Leon v Her Majesty's Attorney General

A vesting order under Companies Act 2006, section 1017(2)(a), requires the applicant to be entitled to the disclaimed property, not merely to claim an interest in it. The relevant interest must ordinarily be proprietary, although a beneficial interest may suffice where the property is vested in a trustee. A co-mortgagor’s liability and right to redeem a mortgage do not make that person the owner of the mortgagor’s equity of redemption. Under section 1017(2)(b) and (3), the court must analyse the effect of the disclaimer and decide whether vesting the property would justly compensate the applicant for that effect. A general comparison of which party would receive a windfall is insufficient.

Westminster appealed against orders made by the Chief Master vesting in Michael Leon a lease which had become bona vacantia after the dissolution of Frinton Ltd and had then been disclaimed by the Crown. The Chief Master had relied on section 1017 of the Companies Act 2006, finding that Mr Leon either claimed an interest in the lease or was subject to a mortgage liability not discharged by the disclaimer. The appeal concerned whether his position as co-mortgagor entitled him to an order under section 1017(2)(a), and whether the statutory compensation test in section 1017(3) justified an order under section 1017(2)(b). Kensington Mortgage Company Ltd sought a vesting order in the alternative.

1. Appeal allowed. The Chief Master’s orders were set aside. A vesting order was to be made in favour of Kensington on terms requiring it to account as mortgagee to the person next entitled under section 105 of the Law of Property Act 1925.

2. Section 1017(1)(a) concerns the standing to apply, whereas section 1017(2)(a) identifies the person in whose favour the property may be vested. The applicant must therefore establish entitlement to the property. The relevant interest must be proprietary, although a beneficial interest may suffice where the property is vested in a trustee.

3. The equity of redemption belonged first to Frinton as mortgagor and then to the Crown until disclaimer. Mr Leon’s right to redeem the mortgage and his position as co-mortgagor did not give him ownership of that equity. He was therefore not entitled to the lease and no order could be made under section 1017(2)(a).

4. Mr Leon was under a liability in respect of the lease for the purposes of section 1017(1)(b). However, section 1017(3) required the court to ask whether vesting the property would be just for the purpose of compensating him in respect of the disclaimer. The Chief Master had not analysed either the disclaimer’s effect on Mr Leon or what loss required compensation. His discretion was therefore flawed in principle.

5. The disclaimer terminated Frinton’s interest in the lease under section 1015(1), while Mr Leon’s mortgage liability remained. He was not being compensated for loss of the lease, which had not been his property, or for the mortgage liability, which the disclaimer had not discharged. Vesting the lease in him therefore failed the section 1017(3) test.

1. High Court (Chancery Division): Appeal allowed against the Chief Master’s orders dated 16 January 2018 and 16 May 2018, made following the judgment dated [2017] EWHC 3148 (Ch). Those orders were set aside.