Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor

An appeal against refusal to strike out or summarily determine a claim concerning the ownership of company shares will succeed only if the lower court made an error of law or reached an outcome outside the range of reasonable decisions. Where the documentary evidence is incomplete, internally inconsistent or capable of supporting competing explanations, and a material factual issue may be resolved by disclosure or cross-examination, a trial may remain appropriate. The possible existence of a constructive trust is not confined to a trust arising from an imperfect gift. In particular, the circumstances may establish that it would be unconscionable for the donor to recall the gift. A court should generally hesitate before summarily disposing of a claim concerning an asset transferred without consideration by a sole director of an insolvent company.

Watersheds1, acting through its liquidator, claimed that shares in Watersheds Capital Partners Ltd had belonged beneficially to Watersheds1 and that their transfer to Mr Buzzoni, its sole director, for no consideration breached fiduciary duty. The defendants applied under CPR 3.4(2) and CPR 24 to strike out or obtain summary judgment on the claim concerning the ordinary shares.

A Deputy ICC Judge refused the application, permitted amendment of the statement of case and directed that the issue proceed. The defendants appealed, contending that the judge had been overly cautious. The central issue was whether the claim should be disposed of without a trial on the presently available evidence.

1. Appeal dismissed. The judge had taken an irrelevant matter into account by attaching weight to a tax-computation argument. That error did not justify interfering with the order, because the court reconsidered the discretion afresh and reached the same conclusion.
2. The defendants’ analysis relied on the share register, the statutory rules governing registration and an alleged imperfect gift. The argument was powerful, but an alternative analysis was not fanciful. The presently available material did not establish that the claim had no reasonable prospect of success or that there was no issue requiring trial.
3. The relevant circumstances included the substantial trial already required concerning the preference shares; limited and partial disclosure; inconsistencies in the documents relied upon by Mr Buzzoni; and the need to explore why successive company documents recorded Watersheds1 as the beneficial owner before that position was reversed.
4. A constructive trust founded on an imperfect gift is not necessarily dependent on the donor having done everything in his or her power to effect the transfer. A broader principle may apply where the circumstances make it unconscionable for the donor to recall the gift. Nor was it established that an imperfect gift was the only possible basis for a constructive trust.
5. Where the sole director of an insolvent company has transferred assets to himself for no consideration, while the company’s accounts recorded those assets as belonging to the company, the court should generally hesitate before deciding that the transaction need not be scrutinised at trial.
6. The permission to amend was maintained. The liquidator’s pleading difficulties arose in part from the inadequacy of the company records and Mr Buzzoni’s disavowal of their accuracy. Directions concerning costs and the timetable were left for agreement or further determination.

• High Court (Chancery Division): Sir Alastair Norris dismissed the appeal against the Deputy ICC Judge’s refusal to strike out or summarily determine the ordinary-share claim.