No: CH6/07, 8027 of 2006
Neurtal Citation Number: [2008] EWHC 959 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
NEWCASTLE DISTRICT REGISTRY
Date: 27th February 2008
Before :

HIS HONOUR JUDGE ROGER KAYE QC
(Sitting as a High Court Judge)

IN THE MATTER OF GATE OF INDIA (TYNEMOUTH) LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 1985
- - - - - - - - - - - - - - - - - - - - -
Between :

SHAJNUR RAHMAN	
Petitioner	
	-	and –		
	(1)	ABDUL MALIK
(2)	RUNA LUMINA AKTHAR MALIK
(3)	GATE OF INDIA (TYNEMOUTH) LIMITED	

Respondents	
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
Counsel and Solicitors:
Mr Michael Gadd instructed by Messrs Gordons, Marlow, appeared for the Petitioner
Mr Matthew Smith instructed by Stockdale and Reid Ltd, North Shields, appeared for the first and second Respondents

Hearing dates: 			3 – 7, 10 – 11, 13 December 2007, 9 January 2008
- - - - - - - - - - - - - - - - - - - - -
JUDGMENT

Judge Roger Kaye QC: 

Introduction

1.	This is the trial of a petition presented initially to the Royal Courts of Justice on 12 May 2005 (and subsequently transferred to the Newcastle District Registry) under s 459 Companies Act 1985. By common consent, the petition is to be regarded as having continued, following the coming into force of the relevant parts of the Companies Act 2006 on 1 October 2007, under s 994 of that Act. This was the view taken by Lewison J of the effect of s 1297 of the 2006 Act in Frederick Geraint Hawkes v Michael Cuddy & Ors [2007] EWHC 2999 (Ch) to which I have been helpfully referred by counsel and I agree.

2.	The petition has undergone three amendments, the last being on 18 September 2007 shortly before the commencement of the trial.

3.	There was also a counter-claim, as I shall explain, but this was not pursued on the commencement of the trial.

The Background

4.	The background to the case, as I find it, is largely uncontroversial though several incidents are.

5.	The case concerns a restaurant business run by members of a Bangladeshi family at 39/40 Front Street, Tynemouth, called “The Gate of India”. The business is operated through a company, The Gate of India (Tynemouth) Ltd (“the Company”) which is the third respondent to the petition. This company was incorporated on 5 May 1999 as Malaga Restaurants Ltd and changed its name to the present, according to accounts drawn up for the period ending 31 May 2000, on 27 July 1999. It commenced trading (according to the same accounts) as a licensed restaurant on 1 August 1999.

6.	The nominal capital of the Company is £1000 divided into 1000 ordinary shares of £1 each. 

7.	The current registered shareholders are the petitioner, Shajnur Rahman (known amongst his family and friends as “Shajnu”) with 5 shares, his uncle, Abdul Malik, the first respondent (“Mr Malik”) with 14 shares, and Mr Malik’s daughter, Runa Malik, the second respondent (“Runa”), with 1 share. The petitioner contended this was wrong and an attempt to dilute his shareholding. The respondents have conceded that this does not now reflect the current position in the sense that each “side” now or ought to have 50%. In my judgment insofar as this reflects an increase in Mr Malik’s shareholding from 5 to 14 and an allotment to Runa of one, this was an unauthorised attempt in August 2003 by Mr Malik to dilute the petitioner’s shareholding. But it is thus now common ground that the share register should reflect an equal holding by the petitioner and Mr Malik of 5 shares each. It is not, however, disputed that the petitioner is a registered shareholder and thus entitled to petition. The respondents contend, however, that the petitioner holds his shares as nominee for his father, Mr Shohidur Rahman (“Mr Rahman Senior”), who is the elder brother of the first respondent, Mr Malik.

8.	By the time the petition came to trial the most relevant members of the family were Mr Rahman Senior and his brother Mr Malik. Both gave evidence at the trial.  There was a third sibling, Meenah, who married a Mr Abul Azad, the latter also giving evidence for the respondents. Mr Rahman Senior had three sons, one by a separate marriage, Mustak Ahmed, and two by his marriage to Mrs Chowdhury, namely the petitioner and his brother Shetu. Mr Malik had three children, a son, Mr A K Malik, a daughter, Runa, and a second son, Mr Bablu A T Malik. All of these, with the exception of Mr M Ahmed, gave evidence at the trial. In April 1994 the petitioner had married in Bangladesh and by 1999 had a young son.

9.	It is common ground that the Company is in fact a successor to a number of companies that have operated the restaurant business originally started by the two brothers, Mr Malik and Mr Rahman Senior, over 30 years ago. As each company was succeeded so the business, somehow and apparently seamlessly, was transferred to the successor. 

10.	The business was commenced on 1 August 1976 by both brothers. Both were equal partners. They operated for a time under the terms of a partnership deed dated 14 October 1977. In the early 1980s the partnership business found itself incorporated into a company, Gate of India Company Limited, and subsequently transferred to a second company (Gate of India (NE) Ltd which was incorporated on 6 August 1993), and eventually to the present company. It is possible there were other companies before these but in each of these companies Mr Rahman Senior and Mr Malik were equal shareholders and directors or, in Mr Malik’s case, acting through members of his family (usually a son, daughter, or daughter in law) as his nominee. 

11.	To all intents and purposes the business was run by the two brothers or, when occasionally each returned to Bangladesh for a time, by members of usually Mr Malik’s family on their behalf. The business was, it is common ground, at all material times up to 1999, operated as a partnership, or, once owned by the companies, as a quasi partnership. Each had an equal voice whether at home or abroad and whoever actually from time to time conducted the day to day operations, each expected the other to consult and keep the one informed and involved. At the same time, it is also important to note, that the context was one of a Bangladeshi family tied by blood, religion, culture and tradition. 

12.	The premises from which the Company trades, 39/40 Front Street, were acquired in two stages. Part was acquired in about 1979 and a further, adjacent part was acquired about 10 years later allowing for expansion. The position is not entirely clear but it appears that this property is still registered in two different titles, one which is now in the names of the respective wives of the two brothers, Mrs Chowdhury (Mr Rahman’s wife), and Mrs N N Malik, and the second appears to be owned by Mr Rahman Senior and Mr Malik, the latter executing a declaration of trust of his beneficial interest in favour of his wife on 27 January 1997. The companies operating the business from time to time have had no formal lease, but occupy under an informal arrangement under which rent is paid to the wives.

13.	It emerged that part of the reason for the continual succession of companies and use, at least by Mr Malik, of nominees, was because from the outset and right up almost to the hearing of the petition there were difficulties and continuing difficulties with HM Customs and Excise and the Inland Revenue (now HM Revenue and Customs or HMRC) over the amount of takings and profit for VAT and tax purposes. According to Mr Malik the brothers were advised by their accountant to transfer the business in case the appeals were unsuccessful and the company concerned could not meet the resultant debt and went into liquidation. From time to time assessments were made for under declared VAT and appealed, the last appeal being eventually compromised with HMRC in 2006.

14.	The business was, as I have indicated, a family enterprise. The petitioner and his brother, Shetu, and Mr Malik’s own sons, all started to work in the restaurant initially part-time whilst still at school and later full-time. They were paid wages whilst the profits were divided up between Mr Malik and Mr Rahman Senior.

