England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21 June 2006

Mr Justice Hart :

1. This is the trial of certain issues ordered to be tried in this claim which concerns the dissolution of a partnership between the claimant Mohammed Ashraf Khan ("Ashraf") and the defendant Mohammed Afzal Khan ("Afzal").
2. Ashraf and Afzal are brothers. They came to this country from Pakistan in 1968. Afzal, the older of the two brothers, was then aged about 18 and Ashraf 16. There was a third brother ("Aslam"). The three boys had been orphaned when relatively young, and, upon their arrival in England, went to live with their uncle ("Ghulam") and his family in Manchester.
3. Afzal was the more intellectually gifted of the two brothers. After leaving school he obtained a job as a book-keeper and, by studying in the evenings, acquired an accountancy qualification. Ashraf went into the building trade, becoming employed by (and eventually acquiring a stake in) a building company based in Huddersfield and London called R.Hopton & Sons Ltd which enjoyed for a time a lucrative contract with Westminster City Council.
4. R. Hopton & Sons Ltd seems to have gone into liquidation in about 1978. Ashraf blamed that situation on the shortcomings of his co-owner in dealing with the financial side of the business, in particular its relations with the Inland Revenue. A property which had been used by R. Hopton & Son, although owned by one of its directors (a Mr Lawrence) at 96c Grange Road, Leyton was at about this juncture bought for £1,000.00 and put into Afzal's name. Afzal had at about this time himself moved to London from Manchester. Ashraf's evidence was that it was only put into Afzal's name rather than his own because of the delicate position in which Ashraf found himself as the director of an insolvent company. The property, which was let to tenants, eventually found itself being accounted for as an apparent asset of the partnership to which this action relates.
5. At about the same time (i.e. 1978) Afzal began a clothes manufacturing business through a corporate vehicle Afzal Enterprises Ltd in which Ashraf was also (or became) a director. By this time Ashraf had married, his wife being his first cousin Rukhsana, the oldest of Ghulam's five children. Afzal had also married (to Naheed). In February 1978 a property, 55 Westbury Road, Walthamstow, was purchased in Afzal's name. This was in due course to become the shared family home of Afzal and Naheed and of Ashraf and Rukhsana and their respective children until 1987 when Ashraf and Rukhsana moved out to live in a property purchased in their joint names at 29 Malvern Road. In July 1978 the Westbury Road property had been put into the joint names of Afzal and Rukhsana. There was a dispute as to why this had happened. Ashraf's account was that the acquisition had throughout been intended to be a joint one, and that his name had not been used because of the potential fall-out from the R. Hopton & Sons debacle. Afzal's account was that he alone had been responsible for the acquisition but that Ghulam had insisted that his daughter's name go on the register if she were to move from Manchester to make her home with her husband and his brother and sister in law.
6. For a period during the early years of their marriage Ashraf and Rukhsana found themselves living together only at week-ends. Rukhsana lived with or near her family in Manchester and Ashraf worked during the week in London. At some point in the early 1980s Ashraf appears to have attempted to establish himself permanently in Manchester. On Afzal's account this caused friction between them because it meant that Ashraf was unable to pull his weight in the businesses which Afzal had established in London. By 1983/84 these appear to have consisted of Afzal Enterprises (mentioned above), a retail clothing business (carried on at 219 High Street, Walthamstow under the name "Chic Boutique") and a clothes manufacturing business (part-owned with a Mr Stelios Kallis) carried on through the vehicle of a limited company Pybus Ltd at adjoining premises at 221 High Street, Walthamstow.
7. The length of the period during which Ashraf was based in Manchester was disputed. What was not in dispute was that by early 1984 both he and Rukhsana were back in London, with Ashraf a fully committed partner in all the clothing businesses being carried on at the premises in Walthamstow High Street.
8. At this point disaster struck. The police and prosecuting authorities took the view that the two brothers had been guilty of criminal activity involving the conversion of stolen cheques at their shops. They were tried and convicted and both sentenced to terms of imprisonment which they served. Afzal got the longer sentence. He told me that this was because the judge had taken the view that, as a professional man, Afzal deserved the greater punishment.
9. One significant consequence of this episode seems to have been a rupture from this point onwards of relations between Ghulam and Afzal. Ghulam evidently perceived Afzal as having been responsible for getting Ashraf (his son in law) into this mess and began to form a view of him as an irredeemably dishonest person. That perception was later reinforced by an episode in which Afzal apparently took a second wife (although it was unclear to me whether it was the fact of the second marriage or the identity of the second wife which caused the real offence). Ghulam proved in the event too ill to give evidence but it was clear from the evidence of those of his children who gave evidence (Tariq, Rehana, Khalid, Tahir and of course Rukhsana) that the loyally followed party line in the Ghulam Khan household is "Afzal bad : Ashraf good".
10. A further consequence of this episode was that the modest accountancy business which Afzal had started in about 1983 and which had traded under the name Khan & Co. ceased to attract business. The significance of this business is, however, two-fold. First "Khan & Co." was the name under which the brothers were later to carry on business as partners letting and managing property. Secondly, Afzal claims that the later partnership business originated as, as it were, a side-line of the accountancy business.
11. Documentary evidence concerning the origin of the partnership business is surprisingly sparse. An investigation by the Inland Revenue of the affairs of the two brothers in 1993 required them each to state their assets and liabilities as at 31^st December 1990. In Ashraf's case the statement shows him as having only one bank account (a joint one with his wife), as owning jointly with Rukhsana 29 Malvern Avenue, and also as owning (in partnership with a friend) a property at 66 Warwick Road, Walthamstow. While there was some small equity in 29 Malvern Road, 66 Warwick Road is shown as mortgaged in excess of its value. Ashraf's business interests are listed as:

