Mehra v Shah & Ors

This is an appeal in an action arising out of a dispute which has arisen between members of the extended family of Chunil Bharmal Shah (“C. B. Shah”), who died in 1984. C. B. Shah had twelve children – six sons and six daughters – all of whom survived him. The six sons (in order of age) were: Gulabchand, Ratilal, Rajnikant, Tarachand, Ramesh, and Shantilal.Three of the sons have since died, namely Gulabchand, who died on 29 June 1970; Rajnikant, who died on 7 October 2000; and Shantilal, who died on 18 May 2002. Gulabchand left two children: a son, Jatin, and a daughter Mrs Sangeeta Mehra (“Sangeeta”). Rajnikant left a widow, Radiatben, and three children including a son, Punit. Shantilal left a widow, Priti, but no children. The six daughters, all of whom are living, are (in order of age) Sumati, Hansa, Sushila, Anjna, Damianti and Panna.

The action was commenced on 1 February 2002. Sangeeta is the claimant. The thirteen defendants are C. B. Shah’s nine surviving children, together with Radiatben, Punit, Priti and Kasturben (Ratilal’s wife).

Sumati has taken no part in the action. Of the remaining defendants, Radiatben, Punit and Priti have aligned themselves with Sangeeta. In effect, they are additional claimants, and they were represented at the trial by Sangeeta’s counsel (Mr Mark Cunningham QC and Mr Stephen Tudway, who also appear before us). Ramesh was separately represented at the trial (by Mr John Smart of counsel), but has taken no part in this appeal. The remaining eight defendants (that is to say, Tarachand, Ratilal, Ratilal’s wife Kasturben, and his sisters Hansa, Sushila, Anjna, Panna and Damianti) oppose the relief sought: i.e. they are the effective defendants. They were represented at the trial by Mr Nicholas Stewart QC and Mr Scott Pearman. Before us, they are represented by Mr Ajmalul Hossain QC and Mr Richard Clegg of counsel.

The action having succeeded, this is an appeal by Mr Hossain’s clients. I will accordingly refer to them as the appellants, and to Mr Cunningham’s clients as the respondents.

The dispute which has led to the action concerns the beneficial ownership of various properties registered in the names of one or more of C. B. Shah’s extended family, including a property at 85/87 South Road, Southall known in the family as “the Big House” (and I shall so call it) and numbers 299 and 301 Barking Road, East Ham (“the Barking Road properties”). The respondents claim that all the properties in issue (including the Big House and the Barking Road properties) have at all material times been assets of a partnership carried on by the six brothers as equal partners and known as Fine Fabrics; and that, in consequence, on the deaths of Gulabchand, Rajnikant and Shantilal a one-sixth undivided share in those properties formed part of their respective estates.

At trial, the appellants contended that all twelve children of C.B. Shah (i.e. including the six sisters) were equal partners in Fine Fabrics, with the result that the estates of the three deceased brothers are entitled only to a one-twelfth share each in properties belonging to the partnership, with each of the sisters taking a one-twelfth share. They further contended that neither the Big House nor the Barking Road properties were partnership assets, the Big House being owned beneficially by the twelve children of C. B. Shah in equal shares and the Barking Road properties being owned beneficially by Ratilal and Kasturben (in whose names the Barking Road properties are registered). In the alternative, they contended that even if the Big House and/or the Barking Road properties were assets of a partnership between the six brothers only, nevertheless the sisters were each entitled to a one twelfth beneficial share in the partnership assets under a constructive trust.

The action was tried before Miss Sonia Proudman QC, sitting as a Deputy Judge of the High Court, in the Chancery Division. As already indicated, the deputy judge upheld Sangeeta’s claim. By her order dated 1 August 2003 she declared (so far as is material for present purposes) that the partnership consisted of the six brothers, to the exclusion of their sisters; and that each of the properties in issue (including the Big House and the Barking Road properties) was an asset of the partnership. She went on to order that the partnership be dissolved, and she granted consequential relief including an order for the sale of the properties.