15.	In May 1995 Mr Rahman Senior returned to Bangladesh. By this time the petitioner was working full-time. Day to day control of the business fell to Mr Malik. He was, according to Mr Rahman Senior, supposed thereafter to consult the petitioner on his behalf about the running of the business, but did not. Although Mr Malik said that he had regular telephone conversations with his brother about the running of the business I am inclined to think that this was not very often. Mr Rahman Senior’s share of the profits (on average about £500 per week) was, the petitioner says, paid to the petitioner, which he would pass on to his mother. Some part of it up to 1999 even found its way to Mr Rahman Senior.

16.	In July 1999 the VAT problems were continuing with the substantial outstanding (but appealed) assessments for alleged under-declarations of VAT. Indeed Mr Malik was interviewed by VAT officials on 23 July 1999. Around the same time Mr Rahman Senior decided not to return to England. For his part, Mr Malik wanted to distance himself from the business or at least make himself less visible to the tax authorities and wanted to use the new company for this purpose. (It does not seem to have done him much good, HMCE soon latched on to the new company!)

17.	The brothers reached an agreement, the terms of which are disputed and are at the heart of the dispute between the parties. The agreement or discussions between the brothers seem to have had two elements: the new company and the role of the petitioner. 

18.	As to the new company, the memory and evidence of the petitioner and his father on this point was confused. Neither could recall discussions about the, or a new company. Mr Rahman Senior thought he was discussing his shares in the existing company or business. In my judgment since the VAT authorities were heavily pressing at the time it must have featured large on Mr Malik’s horizon and I find there was some discussion about the move of the business to the new company. In any event I doubt whether the discussions were technically very sophisticated: the brothers would have talked about “the business” but both would have understood that to mean all aspects of the business including the corporate vehicle for that business.

19.	It seems therefore to have been agreed that, in view of the continuing VAT difficulties, the business then carried on by Gate of India (NE) Ltd would be transferred to the newly incorporated company, Gate of India (Tynemouth) Ltd and the petitioner would take over his father’s shares. The former (the transfer to a new company) came, in my judgment, from Mr Malik and was very much his idea. The latter, Mr Rahman Senior was concerned about and came from him. 

20.	At this point, on the second element of the discussions, the versions diverge more seriously. The petitioner and Mr Rahman Senior both, in substance, say that it was agreed by all (including therefore, by Mr Malik) that the petitioner, as Mr Rahman Senior’s eldest son, would take over what was regarded as his inheritance, that is his father’s interest in the business and succeed him both as director as well as shareholder. The son, in short, would step into the father’s shoes. Mr Malik’s version is that the petitioner would be a nominee shareholder only for his father and not a director. He regarded him as unsuitable and unacceptable. Instead, his, Mr Malik’s, daughter in law (Mrs Lotifa Malik, wife of his son Mr A K Malik – and from whom I did not hear evidence) would become director and nominee for Mr Malik. The petitioner was to be company secretary only. In short, according to Mr Malik there was to be a change of form but not substance; according to the petitioner there was to be a change of substance.

21.	The business was transferred to the Company and, as previously mentioned commenced trading on 1 August 1999. Mr Malik’s daughter in law was appointed director (according to the first accounts) and remained so until 1 January 2001. Shares were allotted to the petitioner and to Mrs L Malik (3/25/929-929d). The petitioner was appointed company secretary. The authorised signatories on the Company’s bank account were Mr Malik and the petitioner according to a mandate signed by both the petitioner and Mrs L Malik. Mr Malik says that he nevertheless continued to consult his brother and regarded the new company as merely a continuation of the old owned on the 50:50 basis.

22.	In August 1999 the petitioner’s younger brother, Shetu, left the business to start up his own. That left the petitioner as the sole representative of his side of the family such that he felt outnumbered by Mr Malik and his family. Mr Malik was effectively running the Company. Around the same time the petitioner’s son became seriously ill causing him to lose a lot of time at work which, the petitioner says caused resentment especially with his uncle, Mr Malik.

23.	On Sunday 22 August 1999 an incident took place at the restaurant which is also hotly disputed. Put briefly and neutrally at this stage, an argument developed over a relatively trivial matter resulting in the petitioner leaving. He did not return. Each side blames the other. The petitioner says he was threatened and evicted and thereafter excluded from the business. The respondents say he did the threatening and had to be evicted as he was causing trouble. He effectively excluded himself. Although he continued to be notionally company secretary he ceased to be employed as from the end of September 1999. He took no part in the business or its management since. Mr Malik, says the petitioner, stopped paying him his share of the profits. 

24.	Nevertheless, in November 1999, as Mr Malik concedes, he signed a quarterly VAT return in the petitioner’s name and submitted it to HM Customs and Excise. He says he did this with the petitioner’s permission which the latter disputes. 

25.	The petitioner contacted his father who told him to get professional help. He did so but it came initially to nothing. The petitioner was much pre-occupied with his son’s illness and the issues concerning the restaurant business were not then really addressed. His son was admitted to hospital and so serious was his illness that the petitioner and his wife were accommodated in the hospital so as to be near him. Sadly the petitioner’s son died about a year later in September 2000.

26.	The petitioner then suffered a prolonged bout of severe depression for which he was prescribed drugs. He says he has now made a recovery but his mother Mrs Chowdhury (whom I saw in evidence) doubted this. Having seen him in the witness box I too have my doubts but no medical evidence has been adduced. I have also little doubt that the depression alone and the illness and death of his son had a lengthy and substantial effect on him. As a result he did not follow up the 1999 incident.

27.	Chronologically speaking, if events are anything to go on, Mr Malik seems to have used the inactivity of the petitioner to consolidate his position in the Company. In January 2001 Mrs L Malik (his son’s wife) resigned as director of the Company and was replaced by Mr Malik himself. The same year Runa transferred her share to him. Although Mr Malik maintained the Company remained a quasi partnership between him and his brother Mr Malik was in total control. No formal general meetings of the Company have since been held. Although the accounts and evidence showed that the business has, by and large, continued to prosper resulting in substantial declarations of dividends (a total of £245,000 for the periods from 1 August 1999 to 31 May 2004), aside from payments or takings mentioned below, the petitioner has received nothing. 

28.	Mr Malik says that in accordance with Islamic law, their culture and tradition, Mr Rahman’s Senior received his share in cash or kind: specifically he says he paid £5,000 for Mrs Chowdhury’s trip to Mecca, for a relative’s wedding (that of Mr Rahman Senior’s son, Mustak Ahmed), and caused £22,500 to be sent via an agent to his brother in Bangladesh. These payments were made, he says either out of his own pocket, in cash from the Company safe, or from the Company’s bank account and all of it he recouped out of his brother’s share of the dividends. If the payments were made as alleged (though they were disputed) then it was certainly disputed that they were paid with the authority or approval of either the petitioner or his father.

29.	Mr Malik also maintained that he and his brother agreed to retain £66,500 each (i.e. £133,000 in total) to meet yet another VAT under-declaration assessment issued in 2001 or 2002 which Mr Malik felt could, if upheld, result in the Company having to pay as much as £300,000 by the time the Inland Revenue also followed up the alleged under declarations. This too was a matter of dispute and was resolved at an interlocutory stage whereby following the petitioner’s application for summary judgment on the point, the £66,500 due (according to Mr Malik) to Mr Rahman Senior, was ordered to be paid to the petitioner plus interest. This appears to have been partly on the basis that Mr Malik was saying this was a retention by agreement of Mr Rahman Senior’s share of dividends and that whatever may or may not have been agreed between the brothers as to the petitioner taking over from him, Mr Rahman Senior was now at least saying he wanted the moneys to go to his son.

