Vekaria v Dabasia (Nee Patel) & Anor [1998] EWCA Civ 1880 (1 December 1998)

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LORD JUSTICE PETER GIBSON: This is an appeal by the defendants in the original action and the plaintiffs by the counterclaim. Yashwanti Vishram Dabasia ("Yashwanti") and her father Walji Naran Patel ("Walji") appeal from the order dated 5 September 1997 of Harman J, giving judgment to the plaintiff in the original action, and the first defendant by the counterclaim, Dhanbai Harji Vekaria ("Mrs Vekaria"). The judge ordered Yashwanti and Walji to pay certain sums claimed by Mrs Vekaria as due out of the proceeds of sale of leasehold premises at 474A - 478 Harrow Road, London, W9, purchased by Yashwanti, as nominee for Walji, and Mrs Vekaria in 1993 and sold by them in 1995.

The judge dismissed the counterclaim of Yashwanti and Walji. By it they had a claimed a beneficial interest in the freehold of the premises, which was purchased by a company owned and controlled by Mrs Vekaria, Lexington Developments Limited ("Lexington"), immediately before Lexington sold the leasehold premises to Yashwanti and Mrs Vekaria. The freehold was later transferred for no valuable consideration to the third defendant by counterclaim, Chesham Properties Limited ("Chesham"). The second defendant by counterclaim, Samji Mavji Patel ("Samji"), acted as agent for Walji in the acquisition of the leasehold premises. He claims to have provided part of the purchase monies. By the counterclaim Yashwanti and Walji sought a declaration that Samji had no beneficial interest in the freehold or leasehold premises. Samji appears to have taken no active part as a party in the proceedings before the judge (although he was a witness), nor has he appeared or been represented before this court.

The dispute between the parties arose in this way. In late May or early June 1993 Harish Vekaria ("Mr Vekaria"), the husband of Mrs Vekaria, observed that the freehold of 474A - 478 Harrow Road, then a large commercial property, was for sale with vacant possession. He was interested in its purchase but conceived the idea of obtaining the bulk of the finance for its purchase by immediately selling on a long lease of the upper floors (the first, second and third floors). He knew Samji, who had worked for Mr Vekaria in his building business. Samji is married to the sister of Walji and so is the uncle of Yashwanti. Mr Vekaria was aware that Walji lives in Kenya, but that Walji wanted to buy property in England. As the judge found, Mr Vekaria asked Samji if Walji would be interested in buying, at a premium of £335,000, a long lease of the first, second and third floors of the building. Samji telephoned Walji. Walji told Samji that if he, Samji, thought it was a good deal Samji could go ahead and Walji would contribute £250,000 to the deal. Walji thereby constituted Samji as his agent for the purpose of negotiating and accepting Mr Vekaria's offer of a long lease of the three upper floors.

Between 15 and 17 June, Samji told Mr Vekaria that £300,000 would be put up (£50,000 was apparently to come from Samji himself) if Mr Vekaria could find the remaining £35,000. Samji, as the judge found, knew that a 999-year lease was being acquired for £335,000 limited to the upper floors. Mr Vekaria then offered the vendors £340,000 for the freehold. That offer was accepted. Andre Grant & Co were the solicitors instructed for Lexington as the intended purchaser of the freehold and as the intended lessor. Radia & Co, who acted for Mr Vekaria in his personal capacity, were the solicitors instructed for the intended lessees. On 18 June Andre Grant & Co received £34,000 from Radia & Co, that sum being paid out of a client account opened that day for Mrs Vekaria, into which Mr Vekaria had placed his own monies. Andre Grant & Co credited that sum to Lexington. The judge found that the money was intended to put Lexington in funds to enable Lexington to pay the 10 per cent deposit on its contract for the purchase of the freehold. £34,000 was paid to the vendor's solicitors on the exchange of contracts that day. Andre Grant & Co then sent Radia & Co a contract for a lease between Lexington, as lessor, and Mrs Vekaria and Yashwanti, as lessees, of the upper floors of the property for 999 years at a price of £335,000. Contracts for the leasehold transaction were also exchanged on 18 June.

