Mohammad Usman Butt v Mohammad Zarar Butt & Ors

Beneficial ownership of company shares may differ from registered ownership where the evidence establishes a resulting or constructive trust. A resulting trust focuses on contributions to the purchase price, subject to contrary intention. A constructive trust may arise in recognised joint-venture circumstances without a legally enforceable agreement. The court determines the parties’ shared intention from the whole evidential picture, including subsequent conduct, contemporaneous documents, witness reliability, inherent probabilities and commercial context. Substantial unsecured, interest-free payments with no fixed repayment terms may indicate investment for an interest in the venture rather than personal loans.

The claimant and first defendant, brothers, were registered equal shareholders in a company incorporated to acquire a commercial property. The first defendant was its sole director. The claimant contended that beneficial ownership should reflect all four brothers’ contributions. The first defendant said that payments by the third and fourth defendants were personal loans to him.

The third and fourth defendants sought corresponding declarations. The court determined whether the claimant had agreed to adjust the shareholding by reference to contributions and whether the payments were investments or unconditional loans.

The court declared that the claimant was the legal and beneficial owner of 50 ordinary shares. The first defendant held the remaining 50 shares on trust for himself, the third defendant and the fourth defendant in the proportions 11, 21 and 18 shares respectively.

1. Equity follows the law, so the party asserting a beneficial ownership different from the registered record bears the burden of proof. Contributions to the purchase price may support a rebuttable presumption of a proportionate beneficial interest.
2. A constructive trust may arise in a property joint venture even where the arrangement is not contractually enforceable. The distinction between resulting and constructive trust did not affect the outcome because the same evidence was relied upon.
3. The claimant did not agree before completion that the whole shareholding would be proportionate to the brothers’ contributions. The first defendant separately persuaded the third and fourth defendants to invest to meet his funding shortfall, with an intention that they would obtain interests derived from his 50% holding.
4. The payments were investments, not unconditional loans. The court relied on the absence of interest, security and fixed repayment terms; direct payment into the company’s account; the spreadsheet and board minutes; subsequent communications; witness reliability; and commercial probabilities.