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

The Court of Appeal examined competing remedies to determine the beneficial ownership of the two issued shares in LA Micro Group (UK) Ltd following disrupted relations between US co-owners. The court held that the trial judge was not entitled to uphold a claim in proprietary estoppel because the essential finding that Inc (through Mr Frenkel) had unequivocally and reasonably assured Mr Bell that Inc was abandoning any claim to the company could not be sustained. However, the judge was entitled to find that an oral 2010 agreement between Mr Bell and Mr Lyampert impliedly required the parties to hold ownership consistently with their agreed equal division of profits and management; that implied contractual term was specifically enforceable and gave rise to a constructive trust so as to fall within section 53(2) of the Law of Property Act 1925, thereby overcoming the formal writing requirement in s.53(1)(c).

Background and procedural history:

• LA Micro Group (UK) Ltd and Mr David Bell (respondents) sued LA Micro Group, Inc, Mr Roman Frenkel and Mr Arkadiy Lyampert (appellants/defendants) about beneficial ownership of two issued shares in the UK company. The litigation followed an earlier 2017 High Court judgment ([2017] EWHC 2223 (Ch)) and an earlier Court of Appeal decision ([2021] EWCA Civ 1429) which remitted certain factual and legal issues to the High Court. HHJ Jarman gave a second judgment ([2022] EWHC 1304 (Ch)) on remitted issues, which was then appealed to this Court.

Nature of the claim / relief sought:

• The respondents sought declarations that, as a result of events in 2010, beneficial ownership had come to be shared equally between Mr Bell and Mr Lyampert, and relied alternatively on (a) contractual surrender or implied contractual term in 2010, (b) proprietary estoppel, and (c) that equitable defences such as laches did not bar relief.

Issues framed:

1. Whether Inc had contractually surrendered its beneficial interest in UK in 2010 (and, if so, whether non-compliance with s.53(1)(c) LPA 1925 invalidated that disposition or whether it could be saved by s.53(2) as an implied/constructive trust arising from a specifically enforceable contract);
2. Whether Inc was precluded by proprietary estoppel from asserting a beneficial claim (in particular whether Mr Bell reasonably relied to his detriment on clear assurances by Mr Frenkel that Inc had no continuing interest);
3. Whether the defence of laches barred Inc’s claim.

Court’s reasoning and conclusions:

• Proprietary estoppel: The judge had accepted that Mr Frenkel told Mr Bell in 2010 that he wanted nothing to do with the UK business. The Court of Appeal concluded, however, that the trial judge’s related factual findings were internally inconsistent and not sustainable on appeal: although Mr Bell may have understood that one of the “warring factions” was out of the picture and acted on that belief in arranging the 2010 commercial relationship with Mr Lyampert, the contemporaneous documentary record and subsequent conduct indicated that Mr Bell did not reasonably understand that Inc had surrendered its beneficial interest. The estoppel finding was therefore set aside.
• Implied contractual term and constructive trust: The court accepted that, as a matter of implication, the 2010 oral arrangements (entered against the background of Inc’s breakdown and Mr Frenkel’s disavowal) could reasonably be taken to require that ownership follow the envisaged equal sharing of business and profits. That implied quadripartite agreement was specifically enforceable and, under ordinary equitable principles, gave rise to a constructive trust in favour of the intended disponees. As a consequence the dispositions were regarded, for equitable purposes, as effective notwithstanding the absence of signed writing because s.53(2) preserves the operation of constructive and implied trusts.
• Laches: The trial judge’s conclusion that laches did not bar relief was unchallenged on appeal.

Wider context: The court emphasised the distinction between delay-based equitable defences (laches) and estoppel based on assurance, reliance and detriment, and reiterated established principles about implication of terms, specific performance and the operation of constructive trusts to remedy failures to satisfy statutory writing formalities.

The appeal was allowed in part. The court set aside the trial judge’s finding that Inc was estopped by proprietary estoppel from asserting a beneficial interest because the factual basis for reasonable reliance was not sustainable; but the court upheld the alternative reasoning that an implied term in the 2010 agreement was specifically enforceable and that a constructive trust arose, so that the intended change in beneficial ownership could take effect notwithstanding the lack of signed writing under s.53(1)(c) Law of Property Act 1925, by virtue of s.53(2).

Appeal from HHJ Jarman QC (sitting as a High Court judge) ([2022] EWHC 1304 (Ch)). The case followed an earlier 2017 High Court trial judgment ([2017] EWHC 2223 (Ch)) and an earlier Court of Appeal decision allowing an earlier appeal and remitting certain issues ([2021] EWCA Civ 1429). The present decision resolves the remitted issues.