30.	Such was Mr Malik’s continued concern in 2003 over the VAT assessment that he considered selling the business to his son, Bablu, and daughter, Runa. For this purpose a yet further company, Gate of India (Cuisine) Ltd (“Cuisine”) with these two as shareholders was incorporated in July 2003 for the expressed purpose of buying the Company or business but this did not materialise. At the same time, in August 2003, Mr Malik arranged the increase of his family’s holdings in the Company referred to earlier.

31.	In the meantime (the second half of 2003) the petitioner began to be concerned about the state of his share in the business. He raised the question of his exclusion with local community elders, all of whom advised him to speak to his father. He also sought advice from a Ms Gordon, a friend with connections to the firm now representing him. He decided to sell his flat to raise money for legal costs should it come to a fight.

32.	Between about August 2003 and February 2004 Mr Malik visited Bangladesh. In his absence, and contrary to the mandate previously delivered to the Company’s bankers, he arranged for one of his sons (Mr A K Malik) to sign cheques on the Company’s account. In November 2003 the petitioner approached the bank and asked for copies of the Company’s bank statements. He was seeking funds to go to Bangladesh to see his father as recommended by the community elders. He withdrew £10,000 from the Company account to enable him to pay for the trip. He saw his father but the dispute remained unresolved. In February 2004 he withdrew a further £5,000 from the Company account thus increasing his takings to £15,000. 

33.	At about the same time he discovered that Mr A K Malik had been signing cheques on the Company account. He also took the view that moneys were being diverted from the Company to Cuisine’s account (notwithstanding that company was not trading and has never done so). In April 2004 he and his brother met Mr Malik and sought to resolve matters face to face. Mr Malik refused, contending the petitioner had no interest in the business. 

34.	Meanwhile the Bank, faced with the petitioner’s drawing to their attention the unauthorised cheques, insisted on a fresh mandate. Mr Malik’s son took the view that this meant the account was frozen and so reported matters to his father. On 21 April 2004 Mr Malik’s solicitors wrote complaining of the frozen account. They asserted, no doubt on instructions, that Mr Malik and the petitioner were equal shareholders, that Mr Malik was the sole director and the petitioner company secretary.  The petitioner consulted solicitors. Their response was (in substance) to complain of the exclusion of the petitioner from the business, the unpaid dividends, the diversion of funds to Cuisine, the lack of general meetings and the failure to make the petitioner a director.

35.	An attempt was then made by the community elders to “mediate”. In my judgment this was orchestrated by Mr Malik in an attempt to put pressure on his nephew to settle. The petitioner refused to negotiate on the basis that his uncle was a dominant figure in the local Bangladesh community and that the elders were essentially doing his, Mr Malik’s, bidding. 

36.	A lengthy series of correspondence then ensued between solicitors on both sides in the course of which the ground was gone over and the issues and counter-issues raised many times. In June 2004 the petitioner, frustrated by the delay and in an attempt to stop the diversion of funds to Cuisine, broke into the Company premises to remove the credit card machine which was crediting payments to Cuisine’s account. He returned the machine to the bank. This led to further recriminations in correspondence and complaints to the police, the latter, despite attempts by Mr Malik to get them to re-open the matter, resolving the matter was a civil dispute and that the petitioner was effectively only trying to get access to premises to which he had at least an arguable right.

37.	Attempts were made in open correspondence deliberately included in the trial bundles (before and after petition) to resolve matters by one side or the other (mostly by Mr Malik) buying out the petitioner. This was not resolved, largely because the petitioner took the view the offers did not reflect (depending the stage of the offer in question) the non payment of the declared dividends, the diversion of funds to Cuisine, or what he regarded as under-declared profits all of which would affect the value, or his costs. Eventually, the matter not being resolved the petition was issued.

The Allegations

38.	The petitioner (supported by his father) complains that the affairs of the Company are being or have been conducted in a manner which is unfairly prejudicial to the interests of the petitioner in the following respects.

39.	First, in failing, contrary to the agreement reached in July 1999, to appoint him to the board of directors to enable him to play a full and equal part in running the business of the Company as a partner and in succession to his father.

40.	Second, by wrongfully excluding him from the Company and its business at or following the incident of August 1999.

41.	Third, by the inappropriate and unauthorised use of his name on the November 1999 VAT return.

42.	Fourth, notwithstanding the “declared” dividends cannot have been validly approved by shareholders (since there have been no formal general meetings), by failing to pay the petitioner any part of his share of the dividends of the Company declared (at least according to the Company accounts) for the accounting periods ending 31 May 2000 to 31 May 2004 (and subsequently. The previous company, Gate of India (NE) Ltd made up its last accounts to 31 July 1998 and none for the year ending 31 July 1999 have been produced for which Mr Malik had no explanation. The Company, which started trading as I have said, on 1 August 1999, made up its first accounts for the period ending 31 May 2000 and thereafter to 31 May each year.) 

43.	The petitioner is willing to give credit for the £66,500 ordered to be paid to him and for the £15,000 he removed from the Company’s account but the amount still owing to him is substantial. The dividend for each of the periods including and after 31 May 2000 to 31 May 2004 totals £245,000 and is recorded as between £30,000 at its lowest (year ending 31 May 2004) and £68,000 at its highest (year ending 31 May 2001)). The petitioner seems to accept these amounts (subject to the under-declaration of profits point), even though, as I say, they have never been formally approved.  

44.	Moreover, the petitioner complains that notwithstanding the Company accounts for the years ending 31 May 2005 to 2006 show even greater profits than were made in 2004, no dividends have been declared for no good reason. This is made even more curious by the fact that the accounts for the years ending 2005 and 2006 show no dividend declared but record an amount for dividend as a liability in the accounts. 

45.	Finally he disputes Mr Malik’s version of events, as previously indicated, that Mr Rahman’s Senior received his share in cash or kind: Mrs Chowdhury’s trip to Mecca, the wedding, and the £22,500 he sent via an agent to Bangladesh all recouped out of his brother’s share of the dividends.

46.	Fifth, he complained about the unauthorised allotment of 1 August 2003 whereby Mr Malik allotted one share to Runa and another 14 to himself having the overall effect of diluting his holding in the Company from 50% to 25%. Mr Malik says that Mr Rahman Senior agreed to this and sought, first by way of Counterclaim, and then by way of amendment to the Defence at trial, to defend this allotment on the basis that the affairs of the Company were conducted as an equal quasi-partnership between Mr Malik and Mr Rahman Senior until August 2003 when the agreement between them was allegedly made. But as I understood it, even this amendment was not pursued and Mr Malik eventually conceded that the shareholding should be 50:50. (He maintained, however, his stance that the agreement with Mr Rahman Senior in July 1999 was that the petitioner was there merely as a nominee and had no right to participate in management.)

47.	Sixth, he complained about the diversion of funds to Cuisine from the Company at the end of 2003, beginning of 2004. The respondents accept that the moneys so diverted belong to the Company and say it was only done because the Company’s account was, as they thought, frozen.  They say that a full reconciliation has been or can be done so that there is or ought to be no longer an issue here too.

48.	Seventh, by late amendments to the petition, the petitioner also complains that the profits have since at least the time the petitioner stepped into his father’s place in the Company (if not before) been systematically under declared as evidenced by what he himself had seen and by the repeated VAT assessments. He says the under declaration has been as much as 100% so that the declared profits should, in effect, be twice the amount they are. 

