Analysis
The appeal concerned a dispute over the beneficial ownership of the sole two issued shares in a company in liquidation (the company). The company was incorporated by the deceased in 1988. The shares were originally issued to the company’s formation agents, a Mr Ashok Kumar and Mrs Kamlesh Kumar. Each signed an undated blank stock transfer form in relation to the share he/she held, leaving blank the transferee boxes. These forms came into the deceased’s possession.
In 1998 the company was struck off the register by the Registrar of Companies. In February 2004 the deceased died.
The appellants, who were the widow and daughter of the deceased, were the administratrices of the deceased’s estate and were, together with his other daughter, the sole beneficiaries of his estate.
The respondents were the deceased’s former partner following his separation from his wife (Stefka), two companies owned and controlled by her and the liquidator of the company.
In July 2004, following the deceased’s death, Stefka purported to appoint herself as director of the company and thereafter applied for the company to be restored to the register. In September 2004 the company was so restored and Stefka completed, dated and signed a stock transfer form relating to the share originally issued to Mr Kumar, naming herself as the registered holder and transferring the share to one of her companies. Further she completed and dated the blank stock transfer form in relation to the share issued to Ms Kumar (which she had left blank in 1988) by adding her other company as the transferee. In September 2004 the company was voluntarily wound up and the liquidator appointed.
The appellants claimed that the deceased owned the shares beneficially on his death and that they therefore formed part of his estate. Stefka and her two companies claimed that the deceased had given her the shares during his lifetime so that she was their beneficial owner at his death. They further claimed that she had transferred those shares to the two companies who were now the beneficial owners of the shares. Upon this dispute as to ownership arising the company’s liquidator sought directions as to the ownership of the shares.
The judge ordered the trial of the preliminary issue of whether the shares were legally and/or beneficially owned by the deceased or by Stefka at his death. Only if Stefka owned the shares upon the deceased’s death could her companies make good their claim to the shares.
The judge found that both shares belonged beneficially to Stefka at the deceased’s death and therefore the appellants had no beneficial or legal interest in either share. There was no dispute that the Kumars remained the legal owners of the shares. As regards the first share the judge found that the deceased had completed the stock transfer form originally signed by Mr Kumar by naming Stefka as the transferee in October 1997 and given this to her in August 2003. He held that the effect of that transaction was to transfer the beneficial interest in that share to Stefka. As regards the second share, the judge found that in August 2003 the deceased had also handed Stefka the stock transfer form relating to the second share and which Mrs Kumar had signed, undated, in blank in 1988. The deceased handed this to Stefka in its original state without adding her name as transferee or dating it. The judge concluded that the deceased’s intention was that Stefka enjoy the share beneficially from the point at which he gave her the share transfer form.
The appellants appealed the judge’s decision only as to the second share, held legally by Mrs Kumar. They did not dispute the findings as to the deceased’s intent with regard to the second share but maintained that his method of purportedly transferring the second share fell so far short of the formalities required for a transfer of a share that the gift failed as an imperfect one.
Stefka and her two companies cross-appealed against part of the judge’s costs order. The order made by the judge at the hearing had provided that the costs of the liquidator, Stefka and her companies were (apart from for a period where they were to be paid by the deceased’s widow personally) to be paid out of the deceased’s estate. If the estate was insufficient, there would be a shortfall in recovery with the appellants relieved from any personal liability. Following the hearing counsel for the liquidator, who had carriage of the order, e-mailed the judge suggesting that the order should have made the appellants personally liable and stating that he had spoken to counsel for Stefka and her companies who agreed. The judge dealt with the point in a written judgment stating that the order made reflected what both counsel for the respondents had asked for and that it was not appropriate to change the order where the appellants had not had an opportunity to defend their position. Accordingly he stated that the order should remain as made but with liberty to the respondents to apply to argue that if the assets of the deceased’s estate were insufficient, the costs should be met by the appellants personally. The order was perfected as made and with a paragraph providing ‘[t]hat there be permission to apply’. Stefka and her companies issued an application to vary the order so as to make the appellants personally liable pursuant to the liberty to apply provision. The outcome of that application was that the judge reaffirmed the original order. The cross-appeal was against that order.
