Knowlden v Tehrani & Ors

This is an extraordinary case. The claimant, Richard Paul Knowlden (“Mr Knowlden”), is an ophthalmic surgeon, now aged 66. By early 1993, when the present story begins, he was a senior consultant at the Chelsea and Westminster Hospital and also had a thriving private practice. His combined earnings from his NHS consultancy and his private practice amounted to around £130,000 per annum. He had been married to his wife, Ann, for 30 years, and they had three children, Peter (born in 1965), Joanna (born in 1968) and Michael (born in 1970), all of whom had left home. He owned a house in Highgate at 3 Broughton Gardens, London, N6, which was in his sole name and (after the mortgage had been paid off in March 1993) unencumbered. There was also a country house in Gloucestershire, which he and his wife had bought in 1990 and held in her name. The only bank accounts which he had were a personal current account, and a private practice current account, both with the Langham Place W1 branch of Barclays Bank. He invested his savings in building society accounts, holding about £50,000 in this way. He also owned a few shares derived from privatisation issues in the 1980s and early 1990s, but had no particular knowledge of or interest in the stock market. His approach to his financial affairs was cautious and conservative.

Into this life of professional, family and financial stability there then entered the first defendant, Simin Nafis Tehrani, a woman who has been known under a variety of names but to whom I will refer as Ms Tehrani. It is now common ground that she is an accomplished and serial fraudster, but none of this was known to, or even suspected by, Mr Knowlden when their relationship began. They first met in December 1991, when she was referred to him as a private patient. He then saw her professionally on a number of occasions between the end of that year and February 1993 at his consulting rooms in Harley Street. He found her attractive and interesting, and they got on well, although at this stage they did not meet socially.

In December 1992 Ms Tehrani telephoned Mr Knowlden out of the blue, and invited him and his wife to join her and a group of friends on a three day cruise from Harwich to Gothenburg as a means of celebrating the Persian New Year. Mr Knowlden accepted the invitation, but his wife declined because she was prone to seasickness. By the time the cruise began, in March 1993, it transpired that the only people who would be going were Ms Tehrani, Mr Knowlden and a male friend of hers whom she called “Zaal Zoroaster”, but whom Mr Knowlden soon discovered to be an Englishman whose real name was John Whittleston. During the cruise Ms Tehrani made it very clear to Mr Knowlden that she wished to take their relationship further. Unwisely, he succumbed, and they immediately began an affair. After his return home he told his wife – it was not the first occasion on which he had been unfaithful – and it was agreed that he should leave home, which he did on 3 April. He was then 52, and Ms Tehrani was 39. He was, and remained, deeply in love with her. She at least appeared to reciprocate his feelings.

The impression which Ms Tehrani gave to Mr Knowlden was that she was an independent single woman of means, who worked as an interior designer in London and Wales. In fact she was still married, to her second husband Habibollah Amini, whom she had married in June 1991 and from whom she was not divorced until October 1995. She was also very heavily in debt, insolvent and facing bankruptcy. Between 1987 and 1993 she had incurred substantial debts in the purchase and refurbishment of two properties, one in Wales (“Cae Haidd Bach”) and one in London (“19 Marbleford Court”). Cae Haidd Bach, at Rhostryfan in North Wales, was her main home. It was a substantial country residence, which she was renovating with money borrowed from the Royal Bank of Scotland (“RBS”). RBS was her principal creditor, and she owed them in excess of £460,000 in January 1993. She also owed large amounts to other creditors, and seems to have had no, or virtually no, resources with which to pay them. Indeed, she had been claiming income support, on the basis that she was unemployed, since the late 1980s, and she continued to do so until 1998.

In March 1993 Ms Tehrani managed to raise about £100,000, by the sale of 19 Marbleford Court to apparently unconnected purchasers for a gross sum of £53,000, and by arranging for the sale, or ostensible sale, of Cae Haidd Bach by RBS as mortgagee in possession to a Mr David Lumley for a net sum of £50,540.73 that was paid to RBS. The sale of Cae Haidd Bach was arranged with the assistance of Ms Tehrani’s solicitor, Stephen Puleston Williams (“Mr Williams”), who is the second defendant. The sale appears to have been a collusive one, or possibly a sham with no real purchaser involved at all. Although the transfer ostensibly took place on 15 March 1993, the Land Registry did not receive the application from Mr Williams to transfer the registered title to David Lumley until October 1993 and he was not registered as the new proprietor until 23 December 1993. Despite the transfer, however, Ms Tehrani continued to live in the property and treat it as her own. Later on, as I shall explain in more detail below, Cae Haidd Bach was purportedly transferred by Mr Lumley to the third defendant, a Manx company called Triumph Trading Company Limited (“Triumph Trading”), for a nominal consideration of £1. It appears, therefore, that if David Lumley existed at all, he was a mere nominee of Ms Tehrani’s. There seems to be no doubt that a net balance of £50,540.73 was indeed paid to RBS in reduction of Ms Tehrani’s indebtedness in March 1993, but the true source of the funds is obscure.

It quickly became clear to Mr Knowlden that Ms Tehrani expected him to look after her financially, as well as in other ways. She told him nothing about her financial difficulties, and maintained an affluent lifestyle which he was happy to pay for. In late April 1993 they took their first holiday together, in California. During the holiday their relationship deepened, and Mr Knowlden decided that he wished to spend the remainder of his life with her. This trip was followed over the next four years by several further foreign holidays, and numerous weekends or short breaks in this country, for all of which Mr Knowlden paid. Meanwhile, however, their most pressing need was to find somewhere to make a home together in London. Mr Knowlden was very busy with his work, and was therefore entirely happy when Ms Tehrani took an interest in his attempt to find a new home for them. Her proposal was that she should help him to find a repossessed and dilapidated flat in London, and that she should then take charge of its refurbishment using her interior design skills. This plan would enable them to afford a larger property than if Mr Knowlden bought a flat in pristine condition. Mr Knowlden’s budget was relatively limited, because he did not have large savings and it was already apparent that his marriage to Ann was effectively at an end, with the result that in due course he would have to make a substantial financial settlement with her.

Ms Tehrani enlisted the help of her brother, who was an estate agent, in the search for a suitable property. He soon found a flat which had been repossessed by the Halifax Building Society at Flat 7, 43 St Stephen’s Gardens, London W2 (“Flat 7”). Flat 7 was a two-bedroom property on the fourth floor of a large Victorian house in Westbourne Park. It was in need of considerable renovation. Mr Knowlden liked the property when he saw it, and decided that they should try to buy it. Ms Tehrani arranged for the property to be surveyed and valued, and Mr Knowlden paid for the survey report. In June 1993 the property was put up for auction, and Ms Tehrani’s brother bid for it successfully in the sum of £80,500. The whole of the deposit and the purchase price was provided by Mr Knowlden from his own resources. He also paid for the subsequent refurbishment, which cost about £8,000. Completion took place in July 1993. Mr Knowlden was content to leave the legal formalities to be dealt with by Mr Williams, who practised in Anglesey and had been strongly recommended to him by Ms Tehrani. She said to him that Mr Williams always did what she wanted, and that a good lawyer was like a pen: he would go where his client wanted him to go. Mr Knowlden was happy to accept her recommendation.

In his main witness statement Mr Knowlden says that it was only some ten years later, as a result of investigations by his present solicitors after the breakdown of his relationship with Ms Tehrani, that he discovered that Flat 7 had not in fact been purchased in his name, but in the name of Zaal Zoroaster. He says that this came as a complete surprise to him, and he had always believed the purchase was in his own name. As will appear in the final section of this judgment (see paragraph 89 below) I am unable to accept this evidence, because Mr Knowlden admitted in cross-examination that he signed a tenancy agreement dated 20 July 1993 whereby Zaal Zoroaster purported to let Flat 7 to him for a term of two years. Mr Knowlden must therefore have known that the legal title to Flat 7 was vested in Zaal Zoroaster. I should add that Zaal Zoroaster, otherwise known as John Whittleston, worked for Ms Tehrani in several capacities, including as her gardener and caretaker in Wales and as her personal assistant and secretary.

The acquisition of Flat 7 was the first of a series of financial and property transactions which Mr Knowlden undertook at the instigation of Ms Tehrani. To his mind she made an excellent job of transforming a run-down repossessed flat into a tastefully decorated modern apartment, and the success of this venture, combined with Mr Knowlden’s lack of interest in and experience of managing his own financial affairs, quickly led to a situation where she took over the dominant role in all property-related and financial matters. Ms Tehrani’s mother had been a successful property developer, and Mr Knowlden was more than content to see her (as he believed) fulfil a similar ambition. His part in the project was to provide the necessary funds, but he did not involve himself in the detail of how they were applied or the precise form which the transactions took. Their relationship was a loving one, and he at least hoped it would be permanent. He trusted her absolutely, and had full confidence in her. Mr Knowlden was a very busy man in his profession, and he had never been particularly good at managing his own financial affairs. From his perspective, the new arrangement appeared to have everything to recommend it.

