Ross v Misra & Anor

A document is a sham only where all parties share an intention that it should create different rights and obligations from those it appears to create, and intend to give that false impression to third parties or the court. The court may consider external evidence, including subsequent conduct and surrounding circumstances. An agreement is not a sham merely because it is artificial, uncommercial or later departed from. Civil findings, including allegations of serious misconduct, remain subject to the balance of probabilities. Witness recollection should be tested against contemporaneous documents, objective facts and overall probabilities.

John Ross claimed that Mitu Misra held 37.5% of the shares in Safestyle on trust for him and that a share purchase agreement executed in February 2010 was a sham. He alleged that the arrangement formed part of a plan to persuade HSBC to write off Safestyle’s debt and that Mr Misra later reneged on an assurance of continuing beneficial ownership.

The claim followed an earlier summary judgment concerning a separate alleged entitlement under a company letter. The present trial concerned whether the share purchase agreement was genuine and whether Mr Misra had promised to hold shares on trust for Mr Ross.

1. The claim was dismissed in its entirety. The court found that the share purchase agreement was genuine and binding, and that Mr Misra had not promised to hold any Safestyle shares on trust for Mr Ross.

2. The applicable sham test was that in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802. A sham requires a common intention by all parties that the document should create different legal rights and obligations from those appearing on its face, together with an intention to mislead third parties or the court.

3. Applying Hitch v Stone [2001] EWCA Civ 63, the court was entitled to examine evidence outside the document, including the parties’ explanations, surrounding circumstances and subsequent conduct. Artificiality or an uncommercial bargain did not establish a sham, and subsequent departure from an agreement did not show that it was never intended to bind the parties.

4. The court applied the ordinary civil standard of proof. The seriousness of an allegation did not change that standard, although inherent probabilities remained relevant to deciding whether the alleged events were more likely than not.

5. In assessing credibility, the court applied the approach in The 'Ocean Frost' [1985] 1 Lloyd's Rep 1 at 57 and Gestmin v Credit Suisse [2013] EWHC 3560 (Comm) at 15–22. The documentary evidence and objective facts were more reliable than unsupported recollections of conversations.

6. The contemporaneous documents, the commercial circumstances and the parties’ conduct supported a genuine transfer for nominal consideration, followed by an expectation that Mr Misra would provide discretionary assistance to Mr Ross. They did not support an unconditional continuing beneficial interest or a subsequent betrayal.