Held, allowing the appeal:
- 1) The judge was wrong to find that the deceased’s actions of August 2003 operated to transfer the beneficial interest in the second share to Stefka. Such interest remained in the deceased. The purported gift by the deceased to Stefka of the second share or of his beneficial interest in it failed as having been imperfect and he should have declared that the appellants were entitled to that beneficial interest, as administratrices of the deceased’s estate (at [33] and [34]).
- 2) In August 2003 the deceased had no more than an equitable interest in the second share and could do no more than transfer or assign that equitable interest. The only way to transfer that interest, subject to case law exceptions, was by (i) declaring himself as trustee for Stefka of his equitable interest, thus creating a sub-trust, (ii) assigning his interest to her by writing signed by him or his agent thereunto lawfully authorised so as to comply with s53(1)(c) of the Law of Property Act 1925 or (iii) making a like written assignment of his interest to a trustee for Stefka. The deceased did none of these things (at [35] to 37]).
- 3) The exceptions to such a rule in In re Rose, Midland Bank Executor and Trustee Company Limited v Rose and Pennington v Waine did not assist Stefka’s claim. These cases established that once the legal owner had done all in his power to transfer shares, he will be regarded as holding the legal title to the shares upon trust for the donee who will thereupon become the beneficial owner. However, in this case, the deceased had not done all in his own power to transfer to Stefka or to procure the transfer to her of the second share. To become registered as a member Stefka needed the share certificate, the whereabouts of which was unknown. The deceased could have asked Mrs Kumar to procure the creation of a duplicate and if necessary apply to restore the company. Stefka had no such right to obtain a duplicate herself. The deceased had therefore not equipped Stefka with the title documentation she needed in order to be registered as a member whereas he could have done (at [38] and [41] to [43]).
- 4) Further the argument that Stefka had changed her position to her detriment in reliance on the deceased’s actions of August 2003 with regard to the second share by applying to restore the company so as to make the deceased a constructive trustee of the second share was not open to her, there having been no factual investigation as to this at trial and in circumstances where she had applied for restoration on the basis of her claimed ownership of only the first share and it was only when giving evidence at trial that she advanced the claim to the second share (at [44] and [45]).
- 5) OBITER: The cross-appeal fell away in light of the appeal being successful as the costs order would have to be reconsidered (at [47]). However:
- 5.1. Upon receiving counsel for the liquidator’s email, the judge ought to have either directed an oral hearing at which all parties could make representations or refused the application. In purporting to give the respondents ex parte permission to make an application to vary the order was to purport to permit the impossible. Accordingly the judge should not have entertained the latter application by Stefka and her companies as it was not permitted by the original order and the judge’s role in the case had come to an end. Consequently the judge’s order dismissing that application was made without jurisdiction (at [57] to [58]).
5.2. However the appeal against it should be considered as an appeal against the original order instead. Any appeal against that order was without substance. It was exactly the order the respondents had sought. Stefka and her companies’ assertion that the judge had not had jurisdiction to make a costs order in the terms made was rejected. Courts have a discretion to order the costs of one or more parties to be paid out of a fund or an estate. This is typically done where the litigation is about the fund or estate in question. The present case was not akin to such a case. Trustees and personal representatives will often find themselves involved in litigation in their capacity as such and they run the risk they will be exposed to an unlimited personal liability for costs if the case goes against them. They do not enjoy special costs protection as against successful parties by reason of their status and their liability for costs will not be limited to the assets in their estates. They can agree an indemnity from the estate. Where they cannot agree such an indemnity they can seek the court’s directions as to whether to sue or defend and if the court gives leave, the ordinary consequence is that they will be entitled to an indemnity out of the estate. If such an indemnity is likely to be insufficient, they will need to form a view as to whether to incur the risks of the litigation. It was not for the judge to protect the appellants as he did. Having said that the judge was familiar with these principles and nevertheless decided, for the reasons he explained, that the fair order was the one made. He had the jurisdiction to make such an order and it was the order the respondents had asked him to make. Therefore the court would not be willing to reconsider its merits (at [59] to [64]).
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