Kaye v Zeital

The Court of Appeal allowed the appellants' challenge to the High Court's finding in relation to one of two Dalmar shares. The central legal principle was that a donor with only an equitable interest cannot transfer that interest except by means recognised by law (for example a declaration of trust, or a written assignment complying with section 53(1)(c) of the Law of Property Act 1925), or by doing all in his power to effect the transfer (the limited principle derived from the Rose authorities). The court held that Raymond had not completed the formalities or done all in his power in respect of the second share (notably the absence of any share certificate and no written assignment or declaration of trust), so that the purported gift of his beneficial interest in that share to Stefka was ineffective. The appeal was allowed on that basis. The court dismissed the respondents' cross-appeal on costs while criticising aspects of the judge's procedure in relation to permission to apply to vary the costs order.

Background and parties:

• Raymond Zeital died intestate in February 2004. The appellants, his widow Mrs Zeital and daughter Kim Zeital, are administratrices and beneficiaries. Raymond had formerly used companies, including Dalmar Properties Limited, to hold property; Dalmar owned a flat that was subsequently sold and the net proceeds became the subject of these proceedings.
• The dispute concerned the beneficial ownership of Dalmar's two issued shares. The Zeitals said Raymond remained beneficial owner at his death; Stefka Appostolova claimed Raymond had given her the shares during his lifetime and she (and companies she controlled) were now beneficial owners. Dalmar's liquidator, David Kaye, sought directions and joined interested parties.

Procedural history:

• The ownership issue was tried before Mr Justice Robin Knowles (sitting as a Deputy High Court Judge), who found that both shares belonged beneficially to Stefka at Raymond's death. The Zeitals appealed only the finding as to the second share. Permission to appeal was initially refused and later granted by Mummery LJ; the matter reached the Court of Appeal.

Issues framed by the court:

1. Whether Dalmar's shares were legally and/or beneficially owned by Raymond at his death or by Stefka at his death and currently by Kingstars and Dalmar 2004.
2. On appeal, whether the purported gift of the second share (or of Raymond's equitable interest in it) was effective.
3. Cross-appeal: whether the judge had jurisdiction and acted correctly in making costs orders limiting recovery to Raymond's estate rather than exposing the administratrices to personal liability.

Court's reasoning and findings:

• The judge below had accepted that Raymond intended to make a gift of the second share and had handed to Stefka the stock transfer form signed in blank by the original legal holder (Mrs Kumar). The judge nevertheless found Stefka beneficial owner of that share. The Court of Appeal reviewed the formalities required.
• The appellate court held that immediately before August 2003 Mrs Kumar was the legal owner and Raymond the beneficial owner, so Raymond had only an equitable interest to transfer. To divest that equitable interest he would have needed to declare a trust, make a written assignment complying with section 53(1)(c) of the Law of Property Act 1925, or have done all in his power to effect the transfer analogous to the Rose principle.
• The court found Raymond had not done all in his power: he did not provide the share certificate (its whereabouts unknown), did not make a written assignment, and did not declare a trust. The stock transfer form signed by Mrs Kumar was not a written assignment by Raymond and there was no evidence of authorisation for Mrs Kumar to act as his agent for assignment. The Rose line of authority did not assist to make the transfer effective in these circumstances. The Court therefore concluded the gift of the second share (or of Raymond's beneficial interest in it) failed and remained part of Raymond's estate.
• On costs, the Court criticised the procedure by which the judge appeared to permit an application to vary the perfected order but declined to reopen the substantive decision: the Court considered the judge should not have entertained the late application for variation. Nevertheless, because the perfected order and the later order effectively produced the same result limiting recovery to the assets of Raymond's estate, the Court dismissed the cross-appeal on its merits.

Remedial result:

• The Court of Appeal allowed the appeal, holding the Zeitals entitled to the beneficial interest in the second share as part of Raymond's estate, and dismissed the cross-appeal on costs (while recording procedural criticism of the judge's handling of the permission to apply).

The Court of Appeal allowed the appeal and dismissed the cross-appeal. The appeal was allowed because the purported gift of Raymond's beneficial interest in the second share failed for want of the necessary formalities or of doing all in his power to effect a transfer: Raymond had only an equitable interest, did not declare a trust, did not make a written assignment compliant with section 53(1)(c) of the Law of Property Act 1925, and did not supply the share certificate needed for registration. Consequently the beneficial interest in the second share remained in Raymond's estate and the deputy judge was wrong to have held otherwise. The cross-appeal on costs was dismissed; the court criticised the judge's procedure in permitting a late application to vary the perfected order but concluded that the substantive costs order need not be disturbed.

Trial of preliminary issues before Mr Robin Knowles CBE QC (Deputy High Court Judge), reserved judgment 30 June 2008 and order made 11 July 2008 (perfected 4 November 2008). Permission to appeal initially refused by Arden LJ on 22 July 2009; permission and extension of time to appeal granted by Mummery LJ on 6 August 2009. Appeal heard in the Court of Appeal and decision given as [2010] EWCA Civ 159.