"CHIC 219 High Street Walthamstow -50% partnership

AFZAL ENTERPRISES, 219 High Street Walthamstow -Director Shareholder

PYBUS Ltd (in liquidation) -Director Shareholder"

12. The equivalent form for Afzal shows him as having had four bank accounts, and as jointly owning his residence at 55 Westbury Road. It also shows him as owning "in partnership" 12 St Bernard Road, Eastham and 49 Sommers Road. These properties were all subject to substantial mortgages. Afzal told me (and I accept) that the relevant "partner" in relation to these properties was a Mr Hussein). His business interests in Chic, Afzal Enterprises Ltd and Pybus Ltd were listed in the same way as Ashraf's but, in addition he lists "Khan & Co." of which he describes himself as proprietor.
13. It is not clear whether Khan & Co. at that date (31^st December 1990) was carrying on any form of property letting and management business. There is, however, documentary evidence from the following year of Khan & Co. undertaking such business. This appears to have taken the form of Khan & Co., purportedly as landlords, letting certain property to Hackney Borough Council. A business of this kind appears to have started as early as February 1991 (see Supplementary Bundle, Tab 4, p.5) and to have been carried on under the style "Khan & Co. Property Services".
14. By December 1992 the two brothers were presenting themselves to the outside world as carrying on business together as "Khan & Co. Property Management": see the facility letter of that date from National Westminster Bank in the Supplementary Bundle at Tab 4, p.20. The essence of the business lay in the provision of housing to asylum seekers whose rent would come from housing benefit. The properties concerned were either rented by "Khan & Co." from the owners and sub-let (the profit being the difference between the amount guaranteed to the owner and the amount obtained from or in respect of the residential occupier) or were purchased with mortgage finance (the profit here being essentially the difference between the amounts repayable under the mortgage and the amounts obtained from or in respect of the residential occupier). One of the central issues in the case is as to the ownership of these purchased properties, many but not all of which were purchased in Afzal's sole name.
15. Accounts of the partnership business were drawn up for various financial periods from the year ended 31^st December 1993 to 31^st March 2002 by Raei & Co., chartered certified accountants. Their instructions came from Afzal and it was to Afzal alone that they reported. For each period these consisted of a Profit and Loss account and a Balance Sheet. In one way or another, these accounts record, as financial transactions of Afzal and Ashraf "trading as Khan & Co.", all the income and expenditure in relation both to the "rented" and to the "purchased" properties, and the latter are treated as part of the fixed assets of the business irrespective of the names in which they are registered.
16. The income tax returns of the partnership (also prepared by Raei & Co.) reflect the figures shown in the business accounts. Thus for the year ended 31^st March 2000 the partnership had rents receivable of £786,350 interest receivable of £86.00 and expenses of £695,802, producing a net profit of £90,634. For tax purposes, however, that net profit is reduced by a figure of £76,778 representing, it would appear, a 10% wear and tear allowance calculated by reference to the gross rental of the properties of which Khan & Co. represented themselves to the Inland Revenue as being the landlords. The taxable profit for the year ended 5^th April 2000 was thereby reduced to £11,974 of which half (i.e. £5,987) was attributed to each of the brothers. At the same time both the accounts and the returns for the period show there to have been "drawings" of £33,799.
17. Apart from the notional division of the taxable profits shown in the tax returns there seems to have been no accounting as between the two brothers in relation to the profits of either of the Chic Boutique business or of the Khan & Co. property management business. In general the finances of both businesses appear to have been controlled by Afzal, who in practice seems to have allowed Ashraf to pay himself out of the modest earnings of Chic Boutique and to have undertaken, through Khan & Co., the payment of the mortgage, council tax and insurance in connection with Ashraf's residence (i.e. 29 Malvern Road until 2001 and, from early 2002, 32 Clivedon Road, Chingford).
18. From 1999 onwards the relationship between the two brothers appears to have become more and more fractious. I have not found it easy to obtain a clear picture as to why this change came about. According to Ashraf the break-down began with a disagreement between the two brothers over a plan to re-finance the business. Afzal had retained brokers for this purpose and agreed that they be paid a fee for their services to which Ashraf took exception. I think it likely that it was only in the course of this re-financing exercise that Ashraf came to have a real idea as to the potential size of the business and the implications of his being a 50% partner in it. He began to ask questions, in particular as to who owned particular properties, and why the ownership of some properties (which he had thought were owned by nominees of the partnership) had apparently been transferred into Afzal's sole name. He began to distrust the answers which he was given by Afzal, and the differences between their respective life-styles (which at one time had simply seemed to reflect their different roles in the businesses) began to rankle. In crude terms Ashraf believed that profits generated by the partnership business were being diverted by Afzal into his own pocket.
19. For his part Afzal plainly regarded Ashraf's unaccustomed inquisitiveness and acquisitiveness as both extremely irritating and impertinent. As he liked to view matters, it was he, Afzal, who had always carried Ashraf financially; Ashraf had failed to make a go of his own business in Manchester; he had then failed to contribute to the Chic Boutique business; he had a weakness for gambling. Afzal's line was that he had only invited Ashraf to join in the property management business because he felt, as an older brother, that this might "motivate" Ashraf who would be able to bring to that business his skills as a builder and decorator. By the time the two brothers fell out Afzal had persuaded himself that Ashraf had never pulled his weight in the property management business, indeed that they had never really been partners at all. On Afzal's view of the matter Ashraf had been admitted to the business only in the sense that he had been allowed to call himself a partner: his entitlement to share in the profits of the business was simply an entitlement to be paid such share if any of the profits as Afzal chose to pay him and he had no interest in the capital of the partnership.
20. What Afzal could not, however, deny was that certain of the "purchased" properties were in the joint names of himself and Ashraf. His initial stance seems to have been that since Ashraf had made no capital contribution to the acquisition of these properties he could have no claim in respect of them. At some point in 2001, and again in 2002, Afzal however agreed to contemplate a split of these jointly owned properties and their associated liabilities. He was adamant, however, that if Ashraf wanted to make any claim which extended beyond those properties he would have to do so in hostile litigation.
21. It is common ground that the partnership between the two brothers was dissolved either as from 1^st April 2002 or 3^rd August 2002. Afzal claims that it was the earlier of those two dates, he having made his position clear to Ashraf in late March. Ashraf asserts the latter date, claiming that no intention to dissolve was evinced by either party until a meeting which took place on that day in Afzal's house.
22. By this action, commenced on 22^nd February 2005, Ashraf sought a declaration that a partnership between himself and Afzal existed, that it was dissolved on 18^th September 2002, and all necessary accounts and enquiries to establish the property which was owned by the partnership and the respective entitlements of the partners on dissolution. By an order dated 6^th May 2005 Deputy Master Rhys ordered, inter alia, a trial of the following issues:

