No Ifs, No Butts: EVALUATING EVIDENCE FOR UNCONDITIONAL LOANS VERSUS INVESTMENTS IN BUTT V BUTT & ORS [2024] EWHC 3222 (CH)

After 5 days of evidence and submissions, the Court has handed down judgment in the case of Butt v Butt & Ors [2024] EWHC 3222 (Ch). The case concerned a business centre in Nottingham (the “Centre”) and the beneficial ownership of M&B Properties (Nottingham) Ltd, an SPV which had purchased the Centre.

The dispute concerned four brothers (the “Butts”), two of whom (D1 and D4) had been running a gym at the Centre since around 2011. In 2017, two of the brothers (C and D1) agreed to purchase the Centre, with each brother putting up 25% of the value of the Centre in cash, and the remaining 50% being secured by way of a mortgage. The SPV was incorporated to hold the Centre at this time.

D1 failed to provide his share of the money (at that time £200,000) and so asked C to increase his contribution and then turned to his two remaining brothers (D3 and D4) to raise his share of the money prior to completion in May 2019. Over time the relationship between the brothers deteriorated and eventually D1 sold off part of the Centre without warning.

C issued a claim for a declaration that the Butts’ respective beneficial interests in the SPV equated to their financial contributions. D1 defended the claim on the basis that the agreement between him and C1 – reflected in their legal shareholding – was for them to have a 50/50 share of the SPV, and that D3 and D4’s contributions were always intended as unconditional loans.

After a detailed consideration of the written and oral evidence before him, the Judge determined that he was required to approach “the evidence of all of the witnesses of fact with a substantial degree of caution”. As a result, the Judge sought to evaluate the evidence in light of the observations of Leggatt J regarding the fallibility of memory in Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm),

The Judge also paid close attention to the factors identified by Lewison J in Painter v Hutchinson [2007] EWHC 758 (Ch) as being indicative of unsatisfactory witness evidence, namely (a) Evasive and argumentative answers; (b) Tangential speeches avoiding the questions; (c) Blaming advisers for documentation; (d) Disclosure and evidence shortcomings; (e) Self-contradiction; (f) Internal inconsistency; (g) Shifting case; (h) New evidence; and (i) Selective disclosure.

Overall, two aspects of the evidence were crucial. First, C conceded in his oral evidence that the consequences of unequal contributions were never discussed prior to Completion. In the circumstances there was nothing to suggest a variation of C’s shareholding from their legal shareholding.

Second, relying on the authority of Carmichael and another v National Power Plc [1999] 1 WLR 2042, the Judge examined the subsequent conduct of the parties and determined that in light of what the brothers subsequently said and did after completion, it was inherently more likely that the financial contributions made by D3 and D4 were in the character of investments in the joint property venture rather than unconditional loans to D1.

The Judge did not expressly determine if any subsequent equitable interest arose as a result of a resulting or a constructive trust, considering that noting turned on the important conceptual difference between the two classes of trust. Notwithstanding the Judge held that a beneficial interest had arisen in favour of D3 and D4 out of D1’s shareholding. Of note, the Judge was content to find that the beneficial interest arose in the SPV and not in the land directly (following the decision of Banner Homes Group Plc v Luff Developments Ltd[2000] Ch. 372).

This case is a useful examination of the relevant principles in evaluating evidence in cases of oral family agreements as well as of the flexibility of equitable remedies in such cases.

Hugh Rowan acted for the successful Third and Fourth Defendants (as Part 20 Claimants) instructed on a direct access basis.

You can find a copy of the judgement here.