El Farargy v El Farargy & Ors

Between the 23^rd October and the 4^th December 2007 Baron J tried contested ancillary relief applications brought by the wife against the husband. There were three other parties. The first was Sheikh Khalid Ben Rahid El Alfawaz (hereinafter Sheikh Khalid). The second was Wena Hotels Limited, the trading company into which the parties had poured their energies over many years. The third was McKellar Holdings Limited, as to the beneficial ownership of which there was a dispute: either it belonged to the husband, as the wife asserted, or it belonged to Sheikh Khalid, as the husband asserted.

Mrs Justice Baron thus described the case: -

“It has been hard fought over six weeks (including judicial reading and judgment writing time). The length of time taken was, I consider, wholly disproportionate to the real issues involved. At the start of the trial there were some thirty-four core bundles and five more were added as the case continued.

The judge recorded that “the case has been run as if it were a complex piece of commercial litigation”. She added “the scope of this enquiry has been enormous. In fact I have been asked to deal with a range of issues some going back twenty-five years. I have to make detailed findings about these matters because they all form part of a large jigsaw puzzle which has required each piece to be in place before the overall story could unfold with clarity.”

The judge recorded that the costs to date amounted to almost £4M. Even on the wife’s case her maximum entitlement would have been in the region of £5M. The judge accordingly observed: -

“Accordingly it is easy to see that the amount expended on fighting the case in the context of the value of the potential claim has been wholly disproportionate. In fact, on one view, the money spent on costs amount to over 70% of the maximum claim. This defies commercial sense but it is a pointer to the ferocity with which …the husband has chosen to defend his position. From a family perspective all this a tragedy.”

How had this come about? The wife is sixty years of age and of South African origin. The husband is sixty-seven years of age and is Egyptian. The parties married in 1974 and had one child, now grown up. The husband has a qualification in Hotel Management and has always worked in that sector. Their first hotel was in London, which was successful in its small scale and enabled the parties to take on a bigger venture close to Gatwick Airport.

In 1989 the husband took the lease of a hotel in Luxor from the Egypt Hotels Company (hereinafter EHC), a commercial arm of the Egyptian Government. In 1990 the husband took a similar lease of a hotel in Cairo from the same landlord.

On the 1^st April 1991 EHC forcibly evicted the husband from both hotels.

The husband brought proceedings in Egypt and in 1992 both hotels were returned to his possession, albeit both badly damaged.

In the following year the husband met Sheikh Khalid. One of the major issues at the trial was the extent to which he had invested in the husband’s business activities or otherwise financially supported him.

The husband lost the Cairo hotel for the second time in 1995 and the Luxor hotel in 1997, EHC having obtained court orders permitting the entry of a sequestrator.

After somewhat ineffectual litigation in Egypt the parties suffered almost a decade of deprivation between 1992 and 2001. However on the 10^th July 1998 Wena Hotels Limited initiated proceedings in Paris against the Egyptian Government at the International Center for the Settlement of Investment Disputes (hereinafter ICSID), a branch of the World Bank. Arbitration before the tribunal was possible under the terms of a 1975 bilateral agreement for the promotion and protection of investments between England and Egypt. Before the tribunal the Egyptian Government disputed the extent of the investment in the hotel projects and particularly asserted that any investment and consequential loss fell outside the terms of the 1975 bilateral agreement, because the investors were Egyptian and not from the United Kingdom. Each side relied upon expert reports from well known accountants. The husband’s expert advanced the case that the investments had all been made by Wena Hotels Limited and its affiliates. Thus it was UK investment protected by the international agreement.

The tribunal ruled in favour of Wena Hotels and awarded approximately $23M in compensation and accrued interest.

This triumph transformed the lives of the parties. They rapidly moved from penury to high living. The monies when paid over were held in joint accounts offshore. Shortly before the commencement of hostilities between the parties the husband moved the money into an account in his name in Switzerland.

At the trial the wife’s case was simple: the proceeds of the arbitration were available to satisfy her claim. Although the majority of the money had moved offshore there were at least two properties in the United Kingdom that would partially satisfy her claim.

The husband’s case was that the proceeds of the arbitration were due as to only some 12% to Wena Hotels. The balance was due to outside investors. The investors were from the Arab world and their investments were channelled through the façade of Fatimar Corporation.

This was obviously a difficult case to run, given that it conflicted with the case that had succeeded before the tribunal. Furthermore the husband sought to prove the positive, not by producing any evidence as to the identity of the investors or the extent of their individual investments, but by advancing the negative case: namely since there was ample evidence that he and the wife had no sums to invest in the Egyptian hotels, and since the tribunal had found that some $8.5M had been invested, ergo the money must have come from external investors.

The husband also asserted that the monies transferred to Switzerland had subsequently been dispersed in repaying his indebtedness to the external investors.

Again this was a difficult case given the paucity of any conventional documentary evidence of the disbursement of the arbitration award. During the course of the proceedings the husband sought to bolster his case by the production of four agreements allegedly executed in Egypt at various dates between July 1989 and March 2003. In support of this part of his case the husband called one Egyptian lawyer and Sheikh Khalid called another.