Although the contract for the leasehold transactions provided for a 10 per cent deposit, that was not in fact paid to Andre Grant & Co and the £34,000 paid was not treated as being in satisfaction of the deposit. The contract for the lease named Mrs Vekaria and Walji as the intended lessees, but Walji accepted that Yashwanti as his nominee would be named in the lease. On 26 or 27 July 1993, Yashwanti and Mrs Vekaria attended at the offices of Radia & Co. They executed the lease and a declaration of trust. Both those deeds were subsequently dated 29 July.

By the declaration of trust it was recited that by a lease of the same date, but executed before the declaration of trust, the three upper floors were demised to them for £335,000 of which £300,000 had been provided by Yashwanti and £35,000 by Mrs Vekaria. By the operative part of the deed it was declared that Mrs Vekaria and Yashwanti held the property on trust for sale and the net proceeds of sale in the proportions there mentioned. Those proportions represented the contributions of £300,000 and £35,000 made by them respectively, plus any agreed expenditure incurred by each in extending and improving the property.

The counterpart lease executed by Mrs Vekaria and Yashwanti was sent to Andre Grant & Co for Lexington. On 27 July Radia & Co received £300,000 from Samji (£250,000 from Walji and £50,000 from an account of Samji's wife). On 29 July a further sum of £16,108.78 was transferred from the Vekaria client account to Radia & Co. That same day £310,432.50 was transferred from Radia & Co to Andre Grant & Co, and £306,000 was paid out of Lexington's client account with Andre Grant & Co as completion money for the purchase of the freehold. It is not disputed that the monies paid for the completion of the leasehold transaction were utilised by Lexington for the completion of the freehold purchase.

On 13 January 1994 Lexington transferred the freehold to Chesham, which is an Isle of Man company. That transfer was registered at the Land Registry on 3 October 1994. Before then Walji had arrived in England on 1 August 1994 for Yashwanti's wedding. On 8 August he went with Mr Hirani, the husband of Walji's elder daughter, to visit the property. On 15 August Mr Hirani and Walji went to the Land Registry to inspect the title of the leasehold property. They saw the entries showing that the leasehold property was on three upper floors. They saw that Lexington was the lessor. Two or three days later Mr Hirani took Walji to Companies House in the City. They looked at the entries for Lexington and saw that Mrs Vekaria held 99 per cent of the shares and was its sole director. No objection was taken by Walji to the purchase of the freehold by Lexington and grant of the lease by Lexington. The judge found that Walji knew that planning permission was likely to be available. On 6 September 1994 that permission was granted for the conversion of the three upper floors from offices to eleven flats. Thereafter, until November, work was done by Mr Vekaria or his companies preparatory to the substantial work needed to convert the premises into modern flats.

Walji saw some of this work in September and October. He instructed solicitors in September. They wrote to Radia & Co asking for copies of the conveyancing documents relating to the grant of the lease which were promptly provided. Still no objection was made by Walji to the transactions, including that involving the freehold. In October 1994 there were negotiations by Mr Vekaria, with Walji's knowledge, for the sale of the leasehold interest to Kensington Housing Trust, which made a conditional offer of £515,000 for that interest as the premises then stood, or £830,000 if the premises were developed. That offer was refused because of objections by Walji. He then gave instructions to estate agents to offer the three upper floors for sale, being a sale of the leasehold interest. He wanted unconditional offers in excess of £550,000. On 9 March 1995 contracts were exchanged with a housing association which purchased the leasehold interest for £550,000. That sale was completed on 5 May 1995, the net proceeds amounting to £535,460.

