Zarbafi v Zarbafi & Ors [2014] EWCA Civ 1267

Case No A3/2014/1879 & 2069[2014] EWCA Civ 1267
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
Mr. Charles Hollander QC (sitting as a High Court Judge)
HC14E00593
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Thursday 2 nd October 2014
Before
LORD JUSTICE RIMERLORD JUSTICE BRIGGSLORD JUSTICE FLOYD
Between
ARSALAN ZARBAFIAppellantGOLNAR ZARBAFI and othersRespondents
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
JOHN WARDELL QC and ELIZABETH WEAVER (instructed by WITHERS LLP) for APPELLANTROMIE TAGER QC and RICHARD CLEGG (instructed by HILL DICKINSON LLP) for RESPONDENTSHearing Hearing dates : 10 th– 11 th September 2014
Judgment
[1]This is the defendant’s appeal against two Orders of Mr. Charles Hollander QC sitting as a deputy judge of the Chancery Division, made on the 7th May 2014 (“the First Order”) and the 20th June 2014 (“the Second Order”). By the First Order he granted declarations by way of summary judgment in favour of the claimants in relation to the beneficial ownership of freehold and leasehold property in England. By the Second Order he continued, in altered form, injunctions originally obtained by the claimants without notice, designed to regulate the defendant’s conduct pending the submission to the court on a future application of proposals for the disposal of one of those properties.[2]In bare outline, the appellant defendant submits that the issues as to the beneficial ownership of the properties were unsuitable for summary judgment rather than a full trial, and that the judge’s decision to continue the injunctions was vitiated both by inappropriate findings that the defendant was dishonest in his dealings with the claimants, which ought not to have been made before a full trial, and because of the absence of any prior threat by the defendant to do the acts prohibited by the injunctions.[3]A further question arose during the hearing of the appeal, albeit not raised by the appellant’s notice. The first claimant conducted the proceedings both in her own right and as self-appointed litigation friend of the second claimant, her father who, it is common ground, has at all material times lacked capacity to conduct legal proceedings. The question is whether the first claimant could properly act as the second claimant’s litigation friend for the purposes of the applications before the judge, having regard to a conflict of interest between them, and whether the existence of such a conflict constituted an independent reason for setting aside either of the judge’s Orders.[4]Having heard the matter ably and vigorously argued over two days by leading counsel for both sides, Mr. John Wardell QC for the appellant and Mr. Romie Tager QC for the respondents, I have come to the clear conclusion, on a number of grounds, that the appeal against the First Order should be allowed, and the question as to the parties’ beneficial interests in the properties determined at a trial. As to the Second Order, my conclusion is that, subject to an important revision enabling the defendant to seek to market one of the properties (which the Second Order wholly prohibited) the injunctions continued by the judge should stand, albeit for reasons different from those which he gave.[5]My conclusion that the dispute as to beneficial interest should be determined at trial means that I should, as far as possible, confine my observations about the merits of that dispute to those strictly necessary for providing adequate reasons for my conclusion that the issues were unsuitable for summary judgment. Nothing in the necessarily abbreviated analysis which follows should be taken as expressing even a provisional view as to the final outcome of those issues.[6]Nonetheless, the complexity of this dispute and its history necessitate some detail, so as to make my reasons intelligible.

The parties

[7]The second claimant, Mr. Mahmood Zarbafi (“Mahmood”), now aged eighty, used to be a wealthy and successful Iranian businessman and property owner, who came to the UK shortly before the Iranian Revolution, and who became ordinarily resident here, albeit still visiting Iran from time to time, in the 1980s. He suffered a stroke in 2001, whereby he permanently lost the ability to speak. He now requires full time professional care, can only move about in a wheelchair, and is a protected party within the meaning of CPR21.1(2)(d). Save for a beneficial interest in one of the disputed properties, namely a ground-floor flat at 44 Eaton Square, the extent of which was the main issue in the summary judgment application, and for possible illiquid real property assets in Iran, Mahmood is now entirely bereft of assets, and dependent upon the loyalty and generosity of his children for his ongoing care and support, which currently costs hundreds of thousands of pounds per year, and involves a team of three professional carers, together with the attention of doctors and a consultant. He is, and is likely always to be, in a precarious state of health.[8]Mahmood is represented in these proceedings by his only daughter and the youngest of his three children, Golnar Zarbafi (“Goli”). She appointed herself his litigation friend pursuant to Part 21.4 (that is without a court order), filing the requisite certificate that, among other things, she had no interest adverse to her father (see Part 24.4(3)(b)).[9]Goli is also a claimant in her own right. This is because she claims to be a 40% beneficial owner of the relevant properties, including Eaton Square. She also claims ultimate beneficial ownership of a further 40% of the relevant properties, by virtue of her status as the sole beneficiary in the as yet un-administered estate of her mother Ziba Zarbafi (“Ziba”), who died in 2005. The judge made an order that she represent her mother’s estate pursuant to Part 19.8. No issue arises as to that order. The claimants allege (and the judge declared) that Ziba’s estate was entitled to a 40% beneficial interest in the relevant properties to which, subject to the estate’s liabilities (including any tax), Goli is entitled to succeed.[10]The defendant Arsalan Zarbafi (“Asi”) is the younger of Mahmood’s two sons. Having been privately educated in England, he established himself as a retailer and property dealer or developer in this country. He has been in the forefront of the management of the relevant properties since his father’s stroke in 2001 and he claims, although this is disputed by Goli, that he has funded millions of pounds’ worth of his father’s care since then, by no means fully recouped out of his father’s diminishing assets.[11]Mention must be made of Mahmood’s eldest son Amir Zarbafi (“Amir”) who, although not a party to these proceedings, features in the relevant history.[12]However harmonious and close-knit the family may have been prior to Mahmood’s stroke and Ziba’s death, it is common ground that the three children have since descended into a state of what Mr. Tager fairly called total disfunctionality. The present litigation is by no means the first dispute which has led to court proceedings between Goli and Asi. There is also litigation between the children, so we were told, in Iran. Although by no means uncritical of Asi’s conduct of his father’s affairs, Amir has made a witness statement in these proceedings cautiously supportive of aspects of Asi’s case. Perhaps more importantly, Amir has been in the forefront of steps to obtain the appointment of a deputy for his father from the Court of Protection although, most unfortunately, those steps have yet to bear fruit. There may be difficulties as to how any such deputy is to be funded in view of the absence of liquid assets belonging to Mahmood, but Asi is on record as having offered to do so at an earlier stage in these proceedings.

