Malik v Hussain Jr & Ors

The court found that Tariq and Mahboob had formed an informal partnership in 2002 concerning the Stockport Road property and the Stockport Road Nawaab business, and that the 2006 partnership deed confirmed and continued that partnership. The judge concluded that Tariq and Mahboob held their shares in RN Restaurant (Stockport) Limited (the Stockport Road company) as partnership property. The 2007 irrevocable power of attorney in favour of Asad conferred authority to exercise Tariq’s partnership and related company rights until revoked in 2016. The 2009 issue/allotment of shares resulting in Nusrat and Mirza each holding 25% was held to give them absolute beneficial ownership; that transaction did not dissolve the partnership but reduced the partnership’s shareholding to 50%.

By contrast, the Perivale Nawaab and the Perivale company were held to be a separate venture: the partnership had no proprietary claim to that business and the opening and funding of the Perivale venture did not amount to unfairly prejudicial conduct by the Stockport Road company. The petitioner’s Companies Act 2006 s.994 unfair prejudice petition therefore failed and was dismissed. The partnership should be dissolved and wound up and a final account taken. The Stockport Road company’s counterclaim, alleging unauthorised payments to Tariq and payment of wages to family members for little or no work, was dismissed largely because of acquiescence, the Duomatic principle and the absence of convincing contemporaneous proof.

Background and parties: The dispute arose from a business and family breakdown between two equal co-owners of premises at 1008 Stockport Road, Levenshulme, Manchester, and co-operators of an Indian restaurant business, the Stockport Road Nawaab. The claimant (Tariq) alleged an overarching partnership (the Nawaab partnership) with the first defendant (Mahboob) dating back to 2002, confirmed by a 2006 partnership deed. The defendants described the relationship as co-ownership of property and co-shareholding in a limited company which operated the restaurant.

Nature of the proceedings and relief sought: The claim combined a Part 7 claim seeking, inter alia, dissolution and winding up of the alleged partnership under ss.35(d) and 35(f) Partnership Act 1890 and an alternative petition under s.994 Companies Act 2006 alleging unfairly prejudicial conduct by the Stockport Road company. The Stockport Road company counterclaimed alleging unauthorised payments and misapplied company funds.

Issues framed:

• Whether a partnership existed covering the Stockport Road property and the Stockport Road restaurant business;
• Whether the 2006 partnership deed did, or could, incorporate the shares in the Stockport Road company as partnership property;
• Effect of the 2007 power of attorney executed by Tariq in favour of his son Asad;
• Effect of the 2009 issue/allotment of shares to the wives (Nusrat and Mirza) and whether those shares were held on trust for the partnership;
• Whether the Perivale restaurant opportunity and company belonged to the partnership or was diverted in breach of partnership or directors’ duties;
• Whether the s.994 petition was made out and whether the counterclaim should succeed.

Court’s reasoning and findings: The judge found on the balance of probabilities that an informal partnership came into existence in mid-2002 and that the 2006 partnership deed recorded and continued that business. The factual matrix, recital and capital provisions of the partnership deed supported a construction that the Stockport Road Nawaab business (and thus the shareholding in the operating company) was partnership property. The 2007 power of attorney was effective and for nine years allowed Asad to exercise Tariq’s partnership/company rights. The 2009 movement of shareholdings occurred by allotment and resulted in Nusrat and Mirza holding 25% each beneficially; any suggestion that those transfers were conditional, temporary or made to evade tax was rejected, in part on illegality considerations. The Perivale Nawaab was held to be a separate venture in which Tariq had been told he would not participate; the funding of the Perivale company by the Stockport Road company did not establish liability to account entitling the partnership to its assets. The s.994 petition failed. The Stockport Road company’s counterclaim failed because many of the challenged payments were made with the knowledge or acquiescence of other decision-makers or were not proven with sufficient clarity.

Disposition: The partnership is to be dissolved and wound up; the unfair prejudice petition under s.994 is dismissed; the counterclaim is dismissed. The judge invited tightly controlled further expert work only to value the partnership’s assets for the winding-up process.

First instance: The court held that a partnership existed between the claimant and the first defendant covering both the Stockport Road property and the Stockport Road Nawaab business; the parties’ shares in the Stockport Road company are partnership property (reduced to a 50% partnership interest following the 2009 allotment). The partnership should be dissolved and wound up. The Companies Act 2006 s.994 unfair prejudice petition was dismissed because the Perivale venture was a separate enterprise and the conduct relied on did not amount to unfairly prejudicial conduct. The Stockport Road company’s counterclaim was dismissed on the facts, including findings of acquiescence and delegated shareholder conduct by Nusrat and Mirza. The court gave reasons based on the factual matrix, construction of the 2006 partnership deed, the effect of the 2007 power of attorney and on principles including the Duomatic principle and illegality in the context of tax-motivated transfers.