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Montalto v Popat and Others [2016] EWHC 810 (Ch)

Judgment in the Chancery Division concerning the beneficial ownership of various companies, properties and chattels arising from the breakdown of a relationship between a cohabiting couple.

The claimant and first defendant were cohabiting partners in a relationship lasting approximately 16 years from 1993 until 2009. Their relationship, having preceded the legislative reform enabling same-sex partners to marry, was for the purpose of these proceedings described as 'akin to marriage'. Although their financial assets were not pooled, there was a degree of intermingling of business and property assets, and limited contemporaneous accounting records.

The second and third defendants were companies operating as franchises of tanning, beauty and weight loss clinics in London. The fourth defendant was a wholly owned subsidiary of the second defendant company and was dormant.

Legal principles applied
The claimant's claim was based on proprietary estoppel and/ or common intention constructive trust.

Mr Recorder White-Davis QC set out the principles to be applied regarding common intention constructive trusts, which are common to all contexts (whether the asset in dispute is a shareholding in a company or a trust of land) at paragraphs 107-108 of his judgment. Though the principles are universal, inferences may be context specific and of course the claim will always depend on the evidence of the case in question. The well known cases of Jones v Kernott [2012] 1 AC 776, Stack v Dowden [2007] 2 AC 432, Laskar v Laskar [2008] EWCA Civ 347 and Gallarotti v Sebastenall [2012] 2 FLR 1231 were considered.

The legal principles applicable to proprietary estoppel were stated in brief at paragraph 110 of the judgment.

Shareholding in Vinjcap Limited
The court was asked to determine whether the claimant beneficially owned 50% of the issued shared capital of the second defendant company.

The claimant argued that the company had been acquired as a joint business at which stage the first defendant had promised to transfer a 50% shareholding to him once the company had reached a level of stability. He asserted that he had a 50% beneficial interest due to a constructive trust or proprietary estoppel. The first defendant denied ever making such a representation.

The judge was satisfied that the claimant's claim in respect of Vinjcap was made out on the grounds of proprietary estoppel and, in the alternative, would be made out on the grounds of common intention constructive trust. He found in favour of the claimant, resolving that he was entitled to a 50% shareholding in the company.

Shareholding in Leisure Inc Limited
The court was asked to determine whether the claimant beneficially owned 50% of the issued shared capital of the third defendant company.

The parties had each held one share from the inception of the business until the claimant's share had purportedly been transferred to the first defendant in 2004.

The claimant claimed that the transfer had taken place without his knowledge or consent and again he asserted he had a 50% beneficial interest due to a constructive trust or proprietary estoppel.

The first defendant initially argued that the claimant had consented to, or acquiesced in, the transfer of his legal and beneficial estate to the first defendant's shareholding in the second defendant company, and as a result the claimant was estopped from denying the transfer. Later his case changed in that he argued the claimant's shareholding had been 'conditional' upon him performing certain duties, such as Saturday working, and his failure to complete such duties had effectively forfeited his shareholding to the first defendant. The judge rejected this argument.

The judge concluded that since the share transfer had not been executed nor presented to the company, nor had any change been made to the register of members, there was no transfer of legal title from the claimant to the first defendant. He further held that the claimant neither knew nor should have known that a change in title was going to be effected. He resolved that the claimant remained the registered shareholder of 50% shareholding in Leisure Inc Limited.

Shareholdings in general
At an earlier stage in proceedings, the claimant pursued a finding that certain sums had been wrongfully removed from the second and third defendant companies, and consequently those entities had acquired interests in various businesses and properties into which the sums were invested. However this part of the application was not pursued.  Part of the claimant's case did nevertheless depend on sums having been (lawfully) taken from the second and third defendant companies and used in the acquisition of other businesses and properties.

When considering the ownership of the shares in Vinjcap, Leisure and De La Croiz Ltd, the court's starting point would usually have been the respective registers of members of those companies (para 18). However, despite efforts to obtain them, these were not produced within proceedings and it was believed they may have been lost. The court followed the approach adopted by Vinelott J in Re Data Express Limited (The Times, 27 April 1987), in which a register of members had been lost in a skip and Vinelott J treated the register as blank and recreated the register by way of an order for rectification under (what was then) section 353 Companies Act 1985. Mr Recorder Davis-White QC gave directions timetabling any rectification applications and the service of evidence on that issue. Those applications were part of the case at trial. The judge went through the various financial and industrious contributions made by the claimant and first defendant to the companies and considered the evidence of both parties.

Property in W1
Another significant aspect of the case related to the beneficial ownership of a property in W1. The property was owned by a company, De La Croix Limited, as bare trustee.

There was no declaration of trust or written record in respect of the beneficial ownership. It was accepted that De La Croix Limited held the property in W1 on trust for both parties, but the percentage was in dispute. The claimant argued the property was beneficially held equally; the first defendant proposed a division in line with their monetary contributions.

The claimant and first defendant had each had one share in De La Croix Limited until the shareholding had been amended in the first defendant's favour. The court was also asked to determine the shareholding of De La Croix Limited. The first defendant was criticized for changing his case in evidence, having originally accepted that De La Croix Limited held the property on trust for the parties directly so, whatever the proportion of their shares, the parties' beneficial interests were not derived from (nor necessarily proportionate to) the percentage of their shareholding in De La Croix. He later suggested the opposite in his oral evidence, which the judge rejected.

There was a dispute about whether the property had been purchased to be the claimant and first defendant's home or an 'investment property.' Certainly it was let for periods and it was later lived in by the parties.

The legal principles were largely agreed, subject to the question of whether the court should begin from a starting point of a resulting trust or proceed as if the property had been conveyed into the joint names of the parties and begin from a starting point that equity follows the law.

The court applied the analysis of common intention constructive trust in Jones v Kernott. The judge went through the various financial contributions to the property in as much detail as was allowed by the passage of time, the absence of some key documents and the fact that the parties had not closely accounted all transactions. The judge concluded on the facts of this case that there was a common intention that the property would be held as tenants in common in equal shares. He held that the claimant had proven an actual intention, but even if he had not, he would have inferred such an intention.

The judge made fact specific findings relating to the subsequent payment of mortgage and made orders accordingly.

Other issues
Other issues before the court included whether the claimant had a beneficial interest in a tanning shop that was run by the first defendant under a franchise in his name. The claimant's case was that the franchise was purchased using funds derived from businesses that were jointly beneficially owned. The claimant's case was not made out in respect of this part of the claim.

The court was further asked to resolve the status of two revoked gifts by the first respondent to the claimant of his share of jointly owned motor cars and to make decisions generally concerning a variety of chattels ranging in value from antique furniture to four pot plants. The court considered the authorities applicable to whether gifts have been perfected at paragraphs 133 to 137 before concluding that the gift was valid and complete before it could be revoked, and accordingly the judge found in favour of the claimant.

Summary by Charlotte Hartley, barrister, 1 King's Bench Walk

To view the judgment please click here.