Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor

The appeal challenges a Deputy ICC Judge's refusal to strike out or to enter summary judgment against the liquidator's claim that the first defendant's ordinary shares in WCP were beneficially owned by the insolvent company Watersheds1. Key legal principles identified are: the statutory presumption of title from the share register under section 127 Companies Act 2006 and the requirement for registration of transfers under section 770 CA2006; the distinction between express nomineeship and constructive trust; and the limited exceptions to the rule that equity will not perfect an imperfect gift (as explained in Re Rose and Pennington v Waine).

The court held that, on the material before it, summary disposal was not justified. The judge below had been entitled to be cautious because the documentary record was partial and inconsistent, cross-examination might reveal material facts, and the circumstances (including the role of the sole director, incomplete disclosure and potential unconscionability) justified trial scrutiny. The appellate judge agreed that the tax argument relied on below was irrelevant but, exercising the discretion afresh, dismissed the appeal and affirmed that the issues concerning beneficial ownership should proceed to trial.

Background and parties

• Watersheds1 (formerly Nosnehpetsj Ltd) was a corporate financial adviser whose sole director and shareholder was Mr Richard Buzzoni. In 2006 Mr Buzzoni incorporated Watersheds Capital Partners Ltd (WCP). In 2012 he incorporated a new company, Nosnehpetsj Ltd (here called Watersheds2), and sought to dissolve Watersheds1.
• WCP's share capital comprised 100 ordinary shares and 220,000 cumulative preference shares. For several years WCP's annual returns and Watersheds1's abbreviated accounts recorded Watersheds1 as the owner of both classes of shares, but the WCP share register always showed Mr Buzzoni as registered holder of the ordinary shares.
• Watersheds1 was insolvent or of doubtful solvency by March 2012. The company was later wound up and restored to the register; its liquidator sued WCP and Mr Buzzoni alleging, among other things, that the transfer of the ordinary shares from Watersheds1 to Mr Buzzoni for no consideration was a breach of fiduciary duty and that beneficial ownership had remained with Watersheds1.

Procedural posture and relief sought

• WCP and Mr Buzzoni applied under CPR 3.4(2) and CPR 24 to strike out the causes of action or obtain summary judgment in their favour in relation to the ordinary shares, on the grounds that the liquidator had no real prospect of success or disclosed no reasonable grounds for the claim.

Issues framed by the court

• Whether the pleaded case could establish that the ordinary shares were held by Mr Buzzoni on express or constructive trust for Watersheds1 despite the absence of registered transfers or executed transfer forms;
• whether the exceptions to the rule that equity will not perfect an imperfect gift (Re Rose; Pennington v Waine) could assist the liquidator; and
• whether the sparse and inconsistent documentary record, the potential for relevant evidence to emerge on disclosure and cross-examination, and the broader circumstances justified trial rather than summary disposal.

Court’s reasoning and decision

• The appellate judge analysed the statutory presumptions under section 127 and the registration requirement under section 770 CA2006 and acknowledged the force of the defendants' submission that title is prima facie shown by the register and that no executed transfer to Watersheds1 had been found.
• He nonetheless concluded that summary disposal was not appropriate. There was limited and partial disclosure, internal inconsistencies in the documents (for example, an email of 1 February 2013 complaining of an error long after an alleged correction), and plausible alternative inferences that might be established at trial, including constructive trust based on unconscionability rather than only on an imperfect gift.
• The judge accepted that an irrelevant matter (a tax computation) had been given some weight below, but on rehearing the appellate judge exercised his discretion afresh and reached the same case-management outcome: the application to strike out or for summary judgment was refused and permission was given to the liquidator to amend its statement of case as appropriate.

Wider context: the court observed that where a sole director of an insolvent company is shown to have transferred assets to himself for no consideration the court should be cautious about deciding the matter without trial.

The appeal is dismissed. The appellate court, having reviewed the statutory presumptions under sections 127 and 770 Companies Act 2006 and the authorities on imperfect gifts and constructive trust (Re Rose; Pennington v Waine), exercised the case-management discretion afresh and concluded that the factual dispute about beneficial ownership could not properly be resolved on strike out or summary judgment given partial and inconsistent disclosure, the prospect of material evidence emerging at trial and the possibility that unconscionability or other bases for a constructive trust might be established. The judge below was not reversed save for his reliance on a tax computation, which was held to be irrelevant.

The decision under appeal was that of the former Chief Registrar, Mr Stephen Baister, sitting as a Deputy ICC Judge, who declined to strike out or to grant summary judgment and granted permission to amend the statement of case. Permission to appeal was given. The appeal was heard in the Business and Property Courts, Chancery Division, before Sir Alastair Norris, who dismissed the appeal on 27 March 2020 (neutral citation [2020] EWHC 739 (Ch)).