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Relief from Forfeiture

13 June 2008

Relief from forfeiture is a remedy provided by the High Court allowing a customer a further opportunity to perform his contractual obligations, and is only granted in limited cases.

In the case of On Demand Information plc (in Administrative Receivership) v Micheal Gerson (Finance) plc 2002, the House of Lords ruled that relief from forfeiture could also be granted in relation to the proceeds of sale of equipment sold by the lender following repossession and sale. Prior to this, lenders had the comfort that provided they sold the goods quickly after termination of the agreement, there could be no entitlement to relief from forfeiture.

In the recent case of (1) Shilmore Enterprises Corporation (2) New World Enterprises Corporation v Phoenix 1 Aviation Ltd [2008] EWHC 169 (QB), the courts readdressed the issues of relief from forfeiture, and emphasised the need for limited use of the remedy.

The case of Shilmore (S) involved a one year lease agreement with the option to purchase at the end of the year or earlier if S entered into negotiations for the sale of the aircraft. Phoenix (P) purported to exercise the option to purchase, and executed a sale and purchase agreement when S informed them they had entered into negotiations with a third party. P failed to pay the deposit within the contractually stipulated 24-hours, and S deemed the contract terminated. P then flew the plane to the Seychelles, leaving S to seek an order for the delivery of the aircraft into their custody.

The Judge stated that as relief from forfeiture is an equitable jurisdiction, it would be granted where justice and equity demand that a party who paid for a chattel by instalments and then, through no fault of its own, failed to make the final payment should not, in those circumstances, be deprived of the goods in question. The facts of this case did not seem to be instalments, but merely monthly payments.

The Judge stated that no court would in this instance grant P relief from forfeiture in circumstances, where P had agreed to buy the aircraft, agreed to pay a deposit within 24- hours, asserted and continued to assert they had money to pay the deposit and deliberately chose not to pay knowing that non-payment would terminate the sale and purchase agreement.

This case was considered a long way from the limited cases in which relief from forfeiture has been awarded. P was held to have a high decree of assurance that they had unsuccessfully exercised their option to purchase the aircraft, and were not now entitled to any further opportunity. It was held that S be granted custody and possession order sought.

Joanne Davis, partner and head of asset finance, said: “The case highlighted that the court will only award relief from forfeiture in certain instances where non-payment is beyond the control of the customer.

“Where there are strong grounds for termination of the agreement, it may be advisable to terminate and repossess as quickly as possible, so it is harder for the customer to prove his ability to perform the obligations under the agreement.”

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Joanne Davis

Partner
T: 08700 86 4171
I: +44 (0)121 625 4171
E: joanne.davis@shoosmiths.co.uk