Lexi Holdings Plc v Luqman & Ors

By Application Notices dated respectively 1 and 9 February 2007, the Claimant seeks summary judgment on all its claims against the 2^nd, 3^rd and 4^th Defendants.

It is, in a number of respects, a most unusual application. First, it is of an extraordinary size and complexity. The hearing has been listed for five days, plus one day’s pre-reading, and the documents relied upon by the parties are to be found distributed among more than 40 lever arch files, including more than 70 witness statements, a forensic accountant’s report running to more than 80 pages (excluding its hundreds of pages of exhibits), and reliance is placed upon factual conclusions in two judgments by Henderson J arising from a committal application by the claimant against the 1^st Defendant, in which none of the 2^nd, 3^rd and 4^th Defendants took part. Skeleton Arguments run to more than 60 pages, and have been supplemented during the hearing by further schedules, tables and organograms. There are dicta either way on the question whether size and complexity are, on their own, sufficient to render a case unsuitable for summary determination. On the one hand the court “is not entitled on an application for summary judgment to conduct a trial on documents without disclosure or cross-examination” (per Morritt VC in Celador Productions Ltd v Melville [2004] EWHC 2362 (Ch) at paragraph 7(d)). On the other hand, “the volume of documentation and complexity of the issues raised on the pleadings should be the subject of critical scrutiny and should not without more deter the judge from considering whether it is really necessary to commit the parties and the court to a lengthy trial and all the preparatory steps which that will involve” (per Lord Hobhouse in Three Rivers DC v Bank of England [2003] 2AC 1, at 281).

Secondly, although the application was originally made also against the 1^st Defendant, Shaid Luqman, who is on the pleaded case plainly the principal perpetrator of the massive fraud of which the Claimant claims to be the victim, it comes on for hearing only against his brother and two sisters, Waheed, Monuza and Zaurian, who are sued mainly (but not entirely) as having incurred liability as accessories, as against Waheed by participation as a shadow director, and as against Monuza and Zaurian by virtue of their culpable neglect as directors of the Claimant. Shaid’s absence is attributable to his failure to comply with Unless Orders made against him, leading him to have become barred from defending the proceedings, subject to an outstanding application for relief from sanctions. He is also serving a two-year term of imprisonment for contempt arising from orders made against him in these proceedings. The 2^nd, 3^rd and 4^th Defendants complain that their ability to defend the proceedings and to respond to the summary judgment application against them has been compromised, both by the absence of Shaid as a Respondent to the application, and by his inability while in prison to provide practical assistance, including the provision of further evidence.

Thirdly, and this is in some respects a counterweight to the first point, the claim, if it is well founded, describes a fraud which is truly shocking in its scale and audacity. It is alleged that, over a period of little more than three years, Shaid misappropriated in excess of £53 million from the Claimant and in addition caused further substantial loss by loans to and transactions with parties connected with directors, all under the noses of the claimant’s auditors, solicitors and funding bankers, while at the same time gaining the award of Young Entrepreneur of the Year, by the abuse of trust, confidence and esteem conferred upon a person with a serious prior criminal record of dishonesty for which he had been twice imprisoned during the 1990s. A full trial of all the issues would be a very major undertaking indeed.

Fourthly, and perhaps most unusually of all, a number of the issues raised by this summary judgment application have already been the subject of a hearing (the committal hearing) in which they were tested by lengthy cross-examination of the key witnesses, and have led to determinations, as between the Claimant and Shaid, where the Court (Henderson J) has determined those issues in the Claimant’s favour to the criminal standard of proof. Leaving aside only the process of disclosure of documents, there has therefore been a process akin to trial of those issues between the principal protagonists in advance of this application which necessarily seeks summary determination of those same issues, but as between the Claimant and these Defendants.

It has not been suggested that Henderson J’s rulings on these issues give rise to a res judicata or issue estoppel affecting the 2nd to 4th Defendants, but the extent to which they bear on the question whether these Defendants have a real prospect of successfully defending in relation to those issues has been keenly debated between counsel.

Fifthly, the ambit and in particular the scale of the Claimant’s claims have changed substantially during the long period while these applications have been pending. A rough measure of that increase in scale may be gathered from paragraph 7 of the Re-re-amended Particulars of Claim (“RAPOC”) in which the aggregate amount of the misappropriations by Shaid as at the date when these applications was issued was £15.5 million odd, whereas it is now £53.3 million odd. There is also a significant difference between the way in which the case has been pleaded against the 3rd and 4th Defendants, and the way in which it has been put, by reference to the evidence, on this application.

For reasons given in an extempore judgment on the first day of the hearing, I permitted the Claimant to include the subject mater of the latest amendments to the RAPOC within the scope of the summary judgment applications, notwithstanding the Defendants’ opposition. By contrast, the Defendants did not suggest that I should rule at the outset of the hearing that these claims were unsuitable for summary judgment, for example, by virtue of the scale of the documentation or the absence of the 1st Defendant. I have, therefore, without opposition other than in relation to the inclusion of the latest amendments, heard the applications in full, reserving to this judgment my consideration of the impact of the unusual features which I have summarised upon the order which I should make.

CPR Part 24.2 provides that:

“The Court may give summary judgment against a … defendant on the whole of a claim or on a particular issue if –

It is well settled that a “real prospect” of success is best understood as requiring the defendant to show a prospect which is more than false, fanciful or imaginary, but it imposes no requirement to show that the defence will probably succeed. Probabilities are a matter for trial, although the identification of an improbable defence, the prospects of success of which are nonetheless more than fanciful, may lead to the grant only of conditional permission to defend. As Lord Hobhouse put it in Three Rivers DC v Bank of England (No.3) (supra):

“The criterion which the judge has to apply under CPR Part 24 is not one of probability; it is absence of reality.”

It is equally well settled that, although the standard of proof imposed on a respondent to a summary judgment application to show a real prospect of success is not a high one, the court is not required to accept without question every factual assertion made by or in support of the respondent in an affidavit or witness statement merely because, in advance of a trial, it is yet to be subjected to cross-examination; see National Westminster Bank plc v Daniel [1993] 1 WLR 1453. The court may, in an appropriate case, conclude that such assertions are, without the need for cross-examination, incredible, for example where they are irreconcilable with contemporaneous documentation. Generally, however, the relative credibility or weight of conflicting evidence is a matter for trial, and it is a misuse of the summary judgment procedure to invite the court to conduct a mini-trial for the purposes of deciding such questions.

In the present case, however, much of the testimony relied upon by these Defendants is that of their brother Shaid. In proceedings under the Company Directors Disqualification Act 1986 (in which he received the maximum period of disqualification), Shaid was described by Patten J as having acted in a way that was completely dishonest. In proceedings in October 2004, Shaid’s behaviour was described by HHJ Howarth as being both dishonest and perjured. In the recent committal proceedings Henderson J concluded, in his judgment on 2 July 2007, that Shaid was “a wholly unsatisfactory, unreliable and dishonest witness whose evidence can only safely be credited where it consists of admissions or where there is contemporary documentary material to corroborate it”. He rejected Shaid’s evidence, after cross-examination, as untruthful in relation to most of the matters in respect of which he sought to justify or mitigate his conduct. In his further judgment in the committal proceedings handed down on 19 October 2007 Henderson J concluded that, in relying upon the purported evidence of a Mr Cheema, Shaid had been guilty of a “disgraceful attempt to mislead the Court and pervert the course of justice”, for which he ordered Shaid to serve an additional six months’ imprisonment for contempt of court, in addition to the eighteen months’ imprisonment which, in July, the judge had thought provisionally appropriate.

I consider that it would be flying in the face of reality to ignore those expressions by three different judges, one of whom had heard Shaid being cross-examined, as to his utter lack of integrity, or credibility as a witness. Of course, there may be occasions where a witness will tell the truth about some things, and lie about others. But here, all the instances where Shaid has been branded a liar occurred in relation to his stewardship of the affairs of limited companies, and two out of the three arose in relation to his conduct as a director of the Claimant.

To a much lesser extent these defendants also rely upon the testimony of Waheed. He also received a maximum period of disqualification in the proceedings to which I have referred above, and was described by Patten J as having acted in a way that was completely dishonest. In relation to the committal proceedings, Waheed took no part. Originally, those proceedings were listed to be heard together with the applications for summary judgment against the 1^st to 4^th Defendants. Waheed lodged evidence in opposition to the summary judgment application by a witness statement which, had it been adduced by affidavit, could have been relied upon by Shaid in his defence to the committal application, subject of course to Waheed attending for cross-examination. Mr Marshall QC for the Claimant submitted that this must have constituted a deliberate choice by Waheed, in effect to leave his brother to face the music rather than risk having his own evidence tested by cross-examination and thereby potentially weaken his opposition to the summary judgment application against him, and that I should take this into account as detracting from the credibility of Waheed’s testimony.

In my judgment, while the Claimant may properly rely upon Patten J’s finding of dishonesty against Waheed as relevant to a limited extent to the question whether his evidence discloses a real prospect of success, the question whether his conduct in relation to his brother’s committal proceedings further detracts from his credibility is in my judgment a matter for trial, rather than for a summary judgment application. For all I know, it may have been Shaid’s decision not to rely on evidence from his brother. I therefore approach the voluminous evidence adduced on the present applications with a disposition to think that, unless corroborated by documents or other evidence, Shaid’s testimony would be unlikely to add realism to an otherwise unreal defence, but without a predisposition towards that conclusion in relation to the testimony of Waheed.

It is common ground that, although Waheed purportedly resigned as a director of the Claimant on 11 June 2001, he remained a shadow or de facto director of the Claimant throughout the period of Shaid’s alleged misconduct, owing the same fiduciary duties to the Claimant as if he had remained a de jure director throughout.

It is also common ground on the pleadings that both Monuza and Zaurian were directors of the Claimant at all material times. In fact it appears that Zaurian was appointed as a director on 11 June 2001, but Monuza only on 14 October 2003.

In relation to each of these defendants, the Claimant alleges that they incurred liability for breach of their duties as directors (including in Waheed’s case shadow or de facto director) by authorising or permitting the misappropriations, and by permitting the improper loans and connected party transactions, in each case relied on as against Shaid.

Save in isolated instances where, for example, it is alleged that certain sums misappropriated by Shaid were received by Waheed and Monuza, the case for authorisation or permission by these defendants is put in the following general way. As against Waheed it is alleged that he was actively engaged at all material times in the business activities of the Claimant, to an extent from which it is to be inferred that he authorised and permitted Shaid’s misconduct throughout. As against Monuza and Zaurian it is said (in the Claimant’s evidence rather than in the RAPOC) that they incurred liability not by way of authorisation or permission, but rather by their wholesale neglect in the performance of their directors’ duties, by taking no part in the management or supervision of the Claimant’s business, and by taking no steps to appraise themselves of the manner in which it was being conducted. It is not alleged that they knew about Shaid’s misconduct, but rather that, had they performed their duties, they would have discovered it, and either prevented it or brought it to an end.

In the RAPOC paragraph 5 there is a general allegation against Waheed under the heading ‘Conspiracy’ that he combined with Shaid to carry out all the matters complained of as against Shaid, thereby causing loss to the Claimant. In relation to the claims under ss.330 and 320, it is alleged, in the alternative to the claim that Waheed was a director, that he dishonestly assisted Shaid in the breaches of fiduciary duties involved in the loans and transfers complained of.

No emphasis was placed by Mr Marshall QC (who appeared with Miss Holtham for the Claimant) on either of these additional claims against Waheed by way of summary judgment. Conspiracy was not mentioned, and the dishonest assistance claims became unnecessary in the light of Waheed’s admission that he was, at all times, a shadow director.

Finally, the re-re-re-amendments added a further claim against each of these Defendants, namely that they authorised or permitted Shaid’s Director’s loan account to be falsely inflated in the sum of about £62 million, and then authorised or permitted him to withdraw about £42 million from the Claimant as a purported set-off against that loan account balance. It is not clear on the evidence whether the £42 million withdrawals fall within, or constitute additions to, the £53.3 million misappropriations. In response to an informal Request for Information in relation to this new claim, in a letter from the 2^nd to 4^th Defendants’ solicitors dated 29 May 2007, the Claimant by its solicitors stated in a reply dated 14 June that no claim of dishonesty was being made against those Defendants in relation to the loan account allegation. It does not therefore appear to be the Claimant’s case that Waheed, still less Monuza or Zaurian, were aware that the amount of Shaid’s loan account (reflected as it was in the Claimant’s audited accounts) was overstated. Had it been the Claimant’s case that any of these Defendants were so aware, then it seems to me that their alleged authorisation or permission of it, and of the withdrawals made pursuant to it, must have been dishonest.

It follows from the above summary that every part of the Claimant’s claim against each of these Defendants depends upon proof of the corresponding part of its claim against Shaid. Furthermore, by expressly adopting Shaid’s own defence to the allegations against him, these Defendants go further than merely putting the Claimant to proof of its claim against Shaid. It is therefore nothing to the point that Shaid’s defence has been struck out or that he has been barred from defending, by reason of the breaches of orders already made in these proceedings for which he has also been committed to prison for contempt, or that it is highly likely that default judgment will be obtained by the Claimant against him. As against these Defendants, I must be satisfied both that there is evidence adduced on this application probative of each element of the Claimant’s case against Shaid, and that his defences, now adopted by these Defendants, stand no real prospect of success.

Much the greatest part of the materials and argument deployed on this application by the Claimant related to this part of its task. By contrast, that part of the materials and argument relevant to the personal liability alleged against these Defendants was comparatively modest.

The aggregate of £53,311,561.03 alleged to have been dishonestly misappropriated by Shaid consists of over 100 separate payments made between 7 October 2002 and 29 August 2006 from three bank accounts alleged to have been accounts of the Claimant, to or for the benefit of sixteen recipients, including Shaid himself, his father Mohammed (the 5^th Defendant), Waheed and Monuza, a Mr McGarry, and a number of companies alleged to have been both owned and controlled by Shaid.

The first of the relevant bank accounts from which the misappropriations are alleged to have been made was an account at Barclays Bank plc numbered 50138029 (“the Barclays Account”). This was the account into which, pursuant to its facility agreement with Barclays, the Claimant was contractually obliged to pay all incoming proceeds from the repayment of loans and redemption of mortgages, during the course of its principal activity in the provision of bridging loan finance for the purpose of acquisition by its customers of real property.

The second account (“the UNB Account”) was an account at the Mayfair branch of United National Bank numbered 0001-012267. The third account, referred to only in the latest amendments to the RAPOC, is an account allegedly opened on behalf of the Claimant at the Altrincham branch of Lloyds TSB Bank plc numbered 02522199, held in the name of “S. Luqman T/A Pearl Holdings (Europe) Ltd”. I shall call it “the Lloyds TSB Account”.

Shaid’s first line of defence consists of a denial that either the UNB Account or the Lloyds TSB Account were accounts of the Claimant. This appears in paragraphs 31 to 34 of Shaid’s revised draft defence, in relation to the UNB Account. He has yet to plead in relation to the Lloyds TSB Account, but he has denied that it was an account of the Claimant both in a s.236 interview in March 2007, and in his seventh Affidavit (sworn in opposition to the committal application) in April 2007. I shall deal with the defence in relation to the UNB Account first.

Shaid’s case is that the UNB Account was opened by him for Lexi Holdings Ltd, a Gibraltarian company incorporated in March 2004 (“Gibco”), of which Zaurian was the nominee shareholder, holding on bare trust for him.

The question whether this allegation by Shaid was credible was an important issue in the contempt proceedings, because Shaid had, on 13 November 2006, been ordered by David Richards J to provide particulars in relation to certain payments out of the UNB Account, and had in an affidavit sworn on 15 January 2007 sought to justify his failure to do so by an assertion that the UNB Account was not an account of the Claimant.

