Title: High Court Judgment Template
Author: Don Bennett
Last saved by: viky.martzoukou
Company: RCJ

Neutral Citation Number: [2005] EWHC 911 (Ch)
Case No: HC03C02422
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 13 May 2005

Before:

THE HONOURABLE MR. JUSTICE HART
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Between:

| CAMPDEN HILL LIMITED | Claimant
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| (1) FAZIL CHAKRANI (2) SAIRA KARIM (3) IMRAN KARIM (4) ZAHIDA BALOCH (5) SHAHIDA BALOCH (6) MOHAMMED IQBAL (7) SHAMIM AKHTAR KARIM (8) HM LAND REGISTRY | Defendants

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Mr Stephen Rubin QC (instructed by Messrs. Russell Cooke) for the Claimant. 
Mr Sean Brannigan (instructed by Messrs. Davies Arnold Cooper) for the 2^nd, 3^rd and 7^th Defendants.
Miss Claire Andrews (instructed by Messrs. BKS Solicitors) for the 1^st, 4^th and 5^th Defendants.

Hearing dates: 19,20,21,22,25,26,27,28 April 2005
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Judgment
Mr. Justice Hart : 
1.	Mr Jolyon Sandercock is a young man who makes his living as a self-employed property consultant advising clients on investments in real property and acting as an introducing agent for clients who wish to deal in property.  One day in late March/early April 2003 he was put in touch with a solicitor (the 7^th defendant “Mrs Karim”) who, he was told, represented a client who wished to borrow £150,000, unsecured, for a 6-month period on the basis that a £100,000 facility fee would be payable on repayment.  Mr Sandercock told her he could not help.  A week or two later, on 10^th April, she was in contact with him, by fax, again seeking a loan of £500,000, this time offering that it would be secured by property worth in excess of this sum.  He was told that the client concerned needed the money urgently, that it was necessary to turn the transaction round in two to three days, and that the client concerned, the first defendant Mr Fazil Chakrani (“Mr Chakrani”) was a Muslim who, for that reason, was unable to go to a commercial lender for an interest bearing loan.
2.	Mr Sandercock knew of no one who might be interested in such a proposition.  He asked his father if he knew of anyone.  His father, a former NatWest bank manager, suggested he might try an old friend of his, Inderbir Singh Kathuria (“Mr Kathuria”).  Before approaching Mr Kathuria, Mr Sandercock researched the property being offered as security, No. 120 Tanners Hill, London, SE8.  He found out from the Land Registry that the property was indeed registered in Mr Chakrani’s name as he had been informed by Mrs Karim; but he also discovered that it was subject to a caution in favour of Anthony Collins (“Mr Collins”).  He also researched the planning history of the site, ascertaining that it did have the benefit of a planning permission but one which related not only to the property but also an adjoining site at 122a Tanners Hill.  He spoke to the architect, Mr Sergeant, whose name had been given him by Mrs Karim and was told that there was a good chance that, if necessary, permission would be obtainable solely for No. 120 Tanners Hill.  He also obtained confirmation from Mr Sergeant that an offer of £2.85m had been made for the site by Presentation Housing Association, conditional on planning permission for 140 habitable rooms.
3.	Armed with this information Mr Sandercock approached Mr Kathuria.  Together they visited the site and made their own informal appraisal of its value.  Mr Kathuria is a highly experienced property developer.  They were both satisfied that it provided sufficient security for the proposed transaction.  Mr Kathuria, whose metier is property development, not lending, was interested in the possibility of some kind of joint venture.  Mr Sandercock told him that this was not possible:  the only proposition on the table was a loan coupled with a facility fee.  Mr Sandercock suggested (having earlier discussed the matter with colleagues at his office) that it might be appropriate to charge a £200,000 facility fee.  Mr Kathuria agreed that he could recommend that basis to his company, the claimant Campden Hill Ltd.  He also said that Mr Sandercock could have a 25% commission (which Mr Sandercock understood to mean £50,000 – however Mr Kathuria told me that he only intended that it should be 25% of the net profit.  Nothing turns on this).
4.	Mr Sandercock put the proposition to Mrs Karim.  She said she would consult her client.  She later telephoned to say that only £150,000 was offered as a facility fee.  Mr Kathuria, already doubtful about the transaction, indicated an unwillingness to proceed on that basis.  Mrs Karim was so informed and thereupon offered £200,000.  Agreement was reached.
5.	The matter was then, on 14^th April, put into the hands of the claimant’s solicitors, Russell-Cooke, in the person of an experienced partner in that firm, Mr Peter Dawson.  He did the usual searches, including a search with the Law Society to confirm the registration of the firm of Karim Solicitors in whose name Mrs Karim had been writing.  He drafted and sent to Mrs Karim a loan agreement which provided for the facility fee to be paid up-front.  She replied that it had been agreed that the facility fee would be payable on redemption.  There followed protracted discussion about the arrangements for removing Mr Collins’ caution.  Eventually, on 29^th April 2003 Mrs Karim was able to supply Mr Dawson with copies of:
i)	a withdrawal of caution form apparently duly signed by the cautioner’s solicitors;
ii)	the loan agreement apparently duly signed by Mr Chakrani and witnessed by Mrs Karim;
iii)	a legal charge apparently signed as a deed by Mr Chakrani and witnessed by Mrs Karim;
iv)	Mr Chakrani’s land certificate in respect of the property.
The first of those documents contained an error which was noticed by Mr Dawson but corrected in an amended copy document faxed later that day.