The relevant properties

[13]The First Order made declarations as to the beneficial ownership of the following three properties: 1) A freehold interest in a substantial residential property near Bordon called Standford Grange. 2) A long leasehold interest in land adjoining Standford Grange (“the adjoining land”). 3) The leasehold interest in Eaton Square.[14]Nothing turns on the declaration in relation to the adjoining land, namely that it had belonged beneficially to Mahmood. The present dispute is, in substance, about the beneficial interest in Standford Grange and, thereafter, in Eaton Square which, as is now common ground, was acquired by Asi by means of borrowing on the security of Standford Grange so that, as is also common ground, the beneficial ownership of Eaton Square follows that of Standford Grange.

Standford Grange

[15]Standford Grange was acquired by Mahmood and registered in his sole name in 1987, with the intent that it should become the family’s main home, at least until his children moved out and acquired properties of their own. Mahmood executed a declaration of trust upon the acquisition of Standford Grange, dated 22nd January 1987 (“the 1987 Deed”) in which he recited that he had bought it with the use of funds transferred from Iran belonging to himself, his wife and his children. He declared himself a trustee of the property for himself, Ziba, Asi, Amir and Goli in equal shares.[16]By a further trust deed dated 20th March 1992 (“the 1992 Deed”), made between Mahmood, Asi and Amir, after reciting the trusts of the 1987 Deed, Asi and Amir assigned their 20% beneficial interests in Standford Grange respectively to Goli and Ziba, to the apparent intent that, thereafter, Mahmood held Standford Grange on trust for himself as to 20%, his wife as to 40%, and his daughter as to 40%.[17]It is now clear, from fresh evidence admitted on appeal without objection (and therefore not before the judge), that in December 1997 Mahmood mortgaged Standford Grange to UCB Home Loans Corporation Limited (“the UCB Mortgage”) purporting to act as sole beneficial owner and declaring, by clause 1.2 of the mortgage deed, that:
“No person or party had any interest in the Property or its proceeds of sale.”
[18]Again, in 1999, Mahmood mortgaged Standford Grange to the Bank of China. He counter-signed an offer letter dated 11th January 1999 warranting that he was the legal and beneficial owner of the property, and not a trustee or nominee for any other person. Further, both Ziba and Goli appear to have signed declarations stating that: “I have no right, legal or equitable, in the above property nor do I have any right to tenancy or other rights of occupation therein.” apparently after receiving letters from solicitors acting for the Bank of China recommending that they take independent advice. Again, this material emerged only in fresh evidence deployed on appeal.[19]Shortly after Mahmood’s stroke, and when he was totally incapacitated (a condition from which he later recovered a little), Asi arranged for the transfer of Standford Grange into his and his father’s joint names. He did so on 3rd May 2002, purporting to act under a power of attorney from his father, as part of a general taking over of his father’s affairs due to his incapacity. The transfer document recites that Mahmood made it in consideration of his natural love and affection for Asi, and contains a declaration that Mahmood and Asi were thereafter to hold the property on trust for themselves as beneficial joint tenants.[20]Asi’s evidence about this transaction is that he did it because of his father’s incapacity, to enable him to re-finance the UCB and Bank of China mortgages, one of which was about to fall due for repayment, that he fully informed Goli about it and obtained her consent, that he then regarded his father as the sole beneficial owner of Standford Grange, and did not intend by the transfer to acquire any beneficial interest of his own in that property. His evidence is that if he were to obtain new mortgage lending on the property it would be necessary for him to persuade intending lenders that he had an interest in it. Asi has been unable to produce the requisite power of attorney, although an Iranian power of attorney has subsequently emerged in fresh evidence. It is not suggested that this constituted the requisite authority from Mahmood to Asi under English law.[21]Save for the transfer itself, Asi’s account of this transaction, and in particular his evidence that he informed Goli about it, is hotly disputed by Goli, whose evidence is that she knew nothing about it at all.[22]Thereafter Asi did achieve a re-financing of Standford Grange, but the lending on the security of that property which he then obtained was sufficient also to fund the purchase of the leasehold of Eaton Square which, it is common ground, has been used from start to finish as Mahmood’s (and until her death Ziba’s) London home. As a ground-floor flat, it is altogether more suitable for Mahmood in his disabled circumstances than had been Standford Grange.[23]Asi does not suggest that he consulted his father about the transfer into joint names, but his evidence is that his father was sufficiently recovered to be able to participate with him in the later sale of Standford Grange in September 2004. Mr. Wardell submitted that it was, on that evidence, at least arguable that Mahmood later ratified the 2002 transfer, even if there had been, at that time, no valid power of attorney enabling Asi to do so.

Eaton Square

[24]This is a substantial ground-floor flat with its own front door in a prime location, but all that was acquired by Asi was the fag-end of a non-enfranchisable long lease due to expire in July 2016, on full repairing terms. The reversioner is the Grosvenor Estate. Asi acquired it in his sole name using, as is common ground, proceeds from the re-mortgage of Standford Grange. Again, he asserts no beneficial interest of his own in Eaton Square, purchased in January 2003. The purchase price of £860,000 (inclusive of costs and stamp duty) was raised in part with the assistance of a loan from NatWest of £530,000, but otherwise entirely from the proceeds of remortgaging Standford Grange. Again, Asi’s case is that it was necessary for him to acquire Eaton Square in his name, so as to be able to finance the balance of the purchase monies, as (by then) a successful property dealer. Asi’s evidence is that this purchase was enthusiastically supported by his father, who was capable of articulating his views by gesture, even if gravely impaired in his speech.[25]It appears that Eaton Square was furnished with Mahmood’s possessions. Being much smaller than Standford Grange, it was insufficient to accommodate all the contents of that property, so that on its later sale a significant part of Mahmood’s possessions were put into store.[26]Goli’s evidence about the purchase of Eaton Square accepts that she was informed about its selection, the price, that it was to be put into Asi’s name because no-one else in the family could obtain a mortgage, but asserts that she was not told that any part of its purchase had been funded by means of recourse to Standford Grange as security for lending. Her evidence is that there was at the time no discussion nor (on her part) any clear understanding about the beneficial interests established in Eaton Square.[27]In 2010 Asi raised some £700,000 from Barclays bank on the security of Eaton Square, repayable as to 80% by June 2014 and as to the balance by June 2015. His evidence is that he did so to ease cash-flow difficulties attributable in part to his personally incurring the expense of his father’s care, and he acknowledges liability to repay it. No part of it had been repaid at the time of the hearing before the judge, or indeed the hearing of this appeal, although Mr. Wardell told us on Asi’s behalf that a fresh facility, secured on properties entirely owned by his companies, had been agreed, so that repayment in full was imminent. Needless to say, the circumstances of the Barclays loan have given rise to the gravest of suspicions of misconduct by Asi as a self-acknowledged bare trustee, not least because Goli disputes Asi’s case that he has spent substantial amounts of his own money on his father’s care.