Mrs Vekaria then asked for her share of the proceeds of sale. But the parties were unable to agree how the net proceeds fell to be divided. On 3 August 1995 Mrs Vekaria commenced proceedings by an originating summons against Yashwanti. She asked for an order that she be paid her share of the net proceeds of sale in accordance with the declaration of trust. On 7 February 1996 the Master ordered that the proceedings should continue as if commenced by writ. A statement of claim was served, with Walji as well as Yashwanti named as defendants. Mrs Vekaria claimed that her share of the net proceeds should reflect the fact that she had incurred some £48,000 of expenditure being "expenses incidental to the property and in respect of the costs of agreed extensions and/or improvements to the property". Such expenditure included expenses relating to obtaining permission, including £9,000 fees charged by Mr Vekaria's planning firm, H L Vekaria & Co, certain disbursements in connection with seeking planning permission as well as expenses relating to insurance and building works. Mrs Vekaria claimed to be entitled to some £116,000 out of the net proceeds of sale.

Yashwanti and Walji, by their defence, challenged the claimed expenditure. By their counterclaim they claimed that Walji in May 1993 wanted to purchase the freehold, that the arrangements made and confirmed at a meeting in early June 1993 between Mrs Vekaria, Samji and Yashwanti were for the purchase of the freehold and thus it was for that purpose that £300,000 was agreed to be provided by Walji.

In paragraph 13 it was averred that the proposed purchase was with a view to refurbishment and resale at a profit, and that the transaction constituted a joint venture between the purchasers who were therefore partners for that purpose. It is pleaded that each of Walji and Mrs Vekaria owed a duty to show and exercise complete good faith towards the other, or any nominee of the other, in connection with the proposed transaction and in compliance with section 28 of the Partnership Act 1890 to render true accounts and full information of all things affecting the partnership to his or her partner. It was alleged that Mrs Vekaria acted in breach of her duty as a joint venturer and partner by, among other things, failing to inform or obtain the consent of Walji or Yashwanti to the scheme whereby Lexington would purchase the freehold, using £300,000 provided by Walji and Yashwanti for the acquisition of the freehold. They sought a declaration that Yashwanti, or Walji, was entitled to a beneficial interest in the freehold in proportion to the sums contributed. They asked for an order for sale and accounts and enquiries.

In his judgment, the judge referred to section 1(1) of the Partnership Act 1890, defining, as it does, "partnership" as the relation which subsists between persons carrying on a business in common with a view of profit. He also referred to section 2 which contains rules for determining whether or not a partnership exists. By rule (1):

"An activity which might not ordinarily be classed as business - buying and selling an investment, for example - may qualify if it is carried on as a commercial venture and a fortiori a partnership is thought to carry on such a venture. On the other hand, it is quite clear that not every co-ownership of property, even when profit is contemplated, is necessarily a partnership."

The judge referred to differences between co-ownership and partnership, for example the fact that a partner has no right during the subsistence of the partnership to compel a sale of partnership property, notwithstanding the existence of the statutory trust, whereas a co-owner, as a tenant in common, may at any time require the trust property to be sold.

"....it is notable that co-owners who share profits are almost indistinguishable from partners, but if co-owners merely receive a share of the produce, the gross return from the property, no partnership is created. If the profits of the assets realised are used for enjoyment together, that may point to a partnership.

The judge considered whether, and if so when, business was carried on in partnership between Mrs Vekaria and Yashwanti or Walji. He found no such carrying on before 18 June 1984. The mere agreement to purchase the leasehold interest had not been enough to constitute the carrying on of business together. The payment of £34,000 by Radia & Co to Andre Grant & Co out of Vekaria money was not, the judge found, the alleged partners carrying on a business. He posed the question whether the documentation executed on 27 July constituted a partnership, and said that the documents did not indicate an intent to carry on business. They indicated an intent to make investment which it was hoped would make a profit. The judge found no partnership and he found Walji's claim to an interest as a partner by reason of the application of partnership monies to the acquisition of the freehold to run entirely contrary to the underlying facts. He found that Walji's agent, Samji, knew that Mrs Vekaria and Yashwanti were not to acquire the whole building, and he said that for Walji to seek an interest in the freehold would be to give him something which he, through his agent, could never have contemplated, the freehold never having been offered to Walji. Walji, he said, had paid for and received an asset and that had been realised. The judge therefore held that it was not a case where any partnership ever came into existence. He said:

On Mrs Vekaria's claim he said that the sum due to her depended on the proper application of the formula in the declaration of trust. That required expenditure to be agreed between the parties, but Yashwanti had never agreed to anything. However the judge held that the expenditure until 29 July 1994 in respect of the upper floors, such as planning, disbursements, fees and insurance, was authorised by Yashwanti through her attorney, Samji. He found that the failure by Walji to object to the work done in the upper floors in September/October 1994, although Walji had seen that work being done, amounted to Walji giving his consent to that expenditure. On the question of the proper allowance to be made for the building works, the judge arrived at a figure of £15,000, a figure below that which Mrs Vekaria had claimed. He gave judgment in her favour in a sum of £104,950.30 plus interest. He arrived at that figure as set out in a schedule to the order which took account of a number of payments, including the sum of £35,000 (Mrs Vekaria's agreed initial contribution); the £9,000 payment to H L Vekaria & Co, and £4,783.43 disbursements in connection with obtaining planning permission. Those gave Mrs Vekaria an entitlement to just under one-fifth of the net proceeds of sale.

Before us Mr Allston, for Walji and Yashwanti, appeals on two main grounds. First, he says that the relationship found by the judge to exist between Mrs Vekaria on the one hand and Yashwanti and Walji on the other as a joint venture was one which was either a partnership or, if not a partnership but a joint venture, it was one under which the joint venturers owed fiduciary duties to each other, in either case the consequence being that the acquisition by Mrs Vekaria, through Lexington, of the freehold with monies from the joint venture should be treated as the property of the partnership or of the joint venturers, due allowance being given for any expenditure by Mrs Vekaria alone. Secondly, Mr Allston says that the judge erred in dealing with the items of expenditure going towards the division of the net proceeds of sale of the leasehold.

On the first point Mr Allston submitted that the judge went wrong in two fundamental ways. The judge should have found (a) that there was a partnership or, at worst, a relationship such as to give rise to the same or similar fiduciary duties; (b) that the funds utilised for the purchase of the freehold were partnership or joint venture funds, in effect the selfsame funds which had been provided to purchase the leasehold. Mr Allston submitted that it would be hard to point to a clearer case of parties entering into a joint venture which, of its very nature, meant that they were constituted partners. He relied in particular on statements in Lindley & Banks on Partnership 17th ed (1995) paragraph 2-05, to the effect that the intention to make a profit lies at the heart of the partnership relation. He further submitted that whilst a mere agreement to do business might not be enough to constitute the commencement of business by partners, in the circumstances of the present case the partnership or joint venture arose as soon as it was agreed to purchase the leasehold on 18 June 1993, that purchase, he said, being for the development and sale at a profit of that property. If a partnership or joint venture did not arise at that stage he nevertheless relied on what is stated in Lindley & Banks, paragraph 1606 where it is said:

"The duty of good faith exists not only as between persons who are actually in partnership together, but also as between persons who are merely negotiating their entry into partnership. Thus, if an intending partner receives a bonus or commission when acquiring property for the use of the firm, he must account for it once the firm has come into existence."

The authority cited for that proposition is Fawcett v Whitehouse (1829) 1 Russ & M 132, which was referred to with approval by the Privy Council in Attorney General for Hong Kong v Reid [1994] 1 AC 324 at 332. In the case of Fawcett a defendant intending to enter into a partnership with the plaintiffs negotiated for the grant by a landlord of a lease to the partnership. The landlord paid the defendant £12,000 for persuading the partnership to accept the lease. Not surprisingly the defendant was held accountable to the new partnership for that money, as otherwise it would have been a fraud on his partners. Relying on that authority, Mr Allston said that Mrs Vekaria is accountable to the partners or joint venturers for the freehold.

