Merlo v Duffy

A person holding shares may hold them on trust for another where the evidence establishes that the shares were acquired for, and paid for by, the parties as beneficial owners. The trust may be express or resulting; the distinction is immaterial where both produce the same beneficial entitlement. Legal title passing between nominees does not itself transfer the beneficial interest. A rule preventing reliance on illegality to rebut presumptions of advancement or resulting trust has no application where no presumption needs to be rebutted. Detrimental reliance is not an ingredient of an express or resulting trust.

The claimant sought declarations that he was beneficially entitled to half of the issued share capital of Brightstar Corporation NV, a Netherlands Antilles company whose shares were held in bearer form. The defendant held the bearer share certificates and denied that the claimant had any beneficial interest.

The dispute concerned the arrangements made when the claimant and defendant began carrying on business together, the purpose for which the companies were formed, the payment of their formation costs, and the circumstances in which successive administrators and finally the defendant held the shares. The defendant also raised an argument based on the alleged illegality of arrangements intended to evade tax.

1. Judgment for the claimant. The claimant was beneficially entitled to half of the issued share capital of Brightstar Corporation NV, and the court proposed to make the declarations and orders claimed, subject to argument on their precise form.
2. The evidence established that the claimant and defendant embarked on the Brightstar business together as equal principals. The business was conducted through successive corporate vehicles, including NV. The formation and administration costs were paid from business funds which would otherwise have been divisible between them.
3. The claimant’s involvement went beyond that of an agent. He participated in management and business decisions, received and shared profits, provided banking guarantees, and was treated by the defendant as having a beneficial interest in the shares.
4. The legal title to the shares was held successively by the original administrator, Attendus, and finally the defendant. Each holder held the shares as nominee for the beneficial owners. The claimant never disposed of his beneficial interest. The arrangement could be characterised as an express trust or as a resulting trust arising from the way the companies were established and paid for; the distinction made no difference to the result.
5. The defendant’s evidence was rejected on material matters, including the whereabouts of the bearer certificates and the circumstances in which he promised to send two certificates to the claimant. The claimant’s evidence on the essential issues was preferred.
6. The illegality argument had no application. The claimant did not need to rebut a presumption of advancement or resulting trust. Nor did his claim require proof of detrimental reliance. Detrimental reliance was irrelevant to a claim based on an express or resulting trust.

First-instance judgment. No prior appellate decision was stated in the judgment.