49.	The petitioner accepts that all mutual trust and confidence between him and his uncle has broken down, although notionally willing to buy out his uncle he accepts that the reality is his uncle should buy him out, but he says (and hence the inability to reach agreement) the valuation should reflect a proper reconciliation of the funds diverted to Cuisine and the under declaration of profits. The first is common ground, the latter a matter of dispute. The petitioner also contends that he should be entitled to an order with respect to the balance of dividends properly payable to him. This, too, is a matter of dispute.

50.	In view of the above allegations and disputes the Registrar ordered on 22 December 2005 a split trial with issues of valuation deferred pending determination of all other issues.

The Issues

51.	Although the factual issues covered many areas of dispute, it is not necessary for me to decide every issue. It is common ground that one side or the other should be bought out. The parties have, however, been unable to agree terms. Although the petitioner himself made an open offer to purchase Mr Malik’s shares, the reality is, given that he has been involved continuously in running and operating the business from the outset, that it is the petitioner who should be bought out. Neither side wanted or sought a winding up order.

52.	Given further it is now common ground that the petitioner and Mr Malik are each entitled to 50% of the shares in the Company, that no formal general meetings of the Company have been held; that neither can be expected to work with the other, that to resolve this Mr Malik should buy out the petitioner, and that any valuation should reflect a reconciliation of the sums temporarily diverted to Cuisine, the remaining practical issues to be resolved are in substance four: first, was the petition justified (in short, do the allegations if proved amount to unfair prejudice); second, is the petitioner entitled to relief having regard to the delay between 1999 when he was excluded (assuming his version is correct) and having regard also to what the respondents contend was his unreasonable refusal to accept the offers made to purchase his shares at a fair valuation; third, is the petitioner entitled to any relief in respect of the alleged outstanding dividends, and fourth, the issue as to alleged under-declaration of profits. The first issue involves, of course, a resolution of the issues over the 1999 agreement and alleged exclusion.

53.	Most constructively counsel agreed that the foregoing broke down to the following effective factual issues for determination at trial: 

a.	Whether the petitioner, Mr Rahman Senior,  and Mr Malik agreed in or about July 1999 (a) that the petitioner would be appointed as a director of the Company and (b) that the petitioner would succeed his father in the business (including as to his 50% shareholding in the Company) (“the Agreement Issue”);

b.	Whether, in late 1999, the petitioner was excluded from the Company by the respondents or whether he chose to stop working for the Company (“the Exclusion Issue”);

c.	Whether Mr Malik writing of the petitioner’s apparent signature on the November 1999 VAT return was with the petitioner’s authority or not (“the November VAT Return”); 

d.	Whether any dividends due to the petitioner have not been paid to him or in accordance with his direction (“the Dividends Issue”);

e.	Whether the Company’s accounts under-declare its profits and if so, by how much (“the Under Declarations Issue”).

54.	The respondents also submitted that, if the petitioner was successful, nevertheless his shares should be valued on a discounted basis to reflect a minority holding. However, in light of the concession made as regards the counter-claim and that the petitioner was to be treated as an equal shareholder this fell away subject to any residual argument over delay.

The Law

55.	Despite Mr Malik’s assertion that much of what he and his brother agreed was done according to Muslim law, there is no real dispute between the parties that the applicable law is English law nor is there much dispute as to that law. 

56.	In the now leading case on s 459 (which counsel are agreed applies equally to s 994), O’Neill v Phillips [1999] 1 WLR 1092, Lord Hoffman emphasised (at p. 1098F-G) that context and background were very important. What was fair between competing businessmen might not be regarded as fair between members of a family. Fairness in the context of s 459 is not dependent upon the individual judge’s notion of fairness but, as Lord Hoffman further emphasised, rooted in principles established over centuries particularly by courts of equity which were prepared to step in to prevent a person relying on or exercising strict legal rights or acting or proposing to act in a manner where it would be contrary to good faith or against conscience to do so; see also Re Guidezone Ltd [2000] BCLC 321 at paras. 174-175 per Jonathan Parker J. 

57.	Thus a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted or where it is a case where the rules or terms of the arrangements between the parties are being used in a manner equity would regard as unconscionable or contrary to good faith (see O’Neill at pp. 1098-1102). Mere loss of trust and confidence alone may not be enough to afford a remedy under s 459 and a mere desire to exit the company at will, will not (pp. 1104).

58.	Moreover mere exclusion even where there is an agreed right or expectation of participation in management will not necessarily lead to the excluded member having a remedy if he has been made a reasonable offer to purchase his shares at a fair value, that is generally without a discount (see ibid. p. 1107). This of course is what Mr Smith, counsel for the respondents, relies on in this case. He submits the offers made were reasonable. Mr Gadd, in repost, says not so and they were reasonably refused. By not making provision for crucial factors, such as the under-declaration of profits or unpaid dividends (either as a reflection in the value or by payment) the offers were not reasonable or fair and the petitioner was not acting unreasonably in refusing them.

59.	In assessing the evidence in this case I also bore in mind that the principle that the more serious the allegation, the more cogent the evidence required: see Re H and R [1996] 1 FLR 80 HL at pp. 95-96 per Lord Nicholls.

The Evidence

60.	I heard evidence from a very large number of witnesses, including the petitioner, Mr Rahman Senior, the petitioner’s mother, Mrs Chowdhury and his brother, Shetu. I also heard from Mr Malik and members of his family including Runa. I also heard from a number of the local community elders who sought to mediate and from employees of the restaurant. I also heard from two experts who gave evidence about the circumstances leading to the recent compromised VAT appeal.

61.	Despite evidence from these two experts or professional witnesses, the one person who might reasonably have been expected to have evidence about the profitability and history of the Company was the accountant preparing the annual accounts. So far as I can tell it was the same firm and person throughout, from partnership to company and from company to company. These steps were taken, I was told in evidence, as a result of accountancy advice. Yet, despite this, despite the declared or noted and unpaid dividends, despite the allegations of under-declarations of profits, no one from the firm was called.

62.	As to the non-expert or non-professional witnesses, I did not find all of them that helpful, especially those from the local community elders who were usually attempting to corroborate (but did not always do so) each other’s version of their attempts at mediation. Their evidence was also in considerable part dependent on what they had been told by others, mostly as it seemed, Mr Malik. There was also a lot of evidence about little separate incidents. It is not necessary for the court to decide everything, only those issues necessary for the purposes of doing justice between the parties having regard to what is sought.

63.	The petitioner has much to gain and has already, if his version is accepted, lost much. He also seemed prepared to sell his flat to finance his legal costs. He stood out, as he saw it, to a large extent against, and against the traditions and culture of, his family and community. He had suffered (and seemed still to be suffering) from considerable stress and depression, particularly at or around the time of the illness of his son. His answers in the witness box were largely monosyllabic and what little opportunity he was given to expand his answers tended to dry up. He also struck me as inclined to be emotional and hot headed. All of these matters I took into account and I therefore approached his evidence with some care.

64.	His father, who came from Bangladesh to support his son, on his own evidence had tried to push him away (in the sense of telling his son he could not help him), and even admitted (despite warnings) to being involved in deliberate and systematic suppression of the true profits of the business. Any risk attendant on this was more theoretical than real as he has now undoubtedly returned to Bangladesh. He also struck me as canny and guarded at times in his evidence.

