Red River UK Ltd & Anor v Sheikh & Anor

This action concerns the fallout from an ill-fated property deal which has already engendered several years of acrimonious litigation. The property in question (“the Property”) is the site of a former Esso petrol station in Stoke Newington, London, N16 at 37-47 Stoke Newington Road immediately south of the junction with Barretts Grove. The Property has development potential, and on 5 July 2004 conditional planning permission was granted by the London Borough of Hackney for a mixed commercial and residential development on the site, comprising 32 residential units on four floors over a parade of six commercial units together with underground storage facilities and 20 car parking spaces.

Legal title to the Property is vested in the first claimant, Red River (UK) Limited (“Red River”), a UK-registered company which was established as a special purpose vehicle for the purchase of the Property by the second claimant, Mr Ismail Dogan, a Turkish businessman who has at all material times lived and worked principally in England, although he retains a Turkish domicile. The solicitor who acted for Red River and Mr Dogan in relation to the purchase of the Property was the first defendant, Miss Anal Sheikh, a sole practitioner who practised under the style of Ashley & Co at 49 Blackbird Hill, London, NW9. The second defendant, Mrs Rabia Sheikh, is Miss Sheikh’s mother. She is an old lady, now 81 or 82 years of age, and in poor health.

I will usually refer to the defendants as Miss Sheikh and Mrs Sheikh respectively, although I will also at times (and without intending any disrespect) refer to them by their initials as AS and RS.

The purchase of the Property was completed, after a number of vicissitudes, on 11 August 2004. The purchase price, which had been increased following an earlier dispute with the vendor, was £1.825 million plus VAT of £319,375, making a total of £2,144,375. Mr Dogan was unable to raise the whole of the purchase price himself, as he and Red River were in some financial difficulties at the time. £1,444,375 was borrowed by Red River from the Bank of Scotland, secured by a first legal charge on the Property and a debenture whereby Red River granted the Bank fixed and floating charges over its assets. According to a completion statement apparently prepared by Miss Sheikh on 2 September 2004, Mr Dogan himself contributed £436,705. The balance was provided by Miss Sheikh, in a sum (according to the statement) of £381,517.83, comprising a “credit for fees” of £70,000 and an actual payment of £311,517.83. The total amount thus contributed to the purchase by Red River, Mr Dogan and Miss Sheikh was £2,262,597.83, the difference from the purchase price being accounted for by various professional fees, expenses and disbursements.

It was agreed that Miss Sheikh’s contribution should be treated as a loan by her to Red River, and that she should in addition be allotted 35% of the shares in Red River. It was later also agreed that she should become a director of the company. Steps were duly taken to increase Red River’s issued share capital to 100 ordinary shares of £1 each, and 35 of the shares were transferred to Miss Sheikh’s mother. It is common ground that Mrs Sheikh has at all times held those shares as a nominee for her daughter.

In addition, Miss Sheikh’s interests were further protected by a restriction on the registered title of the Property (title number LN 210549). Apparently on the day of completion, 11 August 2004, Mr Dogan on behalf of Red River and Miss Sheikh in her capacity as Red River’s conveyancer both signed an application by Red River to enter a restriction in the following terms:

The net effect of these two restrictions (“the Restrictions”) was that no disposition of the registered estate by Red River could take place without the written consent of Mrs Sheikh, such consent to be certified by Miss Sheikh. The Restrictions play a pivotal part in the present action, because (as I shall explain) it was Miss Sheikh’s failure to provide the necessary Land Registry forms for removal of the Restrictions in August 2007, following the conclusion of a settlement agreement between the parties in June 2007, which precipitated the present proceedings. From Red River’s point of view, it is imperative that the Restrictions should be removed from the title, and that this should be achieved by early May 2010 at the very latest, because their removal is a precondition of the unconditional exchange of contracts for a long-delayed sale of the Property by Red River to a housing association, Metropolitan Housing Trust Limited. The date for unconditional exchange has been extended to 19 May 2010 but (according to Mr Dogan’s evidence, which I see no reason to doubt) cannot be extended any further.

I should note at this point that the loan by Miss Sheikh to Red River, and the arrangements which were made to protect her investment, all took place at a time when she was acting for Red River and Mr Dogan as their solicitor. Despite the obvious conflict of interest, she appears to have taken no steps at all to ensure, or even to advise, that they should be separately represented. However, although Red River and Mr Dogan have at various times expressed understandable concerns about this aspect of the matter, and although there must in my view be serious issues about the propriety of Miss Sheikh having acted as she did, such concerns form no part of the present action, and in particular there is no challenge on that ground to the validity of either of the Restrictions.

Unfortunately, the business relationship between Mr Dogan and Miss Sheikh soon broke down, and a number of disputes between them led to the commencement of at least six separate sets of proceedings, including a professional negligence claim by Red River against Miss Sheikh, proceedings by Mr Dogan to remove her as a director of Red River, a petition by Miss Sheikh under section 459 of the Companies Act 1985, and an unsuccessful application in April 2007 for cancellation of the Restrictions. It is unnecessary for me to trace the history of these disputes in any detail, because they were all resolved by a successful mediation between Red River, Mr Dogan and Miss Sheikh which took place on 29 June 2007. The terms of settlement were negotiated over the course of a long day at the offices of Mills & Reeve, solicitors, in London. Mr Dogan was present with one of his sons, his daughter, his accountant, and his solicitor, Mr Daniel Schaffer, who is the senior partner of Isadore Goldman. Miss Sheikh was accompanied by her financial adviser, Mr Nitin Sampat, and by Mr Guy Hodgson, a partner of Mills & Reeve who were acting for her professional indemnity insurers. The very experienced mediator was Mr Bill Marsh, who was for 11 years executive director of the Centre for Effective Dispute Resolution in London and was one of its leading mediators with extensive experience in a wide range of commercial and other disputes. At about 10 pm on that day, the parties entered into a written settlement agreement (“the Settlement Agreement”) which was signed by Mr Dogan on behalf of himself and Red River, described as “Party A” in the document, and by Miss Sheikh on behalf of herself and her mother, described as “Party B”. The terms of the Settlement Agreement are of crucial importance, so I will now describe them in some detail.

The Settlement Agreement recited that the parties had invested in the Property as development land, that five sets of proceedings had been issued as a result of the dispute between the parties, including those which I have mentioned above, that there was a further dispute in progress in the Willesden County Court in which Ashley & Co was seeking to recover fees from Mr Dogan and his son Ismet Dogan, and that the parties had agreed to settle the Dispute (defined as meaning the five claims and the additional claim) on the terms then set out.

Clause 1 provided that Party A (Red River and Mr Dogan) would pay to either Miss Sheikh or her mother, as might be directed, a total of £1.2 million payable as to £300,000 on or before 31 July 2007, i.e. within little more than one month, and as to the remaining £900,000 on or before 29 December 2009, that is to say within a period of approximately two and a half years. Both payments were to carry interest at 4% over the base rate of National Westminster Bank, such interest to be discharged in full by 29 December 2009 with payments on account of £3,000 per month after deduction of basic rate income tax starting on 1 August 2007, and increasing to £7,500 per month after tax with effect from 1 May 2008.

Clauses 2 to 4 then provided as follows:

I need not refer in detail to any of the other provisions of the Settlement Agreement. It provided that its terms were to be confidential to the parties and their advisers, and that it was to be governed by and construed in accordance with English law. The parties were each to bear their own legal costs in relation to the Dispute and carrying the Settlement Agreement into effect. The existing claims covered by the Dispute were to be discontinued with no order as to costs. There was an entire agreement clause, and also a severance clause if any part of the Settlement Agreement was found to be invalid or unenforceable. Clause 11 provided that the Settlement Agreement was entered into without any admission of liability or wrongdoing on either side.

Although the Settlement Agreement did not say so in terms, it is clear from the references to the Bank of Ireland in clause 3, and from the provision in clause 2 requiring delivery up of the necessary forms to procure removal of the Restrictions, that the parties contemplated a remortgage of the Property with the Bank of Ireland, which would take the form of a first charge capped at £1.75 million, subject to which a second charge would be granted to Miss Sheikh and/or her mother to secure payment of the £1.2 million and interest due under clause 1, and the terms of which would provide for the full amount to become due on demand if any default was made in making any payment pursuant to clause 1.

Such a remortgage would obviously require the consent of the existing first mortgagee, Bank of Scotland, which would have to be paid off in full. It would also require a deed of priority, or some similar agreement, to be entered into between the Bank of Ireland and the Sheikhs, so as to ensure that the sums advanced or to be advanced by the Bank of Ireland on the security of its first charge could not exceed the stipulated limit of £1.75 million. The terms of the second legal charge itself were not spelt out apart from the requirement for an acceleration clause on default in payment of the sums due under clause 1, but the terms had to be both approved by the Bank of Ireland and reasonably acceptable to Miss Sheikh.

It should be noted that time was not stated to be of the essence of any of the obligations in clauses 1 and 2 of the Settlement Agreement, nor was the obligation on Red River and Mr Dogan to pay the initial £300,000 by 31 July 2007 expressed to be conditional in any way on the proposed refinancing with the Bank of Ireland.

The Settlement Agreement also did not say what was to happen if for any reason it proved impossible to obtain the proposed refinancing. In an earlier judgment which I delivered on 21 May 2008, not long after my initial involvement in the case, I said in paragraph 17 that I thought three points could be made in this connection. I stand by them, and for convenience will repeat them:

Most regrettably, the spirit of compromise which led to the Settlement Agreement seems to have evaporated, at any rate so far as Miss Sheikh was concerned, with almost immediate effect. For reasons which still remain obscure to me, she persuaded herself at a very early stage that Red River and Mr Dogan had not entered into the Settlement Agreement in good faith, and that they were determined to bring about a fraudulent transaction which would leave her and her mother without any worthwhile security for the sums owing to them under the Settlement Agreement. Whatever her private motivation may have been, Miss Sheikh embarked on a course of conduct which culminated, after a series of urgent interim hearings, in the service by her of a winding up petition against Red River on 5 October 2007, immediately after a hearing before Briggs J which appeared to have resolved the final outstanding issues to the complete satisfaction of all concerned, including her own counsel, Mr Nigel Meares. The service of this petition, together with two inflammatory letters which Miss Sheikh sent at the same time to the Bank of Ireland’s solicitors, Burges Salmon LLP, had the entirely predictable (and, I am satisfied, intended) result that the Bank withdrew its offer of refinance which, after a convoluted history, had been on the brink of successful completion. I will need to trace some of this convoluted history in more detail later in this judgment. The important point to note at this stage is that, by her deliberate actions, Miss Sheikh prevented the refinancing from taking place, and (as it has turned out) put paid to Red River’s plans to redevelop the Property itself.

The present action had its inception in a claim form issued in the Chancery Division of the High Court on 22 August 2007. By it the claimants sought an order for delivery up of the documents referred to in clauses 2.1 and 2.2 of the Settlement Agreement, or alternatively damages for breach of contract. In the attached particulars of claim, which were settled by Mr Tom Smith of counsel, brief details were given of the acquisition of the Property, Miss Sheikh’s loan (said to be in the sum of £329,000), the 35% shareholding in Red River of Mrs Sheikh as nominee for her daughter, the entry of the Restrictions, and the compromise of the matters in dispute between the parties by the Settlement Agreement. It was alleged that in breach of the Settlement Agreement Miss Sheikh had failed, within seven days of its date or at all, to deliver up to Isadore Goldman (a) the documents needed to remove the Restrictions, and (b) stock transfer forms for the 35 shares duly executed by Mrs Sheikh. Orders were sought that these documents should be delivered up forthwith. There was also an ancillary claim for damages for breach of contract, although the only specific head of damage pleaded at this early stage was excess interest incurred as a result of Red River’s inability to redeem the Bank of Scotland mortgage in favour of replacement financing carrying a lower rate of interest. Warning was also given (in paragraph 18) that, if the Sheikhs failed to comply with their obligations under the Settlement Agreement, and if such failure caused Red River to lose the opportunity to redevelop the Property, Red River would claim damages to compensate it for the resulting loss of profit.

