Artist Court Collective Ltd v Khan

Part I of the Landlord and Tenant Act 1987 (as extensively amended, especially by the Housing Act 1996) (“the Act”) confers on qualifying tenants of residential flats in a building rights of first refusal when a relevant disposal is intended to be made by the landlord, and various rights of enforcement if the landlord proceeds to make such a disposal without observing the requirements of the Act.

This case concerns a building at 161–171 Hoxton Street and 2 Homefield Street, London, N1 (“the Property”), which is registered at HM Land Registry with title no EGL 177293. There are eight residential flats at the Property (“the Flats”) and three commercial units on the ground floor which are or have been used as shops (“the Shops”).

At all material times before 9 August 2011, the landlord and registered proprietor of the Property was the defendant (and appellant), Sardar Muhammad Ishaq Khan (“Mr Khan”). He bought the freehold of the Property in 1992. Mr Khan was a criminal lawyer normally resident in Pakistan, and in 2002 he executed a power of attorney appointing his nephew, Mr Iftikhar Mehmood, as his agent in connection with the Property.

The claimant (and respondent to the appeal), Artist Court Collective Limited (“Artist Court”), is a company which was incorporated on 11 Feb 2013 and formed by the tenants of a majority of the Flats for the purpose of acquiring title to the Property pursuant to the provisions of the Act.

One of the directors and shareholders of Artist Court is Mr Olivier Hyafil. He is the tenant of two of the Flats. At various times he expressed to Mr Khan, and later to Mr Mehmood, an interest in buying the Property. The negotiations made some progress between 2009 and 2011, but were called off in June 2011. According to Mr Hyafil, he had reached agreement directly with Mr Khan to purchase the freehold of the Property for a sum in the region of £420,000, although in December 2010 he had through his solicitors offered £550,000.

At Mr Khan’s request, Mr Mehmood incorporated a company called SGR Properties (UK) Limited (“SGR”) on 7 July 2011. The directors were Mr. Mehmood and (from November 2012) Mr Khan. The company secretary was another relative of Mr Khan’s, Ms Raheela Mumtaz. She was also the office manager for the MAT Partnership, Mr Mehmood’s firm of accountants. It was always intended that Mr Khan should control SGR, and as at 24 August 2012 there were 10 shares in the company, 9 held by Mr Khan and 1 by Mr Mehmood.

In July 2011, Mr Khan visited England. Later that month, between 25 and 28 July 2011, three friends of Mr Khan (“the Interveners”) each claim to have been granted a 99 year lease of one of the Shops. The Interveners made a last minute application to intervene in the proceedings below, which was refused on 15 May 2015 by His Honour Judge Dight; but he gave permission for them to appear and be heard at the conclusion of the trial, when judgment was handed down, so that the trial judge could give appropriate directions to enable their rights and interests to be dealt with in due course.

Between 5 and 9 August 2011, a strange sequence of transactions took place which I will need to examine in detail later in this judgment. They involved Mr Khan and SGR, acting through its director Mr Mehmood. The transactions comprised:

There is no doubt that the transfer of 9 August 2011 was effective to convey at least legal title to the Property to SGR, and that SGR thereby became the landlord of the Flats for the purposes of the Act. It is also now common ground, in the light of findings of fact made by the trial judge (Mr Recorder Nicholas Lavender QC, as he then was, sitting in the County Court at Central London), that the Trust Deed was validly executed on the date which it bears, and was not a sham. Whether, however, the Trust Deed, read in conjunction with the Contract and/or the transfer, had the effect that either the whole or part of the Property was held by SGR on trust for Mr Khan, and (if so) whether that effect was achieved by two separate transactions or a single composite transaction, are questions which remain in issue and lie at the heart of the present appeal.

The judge appears to have accepted that the sum of £225,000 was paid by SGR, and he records Mr Mehmood’s evidence that Mr Khan lent £225,000 to SGR for this purpose. The judge said he had seen no written loan agreement or banking documents to evidence the payment, but added: “it is clear that someone had to provide the money to SGR”. Presumably the matter was dealt with informally, by book entries, without actual payments being made by Mr Khan to SGR and back again. SGR’s accounts for the year ended 31 July 2012, which were prepared and signed off by Mr Mehmood, included amounts falling due to creditors within one year in the sum of £229,025, no doubt reflecting the debt due to Mr Khan.

The judge referred to the transfer of the Property from Mr Khan to SGR on 9 August 2011 as “the First Transfer”, and I will do likewise. No notices were served under the Act on the tenants of the Flats in connection with either the Contract or the First Transfer, or (if relevant) in connection with the Trust Deed, the existence of which was not disclosed to the tenants and their solicitors until after the present proceedings were commenced. It is common ground that Mr Khan was in breach of his duties under the Act by failing to serve an offer notice under section 5 in relation to his proposal to enter into the Contract and the First Transfer, because it is not in dispute that at all material times the Property constituted premises to which Part I of the Act applied, and that Mr Khan was the landlord at the relevant time.

I can now pick up the story from the chronological section of the judge’s judgment, upon which I have already drawn extensively:

“27.

The tenants of the Flats did not become aware of the First Transfer until mid-2012. The reason why they found out was because they were upset that the Crispy Cod fish and chip shop had opened in one of the Shops, and this prompted them to look into their rights as tenants.

28.

The Majority Tenants [i.e. those participating in these proceedings] instructed solicitors, Ronald Fletcher Baker LLP, and on 17 August 2012 they served a notice on SGR under section 11A of the Act [i.e. a notice requiring SGR to give particulars of the terms on which the disposal was made, including its date and the consideration required, and where the disposal consisted of entering into a contract, to provide a copy of the contract]. SGR’s solicitors, Lee Associates, replied on 12 September 2012, stating that [Mr Khan] “continues to be the beneficial owner of” the Property.

29.

On 25 October 2012 Ronald Fletcher Baker LLP wrote to Lee Associates, stating:

“We require you to provide all documents evidencing the existence of a trust”.