This issue was fully investigated during the hearing of the contempt application before Henderson J. Shaid gave evidence and was cross-examined, as were two officials of the United National Bank, a Mr Vikas Monawer and a Mr Mir Mohammed Akhlaq.

In Shaid’s favour was the fact that, on the bank statements relating to the UNB Account, the account holder had been identified as “Lexi Holdings Ltd” rather than “Lexi Holdings plc”. Beyond that, the evidence before Henderson J, which included for example a remittance mandate on that account signed by Shaid himself which identified the account holder as Lexi Holdings plc, was wholly unfavourable to Shaid. Henderson J preferred the evidence of the two bank officials, and concluded as follows, as paragraph 120 of his judgment:

“To conclude, for the reasons I have given I am satisfied beyond reasonable doubt that the UNB account belonged from its inception to the Company[i.e. the Claimant]. Not only is that the natural inference to draw from the contemporary documents, but it also accords with the evidence of the two bank officials. It follows that the explanation given by Mr Luqman in paragraph 2 of his fourth affidavit was a false one which he must have known to be untrue.”

Henderson J imposed a twelve month sentence of imprisonment for Shaid’s contempt in relation to the UNB Account. At paragraph 90 of his judgment he said this:

“The sentence relating to the UNB account is intended to punish Mr Luqman for his absurd, opportunistic and dishonest attempt to take advantage of a small error in the name shown on the bank statement and pretend that the UNB account was opened for and owned by the Gibraltar company, Lexi Holdings Ltd.”

Since there has been (as near as makes no difference) a trial of this issue as between the Claimant and Shaid, with evidence and cross-examination both from UNB and Shaid who, as is common ground, opened the UNB Account, it might be thought that, although technically not binding on these defendants, the determination on that issue in favour of the Claimant by Henderson J would have put an end to that question for all practical purposes. These defendants have, however, not merely persisted in their adoption of that defence since Henderson J’s judgment, but Waheed has sought to bolster it with further evidence of his own.

In his third witness statement made in March 2007, at paragraphs 5 and 6, Waheed said this:

“Shaid dealt with the initial meetings with UNB but I was personally involved in the opening of an account at UNB in August 2005. However, I can categorically state that this account was not an account of the Claimant but was rather an account of a Gibraltar registered Claimant, Lexi Holdings Ltd. I specifically recall Shaid asking me to gather together copies of the Certificate of Incorporation and other incorporation documents of Lexi Holdings Ltd which were to be provided to UNB in order that the account could be opened. I also recall obtaining Zaurian Luqman’s proof of identity and address as these details were also required by UNB.

My understanding at the time was that Shaid was in negotiation with UNB regarding a new facility which had nothing directly to do with the Claimant. The bank account was to be used for the purposes of the new facility. Insofar as I was an employee/de facto director of the Claimant, I confirm that I was not seeking to assist in the opening of an account at UNB for the Claimant and had no belief or expectation that such an account would be opened by the Claimant.”

This evidence was not deployed by Shaid in his defence to the committal application. The question for me is whether it converts what Henderson J plainly regarded as a fanciful defence when advanced by Shaid into a defence, when advanced by these Defendants, having a real prospect of success. In my judgment it does not, for the following reasons. First, the only evidence of involvement by Waheed in the opening of the UNB Account consists of his having been asked by Shaid to gather together copies of the Certificate of Incorporation and other incorporation documents of Gibco, together with Zaurian’s proof of identity and address. Otherwise, his evidence, including categorical statements of belief, appears to derive from what he describes as “my understanding at that time”.

Secondly, Waheed introduces no new documents in support of this case. As Henderson J noted, all the available documents (which included, according to the bank officials’ evidence, all relevant documents in UNB’s possession relating to the matter) pointed unequivocally in favour of the Claimant rather than Gibco being the account holder. Thirdly, -Waheed has both signed a cheque made out in favour of Lexi Holdings plc, the proceeds of which were paid into the UNB Account, and has admitted in a witness statement knowing of substantial redemption proceeds arising from loans originally made by the Claimant being paid into that account, in October 2005, very shortly after it was opened. The cheque in question was dated 28 December 2005 for an amount of £324,526.00. The redemption payments were of £297,404.37 on 6 October 2005 and £1,535,000.00 on 13 October 2005. It is evident from paragraph 40 of Shaid’s defence that these were redemption monies paid by borrowers from the Claimant. Waheed’s admission that he knew of these payments into the UNB Account is to be found in paragraph 2 of his fifth witness statement dated 11 April 2007.

Having studied the materials and evidence deployed before Henderson J, and considered Waheed’s additional evidence on this issue, I am satisfied that this defence is fanciful. It is difficult to envisage how Waheed can have tendered it in good faith, any more than did Shaid in answer to the committal application.

I turn to the similar defence in relation to the Lloyds TSB Account. I have noted that the account holder is named as “S. Luqman T/A Pearl Holdings (Europe) Ltd”. Pearl Holdings (Europe) Ltd was the Claimant’s name between 5 September 2000 and 9 November 2004. The Lloyds TSB Account was opened in January 2002, and closed in June 2005. The Claimant’s case that it was in substance one of its accounts is based mainly upon the assertion that it was funded overwhelmingly (albeit not exclusively) with the Claimant’s monies. The Claimant’s evidence for this consists of a detailed Report by KPMG based upon an analysis of all individual receipts and payments in excess of £100,000, stating a conclusion that of a total of £91 million odd received, approximately £80 million originated from the Claimant, directly or indirectly, and a further £4 million originated in the Lloyds TSB Account itself and merely went round in a circle. Both the report and its voluminous documentary appendices were served upon the Defendants in April 2007, and the latest amendments to the RAPOC which are almost exclusively based upon it, were served in first draft form on 2 May.

All this occurred shortly before the commencement of the committal hearing, with the consequence that Henderson J did not consider it fair to Shaid to allow it to be used against him, in relation to the contempts then alleged. By contrast, these Defendants have had approximately six months in which to consider the implications of the KPMG Report, and only a slightly shorter period in which to consider the amendments to the RAPOC based upon it.

Although he has yet to plead to the latest amendments, Shaid’s case in relation to the Lloyds TSB Account generally is tolerably plain from his s.236 interview and seventh affidavit, to which I have already referred. In the interview he said that it was a sole trader account and not a Pearl Holdings account. It was used for the receipt of “director funded loans” which the directors obtained from foreign investors, whose monies were transferred via a Mr Cheema. In his seventh affidavit he said that the Lloyds TSB Account was set up “first to marshal personal investments by loan account into the Claimant and secondly for short periods to hold draw downs from the Barclays facility in case of a delay by the customer in completing the loan” and “also used … to fund redemption shortfalls”.

Apart from their general adoption of Shaid’s defence and evidence, these Defendants have added nothing of substance to this explanation of the purpose and use of the Lloyds TSB Account, save that Waheed has, in a recent witness statement, addressed certain specific transactions in which the Claimant has alleged that he was personally involved.

There being no decision of Henderson J in relation to this issue, it falls to me to address for the first time the question whether Shaid’s general defence that the Lloyds TSB Account was not an account of the Claimant discloses a real prospect of success.

I must first say a little more about the Claimant’s evidence, namely the KPMG Report and its enclosures. Of the approximately £80 million identified by KPMG as having been the Claimant’s money received into the Lloyds TSB Account, the report concludes that £35 million of that consisted of redemption monies received from borrowers from the Claimant, and £25.5 million consisted of monies deriving from what are described as “false or aborted” loans, that is loans where money was drawn down from another account of the Claimant in anticipation of a completion which did not take place, or monies similarly drawn down in connection with purely fictitious loan transactions, which were then routed into the Lloyds TSB Account. £15.4 million is attributed in the report to direct transfers from other accounts of the Claimant which, for want of a better word or available explanation, the authors describe as “leakage”. A further £4.1 million is attributed to payments into the Lloyds TSB Account by Shaid or parties connected with him which were themselves sourced from the Claimant, directly or indirectly.

In relation to redemption receipts, the KPMG Report annexed copy documentation relating to transactions amounting in aggregate to what the authors describe as over half of the total redemption value, but which upon analysis appeared to amount to approximately one third in aggregate value. Each transaction is given detailed treatment in the report, including sufficient reference to the accompanying documents to demonstrate how the authors’ conclusions have been derived from them. I was taken by Mr Marshall in detail through one of those examples, and I am satisfied that, subject to any specific detailed challenge (and none has been advanced on behalf of these Defendants) the authors appear to have used an appropriate methodology, and to have reached reasonable conclusions from the materials available to them.

I turn to Shaid’s case, adopted by these Defendants. At its heart is the assertion that the Lloyds TSB Account was designed as the vehicle for the directors to obtain foreign investments for the purpose of their on-lending the monies to the Claimant on directors’ loan account. At the centre of that explanation lies the enigmatic figure of Mr Cheema.

In sharp contrast with the Lloyds TSB Account itself, Mr Cheema’s alleged participation in the Claimant’s affairs was the subject of the most intense scrutiny before Henderson J, both at the original committal hearing in May 2007, and at a further hearing, specially convened to enable Shaid to invite the Judge to revise his conclusions about the Cheema story, in the light of what Shaid put forward as evidence obtained from Mr Cheema himself.

The alleged activities of Mr Cheema came to the attention of Henderson J not so much because of his alleged status as intermediary for persons investing money into the Claimant’s business, but rather as an identified recipient of monies in Shaid’s tracing disclosure pursuant to the Order made by David Richards J. Specifically, he was identified as the recipient of a £1.5 million payment from the UNB Account to an account of Shaid at the Kharian Branch of the United Bank Limited in Pakistan on 2 December 2005.

Taking his defence (at paragraph 41) and his affidavit evidence together, Shaid’s case before Henderson J in May 2007 was that Mr Cheema was an investment broker in Lahore, Pakistan, who had, on behalf of unnamed investor clients lent some £12 to £13 million between 2002 to 2005 to Mr Luqman for him to lend on to the Claimant. Shaid had used Mr Cheema as an intermediary for making very substantial repayments. He could not identify any of Mr Cheema’s clients, nor produce any documentary evidence linking Mr Cheema either to receipts or payments, and he gave conflicting explanations for his inability to do so both in interviews under s.236 and in cross-examination before Henderson J. He said that he had lost contact with Mr Cheema and that efforts by his uncle and by an acquaintance in Lahore to find him had come to nothing. The only corroboration of his account of Mr Cheema’s involvement consisted of a letter from a Pakistani law firm on behalf of a client named Mr Riaz Ahmed, which purported to confirm dealings between Shaid and Mr Cheema.

In his 2 July judgment Henderson J described Shaid’s account of Mr Cheema’s involvement as follows:

“I am left in no reasonable doubt that the alleged repayments to “Mohammed Cheema as agent for Lexi Holdings Ltd investors”, upon which Mr Luqman relies in his schedule in exhibit “SL2”, are fictitious. In saying this I do not rule out the possibility that Mr Cheema may turn out to exist, and that he may have had dealings of some sort with Mr Luqman, or with entities controlled by Mr Luqman, in the past. I am, however, satisfied to the criminal standard of proof that the explanation given by Mr Luqman in this document is a false one.”

For his lies about Mr Cheema, which featured in three specific parts of Shaid’s purported compliance with his tracing obligations, he was sentenced to three concurrent terms of 18 months’ imprisonment.

Shaid did not take those three sentences lying down. On 4 July he applied for a review by Henderson J of his factual findings in relation to Mr Cheema, relying in particular on a witness statement purportedly signed by Mr Cheema and attested before a notary public, which Shaid exhibited to a further affidavit of his own, in which he purported to explain how he had managed to re-establish contact with him in Pakistan.

On 23 July the Claimant applied to Henderson J for an upward review of Shaid’s sentence, relying on an affidavit purportedly sworn by Mr Cheema himself, denying any dealings with Shaid, and evidence from a Mr Rana Khan, an advocate practising in Pakistan and retained there by the Claimant.

After a flurry of further evidence and an abortive attempt to have Mr Cheema cross-examined by video conference while in Pakistan at the end of July, the matter came back for hearing before Henderson J on 3 and 4 October 2007, at which Mr Cheema failed to attend, either in England or by video conference, but at which Mr Khan, who had been centrally involved in obtaining evidence from Mr Cheema for the Claimant, attended and was cross-examined.

For an example of the lengths to which persons will go to pervert the course of justice the account given by Henderson J in his second judgment in the committal proceedings handed down on 19 October makes, as he himself described it, deeply disturbing reading. For present purposes it is necessary only to summarise his conclusions. First, he held that the evidence purporting to come from Mr Cheema supportive of Shaid’s case was, as to his first witness statement, a complete fabrication and as to the three subsequent affidavits the product of threats and intimidation. Secondly, he believed Mr Khan’s account of how the evidence from the same Mr Cheema supportive of the Claimant’s case had been obtained, and he accepted the substantial veracity of that evidence from Mr Cheema. Thirdly he held, to the criminal standard of proof, that Shaid had, in relying upon the fabricated and false evidence of Mr Cheema, sought to adduce evidence which he knew to be false, in a deliberate attempt to mislead the court and pervert the course of justice, for which he increased the three concurrent sentences of eighteen months to two years. Fourth, he held that the threats and intimidation which had led to the production of the false evidence from Mr Cheema were the responsibility either of Shaid or of members of his family but, on the balance of probabilities only, he concluded that the threats and intimidation were the responsibility of Shaid, being “exactly the kind of behaviour that I would expect Mr Luqman to have instigated”.

I consider that the thorough investigation by Henderson J, as between the Claimant and Shaid, of Shaid’s story about Mr Cheema, ought to lead me to the conclusion that any part of Shaid’s defence relied upon by these Defendants that incorporates the Cheema story is incredible, unless there is other evidence which was not available to Henderson J, suggesting otherwise. These Defendants have not produced any of their own, but there is evidence from the 5^th Defendant, Mohammed Luqman, purporting to support Shaid’s account. Shaid made no attempt to rely on Mohammed’s evidence in the committal proceedings. I was told at the hearing of an application for an unless order against Mohammed in July 2007 by Mr James Gibbons, who appeared for Mohammed, that since Mohammed had not attempted to give evidence for his son in the committal proceedings, he found it difficult to resist the consequence that Henderson J’s ultimate rulings in relation to the Cheema story would be in practice as effective in relation to Mohammed’s account as in relation to Shaid’s account, albeit not technically binding upon Mohammed.

Mohammed has admitted receiving £7.3 million odd of the Claimant’s money from the UNB and Barclays Accounts. In his evidence he described himself as having been an intermediary for repayment to Pakistani investors, citing Mr Cheema as one of two principal recipients of the admitted receipts. He also sought to rely on the witness statement from Mr Cheema which Henderson J described as a fabrication.

This evidence from Mohammed was deployed before me on his behalf in late July, at a time when the review sought by both Shaid and the Claimant of Henderson J’s provisional findings about Mr Cheema was still pending.