Under Ms Tehrani’s influence, and at her suggestion, Mr Knowlden opened a number of further bank accounts in 1993, including a deposit account with Barclays Bank in Jersey, a current account with Midland Bank in Fulham Road (which was opened primarily for convenience, as it was close to the Chelsea and Westminster Hospital), and a deposit account with the Jersey branch of the same bank. In the summer of 1993 he changed this last account into a joint one, and added Ms Tehrani’s name to the mandate. He did this at her request, on the grounds that if he were to die suddenly the account would give her a means of financial support. He frankly acknowledges that part of the motivation for opening at least some of the accounts (not all of which I have mentioned) was a desire to hide assets from his wife, and to obscure the trail by moving sums between them in cash. He says that he was persuaded to do this by Ms Tehrani, and weakly agreed although he was never happy at the prospect of not doing the right thing by his wife. When divorce proceedings did ensue, he found that his attempts at deception had been unavailing, at least so far as the bank accounts were concerned, and his wife’s solicitors managed to obtain full details of all his bank accounts. Whether Mr Knowlden succeeded in deceiving his wife in relation to other assets of his, including his property interests, and (if so) whether such deception has any bearing on his claims in the present action, is a matter to which I will need to return later in this judgment.

Meanwhile, in May 1993, and unknown to Mr Knowlden, RBS made a formal demand on Ms Tehrani for repayment of her borrowings, and in August 1993 RBS issued proceedings against her in the Manchester District Registry of the High Court claiming sums in excess of £381,000. Mr Williams acted for Ms Tehrani in her defence of those proceedings, and obtained a legal aid certificate on her behalf. A Defence and Counterclaim, drafted by counsel, was served in September 1993, in which it was alleged that RBS had acted in breach of duty and had sold Cae Haidd Bach at an undervalue. In October 1993 RBS served a Reply and Defence to Counterclaim, setting out the steps which had been taken to market the property between 1991 and 1993, culminating in the eventual sale to Mr Lumley for £53,000. RBS then issued an application for summary judgment returnable in January 1994. In the event, the application was not contested and on 24 January 1994 RBS obtained summary judgment against Ms Tehrani in the sum of £390,740.24 plus costs. In the meantime, Ms Tehrani had decided, with Mr Williams’ advice, to make herself bankrupt, and on 6 April 1994 she petitioned for her own bankruptcy. A bankruptcy order was made on the same day. In the Statement of Affairs which she swore in support of her petition, she said, among other things, that she was unemployed, that she had no income apart from income support in the sum of £176 per month, that she had only two bank accounts containing a total of approximately £511, that she had no other savings, and that she had no other property of value apart from two claims in negligence against persons who had been engaged on works at Cae Haidd Bach which she valued at £50,409 plus interest (but which the Official Receiver subsequently considered to be of no value). She said that her unsecured creditors were owed a little less than £434,000.

Despite, or perhaps more accurately because of, her impending voluntary bankruptcy, Ms Tehrani was actively involved in the latter part of 1993 in arranging a further property transaction to be financed by Mr Knowlden. Her suggestion was that they should buy an investment property, and her brother was again deputed to find a suitable one. They looked at a number of flats, but eventually settled on the property next to Flat 7 at 43 St Stephen’s Gardens, Flat 8, which had been repossessed by the Bank of Ireland and was in need of a considerable amount of refurbishment. Mr Knowlden was persuaded that the acquisition of Flat 8 would make commercial sense, and that the work of refurbishment and subsequent letting of the flat would be easier because it was next door to Flat 7. As in the case of Flat 7, almost all aspects of the acquisition were dealt with by Ms Tehrani. Mr Knowlden insisted on a full survey, but she made the arrangements for it, and the conveyancing was again undertaken by Mr Williams. The sale was by private treaty, and it was completed in February 1994. The purchase price was £80,500, the whole of which was provided by Mr Knowlden from his Midland Bank account in Jersey. He also paid for the refurbishment of the property, which was carried out by Ms Tehrani’s brother at a total cost of £13,000. The property was then let out, the necessary arrangements being made by Ms Tehrani.

As in the case of Flat 7, Mr Knowlden says he believed that he was buying Flat 8 in his own name. Again, however, I am unable to accept this evidence. Flat 8 was in fact acquired in the name of a friend of Ms Tehrani’s, Ms Maryam Salour, and the transfer documents were prepared on this basis by Mr Williams on her instructions. The transfer was in fact never registered at the Land Registry, in common with a subsequent transfer in June 1994 from Ms Salour to Triumph Trading, because of a difficulty concerning the power of Bank of Ireland to transfer good title. In the end the question of title was sorted out in December 1999 by the issue of a new lease granted by 43 St Stephen’s Gardens (Bayswater) Residents Association Limited to Triumph Trading.

Shortly before the purchase of Flat 8, Ms Tehrani raised with Mr Knowlden for the first time the possibility of acquiring an offshore company in the Isle of Man. She told him that the company would be an “asset umbrella” or tax avoidance mechanism that Mr Williams had advised should be set up, and that he would be able to organise it for them. She did not explain the tax benefits in any detail to Mr Knowlden, and he did not ask her to do so. She simply said that there would be tax advantages in holding the investment property in this way. Mr Knowlden was in favour of any means of saving tax, and agreed to the proposal without giving it any detailed consideration. He also agreed that Mr Williams should be instructed to make the necessary arrangements.

Because the discussions about acquiring an offshore company arose when the process of acquiring Flat 8 was already well advanced, it was agreed to proceed with the purchase of Flat 8 as originally planned. Mr Knowlden would purchase the flat, but it would in due course be transferred to the new company.

It was further expressly agreed between Mr Knowlden and Ms Tehrani that they would share a joint beneficial interest in the company and the assets that were transferred to it. Mr Knowlden agreed to this, even though he was financing the purchase of Flat 8, because the purchase, refurbishment and letting of the property was effectively a joint venture between them, with Mr Knowlden providing the money and Ms Tehrani organising all the work associated with a buy to let investment. As Mr Knowlden says in paragraph 133 of his main witness statement, “It seemed natural to me that we should share in any future property investment”. To similar effect, he says in paragraph 134:

“In short I wanted to see us both benefit from something that she had proposed and I was to fund.”

Steps were then taken, through Mr Williams, to establish Triumph Trading in the Isle of Man, and to provide for the shares in the company to be held by the trustees of a discretionary trust, also established in the Isle of Man, called the Silver Owl Trust. I will need to examine these steps in more detail later in this judgment, and to consider whether they truly reflected the oral agreement between Mr Knowlden and Ms Tehrani, or whether (as he now claims) Ms Tehrani sought to set up the offshore structure for her sole benefit and thereby to defraud Mr Knowlden of his intended half share. The basic arrangements were completed by June 1994, when the shares in Triumph Trading were issued to the Silver Owl Trust. Thereafter arrangements were made by Ms Tehrani and Mr Williams for Triumph Trading to open an offshore bank account with Barclays Bank Finance Company (Jersey) Limited (“Barclays Jersey”), for which Ms Tehrani would be the sole signatory. These arrangements were in substance completed by May 1995, although Triumph Trading did not actually open a bank account with Barclays Jersey until March 1996. Throughout this period, Ms Tehrani was an undischarged bankrupt.

Following the acquisition of Triumph Trading steps were also taken by Ms Tehrani and Mr Williams to transfer Cae Haidd Bach, Flat 7 and Flat 8 to Triumph Trading. The transfers were purportedly effected by three deeds of transfer dated 25 February 1994, the transferors being David Lumley, Zaal Zoroaster and Maryam Salour respectively and the transfer being made in each case for a nominal consideration of £1. These purported transfers were certainly backdated, because the process of acquiring Triumph Trading did not begin until May 1994. Furthermore, the nominal transferors, if they were involved at all, must have acted at the direction of Ms Tehrani. However, the transfers achieved their purpose because in due course Triumph Trading was registered as the proprietor of all three properties at HM Land Registry, although (as I have already mentioned) the title that was registered in respect of Flat 8 was in fact a new leasehold title issued by way of confirmation of the title purportedly transferred by Bank of Ireland in 1994. So far as Mr Knowlden was concerned, he says that he knew nothing about any of these purported transfers, although he understood (in accordance with his agreement with Ms Tehrani) that Flat 8 was to be transferred to Triumph Trading.