30.

Lee Associates replied on the same day, stating that they:

“confirm for the record that there are no other documents in existence to confirm that the beneficial interest remains vested in Mr Khan.”

31.

It is [Mr Khan’s] case that this statement by his solicitors was incorrect, because they failed to mention the Trust Deed. [Mr Khan] did not disclose the existence of the Trust Deed until after the commencement of these proceedings.

32.

On 15 February 2013 the Majority Tenants served a notice on SGR under section 12B of the Act [i.e. a “purchase notice”, requiring SGR to dispose of the estate or interest which was the subject-matter of the original disposal, on the terms on which it was made, including those relating to the consideration payable], and on 27 March 2013 the Majority Tenants served a notice on SGR under section 19 of the Act [i.e. a notice requiring SGR to make good its default].

33.

On 2 April 2013 Lee Associates wrote to Ronald Fletcher Baker LLP and stated, inter alia, that SGR:

“holds the property on trust for Mr Khan and Mr Khan holds the legal and beneficial interest in the property solely as he did in his sole name.”

34.

On 10 April 2013 Lee Associates wrote to Ronald Fletcher Baker LLP and stated inter alia:

“With respect the legal and beneficial interest has always vested in Mr Khan.”

“We are advised that Mr Khan is happy to re-transfer the property back to his name from his investment vehicle since after all he holds the legal and beneficial interest.”

35.

19 April 2013 is the date on a Form TR1 signed by Mr Mehmood on behalf of SGR and witnessed by Ms Mumtaz. This form provided for the transfer of the Property by SGR to [Mr Khan] for no consideration. I will refer to this transfer from SGR to [Mr Khan] as the Second Transfer.

36.

Mr Mehmood acknowledged that the Second Transfer was motivated by the actions of the Majority Tenants. He said that he had a conversation with [Mr Khan] and that [Mr Khan] said (in effect) that he wanted:

“to stop the litigation, put it back to satisfy his tenants and close off litigation.”

37.

I accept that this was why the Second Transfer took place.

….

39.

On 14 May 2013 the Claimant issued a Claim Form seeking an order under section 19 of the Act against SGR as the purchaser under the First Transfer (“the First Proceedings”). Lee Associates responded on 22 May 2013, stating that SGR and Mr Khan would be defending the claim vigorously. On 24 May 2013 Lee Associates asked for an extension of time for serving evidence until 13 June 2013. In neither letter did Lee Associates mention the Second Transfer.

40.

On 28 May 2013 [Mr Khan] was registered as the proprietor of the Property. No stamp duty was paid on the Second Transfer, on the basis that it was for no value.

41.

On 11 June 2013 Lee Associates for the first time disclosed the Second Transfer (but not the Trust Deed) to the Majority Tenants. Lee Associates served a witness statement dated 11 June 2013 made by Mr Mehmood, in paragraph 6 of which Mr Mehmood stated:

“[SGR] is no longer the registered proprietor of [the Property] following a transfer of whatever interest [SGR] had in the Property for nil value to [Mr Khan].”

42.

On 15 July 2013 the Majority Tenants served a notice on[Mr Khan] under section 11A of the Act.

43.

On 17 July 2013 Lee Associates wrote to Ronald Fletcher Baker LLP in response to the notice served on 15 July 2013 and stated, inter alia:

“To avoid further escalation of legal proceedings and costs our client and the director of the investment vehicle decided to transfer the property which our client already has the legal and beneficial interest in and had provided £225,000 to the Investment Vehicle back to him at nil value. ”

44.

On 15 August 2013 the Majority Tenants served a notice on [Mr Khan] under section 12B of the Act, and on 20 November 2013 the Majority Tenants served a notice on [Mr Khan] under section 19(2) of the Act.

45.

The present proceedings were commenced by Claim Form issued on 5 December 2013. It was only after these proceedings were commenced that [Mr Khan] disclosed the Trust Deed.

46.

On 24 March 2014 SGR’s accounts for the year ended 31 July 2013 were produced. These accounts, which were prepared by Mr Mehmood, showed the Property as a disposal and showed SGR’s current liabilities as £1,224.”

By its Part 8 claim form, Artist Court sought declarations that:

At a hearing before District Judge Lightman on 7 May 2014, a number of case management directions were given, including allocation of the claim to the multi-track, an order for standard disclosure, and directions for the filing of witness statements. No directions were given, however, for the service of statements of case, which as the judge rightly observed more than once in his judgment would have helped to define and clarify the issues, particularly as he was asked to resolve a number of disputes of fact. Nor was any direction given for the case to continue as if it had been begun by a Part 7 claim. It follows that the appeal from the judge’s order lies to the High Court, not the Court of Appeal: see Table 1 to PD 52A, paragraph 3.3.

The trial of the action took place over three days, from 18 to 20 May 2015. Artist Court was represented, as on the appeal to this court, by Mr Caun, while Mr Khan was represented by Ms Brie Stevens-Hoare QC. The Interveners were also represented by counsel, Mr Skelly, on a watching brief. The judge heard oral evidence from Mr Hyafil, Ms Mumtaz and Mr Mehmood. The judge found Mr Hyafil to be a reliable witness, who gave evidence in a straightforward manner, but he was not a party to any of the disputed transactions, so his evidence was of limited assistance. Ms Mumtaz was called to give evidence about the signing of the Trust Deed, and as I have already indicated her evidence was accepted by the judge, as a result of which Artist Court’s challenge to the validity of the Trust Deed fell away. The judge treated the evidence of Mr Mehmood with caution, for a number of reasons which he set out in paragraph 51 of his judgment. The judge found some of his answers difficult to accept, and when he did give explanations they were often unclear. In particular, Mr Mehmood was unable to give a clear explanation of the rationale for the Contract and the First Transfer, despite having been involved in them as director of SGR.