On 10 September 2007 the Sheikhs filed a defence and counterclaim, settled on their behalf by Mr Hugo Page QC. The background facts were largely admitted, although it was alleged that as well as providing cash finance of £329,000 Miss Sheikh also “invested a very large sum in fees owed by the claimants to her firm”. I infer from the lack of particularity of the “very large sum” that Mr Page had probably not been provided by Miss Sheikh with a copy of the completion statement of 2 September 2004. The key contention advanced on the Sheikhs’ behalf was that on the true construction of the Settlement Agreement, including in particular clause 3, they were only obliged to provide the relevant documents upon execution by Red River of a legal charge compliant with clause 3, or alternatively Isadore Goldman were to hold the documents to their order not only until the £300,000 had been paid, but also until such a charge had been executed. As I have already indicated, I consider that this alternative contention was well-founded, and the parties must in my view have intended that Isadore Goldman would not be free to release the documents for use by Red River unless and until a second charge securing the sums payable to the Sheikhs under the Settlement Agreement had been executed.

The defence went on to allege that the Sheikhs were entitled to refuse to deliver up the documents because Isadore Goldman had refused to confirm that they would hold them to the Sheikhs’ order until their second charge had been executed. The Sheikhs were said to have confirmed on a number of recent occasions that they agreed to hand over the documents to Isadore Goldman upon receipt of such confirmation. Further or alternatively, it was alleged that the claimants were themselves in breach of the Settlement Agreement because the Bank of Ireland had refused to allow them to execute a charge giving the Sheikhs a right of foreclosure as provided by clause 3.1 of the Settlement Agreement and/or had refused to limit its charge to £1.75 million as provided by clause 3.2. The counterclaim sought payment of the sum of £300,000, which was said to have fallen due on 31 July 2007. It was averred that, if Isadore Goldman had given the requisite undertaking, the Sheikhs would have handed over the documents and thus performed the condition precedent to the claimants’ obligation to pay the £300,000. Further, if the undertaking had been given and the documents had been provided, the Sheikhs would have become entitled to an equitable charge in the terms of clause 3. The claimants’ case was averred to be that without provision of the documents there could be no equitable charge. On that footing, the result of the claimants’ breach was to deprive the Sheikhs of the value of such a charge equal to £1.2 million, and damages were claimed accordingly.

On 1 November 2007 the claimants filed a reply and defence to counterclaim, again settled by Mr Tom Smith. The reply merely joined issue with the defence. The defence to counterclaim pleaded that the Sheikhs were obliged under the Settlement Agreement “to act in good faith in such a way as would bring about the completion rather than the sabotage of the refinancing”, and that on its true construction clause 1 was subject to an implied condition precedent that they would comply with this obligation. This they had failed to do, and they had “sought to resist the implementation of the refinancing at every opportunity”. In the circumstances, any obligations of the claimants under clause 1 had not arisen. It was denied that there had been any breach of the Settlement Agreement by the claimants, because Isadore Goldman held, and would continue to hold, the documents, following their belated delivery by the Sheikhs, pending the making of any payment due under clause 1.1. Further, since there was at that time no liability owing from the claimants to the Sheikhs, for the reasons already pleaded, the Sheikhs did not have the benefit of any equitable charge.

I have summarised the pleadings in their original form because they provide the formal background to, and also reflect the progress of, the events of August to November 2007, including the service of the fatal winding up petition on 5 October.

I now turn to the statements of case in their present form. They consist of:

Paragraphs 1 to 14 of the re-amended particulars of claim repeat the background sections of the original particulars, but with the addition of allegations:

The re-amended particulars then traced the history of events from September 2007 onwards, and alleged that the service of the winding up petition on 5 October 2007, together with the associated letters sent to Burges Salmon, was deliberately designed by the Sheikhs to frustrate and sabotage the proposed refinancing transaction (see in particular paragraphs 35 to 42). The history of the proceedings was then continued, including the presentation and striking out of a second winding up petition, down to the end of 2008 (paragraphs 44 to 68). Paragraph 69 provided a compendious statement of the breaches of contract relied upon by the claimants:

Particulars of loss and damage were then pleaded, which I will not summarise at this stage beyond saying that there was a claim for loss of profit “in the region of £5 million” on the redevelopment that the claimants would have carried out if the Sheikhs had not sabotaged the proposed refinancing with the Bank of Ireland, and if the “credit crunch” had not subsequently made it impossible to obtain replacement finance. Finally, in paragraph 73 it was pleaded that on 6 March 2009:

The amended defence begins by deleting the whole of the original defence settled by Hugo Page QC, but much of the background relating to the acquisition of the Property and the history of events down to the Settlement Agreement is still admitted. Points to note include the following:

Paragraphs 13 to 16 deal with the Settlement Agreement and its construction. Since these are essentially issues of law, I need not set them out. I would however draw attention to a certain ambivalence between paragraph 13, which appears to accept that clauses 2 and 3 of the Settlement Agreement were interdependent and required concurrent performance, and paragraph 14, which denies that there was a composite transaction as Briggs J had held and as the Sheikhs had unsuccessfully contested before Rimer LJ on their application for permission to appeal.

Paragraphs 17 to 68 then set out the Sheikhs’ version of the subsequent history of events down to December 2008. Paragraphs 69 and 70 deny any breach of contract or deliberate sabotage of the Settlement Agreement, and put the claimants to proof of their claim for damages. Following a general denial that the claimants are entitled to any relief, the final two paragraphs read as follows:

In the event, the proposed counterclaim did not materialise, in a final form verified by a statement of truth, until 4 March 2010 a few days before the delayed start of the trial. It is very difficult to know what to make of this document. Most of it is devoted to a lengthy narrative of the stages of the alleged fraudulent transaction which Miss Sheikh says the claimants embarked upon in the aftermath of the Settlement Agreement, but it also contains a further version of the terms on which the Property was originally acquired (paragraphs 2 to 6), an allegation that the Sheikhs were induced to make their contribution to the purchase by fraudulent misrepresentation (paragraphs 7 to 8), and an allegation that the Settlement Agreement itself was the product of fraudulent misrepresentation (paragraphs 15 to 18). I do not intend to spend any time on these allegations, because they are in my judgment wholly unsupported by any credible evidence, and they fail to meet the stringent requirements for the pleading of allegations of fraud. Furthermore, Miss Sheikh herself was made bankrupt by an order of Mr Registrar Nicholls dated 4 February 2010, so she no longer has any direct interest in pursuing the allegations, because any causes of action which she may have are now vested in her trustee in bankruptcy, and he has neither adopted them nor assigned them back to her.

Despite the apparent attack on the validity of the Settlement Agreement, the relief claimed in the amended counterclaim includes, in the alternative, payment of the sums of £300,000 and £900,000 due under the Settlement Agreement together with interest thereon. To this extent, I consider that I should treat Mrs Sheikh, who has signed the amended counterclaim together with her daughter, as having a valid counterclaim based on the terms of the Settlement Agreement.

The amended counterclaim is but one aspect of the relentless campaign that Miss Sheikh has waged with the aim of establishing that she and her mother have been the victims of a fraudulent conspiracy designed to deprive them of the sums due under the Settlement Agreement, or at least to leave them without any worthwhile security for the second and main instalment of £900,000 plus interest payable by 29 December 2009. As so often with conspiracy theories, it has become ever more complex and at the same time ever more implausible. In its latest form, a one thousand page so-called “Fraud Report” which was delivered to me on Miss Sheikh’s behalf on Day 1 of the trial, together with a request for an adjournment on behalf of her mother, the conspiracy involves not only Red River, Mr Dogan and Isadore Goldman, but also the Bank of Ireland and Burges Salmon, many of the counsel who have acted in the case, various court officials, and several judges, including Briggs J and myself.

The stages in the development of this campaign include:

Miss Sheikh asked me to read the Fraud Report, and I have done so. I regret to say that I find it to be misconceived and vexatious. I do not intend to take any action in relation to it.

A related problem is that Miss Sheikh has shown herself to be an obsessive, and often vexatious, litigant, who is ready to flood the court with applications and communications of all kinds, most of which are devoid of merit or otherwise inappropriate. She combines a determination to impose her own agenda on the court and the proceedings, with a complete disregard of orders and directions unless they happen to coincide with her own wishes. By way of example, at the end of my judgment of 21 May 2008 I dismissed all twelve of her applications and certified eleven of them to be totally without merit. I gave her a stern warning that the time was fast approaching when the court might need to consider whether to make a civil restraint order (“CRO”) against her. In the event, a general CRO was made against Miss Sheikh by Burnett J in unrelated proceedings in the Queen’s Bench Division on 17 July 2009, although with an exception for the present proceedings. Miss Sheikh has more than once accused me of having master-minded the making of this CRO, but I can assure her that I knew nothing about it until after it had been made. I did, however, find it necessary to make limited CROs against Miss Sheikh and her mother on 13 October 2009, restraining each of them from making any further application against the Bank of Ireland, its directors, officers or employees without first obtaining permission from myself or another judge of the Chancery Division. I also found it necessary, in the course of the trial itself, to give a ruling on Day 7 reserving the right to dismiss any further applications, without giving reasons, if they appeared to me devoid of merit: see paragraph 72 below.

A yet further layer of procedural complexity has been added to the case by Miss Sheikh’s bankruptcy. The petitioning creditor is unconnected with the present proceedings, and the trustee in bankruptcy, Mr Matthew Chadwick of BDO Stoy Hayward, who was appointed on 18 February 2010, had no previous knowledge of or involvement in the case. He and his solicitors, Withers, therefore needed time to consider the position and to decide what attitude to adopt to the proceedings. This had to be done as a matter of considerable urgency, because the window for the trial, with a three week time estimate, was due to begin on Monday, 1 March. At two hearings on 15 and 19 February, when I was sitting as the applications judge and had to deal with the matter as part of a full list, I decided to adjourn further consideration of an application by the claimants for unless orders against the Sheikhs until the beginning of the trial window. I did this partly in order to enable the trustee to consider his position, but also because I was increasingly concerned about the position of Mrs Sheikh. On 15 February I had been informed by Miss Sheikh that her mother was in bad health, and would not be able to cope with the rigours of a trial. Miss Sheikh also said that she could no longer represent her mother, except in relation to certain outstanding applications, and that the Official Solicitor had been approached on her mother’s behalf. I was supplied by Miss Sheikh with a short note of a consultation with her mother’s GP, Dr Pandya, on 8 February 2010, and a copy of a an earlier letter from Dr Pandya dated 29 June 2009 to the Psychiatric Department at Northwick Park Hospital, Harrow, requesting a further appointment for “this patient who seems to be suffering from moderate to severe depression”. There was no indication whether that request had ever been followed up, nor was any formal medical evidence placed before the court. I was, however, also supplied with a letter from Mrs Sheikh herself, saying that she was unable to attend court on 15 February because she was ill and depressed, that she wished to see Mr Dogan “brought to justice for his dishonest behaviour”, and that she herself had “great faith in British justice”. In the light of this material, I was anxious that the Sheikhs should be given a final opportunity to see if separate representation could be arranged for Mrs Sheikh, and I indicated that I might be willing to put back the start of the trial by one or two weeks.

On 25 February the trustee issued an application in the bankruptcy proceedings, returnable before me on 1 March, seeking an order that the present action (including the counterclaim) be stayed, and that Red River and Mr Dogan be directed to submit proofs of debt which the trustee would then decide whether to admit or reject, with an accelerated timetable for determination of any dispute. On 1 March I heard argument on this question from counsel for the trustee, Mr Stephen Schaw Miller, from Mr Schaffer on behalf of the claimants, and from Miss Sheikh. The application was made pursuant to section 285(1) of the Insolvency Act 1986, which provides that:

I also rejected a submission by counsel for the trustee that the claims involving Mrs Sheikh could, if the court so directed, be determined in a summary fashion within the bankruptcy proceedings. It seemed to me that, even if an acceptable procedural means of achieving this could be devised, the nature of the claims and the matters in dispute was such that they were inherently far better suited to resolution by a trial, and it might be unfair to Mrs Sheikh to require her to submit to a summary alternative method of resolving her claims when she was not herself bankrupt.

