Khan v Edgbaston Holdings Ltd

This is a renewed application for permission to appeal, permission having been refused on the papers by Carnwath LJ on 3 December 2007. The appellant is Edgbaston Holdings Limited, the defendant in the proceedings. The respondent is Mr Salim Khan, the claimant. The proposed appeal is against the order of His Honour Judge Coulson QC dated 17 October 2007 by which he refused to set aside the judgment in default entered against Edgbaston on 11 December 2006. Judge Coulson was sitting as a judge of the Queen’s Bench Division.

The judge’s judgment explained the essence of the story. In April 2006 the Serious Fraud Office obtained a restraint order in respect of the assets of those who were or had been Edgbaston’s directors, including Mr Saghir Ahmed and Mr Nisar Afzal. In July 2006 a like order was obtained in respect of the assets of Edgbaston itself. Following that order, both men were replaced as directors by their wives. Despite that, at least Mr Ahmed appears to have continued to act as an agent of Edgbaston and is still doing so.

On 25 September 2006 Mr Khan issued his claim form against Edgbaston, seeking damages for what were alleged to be fraudulent or negligent misrepresentations made to him in and following April 2004 and in reliance upon which he purchased from Edgbaston two properties in London for some £7.7 million. The measure of his loss was put at more than £5 million, being the difference between the claimed actual value of the properties and the price paid. The representations were said to be as to the value of the properties and the existence of tenants in them whose rent would enable the payment of Mr Khan’s mortgage. At or about the same time, Mr Khan obtained a freezing order against Edgbaston, subject to an exception enabling Edgbaston to spend up to £10,000 on legal advice.

Mr Khan served his particulars of claim on Edgbaston on 31 October 2006. The judge said that by then Edgbaston had instructed Salhan & Co, solicitors, to act for it, those solicitors already acting in relation to the SFO proceedings. It is not clear that Salhan ever went on the record as solicitors for Edgbaston. In any event no prompt steps were taken by Edgbaston to respond either to the claim or to the requirements of the freezing order; and on 11 December 2006 judgment in default of acknowledgment of service was entered in favour of Mr Khan, with damages to be assessed.

By mid-January 2007 Edgbaston had instructed the Wilkes Partnership, solicitors, to act for it, although they only came on the record on 14 February 2007. Mr Ahmed’s evidence is that this was prompted by his learning on about 18 December 2006 of the default judgment. On 26 January Wilkes wrote to Mr Khan’s solicitors saying that, once they had been put in funds with £10,000 that was to be transferred to them, Edgbaston would provide evidence of its assets in response to the freezing order, that it was likely that an application to vary it would be made and that they would “be advising [Edgbaston] upon the merits of applying to set the judgment aside”.

In February 2007 a full set of documents was provided to Wilkes. On 12 March they obtained a consensual variation of the freezing order, removing the £10,000 limit on legal advice. Also in March, Mr Ahmed went to Spain on holiday where, on 27 March, he had an epileptic fit for which he was treated in hospital. In April he went to Pakistan where he stayed until late May. During this period Edgbaston instructed a new firm of solicitors, Levys. This is said by Mr Ahmed to have been because of the difficulties Edgbaston had in raising funding to Wilkes’s satisfaction. In the meantime, on 13 April, Wilkes had informed Mr Khan’s solicitors that Edgbaston “still intends to make an application to set judgment aside”.

The assessment of Mr Khan’s damages was fixed to take place on 22 May 2007. At that hearing, and for the first time, Edgbaston indicated a positive wish to have the default judgment set aside. Aikens J required any such application to be issued by 4 June, as it was, and its making was also to be conditional on bringing £1 million into court, or providing an equivalent bank guarantee, by 30 May. To shorten the story, on 18 July 2007 Underhill J revoked that condition in the light of evidence that Edgbaston could not raise the £1 million. On the same day he adjourned the application to set aside the default judgment to 16 October, when it came before Judge Coulson.

The application was made under CPR Part 13.3. There is no need to set it out. It empowers the courts to set aside a default judgment if the defendant has a real prospect of successfully defending the claim, or it appears there is some other good reason why the judgment should be set aside or varied. In considering whether to set it aside, the matters to which the court must have regard include whether the person seeking to set aside the judgment made the application to do so promptly.

As regards the need for promptness, the judge noted the like need to apply “promptly” in an application under CPR Part 39.3 to set aside a judgment obtained at a trial in the applicant’s absence. He referred to the guidance in certain authorities,  including that  provided by Simon Brown  LJ in Regency  Rolls Ltd v Murat Carnall [2000] EWCA Civ 379, in which the Lord Justice said that he would construe “promptly” as meaning:

“… not that an applicant has been guilty of no needless delay whatever, but rather that he has acted with all reasonable celerity in the circumstances. That said, I too would regard the appellant here as having failed even in that obligation. 30 days was altogether too long a delay before making this Part 39 application.”

As for the need for Edgbaston to show it had a real prospect of successfully defending the claim, the judge said that the guidance was that a real prospect of a successful defence had to be contrasted with a defence that was merely fanciful.

