Spaul v Spaul & Anor

The Court of Appeal dismissed the appellant's challenge to a county court judge's refusal to set aside a transfer of 50 of 100 issued shares in A&M. The appellant had contended that the share transfer had been made on the basis of an agreement to divide two properties and that the basis had totally failed (or, alternatively, that the transfer was vitiated by mistake), entitling him to rescission or the imposition of a constructive trust.

The court upheld the judge's findings that there was no concluded agreement for the exchange of the property (No 209) for the shares, that the pleaded "agreement in principle" did not provide a joint endeavour or basis for the share transfer, and that the transfer was a voluntary disposition. Applying the legal tests from Ogilvie v Littleboy and Pitt v Holt, the court held that the appellant had not shown the sort of serious mistake or other vitiating circumstance necessary to set aside a voluntary gift. The appellant's new "failure of basis" unjust enrichment case was not pleaded below and lacked factual foundation; moreover, a restitutionary remedy based on failure of basis, if available, would ordinarily be a monetary remedy rather than a proprietary retransfer of shares.

This was an appeal from an order of Her Honour Judge Walden-Smith (Central London County Court) dismissing a claim by Ashfaq Spaul for the re-transfer of 50 of the 100 issued shares in A&M Property Construction Services Limited, which he had transferred to his brother Mushtaq in November 2006.

Background and procedural history

• A&M had been run by the two brothers. Earlier Chancery proceedings (Mushtaq and A&M v Ashfaq and AA) resulted in a judgment of the Chancery Division (deputy judge Prosser QC) ([2009] EWHC 3275 (Ch)) concerning misappropriation of a property (No 209) and an order for account and damages against Ashfaq; the County Court later had outstanding inquiries referred to it from those proceedings.
• In the county court claim the appellant pleaded that there had been an agreement in principle to divide the two properties, that No 209 had been transferred to a company controlled by Ashfaq and that the shares had been transferred to Mushtaq as part of that arrangement; he relied on total failure of consideration and alternatively on constructive trust or mistake, seeking re-transfer of 50 shares or rectification under section 125 Companies Act 2006.

Issues before the court

1. Whether there was a concluded agreement (beyond an "agreement in principle") that provided the basis for the share transfer.
2. If there was no such concluded agreement, whether the share transfer could nevertheless be set aside on grounds of failure of basis/unjust enrichment or mistake so as to permit re-transfer or the imposition of a constructive trust.
3. Whether a remedy in unjust enrichment would support a proprietary remedy (return of shares) rather than a monetary award.

Court's reasoning

• The Court of Appeal accepted the county court judge's factual findings that, while the brothers had an "agreement in principle" to divide the properties, no concluded agreement was reached as to how that division would be effected and the specific exchange alleged (No 209 to Ashfaq in return for shares to Mushtaq) was not proved.
• The judge had correctly characterised the share transfer as a voluntary disposition made unilaterally by Ashfaq; absent fraud, undue influence, fiduciary vitiation or a mistake of sufficient gravity under the Ogilvie v Littleboy/Pitt v Holt line, equity will not lightly set aside a gift.
• The appellant advanced a failure-of-basis unjust enrichment argument in the Court of Appeal that had not been put at trial; the court would not allow an appeal to succeed on a new case not argued below. The asserted paragraph 7 "agreement in principle" did not amount to a joint endeavour or sufficient basis for the share transfer, so there was no relevant failure when it turned out No 209 could not be validly transferred.
• Even if unjust enrichment had been established on a failure-of-basis footing, the appropriate remedy would generally be restitution by value, not a proprietary retransfer of shares; the appellant had not sought or proved facts necessary for a proprietary remedy.
• On the alternative mistake point, the appellant had not proved the nature and centrality of any qualifying mistake; the judge had not made a finding of mistake of the necessary character and the Court of Appeal would not remit the case for re-trial because that would allow the appellant to raise a new, unproven case.

Result

The appeal was dismissed. The court endorsed the county court judge's refusal to set aside the share transfer or to impose a constructive trust.

The appeal was dismissed. The Court of Appeal agreed with the county court judge that there was no concluded agreement entitling the appellant to retransfer of 50 shares, that the share transfer was a voluntary disposition and that the appellant failed to establish either a qualifying mistake or a failure of basis with the necessary factual foundation. The appellant’s new unjust enrichment/failure-of-basis argument had not been pleaded or argued below and, in any event, lacked the joint endeavour or factual basis required; restitution, if available, would ordinarily be monetary rather than a proprietary retransfer.

Chancery Division judgment (Deputy High Court Judge Prosser QC) delivered 18 December 2009: [2009] EWHC 3275 (Ch) (earlier proceedings concerning No 209; the county court later dealt with outstanding inquiries). County Court (Central London County Court) order of 25 April 2013 of Her Honour Judge Walden-Smith dismissed the appellant’s shares claim. Permission to appeal to the Court of Appeal was given by Lewison LJ; appeal decided by the Court of Appeal, judgment reported [2014] EWCA Civ 679 (21 May 2014).