65.	Mrs Chowdhury gave evidence through an interpreter and was plainly an elderly lady suffering, as she explained, from high blood pressure and diabetes. I approached her evidence with some considerable caution largely because of her difficulties of recollection on some issues. 

66.	Mr Malik, I have to say, did not strike me as a reliable witness both in his demeanour, evidence and history. In a number of clearly and irrefutable respects he demonstrated a cynical disregard for the truth or at least a careless regard for honesty. 

67.	Such a finding ought to be explained.  Even allowing for the context of family, religious and cultural traditions, and even recognising a great deal of informality exists in family run companies, there seemed no real explanation for a number of irregularities; for example, the use of nominees (mainly by Mr Malik) to disguise his connection with the various companies carrying on the restaurant business so as to avoid coming to the attention of the VAT and revenue authorities; his representation to the licensing authorities that the petitioner and he were owners of the restaurant business (see 3/25/803). On the petitioner’s case this, of course, is true (as to a half share), but on Mr Malik’s own case it is not. He led Customs and Excise or his accountant (who presumably in turn informed Customs and Excise) to believe that the petitioner was a director of the Company with Mrs L Malik. (He himself admitted telling them he was “the manager” – a short while later he could not remember that.) The petitioner, on Mr Malik’s case, was not a director of the Company. Mrs L Malik appears to have acted as director for a short time. I infer she was a front or nominee for him. He led the companies’ registry to believe the petitioner had resigned as company secretary in August 2003, when he knew or must have known this was false. 

68.	He also contradicted much of his own evidence from the witness box both in terms of that evidence and that in his statements. Even the most honest witnesses with excellent memories do. It is understandable. But Mr Malik’s inconsistencies were frequent and often in response to questions in cross-examination. I have already given one small example in the previous paragraph. At another point in cross-examination he said he was running the Company (according to earlier evidence the petitioner was a mere waiter), at another his daughter in law was his boss, at a third he and the petitioner were both running the business, at a fourth he and the petitioner were running the Company with advice from his daughter in law and brother, at a fifth this was continuing even after the petitioner had left, but sixth, he was not to be a director (all in the space of about 5 minutes). This occurred on the morning of the second day of his evidence and after this it was difficult to know what to believe of his evidence. When these inconsistencies were later put to him he made a most telling observation: “There was nobody there,” he said, “I was the only one.”  At other times he said he consulted his son, or the petitioner or his brother.
 
69.	He was also prepared to accuse his own nephew, the petitioner, of being a drug addict and included the accusation in witness statements though these allegations were, rightly in my judgment, not put at trial and disavowed though Mr Malik persisted in the allegation under cross-examination. Aside from his evidence no other evidence to support this allegation was produced. It does serve to support one thing, however. I formed the view on his evidence and after seeing him in the witness box that he had a deep dislike of the petitioner and considerable resentment. In my judgment this was because most of the hard work and effort over the years was actually put into the business by him and he resented having to share it with his brother and even more so with his brother’s son.

70.	The overall effect was that I treated both sides evidence with a considerable degree of care and caution. Witnesses on both sides were not always accurate in their recall or memory, in my judgment. Thus on both sides I accept some but not all of their evidence. For example, as to the respondents’ attempts to engage the community elders to try and bring about a mediation of the dispute I accept most of their evidence that they genuinely tried, and in good faith, according to the customs and tenets of their community, to achieve a reconciliation. More than one of them expressed understandable distaste at having to air the issues at a public trial. The petitioner however ultimately was not interested. He felt he would not get the justice he sought via those means.

71.	In the crucial areas where there was conflict on important points or issues between Mr Malik and the petitioner, I have tended to prefer and accept the evidence of the petitioner, his father and brother (and to some extent on one important matter his mother) rather than that of Mr Malik and his witnesses.

72.	I therefore turn to the specific factual disputes between the parties. The findings I make in respect of them are, of course, additional and supplemental to those I have set out above.

Findings on the Factual Issues

The Agreement Issue

73.	The key issue about the July 1999 agreement between Mr Malik and his brother, Mr Rahman Senior, is whether the petitioner was to succeed his father’s interest in all respects. In short, in the newly proposed company to which the business was shortly to be transferred, would the quasi-partnership continue as before, but between Mr Malik and the petitioner instead of between Mr Malik and Mr Rahman Senior as the petitioner maintained or between the two brothers as Mr Malik maintained, the petitioner being merely his father’s nominee.

74.	I have no hesitation in preferring the petitioner’s version on this. Not only have I reached this view on seeing and hearing the written and parole evidence from the relevant witnesses but I find it not insignificant that the earliest letters written by Mr Malik’s solicitors on his behalf dated 21 April 2004 (3/24/579) expressly and clearly asserted that the petitioner was an equal shareholder with Mr Malik and had continued to receive dividends. There was not a hint of the suggestions that emerged later that he was a nominee for his father or that the dividends had been paid for his father’s benefit.

75.	I therefore accept the evidence of the petitioner and his father on this issue. Mr Rahman Senior decided not to return to England. He plainly regarded his stake in the business as his son’s inheritance.  Since he was not going to return to the UK he decided to accelerate that inheritance. He indicated this to his son in a telephone conversation in early July 1999. He was also, he indicated, to be a director. He did not, in my judgment, tell him then about the details, about the extent of the VAT problems or the reasons for the newly proposed company, but he did make it plain that the petitioner was succeeding him.

76.	He also had a conversation with his brother, Mr Malik, told him that he was not returning and that wanted his son to take over his 50% share in the business and all the rights relating thereto and that, as he was taking over his half share he should also become a co-director. Mr Malik agreed. He was to sort out the formal arrangements. I have little doubt that since the brothers were then contemplating forming and transferring the business to yet another new company in view of the recurring VAT problems it seemed a good opportunity for the petitioner to take over. Mr Rahman Senior said there was no talk of the petitioner being merely a nominee nor did Mr Malik express any concerns about his nephew being a director. 

77.	Following this conversation with his brother, Mr Rahman Senior then telephoned his wife to arrange a time to speak to both his sons, Shajnu (the petitioner) and Shetu, to tell them. This he did.  He said the paper work would be attended to by the Company’s accountant. The petitioner said he did not expect to be treated as a “true equal” given he was Mr Malik’s nephew but he did expect to be treated as an equal business partner in terms of his share of the profits and the running of the Company. The paper work was prepared by Mr Malik and placed before him and he signed but it was only later that he realised he was only the Company secretary, not a director. I suspect that this was also partly due to his naivety and ignorance of company affairs. 

78.	I therefore find that there was an agreement or understanding between Mr Rahman Senior and Mr Malik to the effect that the former’s share in the business in the fullest sense, that is as partner with a right and expectation of participation in the running of the business (whichever company vehicle owned and operated it), and of being consulted about all major decisions, was to pass to the petitioner. It was further expressly or implicitly agreed between them that the petitioner would be appointed to the board of directors and that he was not to be a mere nominee for his father.

79.	I further find that this agreement was acknowledged, accepted and confirmed by Mr Malik himself to the petitioner, to his mother, Mrs Chowdhury, and to the petitioner’s brother, Shetu, when he called to see them for this purpose a few days after the telephone conversation with his brother.

80.	I also reject the respondents’ contention that there was a later agreement between Mr Rahman Senior and them about diluting his shareholding in favour of his other son, Mustak Ahmed. Various versions of this agreement were put forward by Mr Malik and I reject them all. Having given his entire share to his son, Shajnu, Mr Rahman Senior had nothing left to give. Equally I reject the contention that Runa was to have a share in the Company. Mr Malik knew all along that his nephew was a 50% shareholder. His solicitors’ letter of 21 April 2004 had at the outset conceded this as I have said.

