Shafiq-Ul Hassan v Jason Mark Evans T/A Evans Insolvency [2025] EWCC 52

[2025] EWCC 52

Case No K01CF582

Venue Cardiff County Court

2 Park Street

Venue Cardiff

CF10 1ET

Date 14 April 2025

Venue IN THE CARDIFF COUNTY COURT

Before

HIS HONOUR JUDGE KEMBER

Between

MR SHAFIQ-UL HASSANClaimant

JASON MARK EVANS T/A EVANS INSOLVENCYDefendant

(IN HIS CAPACITY AS THE TRUSTEE IN BANKRUPTCY OF MRS CERI NUR)Defendant

Mr Hill (instructed by Maxwell Solicitors) for Claimant

Mr Freeman (instructed by PLP Solicitors) for Defendant

Hearing Dates 6 – 8 January 2025

JUDGMENT

This Judgment was handed down remotely at 10am on14 April 2025 by circulation to the parties or their representatives by email and by subsequent request from both parties by release to the National Archives

[45]Diplock LJ explained the meaning of "sham" in Snook v London and West Riding Investments Limited

[1967] 2 QB 786

, 802 :

"… it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v. Maclure and Stoneleigh Finance Ltd. v. Phillips ), that for acts or documents to be a 'sham,' with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affect the rights of a party whom he deceived."

[46]I also bear in mind the principles in Hitch v Stone

[2001] EWCA Civ 63

in which Arden LJ (as she then was) explained the approach to documents alleged to be shams as follows:

"[65] First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties. [66] Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties. [67] Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is a sham. A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship. [68] Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied: see for example Garnac Grain Co. Inc v HMF Faure and Fairclough Ltd. [1966] 1 QB 650, [1965] 3 All ER 273 at 683-4 of the former report per Diplock LJ, which was cited by Mr Price. [69] Fifth, the intention must be a common intention: see Snook's case, above."

[47]Those cases address bilateral documents, such as contracts. In the case of a trust unilaterally declared by the settlor it is the intention of the settlor alone that is decisive. In Painter v Hutchinson

[2007] EWHC 758 (Ch)

Lewison J (as he then was) said at paragraph 115:

"Where there is a simple unilateral declaration of trust, the settlor and the trustee are one and the same person. So even if it is necessary to consider the intention of both the settlor and the trustee, in practice that amounts to the same thing as considering the intention of the settlor alone. This is perhaps a theoretical justification for the first of the two quoted statements in Lewin, but it is not necessary to over-refine it in this way. Either way, in the case of a unilateral declaration of trust, where the beneficiary has not accepted the gift, I consider that it is the intention of the settlor alone that is decisive."

[48]The 2008 Deed is made by Mr Munir alone. In the case of the 2007 and 2010 Deeds, they are made between Mr Munir as settlor and Mrs Munir as trustee. They are not one and the same person. Although a common intention between the settlor and any trustee is required, it is sufficient that the trustee went along with the settlor's wishes or did not care what he or she was signing. In Minwalla v Minwalla

[2005] 1 FLR 771

Singer J said at paragraph 53:

"[53] … Some of the earlier cases, including in particular some observations of Diplock LJ in Snook v London & West Riding Investments Ltd [1967] 2 QB 786, [1967] 1 All ER 518, [1967] 2 WLR 1020 suggest that in order for the court to conclude that a document or transaction is a sham, it is necessary that all the parties to it must have a common intention that the "… documents are not intended to create the legal rights and obligations which they give the appearance of creating."

