Beneficial ownership is hard to prove!

Posted: 10th April 2019

Contract draftingWhen the real owner of an asset is different from its formal owner, that fact should always be recorded in writing. However, as a High Court case showed, repeated judicial warnings to that effect all too frequently fall on deaf ears.

The case concerned a former couple who were registered as equal shareholders in a company.

After the relationship ended, the man supported his mother’s claim that, regardless of the formal position, she was the true owner of the entire company, its subsidiaries and a number of residential properties that were paid for from its profits.

In dismissing the mother’s case, the Court noted the complete absence of anything in writing to support her claim to be the beneficial owner of all the assets concerned. In the absence of any documentary evidence, the Court was constrained to rely upon oral testimony and the conduct of the parties over many years in discerning what their intentions had been in respect of the company’s ownership.

The mother had agreed, as an act of maternal generosity, to allow her home to be used as the company’s premises in its early days and as security for its borrowings. However, that did not signify that she was some sort of quasi-partner in the business or that the company’s shares were held on trust for her.

The Court concluded that it had been the common intention of the former couple that the company should be owned by them on a 50/50 basis and that the formal position thus accorded with reality. The former couple were, however, directed to indemnify the mother in respect of the mortgage on her home.