Mr Khan himself did not give evidence, being too ill to travel from Pakistan. Nor had he made any witness statements, apart from two short ones on peripheral matters. Sadly, Mr Khan later died on 15 January 2016, and on 18 May 2016 an English grant of probate of his estate outside Pakistan was granted to his son and executor, Sardar Ejaz Ishaq Khan, out of the Leeds District Probate Registry. It is agreed that an order now needs to be made substituting Mr Sardar Khan for his father as the defendant and appellant. References in this judgment to Mr Khan should be read, where appropriate, as including his estate and his English personal representative.

At the end of the hearing the judge reserved his judgment, which he handed down on 26 October 2015 when he also heard submissions about the form of the order which needed to be made. He dealt with certain matters arising from this hearing in a supplemental judgment dated 9 November 2015. The judge’s order dated 26 October 2015, as finally approved by him, dealt with a number of matters in considerable detail, and also gave directions for Part 20 claims to be brought by the Interveners with which I am not directly concerned. For present purposes, it is enough to say that the judge upheld Artist Court’s claim, and made the three declarations that it sought, save that the first declaration stated that Mr Khan was a purchaser of the freehold of the Property under the terms of the Second Transfer and/or pursuant to the Trust Deed. This refinement reflected the judge’s analysis of the issue in his judgment, to which I will return in due course.

By paragraph 2 of his order, the judge ordered Mr Khan to remedy his failure to execute the transfer of the freehold in the form submitted to him by Artist Court by no later than 9 November 2015. For the avoidance of doubt, the transfer was to include the Shops, and the right to receive the rent paid by the occupiers of the Shops (who were not the same persons as the Interveners). Mr Khan was also ordered to pay £52,000 to Artist Court’s solicitors by 23 November 2015, calculated at the rate of £24,000 per annum as representing the net sums paid as rent or ground rent by the occupational tenants of the Shops and the Flats during the period from 4 September 2013 to 3 November 2015. The annual rate of £24,000 represented the total annual rents assessed as £36,000 less an allowance of one third for costs.

The reasons which led the judge to make this order are set out in his clear and lucid judgment, and I will deal with them in the course of considering the various grounds of appeal which are still pursued. The judge himself refused Mr Khan permission to appeal, but by an order dated 14 December 2015 Rose J gave directions for a rolled-up hearing at which Mr Khan’s applications for permission to appeal out of time, and, subject to such permission being granted, for permission to appeal would be heard together with the appeal if permission were granted. All of these matters, therefore, needed to be dealt with at the hearing before me on 1 July 2016.

I granted permission at an early stage for the necessary extension of time for appealing, so I need not say much about that aspect of the case. In short, the appellant’s notice had mistakenly been filed, in time, with the Civil Appeals Office on the footing that the appeal lay to the Court of Appeal. On 20 November 2015 the Court of Appeal correctly indicated that it lacked jurisdiction, and that the correct route of appeal was to the High Court. Mr Khan’s solicitors then filed a protective appellant’s notice in the High Court on 23 November 2015, 7 days out of time. The application was not opposed by Mr Caun, and I took the view that Artist Court’s breach of the rules was in all the circumstances neither serious nor significant. It would have been disproportionate to refuse an extension, and thereby prevent Mr Khan from pursuing his appeal, when Artist Court knew within the stipulated 21 day period the grounds upon which Mr Khan wished to appeal, and no prejudice was caused to it by the short delay while the confusion was sorted out. That said, Mr Khan’s lawyers were undoubtedly at fault in failing to appreciate that the appeal lay to the High Court, because there is no ambiguity about the relevant provisions of PD 52A. They just need to be read with appropriate care.

There were originally nine grounds of appeal, but by the date of the hearing two of them had been dropped. The remaining seven grounds, which remain live, are in summary as follows (I retain the original numbering):

The appellant also sought permission at the hearing, which I granted, to raise a further ground of appeal, which I will call ground 10. It is as follows:

By a respondent’s notice dated 21 December 2015, Artist Court seeks to uphold the judgment of the judge on three additional grounds. The first of these (raising an estoppel argument) may now be ignored, because it relates to the abandoned fifth ground of appeal. The other two are in summary as follows:

In the light of these pleaded grounds I agree with counsel for Mr Khan that it is sensible to deal with the issues chronologically, by reference to the sequence of events. I will therefore begin by considering the effect of the Trust Deed, the Contract and the First Transfer. This involves consideration of grounds of appeal 1, 2 and 6, together with the respondent’s ground B.

The recitals and operative clauses of the Trust Deed provided as follows:

“WHEREAS:

(1)

This Deed is supplemental to a Transfer and agreement made between Sardar Muhammad Ishaq Khan of the one part and the Trustees [i.e. SGR] of the other part whereby the freehold property situate and known as 167-171 Hoxton Street, London, N1 6LP and 2 Homefield Street, London, N1 6PX (hereinafter called “the Property”) as the same is registered at the Land Registry under Title number EGL 177293 will be transferred by [Mr Khan] to the Trustee to be held by them on trust for [Mr Khan].

(2)

The Property will be transferred to the Trustee in consideration of the sum of £225,000 and the costs of purchasing the Property will be paid by [Mr Khan] together with the sum of £225,000 excluding the three shops.

NOW THIS DEED WITNESSETH as follows:

1.

The Trustee HEREBY DECLARES that the Trustee will hold the Property upon trust for [Mr Khan] exclusively.

2.

The Trustee HEREBY AGREES that they will undertake to transfer the shares in [SGR] to [Mr Khan] as well as appoint him as a Director and will develop the shops for the exclusive and sole benefit of [Mr Khan] and collect and pay the rent income to [Mr Khan] as agreed.”

