Neutral Citation Number: [2005] EWHC 654 (Ch)
Case No: 6174/2003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22/04/2005

Before :

MR. JUSTICE MANN
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Between :

	STEVEN SMITH	Claimant	
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	(1)  CHARLES BUILDING SERVICES LTD
(2)  TERRY SMITH	
Defendants	

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 Mr. R. Duddridge (instructed by  Messrs. Wedlake Saint) for the  Claimant.
 Mr. M. Collings (instructed by Messrs. Pinsent Masons) for the  Defendants.

Hearing dates:  8th, 9th, 10th, 11th, 14th & 15th March 2005
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Judgment
Mr Justice Mann: 
Introduction
1.	The first defendant (“CBS”) is a building company.  When it was incorporated in 1994 there were two issued shares.  The claimant and the second defendant, (whom I will call respectively “Steve” and “Terry”) are brothers, and they were each registered as the holder of one of those shares.  Terry says that Steve should not have had a share.  The prime mover in relation to CBS’ business was Terry.  Steve had a lesser involvement; he was an accountant in private practice, and was in charge of bookkeeping and accountancy matters at CBS, but was not involved full time.  In September or October 1997 he signed a transfer of his one share in favour of Terry.  Within minutes of having done so, he tore it up.  Terry (or more precisely someone on his behalf) physically reconstituted that transfer and procured his registration as shareholder in respect of Steve’s share.  Since then, there has been the issue and allotment of further shares in the company.  Steve says that the transfer was never completed and never took effect as a valid transfer, and he claims rectification of the share register.  The real issues in this case are whether or not Steve was entitled to his share in the first place, and the effectiveness of the transfer in 1997.  These are ultimately questions of fact.
The background and the facts
2.	The background to this case starts with a company known as Charles Contractors Ltd (“CCL”).  That company specialised in painting and decorating services.  It was named after Steve and Terry’s father, Charles, who set it up in 1983.  Mr Charles Smith and his wife held 60% of the shares; their daughter Tina held 20% and Steve held 20%.  The business was effectively run by the father; Steve’s function again was financial management and accountancy services.  He worked only part-time in the business.  For the first five years Terry had no involvement in the company.  He had started his working life working as a motor mechanic and rose within his employers to become a manager.  He worked in Dorset.  In 1987 he decided to become involved in running CCL, and for that purpose he moved to Hertfordshire.  There is a dispute on the evidence as to whether or not he did so as a result of an invitation from his father or as a result of his own request.  I do not find it necessary to resolve that dispute; it is common ground that he moved up to Cambridgeshire and started to run the business.  He did not initially become a director of or shareholder in that company.  He commenced working as an employee of CCL on a salary of about £12,000 per year.  His father was a director, and had given a guarantee to the bank for the liabilities of the company.  According to Terry, he (Terry) did not have sufficient equity in his house to be able to give the bank a valuable guarantee, and apparently (though I do not understand the reasoning) for that reason did not become a director or shareholder in CCL for some years.  In 1989 Mr Charles Smith ceased to be involved in the management of CCL (but he retained his shares) and Terry’s responsibilities increased accordingly. Terry became a director in 1990.  Under his control the business prospered.  It is common ground, and I accept, that his strength lay in dealing with people and making valuable contacts, and then doing the deals.  His strength did not lie in paperwork matters.  His witness statement claimed him to be dyslexic.  Whether that is true in the full sense of the word, I accept that he was not as at home with documents, and in particular formal documents, as many others would be. 
3.	By 1993 the bank debt of CCL had been reduced to a sufficiently low level to allow Terry to become a shareholder of that company.  As I have said, I do not understand the reasoning, but on any footing it is plain that at this time he acquired his father and mother’s 60%, and also acquired his sister Tina’s 20%.  There was some evidence of reluctance on Tina’s part to transfer her shares, but the transfers took place.  No significant consideration was paid.  Steve retained his 20%.  Steve’s role remained that of supervising the financial side of the company’s affairs.  He did not take any part in the day to day management of the company.  He was not paid for this, but he did participate in dividends and his wife was paid a small salary which was apparently for assisting him in his functions.  CCL declared dividends of £6,000, £13,000, £38,000 and £64,000 in each of the years 1993 to 1996 inclusive.  At about this time, Steve transferred his own 20% shareholding to his wife.  He told me that this was for “tax reasons”.  It is apparent to me from the evidence that he gave in these proceedings that, despite that transfer, he still considered that shareholding to be his in the sense that he was in a position to control its fate and he was personally concerned to preserve it.  The company employed a bookkeeper or clerk, and one of Steve’s functions was to supervise that person and to make sure that the systems were adequate.  As I have already said, this was not a full time function.  His principal job was that of an accountant; he had been a partner in Messrs Mercer & Hole since 1983.  His regular functions at CCL involved no more than a few hours a week, but I accept that he put in additional hours from time to time, talking matters through with Terry and, from time to time, discussing general business matters.  
4.	The formation of CBS came in 1994.  Terry wished to expand the business into general building works.  There was a limit to the extent to which the business of CCL (painting and decorating) could be expanded.  There was much more scope for expansion by moving into building works, and this is what Terry wished to do.  As a result, CBS was incorporated.  Steve’s evidence was that a separate company was chosen so as to minimise the exposure of CCL should the building business fail.  The brothers are at odds as to the basis on which this was done.  Terry’s evidence was that he wished to set up a company for himself, and he mentioned this to Steve.  Steve’s response was to offer to set up a company for him – Terry thought a company would be bought off the shelf.  There was no discussion as to ownership of the company, but Terry considered that the new company would be his and his alone, and that Steve would not be involved in its management.  There was no discussion as to ownership, but on Terry’s version of events there would not be any such discussion because the question would simply not arise.
5.	Steve’s version is different.  His witness statement, confirmed by him in the witness box, was that “we” decided to set up a new company.  He agrees that there was no explicit discussion as to ownership. He considered himself to be entitled to a share in the ownership because it was to be a joint enterprise, because he was to be involved in part in running the company, and because the company was inevitably going to be linked with CCL (in which he had retained his 20% interest, through his wife) by virtue of acquiring work through that route and because CCL would be funding and supporting it, at least for a time.  I shall have to make a finding as to which of the brothers is right on this.
6.	Steve dealt with all relevant aspects of the formation of CBS.  He instructed agents to incorporate it.  It was incorporated on 14 November 1994.  The name originally chosen was Charles Building and Construction Limited; there was a deliberate use of the word “Charles” in order to build on the existing success and goodwill of CCL.  The two brothers debated certain names; Steve has kept a list of the various names debated, out of which the chosen name emerged.  The costs of incorporation (paid to the company agents) were borne by CCL by virtue of a cheque signed by Terry.  Before the company started trading, the brothers decided to change the name.  Terry’s evidence-in-chief was that Steve told him he had chosen the name (the first name) and reserved it.  Terry said that he did not like it, and instructed Steve to go ahead and incorporate but to change the name.  He acknowledges that the list of names produced by Steve (which he had not seen before these proceedings) contained the names they discussed, presumably after Steve had “reserved” the name but before incorporation.  Steve says that the first name had been chosen by Terry before incorporation, and that Terry changed his mind about the name between incorporation and trading; hence the present name.  I think that Terry has muddled the events here and I prefer Steve’s version of events.  The list of potential names contains the name “Charles Building and Construction Ltd”, but does not contain the name Charles Building Services Ltd.  I think that it was a list of names that the brothers discussed before incorporation, and that after incorporation Terry changed his mind.  After the mind change the name was changed at an EGM minuted to have taken place on 7th November 1995.  In one sense this discrepancy over how the name came to be changed does not matter, but I think that Terry’s positively expressed version of events, which turns out to be wrong, demonstrates (not unsurprisingly) the difficulties which he had in remembering the details of events which took place over ten years ago, particularly bearing in mind that, on any footing, he was the practical man in terms of running the business of the company, and others were to do the paperwork.  Terry also signed a formal consent to short notice of the EGM, on the face of which Steve also signed against a typed version of his name.  This was relied on by Steve as demonstrating that Terry must have been aware of Steve’s shareholding because his name was apparent and its appearance only made sense if he was a shareholder.  Terry denied noticing that or appreciating its significance, and having seen him I accept the truthfulness of that.  I am satisfied he signed without appreciating the significance of Steve’s name being there.
