Sandhar v Sandhar & Kang Ltd & Ors

This is an appeal by permission of Munby J from a judgment of 5 July 2007 given by HHJ Simon Brown QC sitting as a deputy High Court judge in the Civil Justice Centre Birmingham. The dispute is about the legal and beneficial ownership of some property (“the Property”), known as 228 and 260 Cheapside, 54 Bradford Street, Birmingham. It is in Digbeth, close to Birmingham city centre. It is now worth a lot of money, said to be in the region of £12 million, although at the time it was bought in 1976 the purchase price was £170,000. This perhaps reflects the success of Birmingham itself.

The Property is currently registered under a single title in the sole name of the first defendants (“SKL”). The deputy Judge granted SKL summary judgment on its counterclaim, a decision to the effect that it is the sole legal and beneficial owner of the Property. The appellant, Mr Sandhar, says he was wrong to do so, that the case is not fit for summary judgment because it was not shown in the words of the governing rule, CPR 24.2(a), that “the claimant has no real prospect of succeeding on the claim”.

The dispute came before the deputy Judge on the application for summary judgment in slightly unusual circumstances. He had, on 1 May, given judgment on a closely related point against Mr Sandhar. That point arose in this way: on learning that SKL might be going to sell the Property Mr Sandhar lodged two forms with the Land Registry, form RX1 for a “restriction order” and a form AP to rectify the register so as to show that the Property was owned by four individuals -- himself and three members of the Kang family: Swarn, Udahm and Avtar, who are the second to fourth defendants. I will call them the Kangs. Mr Sandhar is their brother-in-law. The Land Registry acted on form RX1 and registered the notice in the following language:

The legal effect of this would be to put any potential purchaser on notice of Mr Sandhar’s claim, with the result that it could not take clear title from SKL without notice of the claim. It would not be equity’s darling, a bona fide purchaser for value without notice.

Because SKL, were or were about to be, in negotiations to sell the Property, it took action, initially in the Land Registry, to get the notice removed. Mr Sandhar then started the current proceedings on 23 March 2007, claiming a declaration that the Property was held on trust for himself and the Kangs and all necessary associated relief. Just six days later SKL and the Kangs responded with an application notice seeking an order for removal of the unilateral notice and summary judgment.

For reasons of lack of judicial time the two matters, removal and summary judgment, were dealt with on separate occasions, the removal notice being heard first. The deputy Judge gave judgment on that on 1 May 2007, ruling in favour of removal. Permission to appeal was refused by the deputy Judge and no application was made to this court for permission to appeal. So the order for removal remained standing. But, of course, while Mr Sandhar’s claim for beneficial ownership of a quarter of the Property remained alive there was still a cloud over the title.

So SKL, as the registered owner, pressed on with its claim for summary judgment. That came back before the same deputy Judge and, as I say, on 5 July he gave judgment. It was an ex tempore judgment. It is that judgment that is now under appeal but it must be read with his earlier judgment.

No less than nine grounds of appeal are identified. A number of these actually amount to much the same complaint put in various ways, namely that the judge had applied the wrong standard for a Part 24 application. It was suggested he had conducted a sort of mini-trial or he had ignored significant evidence which needs to be tested at trial. It was particularly emphasised that there was a serious allegation of forgery which it was said needs to be tried and cannot be sidestepped, as it is said the judge did.

There is no need to go into the detail of the authorities about Part 24. The judge rightly referred to Three Rivers District Council v Governor and Company of the Bank Of England (No 3) [2003] AC 1 and the other well-known authorities. It was common ground that the standard which should be applied is a simple one: is there a realistic prospect of success?

There are various judicial paraphrases that sometimes are used. In the end they really add very little. One can say, has the claimant’s case got an absence of reality? Is it hopeless or fanciful? Well, all those are different words for identifying the meaning of the rule. The basic question is whether there is or is not a real prospect of success. That depends on the evidence which has been filed in these proceedings. From time to time Miss Jackson QC for Mr Sandhar suggested that things might be different if they were challenged in cross-examination or that other documents might be produced and so on and so forth. I was reminded of what Sir Robert MeGarry VC once said in The Lady Anne Tennant v Associated Newspapers [1979] FSR 298: it is no good relying upon something which is all Micawberism and surmise.

The basic facts are quite simple. The four individuals were partners in a business in Birmingham in the mid-70s dealing as a cash and carry selling groceries. They had got some properties from which the business was running. Some were sold and the Property was bought. It was substantial and in due course was let in part to other people, particular companies identified in the evidence. We are concerned with what happened when it was bought. It was bought in the names of the four individuals. It is worth recording, however, that when he first started his case Mr Sandhar asserted something quite different as to the source of the money, namely that it was bought with assets of the four individuals. He also said it was held on a resulting trust. In fact when the document showing it was clearly bought by the four individuals on an express trust was produced he changed his position. That was the first of a number of matters which makes one question the value of his evidence.

SKL’s case is simple: that when the Property was purchased it was part of the partnership’s assets, and the whole partnership and all its assets went over to the company when it was formed; and this was all done on the advice of the company’s accountant who has given evidence in this case, a Mr Reeves. He says he so advised them and that is what they did. The claimant’s case is “Ah no, everything went over to the company except the Property.” It is an odd assertion, on its face, because it would mean the company had no security of tenure as a company. There were no arrangements about any rent to be paid to the individuals and nothing about this separate arrangement is set out in writing.

