Montalto v Popat and Others [2016] EWHC 801 (Ch)

This case is a cautionary tale of the ‘cost and heartache’ (para [139]) that can follow the break-up of a couple who are neither married nor in a civil partnership but who together own businesses and property (including in this case tanning shops, pot-plants, towels, clothing, Ikea chairs and a Mercedes!).

Interpose between the parties and their properties a trust and some companies and matters are still further complicated.  And then imagine that the registers of members of those companies, although not quite ‘lost in a skip’, as in Re Data Express Limited (The Times, 27 April 1987), are nonetheless nowhere to be found, the official records at Companies House not being in accord with the reality as to share ownership.  What a pickle.

But surely there’s nothing that standard – or indeed specific – disclosure can’t flush out in the form of contemporaneous documents and the all-important bank statements?

And memories won’t be too rusty after twenty-plus years, will they?

As Waite J observed in H v M (Beneficial Interest) [1992] 1 FLR 229, at 242:

‘the tenderest exchanges of a common law courtship may assume an unforeseen significance many years later when they are brought under equity’s microscope and subjected to an analysis under which many thousands of pounds of value may be liable to turn on fine questions as to whether the relevant words were spoken in earnest or in dalliance and with or without representational intent.’

Coleridge J in G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam), [2002]  2 FLR 1143, at para [49] made analogous remarks as to the kinds of ‘contribution’ arguments that had continued to bedevil matrimonial finance cases post White v White [2000] UKHL 54:

‘the parties are not assisted to achieve compromise when they are encouraged by the law to indulge in a detailed and lengthy retrospective involving a general rummage through the attic of their marriage to discover relics from the past to enhance their role or diminish their spouse’s.’

Sadly, Montalto v Popat and Others was beset with the kinds of evidential difficulties set out above. 

Although the primary evidence was from the couple, Mr Montalto (‘C’) and Mr Popat (‘D’), ‘the contemporaneous documentation’ was ‘obviously the starting point’ ‘given the lapse of time’ (para [14]).  However it lacked detail of various payments and of company records.  D had tried and failed to obtain bank statements for his main bank account during the relevant period, and documents were missing on both sides.

The court was assisted by the evidence of two of the parties’ mutual friends, by C’s sister, and by three of the staff from the tanning franchises operated by D.

The court had been about to deliver judgment in December 2015, when still more documentation in the form of bank statements was served by C on D (para [11]).  Although insisting on a formal application, the court allowed the statements to be admitted as evidence, permitted further witness statements dealing with their content, and allocated additional court time for any cross-examination arising therefrom: to do otherwise in this case would have been ‘an affront to common sense and to any sense of justice’ (para [13]).

The parties’ relationship

C, now aged 53, had built a successful career in banking (para [21]).  D, aged 47, had worked in property and fashion.  D was a beneficiary of a Guernsey discretionary family trust, and there was a dispute as to the extent to which an array of tanning franchises had been purchased with monies originating from the trust.

The 15-year ‘long-standing and loving same-sex, co-habiting relationship’ (para [1]) endured from the summer of 1993 to the start of 2009. The parties had exchanged commitment rings in 1994, and both parties described their relationship as ‘akin to a marriage’ (para [2]).

The dispute

In a judgment running to c. 27,000 words, Davis-White QC, sitting as a DHCJ was required to determine the following headline points:

1. the ownership of two companies Vinjcap Limited (‘Vinjcap’) and Leisure Inc Limited (‘Leisure’), both of which held franchises of tanning shops and other weight loss / beauty businesses;

2. the beneficial interest in a tanning shop in Notting Hill owned solely by D;

3. the parties’ respective beneficial interests in a property in Green Street, W1 (‘Green Street’), legal title to which was held (as bare trustee) by a company, De La Croix Limited (‘De La Croix’), in which both parties had shares, those of C having been the subject of some purported changes by D;

4. an application to rectify and recreate the register of members of De La Croix;

5. whether a gift by D to C of a share of a Mercedes car was void or incomplete such that it was revocable and had been revoked.

In broad terms, C’s case was that the parties had entered into the business of running tanning shops ‘jointly’ and that Vinjcap and Leisure were ‘in effect, quasi-partnerships run through companies in which they had, or were to have an equal equity share’ (para [31]).  D, however, asserted that the whole idea had been his alone, and that C had simply helped out gratuitously, out of affection and as his life-partner, not as a business partner.

In pre-proceedings correspondence there had appeared to be still further issues – the ownership of a flat at Mandeville Place, Marylebone in C’s sole name, and the beneficial interests in a co-owned property in Sheldon Square, Paddington.  The former issue fell by the wayside when the Defence was served, and the latter was conceded (as equal) by D mid-cross-examination of C.

The judgment of the court and its relevance

This short article cannot possibly hope to do justice to the nuances of the court’s reasoning, and the case, of course, turns largely on its own peculiar facts. 

The findings are summarised in the penultimate paragraph, para [138], the court essentially preferring the evidence of C over that of D, finding that the properties and the companies were owned equally, save for the Notting Hill tanning shop and the Mercedes, which were owned by D and C respectively.  The court also resolved the issues with the company shares, finding that none of D’s purported share transfers were effective.

