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Disclaiming Disclaimer

11th December 2018

Disclaiming Disclaimer

When a company is dissolved, all its property and rights (including leasehold property) are deemed to be bona vacantia and accordingly belong to the Crown. Pursuant to s.1013 of the Companies Act 2006, where property so vests in the Crown, the Crown’s title to it may be disclaimed by a notice signed by the Crown representative. By s.1017 of the Act, the court may make an order vesting disclaimed property in a person with an interest in it.

In McWalter v (1) HM’s Attorney General (2) Executors of the Estate of Mattey [2018] EWHC 563 (Ch) the Court grappled with questions of what information a valid notice of disclaimer must include, and whether a claim for a vesting order, commenced before a valid disclaimer, was an abuse of process or otherwise liable to be struck out.

Mr McWalter (“C”) sought an order pursuant to s.1017 that the leasehold interest in commercial premises be vested in him. The First Defendant was Her Majesty’s Attorney General (as representative of the Crown) and the Second Defendants (“D”) were the Executors of the estate of Jefferey Mattey, who are the freehold owners of the Premises. The claim was not opposed by the Attorney-General, but was opposed by D

The Premises are part of the properties let pursuant to two leases. The leasehold interest in the Premises was transferred to Jadecroft Limited (“Jadecroft”) pursuant to a Transfer dated 20.08.84. C was a director of Jadecroft. The Premises were never occupied by Jadecroft, which was dissolved in June 1987; C occupied the Premises personally, trading as Woodstock Joinery Company. The rent was never paid by Jadecroft; C always paid the rent personally, through Woodstock Joinery Company.

On 10.07.17 D peaceably re-entered part of the Premises. No s.146 notice had been served and the rent account was up to date; C did not know the grounds for the purported forfeiture. D allowed re-entry on 12.07.17 but on or around 30.10.17 they changed the locks to top floor and refused to allow entry to C.

In the meantime, and unknown to C, D’s solicitors had contacted the Treasury Solicitor inviting disclaimer in respect of the lease. This resulted, eventually, in the Crown disclaiming the leasehold interest in the Premises; the Notice of Disclaimer was dated 16.10.17. On 25.10.17 D’s solicitors sent the Notice to C’s solicitors, saying,

We confirm that the Lease of the Property has been disclaimed by the Crown…”

As a consequence of the disclaimer C issued the claim, on the grounds that the Premises were bona vacantia following dissolution of the company which was the leasehold owner. The Premises had been disclaimed by the Crown, and C claimed an interest in the Premises.

After the claim was issued, a question arose as to whether the Premises had been effectively disclaimed before issue. It transpired that although the correct Premises and title number and the correct company name were stated in the Notice of Disclaimer, the wrong company number had been cited: there had been another company called Jadecroft which had been incorporated on 07.04.04 but was dissolved on 23.11.10. That company could not have been the assignee under the 1984 Transfer, therefore, and was never the leaseholder of the Premises. Nevertheless, the wrong company number – that of the later Jadecroft – was stated in the Notice of Disclaimer.

Consequently, a further Notice of Disclaimer was issued on 11.01.18, citing the correct company number. Crucially, therefore, as at the date of the hearing (16.02.18) there was no doubt whatsoever that the Premises had been disclaimed. Nevertheless, C took the position – although the same was not clearly spelled out – that because the Premises may not have been disclaimed at the time the claim was issued, the proceedings were a nullity and should be struck out.

The Deputy Judge identified that the issues to be decided were as follows:

i. whether the First Notice was a valid notice of disclaimer under s.1013 of the Act;

ii. if it was not a valid notice of disclaimer, whether C was entitled to rely on the Second Notice;

iii. if C was entitled to rely on the Second Notice, whether he had sufficient interest in the Premises for the court to make an order vesting the Leasehold Interest in him.

Disclaimer

D made much of the fact that the First Notice cited the wrong company number, and contended that this made the proceedings a nullity. C contended that such a contention ignores the overriding objective: discontinuing or striking out the claim at the hearing, when it was clear beyond peradventure that the Premises had been disclaimed, would be pointless and would achieve nothing but waste. C could and would simply issue the same claim again.

Further, C contended that the First notice was in any event effective. Crucially, there is no prescribed form for the notice. What is required is that the notice states that the Crown’s title to the property is disclaimed (and the notice is signed by the appropriate person). In the present case, the Premises vested in the Crown under s.1012. The First Notice properly described the ‘property’ and the title number was correctly stated.

There was no doubt as to what property was being disclaimed. The wrong company number was stated in the First Notice, but that did not change the fact that ‘the property’ was properly identified, and disclaimed. To this end, the original Notice was effective.

In any event, only one ‘Jadecroft’ ever had any interest in the Premises.  Would the reasonable recipient, with knowledge of the factual and contextual background, be perplexed by this error?  Plainly, the answer must be ‘no’.  What would the reasonable recipient understand the notice to mean?  They would understand that the Crown was disclaiming any interest it had in “the Premises”, which interest it only had because the company with the leasehold interest had been dissolved.  The factual and contextual background would include the fact that a company called “Jadecroft Limited” had been the leasehold owner, but had been dissolved, with the effect that the leasehold interest vested in the Crown bona vacantia.  Would the reasonable recipient have been perplexed by the reference to a different company (with the same name) which had never had any interest in the Property?  No, of course not (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19, approving the decision in Carradine Properties v Aslam [1976] 1 WLR 442).