There were four further developments in 1994 which I should briefly mention:

In November 1994 the Official Receiver gave notice of his intention to apply for his release as Ms Tehrani’s trustee in bankruptcy. In his statement showing the position of the estate at that date, he said that no assets had been disclosed in her statement of affairs, that there was no likelihood of any further realisable assets, and accordingly that there was no prospect of any distribution being made to creditors. In due course he was released as trustee with effect from 14 November 1994.

In June 1995 Mr Knowlden’s marriage was terminated by a decree absolute of divorce. Under the financial settlement, the matrimonial home in Highgate was transferred to his wife together with a lump sum of £200,000. She also retained the house in Gloucestershire which was in her name.

Later in 1995 Ms Tehrani began to look for a house for her and Mr Knowlden to buy. He would have been content to continue living in Flat 7, but now that his divorce from his wife was finalised he agreed to the proposal. A suitable property was found at 43 Graham Terrace, London SW1, and on 1 March 1996 Mr Knowlden purchased a long leasehold interest of 46 years for £382,500. The purchase was mainly financed by an interest-only mortgage taken out by Mr Knowlden with RBS in the sum of £360,000. Further security was provided in the form of an insurance policy in the joint names of Mr Knowlden and Ms Tehrani taken out with Standard Life. The basic sum assured was £181,700, and it was intended that when the policy matured on 1 May 2006 the entire proceeds would be used to pay off the mortgage. The monthly premiums on the policy were paid by Mr Knowlden from his own funds until July 2003. The deposit for 43 Graham Terrace, in the sum of £22,500, was paid by Ms Tehrani, who told Mr Knowlden that she wanted to contribute to the cost of the house.

The leasehold interest in 43 Graham Terrace was purchased by Mr Knowlden in his sole name, but he signed a deed of trust dated 1 March 1996, to which Triumph Trading was also a party, purportedly agreeing that the deposit and professional fees in connection with the purchase had been provided by Triumph Trading, and acknowledging that Triumph Trading was the equitable owner of the entirety of the property. This document had been prepared by Mr Williams, and reflected a proposal by Ms Tehrani that they should buy the property through Triumph Trading and hold it jointly in the same way as Flat 8. Mr Knowlden agreed to this proposal, because he thought that there might be tax advantages in owning the property through Triumph Trading. His relationship with Ms Tehrani was still (from his point of view) a loving and permanent one, and he was happy to give her an interest in the house in the same way as he had been happy to give her an interest in Flat 8. They moved into 43 Graham Terrace immediately on completion, and it then became their home, although Ms Tehrani continued to live for part of the time at Cae Haidd Bach. Mr Knowlden paid all of the mortgage instalments, in addition to the premiums on the Standard Life policy, until July 2003. He also paid all the other outgoings on the house from his own resources.

The next property transaction that I need to mention took place in August 1996, when Mr Knowlden purchased a three bedroom flat near Elephant & Castle in South London from his son Michael. The address of the property was Flat 3, Devonshire House, Bath Terrace, London SE1 (“Devonshire House”). Mr Knowlden had originally bought Devonshire House in about 1986, to be used by his two sons as a home while they were undergoing their medical training. He bought the property with the aid of a mortgage from Britannia Building Society, and the legal title was registered firstly in the name of his elder son Peter, and thereafter in the name of his younger son Michael. The mortgage was also held in each of their names in turn, with Mr Knowlden acting as guarantor. Michael had qualified in 1994, and then moved out, so the original purpose of the purchase had come to an end. The property was also rather dilapidated, having been a student flat for some ten years. Mr Knowlden’s primary concern was to pay off the outstanding mortgage with Britannia Building Society, and he did not intend to keep the property. However, Ms Tehrani suggested that it should be acquired through Triumph Trading and that she would then refurbish it and let it out for the benefit of them both. Shortly afterwards, however, she suggested that he should acquire the flat from Michael, and this was what happened. Mr Knowlden was able to obtain an interest-only mortgage from Midland Bank for £90,000. This sum was used to pay off the existing mortgage, and the balance of about £63,500 was transferred into Triumph Trading’s Jersey bank account. Mr Knowlden also executed a deed of trust in similar terms to the deed which he had executed in relation to 43 Graham Terrace, acknowledging that Triumph Trading was the equitable owner of the property.

Devonshire House was then held in Mr Knowlden’s name for three years, until it was sold in December 1999 for £120,500. During this period it had been refurbished by Ms Tehrani and then rented out. Mr Knowlden paid all the mortgage instalments, and also kept up an associated endowment assurance policy with Standard Life. The rental income, like that from Flats 7 and 8, was received by Ms Tehrani. Following the sale of Devonshire House in 1999, the net proceeds of sale of £26,292 were remitted to the account of Triumph Trading in Jersey.

The next major developments were the sales of Flat 7 and Flat 8, and the use of the proceeds to enfranchise the leasehold interest in 43 Graham Terrace. These transactions took place in 2000 and 2001. In April 2000 Flat 7 was sold by Triumph Trading for £240,000, and in February 2001 Flat 8 was sold by Triumph Trading for £215,000. In each case most, if not all, of the net proceeds of sale were transferred into Triumph Trading’s Jersey account. The conveyancing for each sale, and the enfranchisement of 43 Graham Terrace, were handled by Mr Williams. There were considerable delays in dealing with the enfranchisement, and the acquisition of the freehold reversion of 43 Graham Terrace was not finalised until July 2001. The delays gave rise to a negligence claim which Ms Tehrani pursued against Mr Williams’ professional indemnity insurers.

By this stage, however, matters had taken a fresh turn in Ms Tehrani’s personal life. In April 2001 she met for the first time a Mr Gregory Wong, a businessman who was then divorced and living alone with his 14 year old son. A relationship of both a sexual and a business nature rapidly developed between them. She told Mr Wong that she was an Iranian princess, who had made a fortune in property. She also told him that she had been in a relationship with Mr Knowlden but their relationship was almost over and although they still lived together they occupied separate bedrooms. Within a matter of weeks, Ms Tehrani and Mr Wong had travelled together to Rome, to attend a friend’s wedding, and Ms Tehrani had asked him to sign a Contract for a Happy and Healthy Life in almost identical terms to that which she had persuaded Mr Knowlden to sign a few years earlier. Mr Wong, too, was surprised at the request, but saw little harm in the document and signed it. In June 2001 they became engaged, and Mr Wong gave her a diamond engagement ring.

These developments raised the problem for Ms Tehrani of what was to be done about 43 Graham Terrace, and how she was to extricate herself from her property dealings with Mr Knowlden. The solution which she devised appears to have had the following main ingredients:

The first two of the above objectives were rapidly accomplished. Ms Tehrani persuaded Mr Knowlden that they should let out 43 Graham Terrace for a period of 3 years, and that they should buy a flat to live in meanwhile. They could then move back to Graham Terrace, and treat the new flat as another investment property. Once the decision had been made, they began to look for a suitable flat in the Fulham area. Ms Tehrani soon found a ground floor flat at 246 Munster Road, London SW6 (“Munster Road”), just off the Fulham Road. In August 2001 Munster Road was bought in the name of Mr Knowlden for £180,000, with the assistance of a mortgage from Cheltenham & Gloucester in the sum of £162,000. Mr Knowlden paid the deposit of £18,000 on exchange of contracts. The conveyancing was, as usual, handled by Mr Williams. Munster Road was purchased in the name of Mr Knowlden rather than Triumph Trading because of the need to obtain a mortgage, which only Mr Knowlden was in a position to service.

Over the weekend of 18/19 August 2001, Ms Tehrani moved Mr Knowlden’s furniture and personal belongings out of 43 Graham Terrace and into Munster Road. She was assisted in this task by Mr Wong, who then moved into 43 Graham Terrace with his son. Ms Tehrani and Mr Wong thereupon lived together as man and wife, and from her point of view her relationship with Mr Knowlden was at an end. He, however, still believed that his move was a short-term one designed to facilitate the letting of 43 Graham Terrace, and she thoughtfully told him that she had rented Graham Terrace to a “Chinese family”.

The third objective mentioned in paragraph 28 above was also successfully attained, with the completion of the acquisition of the freehold of 43 Graham Terrace in July 2001. The sum required on completion was £198,437.78, and it was funded by a sum of £200,000 which had been transferred from the Jersey account of Triumph Trading to a client account with Mr Williams’ firm in the name of “Knowlden Leasehold Enfranchisement”. The £200,000 was itself derived from the proceeds of sale of either or both of Flat 7 and Flat 8.

