Midland agreed to sell to Luxe shares in 20 companies, 17 of which were incorporated in Russia or the Ukraine, with the lex situs of the shares in them being also there. Midland defaulted, sold the shares in the Russian and Ukrainian companies elsewhere and, when sued by Luxe, argued that, since Russian and Ukrainian law did not recognise the concept of a beneficial interest at all, and since ‘questions of ownership and therefore proprietary interests in shares are governed by the lex situs of the companies’, it followed that ‘whatever might have been the position if these had been shares in English companies, there were no beneficial interests in the shares which could pass to Luxe’ under the share sale agreement.
Held: Roth J noted that the ‘sort of trust, and thus beneficial interest’ which arises on the sale of land or of shares in private companies, ‘arises only because the agreement is specifically enforceable’ and is ‘In a sense, therefore, … the corollary of the remedy of specific performance’ and ‘is not a full trust in the classic sense’
After referring to Lake v Bayliss, Roth J analysed the law: ‘ Is the application of these principles precluded by the fact that the property is held through subsidiaries in a country the law of which does not recognise the concept of a lesser proprietary interest or that it does not recognise a beneficial interest at all? The fact that Midland held the shares through subsidiaries does not in itself preclude the sale and purchase agreement from being specifically enforceable, as Midland for present purposes accepts. The obligation to be enforced would be that Midland must procure that the shares are transferred. I do not see that this in itself would prevent the qualified trust relationship from arising.
Does the applicability of the lex situs to questions of ownership alter the position as between the contracting parties? It is trite but nonetheless important to recall that equity acts in personam. The parties here have chosen to govern the relationship as between themselves according to English law. Unless precluded by authority, it seems to me that as a matter of principle where the parties have expressly chosen English law and the exclusive jurisdiction of the English court, they have voluntarily subjected themselves to the English system of remedies. In my judgment, it is at the very least well arguable, and if necessary I would hold, that this includes the ‘qualified trusteeship’ that applies as the corollary in such a case to the availability of specific performance, unless that gave rise to a situation that was directly contrary to the lex situs in the sense of interfering with the operation of the local law.’
And: ‘I do not consider that the reasoning in Lightning is confined to the particular case of a resulting trust. On the contrary, it seems to me of general application. And the observation made by Millett LJ resonates in the present case, since three of the 20 companies of which Midland sold its shareholding were Guernsey or Irish companies, for which as I apprehend the lex situs recognises a beneficial interest. As it happens, those companies are of negligible value, but that obviously cannot affect the principle. If Midland’s analysis were correct, the English court would find that Luxe had acquired as against Midland a beneficial interest in those shares but not in the shares of the other companies incorporated under a different system of law, and that it would thus have a very limited proprietary claim.
Moreover, it is accepted by Luxe that any beneficial interest in the shares sold to Troika was destroyed or terminated by that sale. Its claim is to the proceeds in Midland’s hands. Thus no interference with property transfers under Ukrainian (or Russian) law is involved. There is no reason why equity, acting on the conscience of Midland as a proper defendant to English proceedings, cannot require that Midland holds those moneys for the benefit of Luxe.’
Judges:
Roth J
Citations:
[2010] EWHC 1908 (Ch)
Links:
Jurisdiction:
England and Wales
Citing:
Cited – Orr Ewing v John Orr Ewing and Co and Orr Ewing’s Trustees HL 5-Dec-1882
A contract of copartnery provided that in the event of the death of any of the partners the surviving and solvent partners who should continue the business should pay out to the representatives of the deceased the amount at his credit in the books . .
Cited – Deschamps v Miller 1908
The parties disputed land in India. A French couple, had married in France in community of property. So according to the French marriage contract the wife was supposed to be entitled to one half of the husband’s after-acquired property. The husband . .
Cited – Lake v Bayliss 1974
As to the sale of land: ‘ It is by reason of this trusteeship that the vendor who breaks his contract of sale by reselling to someone else has been held to be accountable to the first intended purchaser for the proceeds of sale.’ . .
Cited – Lightning v Lightning Electrical Contractors Ltd CA 1998
Mr K asserted beneficial ownership under a resulting trust over land in Scotland bought by an English company to which he had advanced the purchase price. Scots law, the lex situs of the land, did not recognise any equitable interest. The company . .
Cited by:
Cited – Akers and Others v Samba Financial Group SC 1-Feb-2017
Saad Investments was a Cayman Islands company in liquidation. The liquidator brought an action here, but the defendant sought a stay saying that another forum was clearly more appropriate. Shares in Saudi banks were said to be held in trust for the . .
Lists of cited by and citing cases may be incomplete.
Company, Trusts
Updated: 19 July 2022; Ref: scu.421057