After considering certain further matters, the judge went on to consider whether Edgbaston could be said to have acted promptly. The only evidence in support of the application was that of Mr Ahmed. Dealing first with the period from 11 December 2006 to mid-January 2007, the judge said there was no credible explanation as to why an application was not made immediately. Mr Ahmed’s evidence was to the effect that Mr Salhan had advised him that the obtaining by Mr Khan of the freezing order was pointless having regard to the restraint order already in place. His evidence was that Mr Salhan’s advice led him to believe that Mr Khan’s claim was:

“…not particularly pressing and that it was not necessary to worry unduly about the same as nothing would be happening until the SFO had completed their investigation. This advice, which I now consider was misconceived, took away my sense of urgency I had in dealing with the claim.”

The judge held that Mr Ahmed’s evidence did not amount to evidence of advice from Mr Salhan that there was no need to respond to Mr Khan’s claim by not acknowledging service or serving a defence: it was advice apparently related to the overlap between the freezing order and the prior restraint order. The judge held that there was no explanation for this first period of delay.

The judge then dealt with the period of delay from mid-January 2007 to early March 2007, by when Wilkes were on the scene. They had informed Mr Khan’s solicitors on 26 January that they would advise Edgbaston about the merits of applying to set the judgment aside. There was no evidence as to whether or not they did so advise, or as to what was happening during this period in this respect. The judge found there was no explanation for this period of delay either.

Finally, the judge dealt with the delay from early March to 22 May, when the first indication of an application to set aside was given. Whilst Mr Ahmed had had an epileptic fit on 27 March, there was no evidence, the judge found, that it had a long-term effect. The holiday in Spain was followed by a visit to Pakistan, during which Mr Ahmed instructed Levys (it may in fact have been his wife who did so). The judge said that he – strictly, he means Edgbaston -- could equally have applied during this period to set the judgment aside and, insofar as the proffered explanation for not doing so was because of ill-health, the judge did not accept that evidence.

The judge therefore held that the application to set the judgment aside was not made promptly, and that Edgbaston was responsible for considerable delay for which no credible justification had been offered.

The judge then considered the merits of the proposed defence, a draft of which had been produced. One agreed fact was that Mr Wasim, who was involved on behalf of Edgbaston in the transactions giving rise to the claim, had negotiated the sale to Mr Khan. The defence that Mr Ahmed wished to advance to the claim -- one raised for the first time when the application to set aside was issued -- was that he (Mr Khan) was not personally present at any of the relevant meetings with Mr Wasim and Mr Khan and that therefore he could not have made the representations of which he was accused, nor did he made them. The judge regarded the problem with that line of defence as being that the claim was not against Mr Ahmed but against Edgbaston, and the proposed defence admitted that all the negotiations with Mr Kahn were conducted for Edgbaston by Mr Wasim. The judge recorded that Mr Ahmed’s evidence did not put in issue the making by Mr Wasim of the representations alleged against him. Mr Ahmed also asserted that Mr Wasim’s instructions came from Mr Afzal, who did not give evidence either.

There was, the judge said, therefore no evidence raising any challenge to the case that Mr Wasim made the representations upon which Mr Khan relied. The only defence advanced -- one also unsupported by evidence -- was the assertion that, in making the representations he did, Mr Wasim acted beyond his authority. There was, however, no material justifying that assertion.

The judge therefore concluded that Edgbaston had shown no real prospect of a successful defence. He then referred to certain other matters which did not deflect him from his view that there were no grounds for setting the judgment aside -- being considerations by reference to the CPR Part 3.9 checklist and the proposition that the mere size of the claim justified setting aside the judgment.

On this renewed application for permission to appeal, Ms Cox, who also appeared before the judge, submits that he erred in both his conclusions that the application had not been made promptly and that Edgbaston had no real prospect of defending the claim. She also argues that the wider considerations of justice justified the setting aside of the judgment. The hearing was prefaced with an expectation that evidence from Mr Wasim would be put before us. In the event, we are told that there is no such evidence and, I understand, there will be none, Mr Ahmed having apparently not provided instructions for the production of any evidence from Mr Wasim. So we do not have evidence from a key person in the story: one who is alleged to have made, jointly with Mr Ahmed, the representations upon which Mr Khan relied and on the basis of which he obtained his judgment in default.

Ms Cox has not sought an adjournment from us but has pressed on with this application on the basis of such material as is before the court. In her written argument, she submitted first -- although she has not sought to develop it orally -- that the judge was wrong to find that there was no justification for the delay from December 2006 until 22 May 2007. As regards the first period, she submits that, even though it may be that Mr Salhan had not advised directly that Mr Khan’s claim could be ignored, Mr Ahmed’s evidence was that his advice had anyway led him to conclude that that was its effect. Therefore it is said that during this initial period Mr Ahmed believed himself to be acting on Mr Salhan’s advice in doing nothing about Mr Khan’s claim.

I am not persuaded that that point is arguable. There is no evidence as to what Mr Salhan’s advice actually was in relation to Mr Khan’s claim, and therefore there is no basis for any assessment as to whether Mr Ahmed’s claimed interpretation of it had any justification at all. The judge was fully entitled to regard this period of delay as insufficiently explained.