The Exclusion Issue

81.	The returns at the companies’ registry and the accounts of the Company in so far as they seek to shed light on who at any one time were the relevant officers and shareholders of the Company are not illuminating to say the least. Instead, and I have little doubt at Mr Malik’s instigation no matter how much he may blame the uncalled accountant, the impression given is of confusion, but one to which at least initially Mr Malik was not a party. 

82.	In one sense the exclusion issue can be decided on the basis that Mr Malik almost immediately reneged on his agreement with his brother in failing to appoint the petitioner a director, thereby excluding him from participation in management (a state of affairs he effectively confirmed in April 2004 when the petitioner approached him and which he had indicated to Mrs Chowdhury shortly after the incident of 22 August 1999). 

83.	Mr Malik did indeed appoint the petitioner company secretary (on a form signed by the petitioner who appeared not to have noticed this) but not director. This went, said Mr Malik in his first witness statement to his daughter in law (allegedly with Mr Rahman Senior’s agreement) but he did not identify the daughter in law until his oral evidence. In line with the Company accounts and other documents he indicated this was Mrs L Malik (Mr A K Malik’s wife). Her appointment was not agreed to by either the petitioner or Mr Rahman Senior. It was this Mrs Malik who had signed (I have little doubt at the behest of Mr Malik, i.e. the first respondent) the bank mandate form authorising the petitioner and Mr Malik as signatories on behalf of the Company; she did so as director (see 3/24/584-585; 3/25/771-772). This Mrs Malik remained a director apparently until 1 January 2001 when she was replaced by Mr Malik. By then the petitioner was out (see 2001 Accounts, 3/25/854). 

84.	It is accepted also that no formal general meetings were held in the new Company. 

85.	Thus, even aside, from the incident of 22 August 1999 there is evidence of exclusion of the petitioner in breach of the agreement and understanding reached between Mr Malik, his brother and other members of the family and sufficient to say, in my judgment, that the petitioner had been unfairly treated and prejudiced in his interest as a member Mr Malik having acted in breach of the agreement, unconscionably, and contrary to good faith in these respects. The Company from inception, whatever outward appearances there were, was run and meant to be run by Mr Malik. Indeed he was “the only one” but that was contrary to his agreement and understanding with his brother and nephew. It was, in my judgment, his attempt to take over the whole operation. He had been effectively running it for years and no doubt thought it should be his. His later attempt to dilute the petitioner’s shareholding is entirely consistent with this.

86.	The pleaded incident, however, relied on is that of the 22 August with which I must therefore deal. It was strongly disputed on both sides but the salient elements are as I find them to be as follows.

87.	The petition pleads the incident as having taken place on 20 August 1999 (a Friday). I find it happened on the Sunday. The petitioner himself says this was the day and date of the incident and whilst he was not sure about some things he was about this.

88.	The petitioner went to work as usual at the restaurant (as well as being a shareholder and partner as he thought, he was a waiter). His brother, Shetu, had recently left.   He heard a member of staff, a Mr Abdul Hafiz (who tendered a witness statement on behalf of the respondents but was not called), insulting his brother and accusing him of breaking a vacuum cleaner pipe. Mr Malik was in the restaurant and heard the insults but did nothing to stop it. By this date the petitioner was, as I previously said, on his own in the restaurant so far as his own family was concerned. He was a young man and, I assess, inclined to be rather hot headed on occasions, and took exception to the insults. He was also feeling the stress and strain of his son’s illness. 

89.	He reacted, and I suspect, over-reacted, and a row and a scuffle broke out between him and Mr Hafiz which other members of staff sought to restrain. Mr Malik then appeared. He said the petitioner was almost uncontrollable, brandishing a knife and he felt frightened. (Mr Malik did not strike me as someone who would be frightened in these circumstances and I do not accept this evidence.) I do accept that the petitioner may well have been excitable and angry at what he perceived were insults to his brother but by now tempers had risen on both sides. Fuelled, in my judgment, by his dislike for the petitioner, and without waiting for an explanation from anyone Mr Malik ordered the petitioner “out of my restaurant”.  Despite it not being exclusively his restaurant the sentiment was, in my judgment, not unreasonable. At this point the petitioner became momentarily unconscious.

90.	He was revived and dragged out of the restaurant and packed off home. (There is a dispute as to how he got there.) His family were shocked at his appearance and agitated state and his tale of woe and eviction. 

91.	He wanted to return. His family urged him not to. His mother phoned Mr Malik who said there would be consequences if the petitioner returned to work. She was left in no doubt he was not wanted. The petitioner phoned his father who basically told him it was now up to him and he should seek legal help.

92.	About the same time his son’s medical condition worsened. With all of this, the feeling, no doubt, of depression and the humiliating rejection at work, and despite Mr Hafiz appearing to apologise, he did not return.

93.	At the end of September Mr Malik sent him his P45 showing he had terminated his employment. Since then the petitioner has not worked in the business or been involved at all or, he says, received any share of the dividends.

94.	Mr Malik can, in my judgment, be forgiven for excluding the petitioner on the day of the dispute. He may or may not have misunderstood the cause of the altercation. It does not really matter. He was entitled to want to protect and preserve some peace and harmony in his restaurant if only for the sake of the customers. But that does not mean he was entitled to exclude the petitioner thereafter permanently. He contends the petitioner voluntarily excluded himself. His evidence was that his nephew asked for his P45. I reject this. In my judgment if Mr Malik really did feel he wanted reconciliation with his nephew he could have himself exercised some leadership as a member of an older generation and come round to patch things up. He did not and used the incident as I find to exclude the petitioner.

95.	I therefore find for this issue in favour of the petitioner.

The November VAT Return

96.	The November VAT quarterly return (3/24/725) was due, on the face of it, on 31 December 1999. It was the Company’s first VAT return. Mr Malik says it was sent to him completed by the Company’s accountant at the end of November. Mr Malik (wrongly) thought it had to be in by the end of that month. He dated it 29 November 1999 and signed it using the petitioner’s name and writing a signature purporting to be his. Mr Malik says this was done at the petitioner’s request and with his permission when he telephoned him. The petitioner denies anything of the kind took place. It was done without his consent or authority.

97.	It is not clear to me why Mr Malik should not have used some other officer of the Company, for example, Mrs L Malik who was supposed to be a director given, at least on Mr Malik’s evidence by this time the petitioner had excluded himself from the business. 

98.	On the other hand Mr Malik had a motive for not himself signing the return. It was a new company and one, in view of his previous and current history of difficulties with the VAT authorities he did not wish those authorities to connect to him. In my judgment, and I so find, he did not consult the petitioner but deliberately appended the petitioner’s name and a false signature. Accordingly I find on this issue for the petitioner too.

The Dividends Issue

99.	The petitioner’s evidence was that prior to the July 1999 agreement his father and Mr Malik used to divide up the profits between them on a weekly basis. After Mr Rahman Senior had returned to Bangladesh in 1995 this system continued with he, the petitioner, receiving his father’s share, which he would give to his mother. The amount he received fluctuated, he said, but was around £500 per week. When Mr Malik was away this temporarily increased, was his evidence (corroborated by his brother Shetu), to about £1500 and was paid by his son, Mr A K Malik. 