The judge recorded that Mr Khan did not identify the draftsman of the Trust Deed. It was certainly not drafted by his solicitors, Lee Associates, who also acted for SGR. The Contract makes no reference to the Trust Deed, and the judge found that Lee Associates were apparently unaware of the Trust Deed when they drafted the Contract. Nevertheless, it is reasonably clear from the wording of the Trust Deed itself that it was drafted in contemplation of, and before, the Contract and the First Transfer, and was intended to declare the trusts upon which SGR would hold the Property once the legal estate had been transferred to SGR. Furthermore, clause 1 of the Trust Deed states unambiguously that SGR “will hold the Property upon trust for [Mr Khan] exclusively”. The Property is defined in the first recital as the whole of the freehold property contained in the registered title, and therefore includes the Shops. The trust could not be constituted and take effect, of course, until the legal estate was vested in SGR, but once that had happened no further steps were necessary for the trust to be validly constituted.

The Contract was drafted by Lee Associates on a standard form which incorporated the Standard Commercial Property Conditions (Second Edition). The particulars on the front page identified Mr Khan as the seller, SGR as the buyer, and the property as the freehold interest in the whole of the registered title. The sale was made with full title guarantee, and was to be completed on the same day, 9 August 2011. The purchase price was stated to be £225,000, and the deposit £25,000. It was agreed that Mr Khan would sell, and SGR would buy, the Property for the purchase price.

Of the 17 Special Conditions, which are set out in full in the judgment, the following in particular are relevant:

“4.

The property is sold subject to Leases or Tenancies of which the Buyer is aware.

………

6.

The Seller and Director of [SGR] are blood relatives and the Seller is the Uncle of the Director of the Company.

7.

The sole Director, Iftikhar Mehmood, has for a number of years managed the property portfolio and other business interests of the Seller in the UK through various managing agents and advisors.

8.

The Seller has been advised by his professional advisors, his accountants, bankers and property consultants to transfer the property into an investment vehicle being a London based limited company, [SGR] and to utilise part of the sale proceeds for the acquisition of other properties in London.

9.

The Director and Seller have set up [SGR] (“the Company”) for the sole purposes of transferring the property into the Company’s name.

10.

The controlling interest in the Company and the beneficial interest in the land will remain vested in the Seller through his investment vehicle and there will be no mortgage on the property.

11.

The majority shareholder of the Company will be the Seller. The Director/Secretary of the Company agree to reflect this in the company’s books, accounts and at Companies House.

12.

The Company will acquire the freehold at a nominal sum of £225,000.00 but the sale price will not include the 3 commercial shops, one of which is empty and two [of] which are occupied by tenants.

13.

The rental income from the shops will be given to the Seller by the Company subject to company expenses.

14.

The Seller will allow the Company to arrange and apply for change of use and develop the shops as advised by the property consultants, accounts [sic] and legal advisor.

15.

The Company will be entitled to recover the costs of all expenses from the Seller subject to a proper audit of all expenditure which must be agreed and authorised by the Seller.

16.

The Seller will provide a written Rent Authority letter to the Company for the tenants.

17.

This agreement will not merge on completion and set out the full terms of agreement between the parties.”

The judge commented (in paragraphs 21 and 22 of the judgment) that Mr Khan did not identify the professional advisers, accountants, bankers and property consultants referred to in Special Condition 8, and Mr Mehmood denied that he was one of them. Nor did Mr Khan disclose any written advice obtained by him from any of those persons, or explain in a witness statement the advice which he allegedly received from them. At the trial, Mr Khan’s then leading counsel, Ms Stevens-Hoare, “was unable to identify any commercial rationale for the transactions effected by the Contract and the Trust Deed.”

After hearing the evidence of Ms Mumtaz, the judge accepted that the Trust Deed was validly executed on the date which it bore. On the issue whether the Trust Deed was a sham, which Mr Caun had raised on the last day of the trial, the judge said that it was unnecessary for him to decide the question but he would assume that the Trust Deed was not a sham. Had it been necessary for him to decide the allegation of sham, he would have adjourned the trial to allow Mr Khan to give evidence. In the event, the allegation of sham is no longer pursued. Instead, Mr Caun now seeks to argue that the judge should have disregarded the Trust Deed altogether, because it was inconsistent and incompatible with the Contract. That, as I understand it, is the intended thrust of the respondent’s ground B.

In support of this submission, Mr Caun relies on the statement in Special Condition 17 that the Contract “set out the full terms of agreement between the parties”. Because the Contract was made between the same parties as the Trust Deed, he argues that Special Condition 17 shows that they must have intended the provisions of the Contract to supersede, and preclude reliance upon, any agreement which was not contained in the Contract, and the parties then proceeded to act in accordance with the Contract rather than the Trust Deed.

Mr Caun next argues that there is a fundamental inconsistency or incompatibility between the Trust Deed and the Contract, because the former purports to confer beneficial ownership of the entire Property on Mr Khan, whereas the Contract involves the payment of consideration in return for the acquisition of a controlling shareholding in SGR, which was described as Mr Khan’s investment vehicle. On the judge’s findings of fact, the consideration of £225,000 was actually paid, or at least treated as paid, and the judge accepted (in paragraph 25 of the judgment) that SGR completed a form SDLT 1 in connection with the Stamp Duty Land Tax due on the First Transfer, although no copy of the form was produced at trial. Question 57 in that form asked whether SGR was acting as trustee. Mr Mehmood’s evidence was that he answered “yes” to that question, but the judge said that Artist Court was “understandably sceptical”.

Mr Caun also relied on an unreported decision of Robert Walker J (as he then was), sitting in the Chancery Division of the High Court, Stockholm Finance Limited v Garden Holdings Inc (26 October 1995). This was a mortgage fraud case, and one of the issues concerned the beneficial ownership of the mortgaged property, which was a substantial house in Hampstead Garden Suburb. The property was purchased in the name of a Panamanian company, Garden Holdings Inc, with money provided by two Saudi princesses (who were mother and daughter). The entire share capital of Garden Holdings Inc belonged to the daughter, Princess Madawi. In that context, the judge had to decide, among other matters, whether the equitable presumptions of resulting trust or advancement had any application as between Princess Madawi and her company.

