Canal de comercialización

Facts

JE Neville Ltd (J Ltd), a small family company, was the registered owner of all the issued share capital in another company, Universal Engineering Co Ltd (U Ltd), save for 120 ordinary shares, which were registered in the names of two directors of U Ltd as nominees for J Ltd. In 1965, the directors of U Ltd resolved that U Ltd shares, registered in the name of J Ltd, be transferred to the shareholders of J Ltd in proportions corresponding to their shareholdings in J Ltd. The transfers

were executed within two weeks of the resolution. Neither the resolution of the directors nor the subsequent transfers extended to the 120 shares registered in the names of the directors of U Ltd. By 1970, J Ltd, although not formally liquidated, was treated by all concerned as being defunct. In July 1970, it was struck off the register and dissolved with the consequence that any assets owned beneficially by J Ltd passed to the Crown as bona vacantia. The question in issue concerned the beneficial ownership of the remaining 120 shares registered in the names of U Ltd directors. The plaintiffs claimed that J Ltd intended to distribute all its shares in U Ltd including the 120 shares in dispute. Thus, the plaintiffs argued that the shares were held on constructive trust for the shareholders in J Ltd. This, the plaintiffs claimed, was a true interpretation of the 1965 resolution. The judge dismissed the plaintiffs’ claim and decided that no such distribution was intended. The plaintiffs appealed and raised an alternative argument to the effect that an agreement was entered into between the shareholders of J Ltd for the informal liquidation of J Ltd, which had the effect of disposing not only the assets but also its equitable interest in the remaining 120 shares in U Ltd. In other words, the shareholders of J Ltd agreed to a process whereby J Ltd’s debts and liabilities were discharged and the balance of its assets, whether ascertained or not, were distributed to its shareholders rateably according to their shareholdings, in specie or in cash. The questions in issue were:

(a) whether there was an oral agreement for the informal liquidation of the company and, if so; (b) whether it had the effect of disposing of the company’s equitable interest in the shares of

another company within s 53(1)(c) of the Law of Property Act 1925. Held

It was an undisputed fact that after 1969 J Ltd was treated by all concerned as being defunct. From that it was reasonable to infer that its shareholders, in making their agreement, intended that it should not be left with any assets. In other words, it was reasonable to infer that the shareholders intended their agreement to apply to all assets, whether known or unknown.

The effect of the agreement was to create a constructive trust within s 53(2) of the Law of Property Act 1925 which dispensed with the requirement for writing under s 53(1)(c):

Nourse LJ: This is a dispute between the shareholders of a small family company. The substantial questions now in issue are whether there was an agreement for the informal liquidation of the company and, if so, whether it had the effect of disposing of the company’s equitable interest in the shares of another company. The latter question involves a consideration of s 53(1)(c) and (2) of the Law of Property Act 1925 and a point left open by the House of Lords in Oughtred v IRC [1960] AC 206.

The simple view of the present case is that the effect of each individual agreement was to constitute the shareholder an implied or constructive trustee for the other shareholders, so that the requirement for writing contained in sub-s (1)(c) of s 53 was dispensed with by sub-s (2). That was the view taken by Upjohn J [1958] Ch 383 at first instance and by Lord Radcliffe in the House of Lords in Oughtred v IRC [1960] AC 206.

[His Lordship considered the views of the Law Lords in Oughtred’s case and continued:] The views of their Lordships as to the effect of s 53 can be summarised as follows: Lord Radcliffe, agreeing with Upjohn J, thought that sub-s (2) applied. He gave reasons for that view. Lord Cohen and Lord Denning thought that it did not. Although neither of them gave reasons, they may be taken to have accepted the submissions of Mr Wilberforce at pp 220–22. Lord Keith and Lord Jenkins expressed no view either way.

We do not think that there is anything in the speeches in the House of Lords which prevents us from holding that the effect of each individual agreement was to constitute the shareholder an implied or constructive trustee for the other shareholders. In this respect we are of the opinion that the analysis of Lord Radcliffe, based on the proposition that a specifically enforceable agreement to assign an interest in property creates an equitable interest in the assignee, was unquestionably correct; cf London and South Western Railway Co v Gomm (1882) 20 Ch D 562, p 581, per Sir George Jessel MR. A greater difficulty is caused by Lord Denning’s outright rejection of the application of s 53(2), with which Lord Cohen appears to have agreed.

So far as it is material to the present case, what sub-s (2) says is that sub-s (1)(c) does not affect the creation or operation of implied or constructive trusts. Just as in Oughtred v IRC [1960] AC 206, the son’s oral agreement

created a constructive trust in favour of the mother, so here each shareholder’s oral or implied agreement created an implied or constructive trust in favour of the other shareholders. Why then should sub-s (2) not apply? No convincing reason was suggested in argument and none has occurred to us since. Moreover, to deny its application in this case would be to restrict the effect of general words when no restriction is called for, and to lay the ground for fine distinctions in the future. With all the respect which is due to those who have thought to the contrary, we hold that sub-s (2) applies to an agreement such as we have in this case.

For these reasons we have come to the conclusion that the agreement entered into by the shareholders of JEN in about April 1969 was not rendered ineffectual by s 53 of the Act of 1925.