Islam & Anor v Al-Sami & Anor

The issues in this case are whether a loan agreement said to have been made between the appellant and the second respondent, Mrs Salma Begum, was of any effect and whether an equitable charge over her leasehold flat given as security under the agreement stands as security for any indebtedness. Mr David Donaldson QC, sitting as a Deputy High Court Judge in the Chancery Division, held that the purported agreement and charge were of no effect and that Mrs Begum was not indebted to the appellant. This appeal against the deputy judge’s order is brought with permission granted by Mummery LJ.

The issues arise in proceedings between Monyul Islam and Monera Khatun Islam (the Islams) as claimants and the appellant as first defendant, with Mrs Begum joined so as to be bound by the result. The Islams have the benefit of three charging orders over Mrs Begum’s flat made between March and August 2004 to secure judgments totalling about £100,000 in proceedings in the Bow County Court between them and Mrs Begum and her husband Abdul Momin. Those proceedings arose out of a lease of premises owned by the Islams at which Mr Momin ran a restaurant from 1999 to 2001. The proceedings were unconnected with the appellant, save that from December 2001 at the latest he was advising Mr Momin and Mrs Begum and dealing on their behalf with the Islams’ solicitor and with the court.

The loan agreement on which the appellant relies provides for a loan of £200,000 from him to Mrs Begum. It is contained in a handwritten document dated 3 April 2002. On the appellant’s application, a caution was registered against the registered title to the flat on 3 May 2002. The Islams accept that if the loan agreement is effective and the appellant’s charge secures indebtedness of £200,000 or of some other amount, then it ranks ahead of their charging orders. The flat was sold in January 2008 and the net proceeds of £137,573 were paid into court to await the outcome of these proceedings.

The entry in the Land Registry title does not identify the nature of the appellant’s interest, but his statutory declaration dated 30 April 2002 in support of his application to register a caution states that it arises under an:

The appellant took steps in the county court proceedings to preserve his priority as against the charging orders obtained by the Islams. His solicitors wrote to the court on 11 April 2006, enclosing a copy of the loan agreement on which he relies. It reads as follows:

In the letter dated 11 April 2006, written expressly on the appellant’s instructions, his solicitors stated that he had “loaned to [Mrs Begum] the sum of £200,000 with the intent that such loan would be secured upon the Property”. In a witness statement made by Mrs Begum on 18 April 2006, she denied that a loan of £200,000 or of any other amount had been made to her by the appellant, except for a loan of £10,000 in 2003 which had been repaid. In a letter dated 20 October 2006 the Islams’ solicitors referred to this statement and asked the appellant’s solicitors to give full details of the loan. His solicitors replied in November 2006 that they would provide “a substantive explanation of our client’s position in respect of the loan made to Mrs Begum by close of business on 30 November 2006”.

In fact the explanation was not provided until June 2007. The appellants’ solicitors wrote on 13 June 2007 that:

The letter described the various sums in question and enclosed documents relied on in support of them. I take the following summary of those sums from paragraph 9 of the judgment below:

In September 2007, the Islams commenced the present proceedings in the Chancery Division to challenge the loan agreement and the charge. Their pleaded case, based on the statement made by Mrs Begum in 2006 in the county court proceedings and in a statement made by her at a late stage in these proceedings, was that the agreement, together with other documents on which the appellant relied, were either forgeries or were “delusive” in that the appellant:

In his defence, the appellant denied that the loan agreement was a forgery or delusive and asserted that Mrs Begum had written and signed the agreement and had herself suggested the charge on her property. As regards the indebtedness detailed in his solicitors’ letter dated 13 June 2007 and on which he relies in these proceedings, it is pleaded in paragraph 11 of the defence:

The main part of the trial took place over five days towards the end of February 2010. A number of witnesses gave evidence, including the appellant and Mrs Begum. The appellant’s evidence extended to more than two days, while Mrs Begum’s lasted about half a day. There was further oral evidence from the appellant and Mrs Begum on 27 April 2010, dealing with points raised by the judge while preparing his judgment.