In concluding that he could see “very little room” for the application of either presumption, Robert Walker J said this:

“The other point that I have to come back to is the significance of the transfer being made to a company whose whole share capital belonged to Princess Madawi. If (as in McGrath v Wallis [1995] 2 FLR 114, [1995] 3 FCR 661), a father and son both contribute to the purchase of a house which is transferred to the son alone, the question of whether beneficial ownership corresponds to, or differs from, legal ownership - however it is resolved - has serious financial consequences for the parties. If they fall out and the house has to be sold during the father’s lifetime, it affects the destination of the proceeds of the sale; if they retain the house until the father dies, it affects how much he has to leave by his will.

The position is quite different if the house belongs to a private company. If a private company is sole legal owner of the house, and the occupier of the house is the sole legal and beneficial owner of all the company’s shares, then (so long as both parties remain solvent) there is no basic economic difference between the company being sole beneficial owner of the house, and being a nominee for the occupying shareholder. There will be incidental differences - for instance, the tax implications - and these may be of some practical importance, as has been seen. But at a basic level a wholly-owned company cannot be seen by its shareholder either as a potential rival to him in claims to ownership of property, or as a potential recipient of bounty from him (see, in a different context, IRC v Levy [1982] STC 442, 56 TC 68). What goes out of one economic pocket comes straight into the other.”

Mr Caun goes on to say that the subsequent acts of SGR were consistent with the implementation of the Contract, including:

The essential point, submits Mr Caun, is that Mr Khan could not at one and the same time claim to have an interest in the Property through his investment vehicle, as majority shareholder, and also claim 100% beneficial ownership of the Property.

These submissions have considerable cumulative force, but for a number of reasons I am unable to accept them.

In the first place, it seems clear to me that Mr Khan and SGR must objectively be taken to have intended that both the Trust Deed and the Contract would apply to the Property once it became vested in SGR. This is apparent from the wording of the Trust Deed itself, including in particular the fact that it was expressed to be “supplemental” to the anticipated transfer and agreement. The parties thereby showed an intention that the three documents should be read together, and should as far as possible each have legal effect. The mere fact that the Contract was apparently drafted by Lee Associates in ignorance of the Trust Deed is to my mind irrelevant. What matters is the intention of the parties, that is to say Mr Khan and SGR, to be gathered from the three documents read together and construed in the light of the admissible surrounding circumstances.

Secondly, the Trust Deed clearly states, as I have already said, that the entirety of the Property will be held by SGR on trust for Mr Khan “exclusively”. The wording of the Contract and the Special Conditions is, at the lowest, compatible with that intention, and in fact contains a number of provisions which in my view support it. Thus, Special Condition 10 says that “the beneficial interest in the land will remain vested in the Seller”; Condition 13, which says that the rental income from the Shops “will be given to the Seller by the Company”, suggests that Mr Khan would be entitled to receive the income, subject to deduction of administration expenses; and Condition 14, which states that Mr Khan “will allow the Company” to apply for planning permission and development of the Shops, clearly implies that these decisions are ones for Mr Khan to take in his personal capacity.

Thirdly, I do not think that there is any fundamental legal incompatibility between the corporate and contractual structure reflected in the establishment of SGR and the terms of the Contract, on the one hand, and the trust declared in the Trust Deed, on the other hand. The matter may be tested by supposing that the Trust Deed had never been executed. In those circumstances, subject to a possible argument that a trust was created by some of the Special Conditions, full legal and beneficial title to the Property would have been vested in SGR, and Mr Khan would have exerted his control over it through the corporate structure which he had established. The Trust Deed does not alter this corporate structure in any way, but has the further result that the entire beneficial interest in the Property is held by SGR as a trustee for Mr Khan. This gave Mr Khan further rights of control in his capacity as beneficiary, exercisable by him against SGR as his trustee and bare nominee. The real puzzle, to my mind, is why Mr Khan should have thought it necessary or desirable to add this further layer of control, and to superimpose a trust relationship on a structure which already gave him all the control he could possibly need. Quite why he acted in this way is, on the available evidence, anyone’s guess. Perhaps he and Mr Mehmood had a surfeit of advice from different quarters, and misguidedly took the view that the more methods of control they could establish the better. For present purposes, however, the important point is that the trust structure was not in my judgment so incompatible with the corporate and contractual structure that, as a matter of either law or fact, it has to be entirely disregarded. Mr Khan may have decided to heap Ossa upon Pelion, but it does not follow that Pelion can be disregarded.

On the approach which I favour, it may reasonably be asked why, if Mr Khan was to remain beneficial owner of the Property, he should at the same time have sold it to SGR for £225,000, and put SGR in funds for that purpose. I have no answer to this question, but observe that the same problem arises even without the Trust Deed. Why should Mr Khan have wished to be paid £225,000, when through his control of SGR he could dictate what was to be done with the Property? And if he wanted to obtain funds for the acquisition of further London property, it made no sense for him to finance the purchase by SGR himself rather than procure SGR to borrow the money externally. Again, the problem is not one of legal incompatibility, but rather what on earth Mr Khan was trying to achieve. Understandably, his leading counsel at trial had no answer to this question, and wisely Mr Jourdan resisted the temptation to try and supply one.

Fourthly, I do not think that the observations of Robert Walker J in the Stockholm Finance case assist Mr Caun. They were made in a very different factual and legal context, and I am confident that Robert Walker J was not intending to cast any doubt on the fundamental propositions of company law that even a wholly-owned one man company has separate legal personality from its shareholder, and can therefore hold property in trust for him, just as it can contract with him, provided the appropriate formalities are complied with.

Fifthly, the subsequent acts relied on by Mr Caun are in my view compatible with either structure, quite apart from the objection that it is impermissible to use subsequent conduct to assist in the interpretation of ambiguous documents. I therefore agree with the submission of counsel for Mr Khan that if, on the true construction of the Trust Deed and the Contract, a trust was imposed on SGR when it acquired the Property, subsequent conduct could be relevant only if it evidenced an agreed variation of the original trust, or gave rise to an estoppel: see Pankhania v Chandegra [2012] EWCA Civ 1438, [2013] 1 P.&C.R. 16, at [13] to [15] per Patten LJ, with whose judgment the other members of the court agreed.

