Sueda Yusuf (Claimant) v (1) Tanju Yusuf (2) Pekalp Properties Ltd (Defendants/Part 20 Claimants) & Ors (2019)
In a dispute relating to a family-owned property company, the court granted an unfair prejudice petition and determined issues on the evidence, including the individual shareholdings of the respective family members and whether any were held on trust, and the status of purported share transfer and trust documentation.
In a dispute relating to a family-owned property company (P), a mother and daughter petitioned for unfairly prejudicial conduct against the son. He brought a Part 20 claim against the daughter for development profits received by her, and for funds allegedly received by her and her husband on trust for P following the sale of a Cypriot company.
At P's incorporation in 1996, the share capital was distributed equally between the mother, father, son and daughter. The mother and daughter's case was that that had been intentional. The son had been the sole director for most of P's existence. By 2011, a return filed at Companies House indicated that the son owned 50% of the shares and the mother owned none. The mother denied signing a transfer document; the son relied on a letter allegedly signed by her, requesting the transfer. The authenticity of that document was challenged. The son's case was that he and the father had always intended P to be split equally between them, but that when the daughter qualified as an architect, she had been given 25% of the shareholding on the basis that she would use her architectural skills in the business. The son claimed that the mother had held her shareholding on trust for him from the outset. In 2016, the father's 25% shareholding was transferred to the son following his death.
P owned two properties. It had once owned two further properties, whose renovation had been organised by the daughter and her husband. P sold those properties for a profit. The daughter and her husband wanted to undertake further developments for P, but the son refused. Consequently, the daughter and her husband undertook six projects themselves, buying properties at auction and funding the renovations. There was also a dispute concerning the sale of a Cypriot company in 2014 to which P had contributed funds. The son's case was that the sale proceeds were held on trust for P, pursuant to the terms of a declaration of trust said to have been entered into in 2003.
The court was required to determine issues on the evidence.
The mother's interest in P - The mother was entitled, and always had been, to a 25% shareholding in P. Her son had failed to establish that she held her shares on trust for him. The facts were not consistent with the mother being a bare trustee. There had been no formal share transfer agreement and no share register had been written up to record the transfer. The letter relied upon by the son as evidence of the transfer did exist and the signature was probably the mother's. However, her ill health at the time, and her poor grasp of paperwork, explained why she might have forgotten about it, or possibly not appreciated what it was. In any event, the letter was not an effective transfer of shares. It was merely an instruction to prepare transfer documentation which the writer intended to sign at a later date. It did not state the number of shares to be transferred or whether the transfer was a gift or for consideration (see paras 87-97, 186 of judgment).
The daughter's interest in P - The son's claim that the daughter received her shares on condition that she provided architectural services was hopeless. Consequently, she was not required to account for any of the development profits which she and her husband had undertaken in their own names. They resulted from the couple's own efforts and funding (paras 98-102).
The Cypriot company - The purported trust document relating to the Cypriot company was odd: it appeared to be written as an instruction but did not state to whom, and appeared to deal with both the land and the company shares. The father and mother appeared to have signed it in their personal capacities, not as director and company secretary of the Cypriot company, which did not make sense in the context of the son's assertion that the effect of the document was that his parents owned the shares on trust for P. Although the trust document had met its objective of satisfying the requirements of a bank, the family had never placed any other significance on it. Any "trust" over the land itself had been completely ignored. The document did not demonstrate an intention to create a trust at the time of signing, but only an intention to sign a future document, which had seemingly never been prepared. The evidence indicated that the funds advanced by P had been loans, not equity investments. Even if there had been a valid trust, P was to be treated as having broken it under the Duomatic principle, Duomatic Ltd, Re  2 Ch. 365 considered (paras 103-128).
Unfair prejudice - On the evidence, P's affairs had been conducted in a manner unfairly prejudicial to the mother and daughter owing to failures to comply with basic corporate requirements; financial irregularities; and the son's failure to discharge his duty to promote P's success for the benefit of its members as a whole and to avoid a conflict of interests (paras 135-170, 186). An account was required to address financial irregularities. The relief ordered would include a process allowing for the sale of at least one of P's properties (paras 171-181).
Petition granted, Part 20 claim dismissed
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