Resulting trust or constructive trust?

At para [105] the court stated that, ‘The issues of ownership of the shares in Vinjcap and the flat at Green Street turns on the application of the law relating to constructive trusts. So far as Vinjcap is concerned, proprietary estoppel is also in issue.’

Nonetheless, D’s case was that a resulting trust analysis would be more appropriate, asserting on that basis that he had a 59% interest.  Green Street had been acquired as a family home, but had not been used as such.  However, ‘There [was] no relevant written record or declaration of trust nor any written record or declaration of the size of the beneficial shares in the property’ (para [61]).

As the court had re-stated in Jones v Kernott at para [53], the ‘resulting trust’ method of analysing beneficial interests in property was not applicable to a family home.  It had been adopted in relation to an investment property in Laskar  v Laskar [2008] EWCA Civ 347, [2008] 2 FLR 589 but rejected in a case involving co-ownership of a property between two male friends in Gallarotti v Sebastianelli [2012] EWCA Civ 865, [2012]  2 FLR 1231.

The burden of proof lay on the person seeking to establish that the beneficial interests differed from the legal interests in property (see Jones v  Kernott [2011] UKSC 53, [2012] 1 FLR 45, at para [52]).

Green Street being legally owned by a company (as bare trustee) in which each of the parties had one share was, said the judge, ‘(a) the equivalent of legal title being held in joint names; but (b) with the difference that there being separate shares in the company held[,] rather than jointly held shares, the appropriate starting inference is that the beneficial interests in the property were to be held as tenants in common in equal shares rather than joint tenants’ (para [125]). However, it is submitted that the shareholding in the company and the underlying apportionment of beneficial interests in the trust asset held by the company as bare trustee, are two separate, not necessarily related matters, and so the court short-circuited this issue.  Furthermore, the company was not a party to the proceedings, which was also somewhat unusual.

Nonetheless, the court found a common intention to share equally, and would have inferred the same were that to be incorrect.  The ‘starting point’ was irrelevant, but for completeness it was that applicable in Jones v Kernott for cohabitation cases, as Green Street was acquired as a family home, but also ‘but just as in Gallarotti v Sebastianelli, this case is closer to the cohabitation type of case, given the relationship between the parties and how they had dealt with the earlier “investments” rather than the “commercial” case where [a] resulting trust is the appropriate starting point’ (para [125]).

Proprietary estoppel?

The promise which C relied upon was that a ‘50% shareholding would be transferred to [C] if and when the company had reached a position of immediate stability after the immediate set up period.’ (para [111]).  The court accepted that C had acted to his detriment in providing his own flat as security for a business loan, and had made a ‘significant financial contribution’ (para [115]).  Furthermore he had left 50% of the business in his will in 2010 (in fact to D!) and clearly therefore thought he owned half.  C had been referred to by D as his business partner to third parties and C stated that D had referred to the shops as ‘our babies’ (para [113]).  The court accepted C’s evidence and was unimpressed with D ‘reinterpreting’ the past (para [113]).

The judgment is helpful as a reminder of some other matters.

The passage of time: over-reliance on a party’s own recollection

There is the considerable litigation risk of going into a trial with holes in documentary evidence, and a heavy reliance on the credibility of each party as a witness to matters dating back up to 23 years, particularly when emotions are running high. 

D was consistently criticised by the court for ‘making up evidence as he went along and trying to justify the unjustifiable’ para [98] (see also paras [25], [26], [31], [63]).

For example, the court took a dim view of D’s claim that he knew ‘very little’ about his family trust, or about a major trust asset, ‘Park’, and D changed his position significantly in cross-examination as to both, indicating that far more was known than stated in pre-action correspondence or his witness statement (paras [25]–[26]). D had referred in c. 1995 to ‘our company’ and solicitors acting on ‘our behalf’, and had unsuccessfully attempted to persuade the court that this was not a reference to C (para [31]).  Steps taken by D purporting to alter the share ownership of both De La Croix and Leisure did not impress the court.  D’s assertion late on, at trial, that his uncle was actually the source of much of the wealth in the case was also rejected.

However, C was a ‘truthful witness’ and ‘[a]lthough on points of detail, cross-examination threw up inevitable inaccuracies, in substance C’s evidence was not, in my view, fundamentally undermined. Furthermore, he was very ready to accept that he may have got points of detail, especially dates, wrong but stuck closely to the substance of his case’ (para [15]).

Given the concessions at trial, the information ultimately facing the court would have been difficult for either party’s lawyers to predict at the outset.

Reliance upon third party evidence

It is all very well for a client to state that they can get any number of witnesses to support their version of events, but:

1. Preparing witness statements takes time and costs money;

2. Each witness hoovers up court time;

3. When all is said and done, the court may still describe the third party evidence, as it did here variously, not necessarily as untruthful, but as unhelpful, irrelevant or ‘of limited assistance’ (para [20]).

All that money spent obtaining the additional evidence may have simply served to decrease prospects of success and increase costs!

