Arnold J (first appeal decision)

The court allowed the defendant Westminster's appeal and set aside the Chief Master's vesting orders made in favour of Mr Leon. The judge held that an applicant under section 1017 of the Companies Act 2006 must be "entitled to" the disclaimed property to obtain a vesting order under section 1017(2)(a), which requires a proprietary interest (a beneficial or legal entitlement). The equity of redemption belonged to the dissolved company and then to the Crown, not to Mr Leon, so he was not "entitled to" the lease.

As to section 1017(2)(b), the court held that a vesting order in favour of a person under a liability may only be made where it would be just to do so to compensate that person under section 1017(3). The Chief Master failed to analyse whether the disclaimer caused compensatable loss to Mr Leon; the disclaimer did not affect his liability under the mortgage and did not create a clear loss that a vesting order would compensate. For these reasons a vesting order for Mr Leon could not properly be made and the correct order was to vest the lease in the mortgagee, Kensington, on terms that it account as mortgagee under section 105 of the Law of Property Act 1925.

Background and parties: The lease of a flat had been granted to a company (Frinton Ltd). Frinton was dissolved for failure to file statutory returns and no restoration application was made within the six year period under the Companies Act 2006. On dissolution the companys property vested as bona vacantia in the Crown, which then disclaimed the lease under section 1013 of the Companies Act 2006. The claimant, Mr Leon, was a co-mortgagor under a mortgage which had been secured on the lease when it had been substituted as security; Kensington Mortgage Company Ltd became mortgagee by transfer. Westminster, the freeholder, sought the lease as freeholder; Mr Leon sought a vesting order in his favour. The Attorney General did not oppose the court making an order provided it was a proper case.

Nature of the application: Mr Leon commenced a Part 8 claim seeking a vesting order of the disclaimed lease on three alternative grounds: (i) that Frinton held the lease on trust for him (Trustee Act 1925 s.44), (ii) that he would have been entitled but for the dissolution (Law of Property Act 1925 s.181), and (iii) that he had an interest in the lease and/or was under a liability in respect of it as co-mortgagor and thus an order should be made under Companies Act 2006 s.1017.

Procedural posture: The Chief Master dismissed the first two grounds but made a vesting order under section 1017 in favour of Mr Leon, on the basis that as co-mortgagor he had an "interest" or, alternatively, was a person under a liability and met the s.1017(3) test. Permission to appeal was granted by Rose J.

Issues framed: (i) Whether an application under s.1017(2)(a) may be made by someone who merely "claims an interest" or whether the applicant must be "entitled to" the property (i.e. hold a proprietary interest); (ii) if an applicant is a person under a liability for the disclaimed property, whether the test in s.1017(3) (that it would be just to make a vesting order for the purpose of compensating that person) is satisfied.

Courts reasoning and outcome: The court held that the correct question for s.1017(2)(a) is whether the applicant is "entitled to" the property; mere personal or financial interest is not enough. The equity of redemption was held by the company (and then the Crown) and not by Mr Leon, so he could not obtain vesting under s.1017(2)(a). As to s.1017(2)(b)/1017(3), the court found the Chief Masters reasoning defective because he did not analyse whether the disclaimer caused compensatable loss to Mr Leon: the disclaimer did not terminate Mr Leons liability under the mortgage and any past mortgage payments were at least partly offset by rental income he had received. Therefore s.1017(3) was not satisfied. The appeal was allowed and the Chief Masters orders set aside; it was agreed that, in those circumstances, a vesting order should be made in favour of Kensington on terms that it account as mortgagee under section 105 of the Law of Property Act 1925.

Appeal allowed. The Chief Master erred in treating a mere "interest" as sufficient for a vesting order under Companies Act 2006 section 1017(2)(a); the applicant must be "entitled to" the property (a proprietary interest), which Mr Leon was not because the equity of redemption belonged to the dissolved company and then to the Crown. The Chief Master also failed to apply section 1017(3) correctly: he did not analyse whether the disclaimer caused compensatable loss to Mr Leon. Because the disclaimer did not discharge Mr Leons mortgage liability and did not clearly cause compensatable loss, a vesting order for Mr Leon under section 1017(2)(b) could not properly be made. The correct vesting order should be made in favour of the mortgagee, Kensington, on terms that it account as mortgagee under section 105 of the Law of Property Act 1925.

Appeal from orders of Chief Master Marsh (judgment dated 11 December 2017, order dated 16 January 2018 and subsequent order dated 16 May 2018) ([2017] EWHC 3148 (Ch)). Permission to appeal was granted by Rose J.