However, in Midland Bank PLC v Wyatt

[1985] 1 FLR 696

at 699 DEM Young QC held, as to that principle:

"… I do not understand Diplock LJ's observations regarding the requirement that all the parties to a sham must have a common interest to be a necessary requirement in respect of all sham transactions. I consider a sham transaction will still remain a sham transaction even if one of the parties to it merely went along with the shammer not either knowing or caring about what he or she was signing. Such a person would still be a party to the sham and could not rely on any principle of estoppel such as was the case in Snook , the Defendant there not being a party to the transaction at all." [54] Support for that analysis can be gleaned from the judgment of Arden LJ in Hitch v Stone [2001] EWCA Civ 63, [2001] STC 214 in which she said at 234 "in my judgment, the law does not require that in every situation every party to the actual document should be a party to the sham"

. I have also read a lucid and scholarly paper on the topic of sham trusts written in 2004 by Stuart Pryke, a member of the specialist bar, in which he refers to and analyses what appear to be the most relevant authorities. In that paper he concludes:

"In order for a trust to be found to be a sham, both of the parties to the establishment of the trust (that is to say the settlor and the trustees in the usual case) must intend not to act on the terms of the trust deed. Alternatively in the case where one party intends not to act on the terms of the trust deed, the other party must at least be prepared to go along with the intentions of the shammer neither knowing or caring about what they are signing or the transactions they are carrying out." [55] That seems to me to by a fair analysis of the current state of the law, and I adopt it."

I too adopt that statement of the law.” 93 . It is common ground that, as Mrs Nur is the only person who signed the Second Legal Charge, she would need to be a “shammer” for the Second Legal Charge to be a sham. Furthermore, to the extent that the Claimant was the recipient of obligations or rights bestowed by the legal charge the Claimant would either need a common intention with Mrs Nur that the acts or documents were not to create the legal rights and obligations which they give the appearance of creating, or he must have been prepared to at least go along with the intentions of the shammer neither knowing nor caring about what he was signing or the transactions he was carrying out. 94 . I have not heard direct evidence from Mrs Nur, but I can however draw inferences as to her position from the evidence that has been given before me. 95 . The Claimant said in his oral evidence that the suggestion of a legal charge came from Mrs Nur and not from him. Based on the findings that I have made above, the effect of the Legal Charge as it was portrayed to third parties did not correspond with the events which had happened in a number of ways: (a) Mr Hassan had not provided to Mrs Nur £150,000 before the Legal Charge was executed and did not do so afterwards. (b) Mrs Nur did not solely owe Rhostio £150,000. (c) On the basis of the evidence before me, the invoices for the works were significantly less than £150,000. (d) The Charge was purporting to secure a debt in a sum which I have found is not supported by the invoices. 96 . It is relevant in this context that Mrs Nur was in some financial difficulties at this time, and knew that she was. In an email of 6th July 2023, the solicitors for Mr Harries, the vendor, confirmed to the Defendant that a long completion date was agreed on Mrs Nur’s purchase of the property in 2020 as Mr Harries was aware that the purchaser (Mrs Nur) did not have the necessary funds to complete straightaway. Mrs Nur answered in the Bankruptcy Preliminary Information Questionnaire form that she first knew at the beginning of 2022 that she could not pay her debts when they fell due. She listed creditors totalling over £800,000 in that form. 97 . Against that background I draw the inference on the balance of probabilities that the legal charge, which had been suggested by Mrs Nur, was not to create the rights and obligations that it gave the appearance of creating. 98 . As to Mr Hassan’s intention, he would have known from his position as Mrs Nur’s solicitor during the purchase of the Property that the long completion date was agreed because she did not have the funds to complete straightaway. Mr Hassan said in his oral evidence that if he had known about Mrs Nur’s debts and that she considered herself insolvent he would not have entered into the assignment and also that he had no concerns that Mrs Nur would not be able to pay her debts. That is difficult to reconcile with his evidence that it was well-known in the community that Mrs Nur was in significant debt in respect of the renovations and that Mrs Nur asked him to intervene on her behalf because she was being pressured for payment by Rhostio. Against that background it is difficult to understand why he did not make any enquiries at all about the nature and level of the debt owed and Mrs Nur’s ability to pay it. I draw the inference on the balance of probabilities that Mr Hassan was prepared to go along with the intentions of Mrs Nur neither knowing nor caring what he was signing or the transactions he was carrying out. 99 . In my judgment the test for a sham has been satisfied in respect of the legal charge both as to the covenant and as to the grant of the legal charge. Undue Influence (ii). Was the Bankrupt’s consent to grant [the charge] impaired by undue influence whether because of - A 2-party situation, the Ascendant being Mr Hassan, dependant being Mrs Nur; or -A 3-party situation the ascendant being Mr Nur, the dependant being Mrs Nur, Mr Hassan having actual/constructive notice of Mrs Nur’s equity (the right to have the transaction set aside) which she had as a result of her being subject to undue influence? 100 . There is a large measure of agreement over the law applicable to undue influence. 101 . It is agreed that the leading authority is Royal Bank of Scotland v. Etridge No. 2

