HASKELL ELIAS v DAVID MAMISTVALOV & Anor

A document is a sham only where all parties subjectively intend it to create different legal rights and obligations from those it appears to create. An agreement that is artificial or commercially unattractive may nevertheless take effect according to its terms. The court must construe a contract as a whole, in its factual and commercial context. Where a share is transferred to a nominee under an agreement that preserves another person’s beneficial ownership, registration in the nominee’s name does not determine beneficial ownership. A beneficial owner may require registration of a valid transfer, subject to appropriate protection for the registered holder.

The claimant incorporated Soda Holdings Limited and became its registered shareholder. The first defendant contended that he had acquired the share beneficially under an alleged variation of a sale and purchase agreement concerning an arbitration award. He further alleged that the parties later agreed to exchange the share in Soda for control of the claimant’s company and then agreed to unwind that exchange.

The claimant maintained that the arrangements were intended to conceal his beneficial ownership and that the alleged variation and exchange agreement were never made. The central issues were the true meaning and effect of the sale and purchase agreement, whether the alleged variations existed, and who beneficially owned Soda’s share.

1. The claim succeeded. The claimant was the beneficial owner of Soda’s only issued share. The first defendant’s case depended on an alleged variation of the sale and purchase agreement, a subsequent exchange agreement, and an agreement to unwind that exchange. None of those foundation agreements was established.
2. The sale and purchase agreement was not a sham. Applying Snook v London and West Riding Investments Ltd [1967] 2 QB 786, a sham requires a common subjective intention by all parties that the documents should not create the apparent rights and obligations. The claimant’s subjective understanding did not suffice. The agreement was artificial in its operation, but both parties intended it to have its proper effect.
3. The agreement, construed as a whole and in its factual and commercial context, gave the purchaser temporary rights to pursue enforcement of the arbitration award. It required payment from recoveries made during the agreement’s operation. If the full purchase amount was not recovered within the stipulated period, the agreement terminated, subject to the surviving obligation to account for sums actually recovered. It did not impose an unconditional liability on a shell company to pay the full value of the award.
4. The alleged variation transferring the Property in return for an extension of the agreement was not proved. The contemporaneous email was treated as a document serving another purpose and was not acted upon. Nor was there an agreement to exchange Soda for control of WCL. The first defendant’s later signed stock transfer form was consistent with his having held the share as nominee for the claimant, not with his beneficial ownership.
5. As between the parties, the first defendant held the share on trust for the claimant. The claimant therefore remained beneficially entitled and was entitled to registration of the transfer. Under Companies Act 2006, s 112(2), and Stock Transfer Act 1963, ss 1 and 2(1)(a), the claimant was the registered owner after the company’s register was updated.
6. The claimant’s forged director-resignation documents were ineffective because the first defendant was then the lawful director. Nevertheless, as beneficial owner, the claimant could remove him at a general meeting or under the principle in Re Duomatic [1969] 2 Ch 365. A bare, externally un evidenced state of mind was not itself sufficient to constitute a company decision under that principle.