Ebrahimi v Westbourne Galleries Ltd; Re Westbourne Galleries Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RUSSELL |
| Judgment Date | 16 December 1970 |
| Judgment citation (vLex) | [1970] EWCA Civ J1216-1 |
| Court | Court of Appeal (Civil Division) |
[1970] EWCA Civ J1216-1
Lord Justice Russell
Lord Justice Megaw. and
Lord Justice Buckley
In The Supreme Court of Judicature
Court of Appeal.
On Appeal from Mr. Justice Plowman, London
MR. A.J. BALCOMBE. O.C. and MR. W.F. STUBBS (instructed by Messrs. Davenport, Lyons & Co.) appeared on behalf of the Appellants (Respondents).
MR. R.H. WALTON. O.C. and MR. R.H.W. MARTEN (instructed by Messrs. Arbeid &Co.) appeared on behalf of the Respondents (Petitioners).
( )
The judgment I am about to read is the judgment of the Court. This appeal from a winding up order made by Mr. Justice Plowman (reported in 1970 1 Meekly Law Reports) relates to the circumstances in which the Court will conclude that it is proper to make such an order at the instance of a contributory on the ground that it is just and equitable so to do, when the company is such as has been described as a quasi-partnership. Counsel for the Appellants has accepted before us (while reserving the right to contend otherwise elsewhere) that, as indicated in for example Re Yenidje Tobacco Company Limited (1916 2 Chancery, 426) in this Court, there can be such a company, and that special considerations in relation to winding up may stem from its quasi-partnership nature. He also accepted that the Company was such a company; which relieves us of any need to attempt a definition of a quasi-partnership company.
The Company was incorporated in December, 1958 to take over a business in London founded by the first personal appellant Nazar, in which the Petitioner had been a profit sharing partner; though Nazar in evidence expressed the view that in law the Petitioner had been only a profit sharing employee. The business was the acquisition and retail sale of Persian carpets and rugs and other floor coverings. Both Nazar and the Petitioner were of Persian origin and Nazar at least retained connections in Persia and had other business interests as well. Nazar had a son George, employed in the same business. When the Company was incorporated the 1,000 shars were allotted 400 to Nazar, 400 to the Petitioner and 200 to George. The articles named Nazar and the Petitioner as the first directors, but substantially at the same time George was appointed a director as well. As is commonly the case the profits of the business were not divided by the fiscally extravagant method of paying dividendsbut by paying salaries and directors fees to the three working director shareholders, substantially we understand in proportion to their shareholdings. The Petitioner mainly worked on the sales side in London. Nazar spent much of his time acquiring carpets in Persia and elsewhere which he passed on to the Company in manner later stated.
Under the Articles of Association incorporating much of Table A, the Company in general meeting had an express power to remove a director by ordinary resolution. There was of course also the equivalent statutory power under Section 184 of the Companies Act, 1948, and the Articles contained no weighting of votes entitling a director on a resolution to remove him to outvote the other shareholders.
Pursuant to Section 184 or to both that Section and the Articles the Petitioner was removed from the Board by an ordinary resolution passed at a general meeting of the Company by the votes of Nazar and George on 12th August, 1969. The Petitioner launched a petition seeking an order under Section 210 of the Companies Act, 1948 that either Nazar and George should buy the Petitioner's shares (or vice versa) on such terms as the Court should think fit, or an order that the Company should be wound up on the ground that it would be just and equitable so to do.
In the event the Judge rejected the case under Section 210, but held that it was just and equitable that the Company should be wound up. There is no appeal from this rejection.
We turn to the allegations in the Petition. Paragraph 7 states correctly that up to 1965 the practice approved by all three directors in relation to Persian carpets acquired and passed on to the Company by Nazar was that he, travelling in Persia, bought carpets and invoiced them to the Company at cost plus transport, customs duty, purchasetax and other expenses with a percentage for his personal profit. We remark that the Articles permitted in wide form dealings between a director and the Company. Under this practice the Company paid Nazar when it sold the goods. Paragraph 8 asserted that Nazar then changed his practice, delaying the invoicing until after resale by the Company. The paragraph continued: "He then invoiced the carpets to the Company at purely arbitrary prices which yielded substantial profits (on occasions up to 200 per cent) for himself and little or no gross profit to the Company. On some occasions prices for carpets have been quoted by Mr. Nazar to the Company before re-sale and the price has been altered and increased after the sale by the Company. Your Petitioner has constantly protested against these practices on the part of Mr. Nazar but without result". As to this the Judge, who besides affidavit evidence heard cross-examination of (inter alia) the Petitioner, Nazar and George-, held that, apart from the allegation that he had constantly protested, the Petitioner had wholly failed to prove his allegations in paragraph 8.
By paragraph 9 of the Petition the Petitioner adverted to the fact that the Company paid the rent and other outgoings of its leasehold premises in Church Street, Kensington as well as of its principal shop in Notting Hill Gate, and that at the former premises carpets and also antiques were sold. He alleged that the Company's expenses at Church Street including the remuneration of an employee were about £3,000 per annum and that the Church Street shop was used mainly for an antique business belonging to Nazar. He continued: "Originally it was agreed that the Company should take half the gross receipts as consideration for the use of the said premises and the service of the employee but in October 1964 Mr. Nazar without your Petitioner's consentreduced the Company's share to 10 per cent of the gross receipts. He increased this to 15 per cent in March 1968. This falls far short of the expenses and the Company is in fact currently making a loss in the region of £1,500 a year in respect of the said premises".
In respect of this allegation — again in substance an allegation that Nazar was feathering his nest at the expense of the Company — the Judge said: "If in fact that use of the premises for the sale of antiques were involving the Company in substantial loss the position might be different; but, in my judgment, the Petitioner has again wholly failed to prove that this is the case".
By paragraph 10 of his Petition the Petitioner summed up his attack under paragraphs 8 and 9 by asserting this: "Mr. Nazar has secured for himself unreasonable and improper profits both on his sales of carpets to the Company and through the subsidy in effect provided by the Company for his antique business. Your Petitioner has protested against his conduct but owing to the majority of the shares held by Mr. Nazar and his said son your Petitioner's protests have had no effect".
By paragraph 11 the Petitioner asserted that at a general meeting on 15th January, 1969 it was resolved to sell the leasehold property in Church Street; that in due course the Petitioner found a purchaser; but that Nazar refused to conclude the transaction contrary to the resolution and to the interests of the Company.
As to this allegation the version of Nazar and George was that they agreed to the resolution because the Petitioner was pestering them, withdrew their assent, and told the Petitioner that they no longer agreed to the sale, but that nevertheless the Petitioner sought and found a would be purchaser. The Judge said that he found it difficult toaccept that their agreement to the resoltuion was for the sake of peace; that the reason for their change of mind had not been explained to his satisfaction; but that as an isolated incident it was not sufficient ground for an order under Section 210.
Finally the Petition by paragraph 13 asserted: "Mr. Nazar and his said son have, by removing your Petitioner from office as...
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