Earl August Krause & Ors v Tellisford UK Limited & Ors

A company register cannot validly be amended by directors acting without the quorum required by the company’s articles. A director’s absence or lack of entitlement to notice does not, without express provision or a valid resolution, reduce the quorum.

Legal title to shares ordinarily depends on registration in the company’s register. Equitable ownership may nevertheless arise before registration. The court may rectify the register under Companies Act 2006, including where an odd number of shares requires an equitable arrangement for the remaining share.

Declaratory relief concerning a contract may be refused where the directly affected contracting party is before the court but does not seek that relief.

The trustees of the Erutuf Trust claimed an equitable interest in, and registration as holders of, half of 32,117 shares in Tellisford UK Limited. The shares had formerly belonged to David Maughan, who was alleged to have agreed that they would be sold equally to Earl Krause and Gordon Verhoef.

Warthog Investments Limited was entered in the register as holder of all the disputed shares. The claimants challenged the validity of that alteration, asserted that Krause had acquired an equitable interest in half the shares, and sought rectification of the register. They also sought a declaration that the sale agreement between Maughan and Warthog was void for mistake.

The central issues were the validity of the registration, the existence of prior equitable interests, the consequences of the parties’ dealings, and the court’s jurisdiction to grant declaratory relief concerning an agreement to which the claimants were not parties.

1. Register and legal title. The purported 2021 alteration of the register was invalid. The articles required a quorum of two directors. The fact that Mr Krause was outside the United Kingdom and was not entitled to notice did not reduce that quorum. The court accepted that legal title to shares is ordinarily acquired upon registration in the company’s register.
2. Estoppel. Warthog’s estoppel by convention defence failed. There was no sufficiently established shared assumption regulating the parties’ conduct, no relevant detrimental reliance, and the example relied on concerned a different company.
3. Equitable interests. No binding agreement was made in February 2017 for Mr Verhoef alone to acquire all the disputed shares. Mr Maughan had intended to sell them equally to Mr Krause and Mr Verhoef. By March 2020 Mr Krause had therefore acquired an equitable interest in half the shares after paying £51,474.
4. Evidence and notice. Applying ordinary rationality and the circumstances of the case, the court drew significance from Warthog’s failure to provide evidence. Although the bona fide purchaser issue no longer required determination, the court found that Mr Verhoef knew that Maughan intended to sell only half the disputed shares for £51,474 and knew of Maughan’s mistake when Warthog contracted to acquire all of them.
5. Relief. The register was ordered to be rectified under section 125 of the Companies Act 2006. The trustees were declared entitled to registration as joint legal holders of 16,058 shares. Maughan held 50% of one remaining share on trust for them. The court declined to declare the sale agreement void for mistake because Maughan, the directly affected contracting party, was before the court but had not sought that relief.