"(1) Whether the Claimant's claim to a share of the assets of the partnership Khan & Co arising on the dissolution of the partnership has been compromised by the agreement made between the Claimant and the Defendant referred to in paragraph 34 of the Defendant's first Witness Statement dated 14 April 2005

(2) If the answer to (1) is no, what were the terms of the partnership as to Claimant's entitlement to profits and for capital assets during the partnership and on dissolution

(3) The date of dissolution of the partnership

(4)(a) Whether any of the properties let and managed by Khan & Co (other than jointly owned properties) formed assets of the partnership

(b) Whether any such properties (being jointly owned) formed assets of the partnership"

23. To these I now turn.

Issue 1 Whether the Claimant's claim to a share of the assets of the partnership Khan & Co arising on the dissolution of the partnership has been compromised by the agreement made between the Claimant and the Defendant referred to in paragraph 34 of the Defendant's first Witness Statement dated 14 April 2005

24. Afzal's contention is that he and Ashraf reached an agreement on 3^rd August 2002 the terms of which were that:

i) Ashraf was to have no further interest in the business of Khan & Co. and Afzal could continue to trade under the name Khan & Co.;

ii) Afzal was to have no further interest in Chic Boutique which would continue to be operated by Ashraf;

iii) That Ashraf would acquire the entire legal and beneficial interest (subject to mortgages) in 51 High Street Walthamstow, 53 High Street Walthamstow and 232 Chingford Mount (these properties, consisting of 3 shops and 8 flats, being registered in their joint names);

iv) That Afzal would acquire the entire legal and beneficial interest (subject to mortgages) in 289-291 High Road Barnet and 86 Hainault Road, those properties being then registered in their joint names;

v) That Ashraf acknowledge that he had no claim on property at 680 High Road Leytonstone (this acknowledgement being sought and obtained in the mistaken belief that this property also was registered in their joint names);

vi) That the forgoing agreements were in full and final settlement of all Ashraf's claims against Afzal arising out of the dissolution of the partnership.

25. Ashraf's case is, subject to a minor qualification, that agreements i) to v) above were reached, but that vi) was not. His case is that what was agreed on that day was how the jointly owned properties were to be divided, it being recognised between himself and Afzal that there would have to be litigation if Ashraf wished to establish a claim in respect of anything other than jointly owned property.
26. Direct evidence as to what was agreed on 3^rd August 2002 consists of various documents which were produced and signed on that day and the oral evidence of those who attended the meeting. Those persons were Afzal, Ashraf and Aslam and their sisters Shakila and Sajila. The two sisters had recently come to the UK and were staying with Afzal. According to him it was they who promoted the idea of a family conference in order to enable Afzal and Ashraf to resolve their differences. Although neither apparently speaks English, each signed a witness statement in English to the effect that once the written documents had been signed at the meeting "we were all satisfied that they have settled their entire business affairs and Ashraf was to go his own way from then on". Aslam (who speaks perfect English) signed a witness statement otherwise in almost identical terms but in which the corresponding paragraph read "After signing the agreement we were all satisfied that they had settled their differences at that time".
27. The following documents were generated during the course of the meeting:

i) A letter from Ashraf to Afzal to Mr Stone of National Westminster Bank plc which read:

"Re: Mahammad Afzal Khan & Mohammad Ashraf Khan T/A Khan & Co Account No: 64216497

Will you please remove my name from the above account as I do not have any association with the company.

