Shah v Shah

The Court of Appeal held that a contemporaneous letter and signed stock transfer form produced by the appellant manifested a sufficiently clear and unequivocal intention to create a trust of 4,000 shares in favour of his brother. The court applied established equitable principles that legal title to shares passes only on registration and that a declaration of trust may be used to vest immediately the beneficial interest pending registration. The judge’s findings rejecting the appellant’s alternative arguments that the disposition was an imperfectly constituted gift (invoking the rule that equity will not assist a volunteer) or that the document was procured by misrepresentation or mistake were upheld. The appeal against the judge’s exercise of discretion on costs was also dismissed.

This was an appeal from Roth J’s orders dated 24 February 2010 arising from two sets of proceedings tried together: a Chancery action and a petition under section 994 of the Companies Act 2006. The appellant, one of five brothers and a shareholder, had on 11 March 2005 signed a letter stating that he was "holding 4,000 shares" for his brother and delivered a signed stock transfer form (the company retained the share certificate). The transfer was subsequently registered in the donee’s name in August 2005. The appellant contended that (i) the March letter constituted an imperfect gift not a declaration of trust and thus failed because equity will not perfect an imperfect gift, and (ii) the disposition was procured by misrepresentation or by mistake.

The court framed the issues as (i) whether the March letter and the contemporaneous stock transfer form amounted to a declaration of trust vesting the beneficial interest forthwith pending registration, (ii) whether the March letter was instead an incompletely constituted gift which could not be perfected by equity, and (iii) whether the March letter had been induced by misrepresentation or mistake, and (iv) whether the judge erred in orders as to costs.

The Court of Appeal reasoned that legal title to shares requires registration and that the language used in the March letter — notably the phrase "as from today" and "I am ... holding" — objectively manifested an intention to hold the beneficial interest for the donee until registration, which is properly construed as a declaration of trust. The court applied principles from authority dealing with construction of dispositions (including Paul v Constance; Hunter v Moss; Pennington v Waine; and T Choithram) and observed that benevolent construction or the doctrine that equity will not assist a volunteer did not require treating these instruments as ineffective. On the evidence the judge was entitled to reject the appellant’s assertions that he signed under a belief in a legal obligation (as opposed to moral pressure) and to find no actionable misrepresentation or mistake. Finally, the costs orders were within the judge’s discretion and appropriate procedures for apportionment were a matter for costs judges. The appeal was dismissed.

Appeal dismissed. The Court of Appeal concluded that the March 2005 letter and contemporaneous signed stock transfer form evidenced an immediate declaration of trust of 4,000 shares in favour of the respondent, so that the beneficial interest vested pending registration; the judge was entitled to reject the appellant’s arguments that the document was merely an imperfect gift or that it was procured by misrepresentation or mistake; and the judge did not err in his exercise of discretion on costs.

Appeal from Roth J (Chancery Division) orders dated 24 February 2010, following earlier trial by HHJ Howarth (judgment given orally 11 March 2005). The appeal was heard in the Court of Appeal (Civ Div) and dismissed on 9 December 2010 ([2010] EWCA Civ 1408).