Neutral Citation Number:  EWCA Civ 1136
Case No: B6/2014/0386
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
(MR NICHOLAS FRANCIS QC)
(SITTING AS A DEPUTY HIGH COURT JUDGE)
Royal Courts of Justice
Date: Thursday, 3 July 2014
B E F O R E:LORD JUSTICE RIMER:
LORD JUSTICE RIMER
LORD JUSTICE PATTEN
LORD JUSTICE KITCHIN
SUSAN JENNIFER SHIELD
RICHARD ARTHUR SHIELD
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Mr Christopher Wagstaffe QC and Ms Amber Sheridan (instructed by Shakespeares LLP) appeared on behalf of the Applicant
Mr Philip Cayford QC, Mr Mark Studer and Ms Lynsey Cade Davies (instructed by Payne Hicks Beach) appeared on behalf of the First Respondent, Susan Shield
The Second Respondent, Richard Shield, was not represented
J U D G M E N T
Before us is an application for permission to appeal in respect of which Ryder LJ directed that the appeal should follow immediately if permission were to be given. We have, therefore, been given the benefit of skeleton arguments from both parties, who are both represented before us each by leading and junior counsel. In the event, we found it unnecessary to call upon counsel for the respondent, since having heard from Mr Wagstaffe QC for the applicant we are satisfied that this is not a case meriting the giving of permission to appeal.
The applicant is Christopher Shield. He is the son of Richard and Susan Shield. I shall refer to the parties, with no intended disrespect, by their first names. Richard and Susan were married for 43 years but they separated in July 2012 and are now divorced. Susan issued an application for a financial order against Richard in August 2012. Included in her sights for financial relief were, or may have been, Richard's 50.22% holding in R.A. Shield Holdings Limited ("RASH"). Richard holds 15,108 A shares in RASH, Susan holds 1,660 B shares and Christopher holds 17,011 B shares. Christopher's holding represents 50.36% of RASH's ordinary shares, but since Richard's A shares have enhanced voting rights it is Richard who controls RASH in general meetings.
In light of Susan's claim for financial relief, Christopher was permitted to intervene in the proceedings, and in March 2013 an issue was directed to be tried as to whether Susan's and/or Richard's shareholdings in RASH are held on trust for Christopher and, if so, on what terms. In the event, Christopher's only claim was as to Richard's shares. The issue was tried over eight days before Mr Nicholas Francis QC, sitting as a deputy High Court judge. His full and careful reserved judgment, delivered on 17 January 2014, explained his reasons why Christopher has no interest in Richard's shares in RASH. It is against that conclusion that Christopher seeks permission to appeal.
His case is that, on the judge's findings of fact, the only legitimate conclusion as a matter of legal principle is that Richard and Christopher came to a sufficiently firm agreement that Richard would bequeath his RASH shares to him by will that there was thereby constituted a common intention constructive trust, whose legal nature must be characterised as one under which Richard's shares became held by him on trust for himself for life, with remainder on his death to Christopher absolutely; alternatively, the case made was that Richard became estopped by such agreement from disposing of his RASH shares otherwise than by will to Christopher.
The factual background to the claimed arising of such trust or estoppel was the failing fortunes by the early years of this century of the long established RASH group of companies, or at any rate of the RASH engineering company, which Richard had inherited from his father. In about 2002, Christopher moved from London to Leicester to take over the running of that company, in which the shares were then held by Richard, Susan, Christopher, Jillian Graham (who was Richard's sister) and three family trusts. Christopher at that stage had only about a 0.05% holding of shares in the company.
With a view to a revival of the group's fortunes, Ross Graham (who is Jillian's husband and is an experienced businessman) conceived what was called "Project Regeneration", which ultimately resulted in a significant restructuring of the group, one which was considered between 2002 and 2005, in which latter year the restructuring was finally carried out. Mr Pridding, a chartered accountant, also became involved in the project, which had tax implications upon which Richard wanted advice. That led to tax advice being obtained from Stephen Bartlett, a former Revenue trained tax adviser, who had a company called Tax Solutions UK Limited and who also gave evidence. There was also advice from tax counsel.