Ms Cox submitted next that the judge was arguably wrong to find that there was no explanation for the second period of delay either. She says that, once Wilkes were instructed, they had other things to deal with, including obtaining funding and the papers in the case. Until mid-February they had only £5,000 in funding and no details of the judgment, and their time was also spent in responding to the freezing order. In her skeleton argument, Ms Cox submitted that, given his understanding of Mr Salhan’s earlier advice, it is understandable that Mr Ahmed did not press Wilkes to apply to set aside the judgment.

The last point appears to me to be groundless bearing in mind that Mr Ahmed’s own evidence was that, once he learnt in mid-December 2006 of the entry of the judgment, he became concerned that Mr Salhan may have misadvised Edgbaston, which was why it was decided to instruct alternative solicitors. He then advanced a feeble explanation that, because it was Christmas, it took some time to do so, and so it was only in about mid-January 2007 that Edgbaston actually instructed Wilkes. His evidence is to the effect that Wilkes advised Edgbaston that they would assist in having the judgment set aside. Precisely what they did advise is unknown, but it is absurd to suggest that at this stage Mr Ahmed was in some way still relying on Mr Salhan’s advice. As regards this period of delay, there is simply no evidence as to why no application was made to set the judgment aside. It may perhaps be because no-one could raise the necessary funds. But that is not spelt out anywhere, and the judge cannot be criticised in not so concluding.

Ms Cox finally criticised the judge’s conclusion that the delay during the third period down to 22 May was not attributable to Mr Ahmed’s health. Her submission was that, now that Wilkes had been instructed, Mr Ahmed could leave it to them to progress the application and could depart to Spain and then Pakistan without giving the matter any further thought. That might be a sound point if there were any evidence that Mr Ahmed had given instructions to Wilkes to make the application, but there is not. In my judgment, the judge’s conclusion that there was no adequate explanation for delay during this period was properly justified.

Overall, the delay between the time that Edgbaston learnt of the judgment and when it first evinced a clear expression of wish to apply to set it aside was just under six months, with no explanation of why the application was not made earlier. The judge was fully entitled to find that the application was not made promptly and there is, in my judgment, no prospect of that conclusion being upset on any appeal. Mr Ahmed did not adduce evidence that enabled the judge to find that Edgbaston had acted “with all reasonable celerity in the circumstances”.

Ms Cox next challenged the judge’s conclusion that Edgbaston had no real prospect of a successful defence to the claim. Her point here was confined to the proposition that the allegation against Edgbaston was that the representations were made at a number of specific meetings. Mr Ahmed was alleged to have been present at all of them, together with Mr Wasim, and to have acted in concert with Mr Wasim throughout. Ms Cox is correct about that, as is shown by a consideration of the particulars of claim. The first meeting is alleged to have been held in April 2004 when both Mr Wasim and Mr Ahmed are said to have made representations as to the properties, including their value and as to the existence of tenancies. The second meeting was later in the same month, with both Mr Ahmed and Mr Wasim attending, who both made like representations and then took Mr Khan to the properties and provided copies of the leases. It was then alleged that there were further meetings over the following weeks with both men, when they repeated the representations as to value. The pleaded case is expanded more fully in Mr Khan’s evidence in his affidavit of 22 September 2006 in support of the freezing order application.

Ms Cox’s point is, therefore, that Mr Ahmed’s denial that any such meetings took place is a denial that the representations alleged, being joint representations made by Mr Ahmed and Mr Wasim, were ever made. She is entitled to say that there is no alternative allegation that the representations were made by Mr Wasim alone. Ms Cox submits that in these circumstances the judge was not entitled to find that Edgbaston had no real prospect of success in defending the claim.

In my judgment, whilst I follow the logic of that proposition, Mr Ahmed’s evidence is nevertheless totally inadequate to satisfy the court -- and nor did it satisfy Judge Coulson -- that there was a sound basis on which the claim against Edgbaston could be defended. Mr Ahmed’s witness statement is a classic example of an omission to condescend to any particulars as to what in fact happened, when he does at least admit that Mr Wasim took part in all the relevant negotiations. It is not in dispute that leases were provided to Mr Khan and yet no explanation has been vouchsafed as to how that came about. It may perhaps be, or it is at least possible, that Mr Ahmed was not at the meetings. That does not, however, exclude the possibility that there were meetings at which Mr Wasim made the representations which are alleged against him, and there is no evidence that there were not. On the contrary, the defence acknowledges that he conducted all the relevant negotiations. As it seems to me, Mr Ahmed’s sparse evidence does not begin to provide a sufficient basis to justify the court in concluding that this is a case that ought to go to trial.

Had Mr Wasim produced any evidence, it might perhaps have put a different complexion on the case, but I have explained that, although this was promised, it has not happened. The judge came to the conclusion that there was no sufficient material to conclude that there was an arguable defence to the claim and, in my judgment, on the basis of the inadequate material that Mr Ahmed put before the court, he was entitled to do so. There is no real prospect of this court on an appeal coming to a different conclusion. I would refuse permission to appeal.

I agree.