In his judgment, the deputy judge set out the essential facts and issues in paragraphs 1 to 10 and described some background matters in paragraphs 11 to 15, including the following. First, the appellant is an accountant and a well-known figure in the Bengali community in the East End of London. Acting through Al-Hinsa & Co Limited, he offered services not only as an accountant but in immigration and legal matters. Secondly, Mrs Begum, her elder sister Mrs Mahmud and, before his death, their father frequently consulted Mr Al-Sami on the payment of bills, mortgage applications and other financial matters. Thirdly, from 1998 Mrs Begum worked in a medical surgery, first as a receptionist and later as an assistant practice manager, working 16 to 20 hours per week until 2006. Fourthly, the appellant provided book-keeping and financial management services in relation to the restaurants run by Mr Momin and/or Mrs Begum and set up management companies for them.

As regards the appellant’s case that the loan agreement related to the various debts detailed in his solicitors’ letter of 13 June 2007, the deputy judge identified two essential issues:

He observed that the different categories of alleged debts were “to some extent interconnected by questions of credibility and allegations of forgery”.

At paragraphs 16 to 50, the deputy judge addressed the alleged categories of indebtedness. His overall conclusion was that the appellant had failed to establish any such indebtedness. It will be necessary to look in detail at these findings, but the principal elements of his findings were as follows.

First, any claim for rent in respect of the Masala Cuisine restaurant depended on establishing the validity of the transfer agreement dated 20 December 2001 which purported to transfer the assets of Proofasset Limited to the appellant. This is accepted by the appellant. The deputy judge found that the transfer agreement was a forgery, created by the appellant to provide support for the claim made in his solicitors’ letter dated 13 June 2007. In these circumstances, he did not consider it necessary to determine whether Mrs Begum had signed the licence agreement for the restaurant premises.

Secondly, any claim for fees in respect of services depended on establishing the validity of an alleged agreement dated 10 October 2003 whereby “Al Hinsa Group” assigned to the appellant outstanding bills of Mrs Begum. This too is accepted by the appellant. The deputy judge found that the alleged agreement was a forgery. Even if it had been genuine, it could not found an argument that the assigned debts were in the contemplation of the parties at the time of the loan agreement, said on the appellant’s own case to have been made 18 months earlier. He further observed that, first, the recipient of the bulk of the services in the first invoice relied on would not appear to have been Mrs Begum and, secondly, that as regards the litigation expenses there was a serious possibility that at least a significant part was irrecoverable by reason of s.25 of the Solicitors Act 1974.

Thirdly, as regards the alleged borrowings totalling £33,490, the deputy judge found the evidence presented by the appellant as “quite unsatisfactory”, but in any event these alleged borrowings could not provide a basis for a suggestion that a loan of £200,000 was made by the appellant as referred to in the loan agreement.

Turning to the loan agreement itself, the deputy judge referred first to the appellant’s submission that:

Finally, the deputy judge considered the circumstances of the loan agreement’s creation, starting with these remarks:

His conclusions were as follows. First, in the light of the expert evidence “and in harmony with my own assessment, I would incline to the view that the Claimants [the Islams] have failed to establish that the handwriting in the body of the document is a forged imitation of that of Mrs Begum”. The Islams’ case of forgery was therefore not accepted.

Secondly, on the alternative case that the loan agreement was “delusive”, the deputy judge said:

The Islams’ case that the loan agreement was not a bona fide transaction but was designed to prevent them from enforcing any judgment they might obtain against Mrs Begum was therefore established.

Overall therefore the Islams’ case succeeded on three grounds: the absence of any indebtedness from Mrs Begum to the appellant, the proper construction of the loan agreement and because it was not a genuine transaction at all. The conclusion on construction was itself based on the findings that there was no actual or contemplated indebtedness by Mrs Begum to the appellant to provide the factual matrix on which the appellant’s case depended and, in any event, the terms of the loan agreement were incapable of bearing the meaning advanced by the appellant.

