Habib Bank Ltd. v Ahmed & Ors

The Habib Bank in April 1999 obtained judgment against Mian Aftab Ahmed in the High Court of Sindh, in Karachi, for sums due under three guarantees amounting (in sterling) to several million pounds. In September 1999 it registered the judgment in the Queen's Bench Division of the High Court under the Foreign Judgments (Reciprocal Enforcement ) Act 1933.

There followed some complex endeavours and negotiations aimed at setting aside the registration, but finally in October 2000 the bank issued an application for a charging order on a number of assets including the Watermead Hotel and Harper's Fitness Club, in Aylesbury, both registered at the Land Registry in Mr Ahmed's name. A charging order nisi was made by the court, with notice to show cause why it should not be made absolute. By then the hotel had become the subject of a declaration of trust recording that Mr Ahmed's wife had provided part of the purchase monies and that Mr Ahmed held it in trust for his wife. By then, too, the fitness club had been the subject of a transfer to Mr Ahmed's wife and two sons by way of gift.

The dates on which these things happened are important. The hotel was purchased on a Holiday Inn franchise with money principally provided by the Bank of Scotland in June 1994. The claimant bank's High Court proceedings were initiated in Karachi in Sept 1995. The declaration of trust was made in April 1996 and supplemented in June 1999. The fitness club was acquired in April 1997 with a loan from the Bank of Scotland. Its premises were given to the wife and sons in March 1999 and its business in April 2002, together with a permitted assignment of the Holiday Inn franchise.

Simon J in a judgment delivered in July 2003 concluded that the charging order on both properties should be made absolute. He had heard submissions from counsel for the wife and sons as interveners but rejected their claims on the ground that all of them arose out of transactions entered into substantially if not entirely for the purpose of putting the material assets beyond the reach of the bank. Pursuant to s.423 of the Insolvency Act 1986 the judge, in making the charging order absolute, made further orders restoring the position to what it would have been if the transactions had not been entered into.

In the course of his judgment Simon J held that the burden lay on the debtor or intervener to secure the discharge of the order nisi, and on the creditor to prove that a transaction is caught by s.423; but he also made it clear that his decision did not depend upon the incidence of the burden of proof.

He refused the interveners (who were also the s.423 defendants) permission to appeal, and on application to this court Peter Gibson LJ, on a consideration of the papers, also refused. He wrote:

However, on oral renewal before Brooke and Latham LJJ the view was taken that there might be an arguable point. Brooke LJ said:

This therefore was the purpose of the hearing before us. For it, we have been furnished not only with the applicants' 11-page skeleton argument but with a 36-page skeleton argument for the bank, to which the applicants have put in a 19-page reply. There are four lever-arch files of documents, transcripts and authorities. The issue, however, is a relatively narrow one.

This is how the judge summarised his findings about the three key witnesses on the applicants' side:

The appeal for which permission is now sought builds on the finding that the son Qamar was "more straightforward" as a witness than his parents. Mr Briggs says that within the evidence that Qamar gave, the judge has overlooked a crucial piece of testimony. In paragraph 13 of his witness staement he had said: "I wanted to help Aftab [his father] out at the hotel… I enjoyed the business and wanted to get a bit more involved. I was told by my parents that Nilofur [his mother] had provided Aftab with the funds to purchase the hotel. I did not ask how much or where the monies came from. As far as I was concerned it was not my place to ask." While no date is given for this conversation, it is recounted in a passage dealing with events in 1994.

In paragraph 21 Qamar went on to say that in December 1995 his father told him about the bank's proceedings and said that he was holding the hotel on trust for his wife because she had provided the purchase money.

The reference to the purchase money is more precisely a reference to the difference between the £472,500 loaned by the Bank of Scotland and the purchase price of £675,000, a sum of a little over £200,000.