7.	CBS did not start to trade immediately; it did not start to trade until the beginning of 1996.  Until then it was dormant.  However, in preparation for trading certain steps took place.  First, on 13th November 1995 an application to register CBS for VAT was made.  Next, steps were taken to employ a quantity surveyor who would ultimately be employed by CBS.  This was Alex Evan-Hart, who gave evidence to me.  He started working for CCL before CBS started trading – his employment started on 1st November 1995.  Steve has produced a note dated 17th October 1995 which deals with the prospect of employing the “new employee” identified as Mr Evan-Hart.  This note seems to indicate a discussion between Steve and Terry, and I find that such a discussion took place.  It shows Steve involved in the taking on of Mr Evan-Hart (including the decision-making about it), and I find that he had an involvement in that respect.  It also shows two other things.  First, it records the intention to change the name of the company – it therefore supports Steve’s version of events about this rather than Terry’s.  Second, it refers to a “share allocation”.  This apparently demonstrates an intention to allocate shares to Mr Evan-Hart.  Steve’s evidence was that the shares related to CBS; I accept that evidence.  He also said (and I also accept) that the idea of giving shares to Mr Evan-Hart came from Terry, though the method of doing it was Steve’s.  Steve suggested giving shares in four tranches over 36 months, leading to a total shareholding of 24%.  In the event this did not happen, but it is illuminating that Steve and Terry discussed this, since it shows an involvement on the part of Steve that is inconsistent with Terry’s case that Steve had no interest in the company.  It is also illuminating that in cross-examination Terry first said that he had no recollection of a discussion with Steve about this matter, and that he denied discussing with Mr Evan-Hart that the latter would have a shareholding.  That shareholdings, or at least some form of interest, were discussed with Mr Evan-Hart is corroborated by two other pieces of evidence.  First, Miss Karen Pett, a bookkeeper employed by CBS and called by Terry, said that when she was taken on Terry told her that there was a possibility of Mr Evan-Hart becoming a shareholder in the company.  Second, Mr Evan-Hart himself gave evidence that he was told by Terry that there was a prospect of his acquiring an interest in the company.   His witness statement indicated uncertainty as to whether he was offered shares or a share of the profits.  His cross-examination indicated that he was offered a potential share of profits.  I think it likely that Mr Evan-Hart’s having a shareholding was discussed with him.  Terry’s apparent denial of this goes to credit when I consider the question of what he believed and intended about the ownership of CBS.  
8.	On 7th December 1995, again in preparation for CBS’s commencing trading, Terry signed an application for a sub-contractor’s tax certificate.  The relevant boxes were completed by Steve, and at box 17 it identified the two shareholders as being himself and Terry.  The significance of this is that it shows Steve performing activities for the new company, and that it is a document signed by Terry which, on its face, refers to the shareholding.  Steve says that in accordance with his normal practice he would have gone through the form with Terry, and I am asked to find from this that it is a piece of evidence which demonstrates that Terry must have been aware that Steve was a shareholder in CBS.  Having seen the two gentlemen in the witness box, I am somewhat sceptical of the claim that Steve always took Terry through documents which Terry was asked to sign, at least in sufficient detail to point out such things as this particular reference to shares, and while I am prepared to find that Steve did explain documents, and perhaps drew attention to certain matters, I think it unlikely that this particular box on this particular page would have been drawn to Terry’s attention in such a way as to cause him to focus on it, particularly bearing in mind Terry’s apparent difficulties in focusing on the written word.  
9.	CBS started trading in about February 1996.  Terry was the one who went out and got in the work.  Steve did the same things for CBS as he had done for CCL, that is to say he was in charge of accountancy and bookkeeping matters; the bookkeeper was answerable to him.  He did such things as VAT returns and producing management accounts from time to time.  He would attend at the offices in Stevenage when necessary.  There was a dispute as to how often this was.  Karen Pett says she was aware of monthly visits, but also said that there might have been other visits she was not aware of.  Terry said that he did not attend often – once a month, and sometimes not even that.  Mr Evan-Hart said he thought it was twice a week.  Steve’s evidence was that he attended once a week when the business was just that of CCL, and by inference I think he would say that he was doing much the same at least in the initial stages of CBS.  However, it is common ground that the management accounts of CBS (and CCL) got behind by mid-1997, and there had been complaints before then, so I doubt if his attendance was as much as that once CBS had got up and running.  However, what is important is that Steve carried out valuable activities for CBS in setting up its bookkeeping operation and thereafter supervising the accountancy and financial side of the operation.  Karen Pett confirmed that he did or was to do everything for CBS that he did for CCL, and I so find (subject to my finding as to tardiness).
10.	The manner in which CBS conducted its business in the early stages is important in this case, as is the reason why it was done.  CBS did not have an overdraft.  When it traded it had no track record as a builder, so it had no reputation on the basis of which it could get work, and it had no credit track record on the basis of which it could open credit accounts with suppliers.  In order to overcome these two difficulties CCL was used.  First, Terry went out and got building contracts in the name of CCL.  He got substantial contracts from Pfizers and from a concern identified as LMK, and there were others.  He would not have been able to get that work in the name of CBS until it had established a reputation.  CBS personnel then did the work on site.  The customer was formally invoiced by CCL and the moneys were passed on to CBS.  This was described as informal subcontracting.  Once CBS had established a reputation (which it eventually did) it was able to take contracts in its own name, but until then it was dependent on CCL to get the contracts in its name.  So far as suppliers were concerned, CBS was not initially in a position to get good credit terms in large amounts in its own name.  It could have got a number of small accounts, but in order to avoid the inconvenience of this, and to help CBS to establish a reputation with suppliers, CCL’s name was used to get supplies, and CBS paid the suppliers direct once it had received money from customers, thus (according to Terry) establishing its own reputation on the back of which it could eventually get its own credit.   Terry described all this as being for his own “easiness” or “convenience” (his words).  I accept that the motivation in relation to supplies was partly for the sake of convenience, but otherwise to call it a “convenience” is a misnomer.  Such a course of conduct was, in my view, viewed as a necessity to get CBS off the ground.  In saying it was for his convenience I think that Terry was seeking to play down the significance of the modus operandi and to attribute the idea to himself alone.  
11.	CCL played another important function in the commencement of CBS’s business.  CBS did not have an overdraft.  Its need for working capital was diminished by the fact that it operated as a main contractor and, according to Terry (and not challenged in the proceedings) managed to pay its debts when it was paid by its customer (or, technically, in the early days, CCL’s customer).  However, it plainly needed some financing because the records show that CCL provided it.  It is apparent, and I find, that the following amounts were transferred from CCL to CBS in 1996 – February £5,000, March £13,000, April £22,000, May £10,000, June £10,000 and July £10,000.  These were clearly funds needed to enable it to operate.  In addition, it shared office facilities with CCL, and CCL paid the overheads for a time.  Although a charge was introduced to appropriate some of the overheads to CBS, in the initial stages this was not done, so CBS had that further initial support from CCL.  Terry received a salary from CCL alone.
12.	Steve says that this support of CBS by CCL was a strategy devised and agreed by both brothers for the launch of CBS.  He says that the fact that he agreed it demonstrates the link between CCL and CBS and is part of the explanation of why he was intended to have an interest in CBS.  CBS sprang out of CCL, even though it was intended to do different work.  Terry plays all this down.  He denies the joint strategy, and said that the contracting and supplier arrangements were a matter of  “convenience”, as I have recited above, though later he accepted the strategy but claimed it as his own without any input from Steve.  He denied that there were substantial transfers to fund CBS’s operations and claimed not to remember whether he signed the cheques or gave the authority for the payments of money which clearly occurred.  
13.	I find that Steve is correct in his account of this, that is to say that he jointly devised the strategy with his brother and it did not come from Terry alone.  I further find that Terry has deliberately played down Steve’s part in this in order to support his case that Steve should not have had a share in CBS.  While Terry may have been the practical man who was involved in all the “hands on” activity, and while he may not have been at home in documentary or accounting matters, I think that he must have been aware that CBS would require funding and of where that funding was going to come from.  He must have signed the cheques and authorised the transfers.  In the witness box he claimed not to be able to remember why the transfers took place.   By the time that the matter had come on for hearing it must have been obvious to him what was being said about them, but if he had no recollection then presumably no bells were rung.  I do not find that credible.  
14.	What the evidence therefore shows at this stage is a jointly agreed plan for starting up CBS.  It involved making use of CCL’s money, reputation, creditworthiness (with suppliers) and premises.  Until mid-1997 no other person was involved in dealing with accountancy matters and the accountancy aspects of setting it up and running it other than Steve, and Steve was plainly doing all that.  Terry told me that there was no arrangement that Steve would do that; so Steve must have done it as a favour, and Terry appreciated that, but it was not pursuant to any arrangement that he would.  Again, I do not accept that.  The relationship between these two brothers was not such that Steve would do such things unasked and as a favour.  I find that it was expected between the two of them that Steve would have the involvement that he had, and while any agreement might well have been implied rather than express (because they just assumed that Steve would do for CBS what he had done for CCL) that assumption was shared, and demonstrates a jointly intended joint involvement in the affairs of CBS. 
15.	Unfortunately the relationship between the two brothers deteriorated.  There had been tensions over the late preparation of management accounts in CCL, and these resurfaced in the first half of 1997 once CBS was under way.  Steve accepted that he was late with management accounts, but said that that was because he had not been given the data.  Karen Pett was minded to accept that she might not have provided the data, but said that Steve could have got it himself.  The extent to which Steve was ultimately responsible is not something that I have to decide, because the important thing is that there was tension.  Terry wanted to raise the production of management accounts with Steve.  Steve himself was also unhappy because he was concerned at Terry’s practice of increasing his benefits taken from CCL without any commensurate increase in Steve’s benefits.  Steve says that as a result of this a meeting was arranged to discuss things.  He puts the date of this meeting at 28th May 1997, and says it lasted 3 hours.  He is able to date it in this way because his contemporaneous time records for this day show an entry “See Terry 9.30-12” and his diary shows his brother’s name on that day at 9 am (bracketed with the 10 am. slot).   He says that he prepared a two page document for that meeting to deal with matters to be discussed, and I have seen that document.  On the first page it lists for “Options” – “1 Agree to salary”,  “2 Want to buy me out”, “3 No change” and “4 Appoint an Accountant”.  Most of the time at the meeting was spent on the first item, because they managed to agree some sort of way ahead.  They agreed what was necessary to get the accounts up to date, and Steve made it clear that he was expecting some sort of pay, or better pay, for what he was doing, though there was no agreement on how this would be determined.  Steve says that items 2, 3 and 4 were mentioned, but only briefly in about 5 minutes at the end of the meeting because a way ahead under item 1 seemed to be what would happen.  