[2002] 1 AC 773

(Etridge No 2) where Lord Nicholls stated at [6]-[14] the following principles:

[6]The issues raised by these appeals make it necessary to go back to first principles. Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose. To this end the common law developed a principle of duress. Originally this was narrow in its scope, restricted to the more blatant forms of physical coercion, such as personal violence.

[7]Here, as elsewhere in the law, equity supplemented the common law. Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured: "how the intention was produced", in *795 the oft repeated words of Lord Eldon LC, from as long ago as 1807 ( Huguenin v Baseley 14 Ves 273, 300 ). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or "undue" influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.

[8]Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. An example from the 19th century, when much of this law developed, is a case where an impoverished father prevailed upon his inexperienced children to charge their reversionary interests under their parents' marriage settlement with payment of his mortgage debts: see Bainbrigge v Browne

(1881) 18 Ch D 188

[9]In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically, this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner

(1887) 36 Ch D 145

, a case well known to every law student, Lindley LJ, at p 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v Hyman

[1961] 1 WLR 1442

, 1444-1445Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.

[10]The law has long recognised the need to prevent abuse of influence in these "relationship" cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied cannot be listed exhaustively. Relationships are infinitely various. Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10th ed (1999) , pp 380-381 . For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank plc v Morgan

[1985] AC 686

, 707-709 .

[11]Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and *796 ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.

[12]In CIBC Mortgages plc v Pitt

[1994] 1 AC 200

your Lordships' House decided that in cases of undue influence disadvantage is not a necessary ingredient of the cause of action. It is not essential that the transaction should be disadvantageous to the pressurised or influenced person, either in financial terms or in any other way. However, in the nature of things, questions of undue influence will not usually arise, and the exercise of undue influence is unlikely to occur, where the transaction is innocuous. The issue is likely to arise only when, in some respect, the transaction was disadvantageous either from the outset or as matters turned out.

Burden of proof and presumptions

[13]Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.

[14]Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So, the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn. 102 . Further, at paragraph 20, Lord Nicholls stated: Independent advice

[20]Proof that the complainant received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or importance, to be attached to such advice depends on all the circumstances. In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a complainant a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case. 103 . I agree with the submission made on behalf of the Claimant that, distilling the principles from paragraph 14 of Etridge No 2, there are 4 stages to a finding of undue influence:(a) Whether a relationship of influence could be exercised, existed?

(b) Whether the transaction entered into calls for an explanation?

