In consolidated proceedings, the claimant sought a declaration that she was beneficially entitled to 50% of 41 properties on the basis of a common intention constructive trust, a partnership or proprietary estoppel. The claimant also sought relief under ss994 and 996 of the Companies Act 2006 on the grounds of unfair prejudice.
The claimant and the first defendant were in a relationship between 1995 and 2015, moving in together in 1996, and having two children. The second defendant was incorporated on 16 September 1996: 51 shares were issued to the first defendant and two shares were issued to the claimant, who was also appointed the company secretary.
In late 1996, after the incorporation of the second defendant, the first defendant was convicted of false accounting and sentenced to six months in prison, serving three months from January 1997. While in prison, the first defendant wrote a number of letters to the claimant concerning business and personal financial interests and their future together. A further 47 shares in the second defendant were issued to the claimant in 2001, and she was appointed a director alongside the first defendant.
Most of the properties were purchased during the currency of the relationship, although some were purchased afterwards and a number of leases were granted over existing properties. The properties were registered, respectively, in the sole name of the claimant, in the joint names of the claimant and the first defendant, in the sole name of the second defendant, and in the sole name of the first defendant.
After the relationship ended, the first defendant failed to provide requested information concerning the second defendant and transferred assets away from the second defendant without the consent of the claimant.
Before trial the parties narrowed the issues such that the only properties in issue were a number of those registered in the name of the first defendant only.
- (1) There was no partnership, express or inferred, within the Partnership Act 1890 (paras 74-82).
- (2) Declaration of 50% beneficial interest. At all times between 2008 and 2015 the properties were treated as a single portfolio in common ownership irrespective of the names in which they were registered. It was the parties’ common intention that the portfolio of properties was to be held on behalf of the claimant and the first defendant equally on the basis of express agreements. Reliance was placed on documents from 1997 onwards between the parties and with third parties, and the court accepted oral evidence from the claimant. The claimant relied to her detriment on the common understanding that she had an equal share in the portfolio through direct financial contributions, accepting mortgage obligations, providing her own personal work and giving the first defendant control over the rents and proceeds from the portfolio from which she was not accounted to or paid a dividend, and which she would not have done in the absence of the common understanding (paras 84-127).
- (3) It was not necessary to analyse each property as the common intention doctrine could apply to a fluctuating portfolio of properties provided the trust satisfies the requirements for the essential validity of a private trust. Moreover, the court could give effect to a common intention constructive trust of each individual property by drawing the inference that the parties intended to acquire it in equal shares, from their express agreement in relation to the portfolio more generally and their subsequent conduct in relation to the use of the rents and profits and proceeds of sale (paras 128-138).
- (4) In respect of properties acquired after the relationship ended, some could be considered assets of the second defendant; the position of others was unclear and so the first defendant should provide an account (paras 142-148).
- (5) In the alternative to the claim of a common intention constructive trust, a claim in proprietary estoppel was also established, the same matters giving rise to a representation which was relied upon by the claimant to her detriment. The equity would be satisfied in awarding the claimant a 50% interest in the portfolio (paras 149-151).
- (6) The second defendant was a quasi-partnership from at least 2001. It involved an association formed on the basis of a personal relationship of trust and confidence, and an agreement or understanding that both the claimant and the first defendant would participate in the conduct of the business, and the lack of suggestion that the claimant could sell her shares easily. The claimant had a legitimate expectation that she would be entitled to participate in the management of the company and be consulted on significant decisions. The breakdown in the relationship gave rise to an obligation on the first defendant to provide sufficient information to the claimant to enable her to participate fully in the second defendant’s management as a director and to make informed decisions as a shareholder. The claimant had a legitimate expectation that any decisions that the first defendant took on behalf of the second defendant would be in its best interests under s172 Companies Act 2006.
- The first defendant acted in in a manner that was unfairly prejudicial to the claimant as a member of the second defendant: he excluded the claimant from the management of the second defendant by failing to provide information and refusing an audit contrary to a request under s475 Companies Act 2006, took decisions without the claimant’s consent or approval such as transferring properties out of the second defendant, caused the second defendant to incur improper liabilities to third parties which created a conflict of interest between the first defendant and the second defendant contrary to s175 Companies Act 2006, and granted leases to himself in breach of his fiduciary duty.
- The appropriate relief was an order that the first defendant should purchase the shares of the claimant in the second defendant, for a fair value without a minority discount, on the basis of the quasi-partnership as if the unfairly prejudicial conduct had not taken place with numerous assumptions (paras 165-219 and 228).