The present proceedings

[28]Goli said that the casus belli for this litigation was her discovery in autumn 2013 that Asi had put Eaton Square on the market, coupled with his failure to respond to an email she sent him on 28th October asking him to desist, and to leave their father in undisturbed accommodation of Eaton Square for as long as possible. The proceedings began with a successful without notice application (before Warren J) for injunctions restraining Asi from marketing, selling or otherwise dealing with Eaton Square, from removing Mahmood from Eaton Square, or interfering with his occupation of it, or that of his team of carers, from removing any of the contents of Eaton Square, including a dog named Lala, and from interfering with Goli’s access to Eaton Square for the purposes of visiting her father and dealing with his caring team.[29]This at first sight remarkable application, not preceded by any threat of litigation, was justified by Goli by reference to what had happened when she had demanded and then litigated for repayment by Asi of a short term loan which she had made to him in 2008. Asi’s response to that claim (which was duly successful on an application by Goli for summary judgment) included threats to remove Mahmood from Eaton Square and re-house him, to sell his stored furniture (which was under Asi’s control and, on his case, stored at his expense), to sell carpets belonging to Mahmood at Eaton Square, to put Mahmood into a care home, or to return Mahmood to his family home in Iran. His response culminated with changing the locks in Eaton Square so as to exclude Goli (because she had by then removed the threatened carpets into her own custody) and to report Goli to the police for the misappropriation of the carpets. His response included the following statement, in a letter from his solicitors to Goli’s solicitors:
“44 Eaton Square is not held on trust by our client’s father. Our client permits him to stay as a guest, and has done since the property was bought in February 2003 and following his strokes. Standford Grange was sold in September 2004 subsequent to the purchase of 44 Eaton Square.”
[30]The substance of Goli’s submission to Warren J was that, before launching further hostile proceedings against her brother, she needed to protect her father from being used as a pawn in the litigation, as had been threatened in 2010.[31]The substantive claims which Goli wished to pursue in the litigation, as appears from the Claim Form and Particulars for Claim, may be summarised as the obtaining of declarations as to the beneficial ownership by herself, her mother’s estate and her father of the relevant properties, a restraint upon Asi dealing in any way with Eaton Square as trustee without the beneficiaries’ approval, and a comprehensive wide-ranging account from Asi as to his dealings with the beneficiaries’ properties, including Standford Grange, its proceeds and Eaton Square, with consequential orders for repayment. For that purpose she sought to sue both in her own right and on behalf of all those entitled to any beneficial interest in those properties, or in the outcome of the account sought, namely her father and her mother’s estate. Thus she sought to be her father’s litigation friend and also to represent the estate, as the judge in due course ordered, pursuant to CPR 19.8.[32]As to Standford Grange (the ownership of which was relevant only in relation to her claim for an account of Asi’s dealing with its proceeds) her case was squarely based on the 1987 and 2002 Deeds, namely a 20%:40%:40% split between her father, her mother’s estate and herself. As to Eaton Square her case was much less certain. She had at that time no evidence that it had been acquired with money derived from a re-mortgage of Standford Grange, although she suspected that Asi might have acquired it by that method. She was faced with Asi’s assertion, in the letter in 2010 to which I have referred, that he was its sole beneficial owner, and claimed only that it was either owned in the Standford Grange proportions, or beneficially by her father and mother’s estate, in unspecified proportions.[33]Goli sought to justify her assertion that she could act without conflict of interest as her father’s litigation friend by the following paragraph in her first witness statement, deployed on the without notice application:
“I have been advised that in order to act as Mahmood’s litigation friend, there cannot be any conflict between my interests and the interests of Mahmood. I am not bringing any of the claims in these proceedings in order to achieve a personal benefit that could in any way be regarded as being at the expense of Mahmood. In particular in asserting the claims that I have based on what was my 40% interest in Standford Grange and under Ziba’s will in relation to her 40% I am only doing so because I have been advised that this represents the basis of a good argument that Mahmood, Ziba’s estate and I enjoy a beneficial interest in Eaton Sqaure which the court will protect. To the extent that the Court will conclude that I (or indeed Ziba’s estate) do indeed enjoy such a beneficial interest in relation to Eaton Square or any other assets which are the subject of these proceedings, I am willing to assign or surrender my interest in Eaton Square in favour of Mahmood if and for as long as that is necessary in order to achieve my primary objective which is to allow Eaton Square to remain Mahmood’s home for the next two and a half years unless he were to sadly die beforehand or be unable to continue living there. I do not therefore believe that there will be any conflict between my interests and interests of Mahmood.”
[34]By his defence, dated 10th April 2014, Asi admitted that Eaton Square had been acquired with the proceeds of a remortgage of Standford Grange, and disclaimed any beneficial interest of his own in the property, or indeed in Standford Grange. His case was that both properties were, and had always been, beneficially owned entirely by Mahmood, and that he had been no more than his father’s trustee in relation to Eaton Square, using it from time to time for his father’s benefit or to recoup himself for expenditure on his father’s care. As to the intended sale of Eaton Square, his case (and evidence) was that he was doing it so as to secure accommodation for his father beyond the expiry of the fag-end of the lease in 2016, and doing so at a time when his status as leaseholder enabled him to bargain with the Grosvenor Estate for a 20 year extended lease which he could sell in the market at a substantial profit over the premium payable to the Grosvenor Estate, so as to use that profit for alternative suitable accommodation for Mahmood. He resolutely denied (both by pleading and by evidence) any intention or disposition to act in relation to Eaton Square otherwise than solely in his father’s best interests.[35]Asi did of course have to deal with the 1987 and 1992 Deeds in his defence. His case, such as it was, is to be found in paragraph 19, as follows:
“As to paragraph 19, it is admitted that following the purchase of Standford Grange, Mahmood executed the 1987 Trust Deed. The Trust Deed was executed by Mahmood to give effect to and reflect the basis on which he held his assets ie they were held for the benefit of the family so that the assets were intended to pass to members of the family in the shares or proportions directed by Mahmood after Mahmood’s death but during his lifetime, the assets remained available to Mahmood for him to dispose of or deal with as he chose. Accordingly, Ziba, Amir, Asi and Golnar did not become immediately entitled outright to a 20% interest in Standford Grange but held their ‘interests’ as nominee for Mahmood during his life.”
As to the 1992 Deed, he claimed that it had the same consequence as its predecessor, namely that, pending Mahmood’s death, no other member of the family had any beneficial interest in Standford Grange.[36]It took Goli and her advisers only four days after seeing Asi’s defence to conclude that his admission as to the source of the purchase monies for Eaton Square might serve as the basis for an application for summary judgment for a declaration that both Standford Grange and Eaton Square were held beneficially on the 20:40:40 proportions which I have described. The application for summary judgment was issued on 16th April, and heard with commendable promptitude on 6th and 7th May.[37]By the time that hearing commenced (and indeed at all times after the service of Asi’s defence) the issues as to the beneficial ownership of Standford Grange and Eaton Square had hardened into a simple binary alternative. Either they were both held on the 20:40:40 proportions derived from the Trust Deeds, or they were held beneficially for Mahmood alone. From Mahmood’s perspective they were either his as to 20%, or his in their entirety. He was plainly a necessary party to any determination of that issue. Yet no thought appears to have been given by Goli or on her behalf as to how, at a hearing to determine that issue, she could at one and the same time pursue her claim (to 40% and a further 40% by inheritance) while acting as litigation friend for her father as a co-claimant, when the only contrary case advanced (in fact by Asi) was that Mahmood was the sole beneficial owner of both properties.[38]Nor could reliance continue to be placed on Goli’s assurance to Warren J that she would assign any beneficial interest in Eaton Square to her father to the extent necessary to secure his continued residence there. In her written submissions served pursuant to an order made on 7th May 2014, she said, at paragraph 12:
“If Asi were to apply to the Court for directions that would enable him to market and sell Eaton Square with a view to re-housing Mahmood, she would indeed assert her 80% interest, and would be unwilling for that 80% to be invested in alternative accommodation.”
[39]Nonetheless, Goli was allowed to continue to act as her father’s litigation friend throughout the proceedings before the judge now under appeal, and remained his litigation friend throughout the hearing of the appeal itself, despite the expression of serious concern from the bench about her apparent conflict of interest. The question whether this should have been allowed to continue, and the consequences of it having been so permitted, is the first substantive issue with which I shall shortly deal. It remains to summarise the parties’ cases on the summary judgment hearing, the judge’s judgment and his reasons for continuing the injunctions, which followed further written submissions by the parties.