The trustee did not seek to appeal against my decision, so the trial has taken place against both defendants even though Miss Sheikh is an undischarged bankrupt. It is important to note, however, that my decision to proceed in this way did not alter the fact that Miss Sheikh’s causes of action had vested in the trustee, and that any monetary judgment against her could only give rise to a debt provable in the bankruptcy. In other words, it remained the case that she had no direct personal interest in the proceedings, and the decision whether to participate in the trial was ultimately one for the trustee to take, unless of course he assigned the relevant causes of action back to her. I was told at the hearing on 1 March that the question of an assignment was under active consideration, but no decision had yet been taken.

Having rejected the application for a stay, it was also necessary for me on 1 March to deal with the claimants’ adjourned application for unless orders against the Sheikhs. These orders were sought because they had taken no steps to comply with directions which I had given on 14 December 2009, at a case management conference, requiring them to file and serve their amended defence and counterclaim by 4 pm on 15 December, to give standard disclosure by 28 December, and to exchange signed statements of witnesses of fact by 15 January 2010. This wholesale failure to engage with the necessary preparations for trial was unfortunately symptomatic of Miss Sheikh’s general attitude to the proceedings. While devoting enormous amounts of time and energy to the preparation of her Fraud Report, and to efforts to obtain a summary determination of the case in her favour, she seems to have persuaded herself that the forthcoming trial, which had been listed since May 2009, was going to be a sham, and its outcome a foregone conclusion which I (as part of the conspiracy against her) would duly engineer. In November 2009 I had rejected an application by Miss Sheikh that I should recuse myself, for reasons which I gave in a detailed judgment delivered on 24 November, and in December I had rejected further applications, made by Miss Sheikh on behalf of herself and her mother, for an interim payment and for security for costs, judgment on which I delivered on 14 December. Despite these setbacks, Miss Sheikh still refused to engage with the trial process, and for much of the time she seems to have regarded herself as being in a state of war with the court.

This belligerent attitude was particularly pronounced on the afternoon of 1 March, and Miss Sheikh’s conduct was so disruptive that I had to rise on more than one occasion to give her an opportunity to calm down, and eventually the situation became so intolerable that I found it necessary to call Security and ask her to leave the court. I very much regretted having to take this step, but I considered that her behaviour, which included grossly offensive and racist abuse directed to Mr Dogan, constant interruptions, and a total failure to heed directions from the court, left me with no other option. I should add that Miss Sheikh was accompanied by Mr Sampat, and although at times he seemed to try to calm her, at other times he intervened himself with aggressive and offensive interruptions. In the end, Miss Sheikh and Mr Sampat agreed to leave the court, and the hearing proceeded in their absence.

The directions which I gave were that the Sheikhs should be debarred from defending the action, and from pursuing their counterclaim, unless by 4.30 pm on 4 March they properly served their amended counterclaim, signed and verified with a statement of truth, and served their list of documents in accordance with CPR Part 31. Having reflected on the matter overnight, I added a proviso to the draft order, before it was drawn up, to the effect that, if they failed to comply, the Sheikhs should still not be debarred from claiming such sums (if any) as might still be due to them under the Settlement Agreement, together with interest thereon, and from advancing arguments at trial on the true construction and effect in law of the Settlement Agreement. I also directed that the witness statements which the Sheikhs had already served in the proceedings should stand as witness statements of fact for the purposes of the trial, but that no further evidence should be adduced by either of them without permission of the court. I made this direction because Miss Sheikh had indicated, before her departure from court, that she did not wish to adduce any evidence of fact beyond that contained in her voluminous existing witness statements. Finally, I directed that the trial should begin on Monday, 15 March, and that there should be a further hearing on 11 March to deal with three applications which had been issued in the name of Mrs Sheikh on 23 February. These applications, clearly prepared for Mrs Sheikh by her daughter, sought an interim payment, an order for specific disclosure of certain documents, permission further to amend the defence and counterclaim on the grounds set out in the Fraud Report, and vacation of the trial date on the ground that its listing “by Deputy Registrar Schaffer was an abuse of process”. The applications were supported by two short witness statements also dated 23 February and apparently signed by Mrs Sheikh, although it is again obvious that they had been prepared for her by her daughter.

The hearing on 11 March did not take place, because on the previous day I received an email from Miss Sheikh saying that the hearing had only just come to her attention, and she was unable to attend. In the circumstances, I decided to adjourn the applications to be dealt with at the trial which was due to start on the following Monday.

The first day of the trial, Monday, 15 March, had been set aside as a reading day, so the parties did not attend. Trial bundles had been lodged by the claimants’ solicitors, together with the skeleton argument of their counsel, Mr Robert Leonard. It was apparent to me from this material that the Sheikhs must have complied with the unless order, or at any rate that no point was being taken against Mrs Sheikh that there had not been substantial compliance with its terms. The bundle of trial witness statements included a 96 page joint witness statement signed by Miss Sheikh and her mother and dated 3 March 2010 (“the Joint Statement”), although no application had been made by the Sheikhs for permission to adduce it. In fact, the Joint Statement is largely irrelevant, except by way of background, because the whole of it is devoted to events which occurred before the Settlement Agreement.

In the early evening, I received by fax a document from Miss Sheikh headed “Defendants’ Submissions” which informed me that in the early hours of the morning her mother had collapsed and been admitted to hospital, with the consequence that neither of them would be able to attend court. Miss Sheikh requested a telephone hearing, but set out at some length the submissions that she wished to make. She said, among other things, that there was no question of her mother attending court again; that a month or so would be needed for her and her mother to consider the claimants’ witness statements, which Isadore Goldman had attempted unsuccessfully to deliver to them on the previous Wednesday; and that they had run out of money to pay for travel, stationery etc. She then suggested a number of directions, beginning with the hearing of a recusal application to be listed for five days.

At about 7 am on the following morning, Miss Sheikh faxed some further submissions, saying that her mother was still in hospital but, on the assumption she would be discharged later in the week, Miss Sheikh had made provisional arrangements for a carer to look after her on the following Monday, 22 March. She said that she had still not received any bundles from Isadore Goldman, because she had not been at her office where Isadore Goldman had tried to deliver them. Further directions were again proposed, beginning with a direction that the hearing should resume on 22 March. By then, her mother’s condition would be better known and arrangements could be made for her to represent herself. Miss Sheikh said that she was not able or willing to deal with the future conduct of the substantive hearing on her mother’s behalf.

When the court was about to sit on the morning of 16 March (Day 1), I was informed that Mr Sampat was attempting to issue an application that I should recuse myself, and that he would be seeking an adjournment of the hearing. I agreed to delay the start of the hearing for a few minutes, and soon afterwards Mr Sampat arrived in court, making it clear that the only authority he had was to deliver the Fraud Report to the court, and to issue an application notice on behalf of both of the Sheikhs asking me to recuse myself. The notice asked that the application should be heard by me sitting with another judge appointed by the Lord Chief Justice, and that in the meantime I should be “restrained” from dealing with any application concerning either of the Sheikhs save with the consent of Mrs Sheikh. The time estimate for this application was said to be five days. Unsurprisingly, Mr Sampat had encountered some difficulty in issuing the application, because the trial had already begun and it was obviously impossible to provide a five day return date for a prior hearing unless the trial itself was adjourned for a very considerable period. I took the view that it would only fuel Miss Sheikh’s conspiracy theory if the application remained unissued, so I gave directions for it to be issued with a revised time estimate of 2 hours and to be dealt with during the course of the trial.

The application was supported by a further witness statement by Mrs Sheikh, at this stage apparently unsigned and dated 15 March, from which I quote the following extracts:

The immediate question that I had to decide was whether to adjourn the trial. Mr Leonard on behalf of the claimants opposed any further adjournment, and I decided that in all the circumstances the trial should proceed. A number of factors weighed with me in coming to this conclusion, which I would summarise as follows:

The trial was a long-standing fixture, and I had already put back its start by two weeks.

Any adjournment of any length would severely prejudice the claimants, because it would no longer be possible for the court to hear the case and produce a judgment before the beginning of May, thereby leading to the probable loss of the sale of the Property to the Metropolitan Housing Trust even if the court’s judgment was in the claimants’ favour.

No medical evidence of any description had been provided to the court about Mrs Sheikh’s state of health or the nature of the “collapse” which had led to her hospitalisation. Nor, apparently, had any steps been taken to obtain separate representation for her, despite the concerns which I had expressed in February, and if any contact had been made with the Official Solicitor, nothing had come of it.

There seemed to me to be no realistic prospect that Mrs Sheikh would be able to represent herself as a litigant in person, nor was there any indication that she wished to do so. Instead, all the indications were that Miss Sheikh was now using her mother to promote her own agenda and to fight her own battles, in circumstances where she could no longer do so herself because of her bankruptcy.

More generally, my strong impression from my lengthy experience of the case was that Mrs Sheikh’s involvement in the whole matter, from 2004 onwards, had always been secondary and subordinate to the wishes and interests of her daughter, whom she clearly trusted implicitly to act as she thought fit on her behalf. I could not recall any instance where a procedural step had been taken by Mrs Sheikh independently of her daughter, and in the course of numerous interlocutory hearings over a period of two years she had only once appeared, briefly, in court.

In my view it was no coincidence that the long-delayed start of the trial had been marked by further attempts to put it off to an unspecified but distant future date, first by production of the Fraud Report and secondly by the new recusal application with its five day time estimate. These developments gave every appearance to me of being delaying tactics, and I felt no confidence that the position would be any clearer on the following Monday if I acceded to Miss Sheikh’s latest request for an adjournment until then. Moreover, it was essential that the trial, if it went ahead, should be concluded before the end of term on 31 March. It was by no means certain that this could be achieved if the trial did not begin until 22 March.

Mr Leonard rightly reminded me of the general principle that where a litigant in person requests an adjournment on the ground of ill-health, the court should be slow to refuse, at any rate if it is his first request and his case has some prospect of success: see Fox v Graham Group Ltd, The Times, 3 August 2001(Neuburger J). It seemed to me that this principle was of little assistance in the particular circumstances of the present case, especially in the absence of any medical evidence. I did, however, indicate that I would not sit on the following day, Wednesday, 3 March, partly to give myself time to read the Fraud Report, but also to give the Sheikhs a final short opportunity to reconsider their position. In addition, I said that I would not hear any oral evidence before Thursday, 18 March, when I would first deal with the recusal application and the three adjourned applications issued on 23 February. The remainder of Day 1 was then occupied by Mr Leonard’s opening of the case.

After the court had risen, Isadore Goldman sent a letter by fax to Miss Sheikh’s office fax number. The letter was addressed to Mrs Sheikh, care of her daughter. It gave notice:

No steps were taken by the Sheikhs to collect the trial bundles on 17 March. Instead, Miss Sheikh sent a number of email communications to the claimants’ counsel, Mr Leonard, in which (among other things) she accused me of being involved in a criminal conspiracy and said that she refused to recognise me as having any judicial function. Mr Leonard informed my clerk of these developments, and requested Miss Sheikh to direct any further communications to Isadore Goldman, who were of course the claimants’ solicitors on the record.

