Habib Bank Ltd v Liverpool Freeport (Electronics) Ltd & Ors

This is an appeal, brought with permission granted by Longmore LJ, by Habib Bank Ltd (“the Bank”) against decisions in a single judgment relating to two actions which were heard together by His Honour Judge Kershaw QC in the Mercantile List of the Manchester District Registry. The gestation of the judgment was lengthy and unusual, as we shall explain. It was delivered in its final form on 11 September 2003.

On 21 August 1984 Streed Ltd (‘Streed’) was incorporated. On 21 January 1986 Streed (UK) Ltd (‘Streed UK’) was incorporated. The Defendant in the first action, Mr Mohammed Iqbal, and the Third Claimant in the second action, Mrs Shirin Iqbal, each owned one share of each of these companies. There were no other shareholders.

On 30 October 1984 a current account was opened in the name of Streed at the Bank’s Manchester Branch (‘the Streed current account’). On 24 March 1987 a US dollar deposit account was opened in the name of Streed at the Bank’s Manchester Branch (‘the Streed dollar account’). On 26 June 1989 a trust loan account was opened in the name of Streed UK at the Bank’s Manchester Branch (‘the Streed UK loan account’).

The principal roles in the events which have given rise to the two actions were played by Mr Sohail Butt, the Manager of the Bank’s Manchester Branch and Mr Iqbal. While he was Manager, Mr Butt was guilty of dishonest breaches of duty to the Bank of a nature that we shall explain in due course. No party called him to give evidence. Mr Iqbal was present at the trial of the actions before Judge Kershaw, but did not give evidence.

After the events with which this appeal is concerned Streed changed its name to Liverpool Freeport Electronics Ltd. The company was subsequently placed in receivership and then in liquidation. The liquidators of Streed have assigned to Mrs Iqbal such claims, if any, as they had against the Bank. Streed UK Ltd has also assigned to Mrs Iqbal such claims, if any, as it has against the Bank. The validity of those assignments were, but are no longer, in issue.

It was the Bank’s case that, as at 28 February 1991, the Streed current account was substantially overdrawn, dwarfing a modest credit on the Streed dollar account, and that the two accounts produced a net indebtedness to the Bank of £681,580. It was the Bank’s case that, as at 28 February 1991, the Streed UK loan account was overdrawn to the extent of £150,727. While by the end of the hearing of the action the Bank was prepared to concede that the overall indebtedness was less than this, it has always been the Bank’s case that Streed and/or Streed UK owed substantial sums to the Bank.

In one of the actions the Bank claims against Mr Iqbal on a guarantee and a mortgage executed by Mr Iqbal, which the Bank alleges secures this indebtedness. Mr Iqbal denies that either the guarantee or the mortgage secured or secures the alleged or any indebtedness. He counterclaims damages for the wrongful registration of the mortgage and the return of the mortgage.

In the other action Mrs Iqbal claims that the Bank had wrongfully debited the three accounts. Pursuant to an order of this Court she prepared, for the purpose of this appeal, a statement of her case on the accounts on the basis of the findings made by Judge Kershaw. This took the form of a substantial file. As we understand the contents of this, it shows that as at 9 March 1990 the Streed current account should have been £332,343 in credit and that a capital sum of $160,000 should have stood, at all times, to the credit of the Streed dollar account. So far as the Streed UK loan account is concerned, this was depleted by letters of credit issued and honoured by the Bank until it was overdrawn to the extent of some $56,748, well within the overdraft facility permitted by the Bank. This is important, for Mrs Iqbal also advances a substantial claim for damages. This is on the basis that the Bank wrongly exercised a lien over goods purchased under letter of credit MAN 2470 and thereby caused the company a substantial loss of profit on a resale contract.

In accordance with the order of this Court, Mrs Iqbal also gave particulars of the damages that she claimed. These amount, as we understand it, to £302,884.57. Mrs Iqbal provided a grand total of all her claims, including interest up to 1 March 2004, in the sum of £2,987,720.90.

There had been an order that the validity and enforceability of the guarantee should be tried as a preliminary issue. Judge Kershaw sat to determine that issue on 30 May 2001, but directed instead that all issues in relation to liability and quantum should be tried together on and after 19 November 2001. The Legal Services Commission withdrew funding from Mrs Iqbal shortly before that date and she was granted a short adjournment in order to prepare to present her own case. Mrs Iqbal gave evidence in support of her claim over a period of 5 days. Mr Naqvi, a former member of the Bank’s audit team, gave evidence for the Bank. No witness was called who had been involved on the part of the Bank in any of the transactions in issue. The Bank provided voluminous documentation in relation to these transactions. Mr and Mrs Iqbal provided no banking documents. We were told that these had been passed to the liquidators of Streed and had not been recovered. The statutory accounts of Streed and Streed UK were put in evidence.

Evidence was completed by 17 December 2001. Closing submissions occupied 11 days within the period 25 January to 18 March 2002. Further submissions in writing were invited and served by 4 April 2002. Beginning in July 2002 Berrymans, the solicitors acting for the Bank, pressed with increasing urgency for delivery of a judgment. On 21 November 2002 the parties received by fax a draft of the first part of the judgment which was 65 pages in length. This dealt with the validity and effect of the guarantee and the mortgage. The Bank was held to have no claim under either. The part judgment did not deal with Mrs Iqbal’s claims. These were dealt with in a draft of the second part of the judgment, which the parties received on 11 January 2003.