100.	His father agreed that was the way the weekly cash takings were divided, even accepting some of the money found its way to him after payment to the petitioner’s mother. He agreed about the average amounts paid weekly but this seems to have been based on what the petitioner told him. Mrs Chowdhury too confirmed she had received these weekly amounts. She thought they were her husband’s share of the profits. (A matter entirely consistent with Mr Moznu Miah’s evidence that Mr Rahman Senior had told him he had arranged payments for his wife and children whilst he was out of the country.)

101.	The petitioner maintained that these payments continued after the July 1999 agreement up to his exclusion in August of that year averaging about £600-700 per week.

102.	So far as the accounts are concerned, I have said that these show dividends “declared” of £245,000 in respect of the period 1 August 1999 to 31 May 2004. Save for the £66,500 paid pursuant to judgment early in the present proceedings and the £15,000 taken by the petitioner from the Company bank account both the petitioner and Mr Rahman Senior deny receiving (after July 1999) any dividends from Mr Malik or the Company or giving any instructions to pay them to anyone else.

103.	Mr Malik’s version was that when Mr Rahman Senior was in the UK they did indeed divide up the profits in cash, though sometimes he was instructed to make payments on his behalf for something or to someone but this was always done by agreement. When he went back to Bangladesh the gist of Mr Malik’s evidence was that the payments were sent to Mr Rahman Senior by agent. No receipts were kept or asked for. He (and his son Mr A K Malik) denied the cash payments to his nephew; the restaurant was not making the profits to justify it.

104.	I find that the profits were divided much as the petitioner and his father said though perhaps not so regularly in the amounts they stated. The brothers were in the habit of dividing the profits or takings between them, no doubt after provision for expenses. I do not doubt also that from time to time payments were made at Mr Rahman Senior’s request or approval.

105.	All this reflects and shows a certain informality in the way the affairs of the succeeding companies were conducted between the brothers at least up to August 1999. But these matters help to shed light on the next issue too. As to the non-payment of dividends to the petitioner, the only answer to it by Mr Malik is that he made payments at the request of or approved by his brother. Once paid (if out of his own pocket) he recouped himself out of the Company’s money. The payments were all made after July 1999. 

106.	The short answer to this point is that whether paid for by Mr Malik or not, assuming they were so paid, since these payments were all made without the petitioner’s authority (since they came out of his share or needed his authority under the arrangements he stepped into on taking over his father’s position as co-shareholder), they are not deductible from the sums due and owing to the petitioner.

107.	In my judgment, therefore, subject only to the amounts for which the petitioner is willing to give credit, no dividends as declared or otherwise due (whether approved or not) have been paid or applied for the petitioner’s benefit since the Company commenced trading on 1 August 1999. To the extent that Mr Malik reimbursed himself out of the Company’s assets for the payments he made allegedly on Mr Rahman Senior’s behalf, he did so without authority. The authority he needed was that of his nephew, not his brother. What he did with the £133,500 he retained and the other moneys he allegedly paid on Mr Rahman Senior’s behalf is not entirely clear. It did not seem to be in the Company bank accounts.

108.	In any event, whilst I do not doubt Mr Malik did make some payments to members of his wider family, much of the evidence deployed on his behalf was hearsay and involved alleged admissions by Mrs Chowdhury, Mr Rahman Senior or other talk in the Bangladeshi community. Mr Malik may well have made the payments alleged, but he did not do so with the petitioner’s consent and he did not have the petitioner’s authority to set the payments against his share of the dividends. What he did with his own share of the “dividends” or profits is likewise unclear. There is obviously some unravelling to be done and there may well be tax implications as well.

109.	Accordingly the petitioner succeeds on this issue also.

The Under-Declarations Issue

110.	This is, as Mr Gadd for the petitioner acknowledges, a serious allegation and one made late in the day. Moreover, the allegation carries with it an express if not implied averment of dishonesty. As such in reaching a conclusion on this issue the court must be satisfied as to its conclusion on proper material and must also bear in mind that the more improbable the event the stronger must be the evidence that it did occur before, on the balance of probabilities, its occurrence will be established: see Re H and R [1996] 1 FLR 80 HL at pp. 95-96 per Lord Nicholls. The relevant standard of proof, however, remains the balance of probabilities: see Re T (Abuse: Standard of Proof) [2004] 2 FLR 838 CA.

111.	There is considerable evidence (not least from Mr Malik) that throughout the history of the business, at least up to the commencement of trading by the Company on 1 August 1999, that there was trouble with allegations of under-declarations by the Revenue and VAT authorities. One must be careful of drawing incorrect conclusions or inferences merely by association. The gist of the petitioner’s evidence, supported, despite appropriate warnings, by his father, was that there was systematic falsification of the business accounts by recording roughly only half the amounts of the takings and expenses but this evidence related, as I understood it, to activities prior to 1 August 1999. The paper work which might have supported a trail showing even greater profits was burned, it was said, in the tandoori ovens.

112.	Mr Malik and his witnesses all strenuously denied the allegations.

113.	The evidence post 1 August 1999 was based on a further VAT assessment against the (new) Company that it had failed to declare correct taxable supplies or profits for VAT purposes in the period 1 August 1999 to 30 November 2000 (thus straddling two accounting periods of the Company, the first, the period 1 August 1999 to 31 May 2000 and the second, the year ending 31 May 2001). HMRC assessed the value of VAT suppressed at £51642. The assessment was appealed and determined by agreement in about July 2006 after commencement of proceedings. The amount of suppression was agreed at £10224 covering the period November 1999 to May 2001 (3/25/801).

114.	The Company’s contention on the appeal, broadly speaking, was that there had been some “suppression” but innocent, in the sense that it reflected theft and petty pilfering of cash and that the investigations by HMRC fell short of acceptable standards and hence their conclusions unreliable. 

115.	The word “suppression” as the Company’s expert indicated, is a rather tendentious word and has pejorative overtones. The professional or expert evidence on the issue of suppression was inconclusive: inconclusive only because the latest VAT appeal was compromised on the basis mentioned. Although the actual figure reached by way of compromise was not supported by any specific calculation this seemed, they agreed, to reflect a suppression or under-declaration rate of about 15% for at least the VAT period ending November 1999 (ironically the period allegedly “signed off” by the petitioner). The admission in effect was that the profits would have been 15% higher on which tax and VAT would have been due but had not been recorded to counter the effect of the theft. As the Company’s expert, Mr Rashleigh in effect pointed out in his Report, paragraph 3.1, the admission proceeds on the assumption that the taxable supply of goods had taken place.

116.	On the other hand Mr Malik was plainly fearful that the findings on appeal might reveal a much larger degree of under-declaration. This, after all, was essentially the basis on which he had justified the retention of £133,000 out of dividends in case a large bill had to be met. The new company, Cuisine, had been incorporated in case the Company had to be liquidated as a result of these assessments and investigations. He indicated through his solicitors that the total claim could be as much as £300,000 (letter 26 May 2004 at 1/7/91). Also disclosed was a letter dated 9 June 2006 (1/21/552-553) from the Company’s retained adviser (and expert witness), Mr Rashleigh, to the Company’s accountant (from whom, I repeat, I have not heard) to the effect that the evidence disclosed thus far by the Company in connection with the sales or distribution of free drinks suggested “a substantial underdeclaration of VAT”.

117.	There is thus some cogent evidence even after 1 August 1999 of some under-declaration of the profits even on the basis accepted by the Company which nevertheless pre-supposed the cash had been received in return for goods supplied. The petitioner contended the under-declaration was as much as 100%, i.e. the real profits were twice the amount disclosed. 

