MARK JULIAN O’BRIEN v SIMON PHIPPS

The claimant alleged that the defendant had declared an express oral trust over half of his shareholding in Shortfall Cover LLC at a meeting in about August 2013, and sought half the net proceeds of the sale of those shares. The defendant denied such a declaration and relied instead on a bare, unenforceable promise or on a separate alleged Profit and Loss Sharing Agreement. The judge accepted the claimant’s account, finding that the defendant did declare a trust in the claimant’s favour at the Harvester meeting and that the defendant therefore held half his Shortfall shares on trust for the claimant.

Key legal principles: the burden of proof for an express trust lies on the claimant on the balance of probabilities; the court must treat old oral recollections with caution and prefer documentary or contemporaneous evidence where available; an express trust can be created by informal oral words if intention and certainty are shown; a general personal business relationship does not of itself create fiduciary obligations.

Material subsidiary findings: there was no binding Profit and Loss Sharing Agreement between the parties; contemporaneous and near-contemporaneous emails (2015, 2017) corroborated the claimant’s account; certain transactions (including the 2014 buy-back and the 2015 SWBC investment and the 2020 disposal) engaged the defendant’s obligations as trustee and gave rise to a right to accounts and enquiries.

Background and parties: The claimant (Mr O’Brien) and the defendant (Mr Phipps) were long-term business associates and close friends who worked together in the motor insurance sector through a number of companies. Shortfall Cover LLC (Shortfall) was incorporated in Kentucky in January 2011. The claimant sued in relation to an alleged oral declaration of trust made by the defendant at a meeting in about August 2013, asserting that half of the defendant’s Shortfall shareholding was held on trust for him. The defendant denied the declaration and pleaded either a bare promise or an unrelated contractual Profit and Loss Sharing Agreement; he counterclaimed for breaches of that alleged agreement.

Nature of the claim and relief sought: The claimant sought a declaration and consequential relief (including an account) that half of the defendant’s Shortfall shareholding belonged beneficially to the claimant and/or half the net proceeds of sale. The defendant sought relief on his counterclaim for alleged breaches of a Profit and Loss Sharing Agreement.

Issues for decision:

• Whether the parties had a binding Profit and Loss Sharing Agreement governing their dealings.
• Whether an Initial Understanding existed in around 2010–2011 that the claimant would be an equal shareholder in Shortfall.
• Whether, at the August 2013 Harvester meeting, the defendant declared that half his Shortfall shares belonged to the claimant (i.e. whether an express trust was created).
• Whether various later transactions (the 2014 buy-back from Hill and Hawkins, the 2015 SWBC investment, transfers to third parties and the 2020 disposal) breached any trust, and what remedies should follow.

Reasoning and findings: The judge carefully assessed witness credibility, emphasising caution when assessing long-past oral recollections and placing significant weight on documentary and near-contemporaneous materials. The judge rejected the existence of an overarching Profit and Loss Sharing Agreement as implausible and unsupported by particulars. The Initial Understanding (that the claimant was to be an equal shareholder from the outset) was rejected. However, the judge accepted the claimant’s account that at the August 2013 Harvester meeting the defendant declared that half of his Shortfall shares belonged to the claimant, and that this was intended to create an immediate express trust. The judge treated the 2015 and 2017 emails and subsequent correspondence as important corroborative evidence of an existing arrangement and of the defendant’s acknowledgement of the claimant’s beneficial interest. The judge held that various dispositions and the 2020 sale engaged the defendant’s duties as trustee and that the claimant is entitled to accounts and enquiries; the judge left the precise relief and mechanisms (including possible surcharge for wilful default) to be determined following exchange of draft orders and short submissions.

Disposition: The court declared that the defendant held half of his Shortfall shareholding on trust for the claimant and dismissed the defendant’s counterclaim which depended on the alleged Profit and Loss Sharing Agreement. The court ordered the parties to attempt to agree the detailed form of relief and directed exchanges of draft orders and short skeleton arguments.

At first instance the court found that the claimant had proved on the balance of probabilities that, at a meeting in about August 2013, the defendant declared that half of his shareholding in Shortfall was held on trust for the claimant, and that the defendant therefore held half his Shortfall shares (and their proceeds) on trust for the claimant. The alleged long-standing Profit and Loss Sharing Agreement was rejected as implausible and unsupported and the defendant’s counterclaim based on it was dismissed. The court ordered that accounts and enquiries be undertaken and invited the parties to agree draft relief (or, if they cannot, to file proposed orders and brief submissions).