Bruce v Gartlan & Ors

THE JUDGE: This is an application to rectify the share register of UK Plant and Haulage Management Limited, which I shall call “Management” for short. It is now in administration but, happily, solvent. The claimant is Mr John Bruce. The defendant is Miss Anne Gartlan. Mr Bruce and Miss Gartlan cohabited for many years although they no longer do so. There are third and fourth parties: Mr Richard Wilmott, “Mr Wilmott” and Mr John Wood, “Mr Wood”. They were formerly registered as shareholders, it is said by the claimant, Mr Bruce, as nominees for him. Miss Gartlan claims to have reached an agreement with each of them to buy the shares formerly registered in their names on two separate occasions, one from Mr Wilmott in October 2001 and one from Mr Wood in April 2006

The share register has not been produced in evidence but it is a matter of agreement what it says. It is accepted that there are now 100 issued shares according to the register, of which 90 are in the name of Miss Gartlan, and another 10 are in the name of her son, who is also a defendant, Martin Hartill. Mr Hartill is also close to Mr Bruce or has been in the past because Mr Bruce has brought him up as if he were his own son.

The factual background is that Management was incorporated at the same time as another company, UK Plant and Haulage Services Limited, called “Services” for short, to take over the business formerly carried on by Ivory Plant Hire Limited which went into liquidation in March 2001. I shall call that company “Ivory Plant”. Ivory Plant has one shareholder, Miss Gartlan. It was incorporated in May 1996. Between 1997 and 2000 Mr Bruce was bankrupt but he was discharged in 2000 before Management or Services had life breathed into them. Although the shareholder of Ivory Plant was Miss Gartlan, the business was run as Mr Bruce’s. She herself so describes that position in her second witness statement in these proceedings. He seems to have been the true proprietor of the business and was regarded by everyone, as far as I have been able to glean from the evidence, as such.

Mr Bruce has from time to time brought his experience to bear in relation to the affairs of a number of companies but I have not been shown one instance where he has ever in his own name taken any shareholding. Latterly, that may not be especially surprising because for the last eight or nine years he has been disqualified as a director and has therefore had a reason to distance himself from the companies. Being disqualified as a director does not of course preclude an individual from having a shareholding, but one can see the need for distance. His distancing has not been particularly successful because he has been disqualified more than once. The same applies to Miss Gartlan, who was disqualified with Mr Bruce at the same time and has subsequently been disqualified for a further period of nine years for amongst others things being involved in the management of a company whilst disqualified.

That background is an unpromising start for each of Mr Bruce and Miss Gartlan when it comes to considering questions of credit. They also both have a criminal conviction in relation to waste activities. Mr Bruce indeed has had a period of imprisonment because of his criminal waste activities.

It is said by Mr Bruce, Mr Wilmott and Mr Wood that, upon incorporation, the two shares in Management were allotted to them as nominees for Mr Bruce. Ordinarily, faced with evidence from three people with no-one around who can contradict it directly, that would be more or less conclusive. However, the conclusion is challenged in this case because Miss Gartlan claims to have purchased those shares from Mr Wilmott and Mr Wood as beneficial owners.

At the time Management and Services were set up Miss Gartlan was not involved because she was not then working in the businesses (though she came to be involved later) because she had regrettably suffered miscarriages. From the evidence I have heard it is clear that the companies were established upon the instructions of Mr Bruce. Both Mr Wilmott and Mr Wood agreed that they had the shares put in their names on Mr Bruce’s behalf at his request. I accept their evidence in this respect. I find that they each became nominees for Mr Bruce.

Mr Wilmott was a quantity surveyor who had previously been employed by Mr Bruce in Ivory Plant. He was regarded by all as Mr Bruce’s right-hand man but he was not his superior. Mr Bruce was seen as the boss and in my judgment there is compelling evidence that Mr Wilmott became a shareholder for Mr Bruce.