On 18 March (Day 2) I ruled on, and dismissed, the recusal application. Neither of the Sheikhs was present in court, but Miss Sheikh had sent me some further written submissions which I took into account. I then proceeded to deal with the three applications of 23 February, and after hearing brief oral submissions from Mr Schaffer, which supplemented full written submissions which he had already made in an earlier skeleton argument, I dismissed them too, with costs which I summarily assessed in the sum of £5,500 inclusive of VAT. The remainder of Day 2 was then taken up with the oral evidence of the following witnesses on behalf of the claimants:

On Day 3 (19 March) the court sat at 2 o’clock, to accommodate the claimants’ remaining witnesses of fact, and I then heard evidence from Michelle Mollaghan, another partner in Isadore Goldman who was involved in many of the interlocutory applications between September and November 2007, and Mr Ilker Kilich, an architect and sole proprietor of the practice of Kilich & Co, who acted for Red River in relation to planning matters concerning the Property between 2004 and 2007. In addition, I agreed to admit the witness statement of Mr Colin Ligman, a partner in Burges Salmon, who was the supervising partner acting for the Bank of Ireland in connection with the proposed refinancing of the Property. Mr Ligman exhibited, and confirmed the accuracy of, a statement of an associate solicitor in the firm, Mr Steven Robinson, who had day to day conduct of the matter. I was told that Mr Robinson was in Australia, and for that reason unable to give evidence in person.

The claimants’ expert evidence was originally contained in a report dated 26 January 2010 prepared by Mrs Wendy Long BSc, MRICS, an associate director of Savills Commercial Ltd employed in its London Valuation Department. She had overall responsibility for the report, and also had first-hand knowledge and experience of the parts of it dealing with the residential aspects of the proposed development of the Property which Red River planned to undertake in 2007. She was assisted in the preparation of the report by three colleagues, who had first-hand knowledge and experience of the parts of the report dealing with commercial use, affordable housing, and planning issues. Those colleagues were, respectively, Mrs Sarah Fellows (née Moss) MA, MRICS, an associate director of Savills Commercial Ltd also employed in the London Valuation Department; Mr James Brown BSc, MRICS, a director of Savills (L & P) Ltd and head of development services and affordable housing; and Mr Kieran Wheeler MRTPI, a director of Savills (L & P) Ltd employed in the planning department. Mr Leonard had canvassed with me at the start of the trial whether it would be necessary for Mrs Fellows, Mr Brown and Mr Wheeler to attend to give evidence and verify their respective parts of the report, and I had indicated that I thought they should do so, because the report was in effect a compendium of four separate expert reports, even though it was compiled under the general supervision of Wendy Long who took overall responsibility for it. The report had not been served on the Sheikhs before the start of the trial, in view of their own wholesale disregard of the directions for trial which I had given in December. Mr Leonard also told me on Day 1 that the report needed to be supplemented, partly because some of the figures had changed, but also to take account of some important documents which had recently been obtained from Mr Kilich’s files and were exhibited to his second witness statement dated 10 March. He sought permission (which I granted) to adduce Mr Kilich’s second statement, to amend the claimants’ particulars of how their loss was calculated (originally contained in further and better information on paragraph 70(B) of the re-amended particulars of claim, served on 7 December 2009), and to submit a supplemental expert report bringing matters up to date.

In order to enable the supplemental report to be finalised, and to suit the convenience of the expert witnesses, I agreed not to sit on Monday, 22 March. In the event, the trial did not resume until 2 o’clock on 23 March (Day 4), because Miss Sheikh had indicated an intention to be present in a fax sent to me on the previous afternoon, and had said she would not be able to arrive before 2 pm because she needed to make new arrangements for her mother’s care. This further delay, slightly to my surprise, was not opposed by the claimants, so I acceded to Miss Sheikh’s request.

Miss Sheikh had not arrived by 2 o’clock, and the afternoon began deceptively quietly. Wendy Long introduced and explained the principal features of the main and supplementary reports, and was in the course of giving her evidence when Miss Sheikh arrived at about 2.45 pm. She was followed at about 3.30 pm by Mr Sampat. It quickly became apparent that she wished to play an active role in the proceedings, but she was naturally in no position to follow the complexities of the expert evidence. After an increasing number of interruptions, first by her alone and then by her and Mr Sampat, it rapidly became clear to me that a fair trial would be impossible unless firm measures were taken. It was impossible for Mrs Long to give her evidence when subjected to a barrage of increasingly offensive interruptions, and at about 3.40 pm I released her for the remainder of the day. Miss Sheikh then asked me yet again to recuse myself, which I refused to do. She accused me of treason and criminal conduct, and sought to present me with her own agenda for how the trial should proceed, making a number of hopelessly impractical suggestions which traversed again ground which was already tiresomely familiar. Mr Leonard submitted that Miss Sheikh had no locus standi to participate in the trial in her own right, because of her bankruptcy. Whilst I had no doubt that this was true as a general proposition, I was not yet convinced that it applied in the present case where I had decided to allow the trial to proceed against both of the Sheikhs. Mr Leonard was not in a position to put my doubts to rest on this point, because the claimants were relying on Mr Schaffer (who has extensive knowledge and experience of insolvency law, and sits as a Deputy Registrar in bankruptcy matters) to deal with those aspects of the case. Mr Schaffer was not in court, so the matter was left unresolved when the afternoon came to its tempestuous close.

Later that evening, Isadore Goldman notified Miss Sheikh and myself that the claimants would argue as a preliminary point on the next morning that she had no right of audience in her personal capacity. I was also asked to permit Mr Schaffer to appear and make submissions on the issue.

On the morning of 24 March (Day 5) I heard argument from Mr Schaffer, whom I permitted to address me on this question. He had produced a skeleton argument overnight, and by reference to the relevant provisions of the Insolvency Act 1986, and the decision of the Court of Appeal in Heath v Tang [1993] 1 WLR 1421, together with some other less important authorities, he submitted that my doubts were groundless, and that Miss Sheikh had no right to participate in the trial on her own account.

Miss Sheikh then argued that this conclusion would breach her right to a fair trial under Article 6 of the European Convention on Human Rights, and also took some procedural and technical objections. She asked for time to obtain legal aid to instruct a lawyer to argue the matter more fully on her behalf. I was not satisfied that any of her points had any substance, and on the basis of Mr Schaffer’s submissions I considered that the answer was clear. I therefore gave an immediate ruling on the point in the claimants’ favour. This was followed by a further application for recusal, which I dismissed in short order.

Half an hour of further argument then ensued, in the course of which Miss Sheikh handed in three further applications, ostensibly in her mother’s name, supported by a witness statement (her mother’s third) dated 24 March. The applications included: that the trial be dealt with by video link, that there be an adjournment to enable Mrs Sheikh to consider the trial bundles, that I recuse myself on fresh grounds, that permission be granted under the limited civil restraint order to make a further disclosure application against Burges Salmon, and that specific disclosure be ordered against another firm of solicitors. It was obvious that I could not deal with these applications immediately, and I said that I would rule on them on Friday, 26 March. I had already agreed that the court would not sit on the 25^th, because Mr Leonard had a family funeral to attend. Mr Leonard also raised the question whether the court should permit Miss Sheikh, or for that matter Mr Sampat, to represent Mrs Sheikh and address the court on her behalf. Mr Leonard pointed out, correctly, that although Mrs Sheikh had a personal right of audience in her capacity as a litigant in person, that right could not be delegated, and if anybody else was to address the court or conduct the case on her behalf the court would have to exercise its discretion to grant a special right of audience for that purpose. Mr Leonard referred me to the detailed discussion of this topic in volume 2 of the White Book, 2009 edition, at paragraphs 13-10 and following. I did not rule on this submission there and then, but indicated that I would return to it on the Friday. I refused Miss Sheikh permission to appeal against the earlier ruling which I had given, and I also refused a stay of execution.

After these time-consuming preliminaries, Mrs Long was then recalled and briefly concluded her evidence. She was followed by Mrs Fellows, and in the afternoon by Mr Brown and Mr Wheeler. Their evidence was, unfortunately, interrupted by repeated interventions and abuse from Miss Sheikh and to a lesser but still significant extent Mr Sampat, and towards the end of the afternoon I was for a second time obliged to call Security and request Miss Sheikh to depart, which she eventually agreed to do.

On the morning of 26 March (Day 6) both Miss Sheikh and her mother were in court when the hearing resumed at 10.30. I was told that an altercation had taken place outside court, involving Mrs Sheikh, Mr Dogan and his daughter, and it was evident that Mrs Sheikh was still in a state of some distress. She addressed me with great courtesy, and explained her position. She said that she was old and sick, and about to die, and that this was her last chance to obtain justice against Mr Dogan. She wanted the court to let her have what Mr Dogan owed her and her daughter, and said that her trust in him had been betrayed. She told me that she was a law abiding citizen and a widow, who came from a good family. Her husband had been a barrister in India, and there were other lawyers and doctors in her family. She wanted to know why Mr Dogan had not repaid the money which had been lent to him. She and her daughter had now run out of money, and were unable to pay for basic household expenditure. She said she was also ill, and in need of medical care. She would not be able to attend court again, and was due to receive psychiatric treatment next month. She asked for the trial to be conducted by video-link. She had come to court that day because she desperately needed some money, and hoped that the court would be able to give her some. She emphasised that she was not asking for charity, but simply for the return of her own money. On more than one occasion, she expressed her great faith in British justice. She also made it clear that she trusted her daughter implicitly to act as she thought best on her behalf.

Mrs Sheikh made these points to me with great dignity and clarity, and I have no doubt at all that she did so with complete sincerity. What she said to me was by way of a statement of her position. She did not give formal evidence, and was therefore not questioned by Mr Leonard. Her address reinforced the view which I had formed on Day 1 about the very limited nature of her involvement in the case, and her inability to play any meaningful part in the proceedings as a litigant in person. The suggestion that the trial should be conducted by video-link seemed to me wholly unrealistic, and I feel sure that Mrs Sheikh was here simply repeating a request suggested to her by her daughter. Whilst I had the greatest sympathy for the predicament in which Mrs Sheikh found herself, I considered that the right course was to proceed with the hearing.

The next question that had to be grappled with was whether the court should permit Miss Sheikh to represent her mother and grant her a special right of audience for that purpose. I heard submissions on this question from Mr Leonard and Miss Sheikh, and I then delivered a ruling in which I refused to grant permission to Miss Sheikh to represent her mother. In my ruling I acknowledged that in normal circumstances there would be every reason to permit this, given Mrs Sheikh’s age and infirmity, and her close relationship with her daughter, who was a former solicitor. At earlier stages in the litigation, it had indeed been accepted, almost as a matter of course, that it was appropriate for Miss Sheikh to represent her mother. Nevertheless, more recent events, and in particular Miss Sheikh’s bankruptcy and her conduct at recent hearings and during the trial itself, had put a different complexion on the matter. In my view there were a number of powerful considerations against allowing Miss Sheikh to act for her mother during the remainder of the trial, including her general state of war with the court, her repeated tendency to disrupt proceedings, her refusal to heed directions, her status as a litigant subject to a general civil restraint order, and her potential involvement in the hearing as a witness of fact. More generally, it seemed to me that Miss Sheikh’s profound personal involvement in all aspects of the case from 2002 onwards, and the very subordinate role played by her mother, made it all but inevitable that Miss Sheikh would use any right of audience granted to her as a means of continuing to fight her own battles, even though that was now a matter for her trustee in bankruptcy. Mr Leonard also submitted that the possibility of a real conflict of interest between Miss Sheikh and her mother could no longer be discounted, since the willingness of Mrs Sheikh hitherto to leave all aspects of the conduct of the litigation to her daughter had led to her being jointly and severally liable for costs in the region of £150,000, with a corresponding risk that she too would soon be made bankrupt. Taking all these considerations into account, it seemed to me that it would clearly be wrong for the court to exercise its discretion so as to permit Miss Sheikh to represent her mother. For similar reasons, I considered that it would be inappropriate for Miss Sheikh to assist her mother as a MacKenzie friend.

I also made it clear in my ruling that in my view many (although not all) of the same objections would apply to any application by Mr Sampat for permission to represent Mrs Sheikh or act as her MacKenzie friend. He has throughout made common cause with Miss Sheikh, he has associated himself with her conspiracy theories, and he has shown himself on several occasions to be a disruptive presence in court. In addition, it is not clear to me whether he has any financial stake of his own in the proceedings, and I am wholly unclear on what basis he provides his services to Miss Sheikh as a financial adviser. These aspects of the matter would need to be fully examined and clarified before any order granting him a right of audience could be made.