By their grounds of appeal, the appellants challenge the deputy judge’s findings as to the beneficial ownership of the Big House and of the Barking Road properties. They contend (as they contended before the deputy judge) that the Big House and the Barking Road properties are not and have never been assets of the partnership. The Big House, they contend, was acquired with the common intention (subsequently acted upon) that it should belong beneficially to all twelve children of C. B. Shah in equal shares. As to the Barking Road properties, they repeat their contention that these properties were bought by Ratilal and Kasturben on their own account, as beneficial owners. They do not challenge the deputy judge’s finding that only the brothers were partners in Fine Fabrics, but they contend that, by virtue of the contributions which the sisters made to the partnership business, each of the sisters is entitled under a constructive trust to an undivided one twelfth beneficial share in the partnership assets, including partnership properties.

The appellants also apply for permission to amend their grounds of appeal in order to seek a retrial. In this connection, they seek to rely on additional evidence which was not before the deputy judge (the nature of which additional evidence will become clear in due course). Although Mr Cunningham did not consent to the respondents’ applications to amend and to rely on additional evidence, in the interests of saving time he did not object to them. We accordingly granted them.

By a Respondent’s Notice, the respondents invite us to uphold the judge’s order on different or additional grounds.

Permission to appeal was granted by Peter Gibson LJ on the papers on 27 November 2003.

At the conclusion of the hearing, we informed the parties that the appeal would be dismissed, with reasons to be given later; and we proceeded to deal with issues as to costs. This judgment contains my reasons for dismissing the appeal.

The facts, as admitted or as found by the deputy judge in the course of her detailed and careful judgment, are in summary as follows.

I begin with the undisputed background facts.

From about the 1920s C. B. Shah and his wife Maniben lived in Kenya. All their children were born there. Gulabchand was born in 1928 and Ratilal in 1929. They were followed by Sumati (born in 1935), Rajnikant (born in 1937), Hansa (born in 1939), Tarachand (born in 1941), Ramesh (born in 1942), Sushila (born in 1944), Shantilal (born in 1946), Anjna (born in 1947), Damianti (born in 1948) and Panna (born in 1950).

C. B. Shah carried on a drapery business in Nairobi. The business prospered, and by the mid-1950s C. B. Shah owned two drapery shops. Ratilal helped his father in the business, but initially Gulabchand took a job elsewhere. In 1963 Gulabchand joined his father and his brother in the business. All the family lived together, and as the children grew older they worked in the shops without pay. The family expenses were met from the profits of the business. As and when the daughters married, they moved out of the family home and went to live with their husbands’ families.

In about 1966 Ratilal and Rajnikant came to the United Kingdom with their immediate families and started a drapery business in Southall, under the name Fine Fabrics. Ratilal was the driving force behind the business. They were followed by their brothers. Initially, they all lived in a flat over their shop at 86 The Green, Southall, but the flat proved too small and in 1971 the Big House was purchased for £17,100 in the names of Gulabchand and Shantilal. In 1972 the children were joined by their parents, C. B. Shah having sold up his house and business in Nairobi.

During the 1970s a number of properties were purchased in the names of one or more members of the family, either for investment purposes or for commercial use. In 1984 C. B. Shah died, and later in the year Gulabchand’s wife also died. Gulabchand was so distressed by his wife’s death that Ratilal resumed his role as head of the family. As already mentioned, Gulabchand himself died on 29 June 1990, followed on 7 October 2000 by Rajnikant and on 18 May 2002 by Shantilal.

Having set out the background facts, the deputy judge turned first to the issue as to whether (as the respondents contended) the partners in the Fine Fabrics partnership were the six brothers, to the exclusion of their sisters; or whether (as the appellants contended) the sisters were included as partners. The judge referred to this issue as ‘the 6 or 12 issue’.