The grounds of appeal are that the deputy judge was wrong to construe the loan agreement “as providing strictly for a loan of £200,000, when, having regard to the factual matrix at the time, what was in the contemplation of the parties was that [Mrs Begum] would offer her home at 104 Park Avenue, East Ham, London E6 (“the Property”) as security for her existing and future indebtedness to [the appellant] up to £200,000 in respect of monies lent to [Mrs Begum] by the [appellant], rent/licence fees due in respect of the restaurant at 1 Great Eastern Street, London EC2A (“the Restaurant”) and professional services provided to her and companies of which she was a director.” He should have construed it so that the charge secured any sums due from Mrs Begum to the appellant “in respect of these matters”. Further grounds of appeal relate specifically to the deputy judge’s findings as to the various types of debt alleged to have been owed. Even if he was correct to construe the loan agreement as providing strictly for a loan of £200,000 he was wrong to find that nothing was due so as to deprive the charge of any content.

In his skeleton argument and in his oral submissions, Mr Simon Williams, counsel for the appellant, was particularly critical of the absence of any reference in the judgment to the evidence of Jamilur Rehman. Mr Rehman’s written and oral evidence was that, while attending the appellant’s offices on 3 April 2002, he saw Mrs Begum in an adjacent room writing out a document in the appellant’s presence and was then called into the room by Mrs Begum and asked to witness the document. She told him that she had taken a loan from the appellant. According to his oral evidence only, he refused several times to be a witness but finally, on being further pressed by her, he agreed to do so. In both his written and oral evidence he said that he signed the loan agreement as a witness, having told her that if he was needed to go to court to confirm that he had witnessed the document, he would do so. This was therefore direct evidence of execution of the loan agreement by Mrs Begum consistent with the appellant’s case.

Likewise, counsel was critical of a failure by the deputy judge to come to a conclusion as to whether Mrs Begum was telling the truth on central issues. He should have found that she was lying as regards the preparation and execution of the loan agreement and as regards a number of other documents, particularly receipts and acknowledgments for loans and other debts already owing at the date of the agreement.

Counsel criticised the deputy judge for doing no more than noting in passing that Mrs Begum, her elder sister Mrs Mahmud and her brother-in-law agreed to give evidence for the Islams only after they had agreed that she would be exonerated from liability for costs and, if the Islams succeeded, part of the net proceedings of sale of her flat would be paid to her. This criticism is unfair. The deputy judge recited this arrangement in paragraph 6 of his judgment and said that “I have borne this in mind in evaluating her evidence”.

Counsel submitted that the failure to come to a clear conclusion as to Mrs Begum’s evidence undermined the entire judgment. It was essential to deal with her evidence. If he had found she was lying, as he should have done, her credibility would be destroyed and it would be impossible to accept her evidence either as to the execution of the loan agreement or as to the underlying loan.

I will later consider whether these criticisms are justified, but, even if they are, they would undermine the judgment only if an assessment of Mrs Begum’s credibility was or should have been material to the decision.

The approach adopted by the deputy judge, which represents the bulk of the judgment, was to consider whether the matrix of facts on which the appellant relied for his construction of the loan agreement existed. There can, in my judgment, be no criticism of this approach. If the appellant could not establish his allegations as to amounts due or contemplated as likely to become due, he could not succeed. The deputy judge’s analysis of the alleged debts depended on issues to which Mrs Begum’s evidence and her credibility had little or no relevance.

I will consider first, therefore, the grounds on which the appellant seeks to impugn the findings as to the debts alleged to be due from Mrs Begum to the appellant.

The single largest component was rent on the restaurant at 1 Great Eastern Street. The appellant relied for his claim on two documents. The first was a detailed licence agreement dated 27 April 2001 between Proofasset Limited, signing by the appellant, and Mrs Begum, whereby a licence to occupy the restaurant premises was granted at a weekly rent of £1,000. The second was a handwritten document dated 20 December 2001 under which Proofasset, signing by the appellant, agreed “to transfer all its assets and liabilities” to the appellant. Thus, by the combined effect of these documents, the appellant says that Mrs Begum became liable to him personally for the rent. He claims that there were unpaid arrears of £48,000 at the date of the loan agreement and a contemplation that the licence would continue with fees continuing to become due. He says that the licence was not terminated until 31 March 2003, with total unpaid rent amounting to £97,333, all of which he says is secured by the charge. He accepts that the validity of the assignment is crucial to this claim.