(d) Is the inference prima facie to be drawn that the transaction was procured by the improper exercise of influence in face to be made, or is the inference successfully countered? 104 . In this case, the Defendant relies on the second form of undue influence set out in paragraph 8 of Etridge No 2, where “one person has acquired over another a measure of influence or ascendancy of which the ascendant person then takes unfair advantage… without any specific acts of coercion”. 105 . The Defendant’s case is that there is a prima facie case that Mrs Nur placed trust and confidence in Mr Nur and to some extent the Claimant and that this led to Mrs Nur entering into transactions entirely against her own financial self-interest, requiring and explanation that has not yet been given. The Claimant submits that: (a) Following Etridge No 2, the relationship of Mr and Mrs Nur (husband and wife) is not irrebuttably presumed to be one of trust and confidence; and (b) Mr Hassan had been Mrs Nur’s solicitor in relation to individual engagements which had concluded before 30th June 2022, i.e. the purchase of the Property which had completed on 30th July 2021 and registration of Mrs Nur as the registered proprietor was effected on 16th March 2022, and advice on a personal guarantee on 26th November 2021. Mr Hassan was not Mrs Nur’s solicitor on 30th June 2022. 106 . In my judgment, the evidence supports the conclusion, and I find, that Mrs Nur placed trust and confidence in Mr Nur in relation to the conduct of business affairs. (a) In an interview with the Insolvency Service on 3rd February 2023, Mrs Nur said that she was a director of her company but did not have a hands-on role. She had decided to stay at home with her child. Mr Nur was running the company. She said in terms “My husband had two companies … I trust my husband to run it and I knew what was going on”. (b) In an email to the Defendant of 19th April 2024 Mrs Nur stated, in relation to the collection of the £12000 rent deposit from the Claimant’s tenant:

“Mehmet received cash on my behalf. Mehmet had business experience and he had my authorisation and consent to deal with the matters on my behalf.” (c) The oral evidence of Mr Kirktepeli was that Mrs Nur appointed Mr Nur as the decision maker for their party and he acted on her behalf. (d) The oral evidence of Mr Hassan was that Mrs Nur trusted her husband but knew everything that was going on. Mr Hassan also explained that Mr Nur collected the draft Legal Charge for signing and returned the signed Charge to Mr Hassan. 107 . In my judgment, there is a presumption that Mrs Nur placed trust and confidence in Mr Hassan, for the following reasons: (a) Mr Hassan was instructed to act and did act as Mrs Nur’s solicitor in her purchase of the Property. Completion of her registration as the registered proprietor took place only around 3 months before 30th June 2022. (b) In an email to the Defendant of 24th May 2023 Mrs Nur indicated that Mr Hassan was her regular solicitor. She stated “Mr Hassan is a friend of Mehmet and I know because of him but whenever I need a legal advice or attestation, I contacted him and he always helped me. He acted for an assignment of lease but we did not take the possession. I have no other personal dealings with him.” (c) Mr Hassan advised Mrs Nur in relation to a personal guarantee she had given to Corporate Credit Leasing Limited in relation to lending facilities which were made available to MC Foods Limited, a company in which she was not a shareholder or director. (d) Mr Hassan’s oral evidence indicated that he could have advised Mrs Nur on other personal guarantees as well but he was not sure. 108 . Dealing next with whether the transaction calls for an explanation and whether there is a satisfactory explanation for the transaction, it is submitted by the Claimant that in this case, these issues are 2 sides of the same coin. Further, the Claimant submits there is a satisfactory explanation for the grant of the Legal Charge, and the termination of the partnership, namely that Mrs Nur was the sole debtor to the third parties in respect of the renovation works; Mrs Nur was going to walk away from the partnership with the Property and the improvements but the 3rd parties needed to be recompensed; they were pressing for payment; the effect of the charge was to buy Mrs Nur breathing space in respect of a pressing debt to third parties whilst compensating Mr Hassan for any delay in payment to him with a rate of interest. 109 . However, on the facts that I have found above, the transaction did, in my judgment call for an explanation and no satisfactory explanation has been provided, in two respects. First, I have found that the level of debt on a proper construction of the invoices provided was significantly less than £150,000. Mrs Nur granted Mr Hassan the benefit of a legal charge for significantly in excess of the probable level of debt. 110 . Second, I have found that it is more probable that Mr and Mrs Nur were partners in the partnership with third parties. The combined effect of the purported assignment of debt and grant of the legal charge was to render Mrs Nur solely responsible for the debts incurred to third parties, to her detriment, but to the benefit of Mr Nur. Mr Nur ceased to become responsible for those debts under this transaction. Lord Nichols explained in Etridge No 2 (paragraphs 27-31) that a wife’s fortunes can be bound up with those of her husband so that she might take on in a narrow sense a disadvantageous financial burden so that a transaction in a wider sense does not call for explanation or be found to be devoid of satisfactory explanation. In this case however, I accept on the evidence that there is a history of Mrs Nur entering into at least one personal guarantee (and possibly more than one) in respect of liabilities of a company in which only Mr Nur was a shareholder, and that such personal guarantees were not to her benefit. Looking at this wider background, I am satisfied that this transaction calls for a satisfactory explanation and none has been provided. 111 . The fourth stage of the test is whether the court should infer that in the absence of a satisfactory explanation the transaction can only have been procured by undue influence. The Claimant submits that Mrs Nur has never alleged that she has been the victim of undue influence, either from Mr Hassan or Mr Nur. The Defendant accepted in his evidence that Mrs Nur had not made such a complaint. I have to deal with this cautiously as I have not heard evidence from Mrs Nur, although she may be contactable by the Defendant, as her estate is still being administered. In light of the nature of this transaction (as I have found it to be), the history of Mrs Nur entering into transactions which were disadvantageous to her but to the benefit of Mr Nur and the fact that Mrs Nur had been advised by Mr Hassan in relation to at least one such transaction, and possibly more, I am not satisfied that her failure to complain about undue influence prevents the inference being drawn that this transaction can only have been procured by undue influence. 112 . The Claimant submits that in a 3-party situation where Mr Nur is in the ascendancy, Mr Hassan will not be subject to Mrs Nur’s equity to set the transaction aside unless she had actual or constructive notice of it. The Claimant submits that Mrs Nur had independent advice from Mr Besli, an accountant, before she signed the legal charge. 113 . As paragraph 20 of Etridge No 2 makes clear, this is one of the matters a court takes into account when weighing all the evidence. Proof of outside advice does not of itself necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect so that the transaction was not brought about by the exercise of undue influence is a question of fact to be decided having regard to all the evidence in the case. 114 . In a covering letter to the draft charge dated 1st July 2022, addressed to Mrs Nur, and marked “By Hand”, Mr Hassan recorded that he had advised Mrs Nur that she should take legal advice. He urged her again that these were legal documents and she should take independent legal advice before signing. 115 . Although Mr Hassan directed Mrs Nur to obtain independent legal advice on the documents, he regarded Mr and Mrs Nur as one unit of husband and wife. Mr Hassan’s written evidence (at paragraph 15-16 of his witness statement) was that Mr Nur collected the documents from his office and then returned them, confirming his satisfaction with the terms of the documents. Mr Nur’s witness statement at paragraph 35 explains that he and his wife went to Mr Besli their accountant and signed the charge there. They explained the whole story to him. He read the legal charge and explained the nature of the document to them. 116 . In my judgment, this evidence indicates -and I find- that Mr Nur was present with Mrs Nur whilst the independent advice on the charge was given. He also ensured that he was happy with the documents before returning them. This is particularly concerning because independent legal advice is required to show that the completion of the transaction was free from the exercise of undue influence from Mr Nur, yet Mr Nur was present when that advice was given. In those circumstances, I am not satisfied that it would be proper to infer that the outside advice had an emancipating effect so that the transaction was not brought about by the exercise of undue influence. 117 . The Claimant submits that there is no evidence that the Defendant has elected to avoid the transaction on the grounds of undue influence. The Defendant is an office holder appointed in January 2023. He would have required time on appointment to investigate the affairs of Mrs Nur. The Defendant has thereafter consistently disputed the validity of the Legal Charge. 118 . For the reasons I have explained I am satisfied that Mrs Nur’s consent to grant [the charge] was impaired by undue influence either because of (a) - A 2-party situation, the Ascendant being Mr Hassan, dependant being Mrs Nur; or (b) -A 3-party situation the ascendant being Mr Nur, the dependant being Mrs Nur, Mr Hassan having actual/constructive notice of Mrs Nur’s equity (the right to have the transaction set aside) which she had as a result of her being subject to undue influence? (iii). Was the Legal Charge unfair to the Bankrupt under the Consumer Credit Act 1974 and if so whether and what remedy ought to be granted by the court. 119 . By Paragraph 8 of the Defence and Counterclaim, the Defendant avers that the agreement [i.e. the Legal Charge] represents an unfair relationship contrary to s140A to 140C of the Consumer Credit Act 1974 (as amended by the Consumer Credit Act 2006) and the Claimant is put to strict proof of the fairness of the relationship between the parties. 