In my judgment Mohammed’s attempt to rely on the Cheema story in his own evidence fails to convert an otherwise fanciful defence advanced by these Defendants into a defence with a real prospect of success. First, Mr Chaisty QC (who appeared with Mr Bird for the 2^nd 3^rd and 4^th Defendants) did not seek to rely upon Mohammed’s evidence himself. Secondly, Mohammed’s evidence about his own assets has already been held both by Lindsay J and by the Court of Appeal to have been incredible. Thirdly, I concluded in late July that Mohammed’s evidence about Mr Cheema gave rise to grave suspicion, albeit not at that stage proof, that he was seeking to avail himself of a serious identity fraud in relation to Mr Cheema, even in advance of the re-examination of the Cheema story by Henderson J in October, during which, again, Mohammed neither volunteered, nor did Shaid seek to avail himself of, his assistance. Finally, it seems obvious to me that Mr Cheema is never going to submit himself to cross-examination, here or in Pakistan. There is no reason to suppose that Mohammed, who has himself now been debarred from defending, will ever be able to cross-examine Mr Khan with greater effect than did Mr Elleray QC on behalf of Shaid, nor does it appear remotely likely that at a trial between the Claimant and these Defendants, Mohammed’s doubtful assistance as a witness of truth would either be offered or sought.

Mr Chaisty submitted that those parts of his client’s case which have been examined and rejected as between the Claimant and Shaid by Henderson J on the criminal standard of proof could not be regarded as finally dead and buried until an appeal by Shaid against Henderson J’s decisions had been heard and determined. I disagree. At the end of the summary judgment hearing it did not appear that Shaid had in fact lodged an appeal. Whether or not he has now done so, it does not seem to me that the prospects of success of such an appeal justify Mr Chaisty’s submission. Even he was constrained to accept that the best Shaid could possibly hope for was a finding that, although probable, Henderson J’s conclusions could not be said to have satisfied the criminal, rather than civil, standard of proof.

I return to the question whether Shaid’s defence that the Lloyds TSB Account was not an account of the Claimant has a real prospect of success. In my judgment it does not. Once it is concluded that the Cheema story is a fabrication, the whole basis for Shaid’s explanation why the account was set up otherwise than as an account of the Claimant falls away. The only other part of his explanation is that it was an account used for short periods to hold draw downs from the Barclays facility in case of a delay by a customer in completing a loan. That of itself affords no basis whatever for treating the account as anything other than an account of the Claimant.

Shaid has sought to defend himself in respect of a number of specific misappropriations on the basis that the payments in question were made from, or were funded by, The Funding Corporation Block Discounting Ltd (“TFC”), such that they were not payments of the Claimant’s monies. The Claimant and TFC made a written Master Receivables Discounting Agreement on 1 December 2004, pursuant to which, from time to time, the Claimant assigned its rights as secured lender, pursuant to a facility letter dated 3 November 2004 which provided for TFC to pay the Claimant 90 per cent of their face value.

A belated attempt to run this argument was made before Henderson J in May 2007 in Mr Elleray’s closing submissions for Shaid. It was rejected as “difficult to understand”. Henderson J treated instalments of the purchase price (as defined) payable under the agreement with TFC as money belonging to the Claimant, such that if paid direct to Shaid or some other third party it was paid on the Claimant’s account. I agree with that analysis. In my judgment the TFC defence is plainly unarguable, and Mr Chaisty wasted no breath trying to persuade me otherwise.

In rejecting the Shaid defences to which I have so far referred as fanciful, I have dealt with those which consist of or include the assertion that the payments in question were not payments of the Claimant’s money. I turn now to deal with a series of defences which seek, either on their own or in the alternative to those which I have already rejected, to assert that Shaid was entitled to receive the money paid. His first and most general defence of this type was that at the time of each and every relevant payment there existed between him and the Claimant a loan account on which the Claimant was indebted to him in an amount sufficient to absorb the payment in question. I shall refer to it as “the Loan Account defence”.

In paragraph 4 of his draft defence, Shaid refers to audited accounts for the Claimant for the period ended 31 December 2004, which purport to show that he had by then invested £17,989,988 as a director’s loan in the Claimant, to which he added a further £3.5 million as allegedly invested on 11 August 2005, relying upon a letter confirming that investment from the company’s former accountants dated 19 February 2007. In his seventh affidavit (sworn on 5 April 2007) Shaid stated that his loan account had in January and February 2004 been subjected to further “audit” by PWC on the instruction of Barclays and again by KPMG in December 2004 and January 2005, when, he claims, no inaccuracies were found.

In slightly more detail, Shaid’s case in relation to the loan account is that it records his investment into the company of approximately £62 million, receipts back of approximately £42 million, with a net balance in his favour of approximately £20 million.

The Claimant seeks to meet this defence of Shaid in the following four ways. First, reference is made to a detailed analysis of the alleged loan account prepared on the Claimant’s instructions by KPMG which, if correct, shows that the loan account is in substance bogus, all the supposed investments being either non-existent or attributable to the company’s own funds, save for approximately £1.1 million. Secondly, it is said that Shaid has given a dishonest account of the sources from which he claims to have made such substantial investments into the Claimant, and that there are no other sources from which it could credibly have been made. Thirdly, reference is made to an aspect of the history of the auditing of the loan account which led to Shaid being branded by HH Judge Howarth as dishonest and to his being reported to the CPS. Fourthly, it is alleged that, as a matter of law, no loan account balance would be available to Shaid by way of set off against alleged misappropriations.

Before addressing each of those submissions in detail, it is to be noted that the only documentary support for Shaid’s loan account allegations are the audited accounts and the PKF letter in relation to the additional £3.5 million. In an ordinary case it might have been thought that a dispute as to the accuracy of a director’s loan account would fall to be resolved by reference to the books and records of the company in question. In the case of the Claimant this is, as is common ground, impossible, because, when the Administrators were appointed on 5 October 2006 and attended the Claimant’s trading premises in Manchester, they found that all the Claimant’s computers and the overwhelming bulk of its documents had been removed. In the event, only about eight boxes of the Claimant’s documents were in due course recovered (from a Mercedes car in the control of Shaid) and one computer hard drive. The Administrators have therefore been compelled to reconstitute a record of the Claimant’s affairs, to the extent not possible from those few documents and the reconstitution of the records stored in the hard drive, by recourse to documents externally available such as bank statements, payment instructions and ledger entries and related correspondence held by solicitors instructed for the Claimant in relation to its conveyancing transactions, and accountants’ working papers. Having regard to the fact that both Shaid and these Defendants were all directors or shadow directors of the Claimant at the time when it went into administration, it is hard to imagine that the balance of residual doubt in relation to issues which might have been resolved by reference to company documents had they been preserved, would at any trial of the issues between the Claimant and these Defendants be likely to be resolved in the Defendants’ favour.

I turn therefore to the KPMG Report. In relation to the loan account, it takes the form of Part 2 of the report the first part of which was directed to the analysis of the Lloyds TSB Account, to which I have already referred. Both it and its annexed documents have been available to Shaid and to these Defendants since late April 2007. Part 2 runs for a little over 30 pages and is described as a “summary of interim findings of the administrators” of the Claimant. In a table at the end of paragraph 2.2 it breaks down the £62.791 million alleged directors’ loans into some 13 categories, and then briefly summarises the authors’ conclusions in relation to each.

The largest single item in the list of sources is what the authors describe as “source unknown”, amounting in aggregate to £23,502,655 over the four relevant years from 2002 to 2005. By this heading the authors mean that they have, despite reviewing the documents to which I have referred and the Claimant’s auditors’ surviving records, been unable to find any evidence to support a directors’ investment of those funds. They conclude that those supposed investments simply never took place. In relation to £13,937,740 of the total, the authors provide by way of example an analysis of the underlying transactions which supports that conclusion. I was taken in some detail through a number of those examples, by reference both to the summaries in Part 2 of the Report, the supporting documentation, and to organograms designed to illustrate how those transactions worked.

I have, by being taken through those examples, been persuaded of the essential integrity of the process underlying Part 2 of the KPMG Report. It is plain in my judgment that, unless successfully challenged, Part 2 demonstrates beyond doubt that neither Shaid nor these Defendants can rely upon the Claimant’s audited accounts as containing a remotely reliable corroboration of Shaid’s Loan Account defence.

Far from mounting any kind of comprehensive challenge, Mr Chaisty did not in his submissions make any attempt to undermine the conclusions which flow from the KPMG Report. His short submission was that he could say no more than what Shaid himself had said about his loan account, pointing out that the reliability or otherwise of the KPMG Report had been excluded from the hearing before Henderson J due to its comparatively recent availability as at May 2007.

There being no specific challenge to Part 2 of the KPMG Report advanced by these Defendants, I shall not burden this judgment with any further analysis of it, beyond the following brief points by way of summary. After the £23.5 million item which I have described, the next largest source consisted of payments traceable to the Claimant’s own Barclays account, amounting in total to £17.3 million odd. Plainly, all of that was the Claimant’s money. Next came £9.2 million odd received from the Lloyds TSB Account. Again, for reasons given above, this was plainly the Claimant’s money. Of the £4.089 million odd received from solicitors, KPMG were unable to identify any amount attributable to the directors. The only other specific source exceeding £1 million was £2.24 million credited to the loan account and traceable to Maidment’s AIB Account. The authors’ conclusion is that the source of that amount came entirely from the Claimant’s funds.

Part 2 of the KPMG Report does not rule out the possibility of any investment by Shaid or his fellow directors into the Claimant. For example, the authors have reached no conclusion at all as to credits amounting to £1,797,167. Further, the Claimant concedes that the Report has identified £1.l million as coming from an account of Shaid, and a further £14,825 as coming from other directors, albeit that there remains the possibility that even these credits may have been ultimately funded from the Claimant’s monies.

The Claimant’s second main submission is that Shaid has given dishonest or inadequate explanations of his source of the huge sums which he alleges he invested in the Claimant. The Claimant says (and neither Shaid nor these Defendants suggest otherwise) that it is highly unlikely that Shaid was able from 2002 to 2005 to make substantial investments into the Claimant from monies which he had generated by his own activities. It is common ground that he served two periods of imprisonment for offences involving dishonesty in the 1990s. In paragraph 12.18 of his seventh affidavit, Shaid said this, commenting upon those convictions:

“Those do not affect my subsequent ability to raise monies in particular from investors in Pakistan and for that matter to invest in the Claimant monies inherited by myself and my brother and sisters from our grandfather, which I intend in due course to disclose.”

He then continues in the following paragraph to explain his reference to investors in Pakistan by reference to loans from Mr Cheema and also from a Mr Ahmed.

As for inheritance, neither Shaid nor these defendants have made any relevant disclosure. I have already rejected the Cheema story in its entirety, and the supposed loan from Mr Ahmed is only supported by the same lawyers’ letter on behalf of Riaz Ahmed which Henderson J considered and rejected as corroborative evidence in relation to the Cheema story.

The Claimant’s third point in relation to the Loan Account Defence arises from the circumstances in which the Claimant’s first auditors, Messrs Horwath Clark Whitehill, resigned as auditors. In their written Statement of Circumstances dated 29 January 2004 they made clear that this arose from their view that they had not received satisfactory explanations in relation to audit questions, pursuant to section 389A(1) of the Companies Act 1985, specifically in relation to a property purchased in the name of the Claimant, for which the funds and related costs had been credited to Shaid as a director’s loan.

Shaid procured that the Claimant brought proceedings against Horwath Clark Whitehill in the Manchester District Registry of the Chancery Division for the purpose of restraining publication of the former auditors’ explanation for their resignation. The proceedings were discontinued shortly before they came on for hearing before HH Judge Howarth on 27 October 2004. In deciding that there should be an order for indemnity costs, the judge said this:

“It seems to me that these proceedings were as clear an abuse of the process of this court as it would be possible to find. This case is a very much stronger case than Jarvis v Price Waterhouse Coopers was. Whatever may or may not be the case with Jarvis, it was not a case of dishonesty, and certainly was not a case where fraudulent documents were being created, was certainly not a case where there was any form of perjury. It seems to me that this is as clear a case involving those as any I have come across for a long time.”

The learned Judge directed that the papers in the case be sent to the Crown Prosecution Service. He continued:

“It may be that they will in due course think it right to bring proceedings for a number of criminal offences, including perjury, against Mr Luqman.”

Finally, the Claimant submits that set off against a director’s loan account is no defence to a claim for the return of misappropriated money. In the event it did not prove necessary for this submission to be examined in any detail.

My conclusion in relation to the Loan Account defence is that it is fanciful to suppose that at any trial Shaid, let alone these Defendants, will be able to demonstrate that Shaid was owed money on loan account at the time of any of the alleged misappropriations. In particular it seems to me fanciful that either he or any of these Defendants will be able to produce documentary evidence which even begins to support the loan account as reflected in the Claimant’s audited accounts, in the light of its having been so comprehensively undermined in Part 2 of the KPMG Report. The Defendants have had enough time to demonstrate family inheritance sources for any substantial investment into the Claimant, and have failed to do so. Shaid’s explanation of substantial investment from Pakistani investors via Mr Cheema and Mr Ahmed is plainly untrue, and no other source of substantial investment has been identified.

To this conclusion there is one significant exception in relation to an investment alleged to have been made by Monuza, to which I shall return when considering the case against her personally.

Paragraph 7 of the RAPOC alleges an aggregate of £53,311,561.03 of misappropriations by Shaid from the three bank accounts of the Claimant to which I have referred. In addition to the general defences which I have rejected above, Shaid advances various defences in relation to various individual or small groups of payments, with which, since they are adopted en bloc by these Defendants, I must now deal.

The first group of payments consists of an aggregate of £9,083,000 drawn from the UNB Account in favour of Shaid or persons connected with him. The aggregate of the withdrawals is admitted, and the denial of the Claimant’s ownership of the monies in the UNB Account is asserted, together with the Loan Account defence. The first group of payments within the aggregate of £9,083,000 calling for special mention is a trio consisting first of the payment of £1 million on 23 September 2005, secondly of a payment of £550,000 on 5 October 2005 and thirdly of a payment of £1,969,000 on 13 October 2005. The aggregate of £3,519,000 is alleged by Shaid to have been used to fund a tax saving scheme for the benefit of the Claimant, designed to provide tax efficient benefit to employees (“the Vantis scheme”).

These payments and the Vantis scheme relied upon by Shaid have been analysed in a further report from KPMG which exhibits bank statements and other materials showing how the money paid into the scheme was distributed. Those materials show that Shaid personally received £3,157,500 from the scheme into his personal account at UNB, and that he received a further £1,133,035 which was routed to him from payments made out of the scheme to each of the 2^nd, 3^rd and 4^th Defendants, together with two employees of the Claimant, one Malcolm Davis and Sandra Blades. The evidence shows that the Vantis scheme was little more than a front for the making of substantial payments from the Claimant to Shaid, in relation to part of which his brother and sisters assisted, although it is not suggested that they did so knowing that the payment of money to them followed shortly afterwards by its repayment involved any impropriety.

Nothing in Shaid’s evidence gainsays the conclusions to be drawn from the KPMG Report, and these Defendants add nothing further by way of evidence of their own. Accordingly the defence based on the Vantis scheme fails the reality test.

The next two payments, namely of £715,000 on 18 November and £1,500,000 on 2 December 2005 are alleged by Shaid to have been made from funds paid into the UNB Account by way of repayment of loans originally advanced with monies from TFC. Since I have rejected the TFC defence as unarguable, Shaid advances no defence in relation to these payments with any real prospect of success. These Defendants add nothing to his case.

The same unarguable TFC defence is made to the last of the payments making up the aggregate of £9,083,000 withdrawn from the UNB Account, namely a payment of £320,000 on 6 July 2006.

Shaid raises a specific defence, which I shall call the “kiting” defence to a payment on 3 January 2006 of £1,550,000. It is that he made three payments by cheque in the same aggregate amount in favour of the UNB Account prior to the year end at the request of an official in UNB for the admittedly dishonest purpose of enabling UNB falsely to overstate its level of deposits at the year end, with a pre-arranged repayment to UNB to himself of the same amount. UNB has denied any such purpose behind the payments, but the Claimant does not deny that there were payments by Shaid to UNB of an amount equivalent in the aggregate to the £1,550,000. The Claimant’s case is nonetheless that since this was an admittedly improper payment (i.e. a payment otherwise than for the benefit of the Claimant and for an improper purpose) Shaid should nonetheless be accountable for it.

