Robert Lulham & Anor v The Crown Estate Commissioners

The court considered an application for a vesting order in respect of a freehold that had become bona vacantia following the dissolution of the company which had held it. Key statutory provisions considered included section 1012, 1013, 1015 and 1017 of the Companies Act 2006 and section 181 of the Law of Property Act 1925. The Claimants, who were former shareholders and directors of the dissolved company and who held long leases of two flats in the property, sought vesting under s.1017(1)(a) and (b) and, alternatively, under s.181 of the Law of Property Act.

The court held that the Claimants could not show the requisite "interest in the disclaimed property" under s.1017(1)(a) because their position as shareholders and beneficiaries of landlord covenants did not give them an entitlement to the freehold and would require an unjustified piercing of the corporate veil. The court also held that the Claimants were not entitled to a vesting order under s.1017(1)(b) because their tenant liabilities were not liabilities "in respect of" the disclaimed freehold and, in any event, the relationship required by s.1017(3) (a reasonable relationship between liability and benefit) was not made out. Finally, under s.181 of the Law of Property Act the Claimants lacked any subsisting legal right to the freehold at the date of escheat. The application was dismissed.

Background and facts. The freehold of 40 Kingsley Road, Maidstone (the Property) was acquired by Matchmount Limited (the Company) in 2005. The Claimants were directors and shareholders of the Company and between them held long leases of Flats 1 and 2 within the Property. The Company was struck off and dissolved after failure to file annual returns; the freehold became bona vacantia by virtue of section 1012(1) of the Companies Act 2006. The Treasury Solicitor disclaimed the Crown's interest under s.1013 and, by operation of s.1015, the freehold determined and vested in the Crown by escheat; the Crown Estate Commissioners then declined to manage or accept the property for reasons explained in correspondence.

Nature of claim and relief sought. By a Part 8 claim the Claimants sought a court-made vesting order: (i) under section 1017 of the Companies Act 2006 (both limb 1: s.1017(1)(a)/(2)(a) and limb 2: s.1017(1)(b)/(2)(b)/(3)); and alternatively (ii) under section 181(1) of the Law of Property Act 1925.

Issues framed by the court.

• Whether the Claimants had an "interest in the disclaimed property" sufficient for a s.1017(1)(a)/(2)(a) vesting order.
• Whether the Claimants were "under a liability in respect of the disclaimed property" not discharged by the disclaimer and, if so, whether a vesting order would be just for the purpose of compensating them in accordance with s.1017(3).
• Whether the Claimants "would have been entitled to the estate which determined" so as to permit creation and vesting of a corresponding estate under s.181 of the Law of Property Act.

Court’s reasoning and subsidiary findings.

• The court rejected the contention that share ownership or payment of the purchase price via the Company conferred an interest in the Company’s property; to do so would amount to an unjustified piercing of the corporate veil (citing Prest v Prest as authority supporting that principle and adopting the approach in Leon v Attorney General).
• Benefit of landlord covenants under the Claimants’ leases did not constitute an entitlement to the freehold; such contractual rights are not a proprietary entitlement sufficient for s.1017(1)(a).
• The court found the Claimants’ tenant liabilities arose under their leases and were not liabilities "in respect of" the disclaimed freehold; moreover the Claimants adduced no evidence of a low or nominal value of the freehold and failed to show the requisite reasonable relationship between liability and benefit required by s.1017(3). The application to adduce valuation evidence at the disposal hearing was refused.
• Under s.181 the Claimants lacked a subsisting legal right to the freehold at the date of escheat; shareholder and director powers did not amount to the requisite legal entitlement and Lizzium and earlier authorities were followed on the correct construction of s.181.
• The court noted s.1015(2) preserved the rights and liabilities of other persons (so the Claimants’ leases remained intact) but this did not assist the Claimants in obtaining title to the freehold.

Disposition. The application for a vesting order was dismissed.

The application is dismissed. The court held that the Claimants could not obtain a vesting order under s.1017(1)(a) because shareholder status and landlord covenants did not give them an entitlement to the freehold; could not obtain a vesting order under s.1017(1)(b) because their tenant liabilities were not liabilities "in respect of" the disclaimed freehold and there was no reasonable relationship between those liabilities and the value of the freehold for the purposes of s.1017(3); and could not obtain relief under s.181 of the Law of Property Act because they had no subsisting legal right to the estate at the date of escheat.