120 . By section 140A CCA: (1)The court may make an order under section 140B in connection with a credit agreement if it determines that the relationship between the creditor and the debtor arising out of the agreement (or the agreement taken with any related agreement) is unfair to the debtor because of one or more of the following— (a)any of the terms of the agreement or of any related agreement; (b)the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement; (c)any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement). (2)In deciding whether to make a determination under this section the court shall have regard to all matters it thinks relevant (including matters relating to the creditor and matters relating to the debtor). (3)For the purposes of this section the court shall (except to the extent that it is not appropriate to do so) treat anything done (or not done) by, or on behalf of, or in relation to, an associate or a former associate of the creditor as if done (or not done) by, or on behalf of, or in relation to, the creditor. (4)A determination may be made under this section in relation to a relationship notwithstanding that the relationship may have ended. 121 . By section 140B: (1) An order under this section in connection with a credit agreement may do one or more of the following: … Otherwise set aside in whole or in part any duty imposed on the debtor or on a surety by virtue of the agreement or any related agreement. … (9) If in any proceedings the debtor … alleges that the relationship between the creditor and the debtor is unfair to the debtor is if for the creditor to prove the contrary 122 . By section 140C (1) in this section and in sections 140A and 140B “credit agreement” means any agreement between an individual (“the debtor) and any other person (the “creditor”) by which the creditor provides the debtor with credit of any amount. (2) References in this section and in sections 140A and 140B to the creditor or to the debtor under a credit agreement include : (a) references to the person to whom his rights and duties under the agreement have passed by assignment or operation of law. 123 . In Smith v Royal Bank of Scotland PLC [2024] AC 955, Lord Leggatt JSC said at paragraph 40: “Where a claim is made by a debtor for an order under section 140B of the 1974 Act on the ground that the relationship arising out of a credit agreement is unfair the burden is on the creditor to prove that the relationship is not unfair: see para 14 above. This does not however mean that the claimant is absolved from pleading particulars of claim which identify concisely the facts on which the claimant relies. Nor does it mean that the claimant can make allegations of fact which the court is bound to accept unless the creditor disproves them; it is still the debtor who has the onus of proving facts on which he or she positively relies.” 124 . Although I have found earlier in this judgment that the Legal Charge was a sham, if it were genuine, it would have satisfied for these purposes the definition of a credit agreement in section 140C(1). It was an agreement under which the Claimant claims that he provided Mrs Nur with credit by way of the Legal Charge. As Mrs Nur’s rights and liabilities under the agreement passed to the Defendant by operation of law on her bankruptcy and his appointment, references to the debtor include references to the Defendant by section 140C(2)(a). 125 . Although the Defendant did not plead facts on which he positively relied, the Claimant has nonetheless been put to proof of the fairness of the relationship between the parties. In my judgment the Claimant has not shown that the relationship between the parties was not unfair for the following reasons: (a) First, I have found that the level of debt on a proper construction of the invoices provided was significantly less than £150,000. The amount owed under the legal charge was significantly in excess of the probable level of debt. (b) Second, I have found that it is more probable that Mr and Mrs Nur were partners in the partnership with third parties. The combined effect of the purported assignment of debt and grant of the legal charge was to render Mrs Nur solely responsible for the debts incurred to third parties, to her detriment. (c) The Claimant made personal profit from his subsequent dealings with the property as the result of the Legal Charge. 126 . Section 140B provides a wide discretion to the court in determining an appropriate remedy. In my judgment, the nature of the unfairness I have set out above is such that the appropriate remedy would be to set aside the legal charge. (b). Can the Claimant rely solely upon the Covenant to establish the debt between the Claimant and the Bankrupt without needing also to show he was an equitable assignee of a debt owed by the Bankrupt to the 3rd Parties (pre-existing debt?) 127 . As a result of the findings I have made above, that the Legal Charge is neither valid nor enforceable, both as to the Covenant and as to the Charge, this issue falls away. 128 . Were it necessary to determine the issue, then the covenant is in the form of a deed. Where an obligation is contained in a deed there is no need for consideration in support of a promise. (c). To the extent that establishing that the Claimant was a secured creditor requires reliance on the Claimant being an equitable assignee of a pre-existing debt has the Claimant established that (i). there was a pre-existing debt owed solely by Mrs Nur to the third parties; 129 . For the reasons I have set out above, the Claimant has not established on the balance of probabilities that there was a pre-existing debt owed solely by Mrs Nur to the Third Parties. (ii). That the quantum of the debt was £150,000; 130 . For the reasons I have set out above the Claimant has not established on the balance of probabilities that the quantum of any debt was £150,000. (iii). That the benefit of that debt was assigned in equity from the third parties to the Claimant. 131 . For the reasons I have set out above the Claimant has not established on the balance of probabilities that the benefit of that debt was assigned in equity from the third parties to the Claimant, or if it was so assigned, it was not assigned on the terms put forward by the Claimant. Rent due under the Lease. (a). Factually were the payments (or any of them), which are said to have been made actually made; 132 . The Defendant counterclaims for the monies that the Claimant owes under the Lease. The Lease provided for the Claimant to pay a rent deposit of 6 months’ rent and a monthly rent of £2000. It is accepted by the Claimant that he did not pay any sums to Mrs Nur under the lease. The Defendant is unable to give direct evidence about payment of sums to Mrs Nur other than to state that her bank accounts do not show that she received payments. 133 . The Claimant relies upon 3 payments: (a) £12,000 paid in cash. Mr Hassan’s written evidence was that when he was in Pakistan in July 2022, Mr Nur contacted him on behalf of Mrs Nur requesting an earlier payment of the deposit. As he had limited access to bank accounts, Mr Hassan requested his tenant of 12 Albany Road Cardiff to pay the deposit on his behalf. Mr Nur collected £12000 on 20th July 2022. Mr Nur’s witness statement confirms that he collected £12000 in cash on 20th July 2022 from Mr Hassan’s tenant. He paid £11,000 in cash into the account of MC Food Ltd and gave £1000 to Mrs Nur. He did not have access to his bank statements when preparing the witness statement. The bank statement of MC Foods Ltd shows a payment of £11000 in cash on 22nd July 2022. Mrs Nur confirmed in an email of 19th April 2024 to the Defendant that she had received the deposit, that her husband gave her £1000 roughly a week before her birthday and he had confirmed he had deposited into the bank. On the balance of probability, I accept this evidence that £12,000 was paid to Mr Nur. (b) £2,345.56 paid directly to the mortgage lender as a mortgage instalment. Mr Hassan’s evidence in his statement at paragraphs 20-22 was that in October 2022 Mr Nur contacted him on his wife’s behalf asking for the rent payment and if he could not pay it, to pay the mortgage instalment instead. Mr Hassan asked his subtenant to pay it. A screenshot of a payment to Together Commercial Finance on Thursday October 27 shows a payment of £2345.66. Mr Nur’s statement confirms this payment was made. On the balance of probability, I accept this evidence that the sub tenant paid £2345.66 directly to the mortgage lender in October 2022. (c) £4500 paid to repair a leaking roof. At page 476 in the bundle is a receipt from Fairwater Building Services dated 29.11.2022 addressed to Mr Hassan at the Property in the sum of £4500, received in cash, for various works including “to repair the leak on the roof”

