Conversion — Share transfer by claimant nominee — Defendants failing to transfer headlease in return — Whether damages for conversion to be based on value of lost headlease — Whether claimant as nominee suffering any loss — Claim allowed
The claimant was a nominee company created by the second defendant firm of solicitors to hold property for its clients. The claimant held certain shares in the third defendant as nominee for C. As part of a development project, an agreement was reached whereby the claimant was to transfer those shares to the first defendant in exchange for the sale of a headlease to C. A share agreement was executed, pursuant to which the shares were transferred. The first defendant was registered as the owner of the shares. However, the first and third defendants then withdrew from the headlease transaction, leaving them in possession of both the headlease and the shares.
In proceedings brought by the claimant, the judge found that a binding agreement was in place under which the transfer of the shares was conditional upon the simultaneous transfer of the headlease to C. The claimant sought to recover damages for conversion. An issue arose as to whether damages could be quantified by reference to C’s failure to acquire the headlease. The defendants argued that the claimant should recover only nominal damages, because C, not the claimant, had suffered the loss of the headlease. They also relied upon the absence of any binding contract for a sale of the headlease to C, submitting that damages could therefore be assessed only on a loss-of-opportunity basis.
Held: The claim was allowed.
In a case of conversion, damages should give the claimant compensation only for losses that it had sustained. The value of the converted asset was a suitable starting point for determining that loss. However, that value was not necessarily a correct measure of the damage suffered since the claimant might have suffered greater or lesser loss: Kuwait Airways Corporation v Iraqi Airways (Nos 4 and 5) [2002] UKHL 19; [2002] AC 883 applied.
The conversion consisted of the misappropriation of the stock transfer form and share certificate, the effect of which was permanently to deprive the claimant of its shareholding. It was wrong to say that only the loss of an opportunity had occurred. What had been lost was what should have transpired, had the transfer of the shares taken place within the agreed framework, namely the transfer of the headlease. The claimant had been prepared to transfer the shares, which it held on behalf of C, only in consideration of a transfer of the headlease. Had the claimant received the headlease, it would have held it on behalf of C also. The fact that it was decided that the headlease was to pass to C directly did not alter the value of the shareholding when in the claimant’s hands, nor what it had been deprived of by the misappropriation. Once it was determined that, save for the conversion, the transfer of the headlease would have taken place at the same time as the share transfer, the loss of the headlease quantified the value of the shares and therefore the claimant’s loss.
James Thom QC (instructed by Howard Kennedy) appeared for the claimant; Christopher Stoner (instructed by Radcliffes Le Brasseur) appeared for the first and third defendants; the second defendant did not appear and was not represented.
Sally Dobson, barrister