Finally, I explained that Mrs Sheikh’s interests would not be left unprotected if the hearing proceeded without her being represented. Quite apart from my own duty to ensure that a fair trial took place, the expert witnesses owed their primary duty to the court, and the claimants were represented by experienced counsel, who was well aware of his duties to the court where a party was unrepresented. Furthermore, the essentially passive and secondary nature of Mrs Sheikh’s involvement in the case meant that her own factual evidence was unlikely to be of any assistance to the court, while her clear interest in obtaining payment of the sums prima facie due under the Settlement Agreement was well understood and would not be overlooked. Quite apart from the direct claim for those sums in the amended counterclaim, it was conceded that any claim for damages against the Sheikhs for loss of profit on the proposed development would have to give them credit for the sums that would have been payable to them under the Settlement Agreement had the refinancing with the Bank of Ireland gone ahead. In short, I saw no reason why a fair trial of the action could not still take place.

Dealing with these matters occupied the whole of the morning. I refused Miss Sheikh permission to appeal against my ruling. This left the three applications which had been adjourned from 24 March still to be dealt with. I agreed to put back the start of the afternoon session to 2.30, to allow Mrs Sheikh more time to recover from what had clearly been a harrowing morning for her. At 2.30 she proffered a dignified and sincere apology for her behaviour in the morning, which I readily accepted. Indeed, I felt that she had nothing to apologise for, with the exception of some intemperate comments about the Dogans. She then repeated that she relied on her daughter, and needed the assistance of the court. She described her daughter as her backbone, and again made clear her complete dependence on her advice. During the remainder of the afternoon, I did my best to hear and dispose of the three outstanding applications, because my understanding was that Mrs Sheikh wished me to do so. Despite my ruling in the morning, Miss Sheikh was soon unable to restrain herself from prompting her mother, passing her notes, keeping up a sotto voce running commentary, and (as she saw it) trying to protect her mother from traps which she thought I was trying to lay for her. It was a difficult and trying occasion for all concerned, and my sympathy for the position in which Mrs Sheikh found herself was redoubled. However, I thought that the applications were all without merit, and I dismissed them.

On Monday, 29 March (Day 7) the court was presented with yet another application notice signed by Mrs Sheikh, asking for orders to be made by reference to her sixth witness statement, also dated 29 March. As before, this document had plainly been drafted for her by her daughter. The applications were ten in number, beginning with an application for an adjournment on the grounds that she had to go to her doctor on 29 March because of an injury to her hand, and an application that Mr Sampat should be permitted to represent her at court that day. There followed applications for the trial to be conducted by telephone link, for my recusal, for permission to amend the defence, for a stay pending a response from Briggs J to a question she had allegedly posed to him, for the claim against her to be struck out, for Briggs J’s order of 2 October 2007 to be set aside, and for an application concerning a so-called “fabricated order” to be heard. Exhibited to the witness statement was a note prepared by Miss Sheikh of the events of 26 March. It appeared from this that after the hearing on the Friday afternoon Guluzar Dogan had attempted to serve a large envelope on Mrs Sheikh, that some kind of altercation had taken place, and the envelope had accidentally struck the ring finger of Mrs Sheikh’s right hand. Mrs Sheikh had been very upset, and first aid was summoned. She and her daughter did not arrive home until about 8 pm, and during the night her finger started to swell and was aching. She could not sleep, and by the Saturday morning her finger was visibly swollen and darkened, and she could not move the right part of her hand.

I am in no position to make detailed findings of fact about what happened outside court on the Friday afternoon, but it is at least clear (because assistance was sought from my clerk, among others) that Mrs Sheikh was very distressed by it, and I accept that she sustained an injury to her hand. However, I was supplied with no medical evidence about the nature or extent of the injury, and if Mrs Sheikh was well enough to go to see her doctor on the Monday, it was not clear to me why she could not also have attended court if that was what she really wanted to do. Taken in the context of all the other applications, it seemed to me that this was probably, in substance, yet another delaying tactic, and I was not disposed to grant a further adjournment, especially as only three days of term remained for the conclusion of the hearing.

Miss Sheikh and Mr Sampat attended court at 10.30 am, and Mr Sampat asked the court to grant the first and second applications. They were opposed by Mr Leonard. I refused to grant an adjournment, or to allow Mr Sampat to represent Mrs Sheikh, or to arrange for the latter application to be made by telephone. It was also on this occasion that, dismayed by the seemingly endless flood of applications made or orchestrated by Miss Sheikh, I said that I reserved the right to dismiss any further applications, without giving reasons for doing so, if I took the view that they were obviously without merit. In effect, I made a limited civil restraint order confined to the future conduct of the action. As matters turned out, it was unnecessary for me to rely on this ruling, because Mr Sampat and Miss Sheikh left court soon after I had given it and did not return before the conclusion of the hearing on the following day.

The remainder of Day 7, and part of 30 March (Day 8), were then occupied with the conclusion of the claimants’ case and Mr Leonard’s closing submissions. I should record that I admitted a short witness statement of Ms Anique Dublin, a barrister employed by Isadore Goldman, putting in evidence two emails received from Mr Brown of Savills supporting certain calculations in his report to the court. I should also record that, although nobody gave oral evidence for the defendants, I had indicated to the Sheikhs that I would regard all of their witness statements, including the Joint Statement, and their verified statements of case as being in evidence before me.

It is also convenient to record at this point that no issue arises, in my judgment, about the credibility of any of the witnesses who gave oral evidence. In the absence of cross-examination, none of their evidence was tested; but on the basis of the material before me, I saw no reason to doubt that each of them was doing his or her best to assist the court.

In this section of my judgment I shall make such findings of fact as appear to me to be necessary to place in context the critical issue on liability, namely whether the Sheikhs breached the terms of the Settlement Agreement by their conduct in the autumn of 2007 leading up to and including the service of the winding up petition against Red River on 5 October 2007.

I do not need to say much about events before the Settlement Agreement, because it was clearly designed and intended to draw a line under the many disputes which had arisen between the parties in the past. The terms of the “full and final settlement” clause (clause 4) could hardly have been more comprehensive, embracing as they did all claims of any description, whether known or unknown, and whether past, present or future, which the parties or their privies had or might have arising out of or connected with the Dispute (as defined) or “any other matter arising out of or connected with the relationship between the parties”. The essential claim advanced by the Sheikhs is for payment of the sums due to them under the Settlement Agreement, and it is not disputed by the claimants that the Sheikhs are entitled to be paid those sums if their own claim against the Sheikhs for breach of contract fails. I am also satisfied that there is no proper basis, on the pleadings and evidence before me, to challenge the validity of the Settlement Agreement.

It is, however, appropriate for me to say something about the circumstances in which the Property was originally acquired by Red River, and the terms of the agreement reached between Mr Dogan and Miss Sheikh. Miss Sheikh had been Mr Dogan’s personal solicitor for many years from at least the early 1990s. He regarded her as a close friend and a person in whom he placed the utmost trust and confidence. In April 2002 the Property was offered for sale by tender by Esso Petroleum Ltd. Mr Dogan was interested, and he instructed Miss Sheikh to submit a conditional bid which, in the event, was successful. The purchase price was £1.52 million, and Mr Dogan paid the 5% deposit of £76,000 from his own resources. Red River was incorporated in August 2002 for the purpose of acquiring the Property, and the two shares were allotted to Mr Dogan and a business associate of his, a Mr Moroglu, who at the time was intended to be an equal partner in a joint venture between them. Miss Sheikh advised them in relation to the contractual terms and conditions, VAT, and no doubt many other matters as well.

A dispute then arose between Mr Dogan and Mr Moroglu, which seems not to have been resolved until about April 2004, when Mr Moroglu apparently agreed to transfer his share in Red River to Mr Dogan. There was also a problem about obtaining planning permission for development of the site within the time limit stipulated under the contract, which led Esso to assert that the relevant condition had not been satisfied and that Esso was therefore entitled to remarket the Property at a higher price. On Miss Sheikh’s advice, Red River commenced proceedings against Esso for a declaration that the sale agreement remained in place. Those proceedings were compromised in or around July 2004 on the basis that Esso would allow Red River to acquire the Property on payment of an additional sum of £305,000, thereby increasing the basic purchase price to £1.825 million.

According to Miss Sheikh’s evidence in the Joint Statement, she had no personal experience in planning matters and she had little contact with the architects whom Mr Dogan and Mr Moroglu had instructed, Messrs Hadley Associates. When it transpired in about May 2004 that there were real problems with the planning application, which Mr Dogan did not believe Mr Hadley to be capable of resolving, she advised him to instruct a planning consultant, Mr Jeremy Edge of Atis Real Weatherall. He then took over the application from Mr Hadley, with the result that planning permission was finally granted in July 2004 when the revised terms were agreed with Esso. It had also become clear by this time that VAT would be payable on the purchase price.

Esso were insisting on a speedy completion within one month of the date on which the revised terms had been agreed. This left Red River in difficulties in raising the necessary money. The Bank of Scotland had made a revised offer of finance which was designed to enable Red River to complete the purchase without any contribution from Mr Moroglu, but it seems that the need to pay VAT on the purchase price had been overlooked, and on 16 July 2004 Miss Sheikh wrote to Mr Dogan saying that there was a shortfall of about £320,000. It is against this background that her financial contribution to the purchase was negotiated. Some light on the negotiations is thrown by a letter dated 21 July 2004 which Miss Sheikh sent to Mr Dogan’s accountant, and copied to him. In it she referred to “the agreement Mr Dogan and I have reached in connection with our joint venture”, and set out her understanding of what had been agreed. The terms are by no means clearly spelt out, and in any event the negotiations may well have continued, so I will not attempt to summarise them. What is clear is that when the purchase was completed, on 11 August 2004, Miss Sheikh provided the necessary funds to bridge the gap in the funding, and this sum amounted to at least the £311,517.83 shown on the 2 September 2004 completion statement. I am uncertain whether this statement is in fact a record of what actually happened at completion, and it may have been a projection prepared by Miss Sheikh at an earlier date for the purposes of negotiation. Perhaps more reliable is a letter dated 21 February 2005 which she sent to the secretary of Red River confirming that the balance of her current account with Red River as at 31 December 2004 was £329,006.57, and that the amount of her original loan had been £329,041.57. Fortunately, the precise details do not matter. On any view, Miss Sheikh made a substantial contribution well in excess of £300,000, and without it the purchase could not have been completed.

There is no clear evidence before me about the source of Miss Sheikh’s financial contribution, but in paragraph 70 of the Joint Statement she says that the bulk of it came from the remortgage of her mother’s house, and a further £150,000 came from a client who was an old friend of Mr Sampat’s. Elsewhere in the Joint Statement (paragraph 45) she says that Mr Sampat had taken steps to raise about £300,000 on two properties belonging to her family. It seems likely, therefore, that a substantial part of the money contributed by Miss Sheikh was provided by her mother, and this may help to explain why the 35 shares in Red River were put into the name of Mrs Sheikh, albeit as a nominee for her daughter.

Whatever the source of the funds may have been, it is in my judgment clear that the loan to Red River was made by Miss Sheikh alone. This is admitted in the amended defence, is evident from the contemporary documents, and is consistently reflected in all of Miss Sheikh’s witness statements down to at least her 20^th statement dated 28 October 2008 (see paragraphs 3 to 6). I mention this point because in some of her more recent statements, and in the amended counterclaim, the impression is given that the advance was made by her and mother jointly. I am satisfied that this is not correct, and suspect that Miss Sheikh may have introduced the change because she perceived that there might be a tactical advantage in seeking to portray her mother as a direct, rather than indirect, contributor of funds for the initial purchase of the Property.