My brother Mohammad Ashraf Khan has agreed to the above.

I thank you in advance for your cooperation and please accept my apologies for any inconvenience caused.

Yours faithfully,"

This was signed by Ashraf and Afzal during the meeting.

ii) A further letter to Mr Stone which read:


 


"Re: Mahammad Afzal Khan & Mohammad Ashraf Khan T/A Chic Account No: 64227197

Will you please remove my name from the above account, as I do not have any association with the company.

My brother Mohammad Ashraf Khan has agreed to the above.

I thank you in advance for your cooperation and please accept my apologies for any inconvenience caused.

Yours faithfully,"

iii) A letter signed by Ashraf and Afzal and witnessed by Aslam which read:

"To whom it may concern

Mohammad Afzal Khan has full interest in the following property

1. 289/291 High Road, Leyton, London E10 5QN

2. 680 High Road, Leytonstone, London E11 3AA

Mohammad Ashraf Khan has full interest in the following property

1. 232 Chingford Mount Road, Chingford, London E4 8JL

2. 51 High Street, Walthamstow, London E17 7AD

3. 53 High Street, Walthamstow, London E17 7AD

We hereby agree to the above."

iv) A further letter to Mr Stone in the following terms:

"Re: 86 Hainault Road, Leytonstone, London E11 1EH

This is to confirm that I Mohammad Ashraf Khan do not have any interest in the above property. I acted as trustee for Mr Mohammad Afzal Khan.

Will you please remove my name from the above and transfer the whole equity to my brother Mohammad Afzal Khan as he has full interest in the property.

I thank you in advance for your cooperation and please accept my apologies for any inconvenience caused."

28. There is an issue as to whether this letter was signed by Ashraf at the meeting. His account in his oral evidence was that after he had signed i), ii) and iii) he had gone back to his own house. Aslam had then visited him and asked him to sign iv), explaining that Afzal would use the letter to re-mortgage the property, and would give Ashraf some of the monies raised by the re-mortgage. Ashraf said that he was not prepared to sign iv) unless Afzal wrote another letter acknowledging Ashraf's continuing 50% interest in the property. Aslam had then reverted to Afzal and obtained from him a letter addressed "To whom it may concern" in the following terms:

"Re: 86 Hainault Road, Leytonstone, London E11 1EH

With reference to the letter to National Westminster Bank dated 3^rd August 2002 I Mohammad Afzal Khan confirm as below:

I agree to purchase the 50% share in the above property from my brother Mohammad Ashraf Khan and also confirm that Mohammad Ashraf Khan is willing to sell his share of the property at the market value less £143,000.00 (the various charges associated with the property).

We hereby agree to the above"

Aslam brought this letter (which I will call "v)") to Ashraf who then signed both iv) and v).