The summary judgment hearing and decision

[40]The parties’ arguments about beneficial interest were broadly in accordance with their pleadings as I have described them, save that (apparently without a pleading objection), Miss Elizabeth Weaver raised a defence of laches in relation to Goli’s claim to a beneficial interest. The judge presciently asked Miss Weaver whether she was seeking to advance any case that the 1987 and 1992 Deeds were shams. Her response was that she was not, and that it was not necessary for Asi to do so. She did however point out the conflict in which Goli found herself as her father’s litigation friend. She pointed out in particular that the beneficial interest argument then being litigated was “really an argument between Golnar and her father…”, with stark consequences in terms of the amount of the proceeds of sale of Eaton Square which might be available for his housing and care.[41]In an admirably focussed extempore judgment, the judge found no difficulty in resolving the beneficial interest issue in favour of Goli. After setting out the terms of the two Trust Deeds he said, in summary, that the case advanced, namely that they were intended only to speak from Mahmood’s death, was an impossible one, unless based upon an allegation of sham, which Asi had, by counsel, abjured.[42]He dealt with the defence of laches at greater length. Having observed that, if correct, it would appear to have dramatic and unfair consequences, both for Goli and for her mother’s estate, he dismissed the claim essentially on the twin grounds that Goli had lacked the requisite information about her beneficial interest during the material period, and that this was the consequence of Asi having kept her dishonestly in the dark as to his conduct throughout. Specifically, he found as a fact that Asi has transferred Standford Grange into his and his father’s joint names (the necessary precursor to its mortgage to raise funds for the purchase of Eaton Square) “through dishonesty by Asi and where the true position was concealed from Golnar.” (paragraph 24). Later, (at paragraph 29) he continued:
“The fact is that Asi had concealed much of what he had been doing from Golnar and certainly never presented her with the true picture. In those circumstances, to suggest that Golnar, who was not being given an accurate or clear position by Asi, should in some way be estopped by laches or by acquiescence from claiming her interest seems to me to be unarguable.”
Earlier (at paragraph 21), his conclusion that Goli did not have the information on which to be clear as to the correct position, and that Asi did not provide it but rather provided consistently misleading information, was heavily based upon citations from Goli’s evidence. No reference was made in the judgment to Asi’s clear assertions to the contrary in his own evidence.[43]In relation to Miss Weaver’s submission that Goli’s conflict of interest was a compelling reason for a trial, he said (at paragraphs 30-31) that no application had been made under CPR 21.7 to change Mahmood’s litigation friend, and that the assertion of conflict should not stand in the way of summary judgment, in the light of his conclusion that the defences on the beneficial interest issue had no merit or arguability. To do otherwise, he said, would be a recipe for delay, unfairness and further costs.