The next stage in Ms Tehrani’s plan, namely the transfer of the freehold and leasehold titles of 43 Graham Terrace and the endowment policy securing the RBS mortgage over the property into her own name, was something that not even Mr Knowlden could reasonably have been expected to agree to. Her radical solution to the problem was to forge a transfer, possibly in conjunction with Mr Williams, whereby Mr Knowlden purportedly transferred the freehold interest in 43 Graham Terrace to her for no consideration. On 2 September 2001 Mr Williams applied to the Land Registry to register this transfer, together with the prior transfer of the freehold estate from Grosvenor Estates to Mr Knowlden. This was one of the last acts carried out by Mr Williams before the Law Society intervened in his practice on 20 September, following an investigation. On 11 October 2001 Mr Williams was formally suspended from practice as a solicitor, and on 2 November 2001 the Office for the Supervision of Solicitors laid a complaint against him under the Solicitors Act 1974 for offences of dishonesty, breaches of fiduciary duty and taking unfair advantage of a client. In due course Mr Williams was struck off the roll of solicitors on 11 July 2002. He was subsequently prosecuted, and pleaded guilty to various charges of theft, false accounting and forgery. He was sentenced to a term of 30 months’ imprisonment, from which he has recently been released.

Meanwhile, in the final months before the Law Society intervened in his practice, Ms Tehrani was also taking steps with his assistance to extract Cae Haidd Bach from the ownership of Triumph Trading and return it to her own name. This was accomplished by a purported sale of Cae Haidd Bach by Triumph Trading to Ms Tehrani, using the name of “Simin Zandnia”, for a purported price of £56,750. The whole transaction was in fact financed by a circular movement of money from Triumph Trading’s Jersey bank account. Whether this purported transaction had any legal effect is a question to which I will need to return. For the moment it is enough to say that on 17 September 2001 Ms Tehrani was registered at HM Land Registry as the proprietor of Cae Haidd Bach, again under her alias of Simin Zandnia. The registration was undertaken on her behalf by Mr Williams, and was another of the last acts which he performed before the Law Society intervened in his practice.

Despite her new relationship with Mr Wong, Ms Tehrani continued to pretend to Mr Knowlden that all was well between them, and to make various excuses for her absences. In late 2001 two further investment properties were acquired by them, at 21 Devonshire Terrace, London W2 (“Devonshire Terrace”) and 96 Dalgarno Gardens, London W2 (“Dalgarno Gardens”). Mr Knowlden was reluctant to incur any further mortgage liabilities himself, so in each case a mortgage was obtained in the name of Ms Tehrani, although in the case of Dalgarno Gardens the mortgage was guaranteed by Mr Knowlden. The purchase price of Devonshire Terrace was £277,500, and the purchase price of Dalgarno Gardens was £240,000. In each case the transfer was taken in the name of Ms Tehrani, and so much of the purchase price as was not borrowed was provided either by her or by Mr Knowlden or by Triumph Trading. The details do not matter for present purposes, because it is now agreed that each property should be treated as being owned beneficially by Mr Knowlden and Ms Tehrani in equal shares, and that Triumph Trading has no claim in respect of either of them.

The solicitors who acted for Ms Tehrani in relation to the acquisition of Devonshire Terrace and Dalgarno Gardens were the fourth defendants, Bobbetts Mackan. That firm was first retained by her after the Law Society had intervened in Mr Williams’ practice and he had become unable to act for her. The scope of their initial retainer was to deal with the registration of the two transfers of the freehold interest in Graham Terrace which had already been executed, in favour of Mr Knowlden and Ms Tehrani respectively, and also to deal with the proposed re-mortgage of the leasehold interest in that property.

With regard to the transfers of the freehold interest, the applications for registration originally lodged by Mr Williams in September 2001 were defective and were cancelled by the Land Registry in March 2002. Further correspondence between the Land Registry and Bobbetts Mackan then ensued, which eventually resulted in Ms Tehrani being registered as the proprietor of the freehold interest in June 2002. However, the proposed remortgage of the leasehold interest proved to be abortive, because Bobbetts Mackan soon ascertained that it was still registered in Mr Knowlden’s name, and that the existing mortgage was also in his name. Although Ms Tehrani then provided the firm with a forged declaration of trust in her favour, they advised her that the proposed re-mortgage could not proceed unless and until the leasehold interest was transferred to her. By August 2002, if not earlier, the firm began to have suspicions about the instructions they were being given by Ms Tehrani, and they then made contact with Mr Knowlden. In the light of what they learnt from him the proposed transfer of the leasehold interest did not proceed, and the firm ceased to act for Ms Tehrani.

After his move to Munster Road, Mr Knowlden saw less and less of Ms Tehrani and became increasingly unhappy at her apparent inability to spend more time with him. He saw even less of her in the first half of 2002, although they did go on a final trip together to Australia in April. Eventually they separated on 24 June 2002. Over the course of the summer further events which are described in Mr Knowlden’s main witness statement caused him to become increasingly suspicious, including his conversation with Bobbetts Mackan in which he learnt for the first time that Ms Tehrani had apparently forged a declaration of trust in her favour over the leasehold interest in 43 Graham Terrace, and a subsequent telephone conversation with Standard Life in which he discovered that she had also forged an assignment by him to her of the endowment policy linked to the RBS mortgage. Having made these discoveries, he immediately cancelled the monthly allowance which he paid to her, and at the beginning of September he instructed solicitors for the first time to act for him and to try to discover what had happened.

On the same day, 2 September 2002, Bobbetts Mackan wrote to Ms Tehrani in terms which made it clear that Mr Knowlden denied having agreed to the transfer and re-mortgage of the leasehold interest in 43 Graham Terrace, and denied having ever signed a letter which Ms Tehrani had provided to the firm in which he purportedly agreed to those steps being taken. In the light of this revelation, Ms Tehrani must have realised that she could no longer hope to keep her deceptions concealed from Mr Knowlden. On the next day, 3 September, she arranged to transfer £202,000 from Triumph Trading’s Jersey account into a Swiss bank account with UBS Zurich, leaving a balance of only about £250 in the Jersey account.

Against this background I can now turn to the present action, which was started by a claim form dated 25 August 2005. The four defendants, as I have already indicated, are Ms Tehrani, Mr Williams, Triumph Trading and Bobbetts Mackan.

The Particulars of Claim are 98 pages long. They are supplemented by voluntary particulars and answers to Part 18 requests for further information which run to well over a further 100 pages. The pleading is rather diffuse, but in essence Mr Knowlden’s case is that between 1993 and August 2002 Ms Tehrani and/or Mr Williams defrauded him of the legal ownership of real and personal property, and used Triumph Trading as a vehicle to receive, hold and deal with assets belonging to him. After setting out the history of the matter, broadly as I have outlined it above and including one or two episodes which I have not mentioned, the claim against Ms Tehrani is summarised in paragraph 389 of the Particulars of Claim. It is alleged that between 1993 and 2002 she acted in breach of fiduciary duty and/or in breach of contract in relation to various property and asset dealings on behalf of Mr Knowlden, and conspired with Mr Williams to defraud him and injure him by unlawful means; that she fraudulently obtained the freehold title to 43 Graham Terrace and the assignment into her own name of the Standard Life policy; that she converted to her own use sums of money which belonged to Mr Knowlden, or which she held on trust for him, including in particular the sum of £202,000 which she transferred from the Jersey account of Triumph Trading on 3 September 2002, such sum representing the proceeds of sale of properties to which Mr Knowlden was beneficially entitled; that she converted to her own use, or fraudulently obtained the benefit of, various policies of insurance belonging to Mr Knowlden; that she wrongfully sought to prevent him from obtaining his proper interest or share in Munster Road, Dalgarno Gardens, Devonshire Terrace and Cae Haidd Bach; that she fraudulently obtained and converted to her own use documents belonging to Mr Knowlden, including the solicitor’s file relating to his divorce proceedings and all of his financial records; that she fraudulently misappropriated various sums of money due to him; and that she converted to her own use personal property belonging to him.

The claim against Mr Williams is that he conspired with Ms Tehrani to defraud and injure Mr Knowlden; that he acted negligently and/or in breach of his contract of retainer in relation to a number of transactions on behalf of Mr Knowlden, including the conveyancing in relation to Flats 7 and 8, the formation, ownership and control of Triumph Trading, and the conveyancing of 43 Graham Terrace; that in breach of fiduciary duty he failed to protect the interests of Mr Knowlden in his dealings or arrangements with Ms Tehrani and Triumph Trading; and that he assisted Ms Tehrani in the production of a number of legal documents, knowing that they were false and knowing that they would be used by her to damage the interests of Mr Knowlden.

