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Merlo v Duffy

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Merlo v Duffy

Written by Calum Haswell

Monday, 16 February 2009

Citation

[2009] All ER (D) 91 (Feb)

Hearing Date

6 February 2009

Court

Chancery Division

Judge

Anthony Bompas QC sitting as a deputy judge of the High Court

Representation

Richard Morgan (instructed by Howard Kennedy) for the claimant.Noel Dilworth (instructed by Wayne Leighton) for the defendant.

Abstract

Company – Capital. Chancery Division: The court made an order requiring the respondent to return two of four bearer share certificates to the applicant, where the parties held 50 per cent of the beneficial interest in the share capital of the company concerned but the defendant had failed to hand over the certificates upon the claimant's repeated requests.

Catchwords

Company – Capital – Share capital – Parties entering into business together – Share capital of business held on trust by nominee for both parties in equal shares – Claimant pledging bearer share certificates to defendant as security for loan – Claimant repaying loan and requesting return of share certificates – Claimant applying to court for order requiring defendant to return certificates – Whether claimant having beneficial interest in half of share capital of company.

Summary

The claimant and defendant went into business together in the early 1980s, through BC. F, a third party, acquired BC from a formation agent, became its director and opened a bank account for the company at UBS Luzern (the UBS account). The first transaction which the claimant and defendant's business carried out had commenced prior to F's acquisition of BC, but was completed after that event. In 1982, BC issued 5000 ordinary shares of £1 each, held in unregistered form on share warrants to bearer. In 1985, F acquired a second company, NV. That purchase was paid for by money which otherwise would have been divisible between the claimant and the defendant. F also became a director of NV. In 1989, F retired and passed the administration, and bearer share certificates, for BC and NV to a firm named Attendus. In 2004, the claimant experienced financial difficulties and borrowed money from the defendant. To reassure the defendant that the loan would be repaid, the claimant provided, inter alia, a note pledging his half share of NV's share capital as security. In March 2005, the claimant repaid the loan. By that time, relations between the claimant and defendant had become strained. Between July 2005 and 2006, the claimant repeatedly but unsuccessfully requested that the defendant return the shares which the claimant had provided as security for the loan which he had received in 2004. In 2006, the claimant instructed solicitors to act for him in the matter. In December 2006, the defendant wrote to the claimant setting out his position. He did not deny that the claimant was entitled to half of the NV share capital; rather, the thrust of the letter was that the claimant could not prove that he was so entitled. The defendant further stated that if the claimant tried to prove any entitlement, the claimant could 'inadvertently open a Pandora's box of trouble'. The claimant applied to the court for an order requiring the defendant to return the claimant's half share of NV's share capital. The claimant submitted that he had a beneficial entitlement to two of the four bearer certificates held by the defendant. The defendant contended that the claimant had no such entitlement. At the trial, the defendant initially contended that he had always been the sole beneficial owner of the shares and, moreover, that since they were and had at all times been in his physical possession he was the legal owner. However, during the course of proceedings the defendant's position changed and he contended that in fact he did not have the certificates in his physical possession but had given them to his late sister. He stated that he believed that they were now with her estate. The court ruled:On the facts, NV's share capital had at all times been held by a legal owner as a nominee on a trust established by agreement, the beneficiaries of which were the claimant and defendant. Although the legal ownership of the shares had changed several times, the claimant had not disposed of his beneficial interest to the defendant at any point. Moreover, the defendant had long believed that the claimant was entitled to half of the shares and had lied both to the claimant and to the court by suggesting otherwise. He had also clearly given false evidence concerning the whereabouts of the certificates (see [2] and [133]-134] of the judgment).The declarations and orders sought by the claimant would be made (see [135] of the judgment).