The continuation of the injunctions

[44]This, as I have said, was dealt with by the judge in a written supplementary judgment, after receiving further written submissions from the parties.[45]In his short written judgment, delivered on 13th June 2014, the judge put at the forefront of his analysis his findings, on the summary judgment application, that Asi had been seriously dishonest and that his subsequent written submissions “reflect a continued failure on his part to understand the seriousness with which the court regards the conduct.” On that basis alone, he concluded (at paragraph 3) that:
“Any attempt by Asi to market or otherwise deal with 44 Eaton Square, even on a preliminary basis, is bound to give rise to justifiable concerns and suspicions, provides an opportunity for him to continue with the improper actions he had carried out in the past, and is in my view wholly inappropriate.”
[46]Thereafter, following brief reference to the Cyanamid requirements, the judge concluded that, in order to protect the status quo while the parties considered the way forward, particularly in relation to Eaton Square and the further accommodation of Mahmood, the injunctions originally granted by Warren J without notice should, subject to amendments which I need not describe in detail, be continued. The Second Order contained a broad liberty to apply, without showing change of circumstances, in relation to the marketing or disposal of Eaton Square, and the future occupation of Mahmood, of which the parties have yet to avail themselves at first instance.

Representation of Mahmood and Goli’s conflict of interest

[47]I consider that, from the moment when Goli issued the summary judgment application, if not indeed before, she was in a position of serious conflict between her own interests and those of her father. The judge was, in my view, wrong to undertake the summary judgment hearing for the determination (if possible short of trial) of the by then binary issue as to beneficial interest, while Goli was thus disabled by her conflict of interest from acting properly as her father’s litigation friend. Rather, her father should have been joined as a defendant to her claim, rather than as a co-claimant, and adequate representation obtained for him by an un-conflicted litigation friend, and the proceedings stayed (save in relation to urgent interim relief) until that was done. For that reason alone, I would therefore allow the appeal against the First Order. My detailed reasons follow.[48]Although Mr. Tager for Goli valiantly sought to uphold the judge’s view that there really was no serious conflict because he had concluded that the defences to her own claim (and that of her mother’s estate, in which she was interested) were unarguable, that seems to me to put the cart before the horse. It took two days of no doubt vigorous and detailed argument, and a great volume of pleadings and evidence, to enable the judge to reach that conclusion, during the whole of which Mahmood was deprived of any independent representation or consideration of the defences which might be advanced, and the materials which might be sought and obtained for that purpose. The question whether the proceedings were properly constituted with Mahmood as a co-claimant and Goli as his litigation friend needed to be addressed at the beginning of the summary judgment hearing, not at the end, by which time after argument, the judge had made up his mind as to the merits of the beneficial interest issue. The question for the court was whether there was a case fit for trial to the effect that Mahmood beneficially owned both properties as to 100% rather than 20% as Goli alleged. She was vigorously arguing that his interest was limited to 20%, and had qualified her previous assurance to Warren J that, if she owned the 80% in dispute, it could in any event be used for her father’s housing and care at Eaton Square. The issue was, as Miss Weaver concisely submitted, in reality an argument between Goli and her father. I have, from start to finish, entirely failed to understand how anyone could have thought that Goli could continue, un-conflicted, to represent her father’s interests.[49]Nor was it, in my judgment, any answer to the difficulties raised by Goli’s manifest conflict of interest for the judge simply to say that no application had been made by anyone to have her replaced. In proceedings for a declaration it is, and always has been, for the court to ensure that the necessary parties are before the court. Mahmood was obviously a necessary party to the claim for a declaration as to beneficial interests in the relevant properties. Where a necessary party is a protected party (or, for that matter, a child) it is for the court to ensure that the regime laid down by Part 21 has been properly complied with, so that the interests of the protected party are properly secured. It is not enough to leave that to other parties to the litigation, in circumstances where, a litigation friend having become obviously conflicted but not having voluntarily ceased to act, the proceedings then continue in a manner capable of having serious adverse consequences for the protected party.[50]Part 21.7 provides as follows:
“(1) The court may- (a) direct that a person may not act as a litigation friend; (b) terminate a litigation friend’s appointment; or (c) appoint a new litigation friend in substitution for an existing one. (2) An application for an order under paragraph (1) must be supported by evidence. (3) The court may not appoint a litigation friend under this rule unless it is satisfied that the person to be appointed satisfies the conditions in rule 21.4(3).”
The conditions in rule 21.4(3) include the requirement that the proposed litigation friend has no interest adverse to that of the child or protected party. (a) direct that a person may not act as a litigation friend; (b) terminate a litigation friend’s appointment; or (c) appoint a new litigation friend in substitution for an existing one.[51]While Part 21.7(2) requires that a party who applies for an order to terminate a litigation friend’s appointment or replace her must make an application supported by evidence, nothing in the rules prohibits, or should be understood even to discourage, the court doing so of its own motion, in particular where satisfied that an existing litigation friend has become disabled by conflict, or that a certificate of no conflict is, or always was, manifestly unsound.[52]The reason for this is not difficult to ascertain. The regime for the securing of proper representation for protected parties is designed for the benefit of those parties, rather than other parties. Other parties may have good reasons of their own not to seek the removal or replacement of a conflicted litigation friend. Alternatively they may, justifiably, simply not concern themselves with the protected party’s interests.[53]The general scheme of Part 21 is designed to ensure that before any other than the initial steps are taken in contentious civil proceedings, a protected party has a litigation friend to conduct proceedings on his or her behalf, unaffected by any conflict of interest: see rules 21.2(1), 21.3(2) and (3), and 21.4(3)(b), in relation to conflict.[54]True it is that Part 21 does not deal in terms with the situation where a litigation friend has become conflicted, but fails to cease to act or seek her replacement. Nor does Part 21 impose an absolute ban on further steps being taken in proceedings where there is a protected party without the litigation friend. Rather, nothing of substance can be done without the court’s permission. But the reference to the court’s permission makes it clear in my view that the securing and maintenance of proper representation of a protected party, by means of an un-conflicted litigation friend, is part of the court’s duty which it cannot simply ignore unless and until an application is made under Part 21.7(2).[55]In fairness to the judge, it may be said that he was led slightly astray by the suggestion that Goli’s conflict in representing her father was a compelling reason for a full trial. Indeed, it is evident in his reasons for rejecting the submission based upon cost and delay, that he took the submission on board in that way. The real point was that the summary judgment application should not have been allowed to proceed without addressing the difficulty caused by Goli’s manifest conflict of interest. It by no means follows that, once dealt with, the summary judgment application could not then have been resumed, and the delay and expense of a full trial avoided, if the beneficial interest issue could, on its merits, properly be dealt with in that way. In passing, it is to be noted that steps to have a deputy appointed by the Court of Protection for Mahmood were already in train by the beginning of the summary judgment hearing, albeit that they have not proceeded with any rapidity.[56]We were much pressed by Mr. Tager with submissions that there were real difficulties in appointing and funding a deputy, or other litigation friend. That may be so, but I am nowhere near to being persuaded they were insuperable, or sufficient to have made it appropriate for the judge simply to continue with the summary judgment hearing without giving time for a serious attempt to be made in that regard. The parties were by then expending large sums on litigating with the assistance of city solicitors and substantial teams of counsel, while at the same time all protesting their single-minded desire to do nothing other than serve Mahmood’s interests. In those circumstances, the submission that nothing could have been found to fund a deputy or other litigation friend falls on stony ground.[57]My conclusion as to Goli’s conflict of interest would be sufficient on its own to lead to the appeal against the First Order being allowed. Nonetheless, since the other matters have been argued, as between Goli and Asi, and since they point in the same direction, it seems to me to be sensible briefly to express my views upon them.[58]I would also remove Goli forthwith as Mahmood’s litigation friend. Mr Tager sought to persuade us to leave that to the High Court on a further application. But it seems to me that, an insuperable conflict having arisen between Goli’s interests and those of Mahmood, which she has through counsel continued to decline to recognise, she ought to be removed without further ado.