Unforeseen costs

It seems somewhat unlikely that anyone in their costs budgets had allowed for the service of further bank statements following the closing of evidence, the making of further applications, the preparation of additional witness statements and the further instruction of counsel at the reconvened hearing in March 2016, with all of the associated additional paperwork and legal argument.

The hopes of any party expecting finality at a trial may always still be dashed.  That is after the raft of case management hearings at each of which perhaps the client thought the case was going to be finally resolved.  Expectation management is the key in litigation, as are realistic, frequent warnings as to ever-increasing costs of the litigation

‘Killer points’ as to credibility – the drawing of adverse inferences

Each party’s position was that the inadequacy of the other’s disclosure ‘should be held against them’, as ‘they were trying to hide the true position’ (para [74]).

These arguments failed: ‘each party tried to obtain relevant information. They may or may not have done so with the vigour and audit trail of paper that would look ideal in a court … but, having heard all the evidence, I do not consider that either was trying to hide, or avoid obtaining, financial records from the banks because they thought such records would be unhelpful’ (para [75]).

The effect of fragmentary documentary evidence

Each party had attempted a detailed analysis of its contributions to the purchase price of the Green Street property.  Any declaration of trust could not be found (para [61]). There were errors in the completion statement (para [64]), and C and D remained at loggerheads as to whether and from what resource C had contributed what he alleged was £120,000 to the purchase price.

The arguments occupied significant court time and 20 paragraphs of the judgment (paras [64]–[84]).

However, the lack of documentary evidence did not prevent the court from making a positive finding of contribution solely on the basis of (clearly partisan) witness evidence: ‘what tells most with me is that Mr Montalto has consistently said that he contributed some £120,000 to the Green Street acquisition’ (para [80]).

Scope-creep in witness statements

The temptation when preparing a further witness statement after cross-examination – even where the subject matter has been carefully delimited by the court – is to expand upon, explain, embellish or confirm evidence given in the witness box.  The approach of the court here was strict: C’s evidence, in so far as it strayed from discussing the disclosure of the late bank statements was not taken into account. 

The moral is, of course, to ensure that costs are kept down by sticking to the court’s instructions!

The general inferences drawn as to common ownership of the businesses

D had relied upon the fact that Leisure had been deliberately set up with equal shareholdings as indicative of there being no common intention to divide the shareholding in Vinjcap equally: any such intention would have eventuated. 

The court, however, disagreed: ‘The fact that the Leisure business was operated on a 50:50 ownership split in my view strengthens the likelihood that Vinjcap was similarly to be owned … there was nothing odd in the two men setting up in business together with equal ownership interests’ (para [114]).  The only reason for there being two companies as opposed to one was to insulate some of the franchises from the risks of any insolvency of the business holding the other franchises (paras [48], [114]).

This analysis demonstrates the court, perhaps controversially, assuming that because a particular business was owned equally then a second business (albeit carrying on near-identical activity) was likely also owned equally.  The court also drew assistance from the apportionment of the shareholding of De La Croix as to the ownership of beneficial interests in Green Street.

The repayment of the mortgage by Mr Popat – a change of beneficial  interests

Mr Popat wanted credit for repaying the mortgage on Green Street early.  The court considered dicta in Jones  v Kernott concerning ‘the heavy burden of showing that a changed common intention has come about post acquisition’ but also that ‘context is all’ (para [127]). The mortgage had always been a joint liability of the parties.  Therefore, the court was of the view that ‘the ownership interests remained the same but that [D] is entitled to be re-paid by [C] for half of the sums he paid on clearing the mortgage (and, subject to further representations, interest thereon)’ (para [127]).  This was also consistent with a pre-litigation offer made by D.

The approach here is of course in stark contrast with that in Barnes v  Phillips [2015] EWCA Civ 1056, [2016]  Fam Law 1470 where ‘the appellant failed to contribute towards the mortgage repayments for a period of six years up to trial. In these circumstances it was clearly necessary to vary the intention to be imputed to the parties as to their respective interests in the property. The further adjustment of 10% in the respondent's favour was entirely justified’ (para [37], emphasis added, see also para [18]).

The shares: purporting to alter someone else’s shareholding

Even where the documentation was fragmentary, as here, the court was nonetheless able to deduce that D had acted unlawfully in recording purported changes at Companies House with respect to the shareholding of Leisure (para [92]) and of De La Croix (para [103]) without executing the appropriate formalities.

You cannot “give away” something that doesn’t belong to you!

The Mercedes

There is a helpful analysis of the law relating to gifts of personal property at para [133] of the judgment.  It was agreed that the car had been jointly owned and jointly possessed.  It was held on trust by the parties for themselves in unequal shares given their unequal contributions to the purchase price.  It mattered not whether the shares were equal or unequal for, in gifting his share to C, ‘the true analysis is that what was intended and effected was a transfer of legal and beneficial title to [C]’ (para [134]).  It was ‘valid and complete’ and ‘could not be revoked’ (para [137]).

What about the Ikea chair?

This had been previously directed, along with the ownership of the sheets, towels and clothing to be dealt with by a Chancery Master. Maybe we will never learn of its fate.