16.	The main significance of this is the reference to Terry buying Steve out.  On the second page of the prepared note Steve wrote: “2 Balance on ledger, plus value in shares” and then put CCL’s and CBS’s initials one below the other with a £ sign to the right of each.  This was to be a prompt to discuss the basis on which Steve might be bought out, and the significant point is that it referred to both companies and not just CCL.  Steve says that he is confident that this point was raised at the meeting and that he referred briefly to alternative methods of valuation – an earnings basis and an assets basis – and the possibility of an independent valuation.  It is significant because it was an occasion on which the brothers discussed the fact that Steve had a shareholding in CBS without any protests from Terry.
17.	Terry disputes this account of the meeting.  Indeed, he did not accept that there was such a meeting.   He did not think he had ever had a meeting with Steve which lasted as long as 3 hours, and denied this one.  He did not accept there was a “way forward” meeting.  
18.	This is one of the many striking disputes of fact between the parties.  I prefer Steve’s evidence as to the existence of this meeting.  It is supported by his written time and diary records – there is no suggestion they were fabricated.  I also accept most of his account of the meeting – it is consistent with a sheet of paper which Steve says, and I accept, is his note of the meeting (or part of it) and which contains a list of accounting matters to be dealt with and some timings relating to carrying them out.  However, I do not think that the discussion about his being bought out took place at the end of the meeting as he described.  A way forward of sorts having been found I think it is unnatural that there would then have been a discussion, even as brief as he says, which related to the manner in which he would be bought out if appropriate.  That does not fit with how the meeting had gone hitherto.  There was probably a passing reference to the possibility of his being bought out, but no more than that.  
19.	The way forward was not pursued, or at least not as anticipated.  A few days before the meeting Terry had had a discussion with Mr Barry Smith of Wagstaffs, a firm of accountants, about that firm’s taking over the accounting and auditing function of CBS, a fee was quoted for that.  This is recorded in a letter from Barry Smith dated 23rd May 1997.  (Barry Smith is a manager at that firm; he is not a fully qualified chartered accountant.)  It was not mentioned between the brothers at the meeting on 28th May.   Terry obviously considered that the way forward did not involve Steve retaining the accountancy function since by 30th June 1997 he had obtained a letter of engagement from Wagstaffs involving their taking over the accountancy function.  Almost a month previously, on 3rd June, Wagstaffs had obtained the results of a company search in relation to CBS, which showed the brothers as being shareholders.  Mr Barry Smith gave an account of how this came about.  He says he had had a meeting with Terry (which he obviously had) and although he had discarded his diary for the year he put the date of the meeting at about 21st May (pre-dating the 28th May meeting).  At that meeting they discussed the possibility of their new role, renewing a discussion which had taken place in 1993 or 1994 when they had had discussions (which came to nothing) about Wagstaffs acting for CCL.  He does not believe that any mention was made of Steve being involved in CBS.  That would be strange if true, because presumably some reference would have been made to the person who Wagstaffs were to displace, so he must have been referred to at least to that extent.  I find it was not true.  Mr Smith cannot recall any discussion as to shareholdings, but believes he would have assumed that Terry’s wife Carrol would have been the other shareholder.  He cannot recall the circumstances of commissioning the company search, but it would have been in accordance with Wagstaffs’ practice to obtain one before being engaged by a corporate client – that makes sense and is likely to have been the motivation.  He does not recall discussing this document with Terry.
20.	Terry’s evidence was that at or about the end of June 1997 he attended a meeting at Wagstaffs’ offices with Mr Barry Smith and the incoming supervising partner, Mr Nilesh Savjani.  There he was told that the search showed that Steve owned one share.  He says his reaction was to be shocked but cannot recall what he said.  He was shocked because he felt he had been betrayed by his brother, who was never intended to have a share.  He asked what should be done, and was told that a share transfer would fix it; he instructed that one be sent out to him.  One was sent out to him under cover of a letter dated 30th June.  In his witness statement he says that he copied it and put the photocopy in his filing cabinet but otherwise took no action on it.  Neither Barry Smith nor Nilesh Savjani were apparently able to give any evidence as to the reaction of Terry when he discovered that his brother was a shareholder, and no record of the meeting apparently exists save that which appears in two letters (including the letter of engagement) which followed it, but Karen Pett told me that she recalled an occasion when Terry returned to the office visibly upset and when she asked him why, he said that it was because he had discovered that his brother had got a share which it was not agreed that he should have and that he had thought he could trust his brother.  She says he appeared completely dejected.  This, she says, was at about the same time as Wagstaffs supplanted Terry as CBS’s accountant.  Terry said that he did nothing further about the share at that stage because he was very upset and did not feel up to confronting his brother about what had happened, so he put it in the back of his mind “until I was in a position where I had to deal with it”.  Terry’s wife Carrol told me that she too remembered an occasion on which Terry had come home upset because he had discovered that Steve had got a share in CBS.  I make findings about all this below.
21.	It is common ground that at some point during that summer Terry spoke to Steve and asked him to transfer his share in CBS; Steve says he refused.  Terry said that the conversation arose when the two brothers had a conversation in which Steve says that he wanted more pay for his work for CCL and wanted to discuss dividends.  Terry proposed a meeting at which they would sort out the question of Steve’s having taken the share which he should not have done.  He expressed himself to be sure that Steve agreed that he should not have taken the share and would sign a stock transfer form to transfer it back.
22.	This was the background to a meeting which took place in September or October 1997, which I shall call the autumn meeting.  Its venue is agreed (the offices of CCL) but the brothers are unable to agree on the date. Steve says it took place on 7th October (a Tuesday).  Terry says it took place on 29th September (a Monday).   I shall come back to the significance of the date in due course, but will first deal with what happened and its aftermath.  
23.	Steve says that the meeting was arranged as a year end meeting for CCL – CCL’s accounting year ended on 30th September.  There were various things to discuss, including a dividend in which Steve was certainly interested, and he prepared a list of matters to be discussed.  They included the projected profits, the dividend, insurance and the clearance of loan accounts - £13,000 odd was owed to his wife on a loan account the benefit of which had been transferred to Steve’s wife.  However, the meeting started with Terry presenting him with a stock transfer form for the transfer of his CBS share, undated and without any consideration appearing in it, and without any prior intimation that that was going to be done.  His witness statement says that he signed it “in anticipation of discussing the level of dividend and discussing business generally.”  It did not contain any indication of words of qualification in relation to the signature.   He did not date it.  He gave some supplemental evidence in chief about that meeting, but that evidence did not contain any evidence of words or acts of qualification in relation to the execution either.  In his cross-examination he told me that as he signed it he said he was prepared to discuss it, and what he did was to put it on one side so that the rest of the discussion could move on.  He told me he signed it as a gesture towards his brother.  The discussion did move on and they discussed dividends.  His witness statement says that when it became apparent that Terry did not propose to declare a dividend he said he was not prepared to transfer his share and he took it and tore it up.  In his evidence in chief he added that they discussed an insurance declaration which had to be made (and there is indeed a declaration signed by Terry and dated 7th October, the date which Steve puts on the meeting) and they moved on to discuss the outstanding loan.  He did not know whether they discussed other items.  Further fleshing out occurred in his cross-examination when he said that it was a failure on the part of Terry to agree to repayment of that loan that was the “catalyst” for his tearing up the form.  Whatever the sequence of events leading up to the tearing, the brothers left the meeting.  Steve went to get on with some of the company’s accountancy work which he had to do at the offices. 
24.	Terry’s account is inevitably different though it has some common elements.  He said that Steve agreed to have a meeting at which they would deal with the stock transfer first; Terry would bring a transfer with him for that purpose.  They would also deal with Steve’s request for an increase in salary, and thirdly they would discuss year end accounts and dividend.  He had forgotten that he had already got a transfer, and asked Wagstaffs for another one.  They gave him one which was complete save for Steve’s signature and the date (he says he probably collected it) and the first thing he did at the meeting was give it to Steve and ask him to sign it.  Steve did so without any question and handed it back.  They then moved on to discuss payments for Steve, but he said that since he was not happy with his performance he was not going to pay him any more money or pay him a dividend.  Steve than asked to “have another look” at the stock transfer form, took it back, tore it up, threw down the pieces and stormed out of the room.
25.	There are various differences of fact in these accounts, but the one which is central to this action is that concerning the circumstances in which Steve signed the form.  Steve’s case is that it was signed conditionally and that it was not complete.  Terry’s case is that execution was complete and that it was handed to him on that basis.  That is the question of mixed law and fact which I will have to decide.  I will make some findings about it in due course, but for the time being I will deal with the events which followed.
26.	Terry says that “soon after” the meeting (he could not recall precisely when) he gave the pieces of the torn form to Mr Savjani.  Mr Savjani is said to have remarked that Steve signed it and would have been aware of what the effect was.  If he wished to cancel it he would have to sign another form (no-one ever explained to me what that form might be, and for my part I cannot understand what it could be).  Mr Savjani took the form (or presumably the pieces) and said he would register it at Companies House.   It was (as is common ground) not dated at that point, and neither gentleman had a diary.  “I recall sitting down with Mr Savjani and counting back to 29 September 1997. Mr Savjani then wrote the date it was signed, 29 September 1997, on to the form.” (Terry’s witness statement).  For reasons to which I shall come, this account of dating it cannot be an accurate account of how the form came to be dated, but dated it was (with the date of 29th September) because at some point it was stuck together with sellotape, the date was put on it and, thus reconstituted, it was stamped (at £5) on 26th March 2002.