In my judgment this is correct, but only in the sense that Shaid would be accountable for any loss thereby occasioned to the Claimant or for any profit made by him personally from the improper transaction. Since it is not shown that the Claimant suffered any loss from the circular movement of monies to and from its UNB Account, the transaction does not constitute a basis for imposing any form of secondary liability on these Defendants in the sum of £1,550,000, or any other sum. As against Shaid it would give rise to an order for the taking of an account of any profit made by him by the transaction, and Mr Marshall suggested, not unrealistically, that Shaid may be supposed to have been unlikely to assist UNB with a kiting transaction unless there was a quid pro quo for him.

The remaining payments contributing to the aggregate withdrawals from UNB of £9,083,000 are all subjected to a variety of defences by Shaid, a common feature of which is that he alleges that the payments out were funded by payments into the UNB account of money which did not belong to the Claimant. I was taken by Mr Marshall through the evidence relating to each of those payments, and the manner in which they were funded and, save in one respect, he demonstrated that the incoming payments did all consist of money belonging to the Claimant.

The single exception initially appeared to be a sum of £2,551,249.80, which Shaid alleged was derived from a re-mortgage by him of Flat 2, 3 Belgrave Place, London with ABN Amro. Shaid had originally acquired that flat with the combination of £1,556,000 from the Claimant and £2.5 million from Coutts. His case therefore was that he released equity of his own from the re-mortgage which he invested in the Claimant.

The difficulty with that defence was that the ABN Amro transaction, which was designed to raise in aggregate almost £100 million, was for an entirely separate purpose than the making of equity investment into the Claimant, as appeared from the relevant facility letter dated 27 January 2006 included with the Claimant’s evidence and signed, incidentally, on behalf of the borrower, Monaro (the 9^th Defendant) by Waheed. It follows that Shaid’s case in relation to this item is contradicted by documentary evidence in the creation of which the 2^nd Defendant played a part.

Paragraph 7.1 of the RAPOC then alleges three specific misappropriations from the Barclays account amounting in aggregate to £3,369,096.50. As to the first two of these (£1.6 million and £212,500) Shaid advances merely the unreal Loan Account defence together with a suggestion that the second payment involved double accounting, an allegation which Mr Marshall demonstrated to be unfounded by reference to the documents. The third consisted of the original payment by the Claimant of £1,556,596.50 to solicitors acting for Shaid on the purchase of Flat 2, 3 Belgrave Place. The surviving documents do not suggest any loan agreement in relation to this sum (and if there had been one, it would have contravened section 330 of the Companies Act 1985). Since this payment was only introduced in the latest round of amendments, there is no specific defence to it from Shaid, nor from these Defendants. On the available evidence, it was a simple misappropriation against which Shaid has alleged a repayment on the re-mortgage of that property, but which is contradicted by the documents as I have described.

Paragraph 7.1A of the RAPOC alleges by way of re-amendment a series of payments to Shaid or for his benefit from the Lloyds TSB Account amounting in aggregate to £5,085,405. As to £3,015,150, they consist of six payments to Shaid’s account at Coutts. Like all the other payments from the Lloyds TSB Account they were added to the RAPOC too late to have given rise to a pleaded defence from Shaid. They are, however, sufficiently proved by Part 1 of the KPMG Report and the documents annexed to it, all of which have been in both Shaid’s and these Defendants’ possessions since April of this year. No defence has been forthcoming in relation to them. They were, on the face of it, plain misappropriations.

The next payment (pleaded in paragraph 7.1A(b) of the RAPOC) consists of £100,000 paid from the Lloyds TSB Account to Riggs Bank Europe. The Claimant has been unable to identify any legitimate business purpose for which the payment was made, nor, for that matter, any specific purpose of Shaid thereby achieved, save that in paragraph 77.1 of his seventh affidavit, Shaid acknowledged that he was a guarantor to Riggs Bank in relation to the debts of Modern Living (UK) Ltd, the company in respect of which Patten J made disqualification orders against both Shaid and Waheed of 15 years. This payment was therefore probably a misappropriation, and since there is no defence offered by Shaid or any of these Defendants in relation to it, it is not one in respect of which there is shown to be a real prospect of a successful defence.

The remaining two payments pleaded in paragraph 7.1A are shown by the evidence to have been made to lawyers (in one case English solicitors, in the other Spanish lawyers) in connection with Shaid’s purchases of real property for his own use and benefit. No reason is shown why either of them was not a misappropriation.

The last of the misappropriations pleaded as having been made to Shaid or for his benefit appears in paragraph 8 of the RAPOC, and consists of a payment of £33,387.13 to Shaid’s Coutts account from the proceeds of the sale by the Claimant of property in Devoke Street, Wythenshawe, Manchester. Shaid’s defence, wholly unsupported by any documents, is that although this was prima facie the Claimant’s money, he was entitled to it having previously redeemed a prior mortgage on the same property at his own expense.

Paragraph 8 of the RAPOC appeared in the original form of the claim pleaded against Shaid, in respect of which he has had the best part of a year in which to produce documentary evidence in support. There is in my judgment no real prospect that either he or these Defendants will produce documentary support for this allegation in the future, and in the light of Henderson J’s findings about Shaid’s dishonesty, I regard as unreal the prospect that testimony from Shaid unsupported by documents would at any trial involving these Defendants secure them a defence if the payment of this sum from the proceeds of the redemption of a loan by the Claimant otherwise gives rise to liability on their part.

The RAPOC includes alleged misappropriations in favour both of Waheed and Monuza, but not in favour of Zaurian. I shall deal with these when addressing the personal liability of each of these Defendants. It is to be borne in mind that the sums alleged to have been paid to them form part of the aggregate £53.3 million odd alleged to have been misappropriated by Shaid.

I have already described how Mohammed has admitted receipt of £7,350,000 of the Claimant’s money, the whole of the amount alleged against him prior to the latest re-amendments. The effect of the inclusion in the claim of payments from the Lloyds TSB Account has increased it to £16,287,500. Mohammed has yet to plead to or adduce evidence in relation to the increase, and since judgment in default has now been entered against him, in circumstances where his pending application for relief from sanctions appears wholly unlikely to succeed, it is improbable that he will ever do so.

Besides the unreal allegations that these payments to Mohammed funded repayments by him, via Mr Cheema and Mr Ahmed, to Pakistani investors, Shaid has advanced various defences designed to show that the funds from which the £7.35 million were paid were not in any event the Claimant’s monies. In my judgment none of them afford a real prospect of a successful defence when adopted by these Defendants.

The first payment, of £1 million on 22 December 2005 is alleged to have been funded by a redemption from a company customer, Mrs Pandora Maxwell, and from the proceeds of the sale to the 9^th Defendant (Monaro) of a property previously owned by the Claimant. Both sums were therefore plainly the Claimant’s money.

The second payment, of £750,000 on 9 February 2006, is alleged to have been funded by a payment of slightly more than £1 million from the UNB Account of Lexi Property Finance, the 10^th Defendant. Inspection of the relevant statement for the Claimant’s UNB Account (from which the money was paid to Mohammed) shows that the sum incoming from Lexi Property Finance was not the only source of the payment, there being a sufficient balance then available attributable to other receipts. Furthermore, Shaid has not offered any explanation of the reason for Lexi Property Finance’s payment to the Claimant’s account, nor of the source of Lexi Property Finance’s own funds for making that payment. There is therefore nothing to displace the ordinary inference that the payment from Lexi Property Finance to the Claimant was intended upon receipt to be the Claimant’s money.

The third payment, of £2 million on 14 February 2006, again from the Claimant’s UNB Account, is alleged to have been funded in part by a receipt of £1.8 million on the same day from a re-mortgage by Shaid of a property at 41a Southdown Road, Bowdon. Again, inspection of the Claimant’s UNB bank statements show that the payment in did not fund the whole of the £2 million payment out, or even, necessarily, £1.8 million of it. Furthermore, Shaid has provided no detail of the source of funds used for the purchase of 41a Southdown Road. Again, in the absence of some further explanation from Shaid, there is nothing to displace the inference that in making the proceeds of the re-mortgage payable to the Claimant’s UNB Account, Shaid intended that, upon receipt, the £1.8 million should become the Claimant’s property.

The fourth payment consists of a sum of £300,000 paid from the UNB Account on 8 May 2006, which Shaid claims was funded by a payment into the UNB Account on 13 April of £400,000 from his personal UNB Account numbered (according to paragraph 46 of the draft defence) 01223. Shaid had a personal account numbered 012263 at UNB, but no such payment was debited from it on or about the relevant date. There is, therefore, only Shaid’s word for the assertion that he paid in the £400,000 shown as having been received into the Claimant’s UNB account on 13 April 2006. In any event, it was by no means the only source of the £300,000 paid out on 8 May. As a defence founded purely on Shaid’s word, uncorroborated by any documents, it fails the reality test.

The fifth payment, of £900,000 on 16 June 2006 is, as is common ground, almost entirely funded from a receipt of 2 June of the proceeds of the sale of Flat 20, The Hub, but since the Claimant held a charge over it at the time, the receipt was the Claimant’s money.

The remaining payments were challenged by Shaid’s use of the TFC defence, which I have rejected as unarguable.

I turn therefore to the additional £8,937,500, being the aggregate of the payments from the Lloyds TSB Account alleged to have been made to Mohammed in the latest re-amendments. They are all sufficiently proved by Part 1 of the KPMG Report and its enclosures. For reasons already explained, there is no defence offered in relation to them, either by Shaid, by Mohammed, or by these Defendants. The proposition that they might in the future be sufficiently explained at a trial depends, as far as I can see, entirely upon the proposition that Shaid and/or Mohammed might lend their valueless testimony to these Defendants’ defence, having been debarred from defending themselves. Mr Chaisty has not suggested that these Defendants can offer, or would in the future be likely to offer, any legitimate explanation for these further payments. There is, therefore, nothing to satisfy the reality test, nor anything but a Micawberish hope that something might turn up in the future.

Paragraph 7.5 of the RAPOC alleges that Mr McGarry received an aggregate of £625,000, which, on the evidence, breaks down into four payments made between 30 January and 28 February 2006 of amounts between £150,000 and £175,000.

Shaid’s defence is that they were paid from the UNB Account as loans attributable to Lexi Property Finance to enable Mr McGarry to purchase three separate properties but that, since none of those purchases proceeded, the monies were all repaid by Mr McGarry on 30 March 2006. Although there is a credit to the Claimant’s UNB Account on 30 March in the sum of £683,994, the court only has Shaid’s word for it that this was a repayment by Mr McGarry.

Mr McGarry is a surveyor who was engaged by Shaid to provide valuations of property to be offered to ABN Amro as security for lending of approximately £98 million to be made to Monaro. He has declined to provide any information about the payments alleged to have been made to him, claiming privilege against self-incrimination. As a consequence, judgment has been entered against him for the full amount claimed, and upheld on appeal.

The supposed defence to this misappropriation is therefore another example of a case based purely on Shaid’s unsupported word. In this instance, not even the recipient has offered evidence by way of corroboration. Again, it therefore fails the reality test.

This consisted of a payment of £1,289,625 from the Claimant’s UNB Account into an account held in Charyn’s name at UNB on 13 January 2006. Charyn used the money to pay for its purchase from the Claimant of No Man’s Land Fort in the Solent, an edifice well-known to historians of the 19^th Century as one of Lord Palmerston’s follies. While the effect of the transaction was therefore that the money itself was routed from one of the Claimant’s accounts, via a Charyn account to the Claimant’s Barclays account, Shaid does not allege that Charyn borrowed the money needed to discharge its undoubted liability to pay the purchase price of the property to the Claimant. The payment from the Claimant was, therefore, simply a misappropriation for which there is no possible defence.

Imaan is an entity which Henderson J held (proved to the criminal standard) to be beneficially owned and controlled by Shaid. The aggregate of £817,527 alleged to have been misappropriated for the benefit of Imaan from the Claimant’s UNB Account breaks down into three payments. As to the first, of £500,000 on 3 January 2006, it alleged by Shaid to have formed part of a further kiting transaction, but this time by way of refund to Imaan for a payment made in favour of Shaid’s personal account. Plainly, that gives rise to no arguable defence.

The second payment, of £217,154.18 on 25 January 2006 is challenged only by reference to Shaid’s unsustainable Loan Account defence. In relation to the third, a payment of £100,372.85 on 18 April 2006, Shaid seeks to make further use of his alleged payment of £400,000 from his personal UNB Account for which, as I have already noted, there is no supporting documentary evidence. Like Shaid’s other uncorroborated assertions, it fails the reality test.

Paragraph 7.3B of the RAPOC alleges in sub-paragraphs (ii) to (iv) three further payments from the Claimant’s Barclays Account to Imaan, all of which Shaid seeks to answer by alleging that they were short term loans which Imaan repaid as part of a payment of £2,947,500. The Claimant’s evidence demonstrates that the funds for that alleged repayment actually came from the Claimant itself. There is therefore no real defence that Shaid could offer to liability in respect of these payments to Imaan.

The final payment to Imaan which preceded the latest re-amendments was of £24,800 on 21 March 2005, again from the Barclays Account. To this, Shaid offered only the Loan Account defence.

The latest re-amendments introduced a series of eight further misappropriations in favour of Imaan, of sums ranging between £1,428,985.58 and £100,000, in each case, so the evidence shows, for the purchase of various properties by Imaan. In each case, the Claimant’s supporting evidence consists of solicitors’ client account ledger entries showing receipts to client accounts opened for Imaan in connection with the purchase of the various properties referred to. Again, these materials have all been available to Shaid and to these Defendants since April 2007. No defences have been advanced in relation to any of them, and there is in my judgment no reason to suppose that any realistic defence will be forthcoming in the future.

Unfortunately for Waheed, two of the payments appear to have funded the purchase of the first floor flat at 29 Rutland Court, Rutland Gardens, Knightsbridge, a property used by Waheed as his own. I shall refer again to this flat when considering Waheed’s personal liability.

The final group of alleged misappropriations, pleaded in paragraph 7.6 of the RAPOC, consists of a series of nine payments from the Lloyds TSB Account to Maidment, amounting in the aggregate to £9,283,255. Maidment is described in paragraph 1.17 of the RAPOC as “purportedly a partnership between Shaid and Mohammed Bhatti”. It is common ground that Shaid is at least interested in Maidment, but the Claimant harbours the suspicion that Mr Bhatti is a man of straw, such that Maidment is nothing more than a front for Shaid himself. For present purposes, that issue does not matter. All the claims of misappropriations in favour of Maidment are raised in the latest round of re-amendments, and Maidment was only added as a Defendant at the same time. As a result, there is no defence from Shaid in relation to these allegations, nor from any of these Defendants.

There is, however, evidence purporting to come from Maidment itself which seeks to advance a defence of repayment. On 22 October 2007 I heard and dismissed an application for judgment in default against Maidment. The outcome of the application turned on an issue as to service, but in opposition to it, Maidment offered a witness statement made by a Miss Fenton of its solicitors on 18 October, which exhibited a witness statement purporting to come from Mr Bhatti himself. At paragraph 6 of that witness statement, under the heading ‘Maidment Partnership’, Mr Bhatti said this:

“This is a partnership with Shaid Luqman which was formed in 2004 as a vehicle for the investment of funds by 3^rd parties. The intention was that it would attract funds from the Middle East but that in fact did not happen and the Partnership never traded. Payments made to the Partnership by Shaid were made so that we could demonstrate to potential investors that we already had funds available. All these payments were repaid by the Partnership. Waheed Luqman had no involvement with the Partnership.”

