Closegate Hotel Development (Durham) Ltd & Ors v Joseph McLean (2013)
A lender had not been estopped from appointing administrators under its floating charge over a borrower's assets where the borrower had failed to show that the lender had made a clear and unequivocal statement, to be inferred from letters and negotiations, that it would not call in its loan until either it was apparent that the negotiations had terminated, or the lender gave reasonable notice to terminate negotiations. The borrower's directors were not deprived of authority to challenge the administrators' appointment by the Insolvency Act 1986 Sch.B1 para.64.
The applicant companies (C) applied for a declaration that the appointment by the third respondent bank (B) of the first and second respondents as joint administrators was invalid.
B had financed a property development by C and held floating charges over C's assets. C began proceedings against B, which were stayed pending negotiations to settle the proceedings and C's debt to B. C was seeking alternative finance, but after no communication for a month B served formal demands under the floating charges and appointed the administrators. C claimed that it had relied on a representation, inferred from a combination of phrases used in various letters and from the conduct of negotiations, that B would not call in its loan or take enforcement action until either it was apparent that the negotiations had terminated, or B gave reasonable notice to terminate negotiations. The issues were whether (i) the effect of the Insolvency Act 1986 Sch.B1 para.64, which provided that a company officer could not exercise a management power without the administrator's consent, was to deprive the directors of authority to cause C to challenge the administrators' appointment; (ii) the directors were required to offer an indemnity in respect of the costs of an application to challenge the administrators' appointment; (iii) a promissory estoppel had arisen in the terms of the alleged representation.
(1) The concept of "management power" as defined in Sch.B1 para.64 of the Act was primarily intended to catch powers which, if exercised by the directors, could impede the exercise of similar powers by the administrators, not a director's power to cause the company to challenge the logically prior question of whether the administrators had any power at all, Stephen, Petitioner  CSOH 119,  B.C.C. 537 considered. Directors retained a residuary power to instruct solicitors to challenge the appointment of a provisional liquidator, and there were numerous cases of directors challenging the appointment of a receiver. There was no reason why the position should be different as regards administrators appointed by a qualifying charge-holder under Sch.B1 para.14 (see paras 6-7 of judgment). (2) Authority to cause a company to challenge the administrator's appointment was not dependent on the provision by the directors of an indemnity for costs (para.16). (3) The weight of authority was that for a plea of promissory estoppel to succeed there must have been a clear and unequivocal statement, and if ambiguous words were used which could reasonably be interpreted in several ways, then those words would not found an estoppel unless the representee had sought and obtained clarification of the statement, Kim v Chasewood Park Residents Ltd  EWCA Civ 239,  H.L.R. 24 applied, Low v Bouverie  3 Ch. 82 and Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd  A.C. 741 considered. As a result of the requirement for precision, a claim for promissory estoppel said to arise by implication from a variety of sources had to be scrutinised with caution. B's indication that it was open to discussing settlement did not carry any implication that it agreed to suspend its rights against C. Absent an express standstill agreement, something more than the mere existence of settlement negotiations would be required before a creditor's rights would be affected. Further, in certain correspondence B had expressly reserved its rights. By agreeing to stay the court proceedings B had not made any representations about its right to call in its security. When considering whether the alleged representation was sufficiently clear and unequivocal, it was relevant to consider how it was supposed to work. Apart from the complexity of C's formulation of the representation, which made it inherently unlikely to have been capable of being read into anything said or done by B, no-one could reasonably have thought that it was commercially workable. B had not been estopped from appointing the administrators (paras 57, 61-64, 67, 73, 75).