The same applies with greater strength in the case of Mr Wood. He had a part-time role in Management which involved him attending the business premises six or seven times a year, although he also had an associate working on the administrative side of the business. He was an accountant with no formal qualifications. I can see no reason for anyone treating Mr Wood as having acquired shares on his own behalf. It may be that those not intimately involved in the day-to-day affairs of the company would come to think that Mr Wilmott, because of his heavy involvement in the business, was a proprietor. Indeed, Mr Wood seems to have reached that view himself, but no-one with any real knowledge of the background and history of the relationship between Mr Wilmott and Mr Bruce, which is that of Mr Bruce as employer and Mr Wilmott as employee, albeit an employee at the right-hand of Mr Bruce, would see Mr Wilmott as anything other than Mr Bruce’s nominee. In any event, that is how Mw Wilmott saw the matter, and I accept his evidence on the point.

Although Miss Gartlan was not involved in the business at this early stage, she was cohabiting with Mr Bruce, and I have no doubt that she would have known the basis upon which this company had been set up, just as she must in my judgment have seen herself as a nominee for Mr Bruce in relation to Ivory Plant. I should say that in her second witness statement she describes Services, which was the sister company of Management, as Mr Bruce’s company. It seems to me that that is a wholly accurate statement which applied as much to Management as it did to Services. Services and Management were set up alongside each other, as I have said, to succeed to the business of Ivory Plant, which went into liquidation after a decent interval.

Services engaged with the outside world, Management simply acquired the assets including many of the assets formerly held by Ivory Plant, but did not carry on business with the outside world, at least initially. It carried on business with Services alone. Services’ business was plant hire and it also undertook some ground works of its own. It was fed by Management, whose assets it employed, but the risk of incurring liabilities to outside customers and the general trading risk was Services’. That is not to say that Management did not have liabilities. It had substantial liabilities because it entered into a number of novation agreements with finance companies and Ivory Plant to acquire much of, if not all of, the asset base of Ivory Plant.

The two companies, Management and Services were set up upon the instructions, as I have said, of Mr Bruce. The actual donkey work seems to have been undertaken by a Mr Crocker who became the company secretary of Services. No-one suggested that Mr Crocker was doing this for himself; he was doing this upon the instructions of Mr Bruce. There have been a number of different directors of Management from time to time until Miss Gartlan became a director in late 2007. It appears from the evidence I heard from Mr Bruce that the persons chosen as directors were all different employees of the business, and were chosen by him. That is typical of the sort of decision that a proprietor of a business will make and is consistent with his beneficial ownership of the shares.

In 2001, Mr Wilmott set up a separate business of his own with a partner in the same field and decided to leave Management. There had also been threatened insolvency proceedings arising out of a statutory demand which Miss Gartlan had sorted out, which, it is said, discomfited Mr Wilmott. Miss Gartlan claims that when Mr Wilmott left he agreed to transfer his shares to her. Mr Wilmott denies this and I reject Miss Gartlan’s claim. I do not think that there was such an agreement. It is not recorded anywhere. It is nebulously explained both on the pleadings and in the evidence. It is said by Miss Gartlan that she was to take on functions over and above her normal duties (she was a bookkeeper in the businesses by then) being the functions previously carried on by Mr Wilmott. In her witness statement the impression given was that this consisted mainly, if not wholly, of dealing with the troublesome threatened insolvency proceedings. Yet, the evidence suggested to me that she had sorted that out before Mr Wilmott left.

Be that as it may, in her oral evidence she put the matter more widely. Mr Wilmott was the director. He had dealings with the bank and with matters such as VAT returns. He had dealt with all the novation of contracts. She would take on responsibility for that sort of thing. In fact, Mr Wilmott’s position by the time of his leaving was mainly as a quantity surveyor engaged in (unsurprisingly) quantity surveying work. This work was done for Services. Miss Gartlan did not take that over, nor did she pretend to. She says, as that was all done for Services, that everything else which Mr Wilmott was doing, which was for Management, was something that she took responsibility for. However, I find that Mr Wilmott was doing very little else for Management, and that the burden which Miss Gartlan claims to have taken one was no real burden at all.

