Where, as in this case, the fundamental motivation for the transfer was a fear on the part of the director that he was going to be subject to a major claim against him arising out of his misappropriation of funds in a bank account in respect of which he had fiduciary obligations, the director could not of his own volition tranfer some of his shares in the company by way of a gift to his daughter and wife.  The company had not authorised the director to issue share certificates to his wife or daughter or to record them as shareholders in the company’s register of members. Accordingly, legal title had not been effectively transferred.  In effecting the gifts, the director had tried, without success, to realise an immediate and outright transfer of his beneficial interest. However, no amount of benevolent construction of those transactions could lead to a conclusion that the director was intending to declare himself a trustee in respect of  his shareholding. Moreover, the director had failed to take the necessary steps sufficient to enable his wife and daughter to obtain a transfer of the shareholding without further recourse to assistance from him. All they received were documents purporting to be new share certificates in their names which the director had created without the company’s authority. The result was that, without the director’s assistance in making available the duly completed stock transfer forms, neither his wife nor his daughter could perfect the intended gifts. Accordingly, no beneficial interest had been transferred.

This case highlights once again that people trying to put their personal assets (in this case shares) beyond the reach of creditors will come unstuck if their motivation is to defeat the interests of those creditors. Furthermore, the case also highlights the importance of company board meetings approving share transfers. A proper transfer of shares requires: (i) the transfer to be approved by the directors passing the requisite resolution (usually at a duly convened board meeting, but as an alternative, the resolution could be passed by directors’ unanimous written resolution); and (2) the directors also resolving to approve a person (normally another director or the company secretary) to deal with the mechanics of recording the transfer in the company’s statutory records, and to issue new share certificates. Furthermore, if a transferee only wishes to transfer the beneficial and not the legal title, then he or she should enter into an appropriate trust instrument, for example, a Declaration of Trust over the shares, clearly setting out who the beneficiaries are and the exact details of the shares which are the subject the trust. Otherwise, as this case highlights, going forward there could be be serious question marks over the validity of the share transfer as well as the the validity of any purported transfer of the legal and/or beneficial title to the shares.

The High Court ruled that account of profits could sometimes be claimed for breach of confidentiality, but not in this case. It all depended on the circumstances. Duties of confidentiality related to a big range of possible situations. As to whether an account of profits was available as a remedy depended on the particular type of situation and whether it would be just and equitable that the defendant should retain absolutely no profit from that particular type of situation. The nature of a duty of confidentiality could apply in the following big variety of situations:

• Akin to a fiduciary duty.
• Akin to an intellectual property right.
• Arising out of a contractual duty.
• In relation to use of private information obtained from a stranger, and therefore a situation similar to tort.

In this case, there was no fiduciary relationship or intellectual property right type situation and so an account of profits was not appropriate. The relationship was based on a contractual relationship. Therefore, damages was the appropriate remedy rather than V&P having the right to claim an account of profits.