Pursuant to an agreement reached in 2004, an English company and a Californian company entered into a joint venture together. There were two issued shares, one in the name of B (issued in 2004) and the other in the name of L (issued in 2008 or 2009), and it was not disputed that they were the legal owners of the shares. In 2010 the two owners of the Californian company, F and L, fell out. Following that falling out, F repeatedly told B, who owned 49% of the shares in the English company, that the English company was B’s, and that F wanted nothing to do with it. From then on B understood and proceeded on the basis that F was not interested in any way in the English company. In 2015 F brought proceedings against L, the English company and B for a declaration that he was entitled to a 25.5% shareholding in the English company. The judge dismissed the claim, accepting the contention of the English company and B that the Californian company was the beneficial owner of 51% of the shares in the English company, it having been agreed in 2004 that the English company should be owned 49% by B and 51% by the Californian company .
However, in 2020 the English company and B brought proceedings against the Californian company, F and L seeking, among other things, a declaration that B and L were the sole shareholders in the English company. The judge granted the declaration sought, finding that F’s disavowal amounted to an irrevocable disclaimer of the Californian company’s beneficial interest in the shares of the English company. Following appeal and remission of the matter to the judge, issues subsequently arose for determination, inter alia, as to (1) whether the Californian company had contractually surrendered its interest; and (2) whether the Californian company was precluded by proprietary estoppel from asserting its claim. On (1) contractual surrender, the judge found that it was impliedly agreed in 2010 that the shares in the English company would thereafter be held 50/50 for B and L, each share being held beneficially by its legal owner, so that (i) in respect of B’s share, the 51% beneficial interest formerly held by the Californian company should be transferred to B making him the 100% legal and beneficial owner; and (ii) that in respect of L’s share, the 51% interest held by the Californian company and the 49% interest held by B should both be transferred to L. But he held that the issued shares, issued to B in 2004, and to L in 2008 or 2009, had been held on express trust for B and the Californian company in the proportions agreed in 2004, that any disposition of the Californian company’s beneficial interest in the shares amounted to dispositions of equitable interest subsisting at the time of disposition which would need to be in writing to comply with section 53(1)(c) of the Law of Property Act 1925 (“LPA 1925”), that the lack of writing meant that such disposition was not valid and the claim to relief on the basis of contractual surrender therefore failed. On (2) the judge allowed the English company and B’s claim, finding that F told B in 2010 that the English company was his to do what he liked with, that B and L had entered into the 2010 agreement in reliance on it, and that in the circumstances it was unconscionable for the Californian company to assert a 51% beneficial interest so that the claim in proprietary estoppel was made out.
F and the Californian company appealed, contending, inter alia, that the judge had been wrong to find as he did in relation to proprietary estoppel and that there was an implied term in relation to the ownership at all. The English company and B contended that the judge should have held that the agreement reached in 2010 was specifically enforceable, and hence gave rise to a constructive trust such that the case came within section 53(2) LPA 1925 instead of section 53(1)(c).
On the appeal by the Californian company and F and the cross-appeal by the English company and B—
Held, appeal dismissed and cross appeal allowed. (1) On the facts of the case, the Californian company was not estopped by proprietary estoppel from claiming a beneficial interest in the shares of the English company (paras 49–50, 77–78).
(2) The judge was entitled to find that it was an implied term of the 2010 agreement that the shares would be held equally both legally and beneficially by B and L (paras 84–89)
(3) There was in principle a difference between a purported immediate disposition and a contract to dispose. That difference could be seen for example in the doctrine that equity would not perfect an imperfect gift, with the result that a purely voluntary disposition that failed for want of formalities would not be saved by the doctrine of constructive trust. But it was different where the disposition was not purely voluntary but was given for valuable consideration. In such a case equity would readily treat a purported disposition that was ineffective for want of formality as a contract to dispose, and if the contract was specifically enforceable, that would give rise to an equitable interest in the intended disponee on the principle that equity looked on that as done that ought to be done. By virtue of the implied term, the Californian company and B agreed for valuable consideration to transfer their respective equitable interests (in the case of the Californian company to B and L, and in the case of B to L). Such a contract, being a contract for the disposition of an interest in a private company, was specifically enforceable. Under a specifically enforceable contract for the sale or disposition of specific property, the vendor or disponor held the property on constructive trust for the purchaser or disponee until the disposition was completed. That constructive trust was sufficient to carry the equitable interest in the property to the purchaser or disponee by virtue of section 53(2) of the LPA 1925 notwithstanding the absence of signed writing. B and L were therefore then the sole beneficial owners of their shares. That finding was in accordance with orthodox principles, and the cross-appeal brought by the English company and B would be upheld. The contract for the sale of shares in a private company (or the beneficial interest in them) was a contract which would normally be specifically enforceable. In respect of what the rights of the vendor and a purchaser under a specifically enforceable contract for the sale of specific property where the contract had not yet been completed were, the principles applying in relation to the sale of land, were no different in relation to other types of unique property. The vendor under such a contract became a constructive trustee for the purchaser. It was a modified form of constructive trusteeship as the vendor had his own rights under the contract. That meant that while the vendor remained unpaid, the trusteeship arising from a specifically enforceable contract was of a peculiar kind, because although a trustee, the vendor had a personal and substantial interest in the property and usually a right to possession and rents and profits until the day fixed for completion. The vendor was therefore, at least so long as unpaid, not a bare trustee. Once however the purchaser had paid the whole price (and done anything else obliged before completion) the vendor did become a bare trustee for the purchaser. In a case like the present however where there was no price to be paid, and nothing else for the disponee to do, the effect was that the disponor held his interest for the disponee from the date of the contract. An agreement to dispose of an equitable interest in shares would in the ordinary case give rise to a constructive trust in favour of the intended disponee, and even if there was no signed writing in compliance with section 53(1)(c) of the LPA 1925, the agreement would be effective to carry the beneficial interest to the disponee because of the operation of section 53(2). It made no difference that the intended disponee was himself the registered legal owner of the shares. Where A holds on trust for B, B therefore holds a beneficial interest in the shares, B contracts to dispose of that interest to A, meaning that B holds his interest on constructive trust for A, the lack of signed writing does not prevent such a constructive trust from being given effect, and in the normal case where the intended disponee is not the trustee the effect was that the beneficial interest passed from B to the intended disponee, at least once his side of the contract had been performed so that he was entitled to call for it to be completed. In the case where the intended disponee was the trustee, there was no reason why the effect was not exactly the same, namely that B holds his beneficial interest for A. Where A starts off by holding on trust for B, B tries but fails to transfer his interest to A, there was no objection to equity treating him as holding his interest for A. That would mean that B would then drop out, leaving A as the legal and beneficial owner. For all those reasons the cross-appeal of the English company and B would be allowed and the decision of the judge upheld for different reasons (paras paras 92, 98, 99–100, 106–108, 110–114, 118–120, 121, 123)
William Buck and William Hooper (instructed by Fladgate LLP) for LA Micro Group, Inc.
Alex Barden (instructed by Schofield Sweeney LLP) for F.
Andrew Twigger KC, Paul Strelitz and Oliver Hyams (instructed by IBB Law LPP trading as IBB Owen White) for LA Micro Group (UK) Ltd and B.