Relief from forfeiture is a remedy
provided by the High Court which allows a customer a further
opportunity to perform his contractual obligations. It is 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 Pheonix 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 involved a one year lease agreement with
the option to purchase at the end of the year or earlier if
Shilmore entered into negotiations for the sale of the aircraft.
Pheonix purported to exercise the option to purchase and executed a
sale and purchase agreement when Shilmore informed them they had
entered into negotiations with a third party. Pheonix failed to pay
the deposit within the contractually stipulated 24 hours and
Shilmore deemed the contract terminated. Pheonix then flew the
plane to the Seychelles leaving Shilmore 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 Pheonix relief from forfeiture in circumstances, where
Pheonix 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. Pheonix 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 Shilmore be granted
custody and possession order sought.

Comment: The case has 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.

The author is a partner within the Finance, Litigation and
Regulation team at Shoosmiths