Mrs Ahmed's witness statement confirmed that when Qamar began to help her husband at the hotel - which was in 1994 - they had told him that she had provided the funds to buy it, and that he had been told of the trust later, in December 1995. Mr Ahmed's witness statement was to similar effect. In oral evidence Qamar and Mrs Ahmed reiterated their evidence about the 1994 conversation.

What the judge found about the alleged source of Mrs Ahmed's funds was this:

On 22 February 1994 the sum of $300,000 was credited to Mr Ahmed’s account at Lloyd’s Bank, Hanover Square on the instructions of Pioneer. On 14 March 1994 Davis & Co (the solicitors instructed by Mr Ahmed) made an internal note:

It is convenient to start with evidence about Pioneer. On the Ahmed’s case the money originally invested in Pioneer in 1988 (US$175,000) came from Mrs Ahmed, whom they both described as a wealthy woman who took an interest in her own investments. It is their case that the investment in Pioneer was so successful that Mr Chui was able to remit a total of US$620,150 representing Mrs Ahmed’s investment as follows:

US$300,000

US$ 50.000

US$170,000

US$ 30,000

US$ 70,150

Mr Ahmed’s statement in relation to the first payment (§34)

The Ahmed family’s case was therefore that the dividends and interest earned by Pioneer had accumulated to such an extent that a ⅔ share was $620,150.

The first point to note is that, if this was indeed how Mr Chui made money, the scheme appears to have been designed to evade the payment of tax. Furthermore, it would have needed to have been highly rewarding if the total sums remitted to London amounted US$620,150 (or even US$494,929). Although some documents have been produced showing the interest payments, these documents only account for US$183,199 of which a ⅔ share would amount to US$122,133. It is suggested that the balance came from other accounts which Mr Chui is no longer prepared to disclose in view of the potential consequences. I am not prepared to accept that suggestions, which requires the court to accept that at least US$372,000 came from profits made in accounts hidden from Pioneer and not disclosed in this action.

In my view the Ahmed’s explanation as to the source of the funds: that it came from Pioneer, as the proceeds of an underhand interest operation, is not credible. It is unclear where the money to fund the Hotel came from; but I am satisfied that it did not come from Mrs Ahmed’s interest, such as it was, in Pioneer.

I make this qualification because I also formed the view that some of the financial operations carried out in Mrs Ahmed’s name were in truth the operations of Mr Ahmed. I have little doubt that Mrs Ahmed had money of her own and used such money for the benefit of her husband and her children; but in my view there were assets lodged in Mrs Ahmed’s name which were, in truth, the assets of Mr Ahmed. In such cases he retained a signing authority and dealt with assts as if they were his own. I suspect that the shareholding in Pioneer was such an asset, although such a finding is not necessary for the purposes of this judgment and I have not made such assumption.

In the light of these findings, I am satisfied that the Declarations of Trust dated the 29 April 1996 and 2 June 1999 did not formalise a pre-existing position, but were responses by the Ahmed family to the Bank’s proceedings and made in the hope of salvaging some of Mr Ahmed’s assets. The first Declaration of Trust was the consequence of the family conference about Mr Ahmed’s assets in December 1995.

Mr Briggs, accepting that the judge's reasoned scepticism about the ownership of the money available from Pioneer is not assailable without some new weapon, submits that Qamar's overlooked evidence about the 1994 conversation is such a weapon

We put on one side the bank's submission that if there was a material lacuna in the judgment it should have been raised with the judge when his judgment was delivered. We will assume that the judge would have regarded it as coming too late, for it had not perceptibly featured in the submissions made to him before judgment. We will also set on one side the fact that it formed no part of the application made to the judge for permission to appeal.

Was this evidence, had the judge taken it on board, capable of having led him to a different conclusion on the charging order? The bank says not. Its central reason is that the judge heard and disbelieved the evidence that was given to him about the supposed source of the wife's funds. It follows, the bank submits, that even assuming that the judge had accepted as accurate Qamar's recollection of what he had been told in 1994, that is before the bank had issued its proceedings against his father, it could not conceivably have led the judge to conclude that what Qamar had been told was true.