29. Afzal's account is that at the meeting Ashraf agreed, as part of the over-all deal, to give up his interest in 86 Hainault Road, and signed iv) before leaving the meeting. However, according to this account, after Ashraf had left the meeting Aslam and the two sisters then remonstrated with Afzal that it had been unfair of him to have insisted that Ashram give up his interest in this property for nothing. Afzal had then been persuaded by them that he should pay Ashraf a fair price for his interest; and v) was then prepared to reflect this, taken by Aslam to Ashraf and then agreed to by Ashraf.
30. Aslam's recollection, in his oral evidence, seemed broadly to support Afzal's account.
31. So far as the accounts differ as to the time at which iv) was signed, I prefer the version given by Afzal and Aslam to that given by Ashraf. What seems to be common ground is that the principal focus of discussions at the meeting was the partition of the property known or assumed to have been in joint names, and that by the time Ashraf left the meeting there was apparent agreement between the brothers. It seems to me more probable than not that the agreement would have included agreement in relation to 86 Hainault Road and the production of the letter in terms of iv). At the same time it is probably significant that the agreement which iv) records takes the form which it does (a letter to Mr Stone at the bank) rather than featuring as part of the main division of properties achieved by iii). The inference I draw is that the subject must have been raised separately and probably subsequently to the other matters, and in connection with some specific desire on Afzal's part to re-mortgage the property in the near future.
32. The somewhat ad hoc way in which 86 Hainault Road was dealt with has some bearing on the wider issue of whether what was agreed on 3^rd August 2002 was intended by both brothers to be in full and final settlement of all matters in issue between them arising out of the dissolution of the Chic and Khan & Co partnerships. I have already drawn attention to the small, but possibly significant, difference in the wording of the sisters' statements from that of Aslam. It emerged in Aslam's evidence that this difference was the result of a considered amendment by him of a draft witness statement which had contained the same formulation as that which was to appear in the sisters' statements. Although he did not concede as much in his oral evidence it seemed to me reasonably clear that Aslam had expressed himself in his written evidence in the way in which he had because he did not at that stage wish to be seen unambiguously to be supporting Afzal. In the witness box, however, he maintained that, so far he was concerned, the matters discussed and decided at the meeting represented a resolution of all issues between his two older brothers: that had been the whole purpose of the meeting so far as he and his sisters were concerned. According to Aslam the real issue had been whether Afzal was going to allow Ashraf to have the three shops which he wanted, and this was the essential issue which Afzal conceded at the meeting. The matters dealt with by the written documents were "the only issues which were brought to the table" and, in Aslam's perception, Afzal would never have made the agreement he did had there been any question of Ashraf having further claims against Afzal.
33. Ashraf insisted in his evidence that he had made it clear at the meeting that he had further claims, and that Afzal had responded by saying that any such claims would have to go to court. Afzal denied having said any such thing at the meeting ("..if I said that it was before.."), and Aslam could not recall any such thing having been said.
34. In my judgment Aslam was giving me an honest and accurate account of what transpired between the two brothers at the meeting. Accordingly I do not accept Ashraf's assertion that it was expressly made clear at the meeting that there were issues potentially unresolved by the agreements then reached and which might be the subject of litigation in the future. I also think that Aslam's perception that Afzal would never have conceded the "three shops" had he believed that Ashraf might in the future pursue other claims is an accurate one. (I would add that Aslam's general perception of what might be in issue between his two brothers was an imperfect one: once the exchange of properties had in fact been completed a year later, and Afzal then stopped paying Ashraf's residential mortgage, Aslam found this sufficiently surprising to challenge Afzal as to why these payments had ceased).
35. It does not, however, in my judgment follow that either Ashraf or Afzal believed that Ashraf had bound himself not to make such claims. If the background against which the meeting took place was one where Afzal was asserting that the only issues on which out of court agreement was possible was the partition of the jointly owned property, I think it more likely than not Ashraf attended the meeting hoping to reach agreement on those issues but without intending to abandon claims he might have in relation to other properties the purchase of which had been financed wholly or in part by the partnership and/or where the names in which the property was registered did not reflect the beneficial ownership. The property at 66 Warwick Road Walthamstow, although by no means typical, provides a good illustration of the difficulty in regarding the simple division agreed to on 3^rd August 2002 as resolving all issues between the brothers. If I understood Afzal's evidence correctly the purchase of that property (which was purchased in the names of Ashraf and a Mr Johal) had been initially financed by Afzal (or Afzal trading as Khan & Co). Yet in the Inland Revenue investigation (see paragraph 11 above) in 1993 the property is shown as being beneficially owned by Ashraf and Mr Johal, no claim to it being made by Afzal. It is not represented by the figure for fixed assets given in the Khan & Co accounts but it was, I think, common ground that the repayments under the mortgage (which were the primary liability of Ashraf and Mr Johal) were in fact made from the Khan & Co bank account (and have continued to be so paid following the dissolution), that the rents have throughout been received by Khan & Co, that these receipts and payments are reflected in the profit and loss account of the partnership business, and that while Afzal acknowledges that Ashraf is entitled to a 25% share in any capital profit which may be made on sale there has been no accounting to him in respect of rents received in the period following dissolution.
36. It seems to me that both brothers would have come to the meeting with the knowledge that there were potentially other issues between them than simply the partition of the jointly held properties, and that the omission of Afzal to include in the paperwork produced at the meeting any formula purporting to make the agreement one in full and final settlement was not accidental. At any rate, nothing having been expressly said about the agreement being in full and final settlement, I do not think that the circumstances made it necessary or obvious that such a term should be implied.
37. Accordingly I answer the first issue in the negative. In reaching that conclusion I have not overlooked, although I have felt it unnecessary to rehearse, the evidence of several witnesses of statements made by Ashraf on various occasions after 3^rd August 2002 to the effect that all issues between himself and Afzal had been resolved. It did not seem to me that any of these statements were made in sufficiently unambiguous terms to permit me to conclude that Ashraf himself thought that the agreement reached in August 2002 was in full and final settlement of all issues between the parties.

Issue 2: What were the terms of the partnership as to [Ashraf's] entitlement to profits and for capital assets during the partnership and on dissolution?

38. Ashraf's case is that he understood at all times that he was an equal partner with Afzal in the letting and management business in just the same way as he was an equal partner in Chic: it was not so much a question of there having been an express agreement to that effect but was an assumption based on their family relationship with each other and the way in which they presented that relationship to the outside world. Ashraf at all times allowed, and relied on, Afzal to control the finances of the businesses which they ran and to determine what each could take out of the businesses and when, and in what order, Ashraf's residential expenses should be paid compatibly with the cash flow requirements of the businesses.
39. Afzal's case is very different. First he contends that the property and letting business was originally started up by him as a sole trader under the name Khan & Co which he had previously used for his accountancy practice. Secondly he says that he offered Ashraf the opportunity to become a partner in the letting and management business on the basis that (a) Ashraf was only to have such entitlement in respect of profits as Afzal might decide in any year he was entitled to and (b) Ashraf should have no interest in the assets of the business. I interpose that the latter assertion has to be read in the light of the co-existing but not altogether consistent assertion that the business did not itself own any assets.
40. Afzal's case was somewhat modified in his oral evidence so far as concerned property bought in joint names. He acknowledged that in relation to such property there was an agreed sharing arrangement, that agreement having been entered into (and the property in question having been put in joint names) because in those cases Ashraf had committed himself to contributing his physical labour to putting and keeping it in a lettable condition.
41. There are surprising features about each brother's case. For a person in Ashraf's position to become a partner (albeit at will only) on the entirely discretionary basis asserted by Afzal is unusual and improbable. Equally, if Afzal was bringing anything of substance into the partnership, it would be surprising that he should do so without there having been some clear understanding as to how he was to be separately credited for this. Again, (on Afzal's modified case), it would be odd if his discretion over drawings extended to entitle him to insist that revenue profits from the jointly owned property could be drawn down to purchase property in Afzal's sole beneficial ownership or to require Ashraf to join in mortgages of the jointly owned property in order to purchase such property. Furthermore, if Afzal is right that as a sole proprietor of Khan & Co he had developed a substantial letting and management agency, it is surprising that there does not survive (or at least has not been produced) a shred of accounting data (for example tax returns, or accounts) which support that way of telling the story.
42. Ashraf's account of the partnership as having existed simply as a matter of tacit understanding based on a family assumption that all family businesses were jointly owned on a basis of equality is plainly, on any view, too crude. In the first place each brother did develop at different times businesses which were not jointly owned. Thus there is no suggestion that Ashraf held his interest in R Hopton & Sons on any kind of trust for himself and Afzal, or that Afzal did not own outright his accountancy practice. Nor, in fact, was the shareholding in Afzal Enterprises Ltd split equally between the two brothers and their wives (Afzal and Naheed together held 55%). Furthermore Ashraf himself made the point in his written evidence that Afzal had his own separate building company the services of which were sometimes used by the Khan & Co partnership. On the other hand there are some pointers at least to the fact that from an early date some aspects of a letting and management business were viewed as a joint operation. In my judgment that was probably the case in relation to the purchase of 96c Grange Park Road. I recognise that in his application for legal aid dated 26.6.89 (Bundle 2/12/1-16) this property was declared by Afzal to be 100% owned by him, but it was at the same time both being used for the purposes of the Chic business and stood charged to secure the brothers' indebtedness to the bank on the Chic account. It must also have been the case in relation to 66 Warwick Road, where Ashraf was (with Johal) liable under the mortgage, but (contrary to what the Inland Revenue were told) Afzal shared Ashraf's interest.
43. The two brothers were both, however, content to present matters to the Inland Revenue as at 31^st December 1990 otherwise than on the footing that they had any joint interests in property and on the footing that the business of Khan & Co (whatever it then consisted of) was in the sole ownership of Afzal. Ashraf's plea in relation to any document arguably inconsistent with his case is that it was prepared by Afzal and signed by Ashraf because he had absolute trust in his brother's judgment as to how best to fill in the form in question. As a generality I think that that plea has some validity (and it might be interesting to look at the mortgage applications made in respect of the properties where Ashraf's name was used), but there comes a point where Ashraf must accept that the forms do bear some relation to legal reality. The legal reality is, I think, that it was not until some time after 31^st December 1990 that Afzal conceived it to be desirable that the now growing letting and management business should be conducted by him and Ashraf in partnership, that accounts should be drawn on that basis and returns made to the Inland Revenue accordingly.
44. I would therefore accept that there was some change in the legal relationship between the two brothers at this point in that there was a mutual recognition that they were partners in the letting and management business carried on as Khan & Co and they were held out to the world as such.
45. I am not, however, able to accept that the partnership was on the precarious financial terms which Afzal asserts. On Afzal's case the intention was that Ashraf would make a direct contribution to the business by physically working on the premises. Ashraf's case is that he did that. Whether he did or not it is little short of absurd to suppose that he would have committed himself to do so and taken the risk of actually performing that role when (if Afzal's version of the agreement is correct) it would have been open to Afzal to decide at the end of the year that his services had been valueless and he should not be entitled to share profits. As I find, the basis of the partnership was not (and hardly needed to be) the subject of express agreement. As with the retail business of Chic, Afzal was the one who made all the decisions relevant to the cash flow: he would therefore decide from which "pot" their respective living expenses and drawings would be made and the sustainable amount of these. He also was the one who made the commercial decisions as to what properties would be purchased either wholly or partly with money generated by the business. All this is, at one level, quite close to the type of arrangement now asserted by Afzal but it does not equate to it. The difference lies in whether the arrangements contemplated that in the final analysis Ashraf had something more by way of an interest in the business and its profits than a right merely to be considered by Afzal from time to time as a potential recipient of profit. In my judgment, making all such allowances as are appropriate having regard to the fact that the shape of the arrangements reflected a family rather than a purely commercial relationship, they must have done. I also accept Ashraf's evidence that he was led to believe by Afzal that his partnership in Khan & Co was no different from his partnership in Chic. As he put it at one point in his evidence (according to my note)

"I was the labourer. I lived on cash from the retail business although I could have drawn on the accounts of any of the businesses. I just did what I was told. Because it was my business I was glad to."