In addressing this issue, the deputy judge turned first to the evidence as to the sisters’ contributions to the partnership business. In paragraph 16 of her judgment she said this:

She returned to this aspect in paragraph 48 of her judgment, describing the work done by the sisters as “very significantly less” than that done by the brothers. In making this finding, the deputy judge specifically rejected the evidence of Ratilal, Anjna and Sushila that they had done as much work in the business as their brothers.

In paragraph 19 of her judgment the deputy judge found that when living at the Big House the sisters handed their earnings from outside employment to the eldest brother (i.e initially Ratilal and thereafter, until 1984, to Gulabchand) as a contribution to the general living expenses. She rejected the evidence of Sushila and Anjna that these payments were to be treated as contributions to the partnership business.

Anjna and Panna had further alleged that they made specific contributions to the partnership business. The judge found (in paragraph 29 of her judgment) that the specific payments on which they relied had been made “by way of loan or gift out of family feeling”, and not (as they had contended) on the basis of, and in reliance on, a common intention of the family that all living members of the family were partners in Fine Fabrics, and that all properties at any time bought in the names of any member or members of the family belonged beneficially to all members of the family equally. In paragraph 63 of her judgment the deputy judge rejected Anjna’s case that a payment of £10,000 which she had made for the construction of an en suite bathroom at the Big House entitled her to a beneficial interest in the Big House, concluding that:

The deputy judge continued:

The deputy judge also found (in paragraph 33 of her judgment) that a payment of £30,000 by Panna was a loan to her brothers.

In paragraph 34 of her judgment the deputy judge rejected the oral evidence of each of the appellants that C. B. Shah’s intention was that all his children should benefit equally from the business which he had founded.

The deputy judge then turned to the documentary evidence. In paragraphs 35 to 37 of her judgment she noted that the partnership accounts, as submitted to the Inspector of Taxes, named the brothers as partners and made no mention of the sisters as also having partner status; and that the sisters never made personal tax returns on the basis that they had an interest in the partnership. She also noted that the partnership accounts did not include either the Big House or the Barking Road properties in the list of partnership assets. She also referred to a loan facility document generated in 1996 in relation to a loan to the partnership, in which the surviving brothers described themselves as “all” the partners in the partnership.

In paragraph 42 of her judgment the deputy judge concluded that Ratilal’s evidence on the partnership issue was “unsatisfactory in almost every respect”.

In paragraph 43 of her judgment, the deputy judge referred to a draft Declaration of Trust, which was in evidence before her. The draft Declaration of Trust is, on any view, a document of central importance in the case. Moreover, as I shall explain in a moment, it features prominently in the appellants’ contention (by amendment of their grounds of appeal) that there should be a retrial.

The draft Declaration of Trust was plainly created some time in 2000, since although in the first line of the draft there are blank spaces for the day and the month of its date, the year ‘2000’ is in typescript. Under the terms of the draft, Ratilal, Shantilal, Tarachand and Ramesh constitute themselves trustees of a number of properties listed in the first schedule to the draft. The significance of the draft Declaration of Trust lies in the fact that the list of properties includes the Big House and the Barking Road properties. By the draft Declaration of Trust, the trustees declare that they hold the properties so listed on trust for the beneficiaries named in the second schedule. The beneficiaries so named are: Ratilal, Ramesh, Shantilal, Tarachand, Jatin (Gulabchand’s son) and Radiatben (Rajnikant’s widow). (The omission of Rajnikant and the inclusion of his widow strongly suggests to me that the schedules were completed after Rajnikant’s death on 7 October 2000, a matter to which I shall return later in this judgment.) The computer-generated footer to the draft reads: “My docs: Trust R. C. Shah” (the initials ‘R. C.’ being shared by Ratilal, Rajnikant and Ramesh).