The judge's findings about the source of the money are compelling. Moreover, the more reliance was placed on Mr Chui's abstraction of Mrs Ahmed's money from Pioneer for tax evasion and other purposes, the less feasible it became that the $350,000 sent over by Pioneer (not by Mr Chui) was hers. The submission that Mr Chui could not (rather than, as suggested in paragraph 40 of the judgment, that he would not) produce the relevant accounts could have made no difference to the conclusion reached by the judge in that paragraph.

Further, if one is to add to the judge's powerful reasoning the evidence of Qamar about what he recalls being told in 1994, one must also add certain other facts. One is that Mr Ahmed's solicitors had been instructed in March 1994 to purchase the hotel in his sole name, with no indication whatever of a trust. Another is that Mr Ahmed's own evidence was that he knew well before 1994 that the bank was after him to make good his guarantees. Paragraph 26 of his witness statement recounted that "by late 1992/early 1993 Habib Bank were putting a lot of pressure on me in relation to the outstanding accounts of the family businesses." It was in mid-1993 that he moved to England in consequence of these pressures.

Mr Briggs has re-marshalled his case, but absent some truly significant new element it remains the case evaluated and rejected by the judge.

There is no doubt that Pioneer in early 1994 paid $300,000 to Mr Ahmed and that he used this in the hotel purchase, together with a further $50,000 also remitted by Pioneer. But on the judge's findings there was the gravest possible doubt whether this money was Mrs Ahmed's. So far as anything could be affirmatively established, the evidence indicated that it was not. To be believed, it was necessary to the Ahmeds' case to show, among other things, how the sums paid to Mrs Ahmed in respect of her two-thirds interest in un-drawn dividends and interest could amount, as they were alleged to have done, to more than twice Pioneer's total declared profits over the previous 6 years. In Mr Chui's absence, however explicable his absence might have been, there was no intelligible explanation, and if the judge's inferences were right (and they were certainly tenable) any explanation would have had to cover a great deal of apparent turpitude and a degree of mendacity in his witness statement.

In this situation we are unable to accept the logic of Mr Briggs' submission that the (presumed) acceptability of Qamar's evidence of the 1994 conversation somehow alters the judge's general dubiety about Mr Ahmed's reliability as a witness. The one thing simply does not follow from the other.

We do not therefore accept that there is any material impact which Qamar's evidence about the 1994 conversation could have had on the judge's reasoned rejection of the assertion that part of the funds for the purchase of the hotel had come from Mrs Ahmed's interest in Pioneer. It is fanciful to suppose that, had his attention been drawn to it with anything like the force with which ours has been, he might have been persuaded that the $350,000 was after all Mrs Ahmed's. The reasons for disbelieving that any of the money was hers were far too strong.

No discrete grounds of appeal exist in relation to the health club.

In these circumstances, and irrespective of the bank's other grounds of opposition, we hold that there is no arguable case and refuse permission to appeal.

The bank is entitled to its costs of opposing the application.

It has duly put in a bill for summary assessment by this court. The total claimed for a half-day hearing is £54,487:50, a sum which would surprise most members of the public. Although Mr Briggs and those instructing him had been sent the draft bill on the morning of the hearing (which did not begin until mid-afternoon), it was not he but the court which queried some of the contents of the bill.

Three elements in particular, even on a first look, caused us concern: the large allocation of solicitors’ time to the perusal and preparation of documents; the attendance of solicitors at court; and the instruction of leading and junior counsel. We therefore stood over our decision on costs in order to allow both parties to make written submissions on the bill. These we now have, and they have been taken into account in what follows. We deal first with the items to which we drew attention in open court.

First, under the head "Documents" a total of almost 58 hours' work is claimed, practically all of it done by qualified solicitors at rates of £275 and £175 a hour. The remainder, allocated to a trainee, is costed at £75 an hour. This work is described (omitting the profligate distribution of capital letters) as:

Secondly, for attendance at court (estimated at 3 hours, with 40 minutes travel and waiting), two solicitors were deemed necessary, costing respectively £1,045 and £665.