The version of events put forward by her was inprobable, especially as I find that Mr Wilmott was telling me the truth when he said he acquired his share as a nominee for Mr Bruce. Mr Wilmott struck me as a sincere and careful witness. Miss Gartlan sought to portray him as a weak individual readily manipulated by Mr Bruce, praying in aid features such as Mr Wilmott giving Mr Bruce a motorbike. In fact upon cross-examination it became clear that Mr Bruce was a relatively keen motorbike man and Mr Wilmott, who was apparently even keener, had over a number of years sold him second-hand bikes. There are other matters which amounted to no more than gossip prayed in aid by Miss Gartlan in her witness statement which have not come anywhere near to persuading me that the portrayal of Mr Wilmott as a weak man, easily pushed around by Mr Bruce, is accurate.

No share transfer was executed by Mr Wilmott at the time of his alleged agreement with Miss Gartlan, but the register came to be altered. Mr Dean for Miss Gartlan and Mr Harthill points out that the register of members was held at the premises of Management until its administration (or possibly until seized by investigating officers of HMRC) and that Mr Bruce must have looked at it and would therefore have seen any alteration to the register that occurred. Yet he did not object, which gives the lie according to Mr Dean to his suggestion that he was and remained beneficial owner throughout. It is common ground that Mr Bruce was exceptionally busily involved in the businesses. I do not however think that the nature of the business that he was conducting would have given him cause to examine the statutory books. He had no reason to suppose that Miss Gartlan had acquired the shares of Mr Wilmott for herself. He had an agreement with Mr Wilmott that the shares would be transferred to him, if he required him to do so. He never did require him to do so. What he did instead was to appoint a different director, not incidentally, at this stage, Miss Gartlan.

The alleged transfer is subsequently referred to in the documents registered at Companies House and successive annual returns put in by Mr Wood. Mr Wood’s explanation, which I accept, was that he did not himself see a share transfer but was told subsequently when he came to do the annual returns by Miss Gartlan that the shares had been transferred to her by Mr Wilmott. They had not. Subsequently, Mr Wood came to leave Management in April 2006 or thereabouts. It is said by Miss Gartlan that at that stage she agreed with Mr Wood very much what she had previously allegedly agreed with Mr Willmott.

I reject this contention also. Mr Wood denied it. Mr Wood was a witness who had a faltering memory and whose own credibility was dented when he was taken to answers which he gave in relation to proposed disqualification proceedings, which have now been brought by the Secretary of State. However, there was nothing in the answers he gave inconsistent with his present position although I do think it is clear that he distanced himself as much as he could from Mr Bruce in those answers. That does not cause me to reject his evidence when he denies the agreement that Miss Gartlan says occurred. Again, the agreement is an improbable one. By the time Mr Wood left the company, Management had been trading successfully and had built up a healthy balance sheet surplus although it seems to have had cash flow problems on a regular basis. It is inconceivable that Mr Wood, if he were the beneficial owner, would simply give away a half interest in a company of such substantial value. I interject to say that to a limited extent this was the case also when Mr Wilmott left the company, though as he left in the early days there had only been one year’s trading, and, as there were no accounts, there may not self-evidently have been a balance sheet surplus. In Mr Wood’s case, though, it was known that the company had traded successfully and it is highly unlikely that he would simply give those shares away for what in practical terms was nothing or next to nothing.

What Miss Gartlan sought to persuade me was that Mr Wood received substantial value because investigations were ongoing by the Environmental Agency. These troubled Mr Wood greatly and she helped him with information relating to those investigations, which appears to have consisted of her at least getting in touch with Mr Bruce, who was then in prison, and relaying to Mr Wood what she was in turn told by Mr Bruce. I am prepared to assume in Miss Gartlan’s favour that her assistance may have gone even further than that. What I am not prepared to conclude is that that assistance came anywhere near to encouraging Mr Wood to give away half of the company, which was not his anyway, to Miss Gartlan, for no cash consideration.

In my judgment there was no such agreement. Again, there was no share transfer either, as Miss Gartlan accepts. She says that she overlooked this and that the matter was put right subsequently when the accountants queried the point. Be that as it may, there was still no share transfer. The position therefore is that the two shares which were formally in the names of Mr Wilmott and Mr Wood were wrongly entered on the register as transferred to Miss Gartlan, despite the absence of any share transfer. The register therefore stands to be rectified at the very least by putting the names of Mr Wilmott and Mr Wood back there.