27.	No record exists within the offices of Wagstaffs of the occasion on which their client presented them with a torn up share certificate and the alleged advice (so far as it was advice) was given.  There is no indication of the date at all.  This may be thought to be surprising.  Mr Savjani, who was not called by Terry, but who was called under witness summons, without a witness statement or a gist statement, by Steve, could not assist.  In due course, when submitting the form for stamping on 22nd March 2002, Mr Savjani told the Stamp Office that “the company’s directors have informed us that the Share Transfer form was accidentally torn after the transfer was effected.”  Mr Savjani accepted that the directors had told him no such thing – in effect he managed to make that mistake by himself.  
28.	It will be remembered that Steve’s date for this meeting was 7th October.  He has reasons for saying that.   The meeting was, he says, in the afternoon.  His diary for 7th October shows an entry for CCL on the afternoon of that day and his timesheet shows he left the office at 3 pm.  He says that it cannot have taken place on 29th September because his time records and diary show that he spent the whole of that day, until 6.30pm, at his office in St Albans.   Terry says that the meeting cannot have been on 7th October, and that the date of 29th September (arrived at by “counting back”) is the correct date.  He wanted to get the transfer dealt with before the year end so that he could take the whole of a dividend which he was minded to declare for that year.  It did not take place in the afternoon but in the evening, and his wife Carrol recalls him going out for an evening meeting to deal with the share, and coming back shortly afterwards with the business completed.  The evening cannot have been on 7th October for two reasons.  First, she recalls talking about the satisfactory outcome of the matter with her husband at her son’s birthday party at an activity centre (while the children were looked after by others), which she is able to say was on his birthday on 4th October (aided by some photographs which have aided her recollection but which were not before me).  Second, her son regularly went out to a swimming club on Tuesday evenings, and she took him there.  That would mean that she was out on Tuesday evenings.  Since there is no reason to suppose that he missed the club on Tuesday 9th October she would have been out with him on that evening, and since she remembered the evening when the form was signed it cannot have been that particular evening.  
29.	At one stage it was thought that the date was important because Steve said that Terry had deliberately backdated the transfer to deprive Steve of the dividend which was declared at some point (probably) in October (the date of the dividend is obscure), on the assumption that the dividend would be payable to those who were shareholders at the year end.  However, when I pointed out that dividends are normally payable to those who are shareholders at the time of the declaration, and not at the year end, the legal significance went out of this factual point (in which great effort had hitherto been invested), and it became more of a credibility point.  This judgment will therefore not devote the same amount of effort to deciding it as the parties spent in presenting their cases on it.  However, the circumstances of the dating, and the evidence that was given in relation to it, is certainly something on which it is relevant to rely when assessing the credibility of some of Terry’s witnesses.
30.	 In this context something else significant happened on 7th October.  It is clear that on that day Terry had a meeting with Barry Smith.  It dealt with various matters relating to Wagstaffs’ taking over the accountancy function for CBS, and some of Terry’s personal affairs.  Two notes of it exist.  There is a short manuscript note taken by Barry Smith, and a longer typed up note prepared by him subsequently.  The short note deals with matters discussed just by referring to the topics in a few words.  The typed note is more narrative.  All the items recorded in the typed note are essentially items for the accountants to do, or flagging something to be done by Terry in the near future.  It has a heavy “to do” air about it.  There are 5 items – I need not list them but all except one have clear sources in the manuscript note (and the exception is itself arguably related too).   However, there is one item on the manuscript note which has no typed counterpart.  Between the notes for what became items 1 and 2 Barry Smith has written the words “share transfer form”.  Neither he nor Terry is able to explain why they are there.  Since they are not translated into any “to do” item in the typed note, then either the matter was of no significance, or such significance as it had was spent at the meeting.  The former is hardly credible – why would either party raise something of no significance?  So the answer is probably the latter.  The suggestion made on behalf of Steve is that this was Terry asking for another transfer from which was responded to by his being provided with one there and then (or by the end of the meeting) – hence it does not appear in the typed note.  Barry Smith says that that is unlikely because if that had happened he would have done it there and then himself, whereas the person who actually filled in the relevant boxes on the form (before handing it over to Terry) was another employee (Karen Briddon, Barry Smith’s wife)  - it was not disputed that the handwriting on the partially completed form was hers.  He was, however, unable to suggest any other plausible explanation, and I cannot think of one.  I therefore consider that this entry on this form is more likely to indicate the occasion when Terry asked for a new form, and that indicates that Terry is wrong and Steve is right about the dating.  
31.	The subsequent events can be dealt with relatively briefly, but there is some post-event conduct which sheds light on the events of the autumn meeting.  On 12th November 1997 Terry signed a company return reflecting the transfer as having taken place on 29th September.  New individuals had joined CCL and CBS.  A Mr Bourke had joined CCL as painting contracts manager in September 1997, and he became the managing director in November 1998.  Mr Jim Tully became commercial director of CBS at about the end of 1997 or the beginning of 1998.  Steve accepted that he was not consulted about that, but says he did not mind because he appeared to be financially astute.  This contrasts with the earlier instances when he was consulted about taking on Mr Evan-Hart, and about the dismissal of Mr Evan-Hart which occurred within a year of his appointment.  Steve continued to perform the accountancy role for CCL until about November 1999 when he was told he was no longer required.   Whether he resigned or was dismissed from that role does not matter.
32.	In the meantime there was a further issue and allotment of shares.  The original authorised share capital of CBS was 1,000, of which two were issued.  At some point during 1998 Terry decided that he wished to increase the share capital to 10,000.  He says that the reason for this was to improve the appearance of substance of CBS to help it to win more work.  I think I can accept that this was at least part of the motive behind the exercise.  The relevant resolution was passed (or purportedly passed, depending on the validity of the share transfer which is in issue in this action) on 23rd December 1998.  However, shortly before then, on 8th December 1998, Barry Smith wrote a letter to Terry in the following terms:
“Further to my recent telephone conversation I now enclose an extract from the Articles of Association of the Company relating to the particular point I referred to.

It is quite clear that the directors (i.e. you) can issue shares as they see fit with no reference to other shareholders and therefore as we discussed we can issue bonus shares to you from the profit and loss account balance up to the sum of say £10,000 which will dilute your brother’s shareholding to an extent that it becomes irrelevant.  At that stage whether or not the share transfer form is valid the share itself becomes valueless.

In the course of the next few days we will put into motion the issuing of the bonus shares and forward to you the relevant documentation.”

Terry has written at the top of the letter, in his own hand, “share increase justification”.  
33.	Barry Smith accepted that the advice in this letter was wrong, (and the letter was wrong in an additional respect in that it did not enclose the articles, but a summary of the procedure involved in altering share capital), but he also accepted that it must have betokened some continuing concern on the part of Terry (which he denied in this action) as to the validity of the share transfer.  Mr Tully said that at a meeting attended by him to discuss the capitalisation Mr Savjani threw in the dilution point as another reason for having the capitalisation.  Although the conduct of Wagstaffs in relation to this matter (and in particular in relation to records) can hardly be described as thorough and perceptive, I find it hard to believe that Mr Savjani would throw in such a piece of advice in those circumstances, and I fear that Mr Tully has departed from what were his otherwise good standards of accuracy.  It is not clear how this matter was raised, but it is plain that Terry regarded it as something of considerable sensitivity.  It may not be without significance that the reference put on this letter by Barry Smith indicated that it should be put on Terry’s personal file, whereas other contemporaneous letters were marked to be placed on the company file.  This is obviously a bit of important advice given to a concerned client, and not a casual passing piece of (negligent) advice.
34.	Just to complete the picture as to the holding of shares, the company’s share register shows the allotment of 9,998 shares to Terry on 23rd December 1998, but I have doubts as to whether that coincides with other documentation and is an accurate date.  On 18th September 2001 the share capital was increased to £20,000 and divided into A and B shares; a new director, a Mr Paxton, has apparently acquired 3,000 B shares.  He has not been joined to these proceedings, and has not sought to intervene.  I was told by Mr Collings, who appeared for the defendants, that Mr Paxton’s attitude was that he would not seek to challenge findings of fact made by me in these proceedings, but reserved his position on the legal effect of such findings on his shareholding.
