Miah v Islam

Partners may recover legitimate expenditure incurred for partnership purposes even where the seller intended to evade tax by receiving part of the price in cash. The ex turpi causa principle does not apply where the claimant relies on the fact of payment and the illegal purpose is not an essential element of the right of indemnity. Cash used for the partnership is not criminal property merely because the payment structure may have facilitated tax evasion. The court also confirmed that a purported agreement transferring an interest in partnership land requires writing, and that a partner has no entitlement to salary without agreement.

The claimant and defendant were equal partners in a restaurant business. The claimant sought an account of their respective contributions after the partnership was dissolved. The defendant alleged that the claimant had agreed to leave the business in return for repayment of his contributions, and claimed credit for his own contributions and a weekly salary.

The court determined disputed cash payments, alleged partnership expenditure, the alleged buy-out agreement, the statutory writing issue, salary, and whether cash payments made for the purchase of the business were irrecoverable for illegality.

1. Contributions. The court found that the claimant contributed £11,000 and the defendant £5,000 in additional cash towards the purchase of the business. The claimant was also entitled to credit for £1,121.04 of expenditure where the court accepted that receipts had been delivered to the defendant and suppressed.
2. Alleged buy-out agreement. No binding agreement was reached in August 2006, or at any other time, under which the claimant agreed to leave the business in return for repayment of his contributions. The defendant’s correspondence was inconsistent with the alleged agreement. In any event, an agreement including an interest in the lease would have been subject to statutory writing requirements and void without writing. The suggested constructive trust failed because no relevant detriment was proved.
3. Salary. The defendant was not entitled to £250 per week. Salary required agreement, and neither draft partnership agreement was agreed. Any drawings would have been on account of profits.
4. Illegality. The claimant relied on the fact that money had been paid for partnership purposes, not on enforcement of an illegal contract. There was no evidence that the money itself was criminal property under the Proceeds of Crime Act 2002, and the submission that an offence under section 328 had been committed was rejected. Tax evasion by the seller explained the request for cash but was not an essential element of the partners’ right of indemnity. The ex turpi causa principle therefore did not bar recovery. The court distinguished Piper v Kirk, where tax evasion was said obiter to be integral to the transaction, and treated the present case as materially different.
5. Orders. The preliminary issues were determined by reference to the contributions set out in the Appendix: claimant £43,036.96; defendant £38,705.46. There was no buy-out agreement and the defendant had no salary entitlement.

First instance decision. No appellate history is stated in the judgment.