Michael Leon v HM Attorney General
| Jurisdiction | England & Wales |
| Judge | Lord Justice Simon,Lord Justice David Richards,Lord Justice Lewison |
| Judgment Date | 22 November 2019 |
| Neutral Citation | [2019] EWCA Civ 2047 |
| Date | 22 November 2019 |
| Docket Number | Case No: A3/2018/2978 |
| Court | Court of Appeal (Civil Division) |
[2019] EWCA Civ 2047
Lord Justice Lewison
Lord Justice Simon
and
Lord Justice David Richards
Case No: A3/2018/2978
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
CHANCERY APPEALS LIST (CHANCERY DIVISION)
Mr Justice Arnold
CH-2017-001318
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Butler QC (instructed by Anthony Gold Solicitors) for the Appellant
Adrian Pay (instructed by Westminster City Council Legal Services) for the Second Respondent
Clifford Payton (instructed by TLT LLP) for the Third Respondent
The First Respondent was not represented and did not appear
Hearing dates: 10 October 2019
Approved Judgment
Sections 1012 to 1023 of the Companies Act 2006 (the Act) deal with any property or rights of a registered company still owned on its dissolution under the Act. They apply to property and rights beneficially owned by a company but do not apply to property held on trust by the company, which can be dealt with under the Trustee Act 1925.
By section 1012, all property and rights whatsoever vested in or held in trust for the company immediately before its dissolution are deemed to be bona vacantia and accordingly belong to and vest in the Crown (or to the Duchy of Lancaster or the Duke of Cornwall, as appropriate). Under section 1013, the Crown may disclaim its title to any such property by a notice executed within three years after the Crown representative first has notice that property has vested in the Crown. A notice of disclaimer becomes a public document through registration by the registrar of companies. The effect of a disclaimer is that the property is deemed not to have vested in the Crown: section 1014(1).
Sections 1015–1019 make provision for the effect of Crown disclaimer on property in England and Wales and in Northern Ireland. The general effect is stated by section 1015:
“(1) The Crown's disclaimer operates so as to terminate, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed.
(2) It does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person.”
The issues on this second appeal concern section 1017 which confers on the court power to make vesting orders in respect of disclaimed property. I set out this provision below.
The facts relevant to this appeal may be summarised as follows.
By a lease dated 23 December 1993 (the Lease), the second respondent, the City of Westminster (Westminster), granted a lease of a ground floor flat at 122A Westbourne Terrace London W2 (the Property) for a term of 125 years to a company called Baronfield Limited. The leasehold interest was assigned in 1997 to Kingley Properties Limited and in 2007 to Frinton Limited (Frinton). These three companies were all owned or controlled by the appellant Michael Leon or his wife. All the shares in Frinton were held by or on behalf of Mr Leon. He was a director of Frinton until 9 November 2005, when his wife became a director.
By a deed of substituted security dated 27 March 2007 made by Frinton, Mr Leon and GE Money Mortgages Limited (GE), the Lease was substituted as security in place of a freehold residential property under a mortgage deed dated 21 October 2002 (the Mortgage). The Mortgage was made between GE (under a previous name) as mortgagee, Frinton as mortgagor and Mr Leon as “co-mortgagor”.
The Mortgage was granted as security for a loan of £472,500 made to Frinton and Mr Leon for a term of 25 years, with interest payable on a monthly basis.
The Mortgage provides that
“A. The mortgagor charges the property by way of legal mortgage with payment of all money mentioned in condition 2.1 of the Mortgage Conditions. The mortgagor gives this charge with full title guarantee.
B. The co-mortgagor charges any right or interest in the property or its proceeds of sale which he/she may have which is not charged by clause A above as further security for the payment of the money mentioned in condition 2.2 of the Mortgage Conditions.”
Under paragraph 4.1 of the Mortgage Conditions, Frinton as mortgagor covenanted, among other things, to “keep to the terms of…any lease which the property is held under”. Paragraph 11 provides that conditions 4 to 10 apply to Mr Leon as co-mortgagor in the same way as they apply to the mortgagor. Following execution of the deed of substituted security, the charged property was, of course, Frinton's leasehold interest in the Property.
On 17 February 2009, Frinton was dissolved as a result of its failure to comply with its statutory filing requirements. No application for the restoration of Frinton to the register of companies was made within the period of six years allowed by section 1024 of the Act. In consequence of its dissolution, Frinton's leasehold interest vested in the Crown as bona vacantia.