35.	The present dispute between the parties took some time to emerge.  On 1st September 2000 Steve wrote to Terry, heading his letter with the names of both companies, pointing out that it was evident that Terry wished to continue with the “segregation” of their relationship and asking for the accounts of the two companies and when AGMs would be called.  There was no immediate reply and Steve chased on 28th November, indicating that he had seen a search indicating the change of share capital.  He asked to inspect the statutory books or alternatively to receive copies of the register of members, applications and allotments, share transfers and company minutes since 1998.  On 11th December 2000 Wagstaffs (Mr Savjani) responded, saying that they had reviewed the statutory books and confirmed the authorised issued share capital of CBS was 100 shares and the sole shareholder was Mr Smith.   The remark about the authorised issued share capital is very strange bearing in mind Mr Savjani had participated in its increase, but may be explicable on the footing that he (or the composer of the letter) looked at the register which might, at the time, have reflected that state of affairs, though that itself is odd bearing in mind the entries on it (see below).  On 15th January 2001 Steve wrote on Mercer Hole notepaper indicating that their client owned one share in CBS and asking Wagstaffs to advise whether or not their records indicated the same, and if so (presumably meaning “if not”) the date when their client’s share was transferred to Terry.  On 16th January Wagstaffs responded by sending extracts from the company’s statutory books and a copy of “the share transfer form dated 29th September 1997”.  The copy share transfer form is an interesting document which I will consider separately from this narrative.  On 18th January Steve responded that the stock transfer form was torn shortly after signing when Terry was told that Steve did not wish to transfer his share, and he invited comments.  No comments were received and chasers were sent on 8th March (Wagstaffs sent a holding response on 14th March saying they were awaiting instructions), 2nd April, 4th May, 18th June and 5th July.  On that day he wrote direct to Terry as well, saying that he had withheld the transfer pending further discussions at their meeting and asking him to restore the shareholding.  Although the evidence shows that Terry had solicitors investigating the history by 17th July 2001 (there is a letter of that date from them to the formation agents) they did not respond to Steve’s correspondence.  On 18th July Wagstaffs said they were still awaiting formal instructions and confirmed that they were instructed to maintain the company’s statutory books, and that since the directors had concluded that the transfer was valid they were instructed to record the transfer.  On 23rd July Steve noted they were awaiting instructions and asked for a copy of the minute approving the share transfer in question and asked whether Wagstaffs gave any advice concerning registration.  On 30th July Wagstaffs responded that they had given no advice concerning registration and that the statutory books had been collected by the company secretary so they no longer had access to them;  a copy of his letter had been forwarded to their client who would doubtless contact Steve direct.  Steve wrote again asking for the minute on 2nd August, and chased on 15th August.  Terry finally responded on 22nd August saying that his solicitors would doubtless be contacting him, and his solicitors (David Barney & Co) responded on 18th September.  They sent a long letter refuting his claims, and giving an account of the meeting which roughly corresponds with Terry’s evidential account.  However, they also said that “it was not until 1997 that you informed our client, in the course of an argument, that you were a 50% shareholder in the Company”.  That is at odds with how Terry now says he found out about Terry’s shares, but he was not asked about that discrepancy in cross-examination.   It had taken Terry 8 months to respond to Steve’s correspondence.  Eventually these proceedings were issued.  Their form is a rectification claim, seeking the restoration of Steve’s name to the share register as holder of one share, and such further relief as is necessary to give effect to his rights.  If he is prima facie entitled to that right it may be necessary to have a further hearing to determine the effect of that on the subsequent dealings with the share capital, but the parties agree that the question of Steve’s entitlement comes first.
The witnesses
36.	At this point I should say something about the credibility of the witnesses I heard.
37.	Steve Smith.  He came across as a reasonably reliable and careful witness who did not seek to overstate or embellish his case when otherwise he might have done so.  For example, he did not seek to embellish his case as to what happened at the beginning of the autumn meeting with words which would have made it clearer that there was a conditional and incomplete execution.  He struck me as likely to have conducted his affairs as an accountant carefully, though he let things lapse a bit when it came to the accountancy affairs of the two Charles companies.  From time to time he demonstrated caginess which went beyond a witness’s natural suspicion of the cross-examiner.  He was capable of being less than convincing – for example, in his protestations that his wife did work for the company which justified the (albeit small) salary paid to her, when I think that this was a case where he took part of his benefits in pay for his wife in a manner which is not uncommon in these sort of companies (and indeed in a manner utilised by Terry, whose wife Carrol had benefits on a much more handsome scale for doing no more, and probably less, work).    He also said at one point that he would not have considered selling his share in CBS by itself (ie without the CCL shares) because the two companies were linked; but his own evidence about the autumn meeting demonstrated that he was prepared to consider it at that point.  However, nothing in his demeanour or the manner of his giving evidence indicated that he was disposed to lie or fabricate, and his recollection was usually good, though this does not by itself mean that I accept his version of events on all matters. I have to have regard to all the evidence, and the probabilities, in order to consider that.
38.	Mr Evan-Hart (called by Steve) was an honest witness.  He had faulty recollections on some matters, but that did not reflect on his honesty.  Where his evidence conflicted with Terry’s case it was not suggested that he was deliberately fabricating or making it up, and no motive was suggested for his doing so.
39.	Mr Savjani falls into a different category.  I regret to say it about a professional man, but so far as he was able to give evidence at all I would find it very difficult to accept it without some corroboration.  In addition, on the basis of the evidence, I would not make the normal assumption that I would make that a professional man in his position would normally be expected to act in a professional way.  In this case one would have expected him to have been called by Terry to assist the court as to the circumstances of the dating and the reconstitution of the transfer form (when the issue seemed to be important to the relief in this case), and in particular to explain how he came to write in the terms that he did to the Stamp Office.  But he was not called by Terry.  He was called under a witness summons by Steve, and he did not provide any form of witness statement.   He told me that he had been advised not to co-operate (in that way) by his solicitor.  Although he was not pressed hard on the point he did not seem to be able to give a particularly coherent account of the events following on the attendance on him by Terry with a torn transfer form – he professed not to be able to remember whether it was stuck together again by the time he first saw it.   He says that the reference in his letter to the Stamp Office to the form being torn “accidentally” was his mistaken assumption and that he was not told that by his client.  His evidence to me was that he or his firm was told it was given to the client and torn subsequently, and from that he inferred it was torn accidentally.  I find that quite incredible.  I find it inconceivable that when faced with a torn up transfer form either that he would not be told without asking how that came about, or that he would not himself ask for and receive an explanation.  That is the only natural thing to do.   There is no indication that Terry referred to an accident, and since, before that letter, Terry’s solicitors had advanced an explanation inconsistent with accident in their letter of 18th September, there is positive evidence that he had not.  I do not think that Terry would ever have told him that or anything like it.  I think that he had his own reasons for telling that falsehood to the Stamp Office, and that immediately casts doubt on his and his firm’s professional conduct of the matter.  He was not pressed on these sort of matters because the party who would naturally do so was the party who called him (and who could therefore not cross-examine him).  This leaves his evidence in a most unsatisfactory state.
40.	Tony Smith is another brother.  He was called to give evidence for Steve on peripheral matters.  He was an honest and reliable witness.  The same applies to his sister, Tina, who was also called by Steve on peripheral matters.
41.	I have more misgivings about the quality of Terry as a witness.  I fully accept that he is an astute businessman, and there is no doubt that the increase in prosperity of CCL after he came in, and the success of CBS (which I am told now has a £7m turnover) is attributable to his activities in that respect.  I also accept that he is not the sort of businessman who is comfortable with documents and a lot of accounting detail, and that that means that a failure to recollect details of matters appearing in contemporaneous documents does not necessarily reflect adversely on his credibility in relation to other matters.   However, he was probably not quite as uncomfortable with documents as he might have wished to portray – for example, there was an occasion when he wrote to Tina about acquiring her shareholding in the form of a letter which clearly started with Steve’s draft, but which ended up with a lot of input from Terry alone which demonstrated he knew about the importance of proper drafting and was capable of doing it himself.   I also think that it has been demonstrated that he is capable of telling untruths when it suits him.  At a meeting with the Inland Revenue during the course of a tax investigation in 1998 he was asked by an inspector, in the presence of Steve who was assisting him, if he had a boat or caravan.  He denied having either, despite the fact that he had both and had owned them for a number of years.  Immediately after the end of the meeting he was told by Steve that he had to tell the truth, and he went back in and corrected the position.  He attributed his lapse to the fact that he has a fear of heights, and this meeting took place in a tall office block.  Whether or not the Revenue accepted that explanation, I do not.  I think that this was an example of a deliberate falsehood uttered to suit his purposes when he thought it would not be penetrated.  Again, when negotiating with Tina to acquire her shares in CCL he told her that if she did not transfer the share Steve would take her to court to get them.  She said that Terry said this and I accept her evidence despite Terry’s denial that he said it.  It was not true, so I think that Terry lied to her and then did not tell the truth to me.  For reasons that appear below, I think that his account of dating the transfer is fundamentally flawed, and again that casts doubt on his credibility, and I think that in relation to the critical autumn meeting his failure to provide instructions to Wagstaffs to respond to Steve’s letters is a factor which does the same.   I also think that some of his failures to recollect were convenient in the sense that he was reluctant to recollect facts which he judged might help Steve’s case.  Thus I find it very surprising that he could not recollect (and even that he denied) the money transfers in the early days from CCL to support CBS.  Furthermore, he has been inappropriately coy in relation to dividends declared by CBS.  Steve’s pleading claims damages in the form of dividends of which he has been deprived.  It pleaded dividends declared (or apparently declared) for the years 1997 and 1998.  In fact significant dividends were declared for the years ending 2001, 2002 and 2003.  Terry disclosed no documents which demonstrated that, and when asked why said that he it was his view that the dividends had nothing to do with the proceedings.  I find it hard to accept that he genuinely held that view.  All in all, I did not find him a reliable witness, though again that does not automatically mean that I find against him in relation to the facts of the autumn meeting.
42.	Barry Smith was called by Terry.  He was plainly an uncomfortable witness, and took refuge in an ostensible inability to recollect detail, and in reconstruction.  It is quite understandable that detail would slip over the years, but he said that this was the first and only time that he had come across the question of registering a torn up transfer, and I would have expected the events to stand out in his mind better than they do. He professed not to be able to remember what he thought when he first saw the form, or even whether he saw it torn or reconstituted, though he did say that the first time he saw it it had a date on it.  That, I think, is unlikely bearing in mind what appears to have happened to the form (which I deal with below).  I think that he, like Mr Savjani, feels uncomfortable about some of his firm’s acts in this matter and does not wish to have the record put entirely straight.  
