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Dineshkumar Shah v Chandrakant Shah (2010)


Where a family company was a quasi-partnership with characteristics which, on principles of equity, engaged obligations that were common to partnership relations, it had been unjust or unfair to exclude a member from participation in its management without an offer to buy the minority shareholder's shares or make some other fair arrangement.


The petitioner (D) issued an unfair prejudice petition against his brothers, the first and second respondents (C and M), and the third respondent family company. In a second action, D, as claimant, alleged that the transfer of shares in the company from him to M, as defendant, was void or ineffective. D, M and C had been involved in the running of the company, together with a fourth brother (R). Following a feud, they had been involved in a succession of litigation, including proceedings before the employment tribunal in which D's claim of unfair dismissal was dismissed. The parties subsequently met and D and R signed a letter and transfer form confirming the transfer of 4,000 shares in the company to M. M later stepped down as a director. D issued his petition under the Companies Act 2006 s.994 seeking an order that C be required to buy his shareholding in the company at a price to be determined by the court or, alternatively, that the company be wound up under the Insolvency Act 1986 s.122(1)(g). D also issued a claim seeking to avoid the transfer of shares to M. D contended, inter alia, that his exclusion from the management of the company amounted to unfair prejudice. C submitted that the judgment of the employment tribunal on the issue of unfair dismissal created a res judicata or, alternatively, that it would amount to an abuse of process for D to re-litigate in the instant trial matters which the tribunal had determined. In respect of the second action, D contended that he had signed the letter and stock transfer form in reliance on oral representations by M and R that D was under a legal obligation to transfer his shares, and believing that M was therefore entitled to them. D argued that the representation was false or the documents were executed on the basis of a mistake of fact or law or, alternatively, that the documents signed were not sufficient to give M legal or beneficial title to the shares since the stock transfer form was incomplete and the letter was insufficient to create a trust.


(1) The key question in the second action was whether it was represented to D or he had considered that he was under a legal obligation to transfer his shares to M. On the evidence, there had been no misrepresentation to, or mistake on the part of, D at the meeting following the conclusion of the earlier litigation. The letter, coupled with D's signing of the form, amounted to a sufficiently clear and unequivocal intention to create a trust in favour of M and there was no necessity to identify further in which 4,000 shares out of D's total shareholding in the company he was giving M the beneficial interest, Paul v Constance (1977) 1 WLR 527 CA (Civ Div) and Hunter v Moss (1994) 1 WLR 452 CA (Civ Div) followed. That was sufficient to dispose of D's claim against M to avoid the share transfer, but, in any event, that view was fortified by the fact that D had not sought to challenge or complain about the transfer until he considered M had betrayed him by siding with C. (2) A party should not have to re-litigate the same issue again, and the bringing of a claim or raising of a defence in later proceedings might amount to an abuse of process if the court was satisfied that the claim or defence should have been raised in the earlier proceedings, Johnson v Gore Wood & Co (No1) (2002) 2 AC 1 HL followed. In the instant case, it would be oppressive to require C to re-litigate the very issues of whether or not, and in what circumstances, D was willing to work at the company that had been argued before the tribunal and it would bring the administration of justice into disrepute if D were now able to ask the court to make contrary findings to those arrived at by the tribunal. (3) A company with certain characteristics may, on principles of equity, engage obligations that were common to partnership relations. In such a company, which was a quasi-partnership, it might be unjust or unfair to exclude a member from participation in the management without an offer to buy the minority shareholder's shares or make some other fair arrangement, Ebrahimi v Westbourne Galleries Ltd (1973) AC 360 HL followed. In the instant case, the company had the character of a quasi-partnership, and whilst D had clearly misconducted himself as an employee, there was nothing in his attitude to the overall management of the company that could justify his exclusion. (4) Although the jurisdiction to wind up a company on "just and equitable grounds" and the jurisdiction to grant relief for "unfair prejudice" under s.994 operated in parallel, they were not co-terminous. Hence, a case that justified relief on the grounds of unfair prejudice might not justify the "death sentence" involved in a winding up. In the instant case, it was not appropriate to grant D the extreme remedy of winding up the company and that part of his petition would be dismissed. However, he had suffered unfair prejudice within the terms of s.994 and it was appropriate to grant a remedy in terms of a purchase of his shareholding by C pursuant to s.996.

Judgment accordingly

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24 Feb 2010

Chancery Division
Roth J

‚ÄčLTL 2/3/2010: [2010] EWHC 313 (Ch) : AC0123858

Andrew Walker QC

Practice areas
Company, Partnerships & LLPs