HASKELL ELIAS v DAVID MAMISTVALOV & Anor

Key legal principles and grounds of decision:

• The court construed the SPA (Debt Purchasing Agreement) as a conditional arrangement that allowed WCL to act as a substituted plaintiff for enforcement purposes while the SPA subsisted rather than an unconditional sale obliging WCL to pay a fixed sum regardless of recoveries.
• The classic test for a document being a sham requires a common intention of the parties that the document not create the legal rights it appears to create; that test was applied and the SPA was held not to be a sham.
• The court found that the alleged variations relied upon by the first defendant (the increase to 14% and the April 2019 variation transferring beneficial ownership of the Property in exchange for an extension of the SPA) were not proved.
• The only issued share in Soda was transferred to the first defendant as nominee for the claimant; beneficial ownership remained with the claimant and he is entitled to be treated as the beneficial owner despite a later undated transfer form signed by the first defendant.
• The court recorded serious credibility and disclosure failings: both protagonists had given dishonest or incomplete evidence in parts, disclosure by the claimant was defective, and the claimant forged a director's resignation and board minutes in March 2020 (the forgery was noted as wrongful conduct but did not change the conclusion on beneficial ownership).

Background and nature of the claim

The claim concerned who beneficially owned the single issued share in Soda Holdings Limited, the company in which undeveloped land near Barnet ("the Property") was vested. The claimant asserted that although the registered share was transferred into the first defendant's name, that transfer was made on trust for the claimant (a nominee arrangement) and he remained the beneficial owner. The first defendant counterclaimed that a sale and purchase agreement (the SPA) and later variations had the effect that beneficial ownership had passed to him.

Procedural posture

First instance trial in the High Court (Chancery Division, Business List). The court heard oral evidence and examined contemporaneous transcripts, emails and other documents.

Relief sought

• Declaratory relief as to beneficial ownership of the sole issued share in Soda (the claimant seeking a declaration that he is the beneficial owner).

Issues framed by the court

1. Whether the SPA was a sham or took effect according to its objective terms.
2. Whether there was an agreement to vary the SPA (the April 2019 SPA variation) transferring beneficial ownership of the Property to the first defendant in return for an extension of enforcement rights.
3. If there was no SPA variation, the reason for the transfer of the Soda share to the first defendant on 25 June 2019.
4. Whether a swap agreement (18 July 2019) existed under which the share would be re-transferred in exchange for transfer of WCL, and whether any such swap was later unwound.

Court’s reasoning and conclusions

• Interpretation: The SPA was construed as a conditional contractual mechanism allowing WCL to act as substituted plaintiff and to share recoveries (Krys taking 25%, the first defendant 73% and WCL a small fee) while the SPA subsisted. The SPA terminated automatically if the stated conditions (including payment of the Full Purchase Amount in the defined sense) were not met within the period. The court rejected any construction that would make a shell company unconditionally liable for the whole Award irrespective of recoveries.
• Sham: The court applied the established test for a sham and concluded that the SPA was not a sham. Both parties intended the SPA to operate according to its terms (i.e. as a conditional arrangement enabling substitution in the Georgian enforcement proceedings).
• Alleged variations: The court rejected the asserted increase to 14% for WCL and rejected the April 2019 SPA variation as not proved on the evidence and commercially improbable.
• Nominee transfer: The evidence showed that the share in Soda was transferred to the first defendant as nominee for the claimant (to cloak the claimant’s ownership of the Property). The existence, circulation and signing of a stock transfer form back to the claimant are consistent with an understanding that the first defendant would not be the beneficial owner.
• Coffee-shop meeting and subsequent dealings: The court found there was no binding swap agreement on 18 July 2019 and that the first defendant had by then decided he would not remain a pure nominee; negotiations for an interest/joint venture followed but no concluded deal transferred beneficial title to him.
• Credibility and disclosure: The judge found both principal witnesses unreliable in parts, and that the claimant’s disclosure had been seriously deficient. The court also found that the claimant forged certain corporate documents in March 2020. Despite these findings, the overall contemporaneous documentary record, recorded telephone transcripts and inherent probabilities supported the claimant’s claim to beneficial ownership.
• Company law consequences: The court noted statutory and practical consequences (Companies Act and Stock Transfer Act references) and concluded the claimant is the beneficial owner and entitled to be registered and to exercise rights attendant on beneficial ownership.

The claim succeeded. The court held that the SPA was not a sham but was properly construed as a conditional enforcement arrangement; alleged contractual variations (including a 14% increase and the April 2019 variation) were not proved; the transfer of the Soda share to the first defendant was made as nominee for the claimant and beneficial ownership remained with the claimant. The claimant is therefore the beneficial owner of the sole issued share in Soda. The court also recorded serious credibility problems and defective disclosure, and noted that the claimant forged certain corporate documents in March 2020.