. Mr Nur’s written evidence was that Mr Hassan notified of a leaking roof, which was a landlord’s obligation. Mr Hassan was asked to undertake the repair and the costs would be reimbursed. Mr Hassan’s witness statement confirmed this. On the balance of probabilities, I accept this evidence that this payment was made. (b). Were: (i) the £12000 cash payment and (ii) the mortgage instalment payment made on the Claimant’s behalf (it not being in contention that the £4,500 was paid by the Claimant)? 134 . I accept on the balance of probability that: (a) the payment of £12,000 was made to Mr Nur by Mr Hassan’s tenant on behalf of Mr Hassan; and (b) the payment of £2345.66 was made on behalf of Mr Hassan by the sub tenant. (c) There is no alternative explanation on the evidence I have set out above for these payments. (c). Do they or any of them amount to payment of due rent under the Lease? (i). Does Clause 16 of the Lease act as a (at least a prima facie) bar on such payments counting as payment toward the rent deposit/rent; and if yes, 135 . Clause 16 of the lease contained a prohibition against set off in the following terms: “The Annual Rent and all other amounts due under this lease shall be paid by the Tenant or any guarantor as the case may be in full without any set off counterclaim deduction or withholding other than any deduction or withholding of tax as required by law.” 136 . In my judgment the terms of Clause 16 amount to a bar on such payments counting as payment towards the rent deposit and /or rent. (ii). was there a subsequent implied agreement or equitable set off between the Claimant and Mrs Nur (whether through Mr Nur or otherwise) superseding/disapplying the effect of Clause 16 and thereby enabling such payments to amount to satisfaction of rent deposit/rent payment obligations 137 . Although clause 16 of the Lease acts as a bar to such payments counting as payment towards the rent deposit and/or rent there is nothing in the Lease as a whole which prevents the parties varying their obligations under the lease. Furthermore, although at law a contract under seal (the Lease is created by deed) cannot be varied other than by a contract under seal, in equity a parol agreement not to enforce performance of a deed and to substitute some other terms for some of its covenants was a good consideration for a promise to perform the substituted contract, although the deed is not thereby released: see Berry v Berry

