In the recent High Court case of Dixon v The Crown Estate Commissioners  EWHC 3256 (Ch), two former shareholders of a dissolved company were deemed to have an equitable interest in the dissolved company’s properties, despite the properties having escheated to the Crown Estate.
What does escheat mean?
Escheat is a remnant of feudal law which is based on the assumptions that (a) all land in England is held by the Crown and at some point in the past the Crown granted that land to a feudal tenant in chief and (b) no land can be ownerless. Therefore if the interest in land granted comes to an end, then the land will revert to the Crown and be known as ‘bona vacantia’ (literally, “ownerless goods”).
The Crown can then opt to disclaim such bona vacantia if it considers that it would not be effective for the Crown to sell it, or that owning the relevant property would be risky (for example if the land is contaminated). A disclaimer by the Crown means that the property is treated as if it never passed to the Crown as bona vacantia at all. Instead, it ‘escheats’ to the Crown Estate, which is a different part of the Crown as the ultimate owner of all land.
What happened in Dixon?
The two claimants in this case owned a property development company and the company owned two properties in Stanley and Carlisle. One of the claimants wished to retire and move abroad, therefore together, the claimants decided to wind up the company and the two properties were to be assigned to each of them prior to the company being wound up. The claimants believed that the company’s accountant had given effect to their instructions when in fact, the advisors had not wound the company up or transferred the properties. In the mistaken belief the company had no assets they applied for the company to be struck off the Register of Companies and the company was dissolved in 2010. The claimants had paid tax in relation to the distributions to them and subsequently on rent they received personally from the properties. However in late 2020, the claimants realised that none of the formalities for winding-up the company had taken place and the two properties were still registered in the name of the company at the Land Registry.
If a company governed by the Companies Act 2006 is dissolved then section 1012 of the Companies Act 2006 provides that all of its property will vest in the Crown as bona vacantia. In this case, the Treasury Solicitor disclaimed the two properties, after which the legal title to each property vested in the Crown Estate Commissioners for the Crown Estate.
However, the Judge deemed the company to have held the properties on trust for the claimants at the time of dissolution, through proprietary estoppel. Proprietary estoppel refers to the equitable jurisdiction of the court to interfere in cases where the assertion of legal rights would be unconscionable. The court granted an order vesting the properties in the two claimants under section 44(ii)(c) of the Trustee Act 1925 or alternatively under section 181 of the Law of Property Act 1925.
The Judge held that it would be unconscionable for the Crown Estate Commissioners to deny the claimants’ ownership of the properties and making of vesting orders in favour of the claimants in respect of each of the properties would be consistent with the interests of justice as otherwise the Crown Estate would receive a windfall. The failure to transfer the properties out of the company before it was struck off and dissolved was a clear mistake which the making of vesting orders in favour of the claimants would correct.
- A decision of conscience, the claimants were not to lose their properties due to a failure on the part of their advisors.
- They had acted to their detriment by paying taxes on the properties interests that they thought they had on the fair assumption that the properties had been transferred to them.
No windfall for the Crown Estate in this case but a useful example of how a historic concept can apply to modern life.