Mrs Begum denied that she signed the licence agreement and she challenged the assignment. The deputy judge considered the evidence as to the licence agreement and was plainly sceptical as regards the appellant’s case. However, in light of his findings as to the assignment which, as he said, made it strictly unnecessary to determine the validity of the licence agreement, and for the further reasons he gave in his judgment, he refrained from making a decision on this issue.

He considered the evidence as regards the assignment and found that it was not made in December 2001 but was created some time after 3 October 2003 for the purpose of providing support for the claim made in her solicitors’ letter dated 13 June 2007. In short, he found that it was a false document, dishonestly made by the appellant. Proofasset went into insolvent liquidation on 18 June 2003, so that on any footing the appellant had no authority to act on its behalf when he created the document.

In reaching his decision, the deputy judge had the advantage of hearing the evidence of the appellant over a considerable period and, as is apparent from his entire judgment, he formed a highly unfavourable view of his honesty. It is a feature of this appeal that little reference has been made by the appellant to the transcripts of evidence, and none to the appellant’s own oral evidence.

In relation to the assignment, the deputy judge referred to and relied in particular on four features, of which three go directly to its authenticity. First, it was never suggested that Mrs Begum was told about it. While not of itself perhaps fatal, it is certainly surprising and is directly relevant to what may have been in the contemplation of the parties on 3 April 2002, to which I will return later.

Secondly, by a transfer dated 1 February 2002, only six weeks after the purported assignment, the freehold of 1 Great Eastern Street, which was Proofasset’s principal asset, was transferred to the appellant, his wife and his son. This was inconsistent with the alleged assignment of all Proofasset’s assets to the appellant.

Thirdly, the appellant is referred to in the assignment by a name which he adopted in October 2003, swearing a statutory declaration for that purpose on 3 October 2003. The deputy judge referred to a number of documents made or said to have been made before October 2003, including the loan agreement, in which the appellant does not use the name adopted in October 2003. Other than the assignment, there were no documents in evidence before the deputy judge with a date before October 2003 which used that name. During the hearing of the appeal, we refused an application by the appellant to adduce one such document, a certificate of membership of the Institute of Directors issued in 1999, which the Islams accepted as genuine. The issue of the appellant’s name as stated in the assignment was the subject of cross-examination and dealt with in the closing submissions of counsel for the Islams. The membership certificate could have been made available at the trial. Moreover, a single document, from 1999, would not have had an important influence on the outcome.

As regards these matters on which the deputy judge specifically relied, the appellant submitted that the inconsistent transfer of the freehold property was not necessarily fatal to his case. The point about the appellant’s name was said to be pure conjecture.

In my judgment, the evidence amply justified the finding made by the learned judge that the assignment was not authentic.

It follows that Mrs Begum had no liability to the appellant for the licence fee. It was suggested in argument that she regarded anything that was due to Proofasset as due to the appellant, and made no distinction between him and Proofasset. I do not see that, even if true, this would assist the appellant because it would not provide a legal basis for liability to the appellant, but in any event it is unsupported by evidence. It was not a suggestion put to Mrs Begum.

The next largest head of claim was said to be for services. For this purpose, the appellant relied on two invoices, dated 21 August 2003 and 18 September 2003 for £51,650 and £20,600 respectively, covering in broad terms accountancy and litigation services. The invoices were rendered not by the appellant but by Al-Hinsa & Co Limited (Al-Hinsa), through which the appellant’s services were provided. It was dissolved in December 2005.

The appellant again accepted that these invoices gave rise to no liability to him, as opposed to Al-Hinsa. Again he relied on an assignment, contained in a handwritten document dated 10 October 2003 which stated that “it has been agreed that outstanding bills of [Mrs Begum] relating to accountancy and court litigation matters etc will be taken over by [the appellant] as part payment of [his] salary and bonuses”. It bears the signature of “Mohammed Hossain” on behalf of Al-Hinsa.

