Mohammed Arshad Alam v Pervez Alam & Anor

This is a first instance Chancery/Companies trial about competing proprietary and management claims arising from a long-running family business. The court applied principles of company law, constructive trusts and equitable estoppel to determine beneficial ownership of shares and of business premises, and the law of commercial/periodic tenancies for occupation of trading premises.

Legal principles and outcomes relied upon:

• The distinction between allotment and registration of shares and the effect of defective formalities (citing National Westminster Bank plc v IRC and company law principles).
• Constructive/common-intention trusts and the inference of common intention from conduct and arrangements between family members (Stack v Dowden; Jones v Kernott applied to business/share ownership).
• The Duomatic principle for validating informal unanimous member consent where members in fact consented.
• Proprietary estoppel and estoppel by acquiescence as equitable remedies, with reference to relevant authorities.
• Directors' duties and proper purpose constraints on allotments (Hogg v Cramphorn; Howard Smith), and equitable/dishonest-assistance principles (Royal Brunei; Ivey).

Applying those principles the judge found that AIL was intended and operated as a family property vehicle, that many of the purported allotments and share transfers were void or voidable, and that beneficial ownership in key companies should be declared to reflect the family understandings and conduct. The court also held that (i) the transfer/appropriation of the Cheetham Hill trading business gave rise to successful claims by WWF Rusholme against Arshad and WWF Cheetham Hill for breach of fiduciary duty, dishonest assistance and knowing receipt, and (ii) WWF Cheetham Hill nevertheless held a yearly business sub-tenancy with statutory security under the Landlord and Tenant Act 1954.

This is a multi-track, first-instance trial arising from a family dispute among six brothers about ownership, control and distribution of businesses and properties associated with a family group trading as Worldwide Foods. The trial encompassed one unfair prejudice petition (lead action) and four interrelated claims (possession; Birmingham - personal and derivative claims; Longsight; Cheetham Hill).

Background and nature of applications:

• The companies include AIL (a property holding company), several trading companies (WWF Manchester, WWF Birmingham, WWF Rochdale, WWF Rusholme, Al Halal) and later companies created by individual brothers. The disputes concern who beneficially owns company shares and premises, alleged improper allotments of share capital, diversion of business assets and alleged breaches of fiduciary duties and dishonest assistance arising from transfers of business to new corporate vehicles.
• The petitioner (Arshad) sought relief under s.994 Companies Act 2006 that AIL was a quasi-partnership for the brothers and/or that corporate conduct had been unfairly prejudicial; other claims sought possession of Cheetham Hill, declarations of beneficial ownership or remedies for breaches of duty, knowing receipt and dishonest assistance.

Issues framed:

• Who holds legal title to the disputed issued shares, and who are the beneficial owners?
• Are disputed allotments (2003–2014) valid, void or voidable and were they made for proper corporate purposes?
• Were any of the properties or companies held on constructive or resulting trusts for particular brothers (or transferable by proprietary estoppel)?
• Did Arshad breach fiduciary duties by causing transfers of business assets (Cheetham Hill, Longsight, Birmingham), and if so was WWF Cheetham Hill a knowing recipient / dishonest assister?
• Did WWF Cheetham Hill acquire a business tenancy with security under the Landlord and Tenant Act 1954?

Evidence and approach: The judge heard extensive witness and expert accounting evidence, company records and contemporaneous documents. Careful assessment of documentary evidence was preferred where contemporaneous documents existed; oral testimony, especially on contested factual points and where witness credibility was in issue, was tested and treated with caution.

Court reasoning and concise conclusions:

• Legal title: the registers/filings were analysed; the court applied the statutory distinction between allotment and registration and treated initial registered entries as evidencing legal title pending any retroactive rectification.
• Beneficial ownership: the court inferred common intentions and constructive trusts in the family context. After the key 2004 watershed (when a proposed transfer of trading companies into AIL was abandoned and administrators/grants in respect of the mother’s estate proceeded), ownership and management were understood to be severed so that each brother acquired beneficial control of the corporate vehicle for the businesses he managed. On that basis the court declared the respective beneficial ownerships: AIL shares are held beneficially between the five participating brothers (Arshad’s legal share held on trust for all five); WWF Manchester beneficially for Arshad (or alternatively estoppel in his favour); WWF Birmingham position re-shareholders adjusted and certain allotments void (12 August 2014 allotment void); WWF Rusholme ultimately beneficially for Pervez.
• Putative allotments: several allotments, and later purported large allotments to Pervez, were void or voidable — the 29 March 2004 AIL transaction (the two-part restructuring) never completed, and later purported allotments (2011, 2013, 2014 in varied respects) were defective.
• Possession / Cheetham Hill: AIL was legal owner of the freehold; WWF Rusholme had taken possession initially and thereby acquired a periodic (yearly) commercial tenancy; WWF Cheetham Hill later occupied and paid the same rent and so is entitled to a yearly sub‑tenancy with protection under the 1954 Act, but WWF Rusholme succeeded in claims against Arshad and WWF Cheetham Hill for breach of fiduciary duty, knowing receipt and dishonest assistance arising from the transfer/appropriation of the trading assets.

The judgment resolves factual ownership, allotment and equitable issues and leaves detailed remedies/relief and consequential orders for further directions.

First instance judgment: The court decided issues of legal and beneficial ownership, validity of allotments and proprietary/landlord and tenant questions. Key holdings include: (1) AIL was a family property vehicle; the legal share held by Arshad in AIL is to be treated (and in equity held) on trust for the five participating brothers (Pervez, Arshad, Zahid, Shahid and Kashif) in equal shares; multiple post-2003 alleged allotments and a major 29 March 2004 restructuring were void or voidable; (2) the 25 June 2003 allotment in WWF Birmingham was the product of agreed family understanding and the 12 August 2014 purported allotment was void; subsequent transfer by Kashif in December 2017 conveyed his equitable interest to Arshad; (3) WWF Manchester’s issued shares are held beneficially for Arshad (or alternatively proprietary estoppel operates in his favour); (4) WWF Rusholme’s issued share equitably benefits Pervez; (5) AIL, as freehold owner of the Cheetham Hill premises, was correct to pursue possession proceedings but WWF Cheetham Hill acquired a yearly business sub‑tenancy and protection under the Landlord and Tenant Act 1954; (6) WWF Rusholme succeeded in claims for breaches of fiduciary duty, knowing receipt and dishonest assistance against Arshad and WWF Cheetham Hill in relation to the Cheetham Hill business transfer. The court reserved consequential relief, quantification and rectification orders for further directions and any required adjustments to registers, and directed service/notice on non‑parties potentially affected.