QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
|(1) YS GM MARFIN II LLC
(2) YS GM MF VIII LLC
(3) YS GM MF VII LLC
(4) YS GM MF IX LLC
(5) YS GM MF X LLC
|- and -
|(1) MUHAMMAD ALI LAKHANI
(2) MUHAMMAD HASAN LAKHANI
(3) MUHAMMAD TAHIR LAKHANI
Matthew Cook (instructed by Greenberg Traurig LLP) for the Defendants
Hearing dates: 22nd and 23rd September 2020.
Crown Copyright ©
MR. JUSTICE JACOBS :
B: Factual background.
"Warning to Guarantor
This is an important document. You should take independent legal advice before signing and sign only if you want to be legally bound. If you sign and the Lender is not paid you may have to pay instead of the Borrowers without any limit on your liability."
"7. What were all of the reasons for the change of entity and name from DTA to North Star?
The Q4 2008 collapse in freight rates gave DTA further opportunity to expand its activities in the ship recycling market. 2012 was a record year for ship recycling volumes and in 2013 we decided to restructure our trade finance lines to cater for the increase in ship recycling volumes. At this juncture, the most interesting financing options at our disposal required us to set up North Star which has 100% beneficial ownership as oppose[d] to DTA's 49/51% (on paper) share split which has to exist in any onshore UAE based LLC Company. North Star's corporate structure provides an investor friendly transparent framework, devoid of Sharia Law governed corporate LLC requirements.
In addition to the above, DTA continues to operate as a service company in Dubai. The company continues to be in good standing, holding a valid commercial license (copies of which can be provided for reference & records), having assets and providing services to the shipping industry from its registered office in Dubai, UAE.
8. Why is Tahir Lakhani not a director of North Star?
Apart from the reason listed above, North Star was formed also with forward succession planning in mind, with Tahir Lakhani's sons Ali Lakhani and Hasan Lakhani who are now fully active in the business."
"This year's winner of the Young Person in Shipping award joined the family business in 2012 and now has overall responsibility of the company's sale-and-purchase and operational activities as well. Demonstrating his capabilities to the full, he has recently been responsible for overseeing and managing the successful dry-docking of the company's latest vessel acquisition which was carried out in February 2016 in Dubai dry-docks. He has also built on an important strategic relationship with the Emirates National Oil Company, ENOC, and he is clearly a young man with a great future ahead of him in the shipping business."
Ali was clearly happy to receive the award on this basis. The statement that he had overall responsibility for sale and purchase activities is consistent with a substantial body of documentary evidence which shows Ali's signature on MOAs which related to vessels financed by the Claimants, and indeed Ali accepts in his evidence that he would assist in finding ships to purchase for recycling (although he says that this happened only "occasionally").
"Mr. Ali Lakhani is the oldest son of the Chairman, graduating from Plymouth University U.K., in Maritime Law and Maritime Business in 2009. He went on to work for top-tier ship broking Companies; Braemar Seascope London (now Braemar ACM), SSY (Simpson Spence & Young) London and leading international law firm Stephenson Harwood, London. He then joined the group in 2012 being responsible for it's S&P and trading activities.
"Mr. Hasan Lakhani is the youngest son of the Chairman, a graduate from Regents University London with BA in Global Finance Management, joined the DTA Ship Agency in 2013, currently holding the position as General Manager of the DTA Ship Agency, Dubai Branch. He has had Internships with Emirates National Bank of Dubai and the world largest shipbrokerage Clarksons Platou Shipbrokering."
"As a director of North Star I have been concerned in the matters giving rise to the Petition and have the requisite knowledge of the matters referred to in the Petition".
C: The evidence concerning the undue influence defence.
"because I entered into them on instructions from my father, without understanding the nature of the liabilities I would be taking on or the risks involved, where I had no active involvement in the borrower companies and in circumstances where, as the Claimants (and their advisers and agents) were aware, I had not received any legal advice in relation to them."
 Although my father has given me a number of titles and made me a shareholder in a number of family companies, he has been reluctant to give up any control over the business or give me any real responsibility. All major decisions relating to the business are taken by my father and I have no decision making role. This has led to me being demotivated and so for years now I often go into the office late and only stay for a short while or sometimes I do not go in at all.
 It is fair to say that the only substantial decision which I have made against my father's wishes was in my choice of wife. My father expected me to marry a traditional Pakistani girl, but I fell in love with a British girl. I got married in January 2019 after my father finally agreed following several years of seeking his permission and approval, including with the assistance of third parties. That period was really difficult.
" I had no involvement in the day to day management of North Star (and its subsidiaries) and no involvement or detailed knowledge of North Star's maritime recycling business, apart from the fact that I would occasionally assist in finding ships to purchase for recycling. I also had no knowledge of North Star's overall financial position, the detailed terms of its loan agreements or the status of its loans (including the loans with the Claimants).
 In particular, I had no real contact with lenders relating to the financing for acquisition of vessels, including Yield Street, and their agents. So far as I can recall, the only direct contact I ever had with Yield Street was that I attended a relationship meeting at Yield Street's New York office in August 2018. This was more of a social meeting to allow us to meet the main individuals at Yield Street and there was no discussion of the specifics of North Star's business with Yield Street. I was also occasionally copied on emails from my father to Yield Street.
 As a director of North Star and its subsidiaries (as well as several other group companies), I was often required to sign documents. I would estimate that I signed hundreds of documents each year without reading them. Where my signature is required on documents, my father or one of his staff would place the documents in front of me with marks to show me where I need to sign. Once I had signed, they would take the document away for onward transmission. It is not my father's practice to explain the purpose or effect of agreements which he has negotiated. It may seem surprising to the Court that I would sign important documents without seeking to understand exactly what I was signing, but given my father's decades of experience and my limited knowledge of the business, I had no reason to question and never felt able to question his judgment and would, therefore, sign as directed. My father is aggressive and domineering and would therefore react badly to me questioning his judgment. I was being particularly careful in 2018, since I had finally managed to get his approval to my marriage and did not want to give him any reason to change his mind.
 Although I had a 50% beneficial shareholding in North Star, it was never my expectation that I would receive 50% of any profits made. My father would determine what happened to any profits, whether they were reinvested in North Star (or another family company) or paid out to him, me or my brother. In fact, given my limited role, I did not even expect to be told what profit was made. This was my father's business and he had control."
"I do not recall having entered into a personal guarantee in relation to this facility, however, as I have explained above, my father regularly required me to sign documents without explaining their effect, so it is possible that I did so."
"On another matter re the new scrap facility do Ali and Hassan still own NSMH 50/50. This is the corporate guarantor of the facility. However you now want to personally guarantee this on your own unlike the existing guarantee whereby the three of you provide one each. How do we square this away? Their company will provide a corporate guarantee but as such you have no shareholding in it so your guarantee is questionable as there is no consideration legally on your part. I know you will say that ultimately "it is all you" but legally and technically as such this does not work on paper?"
"As noted above, I signed hundreds of documents each year and, as was normal practice, my father or his staff would have told me there was a document which needed my signature and I would have signed on his instructions. To the best of my recollection, there was no discussion either then or subsequently about the size of the borrowing, the need for personal guarantees from me (and my brother), or about the risk that I/we would be taking in guaranteeing this borrowing."
I guess that is your call.
SH here have drafted them off the old facility agreement so hopefully they are very similar. YS are running them by Seward and Kissel in NYC I believe so I suggest we wait to see if they come up with any major changes or not. If they don't I believe you would not need to run them by presumably SH DXB but at the end of the day it is his/your call.
My suggestion is to wait on the US attorneys response. Nigel is aware of this and knows the guy quite well at S&K so hopefully there will be no major hiccups. As I said I suggest we wait to hear back from the USA and we can then decide appropriately."
" I am confident, however, that neither my father nor anyone else discussed with me the responsibility that I was taking on by signing these documents (including the personal guarantee) or the nature of the risk involved. It never crossed my mind that I was accepting personal responsibility for repaying USD 25 million, since I do not have anything like the funds required to do so.
 It has been pointed out to me that the first page of the Personal Guarantee includes a "Warning" stating that I should take independent legal advice. This was not pointed out to me at the time and I did not see this Warning. I would not have been given the opportunity to review the documents that I was asked to sign before signing them. I would therefore not have read this warning. I knew that my father was satisfied with the agreements and so signed them on that basis. I certainly did not receive any legal advice before doing so.
 I now know that there were four further loans taken out with the Claimants in the amounts of USD 16.05 million, USD 12.65 million, USD 9 million and USD 14.5 million, in addition to an increase to the original loan from USD 25 million to USD 37.5 million, resulting in loans totalling nearly USD 90 million. I am also now aware that I signed further personal guarantees in relation to each of these loans.
 As with the original loan, I was not involved in any of the discussions/negotiations in relation to these additional loans. My father did not discuss with me the scale of this additional borrowing. As was normal practice, I was simply told that there were documents which needed my signature and I signed them on my father's instructions.
 No one ever discussed with me the fact that the suite of documents I was signing included personal guarantees, which meant I was accepting personal responsibility for the entire borrowing. There was no discussion of the sums involved or the nature of the risk involved. I had no idea that I had personal responsibility for repaying tens of millions of US Dollars, money that I do not have and have never had.
 Since my father had complete control of North Star, I had no idea the business was in serious trouble until January 2020 when I received notices of default from a number of the Claimants. I was, however, assured by my father that these problems would be resolved and a liquidator would be appointed in relation to North Star who would negotiate a resolution.
 I only became aware of the scale of my potential exposure when I received demands for payment from the Claimants on 5 March 2020. I was again reassured by my father that he would resolve these issues."
"Although I understand this is a matter for legal submissions, I understand that I may not be liable under the personal guarantees because I entered into them on instructions from my father without understanding the nature of the liabilities I would be taking on or the risks involved (which were vastly greater than any potential benefit that I might receive from the business undertaken pursuant to the loans), where I had no active involvement in the borrower companies and in circumstances where, as the Claimants (and their advisers and agents) were aware, I had not received any legal advice in relation to them. The Claimants were fully aware that I did not have the knowledge or experience to undertaken business of this nature or scale. They were relying on my father's experience of the industry rather than mine in making their lending decisions."
" As a shareholder and/or director of some of the family companies, I am asked from time to time to sign documents which I understood were required for the maritime recycling business. I never receive any explanation of what I am signing or why this is required. I am simply given the documents by my father or one of this staff with marks to show me where to sign and I will generally sign them without reading, since I am not involved in the maritime recycling business and my father would react badly to me questioning his judgment.
 While I understood that I had a 50% beneficial shareholding in North Star, the maritime recycling business was controlled by my father and it was his decision when or if I received any money from this company. I was not given any information about the financial performance of this business."
"For the avoidance of doubt, all the documents which I signed in relation to North Star's relationship with Yield Street (including the Deeds of Confirmation) were signed on instructions from my father and without any explanation of the purpose or effect of the documents or any legal advice."
D: Legal principles.
D1: Summary judgment
"i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman  2 All ER 91;
ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel  EWCA Civ 472 at 
iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman.
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at 
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5)  EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd  FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd  EWCA Civ 725."
"… There is an important distinction to be drawn between cases which have been tried where the parties have been able to test the opposing case and the trial judge was able to make findings of fact having seen the critical witnesses and evaluated the evidence. By contrast, in those cases where the lender is applying … to have the defence struck out, the court is being asked to hold that, even if the wife's allegations of fact be accepted, the wife's case is hopeless and bound to fail and that there is no reason why the case should go to trial. This conclusion is not to be arrived at lightly nor should such an order be made simply on the basis that the lender is more likely to succeed. Once it is accepted that the wife has raised an arguable case that she was in fact the victim of undue influence and that the bank had been put on inquiry, it will have to be a very clear case before one can say that the bank should not have to justify its conduct at a trial."
D2: Undue influence
a) that he/she was unduly influenced to enter into the transaction;
b) that the lender was put on inquiry as to some equitable wrong; and
c) that the lender did not take reasonable steps and as a result was fixed with notice of the undue influence.
"6. … Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose. To this end the common law developed a principle of duress. Originally this was narrow in its scope, restricted to the more blatant forms of physical coercion, such as personal violence.
7. Here, as elsewhere in the law, equity supplemented the common law. Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured: 'how the intention was produced', in the oft repeated words of Lord Eldon LC, from as long ago as 1807 (Huguenin v Baseley 14 Ves 273 , 300). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or 'undue influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.
8. Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. An example from the 19th century, when much of this law developed, is a case where an impoverished father prevailed upon his inexperienced children to charge their reversionary interests under their parents' marriage settlement with payment of his mortgage debts: see Bainbrigge v Browne (1881) 18 Ch D 188.
9. In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner (1887) 36 Ch D 145, a case well known to every law student, Lindley LJ, at p 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v Hyman  1 WLR 1442 , 1444–1445 Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.
10. The law has long recognised the need to prevent abuse of influence in these 'relationship' cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied cannot be listed exhaustively. Relationships are infinitely various. Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10th ed (1999), pp 380–381. For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank Plc v Morgan  AC 686, 707–709.
11. Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
12. In CIBC Mortgages Plc v Pitt  1 AC 200 your Lordships' House decided that in cases of undue influence disadvantage is not a necessary ingredient of the cause of action. It is not essential that the transaction should be disadvantageous to the pressurised or influenced person, either in financial terms or in any other way. However, in the nature of things, questions of undue influence will not usually arise, and the exercise of undue influence is unlikely to occur, where the transaction is innocuous. The issue is likely to arise only when, in some respect, the transaction was disadvantageous either from the outset or as matters turned out."
E: The parties' submissions.
