 12 sale.

    51. The parties have, very sensibly, agreed that the best price for which the equipment might have been sold under clause 12 should be taken to be £251,617 and that the respondents would have been entitled to 5 % of that sum. It seems to me easy to conclude that, subject to account being taken of whatever financial conditions for relief from forfeiture would have been imposed by the court (such as payment of any rental arrears and payment of the costs of the application for relief), the respondents should receive 5 % of £251,617 out of the sum in court with the balance going to the respondents.

    

 
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