Anonymized Summary of Opinion

Factual and Procedural Background

The Appellant was the vehicle established to manage a hotel development east of Waterloo Bridge. Company A, Company B and Company C belonged to the same corporate group. Defendant was a co‑founder and executive chairman of the group and a director of several group companies. Company A owned the freehold of the redevelopment site ("the Site"). In 2004 Company A entered a freehold sale contract (the FSC) to transfer the freehold of the Site to the Appellant for £1, completion being subject to events described in the FSC.

Planning permissions envisaged a separate annex adjacent to the main hotel. In mid‑2008 Company A granted a 999‑year Lease of the annex to Company B and Company B granted a 15‑year Underlease to the Appellant (the "Annex Lease Scheme"). Completion of development and grant of Room Leases to investors occurred in 2007–2008. Completion of the FSC occurred in April 2014 when Company A transferred the freehold to the Appellant.

Company B later sued the Appellant for unpaid rent under the Underlease. The Appellant counterclaimed that the Lease and Underlease were void or voidable, that Defendant was liable for breach of fiduciary duty, and that Company A and others were liable for various losses including breach of Room Leases and diminution of Appellant's interests. An 11‑day trial before Judge Richards (Ch) resulted in dismissal of the Appellant's claims and an order that the Appellant pay Company B arrears of rent. The Appellant now appeals.

Legal Issues Presented

1. Whether the Appellant has an arguable claim against Defendant and, if so, whether that claim is statute‑barred (application of section 21(1)(b) Limitation Act 1980).
2. Whether the Appellant can recover damages from Company A for breach of clause 9 of the Room Leases (right to utilise "Common Parts") and whether any such claim is continuing or time‑barred.
3. Whether the Lease and Underlease were validly executed in accordance with section 44 Companies Act 2006 and, if not, the implications (including whether section 44(5) CA 2006 applies, whether parties are estopped from disputing execution, and whether equitable title or rectification of the register arises).

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that it acquired an equitable interest under the FSC and that the Annex Lease Scheme converted part of that pre‑existing interest into benefits for Company B (and indirectly for Defendant), so section 21(1)(b) Limitation Act 1980 applies and the claim is not time‑barred.
• The Appellant argued clause 9 of the Room Leases created a continuing contractual obligation to permit rent‑free use of the Common Parts (including the annex) and that Company A breached that continuing obligation, causing the Appellant loss in the form of rent paid under the Underlease.
• The Appellant submitted that the Lease and Underlease were not valid deeds because they had not been executed in accordance with section 44 CA 2006 and that section 44(5) cannot be invoked where the purchaser is not "in good faith" or does not wish to rely on the deeming; accordingly the register should be rectified unless equitable principles defeat the challenge.

Respondents' Arguments

• The respondents contended that the Appellant's remedy was limited to specific performance or that, insofar as equitable remedies were sought, the Appellant held the freehold and therefore section 21(1)(b) did not apply because no conversion of pre‑existing property occurred.
• They argued the grant of the Lease created a new interest rather than converting an existing pre‑existing proprietary interest, and/or that any claim against Defendant falls within the "Class 2" constructive‑trust category (Williams/Paragon) to which section 21(1)(b) does not apply.
• On the Room Leases, they submitted clause 9 conferred a right rather than an ongoing contractual obligation capable of continuing breach; alternatively that any loss crystallised at the time of the Underlease grant and is time‑barred in part.
• With respect to execution, respondents relied on the deeming in section 44(5) CA 2006 for purchasers acting in good faith, estoppel doctrines, and that, even absent such deeming, equitable principles (Walsh v Lonsdale) or other reasons should prevent rectification of the register.

Table of Precedents Cited

Court's Reasoning and Analysis

The appellate court proceeded by addressing the three principal strands of the dispute in turn.