3 March 2003 was fixed as the date for formal hand-down of the judgment. Before then a number of inconsistencies and omissions in the draft judgment were drawn to the attention of the judge. At the hearing on 3 March some of the respects in which the judge indicated that he was minded to deal with these were at odds with the findings that he made in his final judgment. As to this, the judge said that he would deliver it within a short time. In the event, final judgment was not delivered to the parties until 11 September 2003. This differed in some respects from the draft.

So far as the Bank’s claims were concerned, the judge held that Mr Iqbal was under no personal liability under the guarantee or the mortgage. He further held that he was unable to find, on balance of probabilities that any particular sum was owed by either Streed or Streed UK to the Bank. He held that he would give directions which were likely to include a separate direction on whether Mr Iqbal, who was an undischarged bankrupt, had any standing to advance a claim for damages and, subject to this, direct an enquiry as to damages.

So far as Mrs Iqbal’s claims were concerned, the judge held that she had made out her entitlement to damages for the wrongful exercise by the Bank of a lien over the goods purchased under the letter of credit. So far as her claim for the balances alleged to be payable on the Streed current and the Streed dollar accounts were concerned, the judge referred to a Scott schedule with a column containing his findings. He said “a draft judgment with a schedule was supplied to the parties in advance. Some points were raised by counsel, including counsel for Mrs Iqbal. She has instructed new solicitors and there is not now any obstacle to their taking active steps on her behalf”. Later, when dealing with the terms of his order he said “In Mrs Iqbal’s action against the bank I will give directions for the trial of the issue of the re-writing of the accounts”.

No order was ever drawn up. The Bank has sought a stay of further proceedings before Judge Kershaw. Mr Paul Downes on the Bank’s behalf has attacked the judge’s findings in the Scott Schedule. His submission has been that Mrs Iqbal’s claim should be dismissed. Alternatively, if her claim has to be considered further, he submits that this should be before a judge other than Judge Kershaw.

In support of his appeal Mr Downes relied upon the delay that occurred between the end of the trial and the delivery of judgment. His submission in essence was that this delay, coupled with the omissions and inconsistencies in the draft judgment and the variations between the draft and final judgments, were indications of an inability on the part of the judge to come properly to grips with the case.

A number of factors combined to make this a difficult case to try: its age, absence of documents emanating from Streed and Streed UK, the unreliability of documents for which Mr Butt was responsible, the absence of the key witnesses and the complexity of the issues of both fact and law. It was understandable that the judge might need a considerable period to produce his judgment. Three months should, however, be long enough to produce a judgment, even in a difficult case. Delay longer than that calls for some explanation. On the direction of Longmore LJ a letter was written to Judge Kershaw informing him of the complaint made of delay in this case and offering him the chance to provide an explanation. He did not choose to do so. The delay that occurred was unacceptable. Nor was it satisfactory for the judge to deliver this judgment in instalments and with so much that called for further consideration and correction.

Delay, of itself, provides no ground for attacking a judgment. In Cobham v Frett [2001] 1 WLR 1775 at p. 1783 Lord Scott of Foscote said that if excessive delay is to be relied on in attacking a judgment:

“a fair case must be shown for believing that the judgment contains errors that are probably, or even possibly, attributable to the delay. The appellate court must be satisfied that the judgment is not safe and that to allow it to stand would be unfair to the complainant.”

Lord Scott also said, however:

“It can be easily accepted that excessive delay in delivery of a judgment may require a very careful perusal of the judge’s findings of fact and of his reasons for his conclusions in order to ensure that the delay has not caused injustice to the losing party.”

We have given the judge’s findings of fact careful perusal and are left with real concern that the delay that occurred in this case has led the judge to deal less than adequately with the issues of fact. The length of the first part of his judgment is attributable in large measure to lengthy citation of authority. No one could say that the judge has not given sufficient attention to the law. This contrasts, however, with the attention that the judge has given to the issues of fact that relate to the state of the accounts between the parties.

The evidence in this case has to be seen against the background of the activities of Mr Butt. These were, for the most part, discovered after Mr Butt was relieved of his position as Manager of the Manchester branch of the Bank on 12 February 1990. They were discovered by Mr Naqvi, who carried out the duties of internal auditor for the Bank and who provided both written and oral evidence at the trial. The judge described Mr Butt’s activities as ‘using money in the account of some of the bank’s customers in order to make loans to others’ and quoted the following passage from the report of Mr Naqvi dated 12 April 1990:

“It was also his practice to issue fraudulent Bank Statements sometimes typing them on the Computer stationery with electronic typewriters, to give the impression that these were genuine Computer statements, while no such details were available in the actual Bank’s Computer Statements. (Such statements were found to be issued to a borrower Barry McColgan and Bank’s Pass Books duly signed by the Manager were issued to Ch. Iiam Din; Qasim Ali and Mohammad Saleem for their Deposit A/cs, showing balances much in the excess of those that were available with the Bank.

Some other suspicious entries in a few other accounts were noted but could not be followed due to the lack of Bank’s record.

From the cases mentioned above you will appreciate that these activities were going on for the last ten years and could not be detected in such detail earlier as these can be termed as “Parallel Banking” conducted by Mr Butt ex-Manager with the active help and connivance of the other supervisory staff of the Branch.”

Evidence from Mr Naqvi, which was placed before us, has enabled us to achieve a more detailed understanding of Mr Butt’s activities, at least as described by Mr Naqvi. We shall give a simplified account of these. They started when he was at the Rochdale Branch, before he moved to Manchester in 1983, but we shall confine our description to his activities at Manchester. He showed a general disregard when making advances on behalf of the Bank to the limits placed on his authority to do so by Head Office. More to the point he used his position in the Bank to carry on what Mr Naqvi appositely termed ‘parallel banking’. Deposits made by some customers were not recorded in the records that were seen by the London office and the Bank’s auditors, but were diverted by way of loans to other customers, loans which were beyond the authorised borrowing limits of those customers, and which again did not feature in the records seen by the London office.