[1929] 2 KB 316

. 138 . Following that principle, in my judgment, the evidence I have accepted above in relation to whether these payments were made also indicates that the circumstances leading to each payment amounted to an agreement between Mrs Nur, albeit acting through Mr Nur, on the one hand and the Claimant on the other that each payment would satisfy Mr Hassan’s liability to Mrs Nur in respect of the rent deposit and rent respectively. 139 . Although there was no express reference to a variation of the terms of clause 16 of the Lease, there was, in my judgment, an implied agreement to that effect because what the parties agreed did not correspond with the terms of clause 16 of the lease. (iii). Can the rental deposit be “used” or counted against any unpaid rent; 140 . It must follow that the rent deposit was to be used to satisfy any unpaid or unsatisfied rent obligation under the Lease. I accept the Claimant’s submission to that effect. (iv). How should the Court treat the rent becoming due after 8.12.22 141 . Following Mrs Nur’s bankruptcy on 8th December 2022 and the Defendant’s appointment as her Trustee in Bankruptcy, the rent deposit was vested in the Defendant until the Property was sold. I accept the Claimant’s submission that the rent deposit remained notionally available to meet any unpaid rent during this period. 142 . For those reasons I am not satisfied that the Defendant has made out the counterclaim. Conclusion 143 . For all the reasons I have set out in detail above, the Claimant has not established his claim to a for a declaration that he is entitled to surplus monies arising from the sale of the Property by reason of his having a second legal charge over the Property. Further, the Defendant has not established his counterclaim for unpaid rent and an unpaid rent deposit. 144 . The parties should now try to agree the terms of an appropriate draft order, to reflect my conclusions in this judgment, to include any consequential matters and provisions for interest and costs, within 14 days of this judgment being handed down. If the parties are unable to agree all outstanding matters within that time frame, they should request a hearing on the first open date 7 days thereafter, subject to their availability and with an appropriate time estimate. If the time estimate for that hearing is 1 hour or less, it may be conducted by CVP, but not otherwise.