Conversion under section 21(1)(b) of the Limitation Act 1980 and good faith pursuant to section 44(5) of the Companies Act 2006 (South Bank v Galliard)

South Bank Hotel Management Company Ltd v Galliard Hotels Ltd and others; Lodgeshine Ltd v South Bank Hotel Management Company Ltd [2026] EWCA Civ 56

What are the practical implications of this case?

The decision was based on a rather singular set of facts. It is unlikely that similar disputes will frequently arise. The decision will nevertheless probably have at least two practical implications.

First, the Court of Appeal’s decision on LA 1980, s 21(1)(b) will help claimants seeking to recover ‘trust property’ in claims that might previously have been thought to be statute-barred. Analysing the grant of a new lease as ‘converting’ a purchaser’s rights under a sale contract is an expansive interpretation. This will bring more claims to recover trust property within the scope of the section and so avoid some of the protection offered to trustees by LA 1980, s 21(1)(b). Further decisions are needed to clarify when conversion can take place by the creation of new rights.

Second, fewer documents executed invalidly by a company will be saved by CA 2006, s 44(5). The analysis that the deeming provision does not work automatically but must be invoked by a purchaser creates uncertainty about when and how a purchaser will able to invoke CA 2006, s 44(5) and when it might lose that right. The interpretation of good faith creates uncertainty over the state of the purchaser’s knowledge of the invalidity and whether it will disentitle the purchaser to the deeming provision. It also cuts down the scope of two key landlord and tenant estoppels.

What was the background?

Factual background

Mr Conway owned a group of companies, including Galliard Hotels Ltd (Hotels). Hotels acquired some land near Waterloo Bridge in 2004 to build a hotel and annex.

The development was partly funded by investors to whom Hotels agreed to grant leases of rooms upon practical completion. The idea was that, after five years, the investors would become shareholders in South Bank Hotel Managements Company Ltd (South Bank) (at the time a subsidiary of Hotel’s parent company Galliard Homes Ltd (Homes)) and the freehold would transfer to South Bank. Hotels entered a sale contract in 2004 to transfer the freehold to South Bank.

The development was completed in 2007. Room leases were sold to investors from 2004 to 2008. The room leases were granted in around the first half of 2008. The freehold was transferred to South Bank in 2014.

The mistake and the solution

The issue was that the 2004 sale contract included the annex. Mr Conway thought that this was a mistake. To reverse the mistake, in mid-2008, Hotels granted a 999-year lease of the annex to Homes’s subsidiary Lodgeshine Ltd (Lodgeshine) and Lodgeshine granted a 15-year underlease of the annex to South Bank. Mr Conway said that he believed this approach was ‘reasonable’.

South Bank therefore effectively became Lodgeshine’s underlessee, not the unencumbered freeholder. In contrast, Mr Conway’s companies, instead of transferring the unencumbered freehold to South Bank, retained the value in Lodgeshine’s 999-year lease.

Further, Mr Conway’s personal assistance had purported to sign the lease and underlease on his behalf. She signed ‘genuinely believing she had…authority’ and ‘Mr Conway genuinely thought [they] were validly executed’.

First instance

South Bank claimed against Mr Conway for equitable compensation for breach of duties as director of South Bank and that the lease and underlease were not validly granted. These claims failed at first instance before Mr Justice Richards (see [2024] EWHC 2484 (Ch)).

What did the court decide?

The Court of Appeal was comprised of Lord Justice Newey Lady Justice Asplin and Lord Justice Miles. Newey LJ provided the leading judgment, with whom the rest of the court agreed.

Section 21(1)(b)

Richards J had held at first instance that South Bank could not rely upon LA 1980, s 21(1)(b) and the breach of director’s duty claim was therefore time barred. This was overturned.

Newey LJ held that trust property had been ‘converted’ for the purposes of LA 1980, s 21(1)(b). The purpose of LA 1980, s 21(1)(b) was set out in In re Timmins [1902] 1 Ch 176(at 186):

‘it was not intended to protect [the trustee] where … he would come off with something he ought not to have, ie, money of the trust received by him and converted to his own use.’

Newey LJ noted that South Bank, under the uncompleted sale contract, held a beneficial interest in the freehold, and the vendor had an obligation not to let without consulting the purchaser, applying Englewood Properties v Patel [2005] EWHC 188 Ch (at para [54]). South Bank’s interest in the freehold had been diminished and passed onto Lodgeshine, leaving only a ‘husk’. Newey LJ accepted South Bank’s submission that Mr Conway had ‘come away with something he should not have’.

Validity point

The lease and underlease were not validly executed under CA 2006, s 44(2)(a). The question was whether they could be saved by CA 2006, s 44(5): ‘In favour of a purchaser a document is deemed to have been duly executed by a company if it purports to have been signed in accordance with subsection [CA 2006, s 44(2)]’. ‘Purchaser’ means ‘purchaser in good faith for valuable consideration and includes a leseee’.

Newey LJ held that:

• •CA 2006, s 44(5) does not operate automatically but is to be invoked by a purchaser
• •a purchaser’s counterparty cannot rely on ca 2006, s 44(5), and
• •a purchaser cannot rely on CA 2006, s 44(5) in respect of its own failures

Further, he held, a purchaser that knows that its counterparty did not sign properly is not acting in good faith. Knowledge, on this analysis, means knowledge of the facts constituting the invalidity, regardless of subjective belief.

Newey LJ also rejected the contention that South Bank could not deny its landlord’s title (ie Lodgeshine’s lease) and that neither Hotels nor South Bank (as Hotel’s assignee of the freehold) could deny the grant. He held that South Bank was challenging the validity of the leases and underleases on a different basis.

Case details

• •Court: Court of Appeal, Civil Division
• •Judges: Lord Justice Newey, Lady Justice Asplin and Lord Justice Miles
• •Date of judgment: 6 February 2026

Article by Jack Dillon

First published by LexisNexis