It is impossible, on the basis of the evidence before me, to reconstruct the precise terms of the agreement which was made between Mr Dogan and Miss Sheikh. I suspect that, even at the time, much was left veiled in ambiguity. However, the main points are clear enough. Miss Sheikh’s contribution was treated as a loan by her to Red River, and in addition she was given an equity participation in the company more or less commensurate with her contribution. Thus she ended up as both a creditor of, and an equity participator in, Red River, although her letter of 21 July 2004 had indicated (as one might expect) that her contribution was to be treated either as loan capital or as consideration for shares but not as both simultaneously. Mr Dogan says it was agreed, in consideration of the allocation of shares to her, that any outstanding fees due to Ashley & Co would be written off, and it may well be that this too was part of the bargain.

Miss Sheikh’s position was still further strengthened by the first of the Restrictions, the application for which was signed by Mr Dogan and Miss Sheikh on the day of completion. It is worth quoting what Mr Dogan says about this in paragraph 10 of his first witness statement:

I now turn to the history of events from the conclusion of the Settlement Agreement down to the withdrawal of the Bank of Ireland from the refinancing transaction. The history is a tangled one, and it is unnecessary for me to recount all of it in detail. It has already been fully and accurately summarised by Rimer LJ in the judgment which he delivered on 15 December 2008 on the Sheikhs’ renewed applications for permission to appeal: see [2008] EWCA Civ 1592. I will therefore begin by setting out that summary which provides a most helpful overview:

Disputes arose almost as soon as the Settlement Agreement had been signed. Details of the points in issue may be found in the witness statements of Mr Schaffer and Mr Richards, and they are reflected in the contemporary correspondence. They led to the refusal by the Sheikhs to comply with their obligations under clause 2 of the Settlement Agreement, the commencement of the present proceedings, and the application which was heard by Kitchin J in the vacation court on 3 September 2007. The order made on that occasion (“the Consent Order”) is of great importance, and although its terms are summarised by Rimer LJ in paragraph 8 of his judgment I will set out the agreed terms contained in the Schedule:

The Sheikhs were represented by leading counsel, Mr Hugo Page QC, at this hearing, and in my view Miss Sheikh can have been left in no doubt about the implications of the Consent Order. Following delivery up of the Documents within seven days, they would be held by Isadore Goldman to the Sheikhs’ order pending the payment of the £300,000 due under the Settlement Agreement, the execution by Red River and Mr Dogan of a second legal charge pursuant to clause 3 of the Settlement Agreement, and the execution of a deed of priorities containing the provisions specified in paragraph 4 of the Schedule. As Rimer LJ observed, whatever the position may have been under the Settlement Agreement, the Sheikhs were clearly now contemplating a deal under which their second legal charge ranked after the Bank of Ireland’s first charge and with a deed of priority to regulate the relationship between the two charges. By virtue of paragraph 3, the Sheikhs accepted “for the purposes of this application only” that the Bank of Ireland’s first charge could secure not only an advance of £1.75 million but also interest and costs, provided that the bank agreed to retain out of the advance £140,000 as cover for interest due. Thus the Sheikhs reserved the right to argue on a future occasion that the inclusion of interest and costs would not comply with clause 3.2 of the Settlement Agreement, although their prospects of success in advancing such an argument would in my view have been slim given the very summary description of the £1.75 million cap in clause 3.2.

One point which the Consent Order did not expressly settle was whether the payment of £300,000 pursuant to clause 1.1 of the Settlement Agreement was a freestanding obligation with which the claimants had to comply whether or not the refinancing with the Bank of Ireland was completed. I have little doubt that it was always understood between the parties that the right to the payment was dependent on the completion of the refinancing, partly because the claimants had no other obvious means of obtaining a sum of this magnitude at short notice, but also because this is to my mind the natural inference to draw from paragraph 2 of the Schedule. Nevertheless, the failure to deal with the point explicitly left it open for future argument.

It is worth quoting at this point what Mr Dogan says, in paragraph 29 of his first witness statement, about the refinancing:

The next important development was the hearing before Briggs J on 20 September 2007 described by Rimer LJ in paragraphs 9 to 11 of his judgment. Miss Sheikh appeared in person on this occasion, and the claimants were represented by Miss Lexa Hilliard. At an early stage of the hearing, Briggs J elicited from Miss Sheikh that she did not wish to set aside the Settlement Agreement or the Consent Order, even though there had been some suggestions to that effect in the evidence she had served: see pages 6 and 8 of the transcript. Briggs J refused to grant Miss Sheikh an adjournment, and agreed to deal with the application as vacation business. In ruling on this point, he said (page 13 of the transcript):

As Rimer LJ explains, Briggs J did not go on to settle the terms of the deed of priority, because the Bank of Ireland was not a party to the proceedings, but he ruled on various points of disagreement, resolving some of them in Miss Sheikh’s favour.

On the following day, 21 September, everything appeared to be set for an immediate completion. The Sheikhs delivered the release form UN2 to Isadore Goldman, who confirmed receipt of it. Isadore Goldman delivered to Miss Sheikh by courier an engrossment of the second legal charge, as settled by the court, for execution, and the deed of priorities for execution. In his covering letter, Mr Richards informed Miss Sheikh that the Bank of Ireland had agreed to amendments to the deed in accordance with Briggs J’s rulings. He asked for the executed documents to be returned to him by courier, so that he could prepare for immediate completion. He confirmed that the documents would, when returned, be held to Miss Sheikh’s order pending completion and transmission of the funds (i.e. the £300,000) to her.

Unfortunately, however, completion did not take place. Instead, and without informing the claimants or Isadore Goldman, Miss Sheikh submitted an application to the Land Registry to register the second charge in the form settled by the court. She did this even though the engrossment sent to her had not been executed by Red River, the chargor, and even though it had been clearly agreed that the Bank of Ireland’s first charge was to have priority. Quite what Miss Sheikh hoped to achieve by this manoeuvre remains unclear to me, because she could hardly have expected the Land Registry to register a charge unexecuted by the chargor, and without evidence of the consent of the existing first mortgagee, the Bank of Scotland. Unsurprisingly, a requisition raising these and various other points was sent by the Land Registry to Miss Sheikh on 24 September. With some hesitation, I am prepared to give her the benefit of the doubt and to assume that, however misguided it may have been, this was not a deliberate attempt by her to steal a march on the Bank of Ireland by having the second charge registered in priority to the Bank’s first charge. Nevertheless, it should have been apparent to her, as an experienced conveyancer, that this was an extraordinary way to proceed, and that it would be almost bound to cause the Bank considerable disquiet when it came to light.

The next hearing took place before Mann J on 27 September. It is fully described by Rimer LJ in paragraphs 13 to 17, and there is a transcript in the court bundles. Both sides were represented by counsel, Miss Hilliard appearing for the claimants and Mr Meares for the Sheikhs. The order made by the judge appears not to have been sealed, but although this is another point to which Miss Sheikh has subsequently attached significance, it is in my judgment immaterial. The draft order simply reflects the transcript, which shows that the undertaking to execute the deed of priority was given by Mr Meares on behalf of both defendants (page 67) and that the judge ordered them to pay costs of £4,000 (page 72). In any event, the deed of priority was then executed by Mrs Sheikh on the following day and delivered to Isadore Goldman, who in turn forwarded it to Burges Salmon in readiness for completion. In the course of the hearing Miss Hilliard had submitted that the points on the form of the deed of priority taken by Miss Sheikh were jeopardising completion, and thus her prospects of being paid the £300,000. Miss Hilliard stressed that the offer from the Bank of Ireland was an exceptionally good one, with interest payable at only 2% over base rate, and that if Red River lost the refinancing it would have a devastating effect on its finances and prospects of developing the Property (page 55 of the transcript). However, by the conclusion of the hearing an undertaking had been given to the court on behalf of both of the Sheikhs, apparently with Miss Sheikh’s whole-hearted consent, and everything appeared to be back on track for a rapid completion.

It was at this stage that the Sheikhs’ application to the Land Registry to register a second charge came to light, as a result of a search against title carried out by Isadore Goldman at the Bank of Ireland’s request. As one would expect, the discovery caused consternation, and the Bank was not prepared to proceed unless the application was withdrawn. Given that Miss Sheikh had said nothing about it at the hearing before Mann J, it looked like a deliberate and calculated attempt to undermine the refinancing, albeit for no comprehensible reason. It was also contrary to an agreement which Mr Schaffer says had been reached between the parties in late July that Burges Salmon would register both legal charges following completion, including the Sheikhs’ second legal charge. Accordingly, on 28 September Mr Schaffer wrote to Miss Sheikh requiring her to procure removal of the application by no later than 10 am on Monday, 1 October, and warning her that in default an immediate application would be made to the court for an order that the application be cancelled. He said that the claimants would also have to consider asking for an injunction restraining her from making any further applications to the Land Registry before registration of the second charge at completion. No satisfactory response was received to this letter, and in an exchange of emails on 1 October between Mr Robinson of Burges Salmon and Mr Richards of Isadore Goldman the Bank reiterated that the application to register the second charge would have to be withdrawn. As Mr Robinson said:

This was the background to the hearing which took place before Briggs J on 2 October, when Miss Sheikh appeared in person and Miss Hilliard again represented the claimants. In his witness statement Mr Schaffer deals with allegations which Miss Sheikh has subsequently made to the effect that he sought to arrange this hearing behind her back, and without giving her adequate notice. I am satisfied that these allegations are completely unfounded, and that the urgency of the application was an inevitable consequence of Miss Sheikh’s failure to comply with the request (which had been repeated on 1 October) for her to withdraw the Land Registry application. In any event, Miss Sheikh was present at the hearing, and she found time to prepare two witness statements which were considered by Briggs J.

In the judgment which he delivered acceding to the claimants’ first and second applications, Briggs J referred to the two main arguments which Miss Sheikh had advanced before him. The first argument was that the claimants’ obligation to pay the £300,000 was not conditional upon completion of the refinancing transaction with the Bank of Ireland. The second argument was that to make the order sought would prejudice an appeal which the Sheikhs wished to bring against the order of Mann J of 27 September on various grounds which were set out in her evidence. In rejecting the first argument, Briggs J said this:

Briggs J then continued

As drawn up and sealed up by the court, the relevant part of the order of Briggs J provided as follows:

As Rimer LJ says in paragraph 21 of his judgment, the purpose of these orders was to ensure that the application of 21 September did not give the Sheikhs a priority over the Bank of Ireland which they were not intended to have. So far as the second legal charge was concerned, the order clearly envisaged that the first step following completion would be to obtain its registration at Companies House (which the claimants duly undertook to do) and that a certified copy would therefore be lodged with the Land Registry by Burges Salmon together with the application for its registration. As Mr Robinson explained in an email which he sent to Mr Richards at 1.09 pm on 2 October:

In his oral evidence before me, Mr Richards confirmed that this would have been an entirely normal practice to adopt, and was one that he had himself followed on numerous occasions. In view of the tight time limit of 21 days for registration of a charge at Companies House, this was normally the first matter that had to be attended to. The application for registration of the charge at the Land Registry also had to be lodged before the expiry of the relevant priority period, so unless it was clear that the original of the charge would be received back from Companies House in good time before expiry of the period, the usual practice was to apply for registration with a certified copy. The Land Registry would then raise a requisition for the original to be supplied, which would be done as soon as it had been returned from Companies House. I would expect this practice to have been well known to Miss Sheikh as an experienced conveyancer.