I have never seen an ancillary relief case of greater complexity or one that made greater demands of the trial judge. It is greatly to the credit of Baron J that she had by the 21^st December written a judgment extending to one hundred pages dealing with all the multifarious and complex issues raised by the husband and Sheikh Khalid as the third respondent. It is easy to summarise her conclusions. She dismissed the husband, Sheikh Khalid and most of the witnesses called on their behalves as thoroughly unreliable or deliberately dishonest. She rejected the four agreements as bogus, manufactured for the purposes of the case. She therefore transferred the two UK properties to the wife together with a bond held in the husband’s name in the Isle of Man. She ordered in addition that the wife should receive a lump sum of £1M from the offshore monies saying, “It does not seem to me that it is proper for this court to sanction an underpayment because of potential difficulties with enforcement.”

By an Appellant’s Notice sealed on the 26^th March 2008 the husband sought permission to appeal. By an Appellant’s Notice sealed on the 28^th March Sheikh Khalid sought permission to appeal.

I directed an oral hearing on notice and on the 16^th July we heard Mr Martin Pointer QC for the husband and Mr John Randall QC for Sheikh Khalid. At the end of the scheduled hearing we refused both applications but, for want of time, reserved our reasons.

Mr Pointer boldly submits that the judge could not dismiss the husband’s claim that the monies invested in the Egyptian hotels came from external sources simply on the absence of a positive case. I reject that submission. The judge was fully entitled to attach great weight to the inconsistency of the case that the husband advanced to her and the case that he had successfully advanced to the ICSID tribunal. Standing back it might be said that the husband’s case in ancillary relief was fundamentally implausible. Despite the passage of time commercial transactions of this magnitude do not go unrecorded. Even the husband’s forensic accountant, whom the judge labelled more advocate than expert, accepted that cogency required positive details of the monies actually invested by Fatimar Ltd. He had further advised his client to this effect. The judge was accordingly entitled to draw the conclusion that no such evidence was available.

Mr Pointer argued a number of additional points which either did not much impress me or which I will consider in the context of Mr Randall’s submissions on behalf of Sheikh Khalid.

At the trial both Mr Pointer and Mr Randall had been at pains to prove seriatim all the agreements and letters which the judge was subsequently to dismiss as manufactured to bolter a false case. Both complained that Mr Philip Cayford QC for the wife had failed to challenge these documents seriatim. We were told that at the conclusion of Mr Cayford’s cross examination Mr Randall rose to submit that Mr Cayford had failed to put the wife’s case to Mr Halim, one of the Cairo lawyers. The judge upheld the submission and Mr Cayford resumed cross examination for a further two hours. Mr Randall’s recollection is that he again submitted that there had been insufficient challenge but that the judge did not support him again. Accordingly in their written submissions both Mr Pointer and Mr Randall submitted schedules showing in relation to each and every one of the documents the extent to which they had been challenged in cross examination with each of the relevant witnesses.

The submission that the principles stated by this court in George Wimpey UK v VIC Construction [2005] BLR 135 prevented the judge from finding that a senior Cairo lawyer had been guilty of conspiracy to forge when the allegation had never been put to him in the witness box was forcefully advanced by Mr Randall. Further it was the wife’s case that the husband was the principal orchestrater of the forgery. The necessary allegations had not been put to him seriatim. So too Sheikh Khalid had never been specifically challenged on many of the disputed documents in the course of his evidence.

In my judgment this criticism, although well prepared and presented, fails. Mr Cayford’s obligation to challenge must be put in context. The husband and his witnesses could not have been in any doubt as to the nature of the case they were facing, namely that the documentary evidence upon which they relied was manufactured for the purposes of the case. It was open to them to say whatever they wanted in support or defence of the documents in chief. If Mr Cayford had put to each witness that he or another had concocted the documents what would have emerged beyond denial?

The judge in paragraphs 36 and 37, in the context of all the letters drafted by Mr Halim, held that there had been sufficient challenge to enable her to make her express findings and no lack of challenge preventing her from making clear findings.

Mr Randall also heavily criticised the judge’s finding that there had been no business meeting at which one of the four vital agreements had been hammered out. The fact of the meeting was not in dispute nor those who attended it. Mr Randall submitted that there was simply no evidence to justify the judge’s conclusion that Mr Halim’s participation in the visit that all had made to Saudi Arabia was by way of holiday or pilgrimage funded by the husband.

Again although Mr Randall’s submission was well mounted, in that there was little seeming reason for the husband to be so generous, this is most essentially a matter of fact for the trial judge.

Mr Randall also made a number of subsidiary submissions which did not much impress me.

Thus I conclude that neither applicant has shown any realistic prospect of success on appeal or that there is any compelling reason to grant permission. I record my admiration for the conscientious care that Baron J brought to the composition of this judgment. All the complexity had been created by the respondents in a determined and concerted strategy to deny the wife her entitlement. The manner in which the judge pursued all the highways and byways to clear conclusions is impressive.

I only add two things. First the scale of the judicial task was so extended that it was almost inevitable for an appellate advocate to be able to demonstrate some inconsistency or some oversight somewhere on the vast canvass of the this case. Such inconsistencies and oversights do not necessitate the grant of permission. Proportionality is so strongly against the grant of any permission in this case. There is the clearest evidence that the husband would go to any lengths to deprive the wife financially. He would cut off his nose to spite his face. Were the appellants to succeed on these applications, since the majority of the points taken relate to evidence and the evaluation of that evidence, success in this court would only result in an order for retrial. Sanity must be restored and the wife relieved from the consequences of continuing litigation.

I would not only dismiss these applications but order the applicants to pay the respondent’s costs. However since we heard no submissions on costs there must be liberty to the applicants to apply if dissatisfied with the provisional costs order.

I agree.

I also agree.