Latif & Anor v Imaan Inc

This is an application by Lexi Holdings plc to set aside a judgment in default, originally obtained on 18^th September 2007 in the Queen’s Bench Division, in an action between a Mohammed Latif and a Mohammed Arif trading as Hamra Financial Associates, against Imaan Incorporated. The judgment was for £4.9m and it was made in proceedings issued on 24^th July 2007, in which it was alleged that on 18^th November 2006, Messrs Latif and Arif -- to whom I will refer to as Hamra, without thereby intending to prejudice any issue about whether they ever did trade as Hamra Financial Associates -- were alleged to have made a loan in Pakistani Rupees which was never repaid. The Sterling equivalent of the loan being -- plus I assume accrued interest -- £4.9m.

On 30^th October, Master Foster made an interim third party debt order, the effect of which was to require two tenants of properties vested in Imaan, namely 29 Rutland Court, Knightsbridge and flat 3, 17 Upper Grosvenor Street, London, to pay their rents in future to Hamra rather than to Imaan. In fact, for reasons which I will shortly come to, those tenants were at the time and had since late in 2007, been paying their rents into an account of their solicitors, having been notified of freezing orders obtained against Imaan by Lexi Holdings.

By application made on 16^th November by Lexi Holdings, Master Foster on 19^th November joined Lexi Holdings as defendant in the Queen’s Bench proceedings, transferred the proceedings to the Chancery Division with a view that they come before me. I am the retained judge dealing with all matters in the Lexi Holdings litigation, to which I will shortly refer, and therefore the Queen’s Bench proceedings to which Lexi are now joined as a party are now before me on this application.

There had, before the Queen’s Bench proceedings were started, already been a very substantial action proceeding in this court by Lexi Holdings plc against a Mr Shaid Luqman, other members of his family and a large number of companies, including Imaan, in which claims, which exceed in the aggregate £100m, are made essentially on the basis of a very large-scale fraud committed by Shaid Luqman while a director of Lexi Holdings with the assistance, it is alleged, of members of his family and with the use of numerous companies, some of which are alleged to have been wholly beneficially owned or controlled by him, of which Imaan is one.

On 26^th November on Lexi’s application, I permitted the particulars of claim to be amended. They are now the re-re-re-re-re-amended particulars of claim pursuant to my order made on that date. The particular amendments which I permitted to be made related to a charge purported to be granted by Imaan on 20^th October 2007, to charge the Rutland Court property to Hamra as security for the loan or alleged loan to which I have already referred.

Lexi’s case is that the charge was ineffective. Firstly, because no trading entity called Hamra existed; secondly, because Hamra never executed any such charge, but also because, and I quote from paragraph 17(b)(4) of the amended pleading, “There is no evidence or no proper evidence of any loan having been made by Hamra to Imaan, such as was to be secured by the charge or alternatively, there is no evidence or no proper evidence of any net loan having been made having regard to the financial transactions occurring between Shaid and Imaan and Hamra. Further, Hamra does not have sufficient means to make such a loan.” Taking all Lexi’s amendments together the allegation plainly is that both Hamra, the loan and the charge, are devices put in place by Mr Shaid Luqman in order to try and hide away, take away or otherwise make unavailable to the Claimant, Lexi Holdings, assets within his control and in particular in this case, assets vested in Imaan.

On 6^th December of this year I gave judgment against Imaan for £8.9m. Included in that judgment was a declaration, that by reason of the circumstances in which Imaan had obtained its funds, largely from Lexi due to misappropriations by Shaid Luqman, Lexi was to have a general equitable charge on all Imaan’s assets for the purpose of enforcing its judgment. I also declared that the two properties, to which I have referred, were to be treated as subject to an equitable charge in Lexi’s favour by reason of having been acquired by Imaan with monies misappropriated from Lexi, respectively in March and May 2004, and I ordered accounts and enquiries as against Imaan in relation to any profits made with the use of monies or properties acquired from Lexi or acquired by the misappropriation of money from Lexi.

It is apparent, therefore, that in the Lexi Holdings v. Luqman proceedings Lexi is seeking to pursue an allegation having, incidentally with the court’s permission, joined Messrs Latif and Arif as parties in seeking to pursue an allegation that there was no loan, that is, by Latif and Arif, whether or not trading as Hamra, to Imaan. That allegation is made, not for the specific purpose of recovering any particular sum of money lent, but for the purpose of being an important limb in its case that Hamra was never granted any valid charge over any assets of Imaan, which could be capable of ranking in priority to Lexi’s beneficial interest arising out of my judgment, and arising out of the matters upon which my judgment was based.

There has been to date no formal consolidation of the two proceedings, but Hamra, Lexi and Imaan are now parties to both proceedings. Lexi seeks now, pursuant to CPR 40.9, to set aside the default judgment obtained by Hamra against Imaan. CPR 40.9 provides that a person who is not a party, but who is directly affected by a judgment or order may apply to have the judgment or order set aside or varied. The notes at note 40.9.5 on page 1076 to 1077 of the current edition of the White Book, point out that, in fact, in relation to default judgments there is no ‘party only’ restriction in relation to setting aside in CPR 13.2 and 13.3, but that CPR 40.9 applies in any event to all kinds of judgments whether or not default judgments. The notes go on to make clear that the former authorities, which show that there must be some proper basis for a person who wishes to have a judgment set aside, i.e. to apply some appropriate form of locus standii, continues to be good law, notwithstanding the broad terms of the current form of the rules.

Miss Ellidge, who appeared for Hamra, submitted that setting aside judgments in circumstances such as these, has so far on the authorities been obtained only by persons not being parties who have particular interests in the subject matter of the judgment. That is a proprietary interest in a judgment relating to property or an interest as insurers, who as insurers may be permitted to take over in certain circumstances a defence of the party against which the judgment has issued. Here, she submits, Lexi is not an insurer of Imaan. The judgment in question is a pure personal money judgment with no immediate effect on property and therefore, Lexi, whatever its desire, has no proper interest recognised by law in seeking to intervene and have this judgment set aside.

There is some force in Miss Ellidge’s point, if the only basis upon which Lexi were seeking to have the judgment set aside, was that it would thereafter seek to be given permission to defend Hamra’s claim on behalf purely of Imaan. But in my judgment, Lexi has a separate reason to put in issue the question whether there was any loan by Hamra to Imaan on the basis of which this judgment stands, namely the reason set out in its amendments in the Lexi v. Luqman action, because the existence or non existence of that loan is a highly material fact relevant to the validity or otherwise of the Imaan/Hamra charge.

In those circumstances it seems to me perfectly appropriate and proper for Lexi to be treated as having a sufficient interest in the matters recorded by the judgment, namely the making of the loan and its non-payment, to intervene to have that judgment set aside. Lexi has sought and been directed to be added as a party to the Queen’s Bench action for that purpose, albeit on terms which, so Miss Ellidge tells me, were not intended to prejudice any argument about whether the judgment should thereafter be set aside.

Nonetheless, it seems to me that, albeit not reflected in any existing previous reported case, this is a proper case to recognise an interest in a third party in having a judgment set aside. One has to ask, how could Lexi pursue, as against Hamra and Imaan, a claim that Hamra has no proprietary interest arising out of the charge, by alleging that there never was any loan to support it in the first place for as long as it remains a party to proceedings in which there is a judgment, which effectively purports to recognise that there was. Miss Ellidge submitted that no issue estoppel would arise purely from a default judgment, but nonetheless, in my view it is perfectly proper for that default judgment to be sought to be set aside to enable Lexi to pursue that claim.

As to whether there is any evidential basis for setting aside that default judgment, Miss Ellidge sensibly, in the light of the evidence before the court, does not seek to persuade me that there is not at least some prima facie case shown by Lexi that is a sufficiently arguable case, which if correct would be contrary to the default judgment which has been issued.

In those circumstances, having resolved the question of locus standii against Hamra, it seems to me that setting aside the judgment must follow. Furthermore, if the judgment is set aside it must follow also, and this is not opposed by Miss Ellidge, that the third party debt order must also be set aside.