Malik v Hussain Jr & Ors

A partnership may exist before incorporation where parties carry on, or have commenced, a business in common with a view to profit. Incorporating a company does not necessarily dissolve or transfer the partnership business. The court must determine the parties’ agreement and conduct, and may find that the company operates the partnership business as an operating vehicle.

A written partnership agreement takes effect according to its properly construed terms. A party’s failure to read or understand it does not alter that result absent a recognised vitiating factor. Partners may consent to competition under Partnership Act 1890. In a company dispute, informed consent or acquiescence by directors and shareholders may defeat an unfair-prejudice claim.

The claimant sought declarations and accounts on the basis that he and the first defendant had operated a wider restaurant partnership. He alleged that the partnership included the Stockport Road property, the Stockport Road restaurant business and the later Perivale restaurant venture.

Alternatively, he petitioned under section 994 of the Companies Act 2006, alleging unfairly prejudicial conduct in the affairs of the Stockport Road company. The company brought a counterclaim concerning payments to the claimant and members of his family.

The central issues were whether a partnership existed, the effect of the 2006 partnership deed, the status of company shares issued to family members, the effect of the power of attorney, the Perivale venture, and the counterclaim.

1. Partnership. The court held that a partnership existed between the claimant and the first defendant in relation to the Stockport Road property and the Stockport Road restaurant business. The statutory elements were a business, carried on in common, with a view to profit. The parties’ use of a company to operate the restaurant did not itself determine or dissolve the partnership. The company operated the restaurant business on behalf of the partnership, and the shares held by the two men were partnership assets.
2. Partnership deed. The 2006 deed was a legally effective contract. It was to be construed by ordinary contractual principles, having regard to the relevant factual matrix but not pre-contractual negotiations or private intentions. Its references to the restaurant business, partnership capital and partnership assets established that the Stockport Road company shares were partnership property. The deed did not retrospectively create a partnership binding third parties, but the parties could agree between themselves to treat earlier dealings as governed by the partnership terms.
3. Competition and authority. The deletion of a contractual prohibition on competition did not itself determine the construction of the deed. However, a separate oral agreement constituted consent under section 30 of the Partnership Act 1890. The 2007 power of attorney authorised the claimant’s son to exercise the claimant’s rights in relation to the partnership and the restaurant business, including relevant rights as shareholder and director.
4. Shares and the Perivale venture. The shares issued to the claimant’s wife and the first defendant’s wife were held by them absolutely and beneficially. The issue of shares did not dissolve the partnership; the partnership retained the remaining 50% shareholding. The claimant had consented to the Perivale venture and had no partnership claim in respect of it. The company’s funding of that venture did not justify buy-out relief.
5. Unfair prejudice and counterclaim. The section 994 petition failed. The claimant’s informed consent and the delegated authority of the other shareholders engaged the Duomatic principle. The counterclaim also failed because the payments were consented to or acquiesced in by the relevant decision-makers, and the company could not later rely on the absence of formal approval.
6. Orders. The partnership was dissolved and ordered to be wound up, with a final account to be taken. The petition and counterclaim were dismissed. The court declined to make final or indicative valuation findings on the company shares and directed that any further accounting evidence be tightly controlled and proportionate.