The interest charged to the customers who received these loans exceeded the normal interest charged by the Bank and, of course, the interest that fell to be credited to those clients who had made the deposits from which the unauthorised loans were made. The surplus or at least part of it was paid out into accounts to the benefit of Mr Butt and of two bank officials who assisted him in this fraud.

A major source of these illicit loans was a company called Abbey Pearl Ltd, which made very substantial deposits with the Bank. It was Mr Naqvi’s belief that Mr Ali Dawood of Abbey Pearl was complicit in the parallel banking and that part of the profits from the enterprise was paid into accounts owned by him or his family. It is not clear from the evidence before us to what extent the beneficiaries of Mr Butt’s parallel banking, that is the customers of the Bank who were receiving unauthorised loans, were aware of the nature of the transactions in which they were partaking. It was the Bank’s case that Mr and Mrs Iqbal’s companies were among those beneficiaries and that they were, to some extent at least, complicit in Mr Butt’s activities.

It was the Bank’s case that neither the Bank nor Mr and Mrs Iqbal drew any distinction between Streed and Streed UK. The Bank’s primary case was that Streed was its only client and that Streed was sometimes described as Streed UK, particularly in the context of the Streed UK loan account. Alternatively, it was the Bank’s case that, insofar as the Bank was dealing with two companies, those companies were agreeable to their assets and liabilities being treated as common. In support of the former case, Mr Downes relied heavily upon the fact that the statutory accounts for Streed UK showed that the company was dormant until some time after March 1989.

The judge held:

“There is no basis for my finding by inference that either company through Mr and/or Mrs Iqbal agreed expressly or by acquiescence to the bank crediting and debiting accounts in the names of two limited companies as if there were only one. I cannot imagine a banker proposing, agreeing to or carrying out discussion as a banking procedure something which would be likely to lead to problems when the companies’ auditor carried out the usual bank reconciliation.”

This finding ignores a number of matters:

Although Mr and Mrs Iqbal do not appear to have attributed any business prior to March 1989 to Streed UK for the purpose of the statutory accounts, they nonetheless dealt with third parties in the name of Streed UK. Letters of credit were opened in the name of Streed UK from August 1987 onwards. In short there appears to have been confusion or indifference on the part of both the Bank and Mr and Mrs Iqbal as to the distinction between Streed and Streed UK. As we shall explain, this does not affect our conclusions as to the outcome of the Bank’s claims under the guarantee and the mortgage. It does, however, complicate consideration of the state of the accounts that is in issue in Mrs Iqbal’s action.

The most material part of the guarantee provided as follows:

“Dear Sir,

In consideration of your granting or agreeing to grant at my/our request advance, credit or other banking facilities to Streed UK LTD (hereinafter described as “the Principal Borrower”) at your Branch or at any other Branch or Branches of Habib Bank Limited in the United Kingdom or abroad to the extent of : ……Pounds Sterling $($146000/=) or its equivalent in any other currency.

I/We jointly and severally hereby guarantee due payment to you on demand of the Principal amount of the said advance, credit or other banking facilities with interest due thereon and all costs, charges, fees, expenses or other proper liability repayable or due from the Principal Borrower to you.

By way of security for the said advance, credit or other banking facilities I/We jointly and severally have deposited with you or at your ….. Branch the sum of …Pounds Sterling $($146000/==) in Current/Savings/Fixed Deposit US$A/C account No 2/061929-3.

I/We jointly and severally hereby agree and confirm that in the event of the Principal Borrower or myself/ourselves not adjusting on demand the said advance, credit or other banking facilities allowed by the Bank to the Principal Borrower and all interest costs, charges, expenses or other liability as foresaid,. You shall have the right at any time to set off without notice to me/us the said advance, credit or other banking facilities against any balance held in my/our said Current/Savings/Deposit/Fixed Deposit account or any other account held with you and appropriate the whole or part of the balance in my/our said Current/Savings/Deposit/Fixed Deposit account together with interest due thereon and all costs, charges, fees, expenses or other proper liability as aforesaid at the rate of exchange between Pounds Sterling and the foreign currency in which my/our account is held. The rate of exchange between Pounds Sterling and the foreign currency shall be deemed to be hereby expressly fixed at the rate prevailing on the day you decide to appropriate our deposit.”

This guarantee was on a standard form. Those parts that we have set out in italics represent manuscript entries on the form. The guarantee was dated in manuscript 31 December 1987. It bore Mr Iqbal’s signature. The Bank disclosed a photocopy of an earlier version of this document. It differed from the final version in that the two entries of the sum of $146,000 had not been inserted. The US$ account number 2/061929-3 was that allocated to the Streed dollar account. There was evidence that this allocation did not take place until 8 January 1988 – that is after the date of 31 December 1987. This raised the possibility that, when Mr Iqbal originally signed the document it bore no entries at all apart from the date. It does not seem to us that the manner in which the guarantee reached its final form is material. It is common ground that Mr Iqbal must have left it to the Bank to complete the form. What is in issue is the effect of the guarantee as completed, whether that effect reflects the intention of the Bank and Mr Iqbal and, if not, whether an alternative common intention is proved which should result in the rectification of the guarantee.

