Usman Hussain Malik v Nusrat Malik & Ors (Re RN Restaurant (Stockport) Limited)

The claimant sought declarations as to his legal and beneficial ownership of two shares transferred to him in October 2016. The first defendant counterclaimed that the transfer should be set aside on the grounds of resulting trust, misrepresentation or mistake, and actual or presumed undue influence. The court applied the established principles on resulting trusts (intention of the transferor and the rebuttable presumption of advancement), misrepresentation and mistake, and the law of undue influence (as summarised in Royal Bank of Scotland v Etridge (No.2)).

On the facts the judge found that the transfer was an unconditional disposal by Nusrat of the legal and beneficial interest in the two shares to Usman: the transfer was made to secure both the short term objective of removing Tariq as director and the longer term objective of enabling the sons to run the family business, and was not a limited-purpose transfer held on resulting trust. The pleaded innocent misrepresentation was not made and, in any event, would have been substantially true in the practical circumstances. The evidence did not establish actual undue influence and, on a realistic assessment of the transaction and motives, the presumption of undue influence did not require rescission. Accordingly Nusrat’s counterclaim failed and Usman retains the beneficial ownership of the two shares.

Background and parties: The dispute arises from a transfer in October 2016 by Nusrat Malik of two of her 25 shares in R N Restaurant (Stockport) Ltd to her son Usman (and two shares to his brother Asad). The transfers formed part of family steps taken to remove Tariq Malik as a director and preserve the family restaurant business. Following protracted litigation between family members (including prior High Court and Court of Appeal decisions), Nusrat asserted in this Part 8 counterclaim that she remained the beneficial owner or that the transfer should be set aside.

Nature of the application: Nusrat sought relief on three alternative grounds: (i) that the transfers gave rise to a resulting trust because they were made for a specific administrative purpose rather than with donative intent; (ii) that they were procured by misrepresentation or operative mistake; and (iii) that they were procured by actual or presumed undue influence. The claimant sought declarations of his legal and beneficial ownership and to resist the counterclaim.

Issues framed by the court:

• Whether the 2016 transfers created a resulting trust in favour of Nusrat (i.e. whether donative intent was absent because the transfers were made only for a specific purpose).
• Whether any misrepresentation was made, induced the transfer, or whether there was an operative mistake making the transaction voidable.
• Whether the transfers were procured by actual undue influence or whether a presumption of undue influence arose and, if so, whether it was rebutted.
• Whether any defences (for example affirmation, laches or unconscionability arising from subsequent events) barred relief.

Reasoning and decision: The judge made careful credibility findings on oral and contemporaneous documentary evidence and emphasised the importance of the factual context in a family business dispute. He accepted that a presumption of advancement exists on a mother-to-adult-children transfer but treated it as weak given the circumstances and analysed the parties’ subjective intentions. The contemporaneous documentary materials, witness statements and conduct were held to be consistent with an unconditional, irreversible gift intended both to allow the sons to secure the immediate corporate objective (removing Tariq) and to promote the longer term objective of enabling them to act as family representatives in the business. The alleged representation (that sons had to be shareholders to be directors) was not found to have been made by the sons; and even if asserted, it was substantially true in the particular factual matrix (that a transfer was needed to secure votes if Nusrat might be unwilling to vote). On undue influence, the judge accepted that Nusrat trusted her sons and relied on them but concluded the transaction was explicable by ordinary family motives (protecting the family business and income) and not of a kind calling for rescission.

Outcome: Nusrat’s counterclaim was dismissed and Usman was declared the legal and beneficial owner of the two shares.

The defendant's (Nusrat's) Part 8 counterclaim is dismissed. The court held that Nusrat effectively and unconditionally disposed of the legal and beneficial interest in the two shares to Usman; the transfer was not held on resulting trust, no actionable misrepresentation or operative mistake was established, and neither actual nor presumed undue influence entitled Nusrat to rescission. The judge’s reasoning rested on contemporaneous documents, witness credibility findings and application of authorities including the principles in Lewin on Trusts and Royal Bank of Scotland v Etridge (No.2).

There was extensive earlier litigation in this family company dispute, including two earlier trials in the High Court ([2020] EWHC 2334 (Ch) and [2021] EWHC 1405 (Ch)), subsequent contested hearings and a disputed sale/auction process decided in [2023] EWHC 1433 (Ch). An appeal to the Court of Appeal succeeded on a point and is reported at [2023] EWCA Civ 2. This trial concerned a final determination of Nusrat’s counterclaim in the 2023 Part 8 proceedings.