The primary claim against Triumph Trading is that it was used by Ms Tehrani and/or Mr Williams as a means of defrauding Mr Knowlden by holding cash and assets which belonged to him. It is alleged in the alternative that any beneficial interest held by any person in Triumph Trading has at all material times been held on trust for Mr Knowlden, and that in so far as funds from Triumph Trading were used to purchase properties in the sole name of Ms Tehrani, Triumph Trading is entitled to a declaration of its beneficial interest in such properties. Furthermore, the company is entitled to the return of the £202,000 misappropriated by Ms Tehrani on 3 September 2002.

The claim against the fourth defendant, Bobbetts Mackan, is much more limited in scope. It is confined to a claim that the firm acted negligently and in breach of duties which it allegedly owed to Mr Knowlden in relation to the registration of the freehold title to 43 Graham Terrace, with the result that the title was registered in the name of Ms Tehrani instead of himself.

On 27 March 2006 Ms Tehrani served a Defence settled on her behalf by leading and junior counsel (Mr Michael Beckman QC and Mr Nigel Meares). As I shall explain, this Defence was effectively abandoned, in so far as it raises any positive case in answer to Mr Knowlden’s claims, shortly before the beginning of the trial. In the light of that abandonment, it can now be seen to be a document of breathtaking mendacity (although I should add, in fairness to Counsel, that there are no grounds known to me for supposing that they acted in any way improperly in pleading it as they did on the basis of their instructions at that time). In outline, the main features of the Defence were as follows:

It is unnecessary for me to refer in any detail to the Defences of Mr Williams and Bobbetts Mackan, because Mr Knowlden’s claims against them were settled just before the start of the trial and were the subject of consent orders in Tomlin form.

The Defence of Triumph Trading, also settled by Mr Michael Beckman QC and Mr Meares, is comparatively short. It denies that Mr Knowlden has any cause of action against the company, and adopts a neutral stance. The Defence is verified by a statement of truth signed by a director of Triumph Trading, Mr Christopher Eaton.

In addition to putting forward a fabricated defence, Ms Tehrani sought to buttress her case with a large number of forged documents and the evidence of no fewer than 18 witnesses (including herself). As late as 20 November 2007, barely a week before the start of the trial on 28 November, her solicitors assured Mr Knowlden’s solicitors that all of those witnesses would be attending court to give evidence. On 22 November, however, without any prior warning, her solicitors sent a letter to the other parties in the following terms:

“Dear Sirs

Re: Knowlden v Nafis Tehrani and others

Please note that the first defendant will not now be calling any witnesses in support of her Defence, and she will not be advancing a positive case in relation thereto.

Our clients will, however, be putting your client to proof of the allegations that he has made.

In the circumstances, we believe that the likely length of the trial is now seven days.”

Ms Tehrani’s solicitors subsequently confirmed that she herself would not be giving evidence.

The reason for this remarkable and last-minute volte-face was presumably a belated realisation that her elaborate defence stood no chance of being accepted by the court. In particular, the agreed expert evidence of the handwriting experts and computer experts, instructed by Mr Knowlden and by the first and second defendants respectively, showed beyond any possibility of reasonable doubt that she had forged a large number of the key documents relied upon in support of her case.

In the event, Ms Tehrani and Triumph Trading were both represented at the trial by junior counsel, Mr Meares, who performed his difficult task with discretion and moderation. Mr Knowlden was represented by Mr Michael McParland and Mr Emmet Coldrick of counsel.

In his skeleton argument Mr Meares explained his clients’ position in rather more detail than the bald announcement in the letter of 22 November. He confirmed that Ms Tehrani abandoned the positive case pleaded in her Defence and in her answers to the claimant’s request for further information, including in particular all claims that she acted at any time as attorney for Mr Gharat, that she received money sent to her by or on behalf of Mr Gharat in Iran, and that she handed over to Mr Knowlden cash delivered to her by a Ms Peyani. Mr Meares also confirmed that Ms Tehrani would not be giving evidence and would call no witnesses, and that she did not rely on “any of the documents” which either she or her witnesses had produced in support of her defence, certain categories of which were then mentioned.

Mr Meares’ skeleton argument went on to say that Ms Tehrani did not oppose Mr Knowlden’s application for declarations as to his beneficial interests in 43 Graham Terrace, Munster Road, Dalgarno Gardens, Devonshire Terrace and Cae Haidd Bach, his beneficial interest in Triumph Trading, and his entitlement under the various policies of insurance which had been entered into, including the Standard Life endowment policy. He submitted, however, that where the beneficial ownership of property is alleged to differ from the legal ownership, the burden is on the non-legal owner to establish his case: see Stack v Dowden [2007] UKHL 17, [2007] 2 WLR 831 where Lord Walker said in paragraph [33] that “The presumption will be that equity follows the law.” It was therefore for Mr Knowlden to establish that he is or was the beneficial owner of property where he was not the legal owner, adducing in support of his case such evidence as is permissible. Accordingly, while Ms Tehrani did not admit that he had beneficial ownership of any of the property of which he was not the legal owner, her defence went no further than putting him to proof of his case.

There then followed a reference to the general rule that a party may not rely on his own fraud or illegality in order to found a claim or rebut a presumption, citing Tinsley v Milligan [1994] 1 AC 340, Tribe v Tribe [1996] Ch 107 (CA) at 928 per Millett LJ and Collier v Collier [2002] BPIR at 1057. The skeleton did not, however, make clear what (if any) were the aspects of Mr Knowlden’s conduct to which this principle might be relevant.

The remainder of the skeleton set out the specific relief to which Ms Tehrani agreed in respect of the five properties mentioned in paragraph 51 above; stated that she did not oppose an enquiry as to what property belonging to Mr Knowlden had been converted by her to her own use (including various specified catagories of property) and an order for delivery up of such property; and stated that she also did not oppose an enquiry as to what files of his relating to his legal or financial affairs were held by her and an order for delivery up thereof. Finally, in relation to Triumph Trading the skeleton merely said:

“Triumph Trading abides by all such orders as the Court might make, and makes no submissions.”

I will now give a brief account of the course of the hearing before me on 28 and 29 November.

Once the consent orders relating to the second and fourth defendants had been dealt with, Mr McParland opened the case on behalf of Mr Knowlden. He dealt in turn with Munster Road, the leasehold and freehold interests in 43 Graham Terrace, Cae Haidd Bach, Devonshire Terrance and Dalgarno Gardens. He also dealt more briefly with the claims relating to paintings and chattels, insurance policies and damages. There was some debate with the court about the legitimacy of the stance adopted by Mr Meares in his skeleton argument. Mr McParland was inclined to submit that there was no scope for Ms Tehrani to put Mr Knowlden to proof of his case without in effect seeking to raise a positive defence. My own view, which I expressed to Mr McParland and to which I adhere, was that even fraudsters are entitled to have a claim against them proved by admissible evidence, and that Mr Knowlden would need to satisfy me on the basis of admissible evidence that he was entitled to the relief which he claimed.

Mr Meares then made some brief opening submissions. He expressly accepted on behalf of his clients Mr Knowlden’s evidence that he and Ms Tehrani had wished to set up Triumph Trading as an offshore property-owning vehicle in which they were to have equal interests. He emphasised that the Silver Owl Trust appeared to have been duly constituted, and submitted that it was necessary for tax-planning reasons for the shares in Triumph Trading to be owned beneficially by an offshore trust. However, the only existing beneficiaries of the Silver Owl Trust are three named charities, and no steps appear to have been taken either to add individual beneficiaries (which the trustees have power to do) or to obtain a letter of wishes. Mr Meares submitted that I had to treat Triumph Trading and the Silver Owl Trust as genuine entities, and that I could not simply look through them.

In response to Mr Meares, Mr McParland pointed out that there was some evidence (in the shape of a letter dated 14 November 2001 from the solicitors who intervened in Mr Williams’ practice to Ms Tehrani) which indicated that two letters of wishes by her were then in existence, and copies of which they sent to her. Neither letter, however, had subsequently been disclosed by Ms Tehrani. For his part, Mr Meares pointed me to a letter dated 4 April 2000 from the agents in the Isle of Man who were dealing with the establishment of the Silver Owl Trust to Mr Williams saying that they had checked their files and were yet to receive a letter of wishes. Even if a letter was subsequently prepared by Ms Tehrani, there is no evidence to suggest that it ever came into the possession of the trustees of the Silver Owl Trust.

The first witness called on behalf of Mr Knowlden was Mr Wong, who verified his two witness statements. He was not cross-examined by Mr Meares. I have to some extent drawn on his evidence in my account of the background facts in the first section of this judgment.

