Court Reforms And Arbitration: Courting Disaster

Three recent cases reveal the difficulties practitioners face in understanding how the law will be applied by the courts. In addition to these difficulties, the courts' new procedural rules, introduced by Lord Justice Jackson and which came into effect in April 2013, have led to practitioners extolling the virtues of alternative means of dispute resolution.

Game

Jervis v Pillar Denton Ltd [2014] EWCA Civ 180; [2014] EGILR 25 (Game) concerned tenants in administration and when rent should be payable as an expense of the administration. Game overturned the earlier High Court decisions in Goldacre (Offices) Ltd v Nortel Networks UK Ltd [2009] EWHC 3389 (Ch); [2010] 1 EGLR 25, Leisure Norwich (II) Ltd v Luminar Lava Ignite Ltd (in administration) [2012] EWHC 951 (Ch), and the first instance decision in Game (where the court followed Goldacre and Luminar, but granted permission to appeal).

Prior to Goldacre, landlords and administrators invariably agreed that if a tenant fell into administration, but continued to use the landlord's premises, the administrators would continue to pay rent at a daily rate. While this was not without its pitfalls, it provided a reasonable degree of certainty to the parties involved.

However, Goldacre held that this rent payment convention had no legal effect. If a tenant fell into administration, and continued to use leased premises, the administrators would be liable to pay rent in full on the day on which it fell due - if the premises were being used on a quarter day, the administrators had to pay the entire quarter's rent as an expense (irrespective of whether or not the tenant vacated the premises during the quarter). This principle was affirmed and extended by Luminar, which determined rent was not payable as an administration expense if it fell due on a date before the tenant entered into administration.

The practical consequences of the rulings were wholly unsatisfactory:

administrators were tactically appointed very shortly after a quarter day to avoid liability to pay rents as an administration expense; administrators then sought to minimise periods of use to avoid the liability to pay a full quarter's rent on the next quarter day; fire sales of companies' assets frequently occurred before quarter days - a quick sale of assets at an undervalue was more cost-effective than incurring a rental liability by remaining in occupation; and companies ceased to trade prematurely whereas they may have continued to...