118.	I am satisfied, and I find, that there was some suppression after 1 August 1999. It would be wrong, in my judgment, to find it was as much as contended by the petitioner. The most appropriate yardstick is that indicated by the compromise and agreed by the professionals, namely 15%. Since the assessment period seems to have gone up to May 2001 it seems to me appropriate to find and assess, in all the circumstances, that there was an under-declaration of profits by 15% in the first two accounting periods of the Company, that is the period to 31 May 2000 and the year to 31 May 2001. The case for any further or wider suppression or under-declaration of profits after that date is not, in my judgment, made out.

Effect of Findings

119.	It follows, in my judgment, and by way of summary, that there was an agreement that the petitioner would step into his father’s shoes in the business and new Company in July 1999, that that company was or would be run on the same lines before as a quasi-partnership between the participators, i.e. from July 1999 between Mr Malik and the petitioner in place of Mr Rahman Senior. I also find that that agreement contemplated that the petitioner would be and become a director of the Company with an equal voice. He did not and it was effectively made clear to him from August or September 1999 that his presence in the business was no longer required and further confirmed in April 2004. He was, therefore, excluded. From inception he did not receive his proper share of the profits or dividends of the Company, whatever they might be. The best indicator of the expected return is the audited accounts, such as they are. Those accounts, I find, under declared the profits by 15% in the first two accounting periods. There were no formal (or even informal) meetings of the Company to which the petitioner was invited, of which he was notified, or, it seems accepted, at all. The appointments by Mr Malik or whoever did it at, as I find, his behest, of others as directors were not with the petitioner’s approval. I make it equally plain that the attempt to dilute the petitioner’s rightful shareholding in the Company (50%) was also without his approval and unauthorised. Likewise the purported attempt to appoint the second respondent, Runa, as director or shareholder.

120.	Subject to the respondents’ remaining points about delay and offers, in my judgment the petition was justified and these findings would well justify and does justify the intervention of equity on the lines outlined in O’Neill v Phillips and the petitioner to relief under s 994 Companies Act 2006. Mr Malik’s acts – either alone or by some one else on his direct or indirect behalf – in not appointing the petitioner director, in excluding him from real and effective participation in the affairs of the Company and in not paying him the proper and appropriate share of profits or dividends were not only contrary to the agreements he made with his brother, and confirmed to the petitioner, but also contrary to good faith. Likewise the attempt to dilute his shareholding.

121.	I therefore now turn to the respondents’ remaining two points: delay and reasonableness of the offers.

Delay

122.	Mr Smith, on behalf of the respondents, points to the considerable delay between the exclusion in August 1999 and the presentation of the petition in May 2005. He points to the absence of any formal complaint until April 2004 and that was only after Mr Malik’s solicitors had written complaining of the allegedly frozen bank account.

123.	I accept there has been considerable chronological delay if the gap in time is anything to go by, but I am not at all persuaded that this justifies excluding the petitioner from any remedy he might otherwise be entitled to. Between July 1999 and September 2000 the petitioner’s son was gravely ill culminating sadly in his death. That and the ensuing period of grief and depression would be enough to take any person’s eye off the ball so to speak. The Company continued and prospered. There was some continued contact between the parties. Mr Malik found it advantageous, for whatever reason, to keep the petitioner on as company secretary and shareholder. In February 2001 Mr Malik represented to the licensing authorities the petitioner was the owner of the business (see 3/25/854). The petitioner made some attempt at patching up their differences in 2002 via the community elders without success. It was the involvement of Cuisine and the investigations at the Bank at the end of 2003 and beginning of 2004 that led to the petitioner ultimately taking proceedings. In my judgment the lapse of time is not such as to deprive him of relief. The passage of that time between 1999 and 2005 does not seem to have resulted in prejudice to the respondents.

The Offers

124.	Mr Smith also submits that the petitioner has received increasingly reasonable offers to be bought out by Mr Malik.

125.	The letters relied on were those just before presentation of the petition in May 2005 and then again in June 2007 (see 3/24/681-685, 743-745, 745.3). These offers involved a variation of the same theme: Mr Malik would buy out the petitioner at 50% of the value of the Company,   independently determined taking account of the fact that no dividend was declared for the years ending 31 May 2004 and subsequently, each party paying his own costs. This offer was rejected on the basis it did not reflect the pre-2004 dividends nor the under-declaration of profits issues. The later offer was on similar terms but included an offer to pay one-half of the declared dividends (i.e. £245,000 up to the year ending 31 May 2004, half being £122,500) less the £66,5000 received following the summary judgment and the £15,000 removed  by the petitioner from the Company’s bank account giving a balance of £41,000. This too was on the basis each side pays its own costs and did not provide for the petitioner’s costs.

126.	This, too, was rejected by the petitioner, as I understood it, largely on the same basis: it did not reflect his share of the profits since 31 May 2004 nor did it give credit for the under-declaration issue.

127.	In my judgment the petitioner was entitled to reject these offers in the circumstances as unreasonable within the guidance given in O’Neill v Phillips for the reasons given.

Conclusions

128.	In my judgment therefore the petitioner is entitled to the relief he seeks. Subject to anything counsel may further wish to submit in light of this judgment I propose to order that Mr Malik should purchase the shares of the petitioner in the Company at 50% of their value, the valuation date being the date of the order. 

129.	Mr Smith also submitted (in his skeleton argument at the outset) that the value should be on the discounted basis to reflect a minority interest. Having regard to my finding that the petitioner has an equal share I see no basis for valuing his share at a discount (and, to be fair, Mr Smith modified his approach later). Mr Smith originally submitted that the delay from exclusion to petition was sufficient to justify a discount. In Re A Company (No 005134 of 1986), ex parte Harries [1989] BCLC 383 Peter Gibson J (as he then was) had ordered the majority to buy out the petitioning shareholder’s 40% share on a discounted basis owing, Mr Smith originally submitted, to the length of time between his exclusion (1982) and petition (1986). The unfair prejudice complained of was a failure to give the petitioner an opportunity to increase his shareholding proportionately on a later allotment to the majority holder in 1983. Gibson J did not consider the delay disentitled the petitioner to relief but ordered a valuation on the discounted basis as the petitioner, on leaving in 1982, had effectively elected to remain as an ordinary shareholder and not a quasi-partner. That case was, of course, before O’Neill and moreover the facts were vastly different from the present. In my judgment Mr Smith was right to modify his approach.

130.	I do not consider that the petitioner in this case elected to remain as an ordinary shareholder. He remained a quasi-partner but was not treated as one or in all respects as he should have been. That is different.  Moreover, although in recent years the profits have declined, I can detect no substantive change in the nature of the business (and none is suggested). Hence I see no basis from departing from the usual pro rata basis of valuation. 

131.	However, the petitioner is also entitled to receive his full share of the dividends of the Company on the basis of the accounts (assuming he so elects) plus an increase of 15% for the years I have indicated. I appreciate so far as the dividends are concerned if Mr Malik has taken more than his proper share out of the Company there may have to be accounts and adjustments to reflect this. Likewise the petitioner will need to be satisfied as to the reconciliation of the funds diverted to Cuisine. He too must give credit for the £66,500 received on the summary judgment and the £15,000 removed from the Company’s account as dividend payments on account.

132.	If the parties cannot agree these matters they will have to be referred to an inquiry or further hearings for determination by the Court.