The Deputy Judge rejected that argument, concluding that the problem with it was that it failed to take into account who the “recipients” of a disclaimer notice are. Certainly, they include those parties on whom a disclaimer notice must be served pursuant to the provisions of s.1013(7) and 1016 of the Act. However, C had ignored the fact that under the provisions of s.1013 the disclaimer notice must also be published in both the London Gazette and registered against the relevant company at Companies House. It must, therefore, be publicly disclosed. Unlike the Mannai case where only the landlord was the recipient, the recipients of a disclaimer notice include the public at large. In light of this, although there is no prescribed form for the disclaimer notice, it is implicit from the notification requirements in s.1013 that the notice should include both the company’s name and its number. This will ensure that the notice is properly registered by the Registrar of Companies against the right company and that it is properly publicised in the London Gazette. It will also ensure that members of the public are properly notified as to which company’s interest is being disclaimed, bearing in mind that it is possible for two companies to have, for example, a leasehold interest in property, one as lessee and the other as underlessee. Consequently, a disclaimer notice which has the wrong company number is not an effective notice.

Abuse of Process

The Second Notice, which both parties accepted was an effective disclaimer notice, was executed by the Treasury Solicitor after the commencement of the proceedings. It could not, however, apply retrospectively.

D’s contention was that the proceedings were a nullity and should be struck out, because at the date of their issue, C had no right to make any application under s.1017. They argued that the right to apply for a vesting order only arose after the Treasury Solicitor had validly disclaimed the Crown’s interest in the Premises and that this did not occur until the Second Notice had been executed. They further argued that at the time of the issue of proceedings, C knew or ought to have known that the First Notice related to a different company.

C’s case was that even if he did not have a cause of action when he issued the proceedings, as a result of the execution of the Second Notice he did have a cause of action from that point onwards and should be entitled to rely on that Second Notice.

The Deputy Judge noted that the following principles may be derived from Munday & Anr v Hilburn & Anr [2015] BPIR 684 and Eaton v Mitchells and Butler plc [2015] BPIR 1379:

i. a distinction is to be made between proceedings which are an abuse of process and those which have an incurable defect;

ii. the lack of a cause of action at the time that proceedings are commenced does not of itself amount to an abuse of process. In order for proceedings to be struck out as an abuse of process, the claimant must have actual knowledge that he has no cause of action; the fact that he ought to have known is not sufficient, it is not only an abuse of process for a party to commence proceedings knowing that he has no cause of action, but for him to continue them;

iii. even if proceedings are not an abuse of process, the court is not powerless to deal with cases where a claimant has no cause of action vested in him. A court may dismiss an action if it is incurably bad. However, there is no rule of law or practice which prevents a court from allowing an amendment to permit a claimant to rely on a cause of action which has arisen after the commencement of proceedings in circumstances where, but for the amendment, the claim would fail. In such circumstances, the court must exercise its discretion whether to permit or refuse an amendment in accordance with the justice of the case.

The Deputy Judge decided there were no grounds to strike out the proceedings as an abuse of process, as that would require a finding that C issued the proceedings or continued them with actual knowledge that he had no cause of action vested in him. There was no evidence at all that he knew that the First Notice was ineffective when he issued the proceedings. Whilst there might have been matters which should have alerted him to the fact that the First Notice referred to the wrong company, as the authorities make clear, this was not sufficient for his claim to be struck out as an abuse of process.

Neither was it an abuse of process for C then to continue with the proceedings. Whilst by the time of the Second Notice C knew that both D and the Treasury Solicitor were contending that the First Notice was ineffective, unless there was clear authority to show that the First Notice was ineffective and that this was drawn to C’s attention, it could not be said that at that point he became aware that he had no cause of action based on that notice and that thereafter his continuation of the proceedings was an abuse of process. There was no evidence to show that C did not genuinely believe that the First Notice was effective. There were therefore no grounds for striking out the proceedings as an abuse of process.

Should the Deputy Judge dismiss the proceedings on the grounds that C did not have any cause of action vested in him at the time that they were commenced? Both parties agreed that upon execution of the Second Notice, C did have the right to make an application under s.1017 subject to the other conditions in that section being satisfied. The case was similar to Maridive & Oil Services (SAE) & Anor v CNA Insurance Company (Europe) Ltd [2002] EWCA Civ 369 where the claimant had no cause of action when it issued proceedings, because the demand upon which the cause of action was said to have arisen was invalid. However, the Court of Appeal permitted the claimant to rely on a subsequent demand served after proceedings had been commenced, which was a valid demand and vested a cause of action in the claimant. The Deputy Judge concluded that the execution of the Second Notice in the present case cured the relevant defect and no injustice would be caused to either party if she permitted C to rely on it.

The Deputy Judge recognised that if she were to dismiss the proceedings, because of the technicality that the cause of action arose only as a result of the execution of the Second Notice, it was inevitable that new proceedings would be commenced, which would be a waste of time and costs for the court and the parties. Further, no injustice would be caused to any of the parties if she permitted C to rely on the Second Notice, as everyone had come to the hearing prepared to argue the merits of the claim. For those reasons, the Deputy Judge permitted C to rely on the Second Notice and to amend his Claim Form to refer to it. Moreover, even if she had not allowed C to rely on the Second Notice, in order to avoid having to bring this matter back to court she would have permitted him to argue the merits of his case based on the Second Notice, on his undertaking to the court to issue new proceedings based on the Second Notice and would have directed that such proceedings be consolidated with the current proceedings.

In order to make a claim under s.1017 for a vesting order, not only must the relevant property have been disclaimed, but the claimant must either have an interest in the disclaimed property or be under a liability in respect of it which is not discharged by the disclaimer. C claimed that he was entitled to make the application because he had an interest in the Leasehold Interest. Ultimately, the Deputy Judge decided that C did not have an interest in the disclaimed property, and dismissed the claim. Nevertheless, her conclusions as to the requirements of a valid notice of disclaimer, and the effect of commencing a claim for a vesting order before there had been a valid disclaimer, provide useful clarification.

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