46. That Afzal should have "conceded" to Ashraf an interest in the business (assuming for this purpose that this will have included an interest in properties already owned by Afzal) in, say, 1992 is not as odd as may appear with the benefit of hindsight from a decade later. By 2002, indeed by 1999, the various properties accounted for as part of the partnership business were being described for re-mortgage purposes as worth some £4m, with a projected net equity, or "proprietors' capital", of £2m. However inaccurate those figures may have been it is clear that a substantial business empire had been built up, and equally clear that the driving force behind it had been Afzal. His business acumen, ability to create and manage the cash flows by identifying suitable properties and tenants, and to provide lenders with information sufficiently reassuring at all times to permit the business continually to expand, must have made by far the greater contribution to the success of the business by comparison with the "labouring" role of Ashraf. Afzal seems, in any case, to have been adroit in obtaining "labouring" services from others for no immediate cash cost (I heard evidence from a Mr Barry as to the basis on which he had been persuaded to provide his labour free in return for a promise of a split of profit on an eventual sale of property). At the start of the enterprise, however, things were very different. In 1989 the fortunes of the two brothers were at a very low ebb. Apart from the nascent property business, the brothers were dependent on the struggling manufacturing and retail businesses for their everyday living expenses. By early 1990 those businesses were suffering not only from the crippling effects of the recession and fierce competition but also from a dispute with the landlords of 219 and 221 High Street Walthamstow where those businesses were carried on. That dispute led to the brothers having to move, and the re-location of the businesses in premises at 289/291 High Road Leyton. That re-location was much assisted by, and might have been impossible without, Ashraf's substantial contribution to the refurbishment works which were necessary.
47. It seems doubtful whether the nascent property business was generating much positive cash flow at this period. Had it been, it would have been in Afzal's interest to demonstrate that fact in these proceedings and he has not done so. His assertion that his inability to show me the accounts of Khan & Co trading under his sole proprietorship as letting and management agents was the result of Ashraf having purloined the records did not convince me. There is, furthermore, no evidence before me that the net assets of the property management business were at this date of any significant value. Properties which appear to have been purchased by Afzal and to have formed part of the business before Ashraf started to be treated as a partner had for the most part been purchased in 1989/1990 (66 Warwick Road, 12 St Bernard Road, 49 Sommers Road, 81 Coppermill Lane) substantially (or so one imagines because no other source of funding is evident) with borrowed money. Given what one knows about property values in the period, there is at least a possibility, if not a probability, that there would have been little if any net equity in 1991/2. The draft accounts to 31^st December 1994 (which are the earliest accounts which appear to exist) may at first sight give a different impression: but those accounts treat the cost of the fixed assets as their value without attempting to indicate whether the cost in fact equates to the value.
48. My conclusion is that, there having been no agreement to the contrary whether express or to be implied from conduct, the terms of the partnership were that Ashraf and Afzal were entitled to the profits in equal shares. That conclusion reflects the understanding that independent witnesses had that the brothers were "equal partners", reflects the way in which the taxable profit shares were consistently returned to the Inland Revenue and reflects the way in which Raei & Co represented the position to Chelsea Building Society by a letter dated 21^st December 1999 (Bundles 3/13/33). It is also consistent with a piece of arithmetic which Miss Lee provided in her closing submissions which was designed to show that for the year ended 31^st March 2002 payments out of the partnership to or for the benefit of Ashraf exceeded 50% of what were shown in the tax returns to have been drawings of the partners.
49. That percentage, i.e. 50%, is therefore the appropriate percentage both for the purposes of calculating the partners' respective entitlements to revenue profits during the currency of the partnership and, following dissolution and winding up of the affairs of the partnership, to whatever is left after payment of the firm's debts and repayment to the partners of their advances and contributions to capital. That conclusion in itself says nothing about the parties' respective entitlements to capital: see Popat v. Shonchatra [1997] 1 WLR 1367 especially at 1373E-F.

Issue 3 - the date of dissolution of the partnership

50. It is common ground that, the partnership having been at will, it will have been dissolved when one party gave sufficient notice to the other that this be so. Afzal says that this happened in late March 2002 . Afzal certainly wrote to Raei & Co on 2^nd April 2002 advising them that the two brothers were no longer in partnership either in Chic or in Khan & Co from 1^st April 2002. Ashraf denies having been given that indication by Afzal, and contended (through his lawyers) that it was not clear that the partnership was dissolved until the meeting of 3^rd August 2002.
51. It seems unlikely that much turns on this issue. However, I prefer Afzal's evidence on this. The steps which he took by his letter dated 2^nd April 2002 were unequivocal. He had absolutely no motive to conceal from his brother his intention that the partnerships should be dissolved as from that (convenient) accounting date. Both brothers agree that in the months leading up to this point the common assumption had been that the two brothers would be going their separate ways. It seems to me more likely than not that Afzal told Ashraf in late March that the dissolution would be with effect from 1^st April 2002.

