Mehra v Shah & Ors

Where non-partners claim beneficial interests in partnership assets through a constructive trust, the claim requires evidence establishing the factual basis for the claimed interest, including sufficiently direct contributions where relevant. The Court of Appeal left the full conceptual scope of such a claim open, but held that it failed on the facts. Beneficial ownership may be inferred from partnership funding, documents, asset treatment, and the parties’ conduct. The presumption of advancement does not presume a gift to children who were not the named recipients of transferred money, or establish a further trust for them. The appeal was dismissed because the trial judge’s property findings were open to her on the evidence.

Members of an extended family disputed the beneficial ownership of several properties, including the Big House and properties in Barking Road. The action succeeded in the Chancery Division before Miss Sonia Proudman QC, sitting as a Deputy Judge, who found that Fine Fabrics was a partnership between the six brothers alone and that the properties were partnership assets. She ordered dissolution of the partnership and consequential relief, including sale of the properties.

The effective defendants appealed, challenging the factual findings, seeking a retrial based on additional evidence, and arguing that the sisters had beneficial interests under a constructive trust. The central issues were whether the property findings were supported by the evidence, whether the additional evidence justified a retrial, and whether non-partner family members could claim interests in partnership assets.

1. Disposition. The Court of Appeal unanimously dismissed the appeal. Permission to amend the grounds and rely on additional evidence had been granted, but the additional material did not justify a retrial.
2. Evidence concerning the properties. The draft declaration of trust and Ratilal’s telephone conversation with Sangeeta substantially undermined the appellants’ case. Even if Rajnikant had originally instructed the solicitor, the conversation supported the inference that Ratilal was the controlling mind behind the arrangement. The deputy judge was entitled to infer that the Barking Road properties had been mainly funded by the partnership. Bank statements produced on appeal did not establish how the relevant joint account had been funded and did not advance the challenge. The findings concerning the Big House were likewise open to the deputy judge on the evidence.
3. Constructive trust. The suggestion that the sisters, although not partners, were entitled to beneficial interests in the partnership assets as if they had been partners was rejected. The Court of Appeal held that, even if such a claim was conceptually possible, the facts did not begin to establish it. The reasoning was consistent with the passage from Lord Bridge’s speech in Lloyds Bank plc v. Rosset [1991] 1 AC 107 concerning the need for sufficiently direct contributions where no prior agreement or arrangement concerning beneficial ownership is shown.
4. Presumption of advancement. The deputy judge was right to reject the argument that money transferred by the father to named children carried a presumption of a gift to children who were not the named recipients, or that the recipients held property on a further trust for them.

• Court of Appeal (Civil Division): On 20 May 2004, the appeal was dismissed unanimously.
• High Court (Chancery Division): Miss Sonia Proudman QC, sitting as a Deputy Judge, ordered on 1 August 2003 that the partnership consisted of the six brothers and that the properties were partnership assets. The partnership was ordered to be dissolved, with consequential relief including sale of the properties.