Shah v Shah

An agent or fiduciary who receives proceeds belonging beneficially to others must properly account for them. Equitable compensation for breach of that duty requires the court to determine, on the balance of probabilities, what would have happened if the accounting had been made properly. The court must assess the counterfactual using the circumstances and knowledge existing at the relevant time, rather than hindsight. Findings that parties acted as agents and fiduciaries do not, without more, establish a partnership or impose partnership obligations. Sections 39 and 44 of the Partnership Act 1890 do not require an individual partner to apply monies received after an alleged dissolution directly to partnership debts.

The judgment concerned outstanding issues arising from prolonged litigation between three brothers concerning their business dealings and jointly held assets. The court had previously found that Jaivant and Bharat were accountable to Ashok for proceeds from the sale of the Surat Plot and Bombay Flat, and that Ashok remained liable for part of the Gudka debt.

Ashok sought an indemnity from Jaivant and Bharat. He argued that the proceeds should have been used to repay the Gudka debt, either because partnership obligations required that result or because proper accounting would probably have led to repayment. The court also considered whether Jaivant should account for the Jamnagar marine venture on a previously indicated valuation and whether late expert evidence on Indian law should be admitted.

1. Jamnagar marine venture. Jaivant had failed to provide a coherent explanation or documentary evidence concerning the investment. An agent investing on behalf of others must understand and follow the investment sufficiently to give a full and proper account. No new material justified changing the previously indicated basis of valuation. Jaivant was therefore directed to account on the basis that the brothers’ share was worth £100,000, making him accountable to Ashok for one third.
2. Late expert evidence. The application to adduce a 46-page report on Indian law was made shortly before trial. Jaivant had long known the general substance of Ashok’s case and had had sufficient opportunity to serve evidence or make a timely application. The evidence was refused and no adjournment was granted.
3. Partnership argument. No finding had been made that the brothers’ relationship was a partnership or that it had been dissolved. The findings that Jaivant and Bharat were agents and fiduciaries did not depend on partnership. Even if a partnership existed, sections 39 and 44 of the Partnership Act 1890 dealt with the working out of partnership accounts on dissolution and did not impose the granular obligation contended for.
4. Equitable compensation. The sale proceeds were beneficially owned by the brothers in equal shares. Jaivant and Bharat were constructive trustees of the proceeds and breached trust by failing to account to Ashok. Applying the approach in AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503, the relevant question was what would probably have happened if proper accounting had occurred. That question had to be answered using the facts known or understood in 2003 and 2012, without hindsight.
5. The court found it highly unlikely that Ashok would have insisted on repayment of the dormant Gudka debt or applied his share of the proceeds towards it. The claim for an indemnity and for the transfer of liability for the Gudka debt to Jaivant or Bharat therefore failed.

This was a further first-instance stage of the litigation. The judgment referred to the earlier Second Issues judgment, [2017] EWHC 2693 (Ch), which had left certain matters outstanding.