La Micro Group (UK) Ltd & Anor v La Micro Group Inc & Ors

Where a party asserts that an existing beneficial interest has been disclaimed, that party bears the burden of proving the disclaimer. The meaning of informal commercial conversations is assessed objectively, by reference to the background known to the parties and without excessive legalism. A director may have actual or apparent authority to speak for a company where the circumstances objectively indicate that he is acting in that capacity. A disclaimer operates by avoidance rather than disposition, so it does not require writing under section 53(2) of the Law of Property Act 1925. A mistaken belief about the precise legal route by which an interest is held does not necessarily prevent effective disclaimer where the relevant interest is sufficiently understood. An estoppel based on conduct in earlier proceedings requires a clear and consistent position.

The claimants, La Micro Group (UK) Ltd and Mr David Bell, sought declarations concerning the beneficial ownership of the company’s shares and entitlement to profits. La Micro Group Inc counterclaimed that it retained a 51% beneficial interest and an equal share of profits under a 2004 arrangement.

The dispute arose after the breakdown between Inc’s two shareholders and directors, Mr Frenkel and Mr Lyampert, in 2010. The court had previously determined, in [2017] 1 EWHC 2223 (Ch), the effect of the 2004 arrangement but had not decided whether it continued after 2010. The central issues were what Mr Frenkel communicated to Mr Bell, whether he had authority to affect Inc’s rights, the legal character of the resulting arrangement, and whether the claimants were barred by estoppel or abuse of process.

1. Declarations granted. Mr Bell and Mr Lyampert were declared to be the only legal and beneficial owners of the shares in La Micro Group (UK) Ltd. Since March 2010 they had been solely entitled to its profits. La Micro Group Inc was not entitled to relief.
2. The claimants asserted disclaimer and therefore bore the burden of proving it. Having assessed the evidence, inherent likelihoods and undisputed facts, the judge accepted Mr Bell’s account of the February and March 2010 conversations.
3. The conversations were to be understood objectively, by asking what a reasonable person with the parties’ background knowledge, rather than a pedantic lawyer, would have understood. Mr Frenkel was acting in circumstances in which he was dissolving Inc and remained a director, officer and shareholder. He therefore had actual or apparent authority to speak for Inc.
4. The appropriate analysis of the shareholding and profit entitlement was disclaimer. Applying In re Paradise Motor Co Ltd [1968] 1 WLR 1125, disclaimer operated by avoidance and not disposition, so section 53(2) of the Law of Property Act 1925 did not require writing. The fact that Mr Frenkel believed he held a direct rather than an indirect interest through Inc did not prevent the necessary knowledge and intention, given the parties’ practical blurring of those interests.
5. The words used were sufficiently broad to end the profit-sharing arrangement as well as the relevant beneficial interest. Alternatively, the arrangement was determined on reasonable notice or the contractual rights were waived. The new arrangement also benefited Inc by releasing it from its debt to UK and from trading obligations.
6. The estoppel argument failed. Mr Bell’s earlier evidence and correspondence reflected confusion rather than a clear and consistent position sufficient to prevent the claim. It was unnecessary to decide abuse of process, limitation or laches.
7. The issue of permission to appeal was adjourned until 5 February 2021. The time for serving an appeal notice remained 21 days from hand-down under CPR 52.3(2)(a).

First-instance decision. The judgment records an earlier High Court decision by Judge Tipples concerning the 2004 arrangement: [2017] 1 EWHC 2223 (Ch). The present court held that decision did not determine whether the arrangement continued after 2010.