Having referred to the terms of the draft Declaration of Trust, the deputy judge continued (in paragraph 44 of her judgment):

The appellants, by their amended grounds of appeal, challenge the judge’s finding that the instructions to Atul Shah for the drawing up of the draft Declaration of Trust were given by Ratilal. They rely on a letter dated 21 July 2003 (that is to say, after the trial and after the deputy judge had made her order) from Atul Shah to their former instructing solicitors McCorry Connolly. In the course of this letter (which I will call “the Atul Shah letter”), Atul Shah says this:

There is no witness statement from Atul Shah himself. The Atul Shah letter is exhibited to a witness statement by Sarju Kotecha, a solicitor with Turbervilles with Nelson Cuff (the solicitors currently on the record for the appellants).

For their part, the respondents, whilst not objecting to the admission of this further evidence (see paragraph 9 above), rely on a further witness statement by Punit in which he states that Atul Shah told him that it was Ratilal who had instructed him to prepare the draft. Punit goes on to say that in the months prior to his death (on 7 October 2000) Rajnikant was becoming increasingly ill from prostate cancer, and was virtually immobile. He accordingly suggests that it is highly improbable that Rajnikant would have attended at Atul Shah’s offices at any time in 2000.

I will return later in this judgment to the issues arising out of the Atul Shah letter.

The judge then turned to Sangeeta’s evidence as to the contents of a telephone conversation which had taken place between her and Ratilal on 14 March 2001 concerning cautions which she had registered at the Land Registry against all the properties listed in the schedule to the draft Declaration of Trust. Ratilal was angry and pressed Sangeeta to remove the cautions. Sangeeta had produced a record of the conversation which the deputy judge found to be an accurate record. It reads as follows:

In paragraph 46 of her judgment, the deputy judge said this:

The deputy judge then turned to the alternative way in which the appellants put their case in relation to the partnership assets (that is to say, on the basis of constructive trust arising from a common intention that the sisters should share in the partnership assets coupled with reliance on that common intention in the form of the contributions which the sisters had made to the partnership).

The deputy judge concluded (in paragraph 48 of her judgment) that such an argument could not succeed. In the first place, she noted her earlier finding that the sisters had done significantly less work in the business than the brothers. Secondly, she concluded that the argument put forward by Mr Nicholas Stewart QC (appearing before her for the appellants) for the imposition of a constructive trust was “unsustainable as a matter of law”. The deputy judge went on (in paragraph 50 of her judgment) to quote the well-known passage from the speech of Lord Bridge in Lloyds Bank plc v. Rosset[1991] 1 AC 107 at pp.132-133, to the effect that, absent evidence of an agreement or arrangement in relation to the beneficial ownership of the property prior to its acquisition, it is doubtful whether anything less than direct contributions to the purchase price by the party who is not the legal owner will justify an inference of a common intention to share the beneficial ownership of the property.

The deputy judge went on (in paragraph 51 of her judgment) to find that:

The deputy judge accordingly concluded that the appellants’ case based on constructive trust failed.

The deputy judge then turned to the issue relating specifically to the Big House. She found that the purchase price of £17,100 was provided as to £9,200 by Gulabchand and as to the balance by Shantilal. In relation to the contribution of £9,200 made by Gulabchand, she found that whilst part of that sum came from his own resources, part came from money sent over to the brothers by C. B. Shah from Nairobi. She noted that the evidence did not indicate the source of Shantilal’s contribution.

In paragraph 56 of her judgment, the deputy judge said this:

The deputy judge then addressed an argument advanced by Mr Stewart, on behalf of the appellants, based on the presumption of advancement. Mr Stewart submitted that C. B. Shah must be presumed to have intended that the money he sent over from Nairobi should belong to them equally. The deputy judge had no hesitation in rejecting that argument, saying this (in paragraph 58 of her judgment):

The deputy judge expressed her conclusions in relation to the beneficial ownership of the Big House in paragraph 61 of her judgment, as follows:

The deputy judge then turned to the issue as to the beneficial ownership of the Barking Road properties. She began by noting that the Barking Road properties were purchased on 15 March 1985 in the names of Ratilal and Kasturben, both of whom had given evidence as to their intentions at the date of purchase.

The deputy judge concluded that she was unable to place any reliance on the oral evidence of Kasturben, in the light of her acknowledgment that she had simply signed her witness statement at Ratilal’s instruction. The deputy judge also identified a number of inconsistencies in Ratilal’s evidence. She continued (in paragraph 68 of her judgment):

The deputy judge accordingly declared that the Barking Road properties were partnership assets.

For the appellants, Mr Hossain puts the Atul Shah letter at the forefront of his submissions. He submits that the Atul Shah letter clearly demonstrates that the deputy judge’s finding (in paragraph 44 of her judgment) that it was Ratilal, rather than Rajnikant, who gave instructions for the drawing up of the draft Declaration of Trust was mistaken; and that that mistake effectively undermines her decision in relation to the Big House and the Barking Road properties. He submits that in the circumstances the appropriate relief is a retrial.

Turning specifically to the Barking Road properties, Mr Hossain submits that in any event the deputy judge’s rejection of the appellants’ case that it was the common intention of Ratilal and Kasturben when the Barking Road properties were purchased that they should be the beneficial owners of those properties, to the exclusion of any other members of the family, was contrary to the weight of the evidence. He submits that the deputy judge failed to give appropriate weight to the evidence of Ramesh and Tarachand. He further submits (relying on bank statements which were not in evidence at the trial) that the deputy judge was in error in finding (in paragraph 68 of her judgment) that the mortgage on the Barking Road properties was discharged from the proceeds of an endowment policy the premiums on which had been paid by the partnership. He submits that the bank statements prove that payments of mortgage interest were made by standing order out of an account in the joint names of Ratilal and Kasturben, and that during the period from 1997 to 2000 premiums on the endowment policy were also paid out of that account. He further contends that, contrary to the deputy judge’s finding, Ratilal had not accepted in cross-examination that the premiums on the endowment policy were paid by the partnership.

Mr Hossain further submits that in making her findings in relation to the Barking Road properties the deputy judge failed to attach proper weight to the fact that the Barking Road properties were not included as partnership assets in the partnership accounts, and to the fact that Gulabchand had taken no steps in relation to them; and that she ought to have accepted Kasturben’s oral evidence as to the intentions of herself and Ratilal when the Barking Road properties were purchased.

In relation to the Big House, Mr Hossain submits that the deputy judge’s findings as to beneficial ownership were against the weight of the evidence.

Finally, whilst Mr Hossain does not challenge the deputy judge’s finding on the ‘6 or 12 issue’ that only the brothers were partners in Fine Fabrics, he submits that she deputy judge erred in law in rejecting the appellants’ case based on constructive trust in that she misapplied Lord Bridge’s observations in Lloyds Bank plc v. Rosset. He submits that the contributions which the sisters made to the partnership, in the form both of financial contributions and of contributions in terms of the work which they undertook for the partnership, were sufficiently direct to lead to the imposition of a constructive trust of the partnership assets in their favour, as if they had been equal partners with their brothers.

For the respondents, Mr Cunningham submits that the draft Declaration of Trust, coupled with Sangeeta’s record of her telephone conversation with Ratilal on 14 March 2001 (which the deputy judge found to be an accurate record), are the key documents in the case; and that they lead inevitably to the rejection of the appellants’ contentions on all three limbs of their appeal (viz. the Barking Road properties, the Big House, and the constructive trust issue). At the very least, he submits, they are more than sufficient to justify the findings which the deputy judge made.

As to the Atul Shah letter, Mr Cunningham points out that there is no witness statement from Atul Shah, notwithstanding that he had been specifically asked to provide one. He also reminds us of the evidence of Punit (to which I referred earlier) as to Rajnikant’s state of health, and his virtual immobility, in the months prior to his death. He also submits that the fact that Rajnikant’s widow is included as a beneficiary in place of Rajnikant suggests that the draft Declaration of Trust was not drawn up until after his death (a point which I mentioned earlier: see paragraph 30 above). However, says Mr Cunningham, all this is beside the point, since it is clear from the record of the telephone conversation that not only did Ratilal know about, and agree to, the terms of the draft Declaration of Trust, but that he also exercised some degree of control over its terms. So, submits Mr Cunningham, it matters not which of the brothers actually contacted Atul Shah.