1. Claim against Defendant and s21(1)(b) LA 1980. The court accepted that the FSC gave the Appellant a beneficial (equitable) interest in the Site pending completion (drawing on Lysaght, Jerome, Englewood and related authorities). It then considered whether the Annex Lease Scheme amounted to a "conversion" of that pre‑existing property so as to fall within s21(1)(b). Applying the purpose of s21 (In re Timmis and Burnden), the court concluded that the grant of the Lease carved out rights from the Appellant's pre‑existing equitable entitlement and so constituted conversion for s21(1)(b) purposes. The court distinguished authority on class‑2 constructive trusts (Williams; Gwembe Valley; First Subsea) and held the Appellant's claim implicated pre‑existing company property (class 1) rather than a newly created secret profit (class 2). On whether conversion was "to [Defendant's] use", the court found that Defendant's indirect minority shareholding combined with effective control and directorships sufficed for the benefit to count as to his use (Burnden principles applied). The court rejected arguments that ratification under the Duomatic principle applied (no objective unanimous assent by Company C's board) and remitted questions of relief under s1157 CA 2006 to the trial judge. The court therefore concluded the Appellant had an arguable, non‑time‑barred claim under s21(1)(b) and remitted that claim for determination on the merits.

2. Claim for breach of the Room Leases (clause 9). Clause 9 granted the Appellant "the right to utilise the Common Parts" (which the court accepted included the annex). The respondents argued clause 9 merely effected an immediate grant of a right, not an ongoing contractual obligation. The court disagreed with that narrow reading: clause 9 was a contractual promise to permit use on an enduring basis and therefore constituted a continuing obligation. The court applied the distinction between single and continuing breaches (Bell v Peter Browne; Spoor) and concluded that, once the Appellant was obliged to pay for use of the annex under the Underlease, loss had arisen and the obligation was capable of daily fresh breach; the matter of quantification of damages was remitted to the judge. The court rejected the Judge Richards' view that there was no continuing breach.

3. Validity of the Lease and Underlease and section 44(5) CA 2006. It was common ground the documents were not executed in accordance with s44 CA 2006 (no director signature: the purported signature "S Conway" was in fact written by an assistant). Judge Richards had held s44(5) operated to deem due execution in favour of purchasers. The appellate court examined the wording and purpose of s44(5) and concluded the deeming operates only in favour of a purchaser acting "in good faith". Drawing on authorities on "good faith" and notice (Central Estates; Midland Bank; Morris v Kanssen), the court held that a purchaser who knows the appearance of execution does not match reality is not "in good faith" for s44(5) purposes. Because Defendant (as sole director at the time) had knowledge that he had not personally signed the documents and that knowledge is attributable to the companies, the purchasers were not in good faith and s44(5) did not apply. The court further held that estoppel by grant or title does not preclude a party to a purported lease from challenging due execution; existing estoppel principles concerning title do not decide execution deficiencies. The question whether the Lease and Underlease nevertheless operate in equity (Walsh v Lonsdale) or whether the register should be rectified was remitted to the trial judge because further factual and legal analysis was required.

Holding and Implications

HOLDING: THE APPEAL IS ALLOWED.

Implications:

• The Appellant has an arguable, non‑time‑barred claim against Defendant to which section 21(1)(b) Limitation Act 1980 applies; that claim is remitted to Judge Richards to determine on the merits and to consider relief under section 1157 Companies Act 2006 if liability is established.
• The Appellant's claim for damages against Company A for breach of clause 9 of the Room Leases is maintainable as a continuing contractual obligation; assessment of damages is remitted to Judge Richards.
• Section 44(5) Companies Act 2006 is not applicable in relation to the Lease and Underlease on the facts found (purchasers were not "in good faith"); the Appellant is not estopped from denying due execution; questions whether the leases take effect in equity and whether Land Registry entries should be rectified are remitted to Judge Richards.
• No new binding precedent was created; the court resolved the appeal by applying and distinguishing established authorities and remitted unresolved factual and remedial questions to the trial judge.