Real property – Mortgage – Bona vacantia – Equity of redemption – Appellant seeking vesting order in relation to property disclaimed by Crown – High Court setting aside decision of master making vesting order – Appellant appealing – Whether appellant having interest in property— Whether appellant “entitled” to property— Whether just to make vesting order in appellant’s favour – Appeal dismissed
In 1993, the second respondent local authority granted a lease of a ground-floor flat at 122A Westbourne Terrace London W2 for a term of 125 years to a company owned and controlled by the appellant. The leasehold interest was subsequently assigned to F Ltd, another of the appellant’s companies. In 2007, by a deed of substituted security made by F Ltd, the appellant and GE Ltd, the lease was substituted as security in place of a freehold residential property under a mortgage deed made between GE Ltd, as mortgagee, F Ltd as mortgagor and the appellant as co-mortgagor.
In 2009, F Ltd was dissolved and its leasehold interest in the property vested in the Crown as bona vacantia. The mortgage was transferred to the third respondent and the Crown disclaimed the lease. The equity of redemption was somewhere between £370,000 and £570,000. The appellant applied for a vesting order on the alternative grounds that F Ltd held the lease on trust for him and that he would have been entitled to the lease but for the dissolution of F Ltd, pursuant to section 181 of the Law of Property Act 1925.
The master dismissed the application but made a vesting order under section 1017 of the Companies Act 2006: by virtue of the appellant’s position as co-mortgagor under the mortgage and his entitlement to the equity of redemption, the appellant had an interest in the lease; and was under a liability in respect of the lease which was not discharged by the disclaimer so that the requirement of section 1017(3) was satisfied. That decision was set aside by the judge and a vesting order was made in favour of the third respondent on terms that it should account to the person next entitled for any surplus, under section 105 of the 1925 Act.
The appellant appealed contending that the judge was wrong: (i) to hold that the appellant was not a person entitled to an interest in the disclaimed property for the purposes of section 1017(2)(a); and (ii) to interfere with the master’s decision that, for the purposes of section 1017(3), it would be just to make a vesting order in the appellant’s favour in order to compensate him in respect of the disclaimer.
Held: The appeal was dismissed.
(1) The master had focused exclusively on whether the appellant had an interest in the lease within section 1017(1)(a) without asking whether he was entitled to such an interest for the purpose of section 1017(2)(a). There was an express connection between section 1017(1)(b) and section 1017(2)(b) and a necessarily implicit connection between section 1017(1)(a) and 1017(2)(a). The judge was right to say that the question was whether the interest claimed by the applicant entitled him to the property. Entitlement to the property did not mean an absolute entitlement. Rather, it meant that the court would make a vesting order in favour of the person whose interest in the disclaimed property was such as to entitle the applicant to the property in the circumstances of the case. The master found as a fact that F Ltd did not hold the lease on trust for the appellant but was beneficially owned by F Ltd. To attribute an interest in the lease to the appellant in those circumstances would necessarily involve a piercing of the corporate veil which could not be justified. Nor did the appellant’s position as co-mortgagor suggest any co-ownership of the lease since the mortgage deed did not pre-suppose that he had any such right or interest. The claimant’s position as co-mortgagor, under the terms of the mortgage, could not, of itself, give him any interest in the lease.
(2) The equity of redemption was the interest of the owner of the property, subject to the mortgage. It was not the right of the mortgagor of the property or of a co-debtor or a surety to redeem a mortgage. The appellant’s reliance on his right as co-debtor with F Ltd to pay the outstanding loan and thereby redeem the mortgage as a means of recovering the property itself confused the equity of redemption with the right of a mortgagor or co-debtor to redeem a mortgage. Therefore, the appellant had no interest in the lease either on the basis of his position as co-mortgagor or on an entitlement to the equity of redemption in the lease. Accordingly, the judge was correct to hold that the appellant had no interest in the lease and therefore was not entitled to it for the purposes of section 1017(2)(a) of the 2006 Act.
(3) It was common ground that the appellant was under a liability in respect of the disclaimed property that was not discharged by the disclaimer by virtue of the mortgage conditions, which required him, as well as F Ltd, to keep to the terms of the lease. The dissolution of F Ltd and the Crown’s disclaimer of the lease did not affect the appellant’s liability in that respect: section 1015(2). Under section 1017(2)(b), the court might make a vesting order of the lease in favour of the appellant, but it might do so, by reason of section 1017(3), only where it appeared 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. The loss of the appellant’s shareholding in F Ltd and the control that gave him over the company and its assets was the result of the dissolution of F Ltd, not the disclaimer of the lease. Once the position was reached that a vesting order in the appellant’s favour did not satisfy section 1017(3), it inevitably followed that such order could not be made. The vesting order in the third respondent’s favour would enable it to realise its security in the event of any default and the value of the lease was such that it would be fully recouped out of the proceeds of sale.
Andrew Butler QC (instructed by Anthony Gold Solicitors) appeared for the appellant; the first respondent did not appear and was not represented; Adrian Pay (instructed by Westminster City Council Legal Services) appeared for the second respondent; Clifford Payton (instructed by TLT LLP) appeared for the third respondent.
Eileen O’Grady, barrister
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