The restructuring scheme that was ultimately agreed and implemented had required, and had obtained, Revenue clearance. The essence of the scheme required there to be a new holding company, RASH, in which the shareholdings became as I have earlier described, and the tax benefit was that, provided Richard retained control of the business until his death (which he would by the weighted voting rights that his shareholding enjoyed), his shares would attract business property relief for the purposes of the inheritance tax which would then be payable, and there would also be an uplift from Richard's acquisition cost in the base value of his RASH shares for capital gains tax purposes.
What is clear is that at the time of the restructuring, Christopher declared an intention to leave his RASH shares to Christopher by will, as did Susan, and in due course they both made testamentary provisions that would, on their respective deaths, do just that. Importantly, however, tax counsel had advised in December 2004 that:
"… although the Revenue are aware for the purposes of the clearance application that the shares held by Mrs Graham are to be transferred by way of gift to Chris, this is a matter of intention not agreement, along with the other proposed courses of action mentioned in the clearance letter such as the proposed appointment to Chris from the R A Shield Settlement and the proposed bequest by Richard and Susan to Chris of the Shield shares and to their daughters of the Shield loan notes and so on."
The essence of that advice was that it was an essential part of the restructuring, and of the achieving of its intended tax benefits, that Richard should in his lifetime remain the beneficial owner of his RASH shares and should not commit himself to any disposal of them to Christopher, although there was no reason why he could not form a revocable intention to bequeath the shares to Christopher. The judge found, at paragraph 76 of his judgment, that Richard would not have wanted to do anything inconsistent with his wish to avoid the tax that the restructuring was intended to achieve. It is against this background that Christopher asserts there was nevertheless a common intention evinced by Richard and himself that he should have Richard's shares on the latter's death, and that he, Christopher, changed his position to his detriment in reliance on such expressed intention in a way that gave rise either to a common intention constructive trust or an estoppel of the types I have described.
The bulk of Mr Wagstaffe's written submissions for the purposes of the application for permission to appeal were directed to the question of detriment said to have been suffered by Christopher. They appeared to the court to take as a given that there was a sufficient promise, or representation, from Richard that was capable of giving rise to such a trust or an estoppel and did so. The problem with that, however, is that it is plain that the judge found as a fact that there was no such promise or representation. The judge made that unambiguously clear in various paragraphs of his judgment. Thus he said as follows:
"81. … In my judgment, there was an agreement to which the Husband, the Wife and Christopher were all party; that Christopher would take over the running of the company, that he would receive half of the value of the company now and that it was anticipated that he would receive his parents' shares by their Wills in due course. What is also clear is that they absolutely did not reach any express and binding agreement regarding the receipt of shares by Will, for the clear advice from Mr Bartlett and tax counsel was that they should not reach such an agreement. They could not say one thing to the Revenue and another thing to each other. It is clear that the beneficial interest in the Husband's shares remained with the Husband. …
82. ... I am quite satisfied that what matters is what the parties agreed, and I have already found that there was no express agreement that Christopher would receive the shares on his parents' death. Indeed, on the advice of Mr Bartlett and tax counsel, they agreed that they had an understanding that fell short of an agreement. If there were any doubt at all about this, and I were required to imply the terms of their agreement, I would without doubt imply the terms that were advised and intended by Mr Bartlett, namely that there is to be no binding agreement about the transfer of the shares. I have no doubt at all that Mr Bartlett intended that the beneficial interest in the shares remain with the Husband....
89. It is clear to me, however, that the Husband and Christopher cannot have it both ways. Either, as I have found, they accepted and acted upon the tax advice that they received, and did not reach any binding agreement about the Husband's shares, or they reached an agreement, which they did not disclose to the Inland Revenue. When I say that 'they did not reach any binding agreement', it is not simply that there was no concluded agreement, and I accept that there are of course circumstances where equity will intervene to give effect to an incomplete agreement. Here, in fact, I have found that they expressly agreed not to agree, for this is what they were advised to do. I am quite sure that, had anyone at the time asked them as to the terms of their agreement if they were in any way unclear, they would have said that they were acting just as Mr Bartlett had advised. …
90. ... I accept that the parties believed, as is probably the case, that if the Husband left his shares by Will to Christopher they would qualify for business property relief which would offset the otherwise payable Inheritance Tax. That is not the same as saying that the Husband was bound to leave them to Christopher, or that he could not have sold, charged or otherwise dealt with them during his lifetime. The moment it is accepted, as I do, that the Husband was free to deal with the shares during his lifetime, or that they are available to creditors during his lifetime, then the case as to constructive trust and proprietary estoppel falls away.
91. Mr Wagstaffe seeks to answer the point by arguing that the trust asserted by Christopher and acknowledged by the Husband is that the shares in RASH belong beneficially to the Husband during his lifetime but pass, under the trust, to Christopher on the Husband's death (and not before). He argues that the constructive trust, unlike proprietary estoppel, connotes an equitable interest which arises at the point of creation, the interest is an interest in remainder and exists subject to the Husband's prior life interest ... This does not, however, remove the difficulty that in this case the agreement was to do all that could legally be done to avoid tax, and that included not making any binding agreement about leaving the shares by Will. Mr Wagstaffe opened his case thus: 'This case concerns a relatively straightforward issue of fact. Either there was an agreement, which equity gives effect to, or we don't get there.' I agree with him. In spite of the days of legal argument that I have heard and the files of case law that I have read, it comes down to the issue of fact as Mr Wagstaffe told me from the outset, and for the reasons that I have given, Mr Wagstaffe has failed to get home on this issue of fact."
I note that at least three times in those passages the judge referred to the fact that Richard and Christopher had not reached any "binding" agreement that the former would bequeath Christopher his RASH shares. That might on the face of it suggest that he had in mind that Richard and Christopher never entered into any legally enforceable contract for the bequest of the shares. If so, it might be said that he did not deal also with whether there was nevertheless at least a non contractual commitment or agreement for the bequest of the shares that would in principle (subject to the question of detrimental reliance) be capable of giving rise to the creation of the type of common intention constructive trust or estoppel that Christopher asserts.
I regard it, however, as clear (and the contrary was not suggested to us) that when the judge used the word "binding" he did not have in mind that no legally enforceable contract and bequest of the shares had been precluded. It was obvious that there was no such contract and nor had the contrary been asserted. It is, in my view, clear from what the judge said at paragraph 89 that he recognised that the claimed equity or estoppel could arise from an agreement falling short of a concluded contract, and it is, I consider, also clear that what the judge was consistently saying in the paragraphs I have quoted was simply that Richard and Christopher had made no mutual commitment between them that Christopher could rely on the making by his father of a bequest of the shares. There was no doubt that it was Richard's intention to make such a bequest, but, the judge found, as between father and son the matter went no further than that. In particular, Christopher was not allowed to rely on that intention being carried out. Richard was free to depart from it, and were he to do so there would be no question of equity regarding it as unconscionable for him to do so.
The judge's findings of fact were, therefore, as it seemed to the court when Mr Wagstaffe opened his permission application, fatal to the giving of the permission to appeal that Christopher was asking for. Christopher's claim had been squarely ruled out on the facts, and the grounds of appeal did not seek to challenge the facts; nor did Christopher's skeleton arguments. When the court put these difficulties to Mr Wagstaffe at the opening of his application, he sought to advance submissions to the effect that the judge had been wrong to make the findings that he did and that he ought to have found that Richard and Christopher did enter into the claimed commitment. That was a bid to mount a wholesale attack on the judge's findings of fact for which the skeleton arguments had provided no trailer, and it appeared to us that this was likely to take Susan's counsel unfairly by surprise. Whilst their skeleton argument had predictably pressed home that Christopher's grounds of appeal were doomed to failure by reason of the judge's findings of fact, they were not directed at dealing with an unadvertised challenge to those findings.
We invited Mr Wagstaffe to formulate an amendment to his grounds of appeal, which he did by a new ground asserting that a commitment was made in July 2003 between Richard and Christopher under which Richard was to leave his shares in RASH to Christopher, an agreement that was said to be binding in equity. Mr Cayford QC submitted, when opposing the amendment, that that was to advance a case that was not made below. As it appears to me, that submission is correct. My reading of paragraph 10 of Christopher's points of claim in the context of its internal chronology is that it was alleging that the relevant commitment was made in 2005 when the restructuring was effected. We were also shown paragraph 58 of Christopher's closing submissions to the judge, which I shall quote:
"It is worth pointing out that the initial intention was not simply that [Christopher] would not share the growth (if any) which he achieved with his sisters, he would not share it with anyone ... This latter reference, part of [Emma's] statement [she is Christopher's wife], is particularly important as it demonstrates that by 30 April 2003 at the latest the initial intention that current interests would be crystallised and all growth (including any income derived from any enhanced value) had by that stage evolved into the scheme which was finally implemented in 2005, namely that [Richard] would hold half the shares in RASH for himself during his life, but these would pass to [Christopher] on his death."
The suggestion there that there was ever an arrangement under which Richard agreed to hold his shares upon trust for himself for life, with remainder to Christopher absolutely, is probably nonsense. It is, I infer, simply a lawyer's inaccurate construction of the possible legal effect of an alleged commitment by Richard to bequeath his shares to Christopher. But the more significant matter to emerge from the paragraph is that it is in line with Christopher's points of claim and shows that his case was that it was only in 2005 that there was made the alleged arrangement under which Richard committed himself to leaving his shares to Christopher. That was a commitment that the judge found as a fact was not made. The amendment appears, therefore, to be directed at making a new factual case that was not deployed before the judge. Indeed, I understood Mr Wagstaffe to accept that. What is sought under the amendment is therefore the making of a new factual investigation of matters and arguments not advanced to the judge. The heart of the point Mr Wagstaffe appeared keen to make was that the key commitment was made in 2003, whereas the tax advice as to the importance of there being no such commitment only came later, in 2004. Mr Wagstaffe also appeared anxious to advance a case that Christopher did not even know about the tax advice. If any such case had been deployed before the judge, he would have dealt with it, but his judgment makes no reference to such a case. His judgment was manifestly comprehensive and painstaking, and had such a case been advanced he would not have omitted to deal with it. That confirms to me that the line that Mr Wagstaffe now wished to deploy before us is a new one. 
In my view, it is far too late for Christopher to seek to reshape his case on the facts in this way. The amendment seeks to make a materially new case. There is no justification for that, and that is why we indicated this morning to Mr Wagstaffe that we proposed to refuse permission to make the amendment. 
For the reasons I have given there is in consequence, in my judgment, nothing left in Christopher's proposed appeal. The judge found against him on the key factual issue that was before him and an appeal against his order would therefore have no prospect of success. I would, therefore, refuse the permission to amend that was sought and also refuse permission to appeal. LORD JUSTICE PATTEN:
I agree with my Lord that permission to appeal should be refused for the reasons which he has given, but I add only this: that I am far from satisfied that, even on the grounds of appeal put forward by Mr Wagstaffe QC on behalf of Christopher, the appeal would have had any real prospect of success. The difficulty which I see about the case based on a common intention constructive trust and on some form of equitable estoppel is that an agreement by Richard to leave his son the shares by will, even had the judge accepted that such an agreement existed, does not obviously create an immediate binding trust, whether of a constructive or an express kind, because the terms of the promise are, on their face, inconsistent with the creation of an immediate equitable interest in Christopher’s favour.
For an equity based on a claim of estoppel to arise, not only must there be a representation, promise or agreement of the kind which my Lord has indicated, but it has to be demonstrated to the court that the person who made that promise or representation has failed to keep it. In the present case, Richard was still alive at the date of the trial and it could not therefore be said that his promise or agreement, if it existed, to leave the shares to Christopher in his will had not been kept. If that is right then no equity had arisen in favour of Christopher sufficient to bar his mother's claim for ancillary relief. 
For those reasons, I agree that the application should be dismissed.
LORD JUSTICE KITCHEN:
I agree with both judgments.