Luxe Holding Ltd v Midland Resources Holding Ltd

A contract for the sale of shares in private companies may give rise to a qualified trust where the contract is specifically enforceable. Equity may therefore require the seller to account for sale proceeds, even where the shares are held through foreign subsidiaries and the lex situs does not recognise beneficial interests, provided the remedy does not directly interfere with local law.

An account of profits for breach of an ordinary commercial contract remains exceptional. The usual remedy is compensatory damages. A freezing injunction requires a good arguable case and a real risk that assets will be dissipated so as to frustrate enforcement. Foreign enforcement difficulties alone are insufficient, but deliberate deception designed to prevent timely injunctive relief may establish the necessary risk.

Luxe contracted with Midland for the purchase of shareholdings in 20 companies. Midland later sold most of those interests to another buyer at a higher price and returned Luxe’s advance payment together with a purported contractual fine.

An injunction restraining dealings with the shares was granted without notice. By the hearing, the sale had completed, so Luxe abandoned specific performance and sought interim protection for claims to the sale proceeds, an account of profits or damages. Midland accepted that Luxe had a good arguable case of breach but disputed the proprietary and remedial consequences.

The applications concerned whether the existing injunction should be discharged and whether a fresh proprietary or freezing injunction should be granted pending trial.

1. Disposition. The existing injunction was discharged pursuant to an undertaking that the relevant amount of the sale proceeds would be held in a designated account pending judgment. A fresh injunction was granted in support of Luxe’s proprietary claim or, alternatively, its damages claim.

2. Interim relief. Under section 37(1) of the Senior Courts Act 1981, the question was whether relief was just and convenient. The court was not finally determining the disputed issues. Applying the lower-risk-of-injustice approach in Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670, the balance favoured protection of the claimed fund.

3. Proprietary claim. A specifically enforceable contract for the sale of private-company shares can create a qualified trust analogous to that arising on a contract for the sale of land. Where the seller resells in breach, the first purchaser may have a proprietary claim to the proceeds, subject to the unpaid purchase price. The reasoning in Lake v Bayliss [1974] 1 WLR 1073, approved in A-G v Blake [2001] 1 AC 268, supported that conclusion.

   The fact that the shares were held through subsidiaries did not prevent specific performance or the qualified trust from arising. The parties had chosen English law and exclusive English jurisdiction. Equity could act in personam against Midland, unless the remedy directly interfered with the lex situs. The claim was to the proceeds after the shares had been sold, so no interference with foreign property transfers was involved.

4. Account of profits. On the alternative assumption that no proprietary claim existed, an account of profits was available only exceptionally under A-G v Blake. This was an ordinary commercial sale agreement and the breach was not shown to fall within the exceptional category. The ordinary compensatory measure of damages remained available. The Chancery Amendment Act 1858 did not alter the measure of damages.

5. Damages and dissipation. The contemporaneous sale price to another investment group was acceptable prima facie evidence of the shares’ value for interim purposes. The contractual pledge did not prevent early payment of the balance and a subsequent resale. A freezing order required a real risk of dissipation. Difficulties in enforcing against Russian assets, without more, were insufficient. Midland’s deliberate misrepresentations and misleading correspondence, designed to frustrate an urgent injunction application, together with its ability rapidly to restructure assets, established a real risk of dissipation.