43.	One of the things that he did in this case was make up some of the entries in CBS’s register.  He admitted that some of the entries were in his hand, and they are unusual.  The register takes the form of a book divided into sections – applications and allotments, transfers, members, debentures and so on.  At the back are share certificates which can be completed and cut out.  Although some have been completed, none are cut out, so they are still there.  Barry Smith made the following entries (so far as relevant):
i)	In the Transfers register he entered Steve as a transferor of one share to Terry with a date of 29th September 1997.  
ii)	In the register of members and shares held, there are facing pages for each of Terry and Steve.  The first line of the entry on Terry’s pages show his share acquired in “Nov 94”.  The next line shows a share transferred to him.  The figure “1” for the consideration and one other figure are admitted by Barry Smith to be his.  There are two other entries for Transfer numbers and folio which are not.  The date “29.09.97” in the date column is Barry Smith’s.  However, it is written on tippex which obscures another date which it can be seen is “SEPT 97” in unknown handwriting.  On the right hand page there are three other tippex blobs, over “Date of entry of transfer” (which can be seen to be 29.09.97), transfer no. and folio number.  The date under the “date of entry” tippex is clearly Barry Smith’s handwriting, though he does not say so (and was not asked).  The next line reflects the allotment of 9,998 shares to Terry.  The handwriting on this is not Barry Smith’s except for the date “23.12.98”, which is.  Again, this appears on tippex.  The tippexed date underneath is less clear, but it appears to be “APRIL 99”.  The pen used by Mr Smith appears to be the same on each occasion.  He accepts that it is possible, though he cannot remember, that he applied the tippex.  He surmises that at some stage after he saw the stock transfer form he checked to see whether the register had been updated to record the transfer, noted that only the month had been recorded in each case and corrected the date.  In the case of the allotment date, he guesses that the original compiler of the record took April 99 as being the relevant date because that is when Terry signed the resolution (apparently), so he re-dated it to show the correct date when he saw the record of the relevant resolution (dated 8th April 1999).  Barry Smith’s suggestion that this was a formalisation as a result of a check some time after the stock transfer does not ring true, and I find it hard to believe that he does not remember the circumstances of doing what must be an unusual act.  I think that the circumstances were other than those he has “guessed”, and he does not want to say what they were.  The entries were probably made at the same time (hence the same pen), at some time after April 1999 (they cannot have been earlier because of the April date appearing under the tippex on this page).  I think it likely that they were made at some point when it was appreciated that the registers, whenever they were first made up, did not fully correspond with Terry’s detailed case on dates.  
iii)	The next two facing pages relate to Steve’s shares.  They record his original share, and on the right hand side entries reflect a transfer on “SEPT ‘97”.  This handwriting on this entry looks as though it matches the same date under the tippex on Terry’s pages.  On the next line down three entries have been tippexed out. Under “Date of allotment” the date “SEP 97” is obscured and single figure entries under Transfer No and Folio have also been obscured.  Nothing is written in over the top.  I think it likely that these were tippexed by Barry Smith as part of the same exercise.  At the top right hand side of the page Barry Smith has completed the “Ceased to be a member on the …. 19 …” entry by making the date read “29 September [19]97”.  His witness statement says that he expects he would have done this to update the register to reflect the date on which Steve signed the stock transfer form.  That is unlikely, because this entry is quite clearly in a different pen from his other entries, so it is almost certainly the product of a different occasion. He has completed an entry for the resignation date for Mr Tully in what is apparently the same pen on a later page, on which nothing else turns.  
iv)	He also completed a share certificate for Terry reflecting the transfer of Steve’s share to him, and dated it 29th September 1997.  It is bound into the back of the register book.  That dating is plainly wrong, because the certificate can plainly not have been issued then, but it does demonstrate a subconscious desire to make sure that what was perceived as the important date appeared on all the documents.
44.	I think that it is very surprising that Barry Smith has no recollection of how he came to make these various entries.  While he may have a lot of clients to look after, and while it is entirely to be expected that the detail of their business often slips his mind, the facts of this case, and of what he did to the register, are sufficiently unusual that I would have expected them to stand out in his mind.  I think that what happened was that at some stage after April 1999 (which is well after the events in question) it occurred to him or to someone to check what the register said about dating, and since it did not clearly reflect a consistent case he set about improving it.  I do not think that he did it with a view to misleading anyone, and his intentions were not dishonourable, but I think that his failure to own up to his motivation does him less than credit.  His other failures of recollection are equally surprising.  I regret that all in all I have to treat his evidence with more circumspection than I would have wished or indeed expected.  
45.	Next is Mr Tully.  He is no longer involved with CBS, and apparently has no axe to grind.  Nothing in his evidence suggested that he was anything other than a witness of the truth as he saw it.  I can give weight to his evidence, but I have to allow for the inevitable difficulties in recollection at this remove in time.
46.	Karen Pett gave evidence.  She falls into the same category – she was a truthful witness.  However, at the time she joined CBS she was young and inexperienced, and it is a long time since the most significant events of which she gave evidence (witnessing Terry being upset at an apparent recent discovery of his brother’s treachery).
47.	Last was Mrs Carrol Smith, Terry’s wife.  She was called to give evidence of Terry’s upset at discovering what his brother had done, and of facts which were said to point to 29th September 1997 as being the date of the relevant meeting.  She would clearly wish to support her husband, but that does not mean that she would lie for him.  I think that she was doing her best to help, and not to mislead, and while she might (like many parents) have a keen recollection of her children’s birthdays she was at the end of the day reconstructing with little or no contemporaneous material to assist.
The reconstruction of the transfer
48.	There is one further matter of detail which I need to deal with before making some findings about the central events, and that is the circumstances of the dating and the physical reconstruction of the transfer.  Its date is no longer of legal significance, so it is now one of the many things in this case that goes to credit.  However, until very recently it was thought that it was significant, so much evidence was devoted to the point.  On Terry’s side the date was determined by reference to his subsequent visit to Wagstaffs, and the manner in which the evidential material pans out in relation to that is indicative of the value of Terry’s evidence, and his accountants’ evidence, in relation to this aspect of the case.
49.	No-one was able to tell me how or when the transfer was stuck together into the form in which it was presented for stamping, and in which it was presented to me.  That is surprising, but there it is.  Terry’s version of events is that he went to Wagstaffs very soon after the autumn meeting, spoke to Mr Savjani, they counted the days back and dated the transfer.  His evidence was quite clear that it was dated then.  Mr Tully says that he was told by Terry (as a historical narrative when he joined later in the year) that he went “straight round” to the accountants.  Barry Smith expressed confidence that the reference to the transfer in his note of 7th October cannot connote a request for another transfer form, from which I am asked to infer that the transfer had already been executed by that date.  
50.	There is no doubt that the date 29th September 1997 appears clearly on the face of the transfer as it now is, but it is equally clear that it cannot have been put on the face of that piece of paper when Terry says it was put on. It probably did not appear there for some years afterwards.  The reasons for that are as follows.
51.	There are three copies of the transfer in the papers before me.
i)	There is the stamped form.  That has been carefully stuck together, making the torn edges match as closely as possible.  It is a careful job.  The form contains Karen Briddon’s writing for the company, the shares transferred and the names and addresses of the transferor and transferee.  The dating is not in her writing.  According to Terry’s story it ought to be Mr Savjani’s but he did not recognise it as his.  It comprises the numbers for the day, month and year with dashes in between.
ii)	The next available copy is a photocopy of the form as signed but without the date.   The photocopy is very likely to be of the form as sellotaped together, so it occurred sometime between that sellotaping and the dating.  It was found on Wagstaffs’ files.  No-one has been able to account for its existence.  One can see that it is probably a version of the sellotaped form from the extent to which the joins are visible on the photocopy, which are identical to how they appear on a photocopy of the dated version.
iii)	The third copy is plainly a copy of the same pieces, and it is dated, but it differs in two material respects from the stamped and dated copy.  First the dating is plainly in a different form.  The handwriting is probably different and the numbers are separated by colons.  So there is no doubt it is a different dating from that appearing on the original.  Second, the pieces are not as well aligned as on the sellotaped original.  It was accepted by counsel, and I think that it is right, that it looks as though the pieces have been put on the photocopier, not stuck together, and then photocopied.  That being the case, the date must have been put on the photocopy (because it does not appear on the original, which is dated differently).  So this version of the document must have preceded the dated original sent to the Stamp Office.  No-one explained how this came into existence, but this was the version that was sent to Steve under cover of Wagstaffs’ letter of 16th January 2001.   If it was created by Wagstaffs (which is the only sensible explanation) then there ought to exist the original in the form of the photocopy of the bits with an original manuscript dating on it, but Wagstaffs have not produced it (a third party disclosure order was made against them in respect of relevant documents) so presumably it no longer exists.  Drawing sensible inferences, I think it likely that the document was created so that it could be sent to Steve.  