The judge held that the guarantee was a guarantee of a facility to be granted to Streed UK. His reason for so finding was that this is what the guarantee expressly stated. He rejected the Bank’s submission that the Bank and Mr Iqbal each used ‘Streed UK Ltd’ to describe Streed. He held that, on true construction of the guarantee, the limit of the principal amount guaranteed was $146,000. He held that Mr Iqbal signed the guarantee not in his personal capacity but as director of Streed, which was the guarantor. The basis for this finding was that the guarantee recorded that the guarantor had deposited $146,000 in US$ account No 2/061929-3. This account was Streed’s account and, according to the bank statement disclosed by the Bank which, for this purpose the judge appears to have accepted as accurate, on 29 December 1987 $200,000 was paid into this account. This turned a debit balance into a credit balance of approximately $147,000, which remained in that account until 23 March 1988.

The Bank’s argument, advanced by Mr Downes before the judge and before us, was that Mr Iqbal signed the guarantee as personal guarantor, not on behalf of Streed, that the guarantee was in respect of facilities granted to Streed, not Streed UK, and that the principal amount secured by the guarantee was unlimited. If this last submission was not sound, Mr Downes submitted in the alternative that the guarantee should be rectified to replace the first entry of $146,000 with the sum of £230,000.

Mr Downes relied on the following matters in support of his submission.

We consider that the judge’s analysis of the guarantee was correct. It was a standard form of guarantee designed to secure, by deposit of funds, a banking facility. Both the facility and the sum deposited to secure it were in dollars. After the 31 December 1987 the Bank proceeded to issue a series of dollar letters of credit in the name of Streed UK Ltd to cover purchases of cloth. So far as the vendors in those transactions were concerned, they were dealing with Streed UK Ltd. It seems to us that the clear inference is that, in accordance with its terms, the guarantee was intended to secure these transactions. The internal banking documents recorded, as security for the LC/ TR facility limited to £100,000, the sum $US 146,000. The guarantee accords with this save that the limit of the facility is entered as $146,000 rather than £100,000. This minor discrepancy does not undermine our conclusion that the guarantee was intended to secure the letter of credit facility.

So far as the identity of the guarantor is concerned, it seems to us that this must necessarily be the owner of the account that was securing the facility. The guarantor agrees that the funds in this account can be used to discharge the liabilities incurred under the facility. Mr Iqbal can only have been making that agreement on behalf of Streed, the owner of the account.

We reject Mr Downes submission that the guarantee was, on its true construction, without limit. The words “other proper liability repayable or due” must be read as relating to “the Principal amount”, just as the words “interest due thereon and all cost, charges, fees, expenses” must be read as relating to the principal amount. It is obvious that the words in their context are inferentially subject to this restriction .We are not dissuaded from this view by the fact that it is not easy to envisage what “other proper liability repayable or due” there might be. We suspect that the draftsman of the form added these words out of an abundance of caution.

Thus far the exercise that we have conducted has been, as was that conducted by the judge, to construe the guarantee according to its natural meaning. We have done so in the context of the internal documentation of the Bank and transactions that were transacted in the name of Streed UK. The guarantee is consistent with Mr Butt arranging part of the security that he was informing head office was in place. We do not find it possible to reach any firm conclusion as to Mr Iqbal’s subjective knowledge and understanding of the terms of this guarantee. His original pleaded case was to the effect that his apparent signature on the guarantee was a forgery. This defence was abandoned after expert handwriting evidence confirmed that the signature was, indeed, Mr Iqbal’s. The documents indicate that Mr Butt procured from Mr and Mrs Iqbal a number of signed security documents, made out in blank. They seem to have relied on Mr Butt to complete these documents in the manner that was necessary, or appropriate, to procure the loan facilities that they were seeking. In these circumstances, Mr Downes’ attempt to demonstrate that the guarantee should be rectified to reflect a common intention on the part of Mr Iqbal and the Bank was doomed to failure.

On 19 December 1988 Mr Iqbal executed a legal charge over his property, Dixon Mill. The mortgage secured “all present and future actual or contingent liabilities…of the Mortgagor to the Bank…”. Mr Downes’ primary contention to the judge and to us was that the mortgage meant what it said. This, however, was linked to his submission that Mr Iqbal was personally liable on the guarantee so that, indirectly, the mortgage secured the indebtedness of Streed. If these linked submissions were not successful, Mr Downes had an alternative submission. Both the Bank and Mr Iqbal had conducted themselves on the common assumption that the mortgage secured Streed and/or Streed UK’s indebtedness. Mr Iqbal was estopped from denying that this was the effect of the mortgage.

This submission faced obvious difficulties. The first was that it was advanced as an alternative submission to the primary submission that the Bank and Mr Iqbal intended that the mortgage should secure a personal liability of Mr Iqbal. The second was that no oral evidence was adduced, either from the Bank or from Mr Iqbal, to explain the circumstances in which the mortgage was executed. The Bank was constrained to rely on inferences that Mr Downes submitted fell to be drawn from the documentary evidence. The third difficulty was one of law. The submission constituted an attempt to use the principle of estoppel as a sword, rather than a shield.

The documents relied on by the Bank in support of the claim based on estoppel included the following.

The judge rejected the claim based on estoppel for reasons of both fact and law. As to fact, he said that he was unable to make any findings based on inference as to the intention of the Bank on the footing of documents which came from a heavily polluted source and which were inconsistent with each other. As to the law, he held that the Bank was seeking to use estoppel as a sword, and that this was illegitimate.