Sham

[59]The judge was, in my view, right to say in his judgment that nothing could displace the conclusion that the beneficial interests in Standford Grange and Eaton Square were governed by the 1987 and 1992 Deeds, other than an allegation of sham. It might have been necessary for me to explain that conclusion in detail, but for the fact that, during argument, Mr. Wardell very sensibly conceded that this was correct. It was put to him from the bench that this was a case of sham or bust, and he agreed. Pursuant to directions given by Vos LJ when giving permission to appeal, Asi had in the meantime served a draft Amended Defence, verified by a statement of truth, alleging sham, separately in relation to both Trust Deeds. Furthermore, a substantial amount of fresh evidence emerged, and was admitted on appeal without objection, to provide evidential support for a case of sham. I have already referred to two instances when Mahmood continued to treat Standford Grange as if he was the sole beneficiary of it. Other instances were relied upon by Mr. Wardell as disclosed by the evidence, which I need not mention in detail. They included a proposal by Mahmood to sell Standford Grange to Amir in 1999, on an assumed basis as to beneficial ownership entirely inconsistent with the Trust Deeds. Meanwhile the fresh evidence shows, albeit only in outline, that accountants instructed in relation to Mahmood’s tax affairs asserted the genuineness of the 1987 Deed to the Inland Revenue during correspondence mainly about other properties, and that the 1992 Deed may have been used as a means of generating an allowable loss for the purposes of capital gains tax of the disposal of Amir’s interest in Standford Grange effected by that Deed.[60]It is unnecessary at this stage to engage in a detailed analysis of the law relating to sham, in relation either to a trust deed by a settlor trustee to which there is no other party, or a multi-party trust deed (such as is the 1992 Deed) where the apparently intended beneficiaries are nonetheless not parties. I am content, as I think was Mr. Tager, to assume that it is at least arguable that the law is correctly stated in the current edition of Lewin on Trusts, paragraphs 4-19 and following, which I would summarise as being to the effect that:(a) A settlor trustee may himself assert that his trust deed is a sham (provided that there was the requisite intent to use it to mislead others coupled with an intent that the property should not be held as recorded in the document)(b) The shammer may lose that entitlement if either he has embarked upon an illegal project, such as defrauding the Revenue, or held out the document as conferring upon the beneficiary the interest described, but that(c) Third parties may prove that the document is a sham, notwithstanding that the shammer himself may be disabled from doing so, provided that they are not complicit in the unlawful intent or attempt to mislead.[61]I must however deal with Mr. Tager’s submission that, now it has been raised for the first time, the defence of sham in relation to both Trust Deeds is plainly not maintainable. He submitted that:(a) Having decided not to allege sham before the judge, Asi should not be given a second bite of the cherry by being permitted to do so after summary judgment against him by late amendment.(b) The draft amended pleading fails to allege a viable case of sham, albeit that it uses the word ‘sham’ as a label.(c) In any event, since both the 1987 and 1992 Deeds were proffered to the Inland Revenue for the purposes of obtaining tax advantages available only on the footing that they were genuine documents, this is a complete answer to the claim, pursuant to the doctrine in Tribe v Tribe [1996] Ch 107 and Tinsley v Milligan [1994] 1AC 340.[62]As to (a), I accept that Asi appeared to elect against an allegation of sham during the hearing before the judge. But much of the evidence supportive of an arguable case of sham has emerged and become realistically available to Asi only after that hearing. Furthermore, the summary judgment hearing came on very quickly after the application was issued. It is to my mind one thing to set a high bar to the admission of late amendments, where to do so would derail preparation for trial or cause the loss of the trial date, and quite another to apply the same high bar to an attempt to reformulate a case, largely on the basis of fresh evidence, shortly after the unsuccessful outcome of a speedy summary judgment application, at a very early stage in proceedings. No compelling case of prejudice to Goli occasioned by the proposed amendments has been put forward on her behalf. So far as delay is concerned, the impetus for a speedy resolution of these proceedings has, generally, come from Asi, due to his anxiety to seek to realise something from the fag-end of the Eaton Square lease, whereas Goli’s preference, from start to finish, has been to leave her father in undisturbed occupation of Eaton Square for as long as possible.[63]Furthermore, the basis of the judge’s rejection of this defence was (correctly as I have said) that the case pleaded was unarguable, indeed incoherent, in the absence of an allegation of sham. The outcome is therefore at least comparable with a case in which a defence has been struck out as disclosing no basis for defence, where customarily the unsuccessful party is offered an opportunity to amend. In those circumstances I would be disposed to allow an amendment which, provided that it was verified by a statement of truth, pleaded an arguable case of sham that was consistent with the evidence as it now stands.[64]As to (b), there is much force in Mr. Tager’s submission that the draft amended defence served before the hearing of the appeal failed to deal adequately with Asi’s difficulties. While using the word ‘sham’ in relation to both Trust Deeds, it failed, he said, properly to plead or particularise a case of dishonest deception in relation to either of them, failing even to identify the person or persons alleged to have been intended to be misled. I need not address that submission further because, anticipating that it might succeed, Mr. Wardell sought and obtained penitential permission to try again, leading to the service of a revised draft defence (pursuant to directions given by the court) just before close of business on the day following the end of the hearing.[65]Mr Tager’s written submissions on the re-draft ran to some 14 pages, considerably exceeding the scope of the court’s directions pursuant to which they were submitted. So far as relevant to the allegation of sham, nothing of substance was put forward in relation to the 1987 Deed. As for the 1992 Deed, he submitted that the allegation that Mahmood used it to deceive the Revenue was incomprehensible (since it did not affect his 20% beneficial interest declared by the 1987 Deed), and the absence of any allegation that Amir or Asi intended to use it to deceive the Revenue was fatal. I am not persuaded that the now pleaded allegation that it was Mahmood who intended to use the 1992 Deed to deceive the Revenue can be rejected as failing to disclose a triable issue. Furthermore if there is a triable case that the 1987 Deed was a sham, then it seems to me that the consequences in terms of its effect upon the validity of the 1992 Deed must themselves fall to be decided at trial, rather than by way of summary judgment.[66]As to (c), there may again be much force in Mr. Tager’s submissions based on Tribe v Tribe, at least in relation to Mahmood’s ability to assert sham in relation to the 1987 Deed. But the position cannot in my view be said to have been put beyond argument for the purposes of summary judgment, not least because what is probably only a small part of the correspondence with the Revenue has been deployed. Furthermore, an allegation that a shammer has sufficiently implemented his dishonest scheme to have become barred from asserting that there was a sham is of a type inherently more suited for trial than for summary judgment, although of course there may be exceptions. In any case, for reasons already given, Mahmood has yet to have an opportunity, through an un-conflicted litigation friend, to deal the matter.[67]For present purposes, Mr. Tager’s submission does not address the difficulty that Asi seeks to assert that the 1987 Deed was a sham, without there being any evidence which puts it beyond doubt that he was a party to any dishonest design arising out of it. He seeks to allege sham not merely for his father’s benefit but in his own interest as a means of resisting Goli’s claim as beneficial owner of the properties, and to justify his alleged case that he dealt with the properties loyally throughout as his father’s trustee, rather than as trustee for his father, his mother and his sister.[68]As for the 1992 Deed, I need say no more than that there is nothing before the court which establishes beyond the necessity for examination at a trial that Asi was either the prime mover or accomplice in any scheme to use that document to deceive the Revenue, with the same consequences as I have described in relation to the 1987 Deed. The result is that, although Mr. Tager’s submission based on Tribe v Tribe may ultimately succeed at a trial, it is not one which has the quality necessary to support summary judgment.[69]Those conclusions by no means lead to the result that this court should simply give permission to Asi to amend his Defence in accordance with the most recent draft submitted. Mr Tager’s wide-ranging and detailed objections to it will have to be resolved at first instance. They only lead to the result that the allegation of sham is, now that it has been raised, unsuitable for summary judgment.

