In Lane v Lane [2024] EWHC 2616 (Ch), the High Court found that a father and son had entered into a binding contract for their respective shareholdings to pass to the survivor on the first of their deaths.
Father and son, Alan and Mark Lane, incorporated AGM Brickwork & Stonework Limited (AGM) in September 2003, to carry on a construction business.
- For perceived tax benefits, shareholdings were arranged such that Alan and Mark each had 40 shares, and their respective wives, Pamela and Suzanne, each had 10 shares.
- Alan died on 3 November 2009.
- After his death, Alan’s 40 shares were recorded at Companies House as having been transferred to Mark at the time of Alan’s death.
- In support of this, Mark claimed that at a meeting in late September 2003 with their accountant (Mr Freeman), when AGM’s initial shareholdings were agreed upon, the four shareholders also agreed that on the death of Alan or Mark, the shareholding of the deceased would pass to the survivor of them.
- Pamela denied that such an agreement existed and asserted that the question of what should happen in the event of the death of either Alan or Mark was not raised in the 2003 meeting. She argued that she was the only person entitled to Alan’s shares under the terms of AGM’s articles of association.
- Alan’s will left his estate On trust for Pamela absolutely.
The High Court found that there was an oral agreement, as described by Mark:
- There were no contemporaneous documents and Mark, Suzanne and Pamela all had possible reasons of self-interest. The court had to form a view of where the probabilities lay.
- Mr Freeman’s evidence supported Mark’s position.
- It was inherently plausible that an agreement such as that described by Mark would have been made. AGM was established for Mark and Alan to carry on a trade and on the death of one of them, the survivor was the sole means of keeping the business going.
- The transfer of shares to Mark recorded at Companies House in 2010, happened at a time when the family relationships remained close. The parties did not fall out until 2017.
- Pamela’s solicitors wrote to AGM in January 2021 to investigate her lack of Dividend receipts. This letter set out that, at that time, Pamela believed that she had only ten shares.
The High Court concluded that the oral agreement in existence was most conveniently analysed as a contract binding both Alan and Pamela.
- The agreement involved mutual promises among the four prospective shareholders on the disposition of the shares belonging to the first to die of Alan and Mark.
- As the mutual promises were intended to have legal effect, they could be consideration for the purposes of creating a contract.
Editor’s comment
This case is a useful reminder that decisions in relation to companies and their members should be documented in writing at the time they are agreed. Here, a pre-death oral agreement, which created a contract, took precedence over the provisions of a will.
Shareholder agreements can be vital to ensure that the rights and obligations of all members are defined and documented.
Mr Freeman’s oral evidence suggested that he had recommended the parties enter into a shareholders’ agreement. The suggestion was later made again by AGM’s bank manager. In both instances, the proposal was rejected because the individuals were a close family and trusted each other.
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