In paragraph 3 of her witness statement, Miss Fenton added this:

“I did have copies of the relevant bank statements in respect of the Maidment Partnership and these showed payments being returned to the Lloyds bank account in question. However I gave them to Shaid Luqman to assist with his tracing obligations and do not currently have copies. I am trying to obtain further copies from Mohammed Bhatti.”

On the limited information available to me on 22 October, I considered that, regardless of the issue as to service, Maidment appeared to be seeking to advance a bona fide defence, and I therefore concluded that, even if there had been good service on Maidment, it ought to obtain relief from sanctions so as to permit it to acknowledge service and defend out of time.

The matter has been rather more fully investigated during the present hearing. I was shown a one-page extract from the current account statement for the Maidment Partnership at the Anglo Irish Bank for the period 2 to 17 December 2004, which shows as credits a number of the payments alleged in paragraph 7.6 of and schedule B to the RAPOC, in each case under the name ‘Pearl Holdings (EU)’. The same statement also shows a large number of substantial debits during the same period to an entity described in the details column as ‘Pearl Holdings EUR’, one to ‘Pearl Holdings’, and one to ‘Pearl Holdings Ltd’. Putting on one side for the moment the slight differences in description of the payee in the details column, this statement appears to corroborate both Mr Bhatti’s and Miss Fenton’s evidence.

In response, Mr Marshall invited me to consider an extract from the Claimant’s TSB Account statement for the period 14 to 31 December 2004. Maidment’s AIB statement shows that on 16 and 17 December there were four large payments out to ‘Pearl Holdings EUR’ and one to ‘Pearl Holdings Ltd’ ranging between £361,000 and £1,285,750, none of which appear as credits in the Claimant’s TSB Account statement.

Mr Marshall reminded me that the Claimant changed its name from ‘Pearl Holdings (Europe) Ltd to its present name on 9 November 2004, and he showed me materials from Companies House which demonstrate that a different company incorporated on 30 July 2004 as Hallco 1090 Ltd had its name changed on 9 December 2004 to Pearl Holdings (Europe) Ltd, and that it appointed as its directors Shaid, Monuza and Zaurian on 11 November 2004. Mr Marshall invited me to infer that the entities shown as the payee in the Maidment Partnership AIB current account statement were, probably, not the Claimant, but this newly incorporated company which had taken its name, with the consequence that what appeared at first sight to be repayments by Maidment to the Claimant were in fact payments by which the Claimant’s monies were diverted to a separate entity under the 1^st, 3^rd and 4^th Defendants’ control.

In my judgment it would be wrong to conclude on the material which I have described that the defence of repayment which Maidment seeks to advance in these proceedings has no real prospect of success. On the presently available documentation, Mr Marshall’s analysis may well look probable, but to base summary judgment upon it seems to me to amount to conducting a trial on incomplete documentation, in the absence of a party to the proceedings with both an interest and an intention to contest the issue. In that respect the position is quite different from issues which affect Shaid, Mohammed or Mr McGarry, all of whom have either been barred from defending, or already suffered judgments in default against them.

I have thus far described Mr Bhatti’s and Miss Fenton’s evidence as suggesting a ‘defence’ of repayment. It is however in no sense an answer to the allegation that the payments to Maidment constituted misappropriations by Shaid. They were, according to Mr Bhatti, payments of money designed to give potential investors in the Maidment Partnership the misleading impression that it already had substantial investors’ funds available. That was plainly a misapplication of the Claimant’s money for which Shaid would be liable to account, both in relation to any loss incurred by the Claimant (for example if it was not repaid in full) or any profit earned by its receipt, deposit or application in Maidment’s hands. It follows that, as with the kiting payments to which I have already referred, the evidence satisfies me to the extent necessary for summary judgment that Shaid is liable to account in relation to these matters, but does not permit any monetary amount to be identified as constituting the measure of his liability.

Paragraph 11 of the RAPOC alleges a series of loans by the Claimant to entities connected with its directors amounting in the aggregate to £15,568,000. In each case they are alleged to have been for the purpose of enabling the recipient to acquire real property. The recipients are identified as being the 7^th, 8^th, 11^th, 13^th, 15^th and 17^th to 20^th Defendants. Against each of those Defendants the Claimant seeks to set aside the relevant loan transactions and to recover the monies lent, or their product, as monies held on constructive trust or as monies had and received.

Each of the 1^st to 4^th Defendants are alleged to have “permitted” the making of the loans and thereby to have incurred liability to account for any gains or to indemnify the Claimant for any losses, both pursuant to s.341(2) and by virtue of breach of fiduciary duty, and/or to pay damages for breach of their common law duty of care to the Claimant. In that respect, no distinction is made on the face of the pleading between the liability of Shaid and the liability of these Defendants but, as with the alleged misappropriations, it is clear from the evidence that the Claimant’s claim is that Shaid was the prime mover, that Waheed incurred liability by participation amounting to permission or authorisation, and that his sisters incurred liability by virtue of culpable inactivity. As with the alleged misappropriations, these Defendants all adopt Shaid’s defences. These are outlined in paragraph 67 of his draft defence. As will appear, only one of them has been embraced with anything like vigour by Mr Chaisty on behalf of these Defendants. I will leave it to last, because it involves a degree of factual analysis of the evidence.

Shaid’s first defence is a version of the TFC defence which I have already rejected above. In my judgment the assertion that the relevant loans were all made by or on behalf of TFC is fanciful.

Shaid’s next defence is that as the beneficial owner of the Claimant, he should be taken to have informally authorised or ratified the making of all the loans. Mr Chaisty expressly declined to associate himself with that legal argument, and I therefore say no more about it.

Shaid seeks to avail himself of s.341(5), namely the statutory defence available to a director who at the material time “did not know the relevant circumstances constituting the contravention”. No attempt has been made to establish that defence in Shaid’s favour by counsel for these Defendants. A main plank in their own defence is based upon s.341(5), and I shall address it, to the extent necessary, when considering their personal liability.

Shaid next denies that the Claimant suffered any loss, or that he made any gain from the transactions. This is, in my judgment, to put the cart before the horse. The purpose of an account, where there has been a breach of s.330 or of the corresponding fiduciary duty is to ascertain whether there has been a relevant loss or gain. Furthermore, since the loans in question were made to enable the recipients to buy property at a time of rising prices, the proposition that no relevant gain was made in cases where Shaid is shown to have been connected with the relevant recipient strikes me as inherently improbable.

Thus far, none of Shaid’s proposed defences stands in the way of a conclusion that, if the allegations in paragraph 11 of the RAPOC are proved, there were loans made in breach of s.330 in respect of which, if they authorised them, they are liable to account.

Mr Chaisty did not in his oral submissions place any reliance on the instances where, in Shaid’s defence, he denied that certain of the loans were ever made. These appear to me to be further examples of cases where no real defence is shown by reference to the uncorroborated assertions of Shaid, save in one instance. The exception is the loan of £425,000 pleaded in paragraph 11.2 of the RAPOC as having been made to Serton in or about October 2005. Mr Marshall frankly acknowledged that he was unable to show me documents giving the lie to Shaid’s assertion that this loan was never made. Save in that respect, Mr Marshall demonstrated to my satisfaction from the documents that all the other loans, the making of which Shaid put in issue in his draft defence, were indeed made.

Nor did Mr Chaisty place any reliance upon Shaid’s assertions that certain of the loans were repaid. In my judgment he was right not to do so. The fact that a loan made in breach of s.330 is repaid may be relevant to the question whether, as between lender and borrower, it should be set aside, but is of no relevance in my judgment to the question whether a director connected with the borrower who is shown to have authorised the loan should account for any gain arising in relation thereto, or, for that matter, compensate for any loss occasioned if the loan was on less than commercial terms. While relevant to the quantification of an account, repayment is, in my judgment, not relevant to the authorising director’s liability to account.

The final issue in relation to the s.330 claims arises from the fact that Shaid denies any qualifying connection between three of the recipient companies and any director of the Claimant. The relevant companies are Imaan, Lexus Properties Ltd (“Lexus”) and Halfway Ltd (“Halfway”).

As for Imaan, I have already concluded that, consistent with the findings of Henderson J in the committal proceedings, there was a connection between it and Shaid which is not subject to any realistic challenge.

I therefore turn to Lexus. In paragraph 1.14 of the RAPOC it is alleged as follows:

“The registered shareholder and director is Mohammed Bhatti but it is to be inferred from the matters pleaded below that it is in fact owned and controlled by Shaid with the assistance of Waheed.”

It is not clear to which of the following provisions of the RAPOC that allegation refers.

In paragraph 17 of his draft defence, Shaid denies being the beneficial owner or controller of Lexus, with or without his brother’s assistance. In paragraph 3 of Mr Bhatti’s witness statement, to which I have already referred in relation to Maidment, he states that he formed Lexus for his own purposes.

In support of the alleged connection between Shaid and Lexus, Mr Marshall took me to a number of documents created during transactions between the Claimant and Lexus, from which he submitted that the relevant connection was established beyond the possibility of realistic challenge. His submissions, based upon those documents, may be summarised as follows. First, transactions between the Claimant and Lexus shared a number of common features with transactions between the Claimant and other entities, such as Serton, Chartley, Charyn and Monaro, with which Shaid was, beyond question, connected. This ‘similar fact’ case focused upon features of the handling of the transactions suggestive of their being otherwise than at arm’s length, such as the absence of any marketing of the underlying properties, the absence of the employment of property agents or brokers, the absence of surveys, the minimal investigation of title and the use on behalf of the borrowers of solicitors commonly used by the other connected companies. Secondly, he submitted that the documents showed Shaid using money from Lexus to fund his living expenses, from which he derived an inference that Shaid controlled Lexus. Thirdly, he submitted that the documents showed that Shaid used funds from Lexus to fund his partnership with a Mr Davis under the name Lexi Property Finance (the 10^th Defendant). Finally, he submitted that the documents showed Lexus money being mixed with Imaan’s money.

While these submissions constituted a powerful case for the drawing of the necessary inferences, and one which may well succeed at trial, they fell short either singly or collectively of persuading me that the alleged connection between Lexus and Shaid, in relation to which his denial is corroborated by that of Mr Bhatti, is sufficiently clearly demonstrated to deprive the contrary assertion of any real prospect of success. To conclude otherwise would, in my judgment, amount to the conduct of a mini-trial on the documents.

Mr Marshall advanced the alternative legal submission that because of Shaid’s admitted partnership with Mr Bhatti under the name Maidment (the 16^th Defendant), I should conclude that there existed the necessary connection between Lexus (even if Mr Bhatti’s company) and Shaid, by reference to s.346(2)(d). In my judgment that submission would only be tenable if Mr Bhatti’s role as shareholder and director of Lexus were shown to be one which he assumed acting in his capacity as partner of Shaid, within the meaning of that sub-sub-section. Again, it seems to me that there is a triable issue on that question. It follows that I am not satisfied that it is shown to the standard necessary for summary judgment purposes that the loan to Lexus of £1,087,500 contravened s.330.

I have reached a similar conclusion in relation to Halfway Ltd, the 15^th Defendant. Again, Mr Bhatti says that he is the sole legal and beneficial shareholder, and denied any allegation that Shaid either owned or controlled the company: (see paragraph 4 of his witness statement). Mr Marshall relied upon much the same type of material and submissions as he had done in relation to Lexus. Perhaps his best point was that in June 2006 Shaid wrote to Mr Mufti at the UNB asking him to aggregate a number of loans “into a single loan under my personal name”. One of those loans was the Claimant’s loan to Halfway in connection with the Dawnay Arms transaction, pleaded in paragraph 11.5 of the RAPOC. But that request was made some seven months after the loan to Halfway, and accordingly the Claimant’s evidence falls just short of being sufficient to establish beyond the possibility of a defence the necessary connection at the material time. Again, to conclude otherwise would, in my judgment, require the conduct of a mini-trial on the documents.

The same issue as to connection arises in relation to the loans made by the Claimant to the 17^th to 20^th Defendants, all of which loans were pleaded for the first time in the latest round of amendments, and the recipient Defendants joined to the proceedings at the same time. The consequence is that the alleged connection with Shaid is not one to which he has addressed a defence.

On 23 October 2007 I heard an application by the Claimant for judgment in default of defence against each of the 17^th to 20^th Defendants in which the alleged connection between each of them and Shaid was a central issue. On the material then presented to me, I concluded that a connection was established by December 2005, when, purporting to act as sole beneficial owner of properties owned by the 17^th to 19^th Defendants, and as sole beneficial owner of the shares of the 20^th Defendant, Shaid arranged for all those Defendants’ properties to be charged to ABN Amro as security for a loan of slightly less than £100 million to his company, Monaro, the 9^th Defendant. But the material then available to me during the short hearing at which this issue was raised did not enable me then to come to the same conclusion as at the time when the loans were made by the Claimant to each of these Defendants as pleaded in paragraphs 11.8A to D of the RAPOC. Mr Chaisty, who learned of my judgment as between the Claimant and the 17^th to 20^th Defendants only because I mentioned it during this hearing, submitted with some force that I could not therefore base summary judgment against his clients in relation to loans to the 17^th to 20^th Defendants upon a conclusion that the connection between those companies and Shaid was established beyond any possibility of a defence.

Again, as with the Maidment misappropriations, the matter has been investigated in rather more detail at this hearing than it was on 23 October. In paragraphs 63-74 of his 2 July Judgment, Henderson J held, as established to the criminal standard, that Shaid’s assertions that written declarations of trust in his favour in relation to each of the 17^th to 20^th Defendants remained only in escrow was incredible. At paragraph 74 he concluded as follows:

“To summarise, I am abundantly satisfied, and find beyond reasonable doubt, that the declarations of trust, and Mr White’s letter regarding the Beauchamp shares, mean what they say; that the Trust Properties have at all times since the execution of those documents been in the sole beneficial ownership of Mr Luqman; that no agreement was made between Mr Luqman and Mr White for the termination of the trust arrangements in May 2006, or at any other time; and that Mr Luqman’s beneficial interest in the Trust Properties are therefore assets of his which he ought to have disclosed if they exceeded £5000 in value.”

I was shown each of the relevant declarations of trust. In relation to those affecting the property of the 17^th, 18^th and 19^th Defendants (“Tona”, “Viewfresh” and “KNJ”), they were made in June 2004, and were by their recitals expressed to be made of even date with the acquisition of the relevant company of the Trust Property, for the purchase of which, in each case, the Claimant’s loans were made. Furthermore, the loans to each of Tona and Viewfresh were also made in June 2004.

By contrast, the loan to KNJ is alleged to have been made in December 2003, and although the loan to Beauchamp, the 20^th Defendant, was made only in July 2004, the letter form declaration of the trust of its shares in favour of Shaid is dated 20 December 2005.

The only fresh evidence which has become available since Henderson J’s decision on this issue takes the form of a defence sought to be served out of time on behalf of the 17^th to 20^th Defendants, verified (so as I was told on 23 October) by a solicitor instructed on their behalf, and which, as is apparent from my judgment on the application against those defendants, asserts substantially the same escrow argument as was roundly rejected by Henderson J.

I am not persuaded that the bare verification of a pleading by a statement of truth gives rise to any realistic possibility that Henderson J’s rejection of the escrow defence would not prevail at a trial. But there remains the difficulty for the Claimant that two out of the four relevant declarations of trust were made substantially later than the loans alleged to have contravened s.330. It seems to me therefore that for it to be established that there was the necessary connection between each of KNJ and Beauchamp at the time of the relevant loans to those two companies, I would have to infer from subsequent declarations of trust that they were already beneficially owned or controlled by Shaid when the loans were made. I consider that such an inference would be a bridge too far, even though it may well be made when all the facts are examined at a trial. Accordingly, whereas I find the necessary connection to have been established beyond the possibility of a realistic defence in relation to Tona and Viewfresh, it has not been in relation to KNJ or Beauchamp.

