Cadbury Schweppes Plc & Anor v Halifax Share Dealing Ltd & Anor

A company which acts on a fraudulent share transfer may have an implied indemnity claim against the person requesting registration. However, the company’s own share certificate may create an estoppel by representation where an innocent recipient relied on its apparent truth and suffered detriment. The estoppel may operate defensively to prevent the company proving that the persons restored to the register were the true shareholders. It is not confined to purchasers for value and may be raised by an innocent stockbroker acting for fraudsters without knowledge of the fraud. The relevant detriment may be assessed when the company seeks to resile from the representation. If the estoppel defeats the company’s proof of the third party liability underlying the indemnity, the indemnity claim fails.

The claimants, Cadbury Schweppes plc and Unilever plc, sought indemnities from Halifax Share Dealing Ltd for the costs of restoring shareholders whose shares had been fraudulently transferred and sold. Lloyds TSB Bank plc, the companies’ registrar, was joined to Halifax’s Part 20 claim.

The facts were agreed and the parties’ innocence, relative blameworthiness and any negligence were not in issue. Halifax accepted the general application of the implied indemnity recognised in Sheffield Corporation v Barclay [1905] AC 392, but relied on an estoppel arising from certificates issued by the companies in the fraudsters’ names. The central issue was whether that estoppel prevented the companies from proving that the reinstated shareholders were the true owners of the shares.

1. The claimants’ actions were dismissed. The registrar’s application to strike out Halifax’s Part 20 claim was also dismissed. Halifax’s contribution claim did not arise because no award was made against it.

2. The implied indemnity in Sheffield Corporation v Barclay [1905] AC 392 applies where a person requests a company or registrar performing a ministerial duty to act on an apparently regular but invalid transfer, and the company incurs liability to a third party as a result. The person making the request may be liable despite ignorance of the invalidity.

3. The companies’ certificates represented that the fraudsters were the registered holders of the specified shares. Under the principles in Re The Bahia and San Francisco Railway Co Ltd v Trittin (1868) LR 3 QB 584 and The Balkis Consolidated Co Ltd v Tomkinson [1893] AC 396, a certificate may estop the company from denying the represented title where the representation was intended to be relied on, was relied on, and caused detriment.

4. The relevant detriment is assessed when the company proposes to resile from the representation. Halifax would then become liable under the Barclay indemnity. Its reliance on the certificates therefore constituted sufficient detriment. The certificates were the direct cause of the transactions because, had they named the true shareholders, Halifax would not have acted on transfers executed by the fraudsters.

5. The estoppel was available to innocent stockbrokers. It did not confer title on them, enable the fraudsters to profit, or require that the person relying on the certificate be a purchaser for value. The contrary observation in Royal Bank of Scotland plc v Sandstone Properties Ltd [1998] 2 BCLC 429 was obiter and did not govern the present case.

6. Because the estoppel prevented the companies from asserting that the reinstated persons were the true shareholders, the companies could not establish the third-party liability necessary for their indemnity claims. The Part 20 contribution issues were left undecided on the artificial agreed facts. The strike-out application would in any event have failed because the issues were serious and of wider concern.