Consistently with this approach, and with the terms of Briggs J’s order, Burges Salmon faxed to Ashley & Co at 9.56 am on 4 October a signed letter in the following terms:

At about 3.10 pm on the same day, Burges Salmon faxed to Ashley & Co a slightly different version of the same letter, again signed by the firm. The only difference was that the undertaking in the second paragraph was now expressed to arise “on registration of the First Legal Charge”, instead of “on any application by us for registration of the First Legal Charge”. The only witness for the claimants who refers to this change of wording is Michelle Mollaghan. In her witness statement she says that the reference to the “application by us for registration” in the first version was considered appropriate because actual registration could only be effected by the Registrar, and Burges Salmon were concerned that they could only give an undertaking to do something within their power. The amended version was later sent out of an abundance of caution, in order to reflect more closely the exact wording of the court order. I accept this explanation, and see no reason to attach any significance to the slight variation between the two versions. On any rational basis, Miss Sheikh should have been satisfied with either version and the long-delayed completion could then have taken place. Furthermore, this was certainly what the Bank of Ireland expected to happen. On 3 October Mr Bailey, the finance director with conduct of the matter, sent an email to Fozia Dick at 5.37 pm saying that the relevant documents had been signed off by the Bank, and the only outstanding matter was the report on title expected from Mr Robinson. He concluded his email with the words “Lets get this done no later than Friday”, followed by several exclamation marks. For his part, Mr Robinson confirms in his witness statement that the only impediment to completion of which he was aware was that the Bank had not yet received his signed report on title, which he could not sign off until the Sheikhs’ application to register the second legal charge had been removed. However, the court had now made an order to that effect, conditional only on delivery to the Sheikhs of the necessary letter of undertaking from Burges Salmon; and such a letter had now been sent, in two versions either of which would in my view have been perfectly acceptable.

Miss Sheikh, however, had other fish to fry. Despite the rejection by Briggs J of her first argument, on the very next day, 3 October, she presented a winding up petition against Red River based on the non-payment of the £300,000. At the same time, she wrote to Miss Hilliard accusing her of having misled, or attempted to mislead, the court on the previous day, and threatened to report her to the Bar Council. I have seen nothing which leads me to suppose that there was the slightest substance in this accusation. The following day, 4 October, Isadore Goldman faxed two letters to Miss Sheikh asking her to confirm that she had taken immediate steps to withdraw the Land Registry application in the light of Burges Salmon’s undertaking. Although normally a prolific correspondent, Miss Sheikh sent no reply to either of these letters. Furthermore, despite making four attempts to do so Miss Mollaghan found it impossible to contact her by telephone. Isadore Goldman then faxed her a third letter, saying that in the absence of any response the claimants had no alternative but to issue a further application, a copy of which was enclosed by way of service together with a supporting witness statement. The application was for an order authorising Red River to submit the necessary form of withdrawal to the Land Registry on behalf of Mrs Sheikh. This, too, elicited no response, but it later transpired that Miss Sheikh had taken steps to instruct counsel, Mr Meares, to advise her and appear at the forthcoming hearing. However, Miss Sheikh did not inform Mr Meares of the petition which she had presented on 3 October, and evidently instructed him that her concerns were of a technical conveyancing nature, and centred on the point that Burges Salmon’s undertaking was only to lodge a certified copy of the second charge with the application for its registration at the Land Registry.

The application came on for hearing before Briggs J at 10.30 am on Friday, 5 October. The claimants were represented by Mr Tom Smith, and the Sheikhs by Mr Meares. It was explained to the judge that the only point dividing the parties was the short conveyancing point which I have mentioned. Mr Smith confirmed that the matter was urgent, because the claimants were seeking to complete that day. The judge observed that his original assumption, on 2 October, had been that the Land Registry would require the original of the second charge in order to register it, but he had been informed on that occasion that the Land Registry would accept a certified copy, although they might well subsequently requisition for the original. As he put it to Mr Meares:

As I have already indicated, this understanding was in substance correct and reflected a standard practice which Mr Richards had frequently followed. However, Mr Meares went on to say, apparently on the basis of enquiries which he had made earlier that morning of the Land Registry, that it was possible to ask the Land Registry to deal with the registration within the space of a single day, in which case the original could be used for that purpose and be returned in good time for submission to Companies House. With this information before him, and with another urgent matter waiting to be heard, Briggs J expressed the view that, if the parties actually wished the transaction to be completed, they should be able to agree a variation to the regime which satisfied everybody’s concerns. He therefore adjourned the application so that Isadore Goldman could find out whether Burges Salmon had any objection to lodging the original of the charge, together with a certified copy, at the Land Registry. As the judge pointed out, the Bank of Ireland was not a party to the second charge, and its registration was presumably a matter of indifference to them. He then rose at 10.44 am.

At 12.10 pm there was a convenient break in the hearing of the other case, and counsel returned to inform Briggs J that Burges Salmon were indeed content to proceed as he had suggested. Mr Meares expressed the view (wrongly, as it turned out) that the withdrawal of the Sheikhs’ earlier application for registration of the second charge had probably already been implemented. That left only the question of costs, on which the judge heard brief argument in the course of which he observed to Mr Meares that the evidence showed “complete silence on your side in response to numerous faxes, emails and attempts to find out what was going on”, to which Mr Meares replied that Miss Sheikh had been in conference with him and work was being done on the case. He added:

As Rimer LJ records in paragraph 25 of his judgment, the minute of order for the morning’s hearing was not sealed by the court until 13 November. Its wording reflected the fact that the difference between the parties had been resolved by an oral confirmation given by Burges Salmon to Mr Meares that the undertaking in their letter of 4 October should take effect as if it had been to lodge the original of the charge together with a certified copy of it rather than merely a certified copy. I see no reason to doubt that this was an accurate record of what happened. There is a further point about the order, to which Miss Sheikh has subsequently sought to attach significance, namely that it was headed with the reference number of the winding up petition (No. 7275 of 2007) even though the petition had not yet been served, and nobody apart from Miss Sheikh knew about it, when the hearing concluded at 12.15 pm. Having heard oral evidence on the point from Michelle Mollaghan I am satisfied that there is nothing sinister about this. The draft order was prepared by Mr Smith later in the day, together with another order striking out the winding up petition which had by then been served and been the subject of an urgent application to Briggs J in the afternoon. By mistake, the reference number for the petition was used for the order in the main action which Briggs J had made before lunch. Mr Smith had then emailed the draft order to Mr Meares, but Mr Meares was by then no longer instructed by Miss Sheikh and was apparently without instructions to approve the draft. In any event, there is no clear evidence before me that it was ever approved by him, and it seems that eventually Mr Smith’s draft was submitted without amendment to the associate for sealing.

In the course of the morning Miss Sheikh had signed on behalf of her mother, and delivered to Isadore Goldman, a letter withdrawing the application made to the Land Registry to register the second charge. This letter was then faxed to the Land Registry, and the application was duly withdrawn, thus removing one of the last obstacles to completion. However, completion was clearly not what Miss Sheikh wished to achieve, because immediately after leaving court at 12.15 she served Mr Dogan with an envelope containing a copy of the winding up petition and then disappeared. Furthermore, she had already given instructions for two letters to be faxed by her assistant at Ashley & Co to Burges Salmon, as the transmission record shows that they were sent at 12.10 and 12.14 respectively. The first letter referred to the Settlement Agreement and asserted that Red River and Mr Dogan were in breach of a number of covenants, including their obligation to pay the sums due under the Settlement Agreement (with the alleged consequence that the full £1.2 million had fallen due) and four separate provisions in the second charge by virtue of which the full amount secured became immediately payable, including (clause 3.1.7.4) upon presentation of a winding up petition. As a result, the Bank of Ireland was put on notice of Mrs Sheikh’s intention, as second mortgagee, “to enforce the terms of her mortgage, inter alia, by exercising her powers of sale”. The letter continued:

In the second, much shorter, letter, Miss Sheikh said this:

In my judgment the only purpose that Miss Sheikh could possibly have had, in sending these two letters to Burges Salmon and serving the petition on Mr Dogan, was to prevent the completion of the refinancing transaction. As an experienced conveyancing solicitor, she cannot sensibly have supposed that the Bank would be willing to lend £1.75 million to a company against which she had presented and served a winding up petition, when she was accusing the Bank of complicity in fraudulent conduct on the part of Red River and Mr Dogan, and when she was asserting that she and her mother had the benefit of an equitable charge which took priority over the Bank’s proposed first legal charge. Whatever Miss Sheikh’s motivation may have been when the original application for registration of the second charge was made on 21 September, she was now clearly determined to ensure that the refinancing could not proceed.

Having been served with the petition, Red River immediately applied to Briggs J for it to be struck out as an abuse of process. At an urgent hearing during the afternoon, at which Miss Sheikh was not present or represented because she could not be contacted, and Mr Meares was without instructions, Briggs J acceded to the application, for reasons which he summarised as follows towards the end of his judgment:

On 8 October Mr Schaffer wrote to Mr Bailey in a desperate last attempt to persuade the Bank of Ireland not to withdraw from the transaction. The attempt was unavailing, and on the same day Mr Bailey wrote to Red River withdrawing the Bank’s offer of facilities:

It is unnecessary for me to take the detailed narrative of events any further. In order to complete the picture, I will however quote Rimer LJ’s summary of events from 9 October to 15 November 2007:

It is convenient at this point to record the outcome of the applications for permission to appeal which were considered by Rimer LJ. The applications related to three orders: the order of 27 September 2007 made by Mann J, the order of 2 October 2007 made by Briggs J, and the further order of Briggs J made on 15 November 2007 when he handed down his reserved judgment after the hearing on 7 November. With one limited exception, none of the grounds of appeal was considered by Rimer LJ to have any real prospect of success. In particular, the first ground of appeal advanced by Mr Hugo Page QC against the order of 15 November was that Briggs J had been wrong to regard the Sheikhs’ right to their legal charge as arising under a composite transaction with the Bank of Ireland. Rimer LJ rejected this argument for reasons which he expressed as follows:

The one limited point about which Rimer LJ expressed concern, and on which he granted permission to appeal, was that although the application before Briggs J was merely an interim application the judge had nevertheless made what purported to be final findings about the Sheikhs’ conduct, namely that they had acted in breach of the implied obligation of good faith to which he found they had become subject and deliberately sabotaged the composite transaction. Those findings had been treated as res judicata in the amended particulars of claim, and if that was correct the Sheikhs would be precluded from seeking to establish at trial that they had always acted in good faith. The ground of appeal for which Rimer LJ gave permission was reformulated by him as follows:

In due course, the claimants served a respondent’s notice in which they contended that Briggs J had not decided finally that the Sheikhs acted in breach of the implied obligation of good faith, but only that the claimants had a good arguable case to that effect. If that was wrong, they said that they did not seek to uphold the judgment to the extent that Briggs J made any final decision, and they would consent to the judgment being varied in the appropriate way. Despite this concession, the parties were unable to resolve the appeal by agreement and it came on for hearing before Sir Anthony Clarke MR, Arden LJ and Lloyd LJ on 28 April 2009. By this stage Miss Sheikh had dispensed with the services of Mr Page QC, and she appeared in person. The court ordered the claimants to pay the Sheikhs’ costs of the appeal which it summarily assessed in the sum of £2,000 only: see Red River UK Ltd and another v Sheikh and another [2009] EWCA Civ 643.

It is common ground that there was at least an implied obligation on the parties to act in mutual good faith in relation to the performance of the Settlement Agreement and the Consent Order: see paragraph 19 of the amended defence. Since both the Settlement Agreement and the Consent Order were founded on the parties’ agreement to settle all their outstanding disputes, and arose from a successful mediation, I have no doubt that this is correct. I would also go a little further, and spell out the nature of the implied term as being that the parties were under mutual obligations (a) not to do anything deliberately to undermine the Settlement Agreement without good cause, and (b) to co-operate in ensuring that its terms were carried into effect. When I refer, here and elsewhere in this discussion, to the Settlement Agreement without qualification, I mean the Settlement Agreement alone down to the date of the Consent Order, and the Settlement Agreement as varied by the Consent Order thereafter.