52.	From these forms the following points emerge:
i)	The original form as dated and submitted for stamping cannot have been dated as at 16th January 2001.  What was available for photocopying were the undated and unreconstructed bits.  If the actual form had been dated by this time in its final dated form then it is likely that a photocopy of that would have been sent, not the thing that was actually sent.
ii)	For the same reason, the bits had not been stuck together by that time.
iii)	Accordingly, the form cannot have been dated at or even shortly after the meeting between Terry and Mr Savjani – the dating occurred after 16th January 2001.  
iv)	In the circumstances Terry’s account of the meeting shortly after the autumn meeting cannot be correct.  The form cannot have been dated then.  It is, I suppose, true that the bits might have been photocopied for the purposes of that meeting so that the photocopy could be dated, and that the 29th was the date then identified as the date of the autumn meeting, but I would expect someone to have remembered that course of events if it were true, and no-one’s evidence suggested that that occurred.  Terry does not refer to that as happening; Mr Savjani does not say anything about that; and while Barry Smith was not at that meeting nothing in his evidence suggests that such a version of the transfer existed as at that time.  Furthermore, why would Mr Savjani procure the dating of a photocopy?  If the dating had happened at that point in time, it was presumably intended as some sort of formal act, so one would have expected him to have arranged for the dating of the original.  
53.	What this does is to undermine the date on the document as being the starting date which Terry and his witnesses (principally his wife) then set out to corroborate.  It is, of course, true that the same date was relied on fairly soon afterwards because it appears in the return filed in mid-November, but it seriously undermines the date put forward by Terry.  It also further undermines the sort of reliance that I would normally expect to be able to place on professional witnesses.  That there should be so much mystery and confusion about these events is down to the failure of the accountants to record the events properly.  While it is not fair to lay their defaults as such at the door of Terry in terms of his own credibility (and I do not do so) it does demonstrate a somewhat cavalier approach to important matters, and the manner in which the whole affair was dealt with lends support to the submission of Mr Duddridge, who appeared for Steve, that there was some considerable sensitivity to the circumstances of the execution.  
54.	Looking at all the material available, I think that Steve is more likely to be right about the date of the meeting.  He has the support of his contemporaneous documents.  I think that Barry Smith’s manuscript reference to the draft transfer form on 7th October is most sensibly construed as an indication that he was asked for, and provided, a transfer for Terry to use later that day at his meeting with Steve.  If it could have been established that some form of the transfer was physically dated shortly after the meeting, when events were fresh in the mind, the date on the transfer would have been a more reliable indicator.  However, it was not dated, and the earliest dating event is not until mid-November (the company return), which is some distance in time from the meeting.  It may be that the choice of date at that point was at least partially influenced by Terry’s own misconception that the date of the transfer would somehow influence the entitlement of those shares to attract a dividend declared in respect of the year’s profits – his own evidence indicated that he was under some such misconception.  I do not think that Carrol Smith was telling untruths in her evidence – I consider that she was doing her best, but was misrecollecting events which occurred a long time ago. 
Was Steve supposed to have an interest in CBS?
55.	I can now embark on findings in relation to the two key issues in this case.   The first is whether Steve was intended by Terry (and himself) to have any shareholding in CBS at all.  This is relevant to the second issue, because if he was not then it would help to explain why he would agree to transfer the share unconditionally, which would in turn help to suggest that Terry’s account of the autumn meeting was correct.  Conversely, if he were intended to have the share it would mean that he was being asked to give up something that was genuinely his, which would deprive Terry of the point he could otherwise make.  It could also be said that if he should not have had the share in the first place, I should not make an order rectifying the register to restore it to him. 
56.	On this issue I am satisfied that Steve was intended to have a shareholding, and he was entitled to the share that he had.  There are a number of reasons for this:
i)	As a matter of the presentation of evidence and witnesses, I prefer Steve as a witness on this point.  His evidence was credible, and was presented credibly.  Overall Terry was not such a credible witness.
ii)	If Terry were right about this, Steve would have been perpetrating a fraud in procuring a share for himself and then insisting on it.  Having seen him give his evidence, I do not believe that he would defraud his brother in that way.
iii)	Steve’s evidence is supported by the background to the matter.  CBS was going to undertake work that was not done by CCL – it was to be a main contractor undertaking building works, and not merely a painting and decorating company.  However, at least in the initial stages it was, and was going to have to be, closely associated with CCL and, more importantly, reliant on its resources.  In this way it was a spin-off of CCL and it is understandable that the shareholders in CCL would also have an interest in CBS, and not particularly understandable that they would not.  In this context I am referring to the fact that CCL was actually the contractor for some time, until CBS established its own reputation, but so far as customers were concerned and so far as suppliers were concerned, it was CCL they were dealing with. CCL funded the early months to a considerable extent, and provided resources. 
iv)	Furthermore, Steve participated in setting it up, did the dormant company accounts while it was dormant, and then provided accountancy services and bookkeeping supervision, as well as such other input as Terry required, until he was supplanted by Wagstaffs between May and September 1997.  Terry says that these activities were voluntary and he was grateful, but I do not accept that they were voluntary in the sense he intends. In the circumstances I do not think that Steve would have been giving his services in this way, and I do not actually think that Terry thought he was.  Steve was (as Karen Pett said) doing for CBS what he did for CCL.   This was because CBS was a sort of extension of CCL, and that extension included a shareholding.  Terry had taken no steps to get someone else to carry out Steve’s functions (or not until mid-1997 – he had investigated Wagstaffs a couple of year’s previously, but he did not revive it when he started CBS’s trading), so he must have anticipated that Steve would do it.
v)	I do not rely on the fact that Terry signed documents containing express or implicit references to Steve’s shareholding.  I have referred to these above.  However, those documents, and the other documents that inevitably existed, meant that sooner or later the “fraud” alleged by Terry would have come to light and the issue would have to be confronted.  That would lead to a potentially large dispute.   If Steve was misleading Terry he can hardly have expected Terry merely to accept it.  I think it is fundamentally unlikely that Steve would have set up an inevitable dispute in this way.
vi)	This finding is corroborated by Mr Evan-Hart’s evidence that he was told by Terry that Steve had a shareholding, or perhaps interest in profits.  He got the shareholding wrong (or Terry got it wrong) but I am satisfied that Terry said something about it, and that that demonstrates that Terry knew Steve had one.
57.	 I therefore think that Steve is correct in saying that “we” decided to incorporate a new company, and that he was not merely instructed (or requested) by his brother to do it for his brother alone.  Together they formulated the strategy of using CCL in the manner referred to above.  
58.	I have not ignored the evidence of Karen Pett and Carrol Smith that Terry appeared one day to be upset about the discovery of Steve’s shareholding, but there are problems about taking this at face value and saying it corroborates Terry’s story.  I do not think that Terry acted consistently with such apparent upset.  His upset was not so obvious that it stuck in the minds of Barry Smith (or, as far as we know, the reluctant Mr Savjani) at Wagstaffs.   Terry’s evidence was that he discovered that Steve had a share at a meeting with Wagstaffs at which both those individuals were present.  He says he was shocked but cannot remember if he made a comment.  Again, that is not plausible.  If he had been shocked he would inevitably have said something, but he is unable to say what, and the accountants say nothing on the topic.  And if he was as upset as be professed to be, one would have expected him to have done more about it than he did.  He says that he got a transfer form (which he did – Wagstaffs sent him one on 30th June 1997), but merely photocopied it, did not use it and did not challenge Steve with the matter.  He says he did not want to confront him with it, but that is not the act of a man who has just made the shocking discovery that he says he had made.  Terry is no shrinking violet, and having seen him in the witness box I am satisfied that he would have taken immediate steps to fix the situation if he thought he had been defrauded.  
59.	Those witnesses may have seen him react to some new discovery or appreciation, but I think it was an appreciation of something else.  It may be that in the summer of 1997 it came home to Terry that Steve still had a 50% shareholding in CBS.  The brothers had never had a discussion about shareholdings when the company was set up.  It was to be a joint company, and Steve arranged for equal shareholdings for them.  It does not follow that they would necessarily end up with equal shareholdings, and Steve was minded to accept that, as a result of a negotiation (if it had happened) that might not have been the case.  He referred to his “moral” entitlement to shares being 20%.  I think that what probably happened was that there was some sort of passing reference to the possibility of Terry buying Steve out of CBS and CCL, as a result of which Terry began to focus on the fact that Steve had a shareholding which would have to be dealt with (a fact that he would probably have focused on earlier if he had had to).  He may have realised at that time that he should have made earlier arrangements, and that made him upset.  This version ties in with the statement in the letter from Barneys of 18th September 2001 in which it was said that it was during an argument with Steve that Terry discovered that Steve had got a 50% interest.  It may be that what made him cross was not the assertion of an interest, but the assertion of a 50% interest.   Karen Pett and Carrol Smith then misunderstood precisely what he felt upset about, and that misunderstanding has become reinforced and entrenched as time has gone on and as the dispute has escalated and crystallised into litigation.
60.	I therefore find that Terry’s case that Steve was not intended to be a shareholder in CBS is wrong and that Steve was intended to have such an interest.  He did not act dishonestly in arranging for the initial shares to be held as to one each.  
The status of the share transfer
61.	It is common ground that if Terry is right about what happened at the meeting, so that Steve signed the transfer and handed it to him before turning to other business, then the transfer was complete and the claim for rectification fails.  It is also common ground that if it was signed with words and/or conduct indicating that its final effect was to await some further discussion, then it was not complete and could not be treated as effective (though Mr Collings had some additional submissions to make as to whether rectification as sought should be available).  That common ground makes it unnecessary to consider authority unless my findings are some sort of half way house – that the form was signed by Steve without any express or implicit form of reservation but retained by him and not handed over in the period between signing and tearing up.  I shall therefore first make the relevant findings of fact.