The next witness was Mr Andrew Geoffrey Irvine, who duly verified his two witness statemens dated 8 October and 16 November 2007. Mr Irvine is the solicitor who has had conduct of the present action on Mr Knowlden’s behalf since its inception. His evidence deals with various matters relating to the now-admitted dishonesty of Ms Tehrani and the disclosure of documents, including attempts which had been made without success to obtain copies of Mr Knowlden’s matrimonial files relating to his divorce. The position was that Mr Knowlden himself had destroyed almost all the papers in his possession relating to his divorce when he moved from 43 Graham Terrace to Munster Road in August 2001, and the solicitors who acted for his wife on the divorce, Margaret Bennett, had also been unable to provide them because their relevant archived files had been destroyed in a fire in 2006. For good measure, the Principal Registry of the Family Division had also irretrievably mislaid their file. Mr Meares again had no substantive cross-examination for Mr Irvine, but asked him to confirm (which he did) that a bundle of documents relating to the divorce which had eventually been obtained from Mrs Knowlden herself in the week before the hearing was authentic and not disputed.

After the short adjournment Mr McParland voiced some concerns about the case which, as he saw it, Ms Tehrani was now seeking to advance in relation to Triumph Trading and in relation to the question of illegality. He asked the court to rule on those issues before Mr Knowlden gave evidence. In the event it was unnecessary to do so, because Mr Meares said that his cross-examination of Mr Knowlden would be very short (his estimate was 15 minutes) and confined to a few points of confirmation, clarification or resolution of possible inconsistencies. He expressly confirmed, in answer to a question from myself, that he was not seeking to advance any positive case of illegality or unlawful purpose in setting up the Triumph Trading arrangements. He explained that the references to illegality in his skeleton argument had been directed elsewhere, namely to a possible breach of exchange control regulations if it was said that money had come from abroad. I then said:

“What I thought might have been lurking in the background was some contention of an attempt to hide assets from [Mr Knowlden’s] former wife in the context of the divorce proceedings”,

to which Mr Meares replied:

“No, we are treating the claimant’s evidence as truthful. We are not challenging any of it as untruthful. What we are saying is, where it needs elaborating, we want him to elaborate, and where there may have been inconsistencies, we are inviting him to revisit it.”

Mr Meares also submitted that he was entitled to rely on the declaration of trust signed by Mr Knowlden in relation to the leasehold interest in 43 Graham Terrace, because it formed part of Mr Knowlden’s own case and he admits having signed it. Mr McParland was unhappy about this, but I expressed the view that it was open to Mr Meares to make submissions based upon Mr Knowlden’s uncontradicted evidence, even if that might lead to a conclusion different from that which Mr Knowlden sought to advance.

After one further witness, Ms Priscilla Shiffner, had been called and formally verified her witness statement, upon which nothing turns for present purposes, Mr Knowlden himself gave evidence. In addition to verifying his first and second witness statements, upon which I have already drawn extensively in my account of the background facts, he asked for permission (which I granted) to adduce a third statement referring to certain events which had taken place on the morning of Tuesday, 27 November, the day before the trial started. He said that he was telephoned by Ms Tehrani, to whom he had not spoken since August 2002. She told him explicitly that if he did not accept an offer of settlement which had been put by her solicitors to his on the previous day, to settle the litigation on terms that would include her recovering the sum of £900,000 from the sale of the disputed properties, she would immediately take action to report him to the General Medical Council and the Inland Revenue for various alleged misdemeanours, and would contact Grosvenor Estates to inform them that he had had no right to acquire the freehold of 43 Graham Terrace. Unsurprisingly, Mr Knowlden was shocked by these threats and immediately reported them to his solicitors. My only comment at this stage is that they provide yet another example of the disgraceful way in which Ms Tehrani has conducted the present litigation.

Mr Meares’ cross-examination of Mr Knowlden was indeed short. I will not rehearse it here, but will refer where necessary to the evidence given by Mr Knowlden when I discuss the matters which are still in issue.

After Mr Knowlden had given his evidence, Mr McParland formally put in evidence the remaining witness statements on his side and the expert evidence of the handwriting and computer experts. That concluded the proceedings on Day 1. On the following morning, I heard the parties’ closing submissions. Again, I will not rehearse them at this stage, but will refer to them as necessary below. It was also agreed that I should receive supplementary written submissions, from Mr McParland and Mr Coldrick in relation to the acquisition of Triumph Trading, the declaration of trust by Mr Knowlden dated 1 March 1996 and the question of illegality, and from Mr Meares in relation to the UK tax implications of the structure set up in the Isle of Man. In the event I received a lengthy supplemental closing skeleton and bundle of authorities from counsel for Mr Knowlden, and a brief reply to those closing submissions, and a note on tax, from Mr Meares. I was assisted by this material, and record my gratitude to counsel on each side for its production.

In the course of the hearing it became common ground:

I will begin with the leasehold interest, both because it was the first in time to be acquired, and because each side contended that beneficial ownership of the freehold interest, when it too was acquired, should follow the beneficial title to the leasehold.

To recapitulate, the leasehold interest was acquired on 1 March 1996 by Mr Knowlden in his own name. The purchase price was £382,500. The deposit of £22,500 was paid by Ms Tehrani. The balance of the purchase price, £360,000, was borrowed by Mr Knowlden from RBS. By way of security, he entered into an interest-only mortgage with RBS, and also assigned to RBS a new Standard Life endowment policy in the joint names of Ms Tehrani and himself, as well as various other policies in his sole name. Until July 2003 all the mortgage interest and all the monthly premiums on the Standard Life policy were paid by Mr Knowlden, from his Barclays current account until July 1997 and thereafter from a new current account which he opened with Adam & Co. He also paid all the other outgoings of the property from his own resources until July 2003.

In his first witness statement Mr Knowlden says that he does not know, and did not ask, where Ms Tehrani obtained the deposit of £22,500. He assumed, however, that it was derived from rental income from Flats 7 and 8, and possibly also, in part, from the monthly allowance that he had been making to her for the previous 18 months. The deposit money did not pass through his account, and was presumably paid direct by Ms Tehrani to Mr Williams, who dealt with all the legal and conveyancing aspects of the purchase. I accept this evidence, and find that the deposit too was indirectly provided by Mr Knowlden.

I have already referred more than once to the deed of trust which Mr Knowlden signed on 1 March 1996. Triumph Trading was also, at least ostensibly, a party to the deed, and it was signed on behalf of Triumph Trading by Ms Tehrani. The recitals to the deed stated that it had been agreed that Mr Knowlden would acquire the legal estate of the property, and that the deed was intended to record the financial position in respect of the purchase and the interests of Triumph Trading arising from it. The first two operative clauses then provided as follows:

“IT IS HEREBY AGREED and recorded that:

(1)

The deposit monies, professional fees, agents’ costs and disbursements arising out of and in connection with the purchase by Mr Knowlden of 43 Graham Terrace have been paid for and provided by the Company; and

(2)

Mr Knowlden acknowledges that the Company is the equitable owner of the entirety of the value of the property.”

In the remaining operative clauses, it was acknowledged that Triumph Trading would be making any payments due under any mortgage taken out by Mr Knowlden in respect of the initial acquisition of the property, provision was made for the treatment of “the term life policy” on Mr Knowlden’s death, Mr Knowlden agreed to execute a transfer of the property in favour of Triumph Trading or its nominee upon request without unreasonable delay, and Triumph Trading acknowledged that any other policies required by the mortgagees as security should belong to Mr Knowlden absolutely.

In his first witness statement Mr Knowlden acknowledges that he signed the deed of trust, and explains his reasons for doing so as follows in paragraph 177:

“Before the legal process was very far advanced Simin proposed to me that we buy the property through Triumph Trading and hold it jointly in exactly the same way as Flat 8 was held. We discussed this and I agreed to do as she suggested. I had not thought of this myself and I was not clear what the tax benefits would be but Simin was insistent that it would be a good idea as she claimed that any gain would be taxed at a more advantageous rate. I agreed solely for this reason. I was happy to give Simin an interest in the house as I had been to give her the same interest in Flat 8.”

In cross-examination Mr Knowlden agreed that this evidence was correct. He agreed that the advantage which he perceived of having the ownership of the property in the Isle of Man was that there was a lower rate of tax. He also agreed that the tax advantage could only be obtained if the ownership of the property was indeed in the Isle of Man.