Laches

[70]There is, again, much that can be said for the judge’s instinctive reaction that a defence of laches in relation to the assertion of a beneficial interest (rather than, for example, the pursuit of an equitable remedy, or a mere equity) would, if successful, produce a surprising and at first sight unfair outcome for Goli, and/or for her mother’s estate. But the difficulty with the judge’s analysis is that it is essentially based upon outright findings by him of dishonest concealment by Asi from Goli of misconduct by him as a trustee or fiduciary, in circumstances where he asserts in no uncertain terms that Goli was kept fully informed of what he was doing throughout, in evidence to which the judge makes no reference in his judgment. It is well settled that, while the court may reach findings of dishonesty on summary judgment applications, and may even do so where it is denied in witness statements, it will only do so if, upon a careful analysis of the evidence denying dishonesty, it is manifestly incredible. In the present case, the judge does not deal at all with Asi’s evidence in relation to the matters about which he found it proved for summary judgment purposes that he had been dishonest.[71]Mr. Wardell identified three main elements of dishonesty in the judge’s findings:(a) The transfer of Standford Grange into joint names in 2002, which the judge found was seriously dishonest and dishonestly concealed from Goli;(b) His solicitors’ letter in 2010 alleging that Mahmood was merely a guest in Eaton Square, beneficially owned by him; and(c) A general and dishonest concealment of his conduct from Goli.[72]As to (a), there is in my judgment a triable issue whether this was a dishonest exercise by Asi at all, even if it involved Asi asserting authority as his father’s attorney which he did not have. I have already summarised what happened and Asi’s evidence in relation to it. It included the assertion that he kept Goli fully informed which, in my judgment, the court not properly ignore in the absence of cross-examination. Further, it was an exercise which Asi’s evidence suggests, regardless of any shortcuts in relation to authority, was designed to enable him to manage Standford Grange for his father’s benefit during his incapacity, and which his father ratified when the property later came to be sold.[73]As to (b), all that Asi could say about his solicitors’ letter was, rather unconvincingly, that it was written in the heat of the moment. It was on any view a seriously untrue assertion which Asi could not have believed to have been true, and which his solicitors would not have written without Asi’s clear instructions. But it came very late in the day (in 2010) so far as concerns any allegation of laches if, until then, Asi had kept Goli properly informed of his conduct, as he alleges. It will no doubt be a major plank in any case against Asi at trial, in support of a submission that he would not have been dishonest in 2010 if he had been frank earlier, but it falls well short of justifying a wholesale rejection of the laches defence by way of summary judgment.[74]As to (c), I have already referred to Asi’s evidence that he did keep his sister informed of what he was doing on his father’s behalf, evidence which cannot, in my view, simply be ignored at the summary judgment stage as it was by the judge.

Conclusion on the First Order

[75]For all those reasons, I consider that the appeal against the First Order should be allowed.

