Earl August Krause & Ors v Tellisford UK Limited & Ors

The court held that the Companys register had not been validly amended in 2021 to show Warthog as the holder of the 32,117 disputed shares because the purported board action lacked the required quorum under the Companys articles and Table A. The judge found that no binding 2017 agreement had given Mr Verhoef an equitable interest in all of those shares and that, by March 2020, the Erutuf Trustees (via Mr Krause) had acquired an equitable interest in 50% of the disputed shares by payment of £51,474. The court ordered rectification of the register under section 125 of the Companies Act 2006 to record the Erutuf Trustees as legal holders of 16,058 of the disputed shares, with Mr Maughan retaining one share subject to a 50% beneficial interest for the Erutuf Trustees. The court declined to make a declaratory order voiding the January 2021 sale agreement between Mr Maughan and Warthog because the party directly affected had not sought that relief in these proceedings.

Background and parties. The Company is an intermediate holding company in the Szerelmey Group. The Claimants are Earl Krause and the trustees of his family trust (the Erutuf Trustees). The main opposing interests are Warthog (representing Mr Verhoefs interests) and Mr Maughan, who previously held 32,117 shares (the Disputed Shares). The dispute concerned whether the Erutuf Trustees acquired an equitable interest in half the Disputed Shares and whether the Companys register should be rectified.

Nature of the claim. By Part 7 claim the Claimants sought declarations that the Erutuf Trustees had an equitable interest in, and were entitled to be registered in respect of, 50% of the Disputed Shares; alternative ancillary relief including rectification of the agreement dated 27 January 2021 and an order under section 125 of the Companies Act 2006 to rectify the register.

Issues before the court.

• Was the Companys register validly amended in 2021 to record Warthog as legal owner of the Disputed Shares and, if so, when did legal title vest?
• Who holds the beneficial interest in the Disputed Shares: did Mr Verhoef acquire an equitable interest in or prior right to the Disputed Shares by a 2017 agreement; did the Erutuf Trustees acquire an equitable interest by payment in March 2020?
• If legal title had vested in Warthog, could Warthog rely on the defence of bona fide purchase without notice as to the Claimants prior equitable interest?

Evidence and approach. The court weighed contemporaneous documents more heavily than fallible witness recollection, assessed the credibility of witnesses (noting particular limitations in Mr Krauses memory and finding Mr Maughan generally reliable), and drew an adverse inference from Warthogs failure to present evidence of fact at trial.

Reasoning and conclusions. The judge found: (i) the register amendment to show Warthog as holder of the Disputed Shares in 2021 was not valid because the directors quorum requirement had not been satisfied and there was no article or resolution authorising a sole director to act; (ii) there was no concluded agreement in February 2017 by which Mr Verhoef purchased all of Mr Maughans shares; (iii) by March 2020 Mr Krause had paid £51,474, and the Erutuf Trustees thereby acquired an equitable interest in 50% of the Disputed Shares; (iv) on the balance of probabilities Mr Verhoef knew, or must be taken to have known, that Mr Maughan was operating under a mistake as to selling all shares for half the previously agreed value, but the court did not need finally to decide the bona fide purchaser defence; and (v) the appropriate practical remedy was rectification of the register under section 125 to show the Erutuf Trustees as the holders of 16,058 of the Disputed Shares from 6 March 2020, leaving one share in Mr Maughans name with 50% of its beneficial interest held on trust for the Erutuf Trustees. The court refused to make a declaration that the January 2021 sale agreement was void for mistake where the directly affected contracting party (Mr Maughan) had not actively sought that relief in his pleadings.

Order made to rectify the Companys register: the entry purporting to show Warthog as the holder of the Disputed Shares is to be deleted. The Erutuf Trustees are entitled to be entered in the register as legal holders of 16,058 of the Disputed Shares, with Mr Maughan holding one share subject to a 50% beneficial interest in favour of the Erutuf Trustees; rectification is effective from 6 March 2020. The court declined to grant a declaration that the January 2021 sale agreement was void for mistake because the party principally affected had not advanced such a claim. Rationale: invalid register amendment (quorum not met), no concluded 2017 sale to Mr Verhoef of all disputed shares, equitable interest in 50% vested in the Erutuf Trustees by payment, practical rectification under section 125 of the Companies Act 2006.