In the light of this evidence, and in particular Mr Knowlden’s acknowledgment that he signed the declaration of trust for tax reasons, I was initially inclined to the view that the terms of the trust deed were conclusive as to the beneficial interest in 43 Graham Terrace, and that Mr Knowlden could not now seek to go behind it. It is of course elementary that where parties spell out their beneficial interests in property in a declaration of trust, the declaration is in the normal way conclusive: see for example Goodman v Gallant [1986] Fam 106. However, even an express declaration of trust will not be conclusive if it is the product of fraud, and Mr McParland submitted that the deed of trust was indeed vitiated by Ms Tehrani’s fraud. The way he put his case, as amplified and clarified in his supplemental closing skeleton, was that Triumph Trading had been established by Ms Tehrani from the beginning as a vehicle which she intended to use to defraud Mr Knowlden. Although her representations to him, and their oral agreement, had been to the effect that Triumph Trading was to be a jointly-owned “asset umbrella”, she in fact procured the establishment of a structure in the Isle of Man which was under her sole control and in which Mr Knowlden had no beneficial interest at all. Contrary to her assurances to him, she never intended that he should have any interest in the company or the new trust set up to hold the shares in the company, and she used the bait of supposed tax advantages to lure him into agreeing to transfer properties into this structure. Had the structure indeed been one under which they were beneficially interested in equal shares, Mr Knowlden would have had no cause for complaint; and it was in the belief that this was the position that he signed the deed of trust on 1 March 1986. In the event, however, he was deceived, because Ms Tehrani and Mr Williams between them ensured that he was excluded from any beneficial interest under the arrangements.

In support of this submission Mr McParland relied in the first place on Ms Tehrani’s pleaded case, which denied that Mr Knowlden had any beneficial interest in Triumph Trading. Her positive case (now abandoned) was that Triumph Trading and the Silver Owl Trust were established at the behest of Mr Gharat, but her Defence also included the negative averments that Mr Knowlden had nothing to do with Triumph Trading and the Silver Owl Trust, that the beneficial ownership of Triumph Trading was never discussed with him, and it was never intended by her or Mr Williams that he should have any beneficial interest in the company: see in particular paragraphs 24 and 102 of the Defence. This negative case had never been abandoned or withdrawn by Ms Tehrani. To similar effect, the pleaded case of Mr Williams was that Triumph Trading and the Silver Owl Trust were acquired with a view to their being controlled by Ms Tehrani, and he nowhere suggested that Mr Knowlden was intended to have any beneficial interest under the structure. The important point here, in my judgment, is not the largely semantic question whether Ms Tehrani’s case was a positive or negative one, or whether she has now abandoned it, but rather that her contentions, as pleaded and verified by a statement of truth signed by her, constitute a clear admission that she never intended Mr Knowlden to have any beneficial interest under the offshore structure.

Secondly, Mr McParland took me through the documentary evidence relating to the establishment of Triumph Trading and the Silver Owl Trust to make good the point that, apart from a single reference by Mr Williams in a letter dated 16 May 1994 to the company formation agents in the Isle of Man, to “my clients” in the plural, there is no mention anywhere of Mr Knowlden, and on the contrary all the indications are that the structure was being established on behalf of Ms Tehrani alone. Moreover, even in the letter of 16 May 1994 Mr Williams was expressing concern that it might be necessary to supply a banker’s reference on behalf of “the beneficial owner [singular] of the company”, and saying that such a reference “may not be possible in the circumstances”. This was of course a problem that affected Ms Tehrani, who was at this date an undischarged bankrupt, but was not a problem that affected Mr Knowlden.

Thirdly, Mr McParland relied on the fact that the offshore bank account which was opened for Triumph Trading with Barclays Jersey was under the sole control of Ms Tehrani, who was the only signatory on the mandate.

The name of the Silver Owl Trust was suggested by Ms Tehrani, who had a particular interest in owls. The apparent absence of any letters of wishes, and the apparent failure of the trustees of the Silver Owl Trust to take any steps to add any individual beneficiaries to the three charities named in the third schedule to the trust deed, are (on the available evidence) undeniably puzzling features of the case. However, I cannot infer from these features that there was any positive intention on the part of Ms Tehrani that Mr Knowlden should be a beneficiary, and in my judgment all the available evidence points the other way.

In the light of this material, I am persuaded that Mr McParland’s contention is well-founded, and I find that Mr Knowlden only agreed to the establishment of Triumph Trading and the Silver Owl Trust on the basis of Ms Tehrani’s fraudulent representations to him that this was a sensible piece of tax planning and that they were to have equal beneficial interests in Triumph Trading and the properties transferred to it. This fraudulent plan was no doubt reflected in the simple document, now lost, which Mr Knowlden remembers being asked to sign in 1994: see paragraph 19(b) above. In my judgment it was only on the understanding that he had a 50% beneficial interest under the Isle of Man structure that Mr Knowlden agreed to sign the trust deed of 1 March 1996 relating to 43 Graham Terrace, and he is not bound by it because (in short) it formed an integral part of Ms Tehrani’s plan to defraud him of his property.

To reach this conclusion does not in my judgment involve any failure to respect the reality of Triumph Trading and the Silver Owl Trust, or any improper attempt to “look through” or disregard them. It may well be the case that, so far as Ms Tehrani is concerned, the structure in the Isle of Man is a perfectly valid one. My conclusion simply recognises that the structure is not binding on Mr Knowlden, and that he is entitled to set aside any transfers of property made by him into it, because he was induced to agree to its establishment by Ms Tehrani’s fraud. Nor is it a sufficient answer to say, as Mr Meares submitted, that the structure might still be made to operate in the way originally intended by Mr Knowlden, for example if letters of wishes were now to be provided by him and Ms Tehrani and the trustees of the Silver Owl Trust were to be invited to add them both as beneficiaries. There is no evidence before me from the trustees, and although Triumph Trading is a party to the action it too has chosen to adduce no evidence, and to be represented by the same solicitors and counsel as Ms Tehrani. In those circumstances I am not prepared to speculate about what might happen if attempts were now made to reform the structure in the Isle of Man, nor am I prepared to take the view that Mr Knowlden has suffered no loss as a result of Ms Tehrani’s deception. Furthermore, even if he had suffered no loss, that would not in my judgment affect his entitlement to unravel any transactions into which he has entered as a result of her fraud.

Mr Meares also took the point that the fraudulent conduct relied upon by Mr McParland had not been pleaded, or at least not pleaded with sufficient clarity. However, I take the view that the essential elements of the alleged fraud are sufficiently pleaded in paragraphs 130 to 150 of the Particulars of Claim, although the pleading would undoubtedly have benefited from a closer focus. Once it is accepted that Triumph Trading and the Silver Owl Trust were established by Ms Tehrani as a vehicle for fraud, it must in my judgment follow that Mr Knowlden is entitled to extricate any property which he transferred into the structure, and to be placed as far as possible in the same position as if the fraud had never been perpetrated. The tax consequences of this unravelling are no doubt a matter that the Inland Revenue will wish to investigate, but are not a matter on which I need to express any view in this judgment.

I now move on to consider the acquisition of the freehold interest in 43 Graham Terrace. It will be remembered that completion of the purchase took place in July 2001, and that the purchase price of a little under £200,000 was transferred from the Barclays Jersey account of Triumph Trading. The £200,000 was itself derived from the proceeds of sale of either or both of Flats 7 and 8. Ms Tehrani was eventually registered as the proprietor of the freehold interest in July 2002, in reliance on a transfer which she had forged from Mr Knowlden to herself.

In view of the findings which I have made about Triumph Trading, and the leasehold interest in 43 Graham Terrace, it is in my judgment clear that Mr Knowlden is now entitled to be registered as the proprietor of the freehold interest too, and that Triumph Trading can assert no beneficial interest in the property. Flats 7 and 8 were both bought and refurbished with Mr Knowlden’s money, and although they were purchased in the names of nominees for Ms Tehrani and were then transferred (or purportedly transferred) to Triumph Trading for nominal consideration, Mr Knowlden is entitled to proceed on the footing that he was at all times the sole beneficial owner of each property under a purchase money resulting trust in his favour, and that he was likewise the sole beneficial owner of the proceeds of sale when the flats were sold by Triumph Trading. Accordingly there are no grounds for differentiating between the beneficial ownership of the leasehold and freehold interests in 43 Graham Terrace.

In contrast to 43 Graham Terrace, there is no suggestion that Mr Knowlden made any financial contribution to the original purchase of Cae Haidd Bach by Ms Tehrani or to its subsequent refurbishment. His claim to be entitled to a beneficial interest in the property depends entirely on the transaction in July 2001 whereby Cae Haidd Bach was purportedly sold by Triumph Trading back to Ms Tehrani for £56,750. Mr Knowlden now says that the purchase price was indirectly provided by himself, and whatever the position may have been beforehand he thereupon became the sole beneficial owner of the property under a purchase money resulting trust.