Mr Cunningham also reminds us of the deputy judge’s finding in the last sentence of paragraph 44 of her judgment that all the brothers were aware of the contents of the draft Declaration of Trust.

Mr Cunningham submits that it is highly significant that not once in the course of the telephone conversation with Sangeeta did Ratilal mention his sisters, whether as partners or as part beneficial owners of the partnership assets under a constructive trust.

Turning to the Barking Road properties, Mr Cunningham submits that since the draft Declaration of Trust post-dated the redemption of the mortgage, it is unnecessary to investigate such evidence as there is as to the contributions which Ratilal may have made to its redemption (whether directly by making payments of mortgage interest or indirectly by paying premiums on the endowment policy). In any event, he submits, there is no evidence as to how the joint account of Ratilal and Kasturben was funded. Moreover, he reminds us that the Barking Road properties were purchased in 1985 (some 12 years before 1997, which is the first year to which the bank statements relate). As to the absence of any mention of the Barking Road properties in the partnership accounts, Mr Cunningham reminds us that following the death of Gulabchand’s wife in 1984 Ratilal resumed his role as head of the family.

Turning to the Big House, Mr Cunningham relies once again on the draft Declaration of Trust and on the telephone conversation; and in particular on the fact that in the course of the telephone conversation not only did Ratilal make no mention of his sisters, but he referred to “the brothers’ house”.

As to the constructive trust issue, Mr Cunningham accepts that as a matter of law non-monetary contributions may suffice to give rise to a constructive trust, provided that any such contributions are sufficiently ‘direct’. On the facts of the instant case, he submits, the deputy judge was plainly correct to reject the constructive trust claim.

I accept Mr Cunningham’s submissions. I agree with him that the terms of the draft Declaration of Trust, coupled with what Ratilal said to Sangeeta in the course of the telephone conversation on 14 March 2001, completely undermine the appellants’ case. Nor, in my judgment, does the Atul Shah letter take the matter any further, for the reasons Mr Cunningham gave. Even if it was the case that it was Rajnikant who attended at Atul Shah’s office and gave instructions for the drawing up of the draft Declaration of Trust, the irresistible inference from what Ratilal said in the course of the telephone conversation is that it was he, and not Rajnikant, who was the controlling mind behind the project.

As to the Barking Road properties, the deputy judge was in any event fully entitled to infer from such evidence as was before her that the purchase of those properties was “mainly funded by the partnership” (see paragraph 68 of her judgment). The bank statements on which the appellants now seek to rely do not seem to me to take the matter any further. In particular, as Mr Cunningham pointed out, there is no evidence as to how the joint account was funded.

The appeal in relation to the Big House is, in my judgment, equally hopeless. The deputy judge was fully entitled to make the findings she did on the evidence before her. Once again, as Mr Cunningham has pointed out, the appellants’ case in relation to the Big House flatly contradicts what Ratilal said in the course of the telephone conversation.

As to the claim based on constructive trust, the deputy judge was in my judgment entirely correct to give it short shrift. The suggestion that, notwithstanding that the sisters were not partners in Fine Fabrics, they are nevertheless entitled to beneficial interest in the partnership assets as if they had been partners seems to me, with all respect to Mr Hossain, to be bordering on the fanciful. In any event, even if such a claim is conceptually possible, the facts as found by the judge do not begin to establish it, in my judgment.

Finally, in my judgment the deputy judge was right to reject the submission based on the presumption of advancement, for the reasons she gave.

These are my reasons for dismissing the appeal.

I agree.

I also agree.