| INSOLVENCY — Winding up — Disclaimer of lease — Original lessee guaranteeing future performance of tenant covenants by assignee — Guarantee expressed to remain in force for period during which assignee bound by tenant covenants — Assignee company becoming insolvent — Disclaimer by liquidator — Whether original tenant liable under guarantee for continuing rent arrears to lessor — Insolvency Act 1986, s 178(4)
Doleman v Shaw [2009] EWCA Civ 283; [2009] WLR (D) 115
CA: Mummery, Stanley Burnton, Elias LJJ: 1 April 2009
On a true construction of s 178(4) of the Insolvency Act 1986, on the disclaimer of a lease by a liquidator, although the company ceased to be bound by the tenant covenants so far as its own obligations were concerned, it was treated as still bound so far as third party obligations were concerned.
The Court of Appeal so held in dismissing the appeal of the defendant, Gabriella Anne Shaw, from the decision of Judge Barratt QC sitting in the Chichester County Court dated 20 August 2008 entering judgment for the claimant, Hazel Doleman, in the sum of £16,92187 on her claim for arrears of rent and insurance rent in respect of retail premises at 15 Chapel Street, Petersfield, Hampshire.
On 12 March 2004 the claimant landlord’s predecessor in title granted the defendant a lease of retail premises for a term of 10 years. In 2005 the defendant assigned the residue of the lease to the assignee company pursuant to a licence to assign which required the defendant to enter into a guarantee of the performance of the tenant covenants by the assignee. That guarantee was contained in an authorised guarantee agreement (“AGA”) which was stated to remain in force for “the liability period”, which was defined, in cl 1.4, as “the period during which the assignee is bound by the tenant covenants of the lease”. The assignee company subsequently went into liquidation and the liquidator disclaimed the lease. The claimant sued the defendant on the guarantee for the performance of the covenant to pay rent and other sums not paid by the assignee. The judge held that the disclaimer of the lease by the liquidator of the assignee did not affect the defendant’s under the guarantee and entered judgment for the claimant.
S 178 of the Insolvency Act 1986 provides: “A disclaimer under this section— (a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but (b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights and liabilities of any other person.”
MUMMERY LJ said that the crucial question was whether the “liability period”, as defined in cl 1.4 of the AGA, had come to an end. If it had not, the defendant remained liable under the AGA. It was clear from Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70 that, although the lease was determined and the assignee company ceased to be liable to the landlord under the tenant covenants, the assignee was, so far as other parties such as the defendant were concerned, still bound by the tenant covenants as though the lease had not determined. “The liability period” of the defendant’s guarantee and her liability to the claimant had not therefore terminated. In his Lordship’s judgment, a careful reading of the facts and detailed reasoning in the Hindcastle case demonstrated that the meaning and effect of the guarantee obligation, of which the defined “liability period” was part, fell to be determined in the context of s 178(4). It was necessary in the instant case, in order to answer the question under cl 1.4 of the AGA whether the assignee was bound by the tenant covenants in a disclaimer situation, to determine the legal effect of the disclaimer. The statutory consequences were spelt out in s 178(4). It was impossible to determine the full meaning of “the liability period” in cl 1.4 without regard to the statutory provision which dealt with the effect of disclaimer on liabilities for the performance of the tenant covenants. The statutory provision supplied the answer to the question whether the assignee was still bound by the tenant covenants after the disclaimer. It was not bound so far as its own obligations were concerned, but it was treated as still bound, so far as third party obligations were concerned. The guarantee liability to the landlord under the AGA survived the disclaimer.
STANLEY BURNTON and ELIAS LJJ gave concurring judgments.
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