On 23 May 2016, GE transferred the Mortgage to the second respondent, Kensington Mortgage Company Limited (Kensington).
On 30 June 2016, Westminster discovered that Frinton had been dissolved and informed the Treasury Solicitor, representing the Crown. By a notice given by the Treasury Solicitor on 30 August 2016, the Crown disclaimed the Lease.
The open market value of the leasehold interest is between £800,000 and £1 million, which values the equity of redemption at somewhere between £370,000 and £570,000.
On 5 May 2017, Mr Leon commenced the present proceedings, seeking a vesting order of the Lease on three alternative grounds. Two of those grounds were that Frinton held the Lease on trust for him, entitling him to a vesting order under section 44 of the Trustee Act 1925, and that he would have been entitled to the Lease but for the dissolution of Frinton, entitling him to a vesting order under section 181 of the Law of Property Act 1925. Following a two-day trial, which included oral evidence from Mr Leon and other witnesses, the Chief Chancery Master, Master Marsh, dismissed the claim so far as based on these grounds, finding (among other matters) that the Lease had not been held by Frinton on trust for Mr Leon. Neither of these grounds was raised either before Arnold J (as he then was) (the judge) on appeal from the Chief Master or before this court. However, for the reasons given in his reserved judgment, the Chief Master made a vesting order under section 1017 of the Act in favour of Mr Leon.
Section 1017 provides:
“(1) The court may on application by a person who –
(a) claims an interest in the disclaimed property, or
(b) is under a liability in respect of the disclaimed property that is not discharged by the disclaimer,
make an order under this section in respect of the property.
(2) An order under this section is an order for the vesting of the disclaimed property in, or its delivery to –
(a) a person entitled to it (or a trustee for such a person), or
(b) a person subject to such a liability as is mentioned in subsection (1)(b) (or a trustee for such a person).
(3) An order under subsection (2)(b) may only be made where it appears to the court that it would be just to do so for the purpose of compensating the person subject to the liability in respect of the disclaimer.
(4) An order under this section may be made on such terms as the court thinks fit.
(5) On a vesting order being made under this section, the property comprised in it vests in the person named in that behalf in the order without conveyance, assignment or transfer.”
The Chief Master made the vesting order on two alternative bases. First, by virtue of his position as co-mortgagor under the Mortgage and what was said to be his entitlement to the equity of redemption, Mr Leon had an interest in the Lease. Second, by virtue of his position as a co-mortgagor, Mr Leon was under a liability in respect of the Lease which was not discharged by the disclaimer and the requirement of section 1017(3) was satisfied.
On an appeal by Westminster, the judge set aside the vesting order made by the Chief Master. It was common ground that, in those circumstances, a vesting order should be made in favour of Kensington on terms that it should account as mortgagee to the person next entitled in accordance with section 105 of the Law of Property Act 1925, whoever that should be. The judge made an order in those terms. This will leave the issue as to who is the person next entitled after Kensington for determination in the future
Mr Leon appeals against the judge's order on essentially two grounds. First, while it was and remains common ground that Mr Leon “claims an interest in the disclaimed property” within the meaning of section 1017(1)(a), the judge was wrong to hold that Mr Leon was not “a person entitled to it” for the purposes of section 1017(2)(a). Second, while it was and remains common ground that Mr Leon is “under a liability in respect of the disclaimed property that is not discharged by the disclaimer” within section 1017(1)(b), the Chief Master was entitled to hold, for the purposes of section 1017(3) that “it would be just to [make a vesting order in Mr Leon's favour] for the purpose of compensating [Mr Leon] in respect of the disclaimer” and that the judge was wrong to interfere with that decision.
I will take each of those grounds in turn.
As regards the first ground, the Chief Master focused exclusively on whether Mr Leon had an interest in the Lease within section 1017(1)(a), without going on to ask whether, assuming he did have such an interest, he was “entitled to it” for the purpose of section 1017(2)(a). The...
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Michael Leon v Kensington Mortgage Company Ltd
...Second appeal 32 Mr Leon appealed unsuccessfully to the Court of Appeal whose judgment, dated 22.11.2019, bears the neutral citation [2019] EWCA Civ 2047. 33 For Mr Leon it was submitted that he had an entitlement to the equity of redemption in the Lease. In rejecting this argument David R......