Paragraph 15 of and Schedule A to the RAPOC identify a series of some 19 transactions between the Claimant and companies connected with Shaid alleged to have been carried out in contravention of s.320 of the Companies Act 1985. In each case, the transaction in question consisted of a property sale by the Claimant to the allegedly connected company. The companies in question are Serton, Charyn, Monaro, Halfway, Lexus, Chartley, Tona, Viewfresh, KNJ and Beauchamp. Each of the 1^st to 4^th Defendants are alleged to have permitted the Claimant to make those transfers, and they are, accordingly, alleged to be liable to account or to pay damages in substantially the same way as in relation to the loans alleged to have infringed s.330. The first question, therefore, (as with the loans) is whether the alleged transactions occurred, and if so, whether they infringed s.320. As to the first of those questions, Shaid’s defence effectively admits that all the transactions in question occurred, save for the sales to the 17^th to 20^th Defendants, which were pleaded only after his latest draft defence. It is in any event not in issue that the pleaded sales to those Defendants also occurred.

As to whether the transactions constituted breaches of s.320, Shaid disputed the alleged connection between him, Lexus and Halfway, as to which I have already held that there is a triable defence. I have also dealt with his attempt to distance himself from connection with the 17^th to 20^th Defendants. As with the loans to those companies, I have concluded that there is a triable defence on the question whether there was a connection at the material time, in relation to KNJ and Beauchamp. Since the loans were contemporaneous with the property transfers, that triable defence applies both to s.330 and to s.320.

The bulk of the remainder of Shaid’s defence was taken up by seeking to resist what he assumed to be the implicit allegation that the transfers in question all took place at an undervalue. In my judgment, the question whether transfers shown to have contravened s.320 took place at an undervalue is part of the process of quantification on the taking of an account against any directors liable for authorising the transactions in question. Furthermore, even if there was no undervalue, that does not conclude the question whether the directors made any gains by reason of the transaction for which they are liable to account, for example where they obtained the benefit of a subsequent rise in property prices, by virtue of any relevant connection with the purchasing companies.

These Defendants have, however, advanced as a defence the argument that since Shaid was the beneficial owner of all the shares in the Claimant at the material time, he must by having arranged the transactions in question be taken also to have approved of them, by way of informal resolution in general meeting within the meaning of s.320(1), by analogy with the principles established in re Duomatic Ltd [1969] 2 Ch 365. I shall refer to it as “the Duomatic defence”.

In addition to running a number of legal arguments as to why the Duomatic principle was of no assistance to the Defendants in the present case, Mr Marshall placed in the forefront of his submissions an invitation to me to conclude, beyond the possibility of a realistic challenge, that Shaid was not in fact the beneficial owner of the Claimant’s shares at the material time. Recognising that there was, on the face of it, a factual dispute about this, Mr Marshall submitted that I should treat the evidence of Shaid, and of his sisters Monuza and Zaurian (the registered shareholder) as incredible, this being a case where their evidence is contrary to all the documents now available, in circumstances where there is no reason to suppose that further documents will come to light. It is therefore necessary for me to set out the evidence on this question in a little detail, beginning with Shaid’s and his sisters’ statements.

The first in time consists of evidence from Monuza in a witness statement dated 12 December 2006, verified by Zaurian as true in a short formal statement signed by her on the same date. Monuza says this:

“Zaurian holds 100% of the shares in the Company. Zaurian holds the shares on behalf of our brother, Shaid Luqman (“Shaid”) and she holds no beneficial interest in them. They were worth very little at the outset as it was a new business venture. At that time the shares were put into Zaurian’s name because as set out below, she had built up savings from properties she had owned over the years, both in terms of rental income and from the sales of properties for profit. It was anticipated that Zaurian would be investing in the Company from her savings, however before long it became clear that his would not be happening. Zaurian continued thereafter to hold the shares, but on behalf of Shaid.”

Waheed affirmed Monuza’s statement on the same day, but gave no evidence of the source of his information and belief.

In an affidavit by way of purported compliance with the freezing and disclosure Order made by David Richards J on 13 November 2006, sworn on 8 January 2007, Shaid simply stated at paragraph 2(g) that he was the beneficial owner of valueless shares in the Claimant.

The effect of these Defendants’ evidence is therefore that Zaurian was originally both the legal and beneficial owner of all the shares in the Claimant, but that, on an unspecified date and in an unspecified manner, she became a trustee of those shares for her brother Shaid. I note in passing the submission of Mr Marshall that this evidence appears to be inconsistent with evidence given by Zaurian in a s.236 examination, of which the transcript was produced. I am not persuaded that there is any relevant inconsistency. Zaurian’s status as the only shareholder in the Claimant was briefly mentioned, in the context of questions about her alleged investment in the company. If there is an inconsistency, it relates only to the question whether she invested money, rather than to the question whether at some later date than when the company was set up, she transferred beneficial ownership of the shares to her brother.

I turn therefore to the available documents. On 7 September 2004 the Anglo Irish Bank offered Imaan a facility of £10.815 million, upon security including the joint and several guarantees of Shaid and Zaurian. On 27 and 28 September 2004 respectively, each of Zaurian and Shaid signed confidential personal asset and liability statements for submission to AIB in connection with their proposed guarantees, which AIB later produced to the Claimant’s solicitors. Under ‘Assets’, Zaurian listed shares in what she described as “Pearl Holdings” worth “£20M (approx)”. This entry was made under the sub-heading “Investments – shares etc”. In the same box in his statement, Shaid put “N/A”. The Claimant was then still named Pearl Holdings (Europe) Ltd.

On 26 July 2006 an official of UNB completed a Know Your Client Information Form relating to the Claimant as its customer, in which, under paragraph 3 headed “The various relationships of signatories and underlying beneficial owners:” there is written in manuscript:

“Signatories are the directors of the company. 100 per cent shareholder of the company is Miss Zaurian Parveen Luqman, sister of Mr Shaid Luqman.”

On 2 September 2005 Zaurian signed the directors’ report, and she and Shaid signed the Balance Sheet, for the Claimant’s accounts for the year ended 31 December 2004. The directors’ report identified Shaid’s interests in the company’s shares as nil, and Zaurian’s interests as £2,250,000. In her s.236 examination Zaurian said that she read those accounts before signing them. It is common ground that the statement as to directors’ interests to be made in a public company’s directors’ report extends to beneficial interests in shares.

The issue whether Shaid or Zaurian was at relevant times the beneficial owner of the Claimant’s shares arose during this summary judgment hearing not only in relation to the s.320 issue, but also in relation to the question whether Zaurian incurred personal liability for Shaid’s misdeeds by virtue of culpable neglect. Mr Chaisty treated Mr Marshall’s submission on this point as amounting both to a volte face on the part of the Claimant, and to an ambush. The RAPOC makes no express assertion one way or the other as to the beneficial ownership of the Claimant’s shares. At paragraph 1.2 Shaid is described as “the guiding force behind the company” and in paragraph 1.5 Zaurian is described as “the sole preferential and ordinary shareholder of the Company”.

In his seventh witness statement, made in support of the Claimant’s application for summary judgment against Shaid, Monuza and Zaurian, Mr Paul Fleming of the Claimant’s solicitors described Zaurian variously as the “stooge”, “cipher” and “nominee” of Shaid. Referring to both Monuza and Zaurian he described them in paragraph 49 as follows:

“In effect they were no more than nominees of Shaid who did as he asked without question.”

In its context, that was a description of their behaviour, rather than of Zaurian’s status as shareholder. Again, Mr Fleming’s witness statement made no assertion one way or the other about the beneficial ownership of the Claimant’s shares. A principal element of Mr Marshall’s submissions as to why, on the question of causation, Zaurian would, had she complied with her duties as a director, have been able to prevent Shaid’s misdeeds was that she was both the legal and beneficial owner of the company’s shares, and therefore in a position to threaten, and if necessary bring about his removal. In that part of the Claimant’s skeleton argument addressing the basis upon which liability was alleged against Monuza and Zaurian (paragraphs 50 to 55) there is no mention of Zaurian’s beneficial ownership of the Claimant’s shares, but the issue was indirectly raised in paragraph 83.1, in the sense that reliance is placed on the absence of any documentary evidence of Shaid’s alleged beneficial interest, in relation to the Duomatic defence. That skeleton argument was dated (and presumably served) on 25 October 2007.

Mr Chaisty argued that Mr Marshall’s submission that I should conclude that Zaurian remained the beneficial owner of the Claimant’s shares at all material times, beyond the possibility of an arguable defence, was unfair to his client Zaurian in two respects. First he submitted that it was a point which, at least insofar as it went to the question whether Zaurian’s alleged neglect of her duties caused the Claimant loss, should have been pleaded, or at least adverted to in evidence, or in some other way sufficient to bring the point to Zaurian’s attention in sufficient time before the hearing. Secondly, he submitted that, had she been appraised of it earlier, Zaurian might have been able to produce documents supportive of her case that she became a mere trustee for her brother.

There is in my judgment nothing in the second point, because the disclosure Order made against Zaurian by David Richards J required her, at paragraphs 18 to 20, to give disclosure of all documents relating to the facts and matters set out in Mr Fleming’s first affidavit, paragraph 10 of which described her as “the sole preferential and ordinary shareholder of the Company”. It seems to me both fair and appropriate to address this issue on the basis that Zaurian has no further documents in her possession relating to her shareholding in the Claimant.

Nonetheless there is, it seems to me, some force in Mr Chaisty’s first point. Having unequivocally asserted, with the support of her brothers and sister, Shaid’s beneficial ownership of the Claimant’s shares in evidence served on the Claimant almost 11 months ago, and there having been no challenge to that evidence until shortly before this hearing, it seems to me that Zaurian may be forgiven for having fallen into something of a false sense of security, in thinking that this evidence was not going to be challenged, or at least not challenged to the extent of suggesting that it should be rejected summarily as incredible.

In my judgment, Zaurian’s case and evidence on this issue ought not at this stage to be rejected as incredible. My reasons follow. First, although it is of course open to the Court to reject testimony as incredible where it is contradicted by the available contemporaneous documents, it is not in every case that the Court will do so. The relative weight properly to be given to oral and documentary evidence is a fact sensitive question of almost infinite variability.

Secondly, the question whether Shaid became the beneficial owner of the Claimant’s shares seems to me capable of being illuminated not merely by testimony and contemporaneous documents, but by conduct. The whole thrust of the Claimant’s case is that Shaid treated the Claimant as his own, in stripping it of properties and of money to suit his own ends, regardless of the interests of the Claimant’s stakeholders, whether creditors, shareholders or otherwise. Uniquely among Shaid’s near relatives it is not alleged that Zaurian received the benefit of any of his alleged misappropriations.

Thirdly, in relation to the directors’ interests statement in the Claimant’s accounts, while objectively it plainly constitutes a signed statement by Zaurian that Shaid had no beneficial interest in the Claimant’s shares, and while, for liability purposes, persons are generally assumed to know the law, it seems to me at least possible that Zaurian had an inadequate understanding of the requirements of the Companies Acts in relation to those disclosures, such that she would not inevitably be disbelieved if she were to assert, for example in cross-examination, that she failed to appreciate the implications behind that part of the Directors Report.

Fourthly, and in sharp contrast with what has so far been determined as to the evidential credibility of Shaid and, to a lesser extent, Waheed, there has as yet been no judicial determination adverse to Zaurian’s credibility.

Fifthly, although again objectively, her assets declaration to AIB conveys an apparent assertion of beneficial ownership of the Claimant’s shares, it seems to me by no means beyond the bounds of possibility that she may have thought that even a legal owner needed to include those shares in her declaration. The real adverse force of the asset declarations made to AIB is the absence of any reference to those shares in Shaid’s declaration, and the evidence presently available does not show that Zaurian saw this at the time.

Finally, while Mr Marshall may fairly point to the vagueness of her assertion as to the time and method by which she alleges that she ceased to be the beneficial owner of the Claimant’s shares, it is again not impossible that this was achieved with a high degree of informality. Declarations of trust of personalty need not be in writing.

It follows therefore that, notwithstanding the probabilities of the matter, which may well lie in the Claimant’s favour, I have not been persuaded to treat as incredible Zaurian’s assertion that the man whom the Claimant alleges treated its assets for years as his playthings was in fact the beneficial owner of its shares, rather than she herself, who is not alleged to have received any benefit from the Claimant.

It is therefore necessary for me to address Mr Marshall’s legal points. His first was that the Duomatic principle would only come to the aid of a person seeking to uphold a transaction prima facie in contravention of s.320 if, as a substitute for a resolution at a general meeting, the shareholders had actually applied their minds to the question whether to ratify the transaction. For that proposition Mr Marshall derived some support from the judgment of Buckley J in re Duomatic itself at [1969] 2 Ch 365, at 373 B to C, and from the reliance upon and development of it by Mr Paul Girolami QC, sitting as a Deputy Judge of the Chancery Division in reQueensway Systems Ltd, [2006] EWHC 2496 (Ch) in paragraph 30 of an unreported judgment given on 28 September 2006.

In both of those cases there was more than one shareholder, so that it was understandable for the Court to require evidence of a meeting of minds between them on the relevant question. It is not inevitable that a similar principle applies where there is only a single shareholder, but Mr Marshall prayed in aid by analogy the decision of Lightman J in Neptune Ltd v Fitzgerald [1996] Ch 274, where he held that for a sole director to comply with the requirement to disclose his interest in a proposed transaction with the company pursuant to s.317(1) he had to have a meeting, if necessary only with himself, and to make that declaration to himself. While I recognise the force of the analogy, I am not persuaded that Lightman J’s reasoning, in particular at page 282E to 283E is directly applicable to the conduct of a sole shareholder in relation to s.320.

While I agree with Mr Marshall that it is inconceivable that Shaid came within a mile of applying his mind to the question whether any of the relevant transactions should be approved notwithstanding s.320, I consider that the question whether that application of mind necessary as between multiple shareholders applies to a single shareholder is one calling for mature consideration beyond that permitted by the necessarily brief focus in a summary judgment application, let alone an application with as many points falling for consideration as this one.

Mr Marshall’s next point was that, in any event, the Duomatic principle could not be invoked to rescue a transaction from the consequences of s.320 where only a beneficial rather than legal owner of shares was alleged to have approved it. For that submission he relied upon the decision of the Court of Appeal of Queensland in Jalmoon Pty Ltd v Bow (1997) 15 ACLC 230, at 237-8, where it was held that to extend the Duomatic principle to beneficial rather than registered shareholders would “introduce an additional element of uncertainty into the operation of a principle the present basis of which is itself unclear”.

Jalmoon v Bow has been at least twice considered in this jurisdiction, first by Lindsay J in Domoney v Godinho [2004] 2 BCLC 15, and secondly, later in the same year, by Mann J in Shahar v Tsitsekkos [2004] All ER (D) 283. Lindsay J was inclined to agree with Jalmoon, whereas Mann J was disposed to the opposite view. Both cases concerned summary judgment applications, and in both cases the point was treated as unsuitable for summary determination. With that discouragement, and in the light of the difference of view at first instance in this country, I do not intend to resolve this point on this application, one way or the other.