Finally, I do not accept that Special Condition 17 has the effect of superseding, or ousting, the Trust Deed. As I have already said, the Trust Deed has to be read together with the Contract and the First Transfer, and in that context the reference in Special Condition 17 to “full terms of agreement” is naturally read as saying that the Contract sets out in full the terms already adumbrated in the Trust Deed. Furthermore, even if that is not right, and it was intended to be an entire agreement clause, it is very doubtful whether it could prevent reference to a document showing that an express trust was also intended. The purpose of an entire agreement clause is to ensure all the contractual terms agreed between the parties are contained in one document. It cannot prevent a party from seeking to establish that a non-contractual relationship was also entered into with the other party, any more than it can exclude a claim for misrepresentation or rectification: see Surgicraft Ltd v Paradigm Biodevices Inc [2010] EWHC 1291 (Ch) at [70] to [72] per Christopher Pymont QC, sitting as a deputy High Court judge, citing earlier authorities.

For these reasons, I reject Artist Court’s ground B. I can also deal briefly with Mr Khan’s first ground of appeal. It is true that, when the Trust Deed was executed on 5 August 2011, SGR had no interest in the Property and was not yet a landlord for the purposes of the Act. It follows that the Trust Deed could not be treated as effecting a relevant disposal, within the meaning of section 4, on that date. But the position changed when SGR acquired the legal estate on 9 August, and the trust was constituted. SGR then became the landlord, and I can see no reason in principle why SGR should not then have made a relevant disposal within section 4 by virtue of the Trust Deed. The definition of “relevant disposal” in section 4(1) could hardly be wider. It reads as follows:

“(1)

In this Part references to a relevant disposal affecting any premises to which this Part applies are references to the disposal by the landlord of any estate or interest (whether legal or equitable) in any such premises, including the disposal of any such estate or interest in any common parts of any such premises but excluding –

………

(b)

any of the disposals falling within subsection (2).”

This leads on, however, to the next question, which is whether it is right to regard SGR as having made a separate disposal of the beneficial interest in the Property, or whether the correct analysis is that SGR only received the Property subject to the trust in Mr Khan’s favour, with the result that SGR did not at that stage dispose of any estate or interest in the Property. This is essentially the point raised by Mr Khan’s second ground of appeal.

The judge stated his conclusion on this issue in paragraph 104 of the judgment:

“104.

Consequently, my conclusion on this first issue is that I find that the Contract and the First Transfer pursuant thereto had the effect of transferring to SGR absolute ownership of the whole of the Property, in return for £225,000 plus whatever sum might be due under clause 13 of the Contract. However, by the Trust Deed SGR had declared a trust of the Property which then took effect in favour of the Defendant.”

Similarly, the judge said in paragraph 102:

“This was not a case, as the Defendant contends, of the Defendant retaining the beneficial interest in the Property, but rather of the Defendant selling his absolute interest in the Property to SGR, and of SGR conferring an equitable interest in the Property on the Defendant.”

The authority relied on by the judge in support of this conclusion was a passage in the speech of Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 706. The issue in the Westdeutsche case was whether the bank was entitled to recover compound interest on the judgment which it obtained against the council for the principal balance outstanding under an interest rate swap agreement which it had entered into with the council, and which was subsequently held to be ultra vires. By a bare majority, the House of Lords held that equity should not award compound interest in aid of the bank’s common law claim for restitution. In his leading speech for the majority, Lord Browne-Wilkinson outlined the argument for the bank on the question whether there was a trust at 702F:

“The bank submitted that, since the contract was void, title did not pass at the date of payment either at law or in equity. The legal title of the bank was extinguished as soon as the money was paid into the mixed account, whereupon the legal title became vested in the local authority. But, it was argued, this did not affect the equitable interest, which remained vested in the bank (“the retention of title point”). It was submitted that whenever the legal interest in property is vested in one person and the equitable interest in another, the owner of the legal interest holds it on trust for the owner of the equitable title……”

Lord Browne-Wilkinson then dealt with the retention of title point, at 706 D-G:

“The retention of title point

It is said that, since the bank only intended to part with its beneficial ownership of the monies in performance of a valid contract, neither the legal not the equitable title passed to the local authority at the date of payment. The legal title vested in the local authority by operation of law when the monies became mixed in the bank account but, it is said, the bank “retained” its equitable title.

I think this argument is fallacious. A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estates, there is no separate equitable title. Therefore to talk about the bank “retaining” its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust.

This proposition is supported by In re Cook; Beck v Grant [1948] Ch. 212; Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, 311 G, per Lord Upjohn, and 317 F per Lord Donovan; Commissioner of Stamp Duties (Queensland) v Livingstone [1965] AC 694, 712 B-E; Underhill and Hayton, Law of Trust and Trustees, 15^th ed.(1995), p. 866.”

In short, the judge considered that it was meaningless to talk about Mr Khan retaining an equitable interest in the Property when it was conveyed to SGR, so he could only have obtained his equitable interest by virtue of a separate disposal by SGR.

In my respectful opinion, there is a fallacy in this reasoning. It is certainly the case that, before the First Transfer, it made no sense to talk of a separation of the legal and equitable estates in the Property, and Mr Khan’s legal title carried with it the full beneficial ownership of the Property. But it does not follow from this that the subsequent separation of the legal and beneficial interests could only occur by means of a disposal by SGR. The more realistic analysis, surely, is that the trust declared by SGR on 5 August 2011 took effect simultaneously with the transfer of the Property to SGR, with the consequence that all SGR ever acquired was the legal title impressed with the trust. This question was not addressed by Lord Browne-Wilkinson in the passage from his speech which I have quoted, but it may at least be said that there is nothing in his reasoning which requires a separation of the legal and equitable estates to be effected by a separate disposal by the legal owner. Indeed, when he said that the only question is “whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority”, and, if so, that “an equitable interest arose for the first time under that trust”, his language seems to me to point in the other direction. If a trust is imposed because of the circumstances in which the money was paid, it seems natural to regard the trust as arising automatically at the moment of receipt, and not by virtue of a separate deemed disposition by the recipient.

I accept the submission for Mr Khan that the judge’s analysis in the present case implies that there was a moment in time when the whole legal and beneficial interest in the Property vested in SGR, followed immediately by the trust taking effect, thereby transferring back to Mr Khan the beneficial interest. That is wrong, in my judgment, because it resurrects the notion of a moment in time, or “scintilla temporis”, which was rejected as “no more than a legal artifice” by the House of Lords in Abbey National Building Society v Cann [1991] AC 56 at 93D per Lord Oliver of Aylmerton, overruling the decision of the Court of Appeal in Church of England Building Society v Piskor [1954] Ch 553.

The question in Abbey National v Cann was whether persons in actual occupation of a registered leasehold property could assert an overriding interest by virtue of their occupation which would take priority over the charge of the building society, which had advanced funds to the purchaser when he bought the property. The occupiers could only succeed if there was a notional moment of time between the acquisition of the legal estate by the purchaser, and the grant of the charge to the society, during which the estoppel upon which the occupiers relied could be fed by the purchaser’s acquisition of the legal estate and thereby take priority as an overriding interest under section 70(1)(g) of the Land Registration Act 1925.

In rejecting this argument, Lord Oliver said at 92F:

“Of course, as a matter of legal theory, a person cannot charge a legal estate that he does not have, so that there is an attractive legal logic in the ratio in Piskor’s case. Nevertheless, I cannot help feeling that it flies in the face of reality. The reality is that, in the vast majority of cases, the acquisition of the legal estate and the charge are not only precisely simultaneous but indissolubly bound together. The acquisition of the legal estate is entirely dependent upon the provision of funds which will have been provided before the conveyance can take effect and which are provided only against an agreement that the estate will be charged to secure them.

………

The reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise. The “scintilla temporis” is no more than a legal artifice……..” ”

Mr Caun sought to challenge this analysis by arguing that the ratio of Cann is confined to cases where the purchaser requires the loan in order to complete his purchase. He says that the decision of the House of Lords in Cann was driven by policy considerations, and should not be applied in other conveyancing contexts. He relies on a dictum of Baroness Hale of Richmond DPSC in Mortgage Business Plc v O’Shaughnessy [2014] UKSC 52, [2015] AC 385, where she said at [120]:

“I understand, of course, that the ratio of Cann is limited to those cases where the purchaser requires the loan in order to complete his purchase.”

But this observation was made in the context of a discussion, which was itself obiter, of the question whether a contract which precedes the conveyance and mortgage can also be treated as part of a single indivisible transaction. As Lady Hale said at [115], that was a “much more controversial proposition”, and Lord Wilson and Lord Reed JJSC agreed with her that it should not be accepted: see [123].

The actual decision in the O’Shaughnessy case, however, was that under the scheme of the Land Registration Act 2002 a purchaser of property could not grant equitable rights of a proprietary character, capable of overriding registered dispositions, before this acquisition of the legal estate. In reaching this conclusion, the Supreme Court affirmed Cann and its rejection of the doctrine of “scintilla temporis” in cases where the acquisition of the legal estate and the grant of the lender’s charge form a single or indivisible transaction.

In my view, therefore, O’Shaughnessy provides no real support for Mr Caun’s argument, and even if the present case is not strictly covered by the ratio of Cann, I can see no good reason to distinguish it or to resurrect the notion of a “scintilla temporis”. The realistic analysis, in my judgment, is that the transfer of the Property, and the constitution of the trust in favour of Mr Khan, formed part of a single indivisible transaction on 9 August 2011, and all that SGR ever acquired was the legal title to the Property subject to the trust.

I should add that Mr Caun also sought to rely on some observations of Peter Gibson LJ in Rodway v Landy [2001] EWCA Civ 471, [2001] Ch 703, at [20] to [21], but they were made in a wholly different context and I do not find them of any assistance.

The remaining issue under this heading is ground 6 of the grounds of appeal, namely whether the judge was wrong to construe the Contract as including the Shops, when the clear intention was to exclude them from the sale. This ground would have been material had I decided that the trust in Mr Khan’s favour did not extend to the whole of the Property, but (arguably) extended only to the Shops. As I have already indicated, however, I consider that the trust did extend to the whole of the Property, and that the provisions of the Contract were intended to reflect this. In the circumstances, I do not think there is any further question which I need to determine about the scope of the Contract.

I now turn to the third ground of appeal. It raises the question whether the Second Transfer was an exempt disposal under section 4(2)(g) of the Act. If it was, Artist Court cannot claim any relief under the Act in respect of the Second Transfer.

I have already quoted the wide definition of “relevant disposal” in section 4(1): see [45] above. I will now set out the exemption in section 4(2)(g), together with certain other provisions of section 4 which may have some bearing on the issue:

“(2)

The disposals referred to in subsection (1)(b) are –

(a)

a disposal of -

(i)

any interest of a beneficiary in settled land within the meaning of the Settled Land Act 1925,

…

(e)

a disposal by way of gift to a member of the landlord’s family or to a charity;

…

(g)

a disposal consisting of the transfer of an estate or interest held on trust for any person where the disposal is made in connection with the appointment of a new trustee or in connection with the discharge of any trustee;

(h)

a disposal consisting of a transfer by two or more persons who are members of the same family either –

(i)

to fewer of their number, or

(ii)

to a different combination of members of the family (but one that includes at least one of the transferors);

…

(3)

In this Part “disposal” means a disposal whether by the creation or the transfer of an estate or interest and –

(a)

includes the surrender of a tenancy and the grant of an option or right of pre-emption, but

(b)

excludes a disposal under the terms of a will or under the law relating to intestacy;

and references in this Part to the transferee in connection with a disposal shall be construed accordingly.”