Mr Knowlden’s pleaded case is that the purported sale was a sham: see paragraphs 54 and 158.12 of the Particulars of Claim, and paragraphs 155 – 160 of the voluntary particulars dated 13 December 2006 provided by him in response to Mr Williams’ request for further information. The reason why the sale was said to be a sham is that Triumph Trading in fact provided Ms Tehrani with the money to “buy” Cae Haidd Bach from it, and between 16 and 30 July 2001 the £56,750 followed a circular course from and back to Triumph Trading’s Jersey account, which was of course under the sole control of Ms Tehrani. The relevant money movements are pleaded in paragraph 54 of the Particulars of Claim.

In my judgment it is obvious from this material that the purported sale was indeed a sham, and in reality it amounted to no more than a voluntary re-transfer of the legal estate in Cae Haidd Bach from Triumph Trading back to Ms Tehrani. A person cannot use his own money to “buy” an asset from himself. There is no suggestion that the £56,750 was lent by Triumph Trading to Ms Tehrani. On the contrary, all the indications are that this was an attempt by her to dress up a voluntary transfer as a transfer for value, and to do so by using the funds of Triumph Trading because she had none of her own. Her motivation for doing this was no doubt her developing relationship with Mr Wong, and her wish to insulate, if she could, the property held by Triumph Trading from possible claims by Mr Knowlden when their relationship came to an end.

This motive is reflected in some instructions to Counsel (Mr Nicholas Orr) which Mr Williams prepared in advance of a conference fixed for 22 June 2001. The purpose of the conference was for Counsel to advise Ms Tehrani on “the financial and legal implications of her co-habitation with [Mr Knowlden] and any possible complications that such a relationship may cause to the property and other assets which she presently owns”. Counsel was informed that Ms Tehrani had owned Cae Haidd Bach for over 14 years, and that:

“The property was purchased outright by [her] some years ago, although it was for various reasons placed in an offshore company whose shares were owned by an offshore trust. The property is now in the course of being transferred into the name of [Ms Tehrani] or her nominee.”

There was no suggestion that the proposed transfer was to be effected by means of a sale.

I should add that a purported declaration of trust dated 8 June 2001, whereby Mr Knowlden supposedly acknowledged that Ms Tehrani had provided the sum of £56,750 which was placed in a bank account of his for onward transmission to Mr Williams in order to fund the acquisition of the freehold of Cae Haidd Bach, appears to be a forgery, and no reliance can in my view be placed upon it.

On the footing that the purported sale of Cae Haidd Bach to Ms Tehrani was a sham, it clearly follows in my judgment that the circular movement of Triumph Trading’s funds cannot be relied upon by Mr Knowlden in order to claim a beneficial interest in the property. In the absence of a true purchase, there cannot be a purchase money resulting trust; nor can Mr Knowlden claim to trace the funds of Triumph Trading into Cae Haidd Bach as a property genuinely acquired with those funds. The absurdity of such a contention is quickly apparent, because there was no real application of Triumph Trading’s funds in the acquisition of Cae Haidd Bach or anything else. What Triumph Trading lost was not the sum of money purportedly used to buy Cae Haidd Bach, but Cae Haidd Bach itself. Whether that loss gives rise to a claim by Triumph Trading against Ms Tehrani, or whether Triumph Trading at all material times held the property as a nominee or bare trustee for her, are not questions with which I am now concerned. It is enough for me to say that Mr Knowlden has in my judgment failed to make good any basis for claiming a beneficial interest in Cae Haidd Bach. This is not a conclusion which I reach with any reluctance, because it seems to me to reflect his own perception of the matter and his pleaded case that the so-called sale was a sham.

I was troubled at various stages during the hearing by a point which (for different reasons) neither side was keen to explore, namely the question whether Mr Knowlden may have acted unlawfully in trying to conceal his beneficial ownership of assets (including in particular Flats 7 and 8) from his wife in the context of their separation and the ensuing divorce proceedings, and (if so) whether the existence of such illegality has any impact on the relief which he now seeks in the present action.

It is fair to say at the outset that no case of illegality is pleaded against Mr Knowlden, and as I have already said Mr Meares in his oral submissions expressly disclaimed any intention of raising such an argument, although it did at one stage appear to be foreshadowed in his skeleton: see paragraph 60 above. For these reasons alone, Mr McParland submitted with some force that it would be wrong for me to investigate the question at all. However, I am not sure that it can be brushed aside quite so easily. The doctrine of illegality, as developed by the courts in this jurisdiction, is at heart a doctrine of public policy, and I would be reluctant to grant Mr Knowlden any relief to which he would otherwise be entitled, without at least considering the question of illegality, if I felt that he arguably had to rely on his own unlawful conduct in order to make good his claim. It was for this reason that I invited Mr McParland and Mr Coldrick to deal with the point more fully in their supplemental written submissions.

That there might be some substance to my concerns is illustrated by the fact that at one stage during his brief cross-examination Mr Knowlden declined to answer a question, clearly on the basis (although he did not say so in as many words) that to do so might incriminate him. The question related to what he had said in an affidavit of means sworn in his divorce proceedings on 24 June 1994. In that affidavit he gave his address as Flat 7, and said among other things:

“The property in which I live is rented. When I was granted the tenancy it was on the basis that two years rent was paid in advance. Accordingly, I will commence payment of rent in April 1995.”

There was no indication in the affidavit that he had provided the purchase price of Flat 7, and he clearly purported to rely on the alleged tenancy as a genuine transaction. When asked by Mr Meares whether the account which he had given in this affidavit, at the time of the events in question, was more likely to be correct than his evidence in the present case, Mr Knowlden answered: “My Lord, I wish to be silent on that answer”. He was then shown a tenancy agreement dated 20 July 1993 by which Zaal Zoroaster purported to let Flat 7 to him for an assured shorthold tenancy of two years from 23 July 1993 in consideration of an advance payment of rent of £48,750 for the whole two year period. Mr Knowlden admitted that he had signed this document.

In the light of this material it seems likely, to put it no higher, that Mr Knowlden knew perfectly well that Flat 7 had been purchased in the name of Zaal Zoroaster, and that he pretended to his wife in the divorce proceedings that he had no interest in the property save as a tenant under the tenancy agreement. If that is right, his conduct was dishonest and discreditable, he perjured himself in his affidavit of means, and he successfully concealed from his wife that he was in fact the beneficial owner of Flat 7. However, I will not embarrass Mr Knowlden any further by making definite findings of fact in those terms because, as I have already said, there is no pleaded defence of illegality, and more importantly because even if those were the true facts I am satisfied that he would not now need to rely on his unlawful conduct in order to make good his claim to the freehold interest in 43 Graham Terrace (which it will be remembered was paid for by Triumph Trading with money derived from the sale of Flat 7 and/or Flat 8). In my judgment the only matters upon which Mr Knowlden needs to rely for this purpose, are the following:

In these circumstances Mr Knowlden’s claim to the freehold of 43 Graham Terrace appears to me to fall within the principles stated by Lord Browne-Wilkinson in Tinsley v Milligan [1994] 1 AC 340 at 370 and summarised by Millett LJ in Tribe v Tribe [1996] Ch. 107 at 124 as follows:

“It is, therefore, now settled that neither at law nor in equity may a party rely on his own fraud or illegality in order to found a claim or rebut a presumption, but that the common law and equity alike will assist him to protect and enforce his property rights if he can do so without relying on the fraud or illegality. This is the primary rule.”

By parity of reasoning, I consider that Mr Knowlden is equally entitled to establish his beneficial ownership of Flat 8, even though there is no explicit mention of that property in his affidavit of means and the details which he gave of a sum of £140,000 which had been invested in an “investment property portfolio” apparently related to different assets. The crucial point here is that the legal title to Flat 8 was vested in Maryam Salour, who like Zaal Zoroaster is a person in respect of whom no presumption of advancement arose, so she too held the property on a resulting trust for Mr Knowlden.

For these reasons I am satisfied that the doctrine of illegality does not present any obstacle to Mr Knowlden in the present action, and does not cause me to alter my conclusion that he is now entitled to claim beneficial ownership of the freehold of 43 Graham Terrace. The question does not of course arise in relation to the leasehold interest, which is in his name and was purchased long after his divorce had been finalised.

I believe that I have now dealt with all the matters in dispute before me at the hearing. For the reasons which I have given, I consider that Mr Knowlden’s claim to 43 Graham Terrace succeeds but his claim to Cae Haidd Bach fails. Subject to one or two minor exceptions, the other relief claimed by Mr Knowlden was either conceded by Mr Meares in his skeleton argument or agreed during the course of the hearing. The exceptions are referred to at the end of the supplemental closing skeleton for Mr Knowlden, and in my view are unlikely to be controversial. In the circumstances I would ask Counsel to agree a Minute of Order as far as possible in the light of this judgment. If there are any outstanding questions, they can be dealt with when the judgment is handed down.