Mr Marshall’s final riposte to the Duomatic defence was that in any event it could not apply where at the material time the company was either insolvent, or was rendered insolvent by the transaction in issue. In the present case he pointed out that many of the transactions impugned under s.320 were funded by Shaid arranging for withdrawals from bank accounts other than that the account which the Claimant held with Barclays, so that they constituted breaches of the Claimant’s facility agreement with Barclays, rendering the company vulnerable to a demand for immediate repayment of the whole of the facility, a demand with which the company could not have complied at any time.

That the Duomatic principle does not apply where the company is insolvent, or is rendered insolvent by the impugned transaction is in my judgment clearly correct: see West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, applying dicta in Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services Ltd [1983] Ch 258. Furthermore, it seems to me obvious that the Claimant was insolvent when many, if not most, of the impugned transactions took place. The earliest occurred in December 2003 and the latest in May 2006, only some five months before the Claimant was placed in administration. In my judgment the Claimant clearly was commercially insolvent at the time of most of the transactions in issue, not merely because of the threat of a demand from Barclays constituted by the commission of repeated breaches of the Claimant’s facility agreement, but because of the wholesale plundering of the Claimant’s assets simultaneously being carried out by Shaid. The Barclays loan was, regardless of breach, always repayable on demand, but Mr Marshall was correct to submit that the commission of breaches on the scale being carried out by Shaid, for example by running two further bank accounts of the Claimant which were concealed from Barclays, and their use for the purposes of wholesale misappropriations, must plainly have increased the commercial risk of a demand by Barclays to a level at which, although not in fact demanded, the Claimant’s debt to Barclays constituted a future liability of central relevance to its commercial solvency.

The only difficulty with this final point of Mr Marshall’s is that no analysis of the Claimant’s descent into insolvency between December 2003 and the date of its administration was conducted at the hearing, the point being put in purely general terms. Nonetheless, Shaid was well embarked upon his course of plundering the Claimant’s assets by the end of 2003.

It is in my judgment for a party who seeks to invoke the Duomatic principle as an answer to a claim under s.320 to prove, if it be disputed, that the company was solvent at the material time. Neither Shaid nor any of these Defendants have made any attempt to do so, and I regard their prospects of success in seeking to do so as at the time of any of the transactions impugned under s.320 as fanciful. On that ground, therefore, the Duomatic defence fails in my judgment to pass the reality test, and it is therefore established to the necessary degree of certainty that the Claimant is entitled to impugn all those transactions pleaded in Schedule A of the RAPOC, save those involving Lexus, Halfway, KNJ and Beauchamp.

I have already considered and rejected Shaid’s Loan Account defence. The Claimant uses its riposte to that defence not only as a shield, but as a sword, in paragraphs 10A to D of the RAPOC. Those paragraphs constitute the basis for the claim in the Application Notices against the 2^nd to 4^th Defendants that there should be judgment not merely for £53.3 million odd, the aggregate of the alleged misappropriations, but for no less than £117.9 million odd. In other words, the Claimant’s case is not merely that the fraudulently inflated directors’ loan account constituted a dishonest attempt to justify the alleged misappropriations, but caused additional loss to the Claimant in excess of £60 million. That may or may not have been so, but no effort at all was directed on the Claimant’s behalf at this hearing to making good that enormous increment to the quantum of its claim. In particular, Mr Marshall was quite unable, in response to my question, to point to materials from which I could safely conclude that there was not a substantial, if not complete, overlap between the loss occasioned by the loan account itself and the loss occasioned by the misappropriations. It follows that this part of the Claimant’s claim is not suitable for summary judgment in terms of any quantified amount. Nonetheless, as will be apparent, I have concluded that it is clear beyond any possibility of a realistic defence that the directors’ loan account was fraudulently inflated by Shaid, in the manner alleged

Drawing together the threads of this judgment so far, I have concluded, in summary, that the Claimant has established beyond the possibility of a realistic defence the following propositions:

That Shaid caused to be misappropriated assets from the Claimant as alleged in paragraph 7 of the RAPOC, save for the “kiting” payment of £1.55 million on 3 January 2006 and save for the payments to Maidment, in respect of which there are triable defences to a money judgment, but in respect of neither of which groups there is any defence to a liability of Shaid to account for what clearly constituted breaches of his fiduciary duties. I also exclude at this stage the misappropriations alleged to have been in favour of Waheed and Monuza, because I intend to deal with them when addressing their separate liabilities.

That Shaid caused loans to be made contrary to s.330 of the Companies Act 1985 as pleaded in paragraph 11 of the RAPOC, save for the loan of £425,000 to Serton, of which there is no proof in the evidence before me, and the loans to Lexus, Halfway, KNJ and Beauchamp, in respect of which there is a triable issue as to the connection between those four companies and Shaid, or any other director of the Claimant.

That Shaid caused the Claimant to enter into transactions contrary to s.320 of the Companies Act 1985 as pleaded in paragraph 15 of the RAPOC, save for those listed in Schedule A in relation to Lexus, Halfway, KNJ and Beauchamp, in respect of each of which there is, again, a triable defence as to the necessary connection with Shaid or any other director of the Claimant.

That Shaid dishonestly created a directors’ loan account, broadly as alleged in paragraph 10A of the RAPOC, there being a triable issue as to whether that caused any loss to the Claimant in addition to the loss occasioned by the other matters specifically complained of, and in particular the losses caused by the pleaded misappropriations.

Although the case is pleaded against each of Waheed, Monuza and Zaurian in substantially the same terms, it is in reality advanced against Waheed on a basis quite separate and distinct from the case against his two sisters. Against them the case is based upon their alleged total neglect of duty, or of involvement in any way in the affairs of the Claimant. Against Waheed it is based upon the proposition, which is not in issue, that he was throughout an active participator in the Claimant’s affairs at a level sufficient to make it appropriate to describe him as a de facto director rather than, for example, a mere employee.

It is not the Claimant’s case that Waheed participated in, so as actually to have authorised, every one of Shaid’s alleged misappropriations. Furthermore, no attempt was made until a very late stage in the hearing before me (during Mr Marshall’s reply) to identify precisely which transactions bear Waheed’s fingerprint, so as to attach personal liability to him in the way that was successfully achieved, for example, in relation to Mr Ian Maxwell, in relation to one of his father’s misdeeds in Bishopsgate Investment Management Ltd v Maxwell (No 2) [1993] BCLC 814 (at first instance) and [1993] BCLC 1282 (on appeal). I have in fact been supplied by the Claimant with an amended schedule seeking to identify every transaction in which the 2^nd, 3^rd and 4^th Defendants had any involvement of any kind. While it is a convenient summary, I do not intend to treat it as a new transaction by transaction case for establishing personal liability, because of the late stage at which it has been introduced.

In outline, the Claimant’s general case against Waheed is that he was sufficiently closely involved in enough examples of each type of Shaid’s alleged misdeeds to make it appropriate, in the absence of any evidence that he did anything to prevent them, for the Court to infer that he authorised or permitted the whole of them. This approach constituted a specific example of what Mr Marshall submitted was a generally correct proposition, namely that where a director knows of an improper practice being perpetrated by those managing a company’s affairs, and does nothing about it, he may properly be treated as having permitted not merely those examples of that practice of which he is actually aware, but also the subsequent continuation of that practice, even if not aware of the specific instances of it, where he does nothing to satisfy himself that the practice of which he is aware has come to an end.

For that general proposition Mr Marshall relied upon the following passage from the unreported judgment of Chadwick LJ in Neville v Krikorian, [2006] EWCA Civ 943, at paragraph 49:

“… To my mind, it can properly be said that a director who knowingly allows a practice to continue under which lending by the company to his co-director is treated as acceptable has authorised the individual payments which are made in accordance with that practice notwithstanding that he did not have actual knowledge of each individual payment at the time that it was made.”

That observation was made in relation to a case of alleged unlawful loans contrary to s.330, but it is to my mind equally applicable to any improper practice, including misappropriations of company money and transactions in breach of s.320. Mr Marshall derived additional support for that approach from its application by Mr Girolami QC in the Queensway case, to which I have referred, as appears from paragraphs 58 to 61 of his judgment.

Separately and distinctly, Mr Marshall submits that Waheed cannot avoid personal liability for those misappropriations by Shaid of which he was himself the beneficiary. I shall deal with those instances first, not least because, to the extent that those allegations are well founded, they constitute concrete examples of instances where Waheed knew of improper practices by his brother Shaid.

The Claimant relies upon four misappropriations by Shaid for Waheed’s benefit. The first two consist of payments of £610,000 on 3 January 2006 and £5,000 on 12 January 2006, in both cases from the UNB Account. Waheed relies upon two cheques drawn on his account at the Royal Bank of Scotland plc on 28 and 29 December 2005 in the aggregate amount of £600,000 in favour of the Claimant, and adopts Shaid’s defence that this was, as to £600,000 a circular kiting transaction which caused the Claimant no loss. Like the other kiting transaction to which I have already referred, it is one that plainly involved an improper use of the Claimant’s money in respect of which Shaid is liable to account for gains or losses, albeit that no loss has so far been proved. It must equally have been apparent to Waheed that it was an improper use of company money if, but only if, he knew that the UNB Account was an account of the Claimant. This he has of course denied, asserting a belief that the UNB Account was opened for Gibco. I have rejected his evidence on that point as adding any credibility to Shaid’s otherwise incredible defence to the same effect.

It is, in my judgment, clear beyond any possibility of a defence that Waheed knew that the UNB Account was substantially funded with the Claimant’s money. It is not in dispute that his function within the Claimant’s affairs was to manage redemptions. In paragraph 4 of his fifth witness statement dated 11 April 2007, Waheed admitted having been aware of payments into the UNB Account on 6 and 13 October 2005 of £297,404.37 and £1,535,000 respectively. He did so expressly by reference to paragraph 40 of Shaid’s draft defence, in which Shaid describes both of those payments as having constituted redemption monies paid by Messrs Redfern & Collier in respect of loans made to them by the Claimant. He made further admissions in relation to his knowledge of payment into the UNB Account of £50,000 on 15 September 2005, being redemption monies paid by a Mr Finn, another customer of the Claimant, and in relation to the sum of £1,386,815 paid into the UNB Account from monies secured in favour of the Claimant on a property known as the Old Court House, on 6 January 2006.

In the light of those admissions, it seems to me inevitably to follow that either (a) Waheed knew that the UNB Account was in substance a company account, or (b) that he must have thought that the UNB Account, if not the Claimant’s account, was being used as a channel for monies misappropriated by Shaid from the Claimant. In either case, it follows from his involvement in the £600,000 kiting transaction that he was aware that Shaid was in the habit of making improper misapplications of the Claimant’s money. As to the balance of £15,000 it is Shaid and Waheed’s case that this was used by Waheed for living expenses. I see no reason why judgment should not issue against Waheed for that amount, and it is another example of his awareness of a practice by Shaid of misappropriation.

The third payment, of £351,427 on 13 May 2003 came from the Lloyds TSB Account. Since it forms part of the latest round of amendments, there is no specific defence in relation to it, although both it and a copy of the Lloyds TSB Account statement proving it have been in Waheed’s solicitors’ possession since April 2007. Pursuant to a further freezing injunction and disclosure order made by Henderson J on 2 July 2007, Waheed provided tracing disclosure in relation to this payment in an affidavit sworn on 12 September 2007 in which he says that he made a payment on 14 May to the Claimant of £334,000, and produces his Royal Bank of Scotland statement by way of corroboration. Much more recently, in a tenth witness statement dated 26 October, at paragraph 7(b) Waheed describes the payment as one made to him in connection with “potential transactions on the Claimant’s behalf”, which he repaid when those transactions proved abortive. Bearing in mind that the payment was made on 13 May, and the return payment of £334,000 was made by a cheque dated 9 May and debited on 14 May, this seems a completely incredible explanation. No credible explanation of why this large payment was made from the Claimant’s monies to Waheed is forthcoming, and it stands as another example of an apparent misappropriation by Shaid of which Waheed was aware.

The fourth and final misappropriation alleged to have been received by Waheed was of the sum of £121,000 paid from the Lloyds TSB Account on 21 November 2003. In Waheed’s fourth (tracing) affidavit he identifies three alleged repayments to the Claimant by cheques dated 21, 20 and 22 November and all debited on 25 November from his RBS Account in an aggregate amount sufficient to have repaid the £121,000. In his latest witness statement he attributes the same explanation to these payments and repayments and it is, in my judgment, equally incredible. If he was paid a single sum of £121,000 in connection with an intended transaction which proved abortive, it cannot sensibly have been repaid by three cheques of an aggregate larger amount, one of which ante-dated his receipt.

Since, however, both of these payments appear to have been broadly matched by payments in the opposite direction by Waheed, it is not established that they caused the Claimant any specific monetary loss, since the Claimant has not attempted to demonstrate that none of those apparent repayments were actually received by the Claimant. Accordingly, in my judgment, both Shaid and Waheed are liable to account in respect of any losses or gains arising from those improper transactions, there being no credible explanation which would give rise to a defence that they were lawful. Since the bulk of the funding of the Lloyds TSB Account came from redemptions of loans made by the Claimant, and since Waheed was in charge of redemptions, it is demonstrated beyond the possibility of any realistic defence that he knew that the Lloyds TSB Account was either a company account, or an account substantially funded by company monies.

Returning to the more general question whether it is shown beyond the possibility of a real defence that Waheed knew of sufficient examples of his brother’s unlawful practices to be liable with him as having authorised or permitted them, the matter by no means rests with the four payments alleged to have been improperly paid to Waheed. A telling example consists of his close involvement in the funding by the Claimant of Imaan’s purchase of his flat at 29 Rutland Court, in Knightsbridge, to which I have already referred. For example, he signed Imaan’s charge of that flat in favour of the Claimant dated 20 October 2006. Payments in connection with Rutland Court feature both in the claims based on infringements of s.330 and in the alleged misappropriations from the Lloyds TSB Account. In my judgment it is impossible to imagine that Waheed was unaware of the beneficial ownership of Imaan’s shares, which Shaid falsely denied before Henderson J.

Waheed was also a signatory on Charyn’s bank account with UNB. He was described as the beneficial owner of the company by Shaid in a letter dated 20 December 2005. Charyn was the recipient both of improper loans contrary to s.330 and of misappropriations, for example, in relation to No Man’s Land Fort, and was one of the companies with which Shaid procured that the Claimant enter into property transactions in breach of s.320.

I am satisfied on the evidence both that the Claimant has proved sufficient involvement by, and therefore knowledge on the part of, Waheed, in relation to each of the three types of improper conduct alleged against Shaid (misappropriations, unlawful loans and unlawful property transactions) for it to have been established that he was aware of a practice of misconduct by Shaid in each of those respects. Waheed does not suggest that he did anything to curtail those improper practices by Shaid and although I accept that he may not have been aware of every example of them, in my judgment there is no real prospect that he will persuade the Court that he was ignorant of any of those three improper practices on his brother’s behalf. He is therefore liable to the same extent as I have determined that Shaid is liable, as having authorised or permitted Shaid’s misconduct. He can have no real prospect of establishing a statutory defence under either s.322(6) or s. 341(5).

I was initially attracted by Mr Chaisty’s submission that, having alleged only permission rather than authorisation against Waheed in relation to the breaches of s.330 and s.320, the Claimant had fallen short of a pleaded allegation sufficient to attract the statutory liability, or the concurrent liability for breach of duty. On reflection, I reject that submission. It is, in my judgment, plain from the Claimant’s pleaders’ use of the word “permitted” in paragraphs 11 and 15 of the RAPOC that they have used the words permitted and authorised as essentially synonymous.

Waheed has sought to rely on s.727 of the Companies Act 1985. ain my judgment he has no real prospect of success in that regard. No basis has been proffered for one necessary element of such a defence, namely that he acted reasonably.