The judge rejected the submission that there was a partnership. On the pleadings before him it was a claim that there had been a partnership in connection with the acquisition and development of the freehold of the property. The judge found that the facts simply did not support the existence of that partnership. The only acquisition which had ever been contemplated by the persons said to be partners or joint venturers was the acquisition of leasehold premises of the three upper floors only. It was to that purchase that Walji had provided £300,000. In my judgment the judge approached the question of partnership impeccably. I can see no way in which it would be possible to fault him in his consideration of the circumstances which govern whether there was a partnership or whether there was a co-ownership with a view to obtaining a profit later. It seems to me plain that in the circumstances of the present case, there was no partnership. If there is to be a partnership, it is necessary to show not merely that there is an acquisition in common and not merely that the participators hoped to obtain a profit but that there is something additional: see paragraph (1) of section 2.

It is difficult in my judgment to find anything in the judge's findings of fact to substantiate the claim that there was a partnership in the present case. Moreover, the declaration of trust seems to me inimical to the idea that this was a partnership. Mr Munby QC, appearing for Mrs Vekaria, said that the deed shouted out that this was a case of co-ownership. The declaration of trust is the only document containing the terms on which the alleged partnership or joint venture was to be carried on, and that simply directed itself to how the net proceeds of sale were to be divided between them. There is nothing in that document, nor is there any other evidence, to show that the partners agreed how they would proceed with the management of the property or how the partners would conduct the day to day business of the partnership. The declaration of trust merely pointed to what was to happen on a sale of the only property that was ever the subject of an agreement between them.

A further point is taken by Mr Munby. The Vekarias provided £34,000 which, as the judge found, went to the deposit on the acquisition of the freehold, but which Mr Allston nevertheless maintains should be taken to be a contribution by Mrs Vekaria towards the £35,000 which she was required to contribute to the acquisition of the leasehold. The judge also found that £16,000 odd was provided by the Vekarias to Radia & Co on 28 July. If that were to be added to the £34,000, one would have a contribution by Mrs Vekaria in excess of that which was required under the alleged partnership or joint venture. The declarations of trust on the lease recite the payment by Mrs Vekaria of £35,000.

(2) Mr Vekaria wanted Walji to purchase the leasehold outright with no joint ownership. As Mr Leighton, appearing for Chesham, pointed out, it would be surprising if a partnership arose merely because Walji found himself unable to make an outright purchase of the leasehold premises and required £35,000 to be provided from another source.

(4) The parties made no agreement to govern the carrying on the business of a partnership, none of the ordinary terms of a partnership were agreed; there was merely an agreement to purchase the leasehold and provide the purchase monies in particular shares; and by the declaration of trust it was agreed how the net proceeds were to be divided. The express provision that the only expenditure which could increase the payer's proportion of the proceeds of sale had to be agreed expenditure, that was a pointer away from the parties having the trust in each other which is appropriate for a partnership or for a joint venture which carries with it fiduciary obligations. Further, as Mr Munby said, it is a feature of a partnership that the partners constitute each other the agent for each other. There is simply nothing in the present case to indicate that that was the relationship between them. Indeed one finds Yashwanti, Walji's nominee, appointing Samji as her agent by the power of attorney.

Mr Allston sought to rely on the description to be found in one document of the relationship as having been a partnership. That document was the 1994 accounts of Lexington which referred to a partnership in which Mrs Vekaria had a 10 per cent interest purchasing part of the property from Lexington. How an accountant of Lexington describes the transaction does not seem to me to be powerful evidence of what in law constituted the relationship between the parties. Mr Allston also relied on the description by Samji and Mr Vekaria of the relationship. Samji's description of the parties as having been partners is not of significance. As for Mr Vekaria, in cross-examination he was plainly reluctant to accept that it was a partnership. He said he did not know the technical term. In my judgment, therefore, the judge was wholly right to reach the conclusion that there was no partnership.

