Shah v Shah

This was a first instance judgment concerning a petition under section 994 of the Companies Act 2006 for unfair prejudice and an alternative winding-up claim under section 122(1)(g) of the Insolvency Act 1986, together with a separate claim to avoid a transfer of 4,000 shares. The court found that the company had the character of a quasi-partnership and that the petitioner, Dinesh, had been excluded from participation in management in circumstances amounting to unfair prejudice under section 994. The court dismissed the winding-up claim as an inappropriate remedy and held that the appropriate relief was an order for the purchase of the petitioner’s shares under section 996 of the Companies Act 2006.

On the separate action, the court rejected the petitioner’s challenge to the share transfer to Mike: the combination of the letter and the signed stock transfer was held to evince an intention to create a trust in favour of Mike and the claim to avoid the transfer was dismissed. The court also held that certain findings of the Employment Tribunal were binding in the present proceedings and barred re-litigation by way of abuse of process/estoppel on those specified matters.

Background and parties: The disputes were between Shah brothers who had worked together in a family business carried on through Mister Dee International PLC. The petitioner (Dinesh) brought a petition under section 994 seeking purchase of his shares or, alternatively, winding up under section 122(1)(g); separately he sought to avoid a transfer of 4,000 shares said to be in favour of his brother Mahendra ("Mike"). There was significant prior litigation between the brothers, including a 2005 High Court judgment and an Employment Tribunal decision in 2006, which featured in the trial.

Nature of relief sought:

• Petition under section 994 for unfair prejudice (or alternatively winding up under section 122(1)(g)).
• Order for purchase of petitioner’s shares under section 996.
• Declaration that 4,000 share transfers to Mike were void/ineffective.

Issues framed:

• Whether the company was a quasi-partnership and whether Dinesh had been excluded from management such as to constitute unfair prejudice.
• Whether the 12 March 2005 documents and related declarations created a trust giving Mike beneficial title to 4,000 shares.
• Whether findings in the earlier Employment Tribunal decision and the 2005 High Court judgment gave rise to issue estoppel or made further litigation an abuse of process.
• What remedy, if any, should be granted: winding up or buy-out.

Court’s reasoning and conclusions:

• The company bore the characteristics of a quasi-partnership (personal relationship, understanding that shareholders would participate in management and restrictions on transfer) and equitable considerations therefore applied.
• The court concluded that, once Dinesh would not sell his shares with his brothers, CJ (the majority shareholder) took steps (bank mandate, secretary appointment, de facto exclusion) that effectively removed Dinesh from management and sidelined him; no offer to buy his shares was made. That exclusion without an appropriate offer was unfairly prejudicial under section 994.
• The court held the earlier Employment Tribunal findings (on specific matters identified at the start of trial) were binding for the purposes of preventing re-litigation on those issues and, applying Johnson v Gore Wood and related authority, ruled that certain matters were barred as an abuse of process or by estoppel.
• As to the share transfer claim, the court rejected allegations of operative misrepresentation or mistake. The March 12 letter together with the signed transfer manifested an intention to create a trust for Mike, sufficient to vest beneficial interest; accordingly the claim to avoid the transfer was dismissed and Mike succeeded on his counterclaim for the bonus shares attributable to his holding.
• The court dismissed the winding-up prayer as inappropriate and concluded that the appropriate remedy was a purchase order for Dinesh’s shares under section 996; the court declined to make any order against Mike and reserved directions on the precise form and valuation procedure.

Other findings: the court found that Dinesh’s 18 November 2005 letter was not a resignation of his directorship at that time and that CJ only later sought to treat it as such for his own purposes.

First instance: the court dismissed the claim to avoid the transfer of 4,000 shares (claim against Mike dismissed) and dismissed the winding-up claim. The court found that Dinesh had suffered unfair prejudice under section 994 by being excluded from participation in management and ordered that the appropriate remedy was a purchase of his shareholding under section 996 of the Companies Act 2006. The court relied upon the company’s quasi‑partnership character, found exclusion by the majority without a reasonable offer to buy the petitioner out, and applied principles of abuse of process/issue estoppel to bar relitigation of certain Employment Tribunal findings. Reasons for relief were given and directions as to precise relief and valuation were reserved for further hearing.