Thirdly, leading and junior counsel were instructed. Compared with the solicitors' charges, their fees are perhaps not exorbitant - in particular because it is they who have done practically all the non-routine work of distilling the materials (the same as were perused at such length by the solicitors) into a coherent written argument. Even so, they amount to £37,365 for a half-day case. £12,500 of these fees are leading counsel's fees for perusal and preparation, and £8,000 junior counsel's fees for advising and drafting. Their separate brief fees for the hearing itself (though in the event they were not called upon) are respectively £10,500 and £6,750. At least the balance of the disbursements, £115 for the transcript writer, is modest.

Whether a bill of this magnitude is to be presented by the solicitors to their client bank is not our concern. Our concern is whether it is just to require the unsuccessful applicants to pay these large sums as the price of losing. The first question in deciding this is whether the costs claimed are disproportionate: Home Office v Lownds [2002] EWCA Civ 365. We have no doubt that they are. The bank’s solicitors, in responding to the court’s queries, have offered to reduce their claimed profit costs by £5,000. This is some recognition that the bill as drawn was excessive, but it is not a sufficient substitute for the scrutiny which has to follow once a bill is found to be disproportionate. Any doubts arising in the course of such scrutiny are to be resolved in favour of the paying party: CPR 44.4(2).

Having had, by way of preparation for the hearing, to read into the case very much as the respondent's solicitors did, this court is reasonably well placed to judge what is a fair allocation of time under the head "Documents". In our view, and taking into account what is noted in paragraph 8 above, it is not more than 8 hours. We see no reason to allow for the multiplication of the work by its division among three professionals.

The bank’s solicitors have submitted a list of the kinds of preparatory work they had to do: preparation of transcripts of submissions on the final day of the trial, prior to the receipt of the official transcripts; revisiting, and further work on, the evidence at the trial below, particularly concerning the monies received from Pioneer and their potential derivation; preparation involved in the respondent’s notice; liaising with counsel in respect of the skeleton argument, which had closely to address the facts; preparation of an extensive Respondent’s bundle, with documentary materials from the trial and other hearings below; and assisting counsel in preparation of the authorities bundles.

We consider much of this to be an inflated description of routine work. Some of it represents a pointless endeavour to re-canvass evidence. We propose to allow the sum of £1,400 under this head. This represents 8 hours of an assistant solicitor’s time.

We also consider the multiple attendances on the bank, its Karachi lawyers, counsel’s clerks and counsel to be excessive. We propose to reduce the total amount allowed under these heads to £900.

We questioned whether the attendance of two solicitors at court, as claimed in the estimated item of the bill placed before the court, could be justified. The bank’s solicitors have now submitted to us a revised bill showing that two solicitors did not attend the hearing. The second person present from the firm was a trainee.

It is inexcusable that the court was not told this when the bill was placed before the court. Had the bill gone through on the nod, as frequently happens, the bank’s solicitors would have been paid by the other side (and, failing that, by their own clients) for the attendance of a solicitor who was not there.

We see no need for the partner who was there, and who is costed at £100 an hour more than the assistant solicitor, to have attended. We will allow the fees appropriate to the attendance of an assistant solicitor, £175 an hour, for the eventual total period of 4.3 hours: £752:50.

Nor do we consider that this was a case necessitating two counsel for the respondent. This is not to say that the bank was ill-advised to instruct leading and junior counsel. It is simply to say that it was a form of insurance for which the other side should not be expected to pay. As Mr Briggs has amply demonstrated, the issues and evidence lay well within the grasp of a competent junior. Recognising the detailed work which has gone into the preparation of the respondents' skeleton argument (the only contribution of any novelty to the respondents' case), we will allow junior counsel's fees in the total sum of £12,750, but not those of leading counsel.

In the result, the amount we allow as the bank’s costs of resisting this application and of preparing to resist an appeal were permission to have been granted, is the following: