KOTAGARALAHALLI PEDDAPPAIAH NAGARAJA v MOUSSA SALEM & 2 Ors

Facts

Mr Kotagaralahalli Peddappaiah Nagaraja, an Indian businessman living in Sri Lanka, revived a project to restart the Kantale Sugar Factory, which the Government of Sri Lanka awarded to his consortium in June 2015. The project needed US$100m of investment that he could not provide. His joint venture partner, Mr Mendel Gluck, brought in Mr Moussa Salem, a UK investor. On tax advice, a Singapore company, SLI Developments Pte Ltd, was incorporated on 23 July 2015 as the investment vehicle. Its three subscriber shares were held by Ms Serene Phey Sai Lin, a nominee employee of Infinitus Law Corporation, which carried out the incorporation.

That day Ms Phey signed a trust deed declaring she held the shares for Mr Salem, Mr Gluck and Mr Nagaraja in equal shares. The parties fell out by November 2016, Mr Nagaraja was removed as a director, and 9,997 further shares were issued to Ms Phey. A later deed, backdated to 8 December 2016, declared she held all shares for Mr Salem alone. In Suit No 663 of 2020, Mr Nagaraja claimed a beneficial interest in one-third of the shares under the 2015 deed. His other claims had been struck out before trial. Mr Salem said Ms Phey held all the shares on a presumed resulting trust for him because he paid for the incorporation and the share capital. Ms Phey and the company took no active part.

Issues

1. Whether Ms Phey held the subscriber shares on a presumed resulting trust for Mr Salem.
2. Whether the 2015 trust deed gave Mr Nagaraja a beneficial interest in one subscriber share.
3. Whether Mr Nagaraja had a beneficial interest in one-third of the additional shares.
4. Whether Mr Nagaraja was estopped from claiming any interest in the shares.

Holding

Vinodh Coomaraswamy J held that Ms Phey holds all the shares on a presumed resulting trust for Mr Salem alone and dismissed Mr Nagaraja's claim. He rejected Mr Salem's alternative estoppel defence, and costs were to be heard.

Reasoning

The judge found that, despite long negotiations, the parties never reached any agreement on how Mr Nagaraja would be compensated. He was a supplicant with no bargaining power and knowingly worked on at the risk of receiving nothing.

Because nobody intended a gift to the nominee and the parties' intentions diverged, the judge began with the presumption of resulting trust. Following FanmailUK.com Ltd and others v Cooper and others, he looked at the true economic substance of the transaction. Mr Salem alone engaged the law firm through his agents, was invoiced S$8,093.46 and paid it, and that payment caused the shares to come into existence. The US$3 of capital was de minimis, though the judge also accepted that Mr Salem paid it. The presumption therefore arose in Mr Salem's favour the moment the shares existed.

Nothing rebutted it. Emails up to the afternoon of 23 July 2015 showed the company was to be wholly Mr Salem's, and Mr Nagaraja did not protest when told he would hold no shares. The judge rejected his account of reassuring phone calls. The switch to an equal three-way trust was a stop-gap so as not to alarm the Sri Lankan government, which had dealt only with Mr Nagaraja and Mr Gluck, and showed no donative intent.

The 2015 deed could not help Mr Nagaraja. A trustee without the beneficial interest can pass good title only to a bona fide purchaser for value, and he gave no value; at best the deed was an imperfect gift that equity would not perfect for a volunteer. His claim to the additional shares failed with that, and in any event Mr Salem paid for them and the pre-emption article did not apply where Ms Phey was the sole shareholder. Estoppel failed because the dealings were only negotiations and Mr Salem showed no detrimental reliance.

From the judgment