Mr Bruce is claiming that his name should be restored to the register. He does in fact have transfers from Mr Wilmott and Mr Wood and he will be entitled to be registered once those transfers have been lodged and duly considered (to the extent that they need to be) by the company now in administration.

However, Mr Bruce does not yet have a right to be registered, though he is clearly beneficially entitled to the shares in question. I am in those circumstances prepared to make a declaration as to his beneficial entitlement and to rectify the register by putting Mr Wilmott and Mr Wood back. I will come to the remaining 98 shares shortly. Miss Gartlan can have no complaint, as on my findings she did not purchase the shares, and so cannot claim the protection of a bona fide purchaser for value without notice. I consider it likely also, given her involvement in the businesses with which Mr Bruce was associated, and her relationship with Mr Bruce, that she must have known that Mr Wilmott and Mr Wood were no more than mere nominees for Mr Bruce.

I also do not consider that the act of procuring her own name to be entered on the register, in circumstances where the register stands to be rectified because of the absence of a share transfer, entitles her to claim to be one of equity’s darlings and therefore entitled to resist rectification of the register on the ground that this would defeat any underlying equity that she might have, even if she had established the agreements with Mr Wilmott and Mr Wood. The register, once rectified, as it must be in any event, because of the wrongful recording of non-existent transfers, will leave Mr Wilmott and Mr Wood as legal owners, and Mr Bruce as having an equity which is prior in time (and therefore superior) to any equity Miss Gartlan may otherwise have had. I need not in those circumstances consider the interesting question that was debated before me of whether Miss Gartlan ever became legal owner simply by being registered when there were others having a right to be registered in her place.

I now turn to consider the 98 shares which have subsequently been allotted. It is clear from the evidence that Miss Gartlan was the decision maker in this case, who decided to increase the shares in issue, and to give 10 shares to her son. Mr Hartill did not know of this at the time; he came to know much later. The shares were said to be issued on 27^th September 2007. There is a return of allotments on 17^th March 2008 referring to this date. On 27^th September 2007, the then director of the company was not Miss Gartlan but a Sarah Jane Carey, an individual associated in some way with a firm of accountants then engaged for the company. She was a director until 3^rd October when Miss Gartlan became a director in her place. I have seen no application for an allotment. In any event Miss Gartlan’s duty at that stage as regards any shares offered to her as the existing shareholder was to acquire them for Mr Bruce, as the shares registered in her name were his beneficially. It may be that strictly she should have acquired them for Mr Wood and Mr Wilmott who themselves were mere nominees for Mr Bruce, but this makes no difference. Either way, she should not have acquired them for herself. The right to subscribe for more shares belonged ultimately to Mr Bruce as beneficial owner through his nominees.

I have no evidence that Sarah Jane Carey ever turned her mind in September 2007 to this allotment. The return going in much later must have been on Miss Gartlan’s instructions as she was then the director. I am not satisfied that there ever was a valid allotment at that time. If there was it would stand to be set aside as having been procured in breach of the duties to the beneficiaries, whether they be regarded as Mr Bruce, or Mr Wood and Mr Wilmott in turn holding as nominees of Mr Bruce. Accordingly, it seems to me that the proper course is to delete that allotment as asked for in the application before me. The result is that the company has two shares and that the register will be rectified so as to restore those 2 shares into the names of Mr Wood and Mr Wilmott (one each). It may be on one view of the matter that technically they should be the claimants. However, they are before the court and they have the same representation as Mr Bruce. In those circumstances, I see no difficulty in rectifying the register in the way in which I have indicated. There will be permission to apply for any further rectification that may be necessary once the share transfers have been duly lodged. I will also make the declaration as to beneficial ownership of Mr Bruce. Mr Dean forcefully submitted that this was not a proper case for making a declaration in that form, as it was not sought, and the case is about rectification. However, Mr Zaman pointed me to the lifeline of his prayer for “further or other relief”. Even without that, I consider that the court has ample power to grant such relief in these proceedings as seems to it appropriate. The court commonly does so and I see no reason why I should not grant appropriate declarations as ancillary to the rectification of the register that I am ordering. I will now hear counsel on any further matters.