The judge went on, somewhat generously to Yashwanti and Walji in view of the pleadings as they stood and in view of the absence of any application to amend the pleadings, to consider the position if the claims made by Walji and Yashwanti were to be treated as claims relating to a partnership or joint venture in relation to the leasehold premises. The judge described the relationship as one of a joint venture. I accept that some joint ventures can impose fiduciary duties on the joint venturers which duties are owed to each other, but it depends on the circumstances of a particular joint venture whether it does so.

To determine whether the circumstances in the present case would impose fiduciary duties on the joint venturers involves considering precisely the same circumstances as were relevant to the question whether or not there was a partnership. If one rejects that there was a partnership, as I have done, I see nothing that would constitute the joint venture as one which imposed fiduciary duties on the joint venturers in relation to each other. The same considerations militate against there being such a joint venture as militate against there being a partnership.

For these reasons I am of the clear view that the judge was entirely right to hold that this was, in truth, a simple case of a joint purchase of the leasehold premises with a view to an ultimate profit, which did not make those participating in the transaction anything more than co-owners of an investment which they hoped would be profitable.

This is not a case where a fiduciary was using his fiduciary position, to acquire an interest for himself for which he would be required in equity to account. The lease was not acquired before the freehold was acquired. It was not a case of Mrs Vekaria receiving a bribe or douceur to persuade those who were entering into the investment with her to put up their money. The findings of fact by the judge as to what happened to the monies seem to me to be impregnable. It is quite clear that although the £300,000 provided by Walji ultimately went towards the acquisition of the freehold, they were paid to Lexington for the purchase of the leasehold and then utilised by Lexington for its own purpose to acquire the freehold.

As for the £34,000, it is plain from the judge's findings that that was never partnership property, it was never a partnership asset, it was simply provided out of Vekaria monies to the solicitors for Lexington to enable Lexington to put down a deposit to pay the deposit on the acquisition of the freehold. The acquisition of the leasehold was simultaneous with the purchase of the freehold. There is no difference between this and the ordinary case where there are a simultaneous sale and a subsale of property and the purchaser of the property uses that subsale as a means of obtaining for himself the finance to complete the purchase.

The second issue relates to the agreed expenditure by Mrs Vekaria for the purposes of the formula for dividing the net proceeds of sale. Mr Allston sensibly limited this further attack on the judge's decision to a single item in the schedule to the judge's order. He said that Samji's evidence was that he did not agree the £9,000 payment to H L Vekaria & Co. Strong objection is taken to those fees. Mr Allston pointed out that Mr Vekaria accepted in his oral evidence that the sum of £9,000 was not agreed, although it was known that there was going to be work done in connection with the planning application. Mr Vekaria also said that £4,500 was at one time agreed at the time of the offer by Kensington Housing Trust. That sum was made up largely, though not entirely, of disbursements in connection with the planning application which was required. Mr Vekaria tried to justify the figure of £9,000 by saying that he could charge a higher fee on the basis that his building company would not be given the building and conversion work. But his company did get that work. He also said that £9,000 was 5 per cent of the agreed cost of £180,000 for building work estimated in connection with the Kingston Housing Trust offer. But the judge found that the estimate of £180,000 was not agreed by Walji. That 5 per cent does not constitute agreed expenditure.

We have been shown all the evidence relating to this particular item and it seems to me that the judge did not have evidence before him which would enable him to say that £9,000 was agreed expenditure so as to qualify for the formula for dividing the net proceeds of sale. However, there is no doubt that Mr Vekaria did do some work in connection with planning and that it was known that he would be doing such work. I would reduce that item of £9,000 to a figure of £1,000.

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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Vekaria v Dabasia (Nee Patel) & Anor [1998] EWCA Civ 1880 (1 December 1998) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/1880.html Cite as: [1998] EWCA Civ 1880

England and Wales Court of Appeal (Civil Division) Decisions