The next question is whether the obligations on the claimants to pay the sums due under clause 1 of the Settlement Agreement were independent and freestanding, or whether they were linked to and dependent upon the completion of the refinancing agreement with the Bank of Ireland envisaged by clauses 2 and 3. While there might have been some room for argument about this point before the Consent Order, the terms of the Consent Order in my judgment put it beyond doubt. The undertakings given to the court by both parties clearly envisaged that the proposed refinancing would be the source of the sums payable to the Sheikhs, including the initial payment of £300,000. In other words, the parties were working towards, and planning to implement, a composite transaction, and it was understood that the obligation to pay the £300,000 was itself dependent upon the completion of the refinancing transaction with the Bank of Ireland (or, I would add, a substitute lender if for any reason the deal with the Bank of Ireland fell through). This conclusion is not affected, in my judgment, by the fact that the agreement set out in the Schedule to the Consent Order was expressed to compromise “the present application”. The application for delivery up of the necessary documents to set the composite transaction in train was indeed the occasion which led to the agreement, but the agreed terms were in my view clearly intended to regulate the future conduct of the parties, and (subject to one point only) they cannot reasonably have contemplated that either side would be at liberty later on to argue that the transaction involving the Bank of Ireland was not, after all, a composite one. The one exception is the point expressly stated in paragraph 3 of the Schedule to be without prejudice to the Sheikhs’ position generally, namely whether the £1.75 million cap included interest and costs.

In any event, regardless of my own views on the question it is in my judgment now res judicata. Briggs J held in a number of his judgments that the transaction envisaged by the Settlement Agreement was a composite one in the sense which I have explained. I have already quoted what he said in his judgment of 2 October 2007: see paragraph 97 above. To similar effect, he said in paragraph 7 of his reserved judgment on 15 November 2007:

I emphasise, also, that although Miss Sheikh appeared as a litigant in person at the hearing on 2 October 2007, she was represented by leading counsel (Mr Page QC) both at the hearing on 7 November 2007 and for the relevant part of the application for permission to appeal. It is therefore clear that the question must have been fully considered and argued on her behalf.

I now come to the critical issue, which is whether Miss Sheikh by her conduct undermined or sabotaged the composite transaction with the Bank of Ireland in such a way as to make it impossible to perform. Hard though it is to understand her motivation, I can see no escape from the conclusion that this is indeed what she did, and that she did it intentionally and with her eyes open to the potential consequences. The narrative of events which I have set out above leaves me in no doubt that by late September 2007, if not earlier, Miss Sheikh had decided that the interests of herself and her mother would be best served by subverting the refinancing transaction, and it was with a view to achieving this that she presented, and then served, the winding up petition against Red River, and sent the two letters to Burges Salmon on 5 October 2007. The withdrawal of the Bank of Ireland from the transaction was the entirely predictable consequence of this conduct, and I am satisfied that it is also what Miss Sheikh actively intended to bring about. Indeed, she now appears to admit as much. In a witness statement which she signed on 25 February 2009 (her 23^rd) she said, as part of a summary of her case (paragraph 15(3)(e)):

Furthermore, I am satisfied on the basis of all the evidence in the case, both oral and documentary, that if Miss Sheikh had not sabotaged the composite transaction on 5 October 2007, it would have proceeded to completion either on that day or on the following Monday, 8 October. The only remaining obstacle to completion had been sorted out, apparently to the satisfaction of all concerned, on the footing that the original of the second legal charge would be submitted to the Land Registry together with a certified copy. The necessary form for withdrawal of the Sheikhs’ earlier application to register the second legal charge had been signed by Miss Sheikh on her mother’s behalf and was held by Isadore Goldman. The Bank of Ireland was willing to proceed, as Mr Bailey’s email of 3 October to Fozia Dick shows, and as his evidence, together with that of Mr Ligman and Mr Robinson, confirms. The same was true of the claimants and Isadore Goldman. As Mr Richards says in paragraph 23 of his statement:

Did Miss Sheikh have any justification for acting as she did? Objectively, the answer to that question must in my view be No. The so-called fraudulent transaction which (at least at times) she saw herself as combating was, I am satisfied, a figment of her imagination. The contention that the sums due under the Settlement Agreement were payable regardless of the completion of the refinancing was untenable, and had already been decided against the Sheikhs by Briggs J on 2 October. Far from protecting the contractual rights of herself and her mother to payment of £1.2 million, her conduct had the effect of removing the source from which that money was to be paid.

Nor can any distinction be drawn, in my judgment, between the position of Miss Sheikh and that of her mother. Miss Sheikh was the protagonist throughout, and her mother was content to rely on her and to leave her to act as she thought fit in the best interests of them both. It was always understood that she acted for and represented her mother, and Mrs Sheikh herself played no active part in any of the negotiations, as a number of the witnesses confirmed in answer to questions from myself. The breach of contract engineered by Miss Sheikh was therefore, in law, a breach for which they were both equally responsible.

The Sheikhs’ breach of contract was in my judgment a fundamental one which went to the root of the contract, and which entitled the claimants, as the innocent party, to treat the breach as repudiatory. The composite transaction lay at the heart of the Settlement Agreement, and I find it hard to imagine a more fundamental breach than its deliberate sabotage. For well over a year the claimants did not accept the repudiation. They made efforts to obtain replacement finance for development of the Property, and when those efforts failed they entered into a conditional contract for sale of the Property to the Metropolitan Housing Trust. However, by a letter dated 6 March 2009 they eventually accepted the repudiation as pleaded in paragraph 73 of the re-amended particulars of claim. Despite the lapse of time, I see no reason to doubt that this acceptance was valid and effective. There is no suggestion that the letter was not received by the Sheikhs, nor is there any suggestion that the claimants had in the meantime elected to affirm the contract. They had simply been keeping their options open, and doing their best to mitigate their loss, first by trying to obtain replacement development finance and then by finding a purchaser for the Property. Details of the steps which they took are set out in the witness statements of Mr Dogan, Guluzar Dogan and Fozia Dick.

The general rule, upon acceptance of a repudiatory breach, is that from the time of discharge both parties are excused from further performance of the primary obligations of the contract which each has to perform, and the party in default comes under a secondary obligation, implied as a matter of law, to pay damages to the innocent party for the loss it has sustained in consequence of the breach: see Chitty on Contracts, 30^th Edition, vol. I, paragraphs 24-047 to 048 and the classic statement of Lord Diplock in Photo Productions Ltd v Securicor Transport Ltd [1980] AC 827 at 849. The primary obligation which the claimants had undertaken under the Settlement Agreement, and which remained unperformed at the date of the termination, was the obligation to pay the £1.2 million due under clause 1 together with interest to the Sheikhs. It would therefore seem to follow that the claimants’ obligation to pay those sums was discharged in its entirety, leaving the Sheikhs without the right to receive a penny of their £1.2 million.

Mr Leonard submitted that this was indeed the correct analysis. He argued that the Sheikhs had agreed, for better or for worse, to commit themselves to a composite transaction upon the successful completion of which their rights to receive any money at all depended. If, through their own actions, they prevented the composite transaction from proceeding, they had nobody to blame but themselves if they were left with nothing. Nor could they claim that they had an accrued right to payment of at least the first £300,000, because that obligation too was dependent on the completion of the composite transaction, as Briggs J had held and as Rimer LJ, in refusing permission to appeal on the point, had implicitly confirmed. In short, Mr Leonard submitted that the Sheikhs had put all their eggs in one basket, and (he might have added) had then deliberately dropped it.

This part of the case has caused me considerable anxiety, because I cannot help feeling that the result is a harsh one from the Sheikhs’ point of view, despite their folly in preventing completion of the composite transaction. Nevertheless, I think that Mr Leonard’s analysis is correct. I do not see how the claimants’ obligation to pay the Sheikhs the initial £300,000, let alone the full £1.2 million, can survive the termination of the contract, when the obligation was not a freestanding one but depended on the successful completion of the refinancing.

I have considered whether there might be room for an intermediate analysis, in which the composite transaction would be more narrowly defined as one which was intended to provide the Sheikhs with security for their £1.2 million, and the parties would be taken to have intended that, upon failure for any reason of that composite transaction, the basic contractual liability to pay them £1.2 million plus interest would still remain. An analysis along these lines would have some attractions, because it might be thought to make the price paid by the Sheikhs for their breach of contract more commensurate with their conduct, and to reflect the likely intentions of the parties at the time of the (original) Settlement Agreement. But I can see no proper basis for construing the Settlement Agreement in this way, especially after its variation by the Consent Order, and I also think it is dangerous to speculate about what the intentions of the parties may have been at the conclusion of a lengthy mediation, the details of which are covered by privilege and are not in evidence.

I conclude, therefore, that the Sheikhs are no longer entitled to payment of any of the sums referred to in clause 1 of the Settlement Agreement, and that, subject to proof of causation and loss, the claimants are entitled to recover damages from the Sheikhs for breach of contract. I had originally hoped to be able to produce a single judgment before the end of April dealing with those aspects of the case as well as the issues on liability which I have discussed. However, I have not had time to do so, and I will therefore hand down this judgment as work in progress, with the sections on causation and quantum still to be completed. My reason for doing this is, of course, the deadline of 19 May for exchange of contracts for the sale of the Property by Red River to the Metropolitan Housing Trust, and the need (explained by Mr Dogan in evidence which he placed before the court in late February) for approximately two weeks to complete the arrangements for the sale after the removal of the Restrictions from the title.

On the strength of the conclusions which I have reached, I am satisfied that the Restrictions no longer protect any subsisting interests of the Sheikhs’ and that they should therefore be removed forthwith from the title. Their original function was to provide an additional layer of protection for the Sheikhs arising out of their investment in the acquisition of the Property. The Settlement Agreement then provided for their removal, in order to enable the refinancing with the Bank of Ireland to proceed, and for Isadore Goldman to hold the signed application forms for that purpose to the Sheikhs’ order pending completion of the composite transaction. The Restrictions no longer had any long-term function to perform, because the rights of the parties were now governed by the Settlement Agreement and the protection envisaged for the Sheikhs was their second legal charge. However, pending completion they remained as a blot on the title, and Isadore Goldman’s undertaking had the important transitional purpose of ensuring that the blot could not be removed, without the Sheikhs’ agreement, before completion of the composite transaction. Thus while the composite transaction remained alive the Restrictions, or perhaps more accurately Isadore Goldman’s undertaking, still served an important protective purpose for the Sheikhs, and it would have been wrong for the court to order their removal or to release Isadore Goldman from their undertaking.

That was still the position when on 2 March 2009 I heard an application by the claimants for removal of the restrictions, or (as it had become by the date of the hearing) an application for variation of Isadore Goldman’s undertaking. On 9 March I handed down a reserved judgment dismissing the application: see [2009] EWHC 431 (Ch). It was, I think, in response to a draft of this judgment that the claimants finally decided on 6 March to accept the Sheikhs’ repudiation of the Settlement Agreement. In paragraph 21 of my judgment, I said that any final determination of liability for breach of contract by the Sheikhs would have to await trial of the action. The trial has now taken place, and I have held that the Settlement Agreement was validly terminated by the claimants. In those circumstances, the interim protective function of the Restrictions and Isadore Goldman’s undertaking is spent, and the claimants should in my judgment be free to dispose of the Property without the Sheikhs’ consent.

There remains the technical question of whether the court itself has power, of its own motion or on a summary application, to order removal of the Restrictions. I expressed doubt on this point in paragraph 17 of my judgment of 9 March 2009, and similar doubts had been expressed by David Richards J in an earlier judgment which he delivered on 26 April 2007 when dismissing (on the merits) an application by the claimants to remove the restrictions, before the date of the Settlement Agreement: see [2007] EWHC 1038 (Ch). Furthermore, removal of the Restrictions is not part of the relief claimed by the claimants in the re-amended particulars of claim.

In these circumstances, I am not clear what order, if any, the claimants wish me to make in relation to the Restrictions. It may be that some form of declaratory relief would be sufficient for their purposes, coupled with the release of Isadore Goldman from their undertaking. I will hear counsel on this point, and on any other consequential matters which arise at this stage, when this judgment is handed down. Notice of the handing down will also be given to both of the Sheikhs, and if Miss Sheikh wishes to represent her mother for the purposes of that hearing only, I am provisionally minded to permit her to do so.