A series of documents dating from around the time of purchase were produced. They all point inexorably to the conclusion that all four of the individuals concerned regarded the Property as company property. Firstly, there is a bank statement from BCCI. It is dated after the company was formed and shows that a loan was made of £170,000 to the company, the precise sum that was paid for the Property. This document, somewhat oddly, refers to it as being a loan to the company even at a time before the company had been formed. But it actually came into existence after the company had been formed and it may be the bank simply regarded the document as covering the company because that was sufficient for practical purposes.

What it is, however, is evidence that somebody went to the bank and told the bank about a company and the Property. That is exactly consistent with the evidence of Mr Reeves that that is what he told the four individuals to do. Thereafter the Property was shown in the company statutory accounts and for tax purposes as company property. Sure it is that it remained in the names of the four individuals but for the outside world the four individuals, including Mr Sandhar, presented it as the company’s property.

It was not just the question of statutory accounts and tax because the company and the individuals also entered into documents on the basis that the Property was held on trust for the company. In particular, they entered into a Barclays charge of 18 August 1978, which described the four individuals as “the trustees” and described the company as “the mortgagor” and had as a paragraph 2: ”the trustee as trustee by direction of the mortgagor hereby charges by way of legal mortgage and the mortgagor as beneficial owner hereby charges and confirms unto the bank” and so on.

That is only consistent with the four individuals representing to Barclays that they were the trustees of the Property for the company. It is submitted that there was never any drawdown but that is entirely beside the point. This is what all four individuals publicly, so far as the Bank is concerned, put on a legal charge, which could have been registered and would have been there for all the world to see.

There was also on 12 June 1981 a mortgage entered into with the NatWest Bank. This says: “the mortgagee as” and then the words “beneficial owner” are struck out and “trustees” is put in “charges by way of legal mortgage” and so on. It is a clear, unambiguous statement that the Property is held by the four individuals on trust for the company.

In 1986 the parties fell out and Mr Sandhar left the company. The detailed explanations are in the documents but I do not think they matter. The important thing is that there was a settlement agreement by which he was to be paid £350,000 for the value of his shares. And that sum was calculated on the basis that the company’s assets included the Property. Mr Sandhar says “Not so” in his own mind that was not the position. In his second witness statement he went further and said it was expressly agreed the Property was to be continued to be held separately. Well, that is a fairly fantastic assertion. He was leaving the country. He was, on his account, entitled to a quarter of the Property which was being used by the company. Yet nothing was discussed about what the company would pay him for the use of this important asset.

I would add this: in the years in between the company had paid for the maintenance of the buildings. It had received income from a tenant, as I mentioned earlier, all of which it had retained and none was paid to any of the individuals. I will also add that all the individuals made tax returns on the basis that they did not own the Property. It was the same accountant who is responsible for their tax returns as for the company’s tax returns, Mr Reeves.

If one stands back and thinks a little more about that position in 1987 one is made even to wonder a little more about the suggestion that Mr Sandhar owned a quarter. If he did, why was he not to receive any rent? Why at least did nobody mentioned any rent? When if ever was he to get his share? Was he entitled to ask for a sale of the Property? That would have meant striking at the very heart of the company’s business. The case he makes simply does not add up.

He faces a further point, which he seeks to turn to his advantage, that there is actually a document which effects a transfer of the Property to the company in 1992. He says that is a forgery, that he never entered into any such document. He said the same about a property known as Chester Road, which was dealt with commercially and sold earlier. A report has been obtained from a man who claims to be a handwriting expert. It is a little odd in that it does not comply in any way with the rules of court and, as a matter of fact, has not formally been put into these proceedings except as an exhibit. He has not made a witness statement in these proceedings. The exhibit does challenge the authenticity of the signatures on the 1992 document.

Perhaps Miss Jackson’s strongest point was to say: “Well, that is some evidence that there is a forgery. The defendants say it is a true document and two of them have sworn to that effect. If it is shown to be a forgery ultimately (and that is arguable), then the rest of their evidence may fall away too.”

I see the force of that. But there is an answer. Firstly, the expert witness’s evidence also asserts that a document relating to the Chester Road property is also a forgery. Yet there is a witness to its being executed, an independent witness apparently. So the case which Mr Sandhar has got to run is that there are not only the three dishonest brothers but others drawn into the web. He already suggests that Mr Reeves, retired since 1991, is part of it all. I think he is bound to say also that the witnesses to the execution of the Chester Road document and the transfer of the Property were dishonest too.

This is wholly improbable. The judge, perhaps quite sensibly, decided not to go into the question of the forgery. He decided that, looking at the material before the date of the alleged forgery that it is inevitable that the Property belongs to the company beneficially.

I see no escape from that. Nothing done by anybody is consistent with anything else. And everything that was done is only consistent with that. as is every document from the time. So I ask myself, is there a real prospect of success? The answer is no. I would dismiss this appeal.

I should add that a point was taken on 53(1)(c) of the Law of Property Act 1925. But the two bank documents clearly comply with section 53(1)(b), and when that was put to Miss Jackson she could see no answer. There is no need to consider the s.53(1)(c) point any further.

I agree.

So do I.