Trust Law-Joint venture dispute and failure to register the shares

KING SOLICITORS Any Street Banbury Oxfordshire  Mrs. Reshida Timol 45 Henderson Road London N234AD Our Ref: KS/99 15 November 2002 : Joint venture dispute and failure to register the shares I refer to our meeting on 1 November 2002 and the discussions that took place regarding the possible development of the house as a joint venture and the transfer of shares to you. Following is my advice to your queries. For your convenience, I have arranged them in the numbered sequence used in your letter. 1. Joint Venture Dispute: Unfortunately, there is no deed or even a written record of the agreement between your company (Truly Smart Developments Ltd) and Wimpy Conversions Ltd.The arrangement or understanding between the parties was not sufficiently certain to be enforceable as a binding contract in law. However, there is an oral agreement between your company and Wimpy because they agreed in principle that they would develop the house as a joint venture. Therefore, Wimpy are bound by that agreement. It will be unfair to allow Wimpy to exploit the property as its own. As the property was acquired under the agreement that Wimpy would continue negotiations to purchase the property on their own but that both companies would develop the house as a joint venture. Consequently, in reliance on that promise your company had refrained from attempting to take part in the bidding process. To enforce the joint venture agreement, your company needs to identify something, in reliance on the promise, which indicates either an advantage for Wimpy or detrimental to your company in relation to the acquisition of the property on equal terms. You could establish that Wimpy had the benefit both of keeping your company out of the bidding, obtaining the property for a lower price and of knowing that they had your company’s potential support as a joint venturer. Furthermore, your company lost an opportunity to acquire the property for itself. It is possible that the court could make a decision based on the facts that the property is jointly owned. If the parties still fail to agree on a division, the property must be resold, with either the party being at liberty to bid and the proceeds of sale divided equally. 2. Failure to register the transfer shares: The main issue is your uncle’s shaky signature. As a result, the company refused to register the shares in your name so the gift is not legal. Concerning the gift of shares, the transfer is effective because your uncle had done everything in his capacity by signing the share transfer form in favor of you. The shares should be yours, although you are not registered owner. The conflict relates to the shaky signature of your uncle, which may be due to age or his state of health. However, you can talk to the company’s directors about these issues. The company might take a different view regarding the argument about business ethics and that your uncle may have changed his mind prior to his death. Furthermore, they might say that he had sufficient time to confirm his signature once you received our refusal letter. In response, you could say that your uncle’s statement indicated that there was no argument relating to the share transfer but a friendly quarrel about business ethics. Furthermore, it was not possible to reconfirm his signature with the company as his state of health was getting worse day by day. Ultimately, he could not renege on the transfer as he had done everything he had to do to transfer the shares. You may further claim shares by establishing that your uncle intended to make an immediate gift of the shares to you, and that was his intention until his death. Your uncle had expressed an immediate intention of making a gift of the shares to you, which did not change, and nominated Alia and you, as executors of his will, upon his death. As a result, you are entitled to hold the shares for your own benefit. Firstly, the shares offered to you during your uncle’s lifetime become yours on his death. Secondly, he had continued intention until his death to give you the shares. Finally, you have Alia’s consent to have the shares. I hope that I have dealt with the issues you raised fully. If I can be of any further assistance please contact me at your convenience.

NOTE

Mr. Terry O’Neil Middlemarch Banbury Oxfordshire : Joint venture dispute and failure to register the shares 1. Joint Venture Dispute: 1.1Contractual Obligation: There was no binding contract between the parties in law but an oral agreement to develop the house as a joint venture. Agreement can be made either by words or in writing and so Wimpy are bound by that agreement[1]. It is possible to enforce the joint venture agreement in equity either under the constructive trust or under the law of proprietary estoppel[2]. 1.2 Constructive Trust: A constructive trust is invoked, as it would be unconscionable to allow Wimpy to exploit the property as its own, in a manner inconsistent with the agreement, which enabled them to acquire it, and deny the beneficial interest of Truly Smart Company[3]. It is not necessary to have written declaration of trust within S 53 (1) of the Law of Property Act 1925 [4]. However,Truly Smart Company can establish an interest in the property under the principles elaborated in Pettitt v. Pettitt[5] and codified by the House of Lords in Lloyds Bank v. Rosset[6]: the company can rely on a constructive trust, as it is exempt from the requirement of writing by S 53 (2) of the LPA 1925[7]. To give rise to a constructive trust it is necessary to establish either advantage to Wimpy or detriment to Truly Smart, but not both[8]. However,Truly Smart Company in reliance on the promise kept out of the bidding gave an advantage to Wimpy to obtain the property for a lower price. On the other hand, Truly Smart Company lost the opportunity to acquire the property for themselves[9]. 1.3 Proprietary Estoppel: It is clear that an estoppel could arise even though there was no intention to create binding obligations, as where the parties had attempted to negotiate a contract[10]. Furthermore, Lord Kingsdown in Ramsden v. Dyson[11] opined that the doctrine of estoppel could arise where there was a fostering of an expectation in the minds of the parties, which, once acted upon; it would be unconscionable to deny later. The concepts of constructive trust and proprietary estoppel have much in common in this area[12]. In respect of remedy, the proprietary estoppel is a more flexible doctrine[13]. 2.Failure to register the transfer shares: 2.1 Share Transfer: The shares should be passed to Reshida Timol despite her uncle’s shaky signature. As her uncle had done everything in his power to transfer his legal and equitable interest in the shares[14]. The transfer of legal title to shares in a private company was regarded as effective even though it was not completed by entry in the share register of the company[15]. 2.2 Share Registration: The company cannot refuse to register the shares in her name due to shaky signature[16]. The basic position on share transfer is set out in Re Smith, Knight & Co, Weston’s Case[17]. However, the company might take a different view regarding the argument about business ethics with her uncle, and that he may have changed his mind prior to his death. It is not possible by her uncle to renege on the transfer as he had done everything he had to do to transfer the shares[18]. 2.3 The Appointment of Executor: Reshida may further claim shares, as she is one of the executors of her uncle’s will[19]. An imperfect gift might be perfected by the subsequent appointment of the donee to be the donor’s executor where the donor had an immediate intention to make an out-and-out gift, and that intention survived until the donor’s death[20]. [1] See, Fifoot & Furmston’s, Cheshire, Law of Contract (1996), 13th edition, p-28 [2] See, Sir Nicolas Browne-Wilkinson view in Grant v. Edwards (1986) Ch. 638 ; Robert Walker L.J. view in Yaxley v. Gotts (2000) Ch 162. [3] See, Chattock v. Muller (1878) 8 Ch 177, Pallant v. Morgan (1953) Ch 43; Lonrho Plc. v. Fayed No-2 (1992) 1 W. L. R 1 ; Banner Homes Group PLC. v. Luff Development Ltd. (2000) CA 372. [4] See, Todd, Paul & Lowrie, Sarah, Textbook on Trusts (2000), 5th edition , p-150 [5] (1970) AC 777 [6] (1991) 1 AC 107 [7] See, Moffat, Graham, Trusts Law Text and Materials (1994), 2nd edition, p-96 [8] Cited in Hudson, Alastair, Equity & Trusts (2002), 2nd edition, p-469 ; Banner Homes Group PLC. v. Luff Development Ltd. (2000) CA 372 [9] Cited in Penner J E , The Law of Trusts (2000), 2nd edition, p-5.20 ; Pallant v. Morgan (1953) Ch 43 [10] See, JT Developments v. Quinn (1991) 62 P & CR 33. [11] (1865) LR 1 HL 129, [12] Cited by Millett L.J in Paragon Finance Plc v. D. B. Thakerar & Co (1999) 1 All E R 400 [13] Cited in Hudson, Alastair, Equity & Trusts (2002), 2nd edition, p-469 [14] Re Rose. Rose and Others v. Inland Revenue Commissioners (1952) CA 1217 [15] Cited in Todd, Paul, Cases & Materials on Equity & Trusts (2000), 3rd edition, p-67 [16] Cited in Farrar J.H & Hannigan B.M, Farrar’s Company law (1998), 4th edition, p-239 [17] (1868) 4 Ch App 20 [18] See, Hayton DJ, The Law of Equitable Remedies (2001), 11th edition, p-406 ; Mascall v. Mascall (1984) 49 P & C. R 119 [19] See, Strong v. Bird (1874) LR 18 EQ 315 [20] See, Re Freeland. Jackson v. Rodgers (1951) 1 Ch 111

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