F1: Do Ali and Hasan have a real prospect of showing that each was unduly influenced to enter into the transaction?
"Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn."
"So something more is needed before the law reverses the burden of proof, something which calls for an explanation."
"In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him."
"since neither coercion, nor pressure, nor deliberate concealment is a necessary element in a case of actual undue influence. Moreover, the judge did to my mind find more than a relationship in which Mrs Nadeem was content to leave it to Mr Nadeem to make decisions in financial matters because she trusted him. He expressly found that she did not read the facility letter and could not have understood it if she had read it. She simply signed the documents because her husband told her to sign, probably without any explanation at all."
"In my view, the judge's description of the parties' relationship is closely similar to that which has been described in a number of the cases-for example, Tufton v. Sperni  2 T.L.R. 516-what Jenkins L.J. called "actual domination ... over the mind and will" and what Morris L.J. has called "complete domination by the defendant over the plaintiff-so that the mind of the latter became a mere channel through which the wishes of the former flowed". Lord Donaldson of Lymington M.R. in Re T  2 FLR 458 said:
"The real question in each case is, 'Does the patient really mean what he says or is he merely saying it for a quiet life to satisfy someone else or because the advice and persuasion to which he has been subjected is such that he can no longer think and decide for himself?' In other words, 'Is it a decision expressed in form only, not in reality?' "
Such a situation has been described in many different ways. Before us Mr Price, to my mind, aptly described it as a case where although the pen may have been the pen of Mrs Nadeem, the mind was the mind of Mr Nadeem.
But I need not decide this question because of the judge's clear finding that Mr Nadeem did not take unfair advantage of his position. Seen through his eyes, the transaction was obviously beneficial to his wife and was intended by him to be for her benefit. She was obtaining a beneficial interest in the matrimonial home for the first time. Far from seeking to exploit the trust which she reposed in him for his own benefit, he was seeking to give her an interest in the matrimonial home "because he was getting on". He may well also have thought it expedient to give her some protection in case his precarious financial position disintegrated further, because if he did not take the opportunity to acquire the new lease, at least in part for his wife, it would be available in its entirety for his creditors, leaving her without a roof over her head. It is true that he did not give evidence to this effect. If he did not do so, it may be that he was not certain that his conduct was lawful. In my judgment, his own evidence, coupled with the situation in which he found himself, and, to my mind, objective criteria, he was not exploiting the trust reposed in him for his own benefit but seeking to turn an opportunity of his own, at least in part, to his wife's advantage.
The court of equity is a court of conscience. It sets aside transactions obtained by the exercise of undue influence because such conduct is unconscionable. But however the present case is analysed, whether as a case of actual or presumed influence, the influence was not undue. It is impossible, in my judgment, to criticise Mr Nadeem's conduct as unconscionable."
"The critical case would be one in which the defendant made the decision without reference to the complainant's wishes, or without giving him full information, when at the time the transaction appeared to be one that was for the complainant's benefit but subsequently it turned out badly for the complainant and the claimant now wishes to set it aside. In other words, denying the complainant the chance to decide for himself might amount to actual undue influence. However, on the balance of recent authorities it seems unlikely that a court will find it proved directly that the defendant exercised "undue" influence in such a case unless he has at least preferred his own interests."
Although there was some argument as to the overall consistency of the treatment of this issue in Chitty, it seemed to me that this passage was similar to the conclusions reached in paragraphs 8-061 and 8-069.
"28. Undue influence is one of the grounds on which equity intervenes to give redress where there has been some unconscionable conduct on the part of the defendant. It arises whenever one party has acted unconscionably by exploiting the influence to direct the conduct of another which he has obtained from the relationship between them. As Lord Nicholls of Birkenhead observed in Royal Bank of Scotland plc v Etridge (No 2)  2 AC 773 at p 794–5:
"Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. …
… [It] arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage."
29. Thus the doctrine involves two elements. First, there must be a relationship capable of giving rise to the necessary influence. And secondly the influence generated by the relationship must have been abused.
30. The necessary relationship is variously described as a relationship "of trust and confidence" or "of ascendancy and dependency". Such a relationship may be proved or presumed. Some relationships are presumed to generate the necessary influence; examples are solicitor and client and medical adviser and patient. The banker-customer relationship does not fall within this category. But the existence of the necessary relationship may be proved as a fact in any particular case.
31. Both courts below found that the necessary relationship of trust and confidence existed between Mr Cobham and Mr Hew, and their Lordships are not disposed to interfere with their finding. There was little if any objective evidence to support it, but the assessment of the relationship between two persons is essentially a matter of impression. The trial judge had the advantage of seeing the two men in the witness box and of forming his own impression of their relationship. Their Lordships do not have that advantage, and cannot obtain any clear intimation from the material before them which would enable them to form their own view one way or the other.
32. But the second element is also necessary. However great the influence which one person may be able to wield over another equity does not intervene unless that influence has been abused. Equity does not save people from the consequences of their own folly; it acts to save them from being victimised by other people: see Allcard v Skinner (1887) 36 Ch D 145, 182.
33. Thus it must be shown that the ascendant party has unfairly exploited the influence he is shown or presumed to possess over the vulnerable party. It is always highly relevant that the transaction in question was manifestly disadvantageous to the person seeking to set it aside; though this is not always necessary: see C I B C Mortgages plc v Pitt  1 AC 200. But "disadvantageous" in this context means "disadvantageous" as between the parties. Unless the ascendant party has exploited his influence to obtain some unfair advantage from the vulnerable party there is no ground for equity to intervene. However commercially disadvantageous the transaction may be to the vulnerable party, equity will not set it aside if it is a fair transaction as between the parties to it.
34. Their Lordships have looked in vain for any evidence that the transaction of loan was unfair as between the Bank and Mr Hew. (Emphasis supplied)"
" A relationship of trust and confidence between two parties is recognised in equity as being fiduciary in nature. It will therefore be the source of various fiduciary duties including an obligation to act in good faith and an obligation to avoid conflicts of interest and duty. But it is also important to keep firmly in mind that not every failure by the fiduciary party will amount to a breach of these core obligations. The defining characteristic of a fiduciary relationship is loyalty. A fiduciary who acts negligently but in good faith is not unfaithful and commits no equitable wrong: see Bristol and West Building Society v Mothew  Ch 1 at page 18F.
 … It is convenient to deal with the second question first. As Lord Nicholls explained in Etridge at paragraphs 6-12, it is impossible adequately to classify every type of situation in which improper or undue influence can be said to have been used to persuade a person to enter into the transaction under review. But for a person's conduct to fall into this category it must, on established principles, make it unconscionable for that person and any who have notice of his conduct to seek to rely on the effect of what has been done. Conscious deception obviously satisfies this test as does an abuse of confidence in the form of a breach of loyalty or good faith of the kind described above. The trusted adviser who chooses to prefer his own interests over those of the person who confides in him is a classic example of this.
 The language of the decided cases summarised by Lord Nicholls in the passage I have referred to is replete with references to abuse of trust, exploitation and domination of the injured party. All of these characterise some conscious act of wrong-doing on the fiduciary's part. But it is much more difficult to apply these notions to cases of innocent misrepresentation where the highest it can be put is that more care should have been taken in giving the information or advice which was relied on. To elevate such a failure into a breach of fiduciary duty or abuse of confidence is to fall into the very trap exposed by Millett LJ in his judgment in Mothew which I have already referred to."
F2: Do Ali and Hasan have a real prospect of showing that the lender was put on inquiry as to some equitable wrong?
" These considerations point forcibly to the conclusion that there is no rational cut-off point, with certain types of relationship being susceptible to the O'Brien principle and others not. Further, if a bank is not to be required to evaluate the extent to which its customer has influence over a proposed guarantor, the only practical way forward is to regard banks as 'put on inquiry' in every case where the relationship between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety. As a measure of protection, this is valuable. But, in all conscience, it is a modest burden for banks and other lenders. It is no more than is reasonably to be expected of a creditor who is taking a guarantee from an individual. If the bank or other creditor does not take these steps, it is deemed to have notice of any claim the guarantor may have that the transaction was procured by undue influence or misrepresentation on the part of the debtor.
 Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same group. Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees."
48. As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety for her husband's debts is, in this context, a straightforward case. The bank is put on inquiry. On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband's purposes, as distinct from their joint purposes. That was decided in CIBC Mortgages Plc v Pitt  1 AC 200.
49. Less clear cut is the case where the wife becomes surety for the debts of a company whose shares are held by her and her husband. Her shareholding may be nominal, or she may have a minority shareholding or an equal shareholding with her husband. In my view the bank is put on inquiry in such cases, even when the wife is a director or secretary of the company. Such cases cannot be equated with joint loans. The shareholding interests, and the identity of the directors, are not a reliable guide to the identity of the persons who actually have the conduct of the company's business.
G: Non-disclosure on the WFO application.
"In considering whether there has been relevant non-disclosure and what consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.
(1) The duty of the applicant is to make "a full and fair disclosure of all the material facts:"
(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.
(3) The applicant must make proper inquiries before making the application. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.
(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant.
(5) If material non-disclosure is established the court will be "astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure … is deprived of any advantage he may have derived by that breach of duty."
(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.
(7) Finally, it "is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded." The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.
"when the whole of the facts, including that of the original non disclosure, are before [the court, it] may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed."
"As with all discretionary considerations, much depends on the facts…The stronger the case for the order sought and the less serious or culpable the non-disclosure, the more likely it is that the court may be persuaded to continue or re-grant the order originally obtained. In complicated cases it may be just to allow some margin of error. It is often easier to spot what should have been disclosed in retrospect, and after argument from those alleging non-disclosure, than it was at the time when the question of disclosure first arose."
G2: Non-disclosure as to the lack of involvement of Ali and Hasan in the business of North Star.
"… the Claimants made no attempt to explain that Ali and Hasan had little or no involvement in the ship-recycling business, the day-to-day operations of the borrowers or the relationship with Yield Street. This was key evidence since it made it highly unlikely (as was indeed the case) that Ali and Hasan would have had the requisite knowledge to determine that Tahir was engaged in deception".
" The Claimants invite the court to find a risk of dissipation in respect of all three Defendants. As to the individual Defendants:
a. D3 is the father of D1 and D2, a major figure in the ship-recycling industry, and exercised significant de facto control over the companies responsible for the borrowing, of which D1 and D2 were the co-beneficial owners: Buss, §21(b), §§22- 26.
b. D1 and D2 are both now involved in the ship-recycling business established by their father, and each was a 50% beneficial owner of North Star, the parent and corporate guarantor of the relevant borrowing SPVs, whose employees played a significant parts in the events described below.
 There is clear and documented evidence of fraud against D3 and D1, of a kind which on the facts evidences a risk of dissipation. The case for D2's involvement in the fraud is inferential, based upon his co-beneficial ownership, but the risk of dissipation does not depend solely upon an inference of his involvement. Rather, as noted in Buss, §70, D3's pervasive and pernicious role in the business of the loan borrowers is itself evidence of a risk of dissipation against D1 and D2, because D3 has a proven influence over companies which are to be counted among D1 and D2's assets."
" D3 acted on behalf of the borrowers as a key point of contact for GMTC, as will be seen from correspondence referenced below. Other points of contact were Mr. Brian P. Nolan, who worked in North Star's Finance department, and Mr. Richard France, Head of Purchasing for North Star in the UAE and a senior employee in its ship sale- and-purchase department.
 The degree of control exercised by D3 over the borrowers' activities will emerge below, but can be illustrated by a striking exchange of emails on 10 February 2020, when GMTC (Mr. Simmons) posed a number of urgent questions to Mr. France (North Star "Head of Purchasing") regarding the status of the loans and the financed vessels, at a time when the lending relationship was rapidly approaching crisis point [9/1/244]. Mr. France responded in the following terms [9/1/243]:
Good morning - thank you for reaching out to us with the below email. I've checked with Azhar, Brian et al and it transpires that Tahir [i.e. D3] is the only party privy to the below requested information. Tahir is reading this email in copy and we've been assured will respond to you.
Any future communication regarding these matters directed to us will be directed to Mr Lakhani, however for the sake of expediency, we would ask that such matters be only addressed to Tahir as neither ops, compliance, s&p etc or I are involved in the YieldStreet related matter and regrettably we cannot be of assistance to you.
(As agents only)"
 As well as demonstrating the degree of control exercised by D3, this email suggests a clear attempt by Mr. France to distance himself and other North Star employees from any responsibility for what D3 was believed or suspected to be doing. I will return to this, in context, below, although at present I note that it might be said on behalf of D1 and D2 that this places D3, rather than them, centrally in the frame.
" As noted in the introduction, the Claimants invite the court to find a risk of dissipation in respect of all three Defendants, although it is right to acknowledge that the evidence is:
(a) Very strong against D3;
(b) Strong, although admittedly less strong, against D1; and
(c) Reliant upon inference against D2, based principally upon his co-beneficial ownership of North Star, his close relationship to D1 and D3, and his failure to respond to the demand on his Personal Guarantees.
 The Claimants will say, however, that D3's pervasive and pernicious role in the business of the loan borrowers is itself evidence of a risk of dissipation against D1 and D2, because D3 has a proven influence over companies which are to be counted among D1 and D2's assets."
"As I have said, the Claimants will invite the Court to infer that [Hasan] acted in collusion with [Ali] and [Tahir] in relation to at least some of the matters described herein, given that D1 and D2 are declared to be the ultimate beneficial owners of the borrowers".
" (a) In relation to Mr. France's email at [9/1/243], while this is evidence of D3's de facto control and responsibility for the events described herein, it might be said on behalf of D1 and D2 that it places D3, rather than them, centrally in the frame. It might also be said that the prominence of D3 in the email record has the same effect. I should say I do not believe that D1 can disassociate himself from the risk of dissipation, given the evidence of the MOAs he signed for the "delivered" vessels, but the point is rather stronger on behalf of D2. At this stage, the Claimants do not have the internal evidence that would demonstrate the extent of D2's involvement, but they would maintain that given his joint beneficial ownership of North Star with D1, it is to be inferred that the relevant events happened with his knowledge or connivance. They also rely upon the fact that, like the other two defendants, D2 has failed to respond to the clearly justified demand made upon his Personal Guarantee on 5 March 2020, which is one of the hallmarks of a defendant who intends to resist enforcement."
"Your Lordship that is evidence of what we say is a serious campaign of fraud in relation to many aspects of the loan. In the circumstances we say our submission that the Third Defendant will take steps to hide his assets to defeat an ultimate judgment is made out; in relation to the First Defendant, his involvement in signing 6 MOAs for delivered vessels which appear to be shams he cannot be trusted not to dissipate assets, the risk of dissipation is made out; in relation to the Second Defendant, there is limited evidence connecting him to the fraud, the only example we're aware of is that he appears to have signed a document which helped to execute fraud – there is therefore some direct evidence of his involvement, but we also rely on the fact of his ownership of North Star so he is, on the face of it, heavily involved in this operation and therefore we would ask the court to at least infer there is a real risk or prospect that he has known about what his father and brother were up to and also given what he is up to. Also, as a personal guarantor he stood to benefit from the fraud; the fraud was designed to buy time and avoid Events of Default to then mitigate the prospect of a claim on the personal guarantees. The Second Defendant was also going to benefit from fraudulent devices in so far as they were successful, which supports complicity and knowledge. In relation to the Second Defendant and others as needs be, we also rely upon his conduct and behaviour in relation to the demand, which is complete silence – we say he is not innocent and is like his father and brother, involved.
An additional point: if, as appears to be the case, the ownership of these companies – the beneficial ownership of these companies – resides with the 2 sons, and the father does not appear to have any ownership and yet appears to control it; there is a real prospect he appears to control assets which are in the legal and beneficial ownership of his sons. Therefore there is a risk of dissipation of the assets of the First and Second Defendant which justifies the order."
G3: Non-disclosure of WhatsApp messages
" Against this, the respondents might submit that they have already effectively been "tipped off" as a result of the fact that:
a. On 5 March 2020, the Claimants sent notices accelerating the loans and including demands on the PGs, and that fact was advised to Mishcon de Reya the same day, with an open request for a dialogue about settlement of the PG claims: Buss, §§66- 67, §§160-162
b. Since 25 February 2020, WFW have been in occasional dialogue with the liquidator of the relevant corporate guarantor: Buss, §§59-65, §§163-166
c. The Defendants might, through Hercules or otherwise, have become aware of the enforcement action which the Claimants have taken in Malaysia against the "Wu Xian", as described in Buss §§77-80, 83.
 While the Claimants accept that there is no secrecy in their assertion of an entitlement under the PGs, that is separate from the question of a WFO. In the circumstances of this case, such an application might not be unexpected, but the fact and timing of the application is presently unknown to the Defendants, and there is accordingly good reason to hear the application without notice."
"Message 1: 24 February 2020, 6.13pm
"I have done my best to work amicably with you. Although, I have given you many opportunities to be transparent, you have not seized any nor have you tried to work with me in good faith. I asked for 3 simple things, and you've delivered to me - none.
We have commenced legal action and will do so in a very aggressive and multi jurisdictional manner. We will also work with the state department and the embassy to further our efforts locally. We both know Tahir, your reputation will not survive a global legal action by us.
I urge you to get on the next flight and come clean. Whatever it is, you're better off working through it together with me, than against me." (emphasis added)
Message 2: 26 March 2020, 8.56am
"We informed our investors, thousands of people. Without working together things will be far more difficult; legally, reputation, governmentally, and more. Your resources, family name, ability to conduct business will all suffer the longer you choose to work in isolation. - - - - I understand you are working very hard. I'm suggesting you work with us on the plan and begin by telling us how this all transpired. Tahir, I can only walk you to the water, I cannot force you to drink it. But those who don't drink, always die of thirst. This is me offering you water.... have a good night (day)." (emphasis added)."
"In my judgment it is no answer for a defendant to come to the court to say that his horse may have bolted before the gate is shut and then to put that forward as a reason for not shutting the gate. That would be to pray in aid his own efforts to make himself judgment proof - if that, indeed, is what has occurred - and to avoid the effect of any court order which the court might make. If he can show that there is no risk of dissipation on other grounds, that is one thing. If he can show that the claimants do not consider that there is such a risk by virtue of the delay in seeking the order, that again is a relevant factor. However, if the court is satisfied about those matters in favour of the claimant, there is no reason why the court should not shut the gate, however late the application, in the hope, if not the expectation, that some horses may still be in the field or, at the worst, a miniature pony."
G4: Reasons for the borrower's financial difficulties.
"In my telephone call with Mr. Reynolds on Friday 28 February, he said his information was that the Claimants' advances had been consumed on interest repayments. It might therefore be said by the Defendants, in relation to the "real risk of dissipation", that the Defendants were not setting out to steal money from the Claimants, but simply struggling to fund an over-extended business, by means (if demonstrated) which they would not necessarily repeat when faced with any order that might be made by the English court. (Against this, the Claimants say that they have been the victims of sustained and sophisticated deception. There is also evidence of deception of flag state authorities, which indicates that institutional standing will not necessarily deter the Defendants from self-serving conduct; although it is right to say, here, that only D3 is clearly implicated in the deception of flag state authorities)."
H: Notification to third parties and abuse of process
H1: Factual background
"19. Persons outside England and Wales
(1) Except as provided in paragraph (2) below, the terms of this order do not affect or concern anyone outside the jurisdiction of this Court.
(2) The terms of this order will affect the following persons in a country or state outside the jurisdiction of this Court—
(a) the Respondent or his agent appointed by power of attorney;
(b) any person who–
(i) is subject to the jurisdiction of this Court;
(ii) has been given written notice of this order at it, her or his residence or place of business within the jurisdiction of this Court; and
(iii) is able to prevent acts or omissions outside the jurisdiction of this Court which constitute or assist in a breach of the terms of this order; and
(c) any other person, only to the extent that this order is declared enforceable by or is enforced by a Court in that country or state."
"We direct your attention in particular to paragraphs 16-20 of the Injunction, which makes clear, inter alia, that it is a contempt of Court for any third party knowingly to assist in or to permit a breach of the Injunction, subject to the terms of paragraph 19 regarding persons outside England and Wales. That is reinforced by the Penal Notice on the first page of the Injunction which provides as follows:
IF YOU (1) MUHAMMAD ALI LAKHANI, (2) MUHAMMAD HASAN LAKHANI, OR (3) MUHAMMAD TAHIR LAKHANI DISOBEY THIS ORDER YOU MAY BE HELD TO BE IN CONTEMPT OF COURT AND MAY BE IMPRISONED, FINED OR HAVE YOUR ASSETS SEIZED.
ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS THE RESPONDENT TO BREACH THE TERMS OF THIS ORDER MAY ALSO BE HELD TO BE IN CONTEMPT OF COURT AND MAY BE IMPRISONED, FINED OR HAVE THEIR ASSETS SEIZED.
We also draw your attention to paragraph 3 of Schedule B wherein the Applicants undertake to pay the reasonable costs of anyone other than the Respondent incurred as a result of the Injunction including the costs of finding out whether that person holds any of the Respondents' assets.
Please contact Charles Buss (firstname.lastname@example.org) and Kelsey Tollady (email@example.com) of this office with any queries you may have."
"We write further to our letter dated 27 April 2020.
By that letter, we notified you of the worldwide Freezing Injunction (the "Injunction") dated 22 April 2020 made against Muhammad Ali Lakhani, Muhammad Hasan Lakhani and Muhammad Tahir Lakhani (the "Respondents"), which restrains the Respondents from removing assets (whether owned legally or beneficially) up to the value of US$76.7 million from the English Court's jurisdiction or otherwise dealing with such assets worldwide.
In that letter, we also drew your specific attention to paragraph 19 of the Injunction which makes clear that it is not binding on persons who are resident outside of the jurisdiction of the courts of England and Wales. To be clear, we notified you of the Injunction to help you to avoid giving any assistance to the Respondents, knowingly or otherwise, to breach the terms of the Injunction. We also sought to make clear to you the consequences of such a breach for the Respondents to whom the Injunction does apply. Assuming that you are not resident within the jurisdiction of the courts of England and Wales, the Injunction, including the penal notice in the Injunction, will not apply to you. However, we trust that you would want, as would any reasonable and responsible person, to take steps to avoid assisting in the breach of an English court order, even if you would not be prima facie in contempt of court by doing so.
If you have any further queries as to the nature and effect of the Injunction, please do not hesitate to contact Charles Buss (firstname.lastname@example.org) or Kelsey Tollady (email@example.com) of this office."
H2: The parties' arguments