Usman Hussain Malik v Mahboob Hussain

On completion of a valid share sale, the vendor holds the shares on trust for the purchaser pending registration. After payment, the vendor is ordinarily a bare trustee and must exercise voting and other rights as directed by the beneficial owner. A company’s articles cannot override the statutory right of members to remove directors under Companies Act 2006, s 168.

A company register may be rectified where a person has been entered without sufficient cause. The court should not defer rectification merely because another person asserts an unadjudicated equitable claim. Interim relief is determined by the usual balance-of-convenience principles, including relative case strength and the risk of irremediable harm.

The judgment determined several applications arising from the implementation of an earlier court-ordered sale of 50 shares in R N Restaurant (Stockport) Limited. The claimant sought directions concerning the sale contracts and declarations that, after payment, Mahboob Hussain would hold the shares as bare trustee and exercise the rights attached to them as directed.

He also sought rectification of the company’s register after two shares transferred to him in 2016 had been re-registered in Nusrat Malik’s name without any transfer by him. Nusrat advanced a competing beneficial-ownership claim and sought an injunction pending trial. The central issues were the parties’ rights between completion and registration, the scope of the company’s discretion under its articles, the proper approach to rectification, and whether interim protection was justified.

1. Sale shares. Upon payment of the purchase price, Mahboob would hold the 50 sale shares as bare trustee for Usman. He was required to exercise the voting and other rights attaching to them as Usman directed and could not obstruct Usman from obtaining the full benefit of the transfer. The court accepted the principles stated in Lysaght v Edwards, Michaels v Harley House (Marylebone) Ltd, Wall v Bright, Re Piccadilly Radio plc and Hooper v Herts.

2. Replacing the directors would not circumvent Article 6 of the company’s articles. The new directors would remain subject to the article and their legal duties when deciding whether to register the transfer. Article 6 could not qualify the members’ statutory power under s 168 of the Companies Act 2006 to remove directors.

3. A limited power of attorney was properly and reasonably necessary in the unusual circumstances. It could cover voting, shareholder documentation and requests for meetings under ss 303, 305, 168 and 312 of the Companies Act 2006, but should not create new substantive obligations beyond the existing legal position.

4. Two shares. The register was factually inaccurate because Usman had never transferred the two shares back to Nusrat. Under ss 125 and 126 of the Companies Act 2006, the register records legal title and cannot be altered by directors merely because an unadjudicated trust, undue-influence or misrepresentation claim is asserted. Rectification was therefore ordered pending determination of Nusrat’s claim. The court applied Nilon Limited v Royal Westminster Investments SA and Re Coroin Ltd.

5. Nusrat’s claim raised a serious question to be tried despite its inconsistency with the earlier evidence. It was not summarily struck out. The court applied the approach in LA Micro Group (UK) v LA Micro Group, as summarised in Malik v Malik, requiring a broad merits-based assessment of any alleged abuse arising from a change of position.

6. The injunction application was considered under American Cyanamid Co v Ethicon Ltd and National Commercial Bank Jamaica Ltd v Olint Corpn Ltd. The balance of convenience favoured refusal because Usman was entitled to exercise his rights as registered owner, while reasonable undertakings could reduce the risk of irreversible harm to Nusrat. Usman undertook not to deal with the shares, to comply with any later order, and to give 14 days’ notice of significant dealings with the company’s business or property.

7. The sale-contract and sale-shares applications succeeded substantially. Usman recovered 80% of his costs from Mahboob. Costs concerning the two-shares and injunction applications were ordered to be costs in the substantive two-shares claim.

The judgment records that the dispute had previously been considered in earlier High Court judgments and by the Court of Appeal, including the decision reported at [2023] EWCA Civ 2. Those earlier decisions formed the background to the present applications. This judgment determined the further sale-process, rectification and interim-injunction issues.