LA Micro Group (UK) Ltd & Anor v LA Micro Group Inc & Ors.

An oral reorganisation agreement may contain an implied term changing beneficial ownership of shares where that term is necessary for commercial or practical coherence. A specifically enforceable agreement for valuable consideration to dispose of existing equitable interests may operate through a constructive trust. It is therefore effective under section 53(2) of the Law of Property Act 1925, despite the absence of signed writing required by section 53(1)(c).

Proprietary estoppel failed because the evidence did not support the required finding that the party relying on the assurance understood it as Inc relinquishing its beneficial interest. Appellate intervention on factual findings requires an identifiable flaw making the conclusion rationally insupportable.

The proceedings concerned the beneficial ownership of two shares in LA Micro Group (UK) Ltd. The 2004 agreement provided for 49% ownership by Mr Bell and 51% ownership by LA Micro Group, Inc. After Mr Frenkel and Mr Lyampert fell out in 2010, Mr Bell and Mr Lyampert reorganised the business and shared its operation and profits equally. Mr Frenkel told Mr Bell that he wanted nothing further to do with UK.

In the second judgment of the High Court, His Honour Judge Jarman QC found an implied term for equal beneficial ownership, rejected contractual surrender for non-compliance with section 53(1)(c) of the Law of Property Act 1925, upheld proprietary estoppel and rejected laches. Inc and Mr Frenkel appealed. UK and Mr Bell relied on a respondents’ notice concerning the implied term and statutory formalities.

1. Disposition. Inc and Mr Frenkel succeeded on the proprietary-estoppel appeal. The challenge to the implied term failed. UK and Mr Bell’s respondents’ notice on the statutory formalities succeeded, so the High Court result was upheld on the contractual basis. The laches conclusion was not appealed.
2. Proprietary estoppel. Proprietary estoppel requires an assurance or representation, reliance and detriment. Although laches and proprietary estoppel both involve unconscionability, their relevant circumstances differ: laches is founded on delay, whereas proprietary estoppel is founded on an assurance relied upon to the representee’s detriment. The Court accepted that Mr Bell relied on Mr Frenkel’s statements in the limited sense that he would not have continued with UK if he had remained exposed to two warring partners. However, the case required an understanding that Inc had relinquished its beneficial interest. The trial judge’s findings that Mr Bell did not understand the legal position but did understand that Inc would not assert its interest were irreconcilable. Applying the appellate caution described in Volpi v Volpi [2022] EWCA Civ 464, the estoppel finding could not stand.
3. Implied term. Implication into an oral agreement involves factual assessment and a value judgment. A term may be implied where, without it, the agreement lacks commercial or practical coherence. On the facts, the ending of the special trading arrangements, equal operation and profits, and Mr Lyampert’s assumption of Inc’s debt justified the inference that Inc’s place was assumed by Mr Lyampert personally and that Mr Bell and Mr Lyampert would own UK equally.
4. Constructive trust and formalities. The 2010 arrangement was quadripartite and supported by valuable consideration, including UK’s release of Inc’s debt. Under Beswick v Beswick [1968] AC 58, a party may enforce an agreement requiring a benefit to be conferred on another. A specifically enforceable agreement to dispose of an equitable interest in shares gives rise to a constructive trust. Neville v Wilson [1997] Ch 144 established that section 53(2) of the Law of Property Act 1925 applies notwithstanding the absence of signed writing. The fact that the intended disponee was already the legal owner did not prevent the constructive trust; the beneficial owner dropped out and the legal owner became absolutely entitled.

1. Court of Appeal (Civil Division) — In the present judgment, the appeals were allowed in part and UK and Mr Bell’s respondents’ notice was allowed.
2. High Court, Business and Property Courts, Chancery Division — In [2022] EWHC 1304 (Ch), HHJ Jarman upheld proprietary estoppel, found an implied term for equal beneficial ownership, but held that contractual surrender failed for want of writing.
3. Court of Appeal (Civil Division) — In [2021] EWCA Civ 1429, an earlier appeal was allowed and the remaining issues were remitted to the High Court.
4. High Court, Chancery Division — In [2021] EWHC 140 (Ch), HHJ Jarman initially found that Inc’s interest had been disclaimed.