Subject to one exception, the case against Monuza rests entirely upon her complete inactivity as a director. Although she and her sister Zaurian signed documents from time to time, the Claimant has not at any stage in the pursuit of these summary judgment applications sought to establish liability by reason of their signing documents at Shaid’s request, in relation to particular transactions. The case is that, by their own admission in s.326 interviews, they were “non-active directors”.

Notwithstanding Mr Chaisty’s submissions to the contrary, it is in my judgment now firmly established as a matter of law that no company director may simply leave the management of the company’s affairs to his or her colleagues, or to other delegates, without committing a breach of duty. The reason for this is because, although the law permits and to an extent encourages delegation by directors of their functions, every act of delegation gives rise to a concomitant obligation to supervise the delegate. I have in mind in particular the analysis of Jonathan Parker J in reBarings plc and Others (No.5) [1999] 1 BCLC 433 at 486 to 489, basing himself on the decision of the Court of Appeal in re Westmid Packing Services Ltd [1998] 2 BCLC 646, and on an earlier judgment of Sir Richard Scott VC in an earlier part of the Barings disqualification proceedings, cited at page 487F to H.

In relation to the duty of care expected of a director by the common law, Mr Marshall relied upon Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498, the report of a much earlier decision in 1977 where Foster J held that although the standard depended to an extent upon the knowledge and experience of a person in the position of the defendant director, every director had to take such care as an ordinary man might be expected to take in relation to his own affairs.

Mr Chaisty sought by reference to a dictum of Hoffmann LJ in Bishopsgate v Maxwell (No.2) (supra) to persuade me that in relation to liability for doing nothing, the law remained unsettled. At [1993] BCLC 1285 Hoffmann LJ said this:

“The Judge did not decide whether Mr Maxwell’s failure to acquaint himself with the company’s business was a breach of duty. In the older cases the duty of a director to participate in the management of a company is stated in very undemanding terms. The law may be evolving in response to changes in public attitudes to corporate governance, as shown by the enactment of the provisions consolidated in the Company Directors Disqualification Act 1986. Even so, the existence of a duty to participate must depend upon how the particular company’s business is organised and the part which the director could reasonably have been expected to play. The Judge was right not to enter into these questions on a summons under Ord 14.”

I do not read that dictum as laying down a rule that, regardless of the particular facts, complete inactivity by a director can never be the subject of a summary finding of breach of duty, however apposite it might have been on the facts of that case. Furthermore, cases such as Westmid and the Barings disqualification litigation have since gone a considerable distance to define the responsibilities of directors, in terms more demanding than those to be found in the older cases.

In the present case, Monuza has sought to justify her complete inactivity upon the basis not only of her trust in her brother Shaid, but also on the basis that Shaid was apparently monitored in his activities by three other directors, all of whom, unlike her, were experienced professionals. In my judgment, while such reliance may reasonably greatly reduce the obligations of a non-professional non-executive director to appraise herself of the affairs of a company, and to supervise her colleagues, it cannot reduce them to vanishing point, so as to justify complete inactivity. In my judgment the defence that complete inactivity was a sufficient discharge of her fiduciary and common law duties fails the reality test. That conclusion also disposes of Monuza’s attempt to rely on s.727. Complete inactivity as a director is by definition unreasonable.

The real issue in relation to Monuza is the question of causation. It is not suggested that the Claimant can establish beyond the possibility of a real defence that she was aware of improper practices by her brother to an extent sufficient to affix her with liability as someone who authorised or permitted his misconduct. This is so, notwithstanding that she is alleged to have been the recipient of one of Shaid’s misappropriations, to which I shall refer in more detail in due course. The case which Mr Marshall submits meets the summary judgment test is that her inactivity caused the losses suffered by the Claimant at the hands of Shaid because, had she performed her duty, she would have prevented them. That this is a necessary part of any case in which a company seeks to establish liability against one of its directors for culpable inactivity is sufficiently established in Bishopsgate Investment Management Ltd v Maxwell (No.2) (supra): see for example per Hoffmann LJ at page 1285 c-e. Causation is no less a part of a claim based upon breach of fiduciary duty by inactivity, as it is a part of a claim based upon breach of a common law duty of care, although aspects of the causation tests, such as the rules as to remoteness, may differ in detail: see per Chadwick J in the same case at [1993] BCLC 814, at 830d to 831g.

Mr Marshall’s submission on causation was as follows. First, had Monuza taken the trouble to appraise herself of the nature of the Claimant’s business, or to supervise her brother Shaid, she would have discovered that he was engaged in the unlawful practices complained of. Secondly, having made that discovery, she would have been in a position to bring them to an end, either by reporting his activities to Barclays as breaches of the Claimant’s facility agreement, or for that matter, to the police. Alternatively, she could have secured Shaid’s future good behaviour by the threat of either of those steps.

This is a persuasive analysis, but I have not been convinced that it is established to the degree necessary to enable summary judgment to be based upon it. My main reason is that I have not been persuaded, beyond the possibility of a realistic challenge, that a proper discharge of her duties as a non-executive director would have revealed to Monuza her brother’s unlawful and dishonest practices. I have in mind in particular the fact that Shaid appears successfully to have hoodwinked the Claimant’s successive auditors, albeit that Horwath Clark Whitehill may be said to have spotted the tip of the iceberg before their resignation. He also appears to have evaded the scrutiny of the Claimant’s principal lender, Barclays, notwithstanding evidence which suggests that the Claimant’s affairs were also reviewed by accountants appointed on their behalf. Furthermore, the question whether the Claimant’s non-family directors remained ignorant of Shaid’s misdeeds, and if so whether this was despite a proper discharge of their supervisory duties, has yet to be examined at all.

Nor does it seem to me beyond the possibility of real challenge that, had she become aware of misconduct by Shaid, Monuza would in fact have been able to bring it to an end. I have it in mind that HHJ Howarth reported Shaid’s activities to the Crown Prosecution Service in October 2004, but his depredations continued into 2006. Furthermore, even if it were to be supposed that Monuza might at some stage have brought Shaid’s fraudulent career to an end, the evidence before me does not begin to establish at what stage during the period of his misconduct, which ran from October 2002 until August 2006, this would have occurred. These are inevitably matters to be resolved at trial, when the Court is appraised of a fuller picture than is presently available as the factual basis upon which to determine the answers to these difficult questions.

Finally, it would not, in my judgment, be procedurally fair to Monuza to resolve these issues of causation against her at this summary stage. It will be recalled that in relation to each of the three broad classes of misconduct alleged against Shaid (misappropriation, unlawful loans and transactions in breach of s.320) the pleaded case against Monuza is that in breach of her fiduciary duties (and, by amendment, common law duty of care) she authorised or permitted them: see paragraphs 9, 11 and 15 of the RAPOC. Particulars of these very general allegations were sought on her behalf by a Request for Further Information served on behalf of these Defendants in February 2007. It produced the following terse response by letter dated 15 February from the Claimant’s solicitors:

“The further information you request has either been dealt with in the re-amended Particulars of Claim or supporting witness evidence. We would particularly draw your attention to the ninth witness statement of Paul Fleming and the first affidavits of Mir Muhammad Akhlaq and Vikas Monawar served under cover of our letter of 14 February 2007, delivered by hand to your office.

Further, none of the requests you have made are requests which are required to be answered in order for the various summary judgment applications to be dealt with.

We would suggest as a way forward that you consider the re-amended Particulars of Claim and the other evidence supplied to you and then revert to us with any further information you require within your replies to the re-amended Particulars of Claim.”

The affidavits of Messrs Akhlaq and Monawar add nothing to the case against Monuza. Nor does Mr Fleming’s ninth witness statement, which is concerned simply with the summary judgment case against Waheed. More generally, nowhere in the Claimant’s evidence is there any assertion of the means by which it is alleged that Monuza’s neglect caused the Claimant’s loss, in the sense that it is explained how compliance with her duties would have made her aware of her brother’s misconduct, and enabled her to bring it to an end. Mr Marshall’s analysis, which I have summarised above, was not even foreshadowed in his Skeleton Argument. The position is, therefore, that until a late stage in the argument before me, Monuza was facing a pleaded claim that she had authorised or permitted Shaid’s misconduct, unsupported by any attempt to demonstrate that she was aware of it, whereas summary judgment without a trial for a monetary liability of many millions of pounds is now said to be justified upon the basis that, rather than authorising or permitting the misconduct, she caused it by failing to take steps first to discover it and then to prevent it.

Mr Marshall submitted that there was no relevant procedural unfairness. The simple fact was, he said, that Monuza had done nothing to discharge her duties. Questions as to what would or might have happened had she performed her duties were a matter for hypothetical analysis by way of submission, rather than further factual enquiry at a trial. Since these Defendants had in the end consented to the re-re-amendment of the RAPOC, he said that it was too late for them now to take pleading points.

I disagree. Just as it is a basic principle of civil procedure that a defendant is entitled to know the nature of the case against him or her well in advance of trial, so, a fortiori, is a defendant similarly entitled in advance of a claim for summary judgment without trial. Although I accept Mr Marshall’s submission that the causation question which arises from a case of culpable neglect does involve a hypothetical analysis (namely as to that which would have occurred if the duties breached had been performed), nonetheless the substance of that analysis is something of which a defendant facing summary judgment is entitled to have advance warning, not least because it is an analysis which has to be conducted against a matrix of detailed fact, and the defendant may be able to bring to the table facts which affect the outcome of that analysis.

A particular example arose from Mr Marshall’s submission that Monuza and Zaurian stood in a different position from the Claimant’s auditors, lenders and other directors because, uniquely, they “must have known” (as he put it) that during the 1990s Shaid had been imprisoned for offences involving dishonesty. This was, he said, an inevitable inference from Monuza’s assertion that the Luqmans were a close knit traditional family. Plainly, in my judgment, that assertion is one which, were the matter proceeding at a trial, would if not pleaded and admitted have needed to be put to Monuza and Zaurian by way of cross-examination, as the basis for any claim that, uniquely among the Claimant’s officers, they were under a heightened degree of supervisory duty in relation to Shaid’s activities. By contrast, in this summary judgment application, the point arose for the first time in Mr Marshall’s reply.

For those reasons, the Claimant’s application for summary judgment against Monuza for a monetary sum equivalent to the amount of Shaid’s proven misappropriations, and for an account for having authorised the breaches of s.320 and s.330, fails. She must be entitled to defend the claim based upon her undoubted breach of duty, at least in relation to causation and therefore, inevitably, quantum.

I turn to the specific claim that she was the recipient of one of the sums misappropriated by Shaid. This took the form of a payment of £75,800 paid on 24 January 2005 from the Claimant’s Barclays Account to a Lloyds Bank Account in her name in which she is described as trading as “Alliance Associates”. In her third witness statement dated 7 March 2007, at paragraph 9, Monuza described this as a repayment to her, on her director’s loan account, of money previously lent by her to the Claimant. In paragraph 4 of a further witness statement dated 11 April 2007, Monuza added, by way of further explanation, that she had lent the money to Shaid for the purpose of it being lent to the Claimant, and referred to paragraph 49 of Shaid’s draft defence. There, Shaid pleaded that the £75,800 was a repayment of monies in Shaid’s loan account, in repayment of monies lent by Monuza to Shaid and invested by him in his loan account with the Claimant.

In paragraph 2 of a further witness statement dated 27 April 2007, Monuza said this, by reference to a bundle of correspondence and documents which she produced, relating to this payment:

“This documentation is from two files of Bower Harris Solicitors who acted on my behalf in the sale of properties at 53 Heald Place, Rusholme, Manchester and 11a Barrfield Road, Salford. The exhibited documentation shows the net sale proceeds (£45,436.42 in respect of 53 Heald Place and £27,990.59 in respect of 11a Barrfield Road) were transferred to Shaid’s Lloyds TSB Account No. 2522199, sort code 30-90-16 following completion. I understood at the time that the purpose of the monies being paid to Shaid were for them to then be paid to the Claimant. At the time the loan was made the Claimant’s business was still relatively small and so more funds were required. The agreement was that I would be repaid once the Claimant was better established. The loan was repayable on demand but on the understanding that I would not make such demand unless I really needed to be repaid.”

The exhibited documentation is broadly corroborative of that account, save, ironically, that the Lloyds TSB Account which Monuza described as being “Shaid’s” is the Claimant’s Lloyds TSB Account. Furthermore, the debit entries in Bower Harris’s client ledgers in respect of both payments show the payee as being Pearl Holdings rather than Shaid.

Shaid has consistently and dishonestly maintained that the Lloyds TSB Account was his rather than the Claimant’s account, and it comes as no particular surprise to read evidence from his sister suggesting that this is what she also believed.

That evidence, as it seems to me, discloses a real prospect that Monuza will establish at trial that, whatever she may have been told by Shaid, her payments of £45,436.42 and £27,990.59 odd were in fact made direct by solicitors acting on her behalf to the Claimant, and that the difference between the aggregate of those sums and her later receipt is sufficiently accounted for by what she describes as an agreed rate of interest.

Mr Marshall submitted that since she has chosen to describe her payment as having taken the route of being lent to Shaid and on-lent by him to the Claimant, and since Shaid’s loan account with the Claimant is a sham, she had no right to obtain repayment from the Claimant, but rather only from Shaid. This may prove to be the result at trial. In my judgment, however, Monuza ought not to be shut out now from a defence based upon the fact that her money was actually received by the Claimant pursuant to a transaction which was intended to achieve that result, merely because both she and the Claimant may have been deceived by Shaid into the understanding that the money was being routed via a personal account of his. It follows that I decline to grant summary judgment for repayment of the sum of £75,800 by Monuza to the Claimant.

Save in two respects, the position of Zaurian is identical to that of Monuza. The case against her, originally pleaded by way of authorisation and permission, is in fact advanced on exactly the same basis of culpable neglect as is the case against her sister, and it is attended by essentially the same strengths and potential weaknesses.

The first respect in which Zaurian’s position is different from that of Monuza is that she is not alleged to have been the recipient of any of the monies misappropriated by Shaid. That distinction needs no further examination. The second difference is that she was the registered owner of the company’s shares and is alleged also to have been their beneficial owner. As to the second part of that allegation there is, as I have held, a triable issue.

Mr Marshall relied upon Zaurian’s status as shareholder to bolster his case on causation, to the effect that Zaurian would have been in a position to control Shaid by the exercise of her shareholder’s rights, if necessary by dismissing him. Notwithstanding dicta to the contrary by Mr Girolami QC in the Queensway case (supra), I am not persuaded to the extent necessary for a summary judgment application that it is necessarily a breach of duty by a fiduciary not to avail herself of powers which she has, not by virtue of that fiduciary office, but by virtue of some separate and distinct relationship with the company. Be that as it may, my conclusion that, like her sister, Zaurian has a real prospect of defending the claim on grounds of causation is not dependent upon that uncertainty, nor even upon my conclusion that there is a triable issue whether she was also the beneficial owner of the Claimant’s shares. It derives primarily from identical reservations to those which I have expressed in relation to the causation case against her sister, namely (a) whether she would, had she performed her duty have discovered Shaid’s misdeeds; (b) whether, whatever her theoretical powers, she would have been able to prevent their continuance, and if so, from what date; and (c) my view that to give summary judgment against her at this stage would be procedurally unfair, having regard to the way in which the matter has developed in the pleadings and in the evidence.

In the result, therefore, the Claimant is not entitled to summary judgment against Zaurian either, save to the extent that she has no defence to the claim that her total inactivity as a “non-active director” necessarily involved her in committing a breach of duty owed to the Claimant, without any real prospect of success under s.727.

The consequence of the findings set out, I fear at inordinate length, in this judgment are as follows: