Lizzium Ltd (a company incorporated in Jersey) and another v Crown Estate Commissioners – Freehold property – Vesting order – Escheat – Second claimant overseas company owning freehold of property – Freeholder being dissolved – Property vesting in defendant commissioners by escheat – Claimants seeking vesting order in first claimant – Whether first claimant person entitled to estate determined had it remained subsisting estate retaining interest in property – Whether court able to vest property in first claimant – Claim allowed in part
The second claimant, a company incorporated in Gibraltar, was dissolved while it remained the freehold owner of Rutleigh Lodge, Newmarket, which was formerly the gatehouse of a larger property (Warren Towers). By the process known as “escheat” the freehold determined, and the land vested in the Crown. The second claimant was restored on 24 September 2020. The first claimant, a Jersey-incorporated company, acted as nominee for A Ltd, which held a 100% shareholding in the second claimant in its capacity as trustee of a family trust.
The claimants applied for a vesting order in respect of the property under section 181 of the Law of Property Act 1925 which provided: “Where, by reason of the dissolution of a corporation either before or after the commencement of this Act, a legal estate in any property has determined, the court may by order create a corresponding estate and vest the same in the person who would have been entitled to the estate which determined had it remained a subsisting estate.”
The claim was not opposed by the Crown. There was an issue as to which of the claimants was the appropriate company in which to revest the property.
The claimants sought an order vesting the property in the first claimant on the basis that it was “the person who would have been entitled to the estate which determined had it remained a subsisting estate” because it had been the intention in 1997 that the property be transferred to the first claimant along with Warren Towers. However, it had been overlooked in an administrative error because it was wrongly assumed that it was part of the title of Warren Towers. The dissolution of the second claimant in 1998 was on the ground that its affairs had been completely wound up, from which it was to be inferred that it was mistakenly assumed that the property had been transferred to the first claimant.
Held: The claim was allowed in part.
(1) The process of escheat occurred when a foreign company which owned land was dissolved. The reference to an overseas company was significant. If the freehold had been held by an English company, its real property interests would vest in the Crown as bona vacantia pursuant to section 1012 of the Companies Act 2006. But the Companies Act did not apply to an overseas company so that the old feudal law of land tenure continued to be relevant and the land would escheat to the Crown. The power under section 181 was discretionary, so that even where the conditions for its exercise were established, it was not inevitable that it would be exercised. The person in whose favour the power might be exercised was not restricted to the legal owner before the escheat, i.e. the dissolved company, if restored. It might be exercised in favour of another person who would have been entitled to the estate which determined had it remained a subsisting estate: UBS Global Asset Management (UK) Ltd v Crown Estate Commissioners [2011] EWHC 3368 (Ch); [2011] PLSCS 151 followed.
In the present case, the court’s jurisdiction to make an order under section 181 was engaged. By reason of the dissolution of the second claimant, the freehold estate in the property had determined. Although the court had no direct evidence of the circumstances in which the second claimant was dissolved, it accepted that the decision to do so without transferring the property out of it was mistaken. The order sought would correct that mistake. If it was not corrected, the Crown would receive a windfall; and the Crown did not oppose the claim. The court would exercise its discretion by making a vesting order in the second claimant which would restore the status quo before its dissolution. There was no indication that that would have an adverse impact upon the rights of third parties: UBS and Quadracolour Ltd v Crown Estate Commissioners [2013] EWHC 4842 (Ch) considered.
(2) Whether the court was able to vest the property in the first claimant was a question of the construction of the expression “the person who would have been entitled to the estate which determined had it remained a subsisting estate”. The particular focus was on “would have been entitled”, and the counterfactual that entailed considering. On a narrow construction “would have been entitled” referred to legal entitlement.
The claimants had not alleged that, at the date of the second claimant’s dissolution, the first claimant had a subsisting legal entitlement to the property, or even an entitlement that was contingent upon the occurrence of certain further events. The claimants’ case was based on the court making the counterfactual assumption that, had the second claimant not been dissolved, it would have transferred the property to the first claimant which would thereby have become entitled to it. However, that extended the scope of the expression “would have been entitled” in a way which was unsupported by UBS and Quadracolour, on which the claimants relied. In both those cases, the claimant had at the date of dissolution clear legal rights under the option agreements, and in order to become entitled it was only necessary that certain steps were taken under the agreements. The entitlement arose from a binding agreement in existence at the date of the dissolution.
The expression “would have been entitled” was to be construed as meaning entitled as a matter of a legal right subsisting at the date of the escheat, even if some further steps needed to be taken to achieve an enforceable entitlement to the property. It was not suggested that the first claimant had any legal rights (e.g. to rectify the transfer) against the second claimant at the date of its dissolution. The fact that the second claimant might or even would have decided to transfer the property to the first claimant at some point after 1998 (when it had no binding obligation to do so) was not sufficient to make the first claimant a person who would have been entitled to the property had it continued as a subsisting estate. Therefore, the court would not make an order vesting the property in the first claimant.
Harry Martin (instructed by Maurice Turnor Gardner LLP) appeared for the claimant.
Eileen O’Grady, barrister
