Mills & Ors, (Administrators of Kaupthing Singer and Friedlander Ltd) v Sportsdirect.Com Retail Ltd

A proprietary interest in shares may pass where the parties objectively intend an outright disposition, even though legal title remains temporarily with a nominee. Segregation into a client account, the parties’ communications and contemporaneous records may establish that intention. The statutory writing requirement for dispositions of equitable interests does not apply to a disposition made under a financial collateral arrangement. A contract for quoted shares may be specifically enforceable where the quantity cannot readily be acquired in the market, but the parties may exclude that remedy by contract. Where payment is expressly or impliedly due on the same day and time is of the essence, failure to pay is a repudiatory breach. That contractual breach does not prevent a proprietary interest from having already passed.

The administrators of Kaupthing Singer and Friedlander Ltd sought relief concerning two substantial shareholdings in Blacks Leisure Group plc and JD Sports Fashion plc. The shares had been dealt with under a global master repurchase agreement and were held through group companies and a nominee.

On 8 October 2008, shortly before KSF entered administration, the shares were moved into an account at Singer & Friedlander Investment Management designated for Sportsdirect.com Retail Ltd. KSF later asserted that the shares remained available to its creditors. Sportsdirect argued that beneficial ownership had passed, alternatively that there was a specifically enforceable contract for their sale.

The central issues were whether beneficial ownership passed on the reallocation, whether the statutory writing requirement applied, and whether any contract was specifically enforceable.

1. Proprietary interest. Beneficial ownership passed to SD between 12.30 and 12.50 on 8 October 2008. The court assessed intention objectively. The shares were moved into an account expressly identified as SD’s client account, described as segregated, and recorded as transferred outright. The communications indicated that the purpose was to keep the shares outside KSF’s assets and that SD would own them beneficially.
2. Formalities. Section 53(1)(c) of the Law of Property Act 1925 was disapplied in relation to the disposition because the Repo constituted a financial collateral arrangement. The statutory policy was to simplify formalities for such arrangements. The court therefore did not need to decide the separate argument concerning transfers through CREST.
3. Contract. The telephone conversations and subsequent email created a contract under the Repo. KSF was to move the shares into SD’s segregated account, SD was to pay by CHAPS, and legal title was then to be transferred through CREST. Payment was due on 8 October 2008 and time was of the essence.
4. Specific performance. The quantity of shares was not readily available in the market, so the contract might initially have been specifically enforceable. However, paragraph 10 of the Repo provided a complete code of remedies for failure to deliver equivalent securities and excluded specific performance. In any event, SD failed to pay on time and committed a repudiatory breach. No waiver or estoppel was established.
5. Disposition. The administrators’ application was dismissed. The court was willing to make a suitable declaration in favour of SD, with the precise relief and costs to be embodied in an agreed order.