The judge dealt with this issue in paragraphs 106 to 108 of his judgment, as follows:

“106.

I do not consider that the Second Transfer was:

“a disposal consisting of the transfer of an estate or interest held on trust for any person where the disposal is made in connection with the appointment of a new trustee or in connection with the discharge of any trustee;”

107.

The Defendant’s argument was that the transfer of the Property from SGR to the Defendant brought about the end of the trust and thereby discharged SGR as trustee. However, it seems to me that this does not fall within the scope of section 4(2)(g), for the following reasons:

(1)

Section 4(2)(g) applies to the transfer of an estate or interest held on trust for any person. This means that the property transferred must be held on trust both before and after the transfer.

(2)

Section 4(2)(g) applies where the transfer is made in connection with the discharge of a trustee. This refers to the situation where a trustee is discharged from a continuing trust pursuant to section 36 or 39 of the Trustee Act 1925.

(3)

If section 4(2)(g) had been intended to apply to the transfer of property to the beneficiary of a trust on the termination of a trust, then the sub-section would have used words which more clearly expressed this intent.

108.

Accordingly the Second Transfer was a relevant disposal for the purposes of the Act.”

It can be seen, therefore, that the judge proceeded on the footing that section 4(2)(g) applies only where the relevant estate or interest is held on trust both before and after the transfer. But that, with respect, is not what section 4(2)(g) says. The requirements are that the estate or interest should be held “on trust for any person” when the disposal is made, and that the disposal is made “in connection with the appointment of a new trustee or in connection with the discharge of any trustee”. There is nothing in this language, in my judgment, which prevents its application to a situation where the legal estate in property held on trust for a beneficiary is conveyed to the beneficiary, thereby terminating the trust and discharging the trustee. The words “in connection with the discharge of any trustee” are in my view wide enough to cover such a situation, and there is no reason to confine their scope to situations where the trustee of a continuing trust is discharged, whether or not a new trustee is appointed in his place. As a matter of language, therefore, section 4(2)(g) seems to me to be apt to cover the circumstances of the Second Transfer. SGR, as trustee, thereby transferred the legal estate in the Property to Mr Khan, who was the sole beneficiary. The trust therefore came to an end, and SGR was discharged from its trusteeship because the legal and equitable interests in the Property were then reunited in the person of Mr Khan.

Not only is this the most natural reading of the statutory language, but it seems to me entirely in keeping with the purpose of the Act. It would be very strange if the transfer of the legal estate in property held on trust to a beneficiary who is absolutely entitled were to trigger a right in the qualifying tenants to acquire the property for nil consideration. If the trust happened to be testamentary, or one arising under the law relating to intestacy, the exclusion in subsection (3)(b) would no doubt apply; but there is no similar exclusion for inter vivos trusts, unless the gap is filled by subsection (2)(g). No sensible legislative purpose would be served by distinguishing in this way between trusts arising on death and lifetime trusts, in situations where a beneficiary is or becomes absolutely entitled to the trust property and the legal estate is conveyed to him by the trustees.

Mr Caun had no real answer to this point, in my view, beyond saying that the fundamental purpose of the Act was to enable qualifying tenants to have a right of first refusal in a wide range of circumstances, and that the landlord would be acting at his own risk if he entered into a transaction within the scope of the Act without first entering into negotiations with the tenants. Mr Caun also argued that, as an exception to the general rule, section 4(2)(g) should be strictly construed against the interests of the landlord. I do not accept either of these submissions. The appropriate construction, in my opinion, is one which pays due respect to the statutory language, and forms part of a coherent legislative scheme. The construction advocated for Mr Khan achieves those objectives. The construction favoured by the judge does not, and would constitute a serious trap for unwary landlords who are called on to transfer trust property to a beneficiary.

This conclusion makes it unnecessary for me to consider a fallback argument for Mr Khan based on Article 1 of the First Protocol to the European Convention on Human Rights (“A1P1”). The argument, in short, is that a statutory provision which prevents the beneficial owner of a property from acquiring the legal title engages A1P1. The Act admittedly has a legitimate aim, but if section 4(2)(g) does not cover disposals by trustees to the beneficial owner, then that restriction is not rationally connected to the aim, the aim could be achieved by a less intrusive measure, and the restriction does not produce a fair balance. Therefore section 4(2)(g) should be “read down” so that it does not infringe A1P1, applying the principles stated in Ghaidan v Godin-Mendoza [2004] UKHL 30, [2004] 2 AC 557. The argument is an attractive one, which does not seem to have been advanced before the judge (or, if it was, he did not deal with it), but its resolution is better left to a case which cannot be determined by applying conventional methods of construction.

For these reasons, I will allow Mr Khan’s appeal on ground 3.

The grounds upon which I have now ruled are sufficient to dispose of the present appeal in Mr Khan’s favour. Artist Court’s claim depends on establishing that the Second Transfer was a relevant disposal of the Property, either alone or as the second stage of a disposal which began with a transfer of the beneficial interest in the Property by the Trust Deed. The first of these possibilities is eliminated by my ruling on the construction of section 4(2)(g). The second is eliminated by my ruling that the Trust Deed never effected a separate disposal by SGR of the beneficial interest in the Property. Accordingly, Mr Khan was not a purchaser of the Property from SGR within the meaning of the Act, the purchase notice served upon him was invalid, and he was not in breach of his obligations under the Act.

Mr Khan’s appeal must therefore be allowed. It is unnecessary for me to deal with the other grounds of appeal, which would arise only if Mr Khan were in breach of his obligations under the Act. I will, however, grant permission to appeal in respect of all the live grounds, including ground 10, in case Artist Court wishes to seek permission for a second appeal from the Court of Appeal.