The claimant applied for a declaration that he was the beneficial owner of 50% of the shares in the third defendant company (Glass) and 45% of the shares in the fourth defendant company (Blinds).
The claimant’s case was that he and the first defendant had incorporated the companies on the basis of each having an equal shareholding in each company. He maintained that he had been persuaded by the first defendant to resign as director of Glass because he had previously been involved in a similar business which had failed, and the first defendant thought that suppliers would be reluctant to deal with Glass if the claimant was seen to be a director. On the claimant’s case, he was to remain an equal shareholder of Glass upon his resignation, and to remain a de facto director. The first defendant’s case was that he and the claimant had agreed, before incorporating Glass, that if the claimant became unable to invest capital in the company, he would resign as director and transfer his share. The first defendant maintained that the claimant had signed a share transfer form in February 2008, which had been registered in May 2009 and that, since then, he had remained in the company as an employee until he was dismissed in August 2014. The first defendant denied that the claimant had had a substantial role in setting up Blinds, or that he was entitled to any part of its share capital. The claimant could not recollect signing the share transfer but accepted that the signature looked like his. The claim turned on the relative credibility of the claimant and the first defendant as witnesses.
HELD: The available documentary evidence tended to favour the first defendant. The signature on the share transfer form was the claimant’s. However that evidence could not be conclusive where the documents were said to assist in presenting a false picture to the outside world without reflecting arrangements privately agreed. It was not uncommon for parties to agree things in private. In determining which party’s account was most reliable, the court had to consider their actual behaviour, and whether inferences could be drawn from it about their private agreements. Even on the basis of the documents tending to favour the first defendant’s account, there were still serious doubts about the plausibility of his version of events. The claimant relied on recordings which he had made of three meetings with the first defendant between February and June 2014, in which he asked to have “his” shares in the two companies transferred to him. Recordings had to be approached with some caution. There was a risk that content might be manipulated so as to draw the party who was unaware that the conversation was being recorded into some statement that could be taken out of context. However, in the instant case, the recordings took the matter beyond doubt and showed that the claimant’s account as to his intended ownership of the companies was to be preferred. The conversation was not on the footing of an employer talking to an employee, but one that would take place between business partners. The likely explanation for the share transfer form was that the claimant signed it at the first defendant’s request, either inadvertently, or after he had been given some pretext for it and told that it did not affect his continuing entitlement to half the company. There was no reason for the claimant to have abandoned his shareholding at that date. The evidence established an agreement that the companies would be owned by the parties equally, but that, for private reasons, the first defendant would be presented to the outside world as the owner. That agreement was enough to establish a constructive trust. The first defendant was lying when he denied the existence of the claimant’s interests in the instant proceedings (see paras 5, 8, 11-12, 19-22, 27, 43, 47-48, 59, 69-73 of judgment).
Declaration granted in favour of claimant