Issue 4 - (a) Whether any of the properties let and managed by Khan & Co (other than jointly owned properties) formed assets of the partnership (b) Whether any such properties (being jointly owned) formed assets of the partnership"

52. So far as limb (b) of this issue was concerned there was, by the time of the parties' closing submissions substantial agreement that the answer was affirmative. The outstanding issue was as to how matters now stood in relation to 86 Hainault Road. There appeared to be agreement that the parties were in principle entitled in equal shares, but room for controversy (a) as to how any sums charged on the property should be dealt with and (b) whether Ashraf had, by the letter signed on 3^rd August, bound himself to sell his interest to Afzal. I did not have argument addressed to me on this issue.
53. Harder issues arise in relation to limb (a). A preliminary point to be made is that, despite the way in which the issue is worded, the question only arises as a live issue in relation to the "purchased" as opposed to the "rented" properties used by the business (see the distinction made in paragraph 14 above). On behalf of Afzal, Miss Lee invited me to hold that there was simply no evidence that properties which were not in joint names had ever been brought into the partnership stock by Afzal or otherwise acquired on behalf of the partnership, and that I should therefore answer this issue in the negative. That submission has to be read alongside, although it is independent of, the submission (which I have been unable to accept) that there was an express agreement between the two brothers that only the properties bought in joint names were to be the subject of the partnership. On behalf of Ashraf, Mr Evans submitted that on the evidence available the court could not safely, and therefore should not, attempt to answer the question save by saying that such properties could in principle be partnership assets.
54. Accounting information produced by Raei & Co and disclosed at the eleventh hour before the trial gives some assistance in disentangling the history of the acquisition of the principal properties in potential dispute, but, when read with the Raei & Co accounts themselves, also illustrates some of the difficulties of drawing any firm conclusions on the basis of the available evidence. A major difficulty for Afzal is that those accounts are drawn so as to treat most of the relevant properties as assets of the partnership business. Afzal said that the accounts were drawn in that way simply as a convenient way of consolidating what were in fact two, possibly three, businesses in separate proprietorships (Khan & Co sole trader/Afzal and Ashraf as partners/ Afzal as sole trader) but which for tax purposes could be treated as one. This was obviously a difficult line to sustain. Moreover the accounts prepared by Raei & Co appeared to show fixed property assets being acquired with the resources of the partnership business and mortgage liabilities incurred in connection therewith being serviced from partnership income.
55. For these reasons I found it impossible to accept Miss Lee's submission that there was no evidence that any property other than the jointly owned property had ever become part of the partnership stock.
56. Once one rejects the notion that what appear to be the accounts of the partnership business are an amalgam of two or more businesses capable of being separated out, the conclusion seems to me inescapable that any property which can be shown to have been included in those accounts as an asset of the partnership should be treated as such for the purposes of the winding up of its affairs, subject of course to any claims by third parties. For this purpose I see no reason not to accept as accurate Raei & Co's analysis.
57. That leaves a question mark over certain properties which do not on the basis of the Raei & Co. analysis feature as fixed assets in the accounts but where either the mortgage liabilities of the owners have been treated as an expense of the partnership (or at least paid out of the partnership cash flow) or rent has been treated as income of the partnership, or both.
58. One category of such property consists of the brother's respective residences from time to time (32 Clivedon Road in the case of Ashraf and 102 Kings Avenue in the case of Afzal). It is not suggested on either side that these ever became partnership properties. The position concerning 55 Westbury Road (see paragraph 5 above) is potentially more difficult. When Ashraf and Rukhsana moved out in 1987 the property was re-mortgaged by Afzal and Naheed with Chelsea Building Society. Mystery surrounds the way in which the registered proprietor changed from Rukhsana to Naheed. Entries on the register suggest that the Land Registry was told that Naheed was simply another name for Rukhsana. If such a representation was made Afzal must have been a party to it and it was plainly false. Afzal professed ignorance as to how the entries had come to show the mis-identification of Rukhsana as Naheed, but claimed that at the time he had gone with Rukhsana to a firm of solicitors who had separately advised her as to her name coming off the register. Rukhsana said that a fraud had obviously taken place. Whether that was so or not was not an issue before me (although I was surprised that Afzal's version was not supported by any documentary evidence). What is I think clear is that 55 Westbury Road was treated as a residence and therefore outside the partnership after Ashraf and Rukhsana moved out. 55 Westbury Road did, however, subsequently cease to be the residence of Afzal and Naheed, and then became rented out, the rents probably being accounted for as income of the partnership. It does not appear to me that the mere fact that rent was produced for the partnership (and the partnership presumably defrayed the mortgage liabilities) means that the property was thereby introduced as an asset of the partnership.
59. A further category of such property consists of property that was registered in the names of one or other of the brothers and a third party. The only known example of this is 66 Warwick Road (Ashraf and Mr Johal). Both Ashraf and Afzal (and Mr Johal) appeared to be agreed in principle that the ultimate split of profit on this property would be 50% Mr Johal and 50% the two brothers.
60. There is, finally, another category of such property of which the only example before the court is 39 Buckland Road. This was acquired in 1992 in the names of Tahir Khan (one of Ghulam's sons) and Mohammed Sarwar Awan who has known both brothers since their childhood in the same village in Pakistan. The latter says that his role was as pure nominee for Afzal, but Tahir Khan says that his understanding was that 50% of any profit would belong to himself and Mr Awan in the event of a sale, the balance belonging to Khan& Co. Afzal's evidence was that he claimed an interest in it as a result of having financed its purchase, but the basis upon which the partnership then paid the mortgage (if it was not on the basis that the partnership had at least a contractual entitlement to a cut of any future profit) is obscure.