Capewell v Boulton

An agreement to form a company for equal ownership may give rise to enforceable contractual rights or a constructive trust, even where one participant is not to become a director. Uncertainty concerning a proposed payment arrangement does not invalidate a separate, sufficiently certain agreement concerning ownership. Delay does not by itself defeat equitable relief. The relevant question is whether, in all the circumstances, it would be unconscionable to permit the claimant to assert the beneficial right. Where the defendant knew of the claim and cannot show detrimental reliance or abandonment, laches, acquiescence and estoppel may fail. Earlier proceedings concerning a distinct debt do not necessarily make later proceedings concerning share ownership an abuse of process.

The claimant and defendant had been equal shareholders in an insolvent company. They discussed establishing a new company to continue the business. The claimant alleged an oral agreement that the new company would be jointly owned in equal shares and that his indebtedness in the old company would be paid from the new company.

The court rejected the alleged agreement concerning repayment but found that the claimant and defendant had agreed to establish the new company with equal beneficial ownership. The defendant later operated the company alone, and the claimant commenced proceedings seeking recognition of his beneficial interest after a substantial delay. The issues included contract, constructive trust, specific performance, laches, acquiescence, estoppel and abuse of process.

1. The claim for repayment failed. The court found no contractually binding promise by the defendant to ensure payment of the claimant’s indebtedness through the new company.
2. The claimant was beneficially entitled to half the shares. The company had been formed on the claimant’s accountant’s instructions for the claimant and defendant equally. The agreement was simple, certain and intended to have legal effect. Consideration included the claimant’s instructions to form the company, his prospective liability for formation costs and making the company available for the defendant’s use as sole director.
3. Even if no enforceable contract existed, the parties’ continuing common intention and the claimant’s reliance on it were sufficient to give rise to a constructive trust. The subsequent transfer of shares into the defendant’s name did not extinguish the claimant’s beneficial interest. The share retained by the defendant was treated as representing his own interest, leaving the remaining share held on trust for the claimant.
4. Delay and equitable defences. Applying Re Loftus [2007] 1 WLR 191, the question was whether it would be unconscionable in all the circumstances to permit assertion of the beneficial right. It was not. The defendant knew of the claim, and there was no sufficient evidence of abandonment, waiver, detrimental reliance or a change of position caused by the delay. The delay also did not defeat specific performance because the claimant had already performed his obligations.
5. The earlier proceedings concerned a distinct debt under the RPM shareholders’ agreement. Applying the approach in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1, the later claim was not an abuse of process.
6. The court declared that the share held by the defendant in PDDL was held on trust for the claimant. All other relief, including an account, was declined.