The injunctions

[76]As in relation to laches, Mr. Wardell’s main submission in relation to the judge’s approach to the continuation of the injunctions was that he had reached inappropriate summary conclusions as to Asi’s dishonesty, and misconduct as a trustee. It will be apparent from my analysis of the laches issue that I agree with that submission. It is, without more, sufficient to require the question whether the injunctive relief should be continued against Asi to be addressed afresh by this court, fatally undermining as it does the judge’s exercise of his discretion in that respect.[77]Furthermore, the judge understandably approached the question as to the continuation of the injunctions on the basis that he had made, and had been entitled to make, final decisions about the beneficial interests in the relevant properties. On his analysis, he had decided that Goli had an immediate 40% interest in Eaton Square, and was the sole beneficiary of her mother’s entitlement to another 40%. He should, in accordance with my view that his summary judgment order should be set aside, have approached the matter on the basis that Goli had a real case fit for trial to that effect, but that it had yet to be established. Thus the whole of the injunctive relief sought by way of continuation needed to be addressed strictly by reference to the balance of convenience rather than on the basis of final conclusions as to beneficial interest.[78]Mr. Wardell’s other main submission was that, save in relation to Asi’s intention of realising value from Eaton Square by obtaining a replacement 20 year lease and selling it, there was simply no threat by Asi to do any of the other matters which the injunction restrained him from doing. These included removing or rehousing Mahmood, removing property from Eaton Square, interfering with the work of Mahmood’s team of carers, or prohibiting Goli from visiting her father at Eaton Square, or dealing with the carers.[79]True it is that there was no such threat in 2013, or indeed at any time after the acrimonious correspondence arising from Goli’s earlier litigation against Asi in 2010. But all those threats were indeed made in 2010, and by changing the locks at Eaton Square so as apparently to exclude Goli, Asi had begun to embark upon their implementation. When it is borne in mind that Asi had, in truth, no defence to Goli’s claim to recover her loan from him, his conduct in relation to that claim amounted to wholly inappropriate pressure, and to threats to use his father’s vulnerable position as a means of bullying Goli into desisting from her claim.[80]The outcome of the 2010 hostilities was that, although Goli obtained summary judgment against her brother, she took no steps to enforce it, and an uneasy truce then ensued until this year during which she was given free access to her father at Eaton Square, while Asi implemented none of the threats about which she had been understandably concerned. Mr. Wardell said that Asi’s behaviour during acrimonious litigation in 2010, at a time when he felt aggrieved that he was, alone, supporting his father while Goli was providing nothing by way of financial support, could not justify injunctions restraining such conduct in 2014, let alone an application for without notice relief.[81]I disagree. In my view that high-handed, bullying and, in one respect, plainly dishonest conduct towards his sister (namely the assertion that he was sole beneficial owner of Eaton Square and his father a mere guest) was amply sufficient to justify a serious apprehension on her part that, if she commenced fresh litigation against her brother, the same or similar threats would be made or indeed implemented.[82]It follows that, save in one important respect, I would not disturb the injunctions currently in force against Asi, in the varied form imposed by the judge by way of continuation. The important exception relates to the absolute prohibition upon Asi seeking to market Eaton Square. By marketing I do not include contracting for its sale as registered proprietor, completing such a sale or doing anything with the proceeds. In that respect I consider that the balance of convenience narrowly favours permitting Asi to seek to market the property, but to the stage of a subject to contract sale, either of the reducing fag end or of a proposed new lease undertaken (again subject to contract) with the Grosvenor Estate. My reasons follow.[83]In the rushed preparation for the summary judgment hearing, both Goli and Asi managed to deploy expert evidence about the prospect of realising value from the fag end of the Eaton Square lease. While neither of the valuers considered that Asi would achieve a profit from the obtaining and on-sale of an extended lease at the level which he sought to achieve, they were otherwise widely at variance in their views about value, and as to the best (if any) means of achieving it.[84]In circumstances where experts (however hurriedly instructed) are far apart as to the availability or best means of realising commercial value in a rapidly wasting asset, it seems to me that marketing represents the only sure way forward. Accordingly, in principle, and subject to appropriate controls, it seems to me that the balance of convenience ought to favour permitting Asi to market the property, on terms falling short of engaging in a binding contract either with the Grosvenor Estate or with any purchaser. Against that, Mr. Tager submitted that the disadvantage of such a permission was that it would be likely to lead to intending purchasers being shown round Eaton Square, thereby disturbing Mahmood, and giving him understandable apprehensions that he might shortly have to leave the property. Mr. Tager pointed to medical evidence containing strong warnings against any disturbance of Mahmood’s current housing and caring regime, which I take fully into account.[85]But the cold reality is that it is only a matter of relatively modest time before Mahmood will have to leave Eaton Square in any event. No suggestion has been made of a method whereby an extension of the lease could be funded on a basis which did not require its on-sale. Further, the property is said to be in by no means good repair, so that compliance with the heavy dilapidations obligation at the end of the lease is likely to require his relocation well before its actual expiry in 2016, and in all probability next year.[86]In those very dispiriting circumstances, it seems to me that the balance of convenience favours allowing Asi, who appears to be an experienced property dealer, to do what he can to find a way out of the grave predicament facing his father in the near future. True it is that Goli has a triable case for a beneficial interest in Eaton Square amounting, in economic terms, to 80%, and that she has, thus far, declined to commit her share (if that is what it proves to be) to rehousing her father. That may prove to be a fatal obstacle to any attempts by Asi to derive value from the fag end of the lease in a way which provides sufficient benefit for his father. But at this stage I am not persuaded that, if marketing disclosed a way of realising substantial value from the fag-end of the lease, the parties would be so hard in their hearts as to prevent it being used to provide somewhere for their father to spend his last days. Accordingly it seems to me that the risk of upsetting Mahmood by permitting purchasers to be shown around Eaton Square is one which ought, on a narrow balance, to be taken.[87]Accordingly, I would propose that the prohibition of marketing in the current injunctive regime be removed. If my Lords agree, I would encourage counsel to agree, if they can, minutes of order to reflect that decision upon receipt of this judgment in draft, in good time before it is handed down and an order made on these appeals.[88]It follows that I would allow the appeal against the Second Order, re-exercise the discretion as to the continuation of the injunctions, and continue them as ordered by the judge, save only for the variation in relation to marketing which I have described.[89]I agree.[90]I also agree.

Cited in 1 later judgment