62.	There is, of course, no other direct evidence of what happened other than the accounts of the parties, so their respective credibilities are important.  However, just as important in this case are the probabilities as to what happened – if one party’s version of events is more probable when measured against the background then that will weigh in his favour.  I therefore need to revert to the background and to determine what the circumstances were leading up to the meeting.
63.	The first important piece of background is my finding that it was not the case that Steve was to have no interest in the company.  CBS was set up as a venture in which they were both to be interested, even if they might ultimately have reached an agreement that Steve’s interest would be less than half (which is plausible bearing in mind Steve’s frank concession that “from a moral standpoint” (his actual words) he might be entitled to only 20%).   That means that the background to the transfer was not common ground between the brothers to the effect that Steve had no interest and therefore ought to rectify the shareholding situation.  If Steve were to transfer the share then he would be giving up something to which he was entitled.
64.	Next is the fact of the 28th May meeting.  There was, as I have described, a passing reference to Steve being bought out of both companies, but of more significance is the fact that Steve’s subjective view is that one way forward might be that he should be bought out of both.  His own agenda note shows that he had that in mind.  That makes it less likely that he would surrender his CBS share by itself for no real consideration, unless he was satisfied that it was worthless.   He cannot have been so satisfied as at the autumn meeting because, having had no involvement in the affairs of CBS since he was displaced in May or June, he did not know its financial state.  As a newly started company it might be guessed at that it had no substantial value, but that was not a given, and Terry himself says that he planned (unknown to Steve) to declare a dividend, which was why he said he wanted the transfer dealt with before the year end.
65.	Then there is the oral request made by Terry to Steve that he transfer his share.  Each brother accepts that such a request was made at some point between the May meeting and the autumn meeting but each differs as to what the response was.  Terry says that Steve agreed; Steve says he refused.  Terry’s evidence makes it look as though this request was made as part of the arrangements for the autumn meeting, and that Steve agreed to it acknowledging that he should not have had his share.  If there were a straight dispute as to the response given to an agreed question then it would not be useful to consider this point separately because it raises the same questions as the main question I have to decide, but the manner in which Terry raises it is significant.  He says, in effect, that Steve agreed to transfer the share back because he acknowledged that he should never have had it.  I find that it is fundamentally unlikely that Steve acknowledged any such thing – his view at all times was to the contrary.  That being the case it is difficult for me to accept that he agreed the transfer without any such acknowledgement – why should he?  That leaves me with Steve’s evidence.   It is, of course, denied by Terry, but it is plausible, and I find, that he was indeed asked for the transfer and that he refused it.  That would tie in with the fact that Terry actually obtained a transfer form from Wagstaffs at the time.  It would be natural for him to ask Steve to execute one, and natural for Steve to refuse.  That might explain why that particular form was then put on one side.
66.	At the same time I must bear in mind Steve’s status in CBS.  He had ceased to fulfil the only function that he ever had, and was obviously going to play no part in its future – contrast CCL in respect of which he was still the accountant.  That would make it more likely that he would be receptive to a request for a transfer of his share; it is a pointer in favour of Terry’s version of events.   
67.	One therefore arrives at the meeting against that background.  It is common ground that the first thing that happened was that Terry presented the transfer for execution and it is common ground that Steve signed it.  The question for me is what happened in the course of, and immediately after, that signing.  There are significant probability problems for each side’s version of events:
i)	Steve’s version of events involves him subjectively wishing to reserve his position on transferring (pending a satisfactory outcome of the remainder of the negotiation) while at the same time doing a very positive act indicating willingness (signing the transfer).  That raises some doubts about this version of events.  His evidence that the form was signed as a gesture to his brother is odd – it does not strike me as an entirely natural thing for him to do for that purpose, even if he had wanted to make a gesture.  
ii)	Terry’s involves a clear transfer at the outset, but then it involves him establishing a dishonest act on the part of his brother, namely asking for the return of the transfer form on a pretext so that he could then destroy it.  That involves two difficulties for him.  First, it involves him establishing dishonesty on the part of a man who is otherwise an honest man.  That is obviously not impossible, but it raises an additional significant hurdle for Terry’s case.  Second, it implicitly acknowledges a link in Steve’s mind between signing the transfer and getting what he wants out of CCL – when he did not get it he tore up the transfer.  If there were that degree of conditionality in his mind, why would Steve apparently sign the transfer unconditionally in the first place?  Why would Steve give away a bargaining chip like that?  Each side’s account therefore has certain inherent improbability problems.  
68.	I have also considered the events after the meeting to consider to what extent they assist in determining what happened at it. 
i)	Terry says he took the pieces round to Wagstaffs very soon afterwards.  His witness statement did not say what he told them.  I have already given my reasons for saying that his account of the meeting cannot be correct (because of the dating point).  That does not increase one’s confidence in his account of the tearing up.  I think that it is likely that at some point between the date of the meeting and mid-November (when the company return reflecting the transfer was signed) he did take the pieces to Wagstaffs and had a discussion about them with Mr Savjani.  In his oral evidence Mr Savjani accepted he had advised that it could be registered.  However, in a letter dated 30th July 2001 Mr Savjani had said that “We did not proffer any advice concerning the registration of the stock transfer form between yourself and Mr T Smith”.   That was therefore inaccurate.  If they gave some sort of advice one would have expected them to have asked, and to have been told, what had happened.  If Terry had told them the version of events now maintained one would have expected either that a note would have been made by the accountants, or that a letter would have been sent to Steve to record events, or that at least it would have stuck in Mr Savjani’s mind what it was that he had been told (or perhaps even all three of those things).  However, none of those events occurred.  By the time he wrote to the Stamp Office Mr Savjani remembered only that the tearing up had occurred “accidentally”, something that he claimed to have assumed for himself.  In his evidence in chief he said that he had been told that the transfer had been torn after it had been handed over (which, so far as it goes, is consistent with Terry’s case), but that is all.  As a piece of evidence, delivered in the context in which it appeared, it was very weak.  All that damages Terry’s version of events.  
ii)	It then appears that there were still lingering (or more substantial) doubts as to whether Terry still had a share at the time of the proposed increase of the share capital – see Barry Smith’s letter referred to above.  This tends to demonstrate a continuing sensitivity.  
iii)	Subsequently Steve sought to take matters up with Terry (through Wagstaffs) in correspondence.  The course of that correspondence is set out above.  Even allowing for Terry’s distaste for paperwork, his failure to procure a response does not encourage a belief in his version of events.  If he were right he had a good answer to Steve’s letter of 18th January 2001, yet it was not given for many months.
69.	Taking all these matters into account (including my impression of the witnesses), I think that Steve’s account of the meeting is to be preferred.  In so finding I find that he signed the form at the outset, and did not hand it over, while uttering words to the effect that it was to be discussed.  I think that that is the more likely course of events (against the background that he considered he had an entitlement to the share), and it is to a limited extent bolstered by the fact that he did not date it (though this is not a factor he himself positively relied on).  If he had intended his acts to be definitive transferring acts, accompanied by handing it over to his brother, I would have thought it marginally more likely that he would date it than that he would leave the date blank.  Businessmen tend to leave dates in such documents blank where they do not intend them to have immediate effect.  There is no reason why Steve would wish the transfer to have some suspensive effect unless it were the reason that he gave – it depended on the outcome of the rest of his negotiations.  When the negotiation turned out to be not to his liking, he tore up the transfer, thereby preventing it from ever having effect because the execution was never complete.  
70.	This finding makes it unnecessary for me to consider authority.  The principal authority which was made available to me was Pennington v Waine [2002] 1 WLR 2075, but since it is agreed that if there was a signature accompanied by a conditionality of the kind that I have found then the transfer was not fully executed, I do not need to consider the point further.
71.	Accordingly I find that the transfer of Steve’s share was not completed and should not have been registered.   Mr Collings submitted at the beginning of the trial that the form of relief, involving rectification, might have to be the subject of further argument, bearing in mind the further issues of shares and the allotment to Mr Paxton.  I will hear further argument on that if necessary.  However, Mr Collings also raised another point, which he said arose out of the evidence.  He relied on the acknowledgement of Steve that while from a legal standpoint he had 50% of the company, from a moral standpoint he thought perhaps he should have 20% (a figure that he arrived at after a little thought in the witness box).  Mr Collings said it would be wrong for me to make a rectification order which would put Steve back in the position of a 50% shareholder when he should really only have 20%, and he said I had sufficient flexibility in exercising my discretion in relation to rectification of the register to make an order which would entitle Steve to only 20%.  I am not sure what form of order that would be, but in any event I reject the suggestion that I should exercise my discretion in that way on the facts of this case.  There are two possibilities.  Either Steve is entitled, as a matter of law (and equity) to his share absolutely; or the facts are such that, at least in equity, he should only have 20% of the company at most (or perhaps some different percentage, less than 50%).  If the former, then Mr Collings suggestion fails.  If it is the latter, then that has to be determined by someone. I cannot determine it on the material before me in this action and as this action is formulated.  It can, if necessary and appropriate, be decided after rectification of the share register in the same way as it could have been decided had there never been any purported transfer of the share. While the prospect of these two brothers engaging in further litigation is deeply unattractive, I do not think I can short-circuit that step.  Just because Steve made the remark he made on the basis of  “morality” does not necessarily mean that he thereby fixes his stake in the company.
Conclusion
72.	 I shall therefore make such orders as are appropriate in the circumstances to rectify the share register of CBS to restore Steve’s shareholding to the register.