Mohammed Arshad Alam v Pervez Alam & Anor

Legal title to shares generally remains with the persons entered, or entitled to be entered, in the register of members. Beneficial ownership may nevertheless arise under a common-intention constructive trust, including where family assets are acquired and managed informally.

Mortgage repayments made from a company’s trading receipts do not ordinarily create a resulting trust in favour of the trading company or its managers. Proprietary estoppel may apply to shares, businesses and other personal property, but requires a sufficiently identified asset, reliance and unconscionability.

A company’s affairs may be unfairly prejudicial where invalid share allotments are treated as valid and thereby undermine a member’s beneficial interest. A business occupier who enters possession and pays rent may acquire a periodic tenancy, with statutory security of tenure where the statutory conditions are satisfied.

The proceedings arose from a dispute between brothers concerning the ownership and control of a group of family companies, trading businesses and properties. Five conjoined claims were tried as preliminary issues, including an unfair prejudice petition concerning Alam Investments Limited, possession proceedings concerning the Cheetham Hill store, claims concerning the Birmingham businesses, the Longsight business and the Cheetham Hill business.

The central issues were the legal and beneficial ownership of shares and properties, the validity of disputed share allotments, the effect of informal family arrangements, proprietary estoppel, resulting and constructive trusts, alleged breaches of fiduciary duty, and the occupational rights of the company operating from the Cheetham Hill premises.

1. Share ownership. The legal title to the disputed shares remained vested in the initial family shareholders nominated for registration. The absence of maintained registers did not displace the statutory distinction between allotment and registration. Beneficial ownership was determined by the parties’ common intentions and subsequent conduct.
2. Constructive trusts. The family assets were initially held for the participating family members. In 2004, the abandonment of the proposed holding-company restructuring, together with the brothers’ assumption of reciprocal responsibilities and continued collaboration, varied the beneficial ownership of the existing trading companies. Arshad became beneficially entitled to WWF Manchester; Pervez became beneficially entitled to Al Halal and WWF Rusholme; and Zahid and Shahid became beneficially entitled to WWF Rochdale. AIL’s share was held for the five participating brothers in equal shares.
3. Properties. AIL acquired the Cheetham Hill store and 28 Slade Lane as beneficial owner. Mortgage payments made from trading receipts did not create resulting trusts in favour of the trading companies or Arshad. The acquisition of property in a company’s name, and the intended use of trading income to repay borrowing, did not alter that conclusion.
4. Proprietary estoppel. The doctrine was capable in principle of applying to shares, businesses and other personal property. Arshad failed in relation to the Cheetham Hill and Birmingham businesses because there was no sufficient assurance, no relevant knowledge of a mistaken belief, and no unconscionable conduct. His alternative estoppel claim concerning WWF Manchester would have succeeded if the constructive-trust analysis had failed.
5. Allotments. The 2003 allotment of shares in WWF Birmingham was approved by the participating brothers and was validated by the Duomatic principle. The later AIL allotments were voidable or void because they formed part of an uncompleted restructuring, were not made with the necessary consent, or were made for an improper purpose. The 2014 allotment of 20,000 shares in WWF Birmingham was void because no valid meeting or resolution occurred. Kashif’s signed stock transfer form assigned his equitable interest to Arshad.
6. Unfair prejudice. Pervez’s treatment of invalid AIL allotments as valid repudiated the brothers’ shared understanding and prejudiced Arshad’s beneficial interest. Arshad therefore established unfair prejudice under section 994 of the Companies Act 2006. His other grounds, including exclusion from management and the possession claim, failed.
7. Cheetham Hill claims. Arshad breached duties of fidelity and good faith by appropriating WWF Rusholme’s business and transferring it to WWF Cheetham Hill. WWF Cheetham Hill was liable for knowing receipt and dishonest assistance. The conspiracy claim failed for lack of a predominant purpose to injure.
8. Occupation. WWF Rusholme acquired a yearly tenancy of the Cheetham Hill store. The later occupation by WWF Cheetham Hill created a yearly sub-tenancy, not an assignment or surrender by operation of law. WWF Cheetham Hill therefore had statutory security of tenure under Part II of the Landlord and Tenant Act 1954.
9. The remaining questions concerning relief and consequential orders, including issues concerning Kashif’s possible disposition of his AIL interest, were adjourned.