The documents, so it seems to us, lend considerable force to the submission that the Bank and Mr and Mrs Iqbal were proceeding on the assumption that Dixon Mill constituted, in one way or another, security for the indebtedness of one or other or both of these companies. We are not, however, able to infer from the documentation any clear joint assumption as to the manner in which the security was to operate, the specific indebtedness to be secured by it, or the limit if any of that indebtedness. Mr Iqbal pleaded that the mortgage had been intended to secure personal loan facilities to fund proposed trading with Iranians, that it was to be held in escrow pending the grant of those facilities, and that the facilities were never granted. This account is at odds with the contemporary documents and Mr Iqbal did not choose to support it with oral testimony. We have already commented on the difficulty of demonstrating that Mr and Mrs Iqbal had any precise intention or understanding as to the security documentation to which they were appending their signatures. It is at least possible that Mr Iqbal believed that he was under personal liability to the Bank in respect of his companies’ liabilities and that the mortgage secured this liability. It is, however, impossible on the evidence to spell out a common understanding as to the effect of the mortgage on the part of the Bank and Mr Iqbal. Without this, the Bank’s case that there was an estoppel by convention does not get off the ground.

In these circumstances it is not necessary for us to consider the attack, based on Amalgamated Property Co v Texas Bank [1982] QB 84, which Mr Downes made on the detailed analysis of the law made by the judge.

For these reasons the Bank’s appeal in their action against Mr Iqbal on the guarantee and the mortgage must be dismissed. Mr Iqbal is entitled to the release of this security, and we shall hear counsel as to the appropriate order. Mr Iqbal had also made a claim to damages resulting from the fetter that the mortgage placed upon his freedom to dispose of Dixon Mill. As to this, the Judge said:

“There will be an order for an enquiry as to damages. I will give directions which are likely to include an order for the separate determination of whether Mr Iqbal has any standing to make such a claim before (in the event of success on this point) the amount of any damages is assessed.”

We make no comment on whether Mr Iqbal has any right to claim damages. As we observed in the course of the hearing, having regard to the increase in property values that has taken place while the mortgage of Dixon Mill has been on the register, it is not easy to see what damage Mr Iqbal can have suffered. If this claim is to be pursued, we shall hear counsel as to the appropriate order and directions.

Mrs Iqbal was not represented at the trial before Judge Kershaw, as her legal aid had been withdrawn. After the draft judgment had been received by the parties, her legal aid was restored, so that she was represented by counsel at the hearing on 3 March 2003, when inconsistencies and omissions in the draft judgment were discussed. Before us she was represented by leading and junior counsel.

Looking at the litigation as a whole, perhaps the most important issue before the judge was whether Streed and Streed UK were indebted to the Bank, or whether the Bank was indebted to the companies. If the latter was the case, the issues in relation to the guarantee and the mortgage were academic. The state of the accounts was critical to the resolution of Mrs Iqbal’s claim for damages for wrongful exercise of a lien. More generally, the state of the accounts was an important part of the matrix against which the guarantee and the mortgage fell to be construed. The gestation of the judgment that we have described suggests that the judge may have turned to consider the state of the accounts many months after the hearing. The issue fell to be resolved in the light of lengthy oral evidence, in particular that of Mrs Iqbal, and in the light of the documents disclosed by the Bank. No bank statements or other accounts in relation to the dealings of the Streed companies were disclosed by Mr or Mrs Iqbal.

We have described in general terms the manner in which the judge dealt with Mrs Iqbal’s claim. He made a number of findings, or provisional findings, in the Scott schedule to the draft judgment that he provided to the parties. They were in short-hand form and not all readily intelligible. They were certainly not an adequate substitute for a reasoned judgment dealing with the issues that had been raised. They were, in general, favourable to Mrs Iqbal. They supported her case that substantial sums were due from the Bank to her, as assignee of the Streed companies. But the judge made no definitive findings in relation to the balance of the accounts. He indicated that there would have to be a further trial of “the issue of the re-writing of the accounts”. The course taken by the judge was not satisfactory. He had heard evidence on the state of the accounts and he should have resolved the issues arising out of this evidence in a reasoned judgment. Our suspicion is that, after the delay that had occurred and having regard to the complexity of the evidence, he found himself unable to do so without a further trial but, as we have pointed out, no explanation has been received from the judge for the delay. In the event we are left in doubt as to the status of the findings made in the Scott schedule. Mr Downes attacked these and, for reasons that we shall now give, we have concluded that they cannot stand.

When, in the first half of 1990, Mr Naqvi discovered the nature of the parallel banking activities of Mr Butt, the Bank found itself in the following position. It owed to depositors those sums which had been lent to other customers by Mr Butt under unauthorised transactions. While it could seek to recover those sums from the customers to whom they had been loaned, this was difficult or impossible in practice because the loans in question were not adequately secured. It is the Bank’s case that Streed/Streed UK were customers who fell into the latter category, that is that they were indebted to the Bank in respect of loans which exceeded the credit limits that had been agreed by head office and that the source of at least part of these loans was deposits made by Abbey Pearl. It is Mrs Iqbal’s case that Streed and Streed UK fell into the former category – that is that they were depositors whose accounts had been improperly depleted by Mr Butt.

One would normally expect that the primary evidence to resolve an issue such as this would be contemporary bank statements produced by each party. In the present case there were no such contemporary statements. It was Mrs Iqbal’s case that, despite her protests, the Bank had failed to provide bank statements in respect of Streed and Streed UK’s accounts over a period of as long as three years.

The Bank’s case is largely based upon statements that had been discovered among their internal documents, but these are not contemporary statements. We will refer to these as ‘the Bank Statements’. It is the Bank’s case that these were in the same form as statements sent to Mr Iqbal in early 1990. In March 1988 the Bank’s Manchester Branch moved premises. Bank documentation in existence prior to this move was not preserved. The judge found that it was either lost in the move or deliberately suppressed by Mr Butt in order to conceal his fraudulent activities. Mr and Mrs Iqbal did not produce contemporary records in relation to the dealings of Streed and Streed UK. As we understand it, most of these documents were said to have been taken by the liquidators of the former company and had not been subsequently recovered.

Apart from the Bank Statements, the Bank relies upon a number of matters as clearly demonstrating that Streed/Streed UK owed substantial sums to the Bank rather than were owed substantial sums by the Bank:

While the evidence summarised above does not establish the accuracy of the Bank Statements, it strongly supports the case that the Streed companies were at all material times significantly indebted to the Bank under (and possibly in excess of) facilities that had been authorised by the Bank. If the claim now advanced by Mrs Iqbal is sound, it seems almost inconceivable that she and her husband would not have challenged the assertion that their companies were indebted to the Bank. The judge gives no explanation of how these matters can be reconciled with his findings. He simply does not deal with them.

There are other matters which raise questions in relation to the credibility of Mrs Iqbal’s case. The Statement of Claim in her action was originally pleaded in 1990, the First Plaintiff being Streed in liquidation and the Second Plaintiff being Streed UK. 19 substantive debits to the Bank Statements were challenged as unauthorised, totalling £638,389.47. These resulted in consequential challenges to the amount of interest claimed by the Bank. The Statement of Claim was amended on 9 August 1991 and re-amended on 16 June 1998. No further debits in the Bank Statements were challenged. Shortly before the trial, Mrs Iqbal’s legal aid was withdrawn. She was granted a short adjournment to enable her to prepare to present her case in person. By a further amendment to the Statement of Claim Mrs Iqbal made 5 further challenges to the debits shown on the Bank Statements, totalling £375,000 and $300,000. We are not aware of any explanation as to why these amendments were made so late.

In the course of the hearing Mrs Iqbal alleged that substantial sums of cash had been deposited with the Bank that should have resulted in credits to the Streed companies’ accounts. No such allegation had been pleaded or advanced before the trial.

While Mr Iqbal was present throughout the trial he chose not to give evidence, either on his own behalf or in support of his wife’s claim, although it was in his interest that the latter should succeed. Submissions were made to the judge as to the inferences that should or should not be drawn from Mr Iqbal’s failure to give evidence. The judge devoted ten pages of his judgment to dealing with this point. In short his conclusion was that silence on the part of a witness does not necessarily prove anything, but that the court should use logic and common sense in considering what, if any inferences flow naturally from failure to give evidence. We would endorse that conclusion. We would add that this is a case where, so far as the accounts were concerned, the facts were of critical importance. If the Bank was advancing a case that the Streed companies owed the Bank substantial sums secured by Mr Iqbal, whereas the truth was that the Streed companies were in credit and had been wrongfully debited with huge sums, common sense suggests that Mr Iqbal would have given evidence to support that of his wife. According to her evidence, it was her husband who played the major role in many of the dealings with the Bank. The fact that he did not choose to give evidence raises a question mark over the case advanced by Mrs Iqbal.

Having considered the law at length, the judge does not appear to have asked himself what conclusions should, as a matter of logic and common sense, be drawn from Mr Iqbal’s failure to give evidence.

The provenance of the Bank Statements does not appear to have been clearly established at the trial and was certainly not clear to us. They contained entries which evidenced parallel banking transactions. They also reflected purchases carried out in the name of Streed UK, which were funded by the Bank under letters of credit and which were verified to be genuine transactions by enquiries subsequently carried out by the Bank. Mr Iqbal did not challenge the Bank’s entitlement to debit Streed’s account with the payments made by the Bank under the letters of credit.

The Bank Statements showed a debit in respect of a payment to Abbey Pearl totalling £330,000. Mr Iqbal did not challenge the propriety of this debit. In the course of the trial Mrs Iqbal challenged £130,000 of this debit, but the balance of £200,000 has never been in issue. This item is of some significance. It appears to represent repayment to Abbey Pearl of sums advanced to Streed under parallel banking transactions executed by Mr Butt. Mr Downes submitted that the fact that Mr Iqbal did not challenge this debit demonstrated that he was privy to the parallel banking activities. We do not think that this necessarily follows. Nonetheless, the fact that Mr Butt resorted to parallel banking in this instance suggests that the Streed account was overdrawn beyond the limit of the facility.

As we have said, Mr Iqbal initially only challenged three items in the Bank Statements. The Statement of Claim, which was served after Streed had been placed in liquidation, challenged 19 items. At all times up to the trial the Bank Statements were treated as setting out the balance of account between the parties, subject to the disputed items.

In the course of his judgment the judge made the following comments on the Bank’s internal documents:

We can understand the judge’s inability to find, on the basis of the Bank Statements, that any particular sum was due from either company to the Bank. The evidence, to which we have referred above, none the less indicated that the Streed companies were significantly indebted to the Bank. In these circumstances one might have thought that Mrs Iqbal, over ten years after the event and without any contemporary records, would have had a near impossible task in seeking to persuade the judge that the Bank was significantly indebted to the companies. In the event she achieved this by taking as her starting point the Bank Statements and then persuading the judge that a large number of entries were erroneous.

In the course of the appeal counsel for the Bank, for Mr Iqbal and for Mrs Iqbal sought respectively to attack and to defend the comments that the judge had entered against individual items in the Scott schedule. Neither party suggested that we were in a position ourselves to make firm findings of the balance of account between the Bank and the Streed companies on the basis of the material before us. The issue was whether or not individual findings of the judge could be demonstrated to be unsound to the extent that his conclusions on the balance of account between the parties could not stand.

Mr Downes drew our attention to items 1, 2, 5, 6, 71-74 and 76 in the Scott schedule. Items 70 to 74 and 76 were debit entries to the Streed dollar account in respect of payments made by the Bank under letters or credit. It was accepted that the Bank was entitled to reimbursement for these payments and Mr Iqbal never challenged these items. At the trial, for the first time, Mrs Iqbal gave evidence that cash had been deposited with the Bank, totalling nearly $300,000 to cover these letters of credit. The entry made by the judge in relation to these items in the Scott schedule found in favour of the Bank on the basis that the judge was not satisfied that these cash payments had been made.

Items 70 and 71 were met with transfers from the Streed current account, which constituted items 1 and 2 in the Scott Schedule. As to these, the judge found that the debits were not justified because he accepted Mrs Iqbal’s evidence that she had deposited cash with the Bank. Mr Downes submitted that the findings made by the judge in respect of the cash deposits were irreconcilable. We agree. Counsel for Mrs Iqbal argued that the cash deposits referred to by the judge in relation to Items 70 and 71 were not the same cash deposits as those referred to in relation to items 1 and 2. It is true that the judge’s comments appear to be referring to different passages in Mrs Iqbal’s evidence in relation to the making of cash deposits. The fact remains that items 1 and 2 were back to back with items 70 and 71 and the latter entries cannot be legitimate if the former were not. The judge compounded this inconsistency in his findings by treating items 1,2,5 and 6 as standing together.

The inconsistency in the judge’s findings in relation to Mrs Iqbal’s evidence as to the making of cash deposits is significant. The judge does not appear to have considered the full implications of that evidence. It was adduced twelve years after the material events. It was uncorroborated, not supported by Mr Iqbal’s evidence and, apparently, had not been mentioned to the lawyers who were acting for Mr and Mrs Iqbal until the latter’s legal aid was withdrawn. If Mrs Iqbal’s evidence was correct, the inference was that Mr Butt had simply pocketed the cash deposits made without any record of their receipt. Dishonesty of this nature was of a different order from Mr Butt’s parallel banking transactions and inherently unlikely. It was even less likely that, if such dishonesty had occurred, no protest would be made about it until Mrs Iqbal came to give evidence.

Mrs Iqbal gave oral evidence at great length. In normal circumstances this Court would be very slow to question the assessment of a witness’s evidence made by the trial judge who had heard that evidence. The circumstances of this case are not, however, normal. The judge’s delay in producing a judgment, the handing down of draft judgments in two instalments, the provision of a Scott schedule in place of reasoned findings, the inconsistency to which we have referred above, omissions to deal with some of the items in dispute, the statement by the judge that he intended to give directions “for the trial of the issue of the re-writing of the accounts” when that trial had already taken place before him and comments made by the judge at the hearing of 3 March about Mrs Iqbal’s evidence leave us with no confidence in the judge’s conclusions in relation to her evidence.

We should explain our comment in relation to the hearing on 3 March. Questions arose in relation to items in the Scott schedule that were relevant to Mrs Iqbal’s claim for damages for the Bank’s wrongful exercise of a lien over goods purchased under letter of credit MAN 2470. In the course of discussion he made the following comments about Mrs Iqbal:

“…I got the very clear impression of Mrs Iqbal, she is a highly intelligent person, who was taking an active part in the management of the affairs of these companies and she knew a good deal more about what was happening than Mr Naqvi, so it is not just a question of, well she has made a mistake, or she is instructing you to say, “I made a mistake in this second round of submissions”. It could be a volteface not a mistake, coming from somebody, as I say, with the means of knowledge that she had, and undoubted, to my mind, intelligence and understanding of her case. So you are really asking to adduce evidence to explain the change, not just to ask me mentally to have no regard to this. ”

….

“This is, I think, her final thoughts, her final submission on a case, which I am bound to say was not run with clarity in this sense, the bank was saying, “It is for you to show that any entries in the bank statements were wrong because you must have had them at the time and you did not object to them at the time, and in practice, whatever the law is, evidential or legal, it is for you to challenge any statements in figures and bank statements that are wrong”. Whereas her case was, “No, the bank says there was a huge debit balance and I say there should be a huge credit balance and I am setting out to establish a credit balance.”

But then we get a bit of cherry picking, certain items in the bank statements are accepted and some not, for no apparent reason, it is just that ones I like I will accept and the ones I do not like I will reject. Now I do not say there is anything wrong with that, except that if you are going to cherry pick you go item by item, rather than set out to establish what the state of the account should be from beginning to end, then it is very important to be clear to the court on what her case is.”

….

“But here, as I have said, we have got a second round of written submissions by Mrs Iqbal, and I have already said in the course of counsels’ submissions, that she is a person I know, I have seen her give evidence and be cross-examined and cross-examination witnesses for the bank, I know her as a woman who is highly intelligent and very deeply versed in this case, and where we are concerned with her case, seeking to get money from the bank on the basis of what the state of account should be, she says, between the bank and the companies, then if I am left unclear with what her case is because she has had every opportunity to present submissions and has taken advantage of it to the fullest, in a way probably that would not have been allowed to a legally represented litigant, then she has failed to do what lies on her to convince me on the balance of probabilities, where it is an issue of fact, or intellectually where it is a point of law, and it would be unjust to other parties, either to allow the final determination of the case to be delayed, or to risk a complete new issue arising on fact as to why she has said what she has in this second round of written final submissions, and with the exceptionally good advantage which I have had from this case, not just to hear the evidence and to hear the submissions of law, but to get the feel of the case as well, I am quite quite satisfied in my mind that it would be wrong to allow this exchange of submissions and arguments and evidence to continue. We are at the stage of judgment now, so my decision remains that I do not know what her case is.”

Despite these comments, the judge ultimately concluded that the Bank had no right to exercise a lien over documents relating to the goods whose purchase the Bank had funded under letter of credit MAN 2470. This finding depended critically on finding either that the Bank had been put in funds in relation to this transaction or that the Bank was obliged under its facility to grant credit in respect of the purchase price of these goods. The judge made, however, no finding in respect of the overall state of account between the Bank and the Streed companies.

The approach of the judge to the balance of account between the Bank and the Streed companies was to put the Bank to proof of each item debited to the Streed companies in the Bank Statements. In so far as the Bank was unable to support a debit by other evidence, the judge disallowed the debit in question. This led the judge to disallow a number of items notwithstanding that they had not been challenged until Mrs Iqbal put them in issue at the trial.

In the relatively brief part of his judgment in which he dealt in general terms with the issues arising in relation to the figures, the judge made the following observations:

“There is no direct evidence apart from that of Mrs Iqbal, whose evidence is that she was constantly complaining about the absence of statements of account. I accept her evidence on that point, but even if I were to reject it I should be left with no basis upon which to infer that any bank statements sent to the company were in the form in which they appear in the bundles. I find on the evidence of Mr Naqvi that Mr Butt could and did create bank statements both before and after the computerization of the accounting system, and since he was able to carry on a fraud of large proportions for a long time despite the internal and external audits of his branch he must have set out to cover up very carefully and skilfully what he was doing and succeeded in doing so. The cover up must have taken two forms. First, the bank’s accounts must have balanced, so that no discrepancy was apparent when they were audited. Secondly, a statement which did not agree with the records of a customer was liable at any time to set fire to the fuse which could lead to his discovery when compared with the customer’s own accounts either by the customer or by the customer’s auditors. Whatever might be said about Mr Iqbal, he must have known that Mrs Iqbal was an active director of the companies and that she is a highly intelligent and vocal person. Mr Butt’s cover-up must, as a matter of clear probability, have embraced any statements of account sent to the two companies with which I am concerned.”

The judge, however, accepted Mrs Iqbal’s evidence that, over a period of three years, Mr and Mrs Iqbal received no bank statements in respect of their companies. We agree with Mr Downes that this is hard to credit. In any event Mr and Mrs Iqbal must have been maintaining their own trading records. The judge’s comments set out above are pertinent in as much as Mr and Mrs Iqbal could be expected to react if communications that they received from the Bank were at odds with their records. We have set out earlier in this judgment the evidence which suggests that between 1987 and early 1990 both the Bank and Mr and Mrs Iqbal conducted themselves on the basis that the Streed companies were indebted to the Bank. The only issue was as to the amount of that indebtedness. So far as Mrs Iqbal’s claim is concerned, the onus was on her to prove that, in fact, the Bank was indebted to the Streed companies. The judgment in this case has not satisfied us that she discharged this onus.

We have been driven to the conclusion that the only appropriate course is to allow the Bank’s appeal in Mrs Iqbal’s action and to direct that her claim be re-tried before a different judge. We take this course with reluctance. The judge concluded that the Bank Statements did not enable him to find on balance of probabilities that any particular sum was due from either company to the Bank. We find it hard to see how Mrs Iqbal can hope to establish that the Bank was substantially indebted to the Streed companies in the face of the Bank’s contemporary evidence and with no contemporary documentation emanating from the companies to gainsay this.

After the hearing had been concluded Mrs Iqbal sent directly to the Master of the Rolls an application for an oral hearing, estimated to require four hours, in order to advance the allegation that the Bank had deliberately added to the appeal bundles “fraudulent and manufactured documents” which had never been before the trial judge, had deliberately omitted from the appeal bundles documents with the intention of deceiving the court and obstructing the course of justice and placed before the court two different documents with the same manuscript number with the intention of misleading the court. Mrs Iqbal alleged that Mr Downes was party to attempting deliberately to deceive the court. Mrs Iqbal alleged that the fraudulent conduct in relation to the preparation of the bundles had been possible because this was entirely in the hands of those acting for the Bank.

Mrs Iqbal was represented before us by leading and junior counsel. The skeleton argument submitted by them made the point that the Appeal Bundle was incomplete and that a supplemental bundle would be lodged ‘to ensure that the Court has access to a fairer representation of the relevant documents’. We enquired of the Court of Appeal Office how it was that Mrs Iqbal had, in person, submitted her application to the Master of the Rolls and were informed that she had dismissed her counsel.

We are satisfied that Mrs Iqbal’s legal representatives were in a position to put before the Court any additional documents that they considered necessary to ensure that her case was fairly presented and to make any submissions that they considered appropriate in relation to the conduct of the appeal by the Bank and the Bank’s representatives. In these circumstances we can see no justification for Mrs Iqbal making an application in relation to these matters after the conclusion of the hearing. We have seen nothing which lends any support for the various serious allegations of misconduct made by her against the Bank and its representatives. In these circumstances we refused Mrs Iqbal’s application for an oral hearing.

Subsequently, when we were at the stage of perfecting our draft judgment, the Court received from Mrs Iqbal a Scott Schedule and three files of documents. We did not consider it appropriate to look at these.