6.	 On the following day, 30^th April, Mr Dawson telegraphically transferred the £500,000 to Mrs Karim against her undertaking to deliver the originals of the four documents.  These were hand delivered to Mr Dawson later that day.  Mr Dawson then proceeded to register the claimant’s charge at the Land Registry.
7.	On 19^th May Mr Dawson received a telephone call from a Mr Atkinson, a licensed conveyancer, who said that he was acting for a potential purchaser.  Mr Atkinson suggested that there was a problem with the arrangements between the claimant and Mr Chakrani which involved impropriety on the part of Karim Solicitors  He did not expand on this.  On the following day Mr Dawson received a telephone call from a person who claimed to be Mr Chakrani and who sought details about the amount of the loan and the rate of interest.  Mr Dawson, finding the request strange if the gentleman was Mr Chakrani, told him that he would need the authority of Karim Solicitors before divulging the information sought.  He left a message for Mrs Karim, who replied later that day, herself leaving a message with Mr Dawson’s secretary that the gentlemen concerned could not have been Mr Chakrani who was not in the country.  She confirmed that by fax, indicating that “We are making enquiries at our end but are mystified as to who it could be”.
8.	On 21^st May Mr Dawson was telephoned by a Mr Fellows who told him that he was interested in purchasing the property but had been told by a Mr Gay, said to be an agent of Mr Chakrani, that Mr Chakrani had been told by Mrs Karim that she had executed the charge using an out of date power of attorney.  Mr Dawson was told that the matter had not been reported to the police because Mrs Karim was married to Mr Chakrani’s best friend.
9.	On 2^nd June 2003 a firm of solicitors, South & Co., wrote to the claimant on behalf of Mr Chakrani alleging that Mr Chakrani had not authorised the charge.  By letter dated 4^th June 2003 Karim Solicitors assured Mr Dawson that Mr Chakrani had authorised the transaction and had been experiencing “extreme financial difficulties”.
10.	After further correspondence to which it is unnecessary to refer at this stage, a freezing order was obtained and these proceedings commenced on 3^rd July 2003.
The claimant’s case against Mr Chakrani 
11.	The claimant’s case against Mr Chakrani is put on alternative bases.  First, if he did authorise the charge and the loan agreement, he is liable to re-pay the £500,000 and to pay the facility fee and the property stands charged with payment of these sums.  As to this, it is conceded on his behalf that if he is held to have authorised the transaction he is liable to repay the £500,000 with such interest as the court may award under section 35A of the Supreme Court Act 1981.  It is, however, denied that he is liable to pay the facility fee of £200,000 either because it is an extortionate credit bargain within section 137 of the Consumer Credit Act 1984 or because the agreement under which it is payable is unenforceable by virtue of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. 
12.	Secondly, if he did not authorise the charge and the loan agreement, it is said that he is nevertheless liable to account to the claimant for the monies which he received as a result of the transaction.  In that respect it is common ground that, in the period following 30^th April 2003, he (or accounts which he controlled) did receive certain sums from Karim Solicitors.  In that connection the accounts which he controlled were accounts in the name of the 4^th and 5^th defendants, Zahida and Shahida Baloch.  Those two ladies are sisters.  One is married to Mr Chakrani and the other is married to his brother.  Mr Chakrani accepts (and so do they) that he had complete authority to act in their name and control their bank accounts.  The beneficial ownership of the property had in fact been structured in such a way that it was shared equally between the three of them.  For the purposes of these proceedings their existence as separate legal persons from Mr Chakrani can, however, be ignored.  I detail in paragraph 16 below the sums of money which Mr Chakrani (and the two ladies) received from Mrs Karim in the relevant period.
13.	This alternative claim also encompasses a claim against the 6^th defendant Mr Mohammed Iqbal Khan (“Mr Iqbal”).  He too received money from Mrs Karim in the material period.  Mr Iqbal is the manager of a retail cash and carry food and wine store business owned by Mr Chakrani in Notting Hill.  He often accompanied Mr Chakrani on his visits to Mrs Karim’s offices.  I consider the nature of his role below.
The claimant’s case against the “Karim” defendants
14.	Three defendants in the case are concerned to rebut the claimant’s case against Mrs Karim, namely Mrs Karim herself and the two principals in the firm of Karim Solicitors, the 2^nd and 3^rd defendants Saira and Imran Karim.  The latter are respectively the daughter and son of Mrs Karim.  The claimant’s case against Mrs Karim is that, if Mr Chakrani did not authorise the loan transaction, she is liable to them for breach of warranty of authority and for deceit.  Their case against the 2^nd and 3^rd defendants is that, as principals in the firm, they are also liable.  It is not suggested that they were directly involved in the fraud which, on this hypothesis, their mother committed.  All three of the Karim defendants were represented by Mr Sean Brannigan.  On their behalf he conceded that, if the claimants proved this hypothesis, they were liable to pay the claimant the £500,000.  But it was submitted that they were not liable in respect of the facility fee for the same reasons advanced by Mr Chakrani on the alternative hypothesis (i.e. that the agreement in respect of the facility fee was re-openable and/or unenforceable).  He was also concerned to argue that if his clients were liable to the claimant in respect of the £500,000, then so also was Mr Chakrani to the tune not only of the claim being made by the claimant but also of certain other monies which, having regard to the alleged state of account between Karim Solicitors and/or Mrs Karim on the one hand and Mr Chakrani on the other, Mr Chakrani should be treated as having received from the claimant.
The Karim defendants’ Part 20 claim against Mr Chakrani 
15.	Mr Brannigan’s wish to put this latter case led him to invite me on the first day of the trial to permit him to advance a Part 20 claim against Mr Chakrani.  The context in which this was advanced can only be understood in the light of the known facts as to how Mrs Karim in fact dealt with the £500,000 received from the claimant and her subsequent assertions as to how she accounted for those monies.
The payments made by Mrs Karim to Mr Chakrani and Mr Iqbal
16.	I will deal first with the incontrovertible facts as to how she disbursed monies to Mr Chakrani and/or the Baloch sisters and to Mr Iqbal.  Because the £500,000 was received into the firm’s client account it was mixed with other monies.  The disbursements which I list below are therefore only referable to the £500,000 in that they appear to be payments which (a) would not have been made but for the receipt of the £500,000 and (b) are referable in some way to the property.  Those disbursements were, in chronological order, as follows:
i)	On 30^th April £175,875.62 was paid to Mr Collins’ solicitors.  This was done in order to remove the caution.  The background to this was that Karim Solicitors had earlier received, as stakeholder, a sum of £160,000 from Mr Collins as a 5% deposit under a contract, conditional on obtaining a particular planning permission, to acquire the property from Mr Chakrani for £3.2m.  This was, on the face of it, a personal liability of Karim Solicitors  Indeed Mr Collins had sued Karim Solicitors for this money and by a consent order to the terms of which Mrs Karim had agreed on or about 29^th April 2003 Karim Solicitors had agreed to pay it. 
ii)	On 2^nd May Mrs Karim gave Mr Chakrani three cheques, each for £80,000, in favour of himself and the two Baloch sisters drawn on the Karim Solicitors client account.  All were presented for payment but that in favour of Shahida Baloch was returned unpaid. 
iii)	On 12^th May £50,000 was paid to Mr Chakrani’s NatWest bank account.
iv)	On 15^th May a further £20,000 was paid to Mr Chakrani’s account.
v)	On 23^rd May a banker’s draft in the sum of £68,000 was given by Mrs Karim to Mr Iqbal.
17.	On any view, therefore, Mr Chakrani “got” £230,000 as a direct result of the claimant’s loan.  He later received a further £60,000 from Mr Iqbal, directly attributable to the £68,000 which Mr Iqbal had been given by Mrs Karim.
Mr Chakrani’s explanation for his receipts
18.	If Mr Chakrani was ignorant of the loan transaction, as he professes, how does he explain having received this total of £290,000?  In broad outline his explanation is this.  He says that he was contacted by Mrs Karim at the beginning of May and told that she had sold the property for him for £2.4m under an unconditional contract under which a deposit of £240,000 had been paid to her as his agent and that he should therefore attend at her offices to pick up the deposit.  He did so and was given the three cheques on 2^nd May.  There were in fact dated 8^th May but at his request (because he wanted to bank them before he went abroad) the dates were altered to 2^nd May.  He banked them, but one of them was stopped.  Mrs Karim then agreed to pay him the two payments of  £50,000 and £20,000 in substitution for the dishonoured cheque.  He was content to forgo the £10,000 payment because, as a result of an earlier transaction he was indebted to Karim Solicitors in the sum of £50,000.  He says that he paid off this debt at this stage partly by allowing Mrs Karim the credit of £10,000, partly by writing a personal cheque to her for £15,000 and as to the balance by allowing her to recoup it from the proceeds of the sale of another property the sale of which she was handling on his behalf.  However, on or about 19^th May a prospective purchaser of the property challenged him with the fact that his property was (according to the Land Register) subject to a charge.  He challenged Mrs Karim about this.  She broke down and confessed to having registered the charge and to having raised £500,000 as a loan.  She also told him that she was in fact the purchaser of the property at a price of £2.4m, and that she would personally remove the charge from the property on 23^rd May.
19.	There are improbabilities about this explanation even in the broad outline sketched above.  Not the least of these is the improbability, first, of a solicitor of many years standing forging her client’s signature on a loan agreement and legal charge and, secondly, then disbursing such a large proportion of the loan to the client.  However, Mr Chakrani was able to produce seven pieces of contemporary documentary evidence which corroborated at least part of this account.  These were:
i)	a letter dated 8^th May from Mrs Karim to him which outlined the terms of a contract for sale for £2.4m under which a 10% deposit was payable.  I return to this below.  It read:
“Further to our meeting of today as advised:
1)	The Sale price is £2.4 million
2)		Contracts will be exchanged unconditionally and 10% deposit is payable
3)	Completion to be on 30^th September or earlier
4)		You to repay the personal loan of £50,000 to Mrs. Karim.”
ii)	 a letter dated 19^th May from Karim Solicitors apparently signed by Mrs Karim which read:
“RE: CHARGE – 120 TANNERS HILL LONDON SE8
This is to confirm that the above charge created in respect of the above property will be redeemed by Mrs. Karim personally on Friday the 23^rd May.
The redemption of the charge is the responsibility of Mrs. Karim entirely.”
iii)	a further letter from Karim Solicitors signed by Mrs Karim dated 19^th May 2003 which read:
“RE:  CHARGE – 120 TANNERS HILL LONDON SE8
This is to state that Mrs. Karim will sell the property for 2 million pounds but due to the various circumstances she has agreed to pay the balance of £400,000 on or before completion.
You have been paid £235,00.00 already the balance of £2.165,000.00 will be paid upon completion.”
iv)	an undated sale agreement apparently signed by Mrs Karim whereby Karim Solicitors agreed to buy the property from Mr Chakrani for £2.4m with a 10% deposit.
v)	a cheque dated 23^rd May 2003 (originally dated 29^th May) drawn by the Karim Solicitors client account and signed by Mrs Karim in favour of the Baloch sisters for £500,000.
vi)	a manuscript letter signed by Mrs Karim and dated 22^nd June 2003 which read:
“Re:-  Tanners Hill
I have been authorised to sell the above property for a sum over £2.4 Million.
Upon sale of the same the balance outstanding in respect of the mortgage proceeds will be paid by me together with the facility fee.  Thereafter the sale proceeds less amount already paid to you will be will be [sic] accounted by you.
The mortgage will be re-deemed fully. 
[signed] Mrs. Karim
22-06-03
£100,000 will be paid to you if the fund are released.”
vii)	an undated manuscript document written by Mrs Karim (and intended by her to be signed by Mr Chakrani) in the following terms:
“The legal charge was authorised.  I have received substantial amount of the proceeds.  There are issues of outstanding fees only to be resolved.
I have withdrawn instructions from my other solicitors.
Karims have dealt with my affairs for 17 years.  There have been no problems with them.  I was involved with parties who wished to purchase my property at any cost.  Roy Gaye is not my agent.
Due to various family difficulties certain developments have arisen but Karims are not at fault.”
20.	It was, apparently, to have been Mrs Karim’s case at trial that documents mentioned above at ii), iii) and iv) were forgeries which somehow or other Mr Chakrani had contrived to effect.  It was also to have been her case that the cheque at sub paragraph v) above had been the result of a mistake on her part:  she had intended to write a cheque for only £5,000.00.  Mrs Karim did not, in the event, give evidence before me.  Indeed no evidence at all was called by Mr Brannigan on behalf of the Karim defendants.  The background to that decision on their part must now be recounted.
The Karim’s failure to provide an explanation
21.	The trial commenced on Tuesday 19^th April 2005.  It began with an application by Mr Brannigan to amend his Defence and introduce a Part 20 claim by his clients against Mr Chakrani.  This was designed to ensure that, if the defence of the Karim defendants failed, Mr Chakrani should be obliged to indemnify them against their liability to the extent that the claimant’s monies had been applied for his benefit.  In that respect they wished to plead that, including the £290,000 which could be shown to have gone to accounts controlled by Mr Chakrani, a total of some £468,875 had been so applied.  This involved making allegations as to the state of account between Karim Solicitors and Mr Chakrani, and investigating a number of prior dealings between them.  One of those dealings (said by Mrs Karim to account for £50,000 having been applied for Mr Chakrani’s benefit) related to a transaction known as the Westoak transaction.  This had been referred to by Mrs Karim in her witness statement as a transaction whereby Mr Chakrani had raised money from a company called Westoak on the security of the property.
22.	The application was unsuccessfully opposed by Miss Andrews on behalf of Mr Chakrani on the ground, inter alia, that there had been no proper disclosure in relation to the Westoak transaction.  Mr Brannigan’s response to that was that it should have been clear that issues in relation to the Westoak transaction would be canvassed at the trial.  
23.	The Part 20 claim relied heavily on a document which had been produced by Mrs Karim and had been disclosed earlier in the proceedings which purported to show how the £500,000 had been disbursed.  Taking the view that Mr Chakrani should be in a position to deal with the issues raised by that document, I allowed the Part 20 claim to be issued and directed it to be tried at the same time as the main trial, giving Miss Andrews an uncomfortably short time to produce a defence.
24.	In the afternoon of the second day of the trial Mr Brannigan’s clients, no doubt having reviewed the documentation available once again in the light of their own Part 20 claim, instructed him to allege that 5 further documents apparently emanating from Karim Solicitors (the earliest of which was dated 6^th October 2000 and the latest August 2001) were also forgeries.
25.	By the following morning Mr Brannigan’s clients had thought better of their decision to raise the Westoak decision for direct consideration at the trial.  By that time they had received Mr Chakrani’s defence and counterclaim to the Part 20 proceedings.  This alleged, inter alia, that the whole Westoak transaction had been entered into without his knowledge or consent.  Mr Brannigan also referred to the fact that the issues raised by Westoak transaction were the subject of current possession proceedings in the County Court by Westoak against Mrs Karim.  He urged me either to adopt the unpalatable course of adjourning the trial so that the whole matter could be investigated or to direct that the trial continue with all reference to the Westoak transaction being excluded.  It was now Miss Andrews’ turn to stress the relevance of the Westoak transaction.  She disclosed that she had the pleadings in the Westoak proceedings available to her, and had been planning to put to Mrs Karim certain statements made by her in her defence of those proceedings.  She indicated that she would have preferred to be able to proceed on the issue with fuller documentation  than was currently available.  Mr Rubin on behalf of the claimant emphasised the importance to his client of continuing with the main action and agreed with my suggestion that the solution was simply to stand over the Part 20 claim and counterclaim to be heard on another occasion.  That was the course which I then adopted.
26.	Mr Chakrani was then called to the stand, and after some supplemental examination in chief, was cross-examined by Mr Brannigan for the remainder of the day.  Towards the end of the day he began to cross-examine about the Westoak transaction.  Mr Chakrani denied he had ever heard of Westoak until after the events with which this trial is concerned.
27.	On the following morning Mr Brannigan announced that his clients had taken the decision not to give evidence in the case.  In his closing speech Mr Brannigan urged me not to draw an adverse inference from Mrs Karim’s failure to give evidence.  He pointed out that she was under criminal investigation in relation to the issues raised by these proceedings and that that investigation might extend to her role in the Westoak transaction.  She did not wish to expose herself to cross-examination on an issue which she had not fully researched.  That was a submission which I could not accept.  Mrs Karim had herself introduced the Westoak transaction into the proceedings.  I was now being told that, because she was unwilling to be cross-examined in relation to that transaction, she was unwilling to give evidence in support of her own case in relation to the claimant’s advance of £500,000.  The inference I drew was that she was equally unwilling to be exposed to cross-examination in relation to the latter, and was simply using the additional difficulties in which having to answer questions about the Westoak transaction might place her as a smokescreen to cover her retreat.
28.	However that may be I accepted that Mr Chakrani had to prove as against the claimant that he had not authorised the loan, and that Mr Brannigan had a professional duty to his clients to explore with Mr Chakrani the cogency of his evidence on that issue as well as the extent to which he had himself benefited as a result of the loan.  For that reason, despite Miss Andrews’ objections, I allowed Mr Brannigan to continue to cross-examine Mr Chakrani, which he then did for a further day and a half.  In the course of doing so he scored a number of hits, the impact of which I now turn to consider.
The cogency of Mr Chakrani’s explanation
29.	Mr Chakrani’s spoken English is very poor.  He gave his evidence largely in Urdu with the assistance of an interpreter, Mrs Bashir.  Mrs Karim is an Urdu speaker and was present in court throughout.  There were no complaints about Mrs Bashir’s competence or integrity as an interpreter.  Yet time and again, in answers to Mr Brannigan, Mr Chakrani simply ducked the question being asked and answered a different one.  I formed the view that this was partly the result of an incurable trait of personality and partly a conscious wish to evade and avoid.  It was notable that the trait was more evident when Mr Brannigan was asking the questions, than when either I, Mr Rubin, or his own counsel was the interlocutor.  If his case was true there was quite a simple explanation for this phenomenon.  He had been manipulated and deceived over a substantial period of time by a person whom he had counted as a friend and trusted as his legal advisor.  He was now being accused by her (through Mr Brannigan) of himself having been guilty of serious fraud in circumstances where she was not prepared to confront him, or assist the court, with her own evidence.  A degree of truculent suspicion of Mr Brannigan’s questions was entirely understandable on that basis.  A degree of confusion in his own mind as to what had really happened was also to be expected.  While he was in many ways a most unsatisfactory witness I did not find the credibility of his evidence on the central issue to be substantially impaired.
30.	The principal hit scored by Mr Brannigan lay in the fact that the cheques dated 2^nd May had been presented and paid by 7^th May, i.e. before the letter dated 8^th May and the meeting with Mrs Karim which took place that day.  If Mr Chakrani was given the cheques before he was told about the alleged contract, or when he knew that the supposed contract had not been exchanged, the suggestion was that he could not have believed that the cheques were referable to a deposit paid under that contract and must have known that they in fact derived from the loan.
31.	In this respect Mr Chakrani had boxed himself in by earlier accounts he had given of what had happened in May.  In his first statement (dated 4^th June 2003) to South & Co. he had recounted how he was told about the contract, and agreed to it, on 8^th May.  This was repeated in paragraph 4 of an affidavit sworn by him on 3^rd July 2003.  In paragraph 41 of his witness statement dated 11^th February 2005 he adverted to the fact that there had been a meeting on 2^nd May 2003 saying:
“As exchange had not taken place on 2^nd May I was asked by Mrs Karim to return on 8^th May.  When I went to see her again, she amended the dates from 2^nd to 8^th.”
32.	In evidence in chief Mr Chakrani corrected the date in paragraph 4 of his affidavit to the 2^nd May.  He did not, however, find it easy to explain why he had made the mistake of saying that the dates on the cheques had been altered from 2^nd to 8^th May, when the reverse was the case.  He stubbornly maintained in cross-examination that the cheques and the letter dated 8^th May had been given to him on the same occasion, which he now placed as being on 2^nd May:  he had gone on that day to Mrs Karim’s office at her request to pick up the deposit which he had been told about and had been given the cheques dated 8^th May.  Since he was planning to go abroad and wished to cash them immediately, he asked for them to be re-dated 2^nd May.  Mrs Karim agreed to this.  He also asked her for evidence of the transaction, was told that exchange had taken place on the telephone and that the documents would not be received until the following week.  In order to reassure him Mrs Karim had then asked Saira Karim to type out a letter which would confirm the details of the transaction.  What Mr Chakrani could not explain was why that letter was dated 8^th May.  Nor could he explain why the letter used the future tense so far as the contract was concerned.
33.	I agree with Mr Brannigan that that version of events given by Mrs Karim did not hang together.  It is certain that the cheques were given to Mr Chakrani on 2^nd May.  It is probable that the letter was not given to him until 8^th May.  Mr Chakrani therefore received the cheques under colour of whatever explanation Mr Chakrani then gave him as to their source.  He must have returned to the office on 8^th May and was then given the letter.  Why did he return to the office and why does he have a recollection of the letter being typed in his presence?  A possible explanation is that he had been told on the 2^nd May to expect documentation in relation to the contract the following week, but had not received it.  He therefore returned to the office to inquire about it, still anxious to have matters settled before going abroad and (as a result of previous dealings with Mrs Karim) doubtful as to whether he was being told the whole truth by her.  He was then given the letter to reassure him.
34.	If that is what happened it is entirely possible in my judgment that Mr Chakrani’s confused evidence is the result of his having ineptly sought subsequently to re-construct events of which he had only a confused recollection.  What is striking is that, poor as his recollection of detailed chronology may be, and inadequate as his powers of reconstruction plainly are, the letter of 8^th May can at least be fitted into the broad outline of what he says he was told by Mrs Karim.  How the letter of 8^th May can be fitted into any account which is consistent with Mrs Karim’s evidence is utterly unclear to me.  Why was Mrs Karim telling him on 8^th May about an unconditional contract for £2.4m under which a 10% deposit was payable unless it had some connection with the £240,000 which she had given him on 2^nd May?  Why later is Mrs Karim producing a document apparently signed by her under which Karim Solicitors are the purchasers at £2.4m and liable to pay such a deposit?  There is not a shred of evidence that on 8^th May there was a purchaser willing to purchase unconditionally for £2.4m.  On any view, on the evidence before me, the letter of 8^th May was a falsehood.
35.	The other main area on which Mr Chakrani’s evidence was attacked was in relation to the £68,000 which was given to Mr Iqbal in the week commencing 19^th May and paid into Mr Iqbal’s bank account on 23^rd May.  It is common ground that Mr Iqbal then, at Mr Chakrani’s request, paid £60,000 of that sum to the Baloch sisters’ account on 29^th May.
36.	This is a murky area indeed.  Mr Chakrani in his various statements gives different versions of this.  One version has him being told by Mrs Karim on 19^th May (following her ‘confession’) that £70,000 interest will be due in respect of the loan.  Mr Iqbal then tells him later that Mrs Karim has given him £68,000 (he is shown the banker’s draft), £60,000 of which is to be paid to Mr Chakrani to cover the interest.  Another version has Mrs Karim giving the draft to Mr Iqbal apparently in Mr Chakrani’s presence.  In oral evidence Mr Chakrani, while not abandoning the story that something had been said about interest at the meeting on 19^th May, said that he knew nothing about the £68,000 until Mr Iqbal told him that he had received it from Mrs Karim but now felt queasy about being the recipient of monies which appeared to have been fraudulently obtained.  Mr Iqbal therefore paid £60,000 to Mr Chakrani so as to clean his own hands, albeit retaining from it £8,000 which he believed he was owed by Mrs Karim as a result of a loan of £10,000 which he had made to her earlier in the month.  On this version the £68,000 had been paid by Mrs Karim to Mr Iqbal as a sweetener to encourage Mr Iqbal to persuade Mr Chakrani to go along with her promises to be responsible for the £500,000 loan and to buy the property from Mr Chakrani for £2.4m.
37.	That version received some support from Mr Iqbal when he gave evidence.  His evidence was that he had been used over a long period by Mrs Karim as an intermediary whose function was to persuade Mr Chakrani to go along with Mrs Karim in her dealings with, and proposals in relation to, the property  and that she had promised about a year earlier that she would see him right when the property was eventually sold.  However Mr Iqbal also said that he had told Mr Chakrani about the receipt of the £68,000 and his initial reaction had been “good luck to you”.  It was only after Mr Iqbal had told his wife about his good fortune that she had alerted him to the extreme danger in which he had placed himself by accepting money which was the fruits of a fraud.  He had, therefore, decided to rid himself of the money by paying it (after the deduction of £8,000) to Mr Chakrani, who asked him to make the payment to the Baloch sisters.
38.	I do not know where the truth lies in relation to this.  There is the further puzzle that £68,000 is a very precise sum, but one which is not referable to any aspect of the transaction which Mrs Karim was claiming to have effected.  There is the further oddity that the same sum had been credited to Mr Chakrani’s Habibsons’ bank account on 12^th May.  Mr Chakrani said that the identity of the two sums was a pure coincidence.  That is hard to believe.  A possible explanation is that Mr Chakrani had protested to Mrs Karim on 19^th May about having done something with a sum of £68,000 on the faith of the sale contract, and that this caused her to provide Mr Iqbal with that sum in an attempt to pour oil on the now very troubled and (for her dangerous) waters.  But this is pure speculation.  What is clear is that both Mr Iqbal and Mr Chakrani assumed that the £68,000 derived from the £500,000 advance which by this time they knew had been fraudulently obtained.  Mr Chakrani did not acknowledge the fact that he had received this money when he first instructed South & Co. on 4^th June 2003.  He seems not to have felt it necessary to tell them until 30^th June 2003.  By this time complaints had been made to the Office for the Supervision of Solicitors and a police investigation was also under way.  The inference I draw is that Mr Chakrani succumbed to the temptation in the intervening period to conceal his receipt of that money.
39.	While that finding redounds to Mr Chakrani’s discredit it does not in my judgment impair his credibility on the central issue.  For reasons I have already partly indicated I prefer his account on that issue to the account I have not been given by Mrs Karim.  A thesis consistent with Mrs Karim’s innocence has to provide an explanation for the documents which I have listed at paragraph 19 above.  None is available.  It also has to find an explanation for why Mrs Karim should have lied to Mr Sandercock about Mr Chakrani’s inability out of religious scruple to pay interest on a loan.  This was not put to Mr Chakrani in cross-examination, and it is notable that these scruples did not prevent him from having in the past sought interest bearing finance, from keeping substantial sums on interest bearing time deposits in offshore banks, or from running a business involving the sale of alcohol.  It also has to find an explanation for why so few documents exist on the Karim Solicitors file in relation to the property:  different explanations have been proffered at different times for this, none of them satisfactory.  It has also to find an explanation for why Mrs Karim lied to Mr Dawson about Mr Chakrani having been out of the country on 20^th May.  It has also to find an explanation for why Mrs Karim had found herself being sued by Mr Collins for the return of the deposit (which ought to have been but plainly was not) sitting in the Karim Solicitors client account.  It has also to find an explanation for why Mr Chakrani should have signed the loan documentation otherwise than with his usual signature and in a hand which bears some similarity to Mrs Karim’s.  The only explanation proffered is that he deliberately used a different form of signature in order to be able later to deny the loan documentation.  But how could he hope to do that when that signature was witnessed by a solicitor?  It also has to find an explanation for why Mr Chakrani was so desperate to borrow £500,000 that he was prepared to pay a facility fee of £200,000.  The evidence before me was that Mr Chakrani was by no means in desperate financial straits.  It was however consistent with the possibility that Mrs Karim was:  she needed to pay off Mr Collins and was under threat from Westoak.  The whole case for Mrs Karim would have been very difficult even with her evidence to put into the balance against Mr Chakrani’s obfuscations and confusion.  Without her evidence her case is simply hopeless.
40.	I should for completeness add that both the claimant and Mr Chakrani adduced expert handwriting evidence.  At one stage it looked as if that adduced by the claimant (Dr Audrey Giles) would suffice by itself to destroy Mrs Karim’s case.  Dr Giles’ opinion was that, if the disputed signature had been written either by Mrs Karim or Mr Chakrani, it could only have been written by Mrs Karim when one compared samples of her handwriting with samples of Mr Chakrani’s.  It emerged, however, in the cross-examination of Mr Chakrani that what Dr Giles had been told were samples of his handwriting were in fact documents written by other persons.   This had not been put to Dr Giles, who was consequently never given the opportunity to explain why she had not noticed that those samples were in more than one hand. 
Conclusions on the forgery issue
41.	Accordingly, having spent perhaps an unnecessarily long time giving my reasons, I unhesitatingly conclude that Mr Chakrani did not authorise the loan transaction and that his signature on the loan documentation was forged by Mrs Karim. 
Measure of the Karim defendants’ liability
42.	On that finding the Karim defendants are liable to the claimant in respect of Mrs Karim’s deceit, for her breach of undertaking not to release the £500,000 except against properly executed documents, and for breach of warranty of authority.  On that footing the claimant is obviously entitled to recover from them the £500,000 with interest under section 35A.  The only issue is as to whether it is also entitled to judgment for the facility fee.  For that purpose the claimant has to rely on the claim for damages for breach of warranty of authority.
43.	The measure of damages for that cause of action entitles the claimant to be put in the position it would have been had the warranty been true.  The question therefore is whether, if Mr Chakrani had been party to the loan transaction, he could have been made liable for the facility fee.  Mr Brannigan’s submission (supported contingently by Miss Andrews) was that he could have successfully resisted enforcement of the contract in respect of the facility fee on one or other of two grounds.  I will take them in turn.
Section 2 of the Law Reform (Miscellaneous Provisions) Act 1989
44.	This provides (so far as material) as follows:
“2  Contracts for sale etc of land to be made by signed writing  
 (1)   A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.  
 (2)   The terms may be incorporated in a document either by being set out in it or by reference to some other document.  
 (3)   The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.  
 (4)   Where a contract for the sale or other disposition of an interest in land satisfies the conditions of this section by reason only of the rectification of one or more documents in pursuance of an order of a court, the contract shall come into being, or be deemed to have come into being, at such time as may be specified in the order.”
45.	In this case the relevant provisions of the Loan Agreement provided as follows:
“…
2.		Agreement for advance and grant of mortgage
2.1	Agreement for advance
If the preconditions contained in clause 2.4 have by then been satisfied and subject to the Borrower having complied with his obligations under clauses 3, 4 and 5 of this agreement, then on the Completion Date:
2.1.1	the Lender will make the Advance
2.1.2	the Borrower will pay the Facility Fee and
2.1.3	the Borrower will make and execute a charge by way of first legal mortgage of the Property in favour of the Lender by way of security for the repayment of the Advance and all other sums due in the form annexed to this agreement.
…
2.4	Preconditions
The preconditions referred to in clause 2.1 are that by the Completion Date:
2.4.1	the Borrower must have shown and proved to the satisfaction of the Lender’s Solicitors a good, marketable and unencumbered title to the Property,
2.4.2	the Borrower has paid the Facility Fee to the Lender and
2.4.3	the Borrower has procured the withdrawal of the caution registered against the title”
46.	The Legal Charge provided (so far as material):
“In consideration of Five Hundred Thousand pounds (£500,000) receipt of which is acknowledged I Fazil Chakrani of Clerkenwell House 67 Clerkenwell Road London EC1R 5BH (“the Borrower”) with full title guarantee charge by way of legal mortgage the land comprised in the title above referred to with the payment of the principal sum of Five Hundred Thousand pounds (£500,000) and all other monies now or in future due (“the loan”) to Campden Hill Limited the registered office of which is at Cosmur House, 27 Emperor’s Gate, London, SW7 4HS (company registration number 01343774) (“the Lender”) from the Borrower to the Lender and the discharge of all other obligations and liabilities in this deed covenanted to be paid or discharged by the Borrower or otherwise secured by this deed.”
47.	Although the Loan Agreement provided for the facility fee to be paid as a pre-condition of the advance it was in fact agreed between Mr Dawson and Mrs Karim that it would only be payable when the advance was repaid.  This is recorded in Mr Dawson’s letter to Mrs Karim of 16^th April 2003.
48.	The submission, therefore, was that (1) the Loan Agreement purported to be a contract for the disposition of an interest in land but (2) was ineffective as such because it did not contain all the terms of the agreement.
49.	I do not accept that submission.  The agreement in the Loan Agreement to execute a Legal Charge was the only part of the Loan Agreement which related to the creation of an interest in land, and its execution was made a pre-condition of the claimant’s obligation to make the advance.  Once the Legal Charge had been executed, nothing further needed to be done to satisfy that pre-condition.  As Scott LJ pointed out in Tootal Clothing Limited v. Guinea Properties Management Limited [1992] 2 EGLR 80, C.A.,:
“… Section 2 is of relevance only to executory contracts. It has no relevance to contracts which have been completed. If the parties choose to complete an oral land contract or a land contract that does not in some respect or other comply with section 2, they are at liberty to do so. Once they have done so, it becomes irrelevant that the contract they have completed may not have been in accordance with section 2”
50.	I see no reason why the potential unenforceability of that pre-condition prevented the Loan Agreement from being enforceable according to its terms once the pre-condition had in fact been satisfied, nor any reason why the parties should not have agreed to dispense with the other pre-condition that the Facility Fee be payable up-front and to agree instead that it be payable on repayment on the £500,000.
51.	Mr Rubin advanced alternative arguments as to why section 2 was not in any event fatal to the enforceability of the Loan Agreement.  Since they involved no issues of fact on which I need to make a finding, I need say nothing more about them in this judgment.
Section 137 of the Consumer Credit Act 1974
52.	Sections 137-140 of the Consumer Credit Act 1974 are (so far as material) in the following terms:
“137 Extortionate credit bargains  
 (1)   If the court finds a credit bargain extortionate it may reopen the credit agreement so as to do justice between the parties.  
 (2)   In this section and sections 138 to 140—  
 (a)    “credit agreement” means any agreement [(other than an agreement which is an exempt agreement as a result of section 16(6C))] between an individual (the “debtor”) and any other person (the “creditor”) by which the creditor provides the debtor with credit of any amount, and  
  (b)    “credit bargain”—  
(i)   where no transaction other than the credit agreement is to be taken into account in computing the total charge for credit, means the credit agreement, or  
  (ii)   where one or more other transactions are to be so taken into account, means the credit agreement and those other transactions, taken together.  
138 When bargains are extortionate  
 (1)   A credit bargain is extortionate if it—  
 (a)    requires the debtor or a relative of his to make payments (whether unconditionally, or on certain contingencies) which are grossly exorbitant, or  
 (b)    otherwise grossly contravenes ordinary principles of fair dealing.  
(2)   In determining whether a credit bargain is extortionate, regard shall be had to such evidence as is adduced concerning—  
 (a)    interest rates prevailing at the time it was made,  
 (b)    the factors mentioned in subsections (3) to (5), and  
 (c)    any other relevant considerations.  
(3)   Factors applicable under subsection (2) in relation to the debtor include—  
 (a)    his age, experience, business capacity and state of health; and  
 (b)    the degree to which, at the time of making the credit bargain, he was under financial pressure, and the nature of that pressure.  
(4)   Factors applicable under subsection (2) in relation to the creditor include—  
(a)    the degree of risk accepted by him, having regard to the value of any security provided;  
 (b)    his relationship to the debtor; and  
 (c)    whether or not a colourable cash price was quoted for any goods or services included in the credit bargain.  
 
(5)   Factors applicable under subsection (2) in relation to a linked transaction include the question how far the transaction was reasonably required for the protection of debtor or creditor, or was in the interest of the debtor.
139 Reopening of extortionate agreements  
(1)   A credit agreement may, if the court thinks just, be reopened on the ground that the credit bargain is extortionate—  
(a)    on an application for the purpose made by the debtor or any surety to the High Court, county court or sheriff court; or  
(b)    at the instance of the debtor or a surety in any proceedings to which the debtor and creditor are parties, being proceedings to enforce the agreement, any security relating to it, or any linked transaction; or  
(c)   at the instance of the debtor or a surety in other proceedings in any court where the amount paid or payable under the credit agreement is relevant.  
 (2)  In reopening the agreement, the court may, for the purpose of relieving the debtor or a surety from payment of any sum in excess of that fairly due and reasonable, by order—  
 (a)   direct accounts to be taken, or (in Scotland) an accounting to be made, between any persons,  
 (b)    set aside the whole or part of any obligation imposed on the debtor or surety by the credit bargain or any related agreement,  
 (c)    require the creditor to repay the whole or part of any sum paid under the credit bargain or any related agreement by the debtor or a surety, whether paid to the creditor or any other person,  
 (d)    direct the return to the surety of any property provided for the purposes of the security, or  
  (e)    alter the terms of the credit agreement or any security instrument.  
  ……
140 Interpretation of sections 137 to 139  
Where the credit agreement is not a regulated agreement, expressions used in sections 137 to 139 which, apart from this section, apply only to regulated agreements, shall be construed as nearly as may be as if the credit agreement were a regulated agreement.”
53.	Mr Brannigan submitted (contingently supported by Miss Andrews) that the Loan Agreement was extortionate within those provisions, and should therefore be re-opened.  It was common ground that it did amount to a “credit agreement” for this purpose.
54.	Mr Rubin submitted that, whatever might be (or have been) the position as against Mr Chakrani, this was not a point which was open to the Karim defendants for one or more of three possible reasons:  first, that it was impossible to apply the statutory criteria in circumstances where there was in fact no genuine transaction and no genuine borrower; if there was no genuine borrower it was quite simply impossible to decide anything about his notional age, experience, business capacity or state of health, or the degree to which he was under financial pressure or the nature of that pressure; secondly that the facility fee was in fact the invention of Mrs Karim who devised it as the bait with which to hook the £500,000 loan which she needed to be able to meet Mