Pay As You Play - Court Of Appeal Overrules Goldacre And Luminar

The Court of Appeal has today handed down its eagerly awaited judgment in the matter of Pillar Denton Ltd & Ors v Jervis & ors [2014] (A2/2013/2005) ("Game"). The Administration of the retail computer company, Game Group, has created a substantial amount of litigation (not least the earlier Charles Russell case of Lazari v Game Retail (UK ) Limited [2012] on applications by landlords for leave to forfeit in administration cases).

Background

On the 1 July 2013 the High Court (Chancery Division) heard an application by administrators for directions and, when doing so, gave the respondent landlords permission to appeal to the Court of Appeal on the issue of the extent to which rent and service charges falling due both before and after the appointment of administrators were to be treated as expenses of the administration.

This was the question raised in the case of Goldacre (Offices) Ltd v Nortel Networks UK Ltd (In Administration) [2010] Ch. 455 ("Goldacre"), where the Court (feeling constrained by the House of Lords' ruling in Toshoku Finance UK Plc (In Liquidation), Re [2002] UKHL 6, [2002] 1 W.L.R. 671) ("Toshoku") held that where administrators were using the company's leasehold premises for the purposes of the administration, they were obliged to treat rents and other sums that fell due during that period as an expense of the administration, in full and without any apportionment to reflect the administrators' actual period of use. The administrators of Nortel had tried to pay only the rents for the part of the property the company still actually used. However the full extent of the property actually leased was very large and the court held that if the administrators were making use of any part of the property then the tenant administrator should pay rent for the whole (as an "expense" of the administration). Goldacre applied an 'adoption of contract' approach to rent as per Powdrill v Watson [1995].

This principle was then followed extended by the case Leisure (Norwich) II Ltd v Luminar Lava Ignite Ltd (In Administration) [2012] ("Luminar") which related to whether rent was payable as an expense for a period that fell due before Luminar entered administration. In the latest case the applicant administrators of the Game group applied to the court for directions, relating to the priority of the payment of rents and service charges (together with other charges falling due under the lease during the period of the administration). The Game...