Harris v Kent & Anor

An unconditional assurance that a person is to be treated as an equal shareholder may support a proprietary estoppel where the assurance is relied on by providing substantial financial support. The absence of a concluded contract does not prevent relief where it would be unconscionable for the representor to resile from the assurance. Relief is discretionary and should give effect, as nearly as possible, to the promised interest. For breach of trust, equitable compensation is ordinarily assessed by asking what position would have resulted if the trustees had complied with their duties, using the facts known at judgment. That approach does not permit trustees to retain a personal profit arising from the breach.

The claimant alleged that the first defendant had agreed to increase his beneficial shareholding in Accidentcare Ltd from 25 per cent to an effective 50 per cent in return for further financial support. No shares were transferred. The company’s shares were later exchanged for shares in a holding company before a flotation, and the defendants denied the claimant’s interest.

The court rejected the alleged contractual bargain but found an unconditional assurance, reliance through substantial unsecured lending, and unconscionability. The issues included the appropriate relief for proprietary estoppel and the measure of equitable compensation for the defendants’ disposal of the trust property.

1. Proprietary estoppel. The first defendant promised or represented that the claimant was to be treated as an equal shareholder in the business. The promise was unconditional. It was made in circumstances where the company needed substantial financial support, and the claimant subsequently provided large unsecured loans in reliance on it. It was therefore unconscionable for the defendants to deny the promised interest. The claim succeeded on proprietary estoppel, although no contract was established.
2. Relief. The appropriate relief was to treat the defendants as having declared themselves trustees of sufficient shares to increase the claimant’s beneficial holding from 25 per cent to 46.5 per cent, leaving him with a 21.5 per cent interest after the transfer of 25 per cent to Eagleton. The burden between the defendants was to be apportioned, if necessary, in the ratio 3:2, reflecting their respective beneficial holdings.
3. Equitable compensation. Applying the basic equitable principle discussed in Target Holdings Ltd v Redferns [1996] 1 AC 421, the court assessed the loss by asking what would have happened if the trustees had complied with their fiduciary duties. They should have informed the claimant of the share exchange, obtained his instructions, and thereafter acted on the instructions of his trustee in bankruptcy. An orderly sale of the replacement shares after the flotation moratorium would probably have occurred. The appropriate compensation was therefore £795,285, valued as at 19 July 2000, with interest from that date.
4. The defendants could not avoid liability by asserting that the original shares were worthless or that the claimant had not made a formal demand for transfer. Nor could they retain any profit obtained from the breach. Judgment was entered for the claimant for £795,285, with interest; the rate and whether interest should be compounded were left for further submissions.