The deputy judge found that this was not a genuine agreement and that it was not made on its purported date. It could not be relied on as giving rise to any liability to the appellant.

The deputy judge relied on a number of grounds for this finding, including the following. First, it was disclosed very late. It was not attached or referred to in the letter dated 13 June 2007 from the appellant’s solicitors, or in his defence in which it was pleaded that he was “authorised to receive the fees as he had done or supervised the work personally”. Nor was it included in his lists of documents served in April 2009. His solicitors first became aware of it in May 2009. Secondly, the appellant’s evidence was that he was an employee of Al-Hinsa, which was owned and controlled by Mohammed Hossain who signed the agreement on behalf of Al-Hinsa. Mr Hossain was, he said, unhappy that unpaid services had been provided to Mrs Begum and so the debts were assigned with an equivalent deduction from his salary and bonuses. The appellant could not provide any relevant documents to show these deductions, because, he said, Mr Hossain had returned to India and since died and the company’s papers had disappeared. The appellant was unable to give any details about Mr Hossain, even as to where he had lived in London. Mrs Begum’s elder sister, Mrs Mahmud, who had known the appellant well, gave evidence that Mohammed Hossain had never existed. She had seen the appellant sign in that name and he had explained to her it was his middle name. She recognised the signature on the alleged assignment. The deputy judge found her evidence convincing and accepted it.

The appellant submits that the late disclosure of the document is not necessarily significant. He further submits that the deputy judge should not have accepted Mrs Mahmud’s evidence, because as the judgment records, her evidence was that she recognised not only the signature on the assignment but also the signature of “Mohammed Hussain (not “Hossain”) as witness to the licence agreement dated 27 April 2001. It is submitted they are different signatures. Mrs Mahmud’s evidence was therefore untrue and should have been rejected. Her evidence was also tainted by the benefit to be received by Mrs Begum if the Islams succeeded and by the bitterness engendered by proceedings brought by the appellant against Mrs Mahmud and her husband.

As regards the reliability of Mrs Mahmud’s evidence, the deputy judge had, as I have earlier recorded, expressly borne in mind Mrs Begum’s arrangement with the Islams. He was also well aware of the proceedings against Mr and Mrs Mahmud to which he refers in a little detail in his judgment. The appellant’s action against Mr and Mrs Mahmud was not only dismissed but the appellant was found to have committed forgery. The question of the witness’s signature on the licence agreement is an entirely insufficient basis on which this court could reject the deputy judge’s acceptance of the evidence of Mrs Mahmud, a witness whom he saw and heard cross-examined. She was specifically cross-examined on that point.

As with the alleged assignment of the rent, there was in my judgment ample evidence to justify the finding that the document dated 10 October 2003 was not authentic.

As with the rent, it is further or alternatively submitted for the appellant that as between him and Mrs Begum, the sums recorded in the invoices were always owed by her to him, because he provided the services and because, while the accountancy services were provided in the main for two management companies, she was their sole director and she agreed to accept personal liability for those services. This does not help to establish a liability to the appellant, as opposed to Al-Hinsa, nor was there any evidence to support the proposition that Mrs Begum assumed personal liability for the debts of the management companies.

The third, and smallest, head of claim relates to “money borrowed” in a sum of £33,490 included in an invoice dated 1 May 2002 rendered by Al-Hinsa, and apparently signed by Mrs Begum. Of itself this cannot establish any liability to the appellant. The deputy judge dealt with this claim quite shortly, in four paragraphs which it is convenient to set out:

All the receipts provided to the handwriting experts were copies. They were unable to reach clear conclusions about the signatures. Originals of some of them were produced only at the trial, too late for expert examination.

On this appeal, the appellant relies principally on a document dated 23 October 2001, showing a list of figures totalling £32,245 and said to be signed by Mrs Begum. Mrs Begum denied she wrote the document or signed it. Only a copy has ever been produced. The experts could not come to any clear view about the signature but they found strong evidence that it was written by Mrs Begum. The document appears as an attachment to a handwritten invoice dated 30 September 2001 and shown as amended on 23 October 2001 to reflect the figure of £32,245 in the attached list. The invoice, issued in the name of Proofasset and addressed to Mrs Begum, includes a figure of £26,000 for rent and describes the sum of £32,245 as “money borrowed from Mr [H or M] Al-Sami”. The experts were unable to come to any clear view as to whether the signature next to the amended figures on the invoice was made by Mrs Begum.

In my judgment, the deputy judge was entitled to describe the evidence on which the appellant relied as unsatisfactory and to conclude, as it appears to me he did, that the appellant had failed to establish this part of his claim.

I would therefore uphold the findings discussed above. This has two results, each fatal to the appeal.

First, the appellant cannot establish that there are or have been any liabilities due from Mrs Begum to him and secured by the charge. On that basis alone, the Islams were entitled to judgment.

Secondly, the appellant has failed to establish the factual matrix on which he relied for his construction of the loan agreement. Nothing was due from Mrs Begum to him on 3 April 2002. The rent was due to Proofasset and, even if the assignment to the appellant had been a genuine document, it was not known to Mrs Begum. She would not therefore have any contemplation of an existing or future liability to him for the rent. The same applies to the amounts for services invoiced by Al-Hinsa, except that the position is still worse for the appellant because the alleged assignment is dated 10 October 2003. The position on the alleged borrowing is simply that the appellant has failed to establish that any existed.

In the absence of these actual or contemplated liabilities, it is on any basis impossible to construe the loan agreement as doing other than that for which it expressly provides, namely a single loan of £200,000. It is common ground that no such loan was made or contemplated.

I would in any event have found it difficult, if not impossible, to construe the loan agreement in the way advanced by the appellant. Its clear terms contemplate a loan of the sum of £200,000 from the appellant to Mrs Begum and the provision of security for “the loan of £200,000”, such loan to be made contemporaneously with the agreement. This is underscored by the provision for interest on the loan. The appellant’s construction requires a complete re-writing of the agreement, so that it becomes an all monies charge for present and future indebtedness up to a limit of £200,000. If that was the intended meaning, I would agree with the deputy judge when he said that:

Nor is it even possible to reconcile the appellant’s claim with his pleaded case as to construction. His case, which I have earlier quoted, is that the sum of £200,000 was identified “in recognition of existing indebtedness and in contemplation of the provision of further services and/or advances”. Even if there had been an agreement as alleged by the appellant, this could not include the rent under the licence agreement because Mrs Begum did not know of the assignment or otherwise contemplate the rent as owed to the appellant and future rent would not in any event be the provision of further services or advances. As regards services any sums due at the date of the loan agreement were due to Al-Hinsa and therefore not existing indebtedness to the appellant. As to indebtedness for future services, the pleaded construction would encompass sums due to the appellant for services provided by him not sums due to him as a result of an assignment of debts due to Al-Hinsa.

As regards the case that the loan agreement was a forgery, it was accepted that the onus lay on the Islams. The deputy judge found that they had failed to establish the allegation of forgery, so far as it related to execution by Mrs Begum. He therefore did not accept Mrs Begum’s evidence on this.

The deputy judge held that the case that the loan agreement was “delusive” was made out in a passage which I have earlier quoted. It was, he found, “a lie addressed to a creditor”. In my judgment, he was fully entitled to come to this conclusion, whatever the quality of Mrs Begum’s evidence generally. Having regard to the absence of any indebtedness as alleged by the appellant, the dishonest creation by the appellant of documents to support the allegations of indebtedness, the lack of any actual or contemplated loan of £200,000, the fact that the appellant was at that time assisting Mrs Begum in her defence of the Islams’ claim, and the absence of any other plausible explanation for the loan agreement, the deputy judge’s finding is an almost inevitable inference from the facts.

I would dismiss the appeal.

I agree.

I also agree.