Max Thorowgood considers the property dispute of Dixon and another v Crown Estate Commissioners  EWHC 3256 (Ch).
The claimants owned the shares in a property development company. The company held the legal title to 2 properties.
The claimants resolved to dissolve the company and appropriate its assets between them. In 2010, as a result of oversights by the company’s accountant, the company was dissolved without any statutory liquidation processes being followed and without the properties being transferred to the claimants as agreed.
The claimants then proceeded to deal with the properties as if they owned them and believing that they did.
In 2020, it came to light that the properties had not been transferred. The Crown disclaimed any interest in the properties whereupon title escheated to the Crown Estate Commissioners.
The claimants sought orders pursuant to section 181 of the Law of Property Act 1925 (LPA 1925) and/or section 44(ii)(c) of the Trustee Act 1925 (TA 1925) that the properties be vested in them.
His Honour Judge (HHJ) Hodge KC made orders in their favour pursuant to the Trustee Act 1925, s 44(ii)(c) on the basis that the claimants’ agreement created a proprietary estoppel which equity bound the titles at the time of the company’s dissolution.
What are the practical implications of this case?
Save in limited circumstances, section 1030 of the Companies Act 2006 provides that an application to restore a company to the register must be within six years of its dissolution.
If title to property is held by a UK company at the time of its dissolution it will vest in the Crown as bona vacantia upon dissolution.
If the Crown disclaims that interest, title escheats to the Crown Estate Commissioners. Real property assets of dissolved foreign companies escheat automatically to the Commissioners. This operation is the modern-day expression of the feudal principles that: i) title to all land in England & Wales is held of the Crown; and ii) it must have an owner. This apparent circumlocution has the effect of relieving the Crown of obligations in respect of the land.
LPA 1925, s 181 provides that in this situation the court may vest title to the property in, ‘…the same person who would have been entitled to the estate which determined’. Similarly, if, as at the date of its dissolution, the company held the title upon trust an application for a vesting order may be made pursuant to TA 1925, s 44(ii)(c).
In either case, an applicant for relief must show that they have/had some legal right to the property.
This case is significant because HHJ Hodge KC held that, by reason of an agreement between the members of the dissolved company as to the terms upon which it was to be dissolved and its property distributed, a proprietary estoppel in their favour arose and that the equity thereby created was sufficient to found an order either pursuant to TA 1925, s 44 or, failing that, LPA 1925, s 181. The order was made subject to an undertaking by the claimants to account to HMRC for any additional tax liability arising from the manner of the company’s dissolution.
What was the background?
The claimants owned a property development company which owned a number of properties. All but 2 of these were sold at a substantial profit.
The second claimant wished to retire and move abroad for tax reasons. They resolved between them, having taken advice from the company’s accountant, to liquidate the company and distribute its cash between them and to appropriate the two properties in specie according to the differential entitlements.
In 2010, the company was dissolved without any formal procedures for its voluntary liquidation by its members having been carried out and without the properties having been transferred.
The claimants then proceeded to deal with the properties as if they owned them.
Only in 2020 did they discover that the legal title was still registered in the name of the company, by which time it was too late for the company to be restored to the register.
For reasons which are unclear the Treasury Solicitor elected to disclaim the Crown’s interest, thus necessitating the instant application which the Commissioners neither admitted nor opposed.
The claimants accepted that on one view of the process which they had intended to adopt an additional charge to tax might have arisen and they undertook to account to HMRC in this regard.
What did the court decide?
HHJ Hodge KC held that the agreement between the claimants as to the disposal by the company of its assets and their reliance to their detriment upon their understanding that the company would be/had been dissolved in accordance with that agreement by—ordering their affairs and paying tax on that basis; not objecting to the dissolution of the company; and finally, not applying to restore the company to the register within the time limit meant that the company held the titles to the properties subject to an equity in favour of the claimants as at the date of its dissolution.
The fact that there was no trust and/or that an order of the court was required to establish the extent of the equity did not mean that no sufficient beneficial interest existed in order for TA 1925, s 44(ii)(c) to be operable. Alternatively, LPA 1925, s 181 was not rendered redundant by TA 1925, s 44 and the proprietary estoppel was a sufficient ‘legal’ interest to support an application.
This analysis was first published on Lexis®PSL.