The Supreme Court had to answer the question as to whether a beneficiary may dispose of his entire beneficial interest in shares (which are regarded as personal property) to the trustee owner orally.

Background:

Mr. Lyampert set up La Micro Group Inc. in California in 2001 as a trader in computer hardware. Shortly thereafter, Mr. Roman Frenkel joined him in the business. They were the sole shareholders, each holding 50% of its shares. Mr. Bell is the owner of Bstock Ltd. which also trades in computer hardware. As they traded together, they began discussing the possibility of a joint venture. In August 2004 Mr. Bell became the sole owner of the UK’s only issued share, while he and Mr. Lyampert became directors of LA Micro Group (UK) Ltd. 
Prior to 2010, each share in LA Micro Group (UK) Ltd. was held on trust for Mr. Bell as to 49% and for La Micro Group Inc. for the remaining 51%. However, in 2010 Mr. Lyampert and Mr. Frenkel fell out. They reached a new binding arrangement on La Micro Group Inc. under Mr. Bell and Mr. Lyampert. According to the new agreement, part of the profits of the UK company would be split equally between Mr. Bell and Mr. Lyampert, while Mr. Lyampert agreed to take on La Micro Group Inc.'s debt in the UK company. Mr. Frenkel then claimed that he was owed, via La Micro Group Inc., a share of the profit of LA Micro Group (UK). 

The litigation concerned whether La Micro Group Inc. had indeed ceased to be the beneficial owner of 51% of the UK company which was incorporated in 2015. The High Court agreed with Mr. Bell and Micro Group (UK) that, following Mr. Frenkel's 2010 statement that he did not want to have anything to do with the UK company, he had no right to it. Mr. Frenkel successfully appealed that decision on legal grounds but the Court ruled that La Micro Group Inc. had contractually given up its beneficial interest, despite the lack of a signed written document, and the transaction fell within the exception provided by Section 53(2) of the Law of Property Act (LPA) 1925. La Micro Group Inc. and Mr. Frenkel appealed to the Supreme Court. 

Decision: 

The Supreme Court unanimously dismissed the appeal, upholding the Court of Appeal’s decision. The Supreme Court ruled that the failure to comply with the requirement for signed writing under Section 53(1)(c) of the LPA 1925 did not prevent the 2010 agreement from taking effect. The reason is that Section 53(2) of the LPA 1925 states that the requirement for signed writing does not affect the operation of a constructive trust. In the present case, the 2010 agreement gave rise to a purchaser-vendor constructive trust and so the case fell within the Section 52(3) exception. Indeed, the shares had the necessary quality of uniqueness, and the oral agreement had been supported by valuable consideration so that it was specifically enforceable. Moreover, the fact that the constructive trust had only a momentary existence before the beneficial interest merged with the legal interest was not considered sufficient to change the ruling. 

Implications:

This judgement makes it clear that an agreement to transfer the beneficial interest in private company shares to the legal owner of those shares does not need to be in writing and signed by those making the disposal. The case settles the debate as to whether Section 53(1)(c) applies to shares and personal property. It also clarified that a constructive trust can be momentary before the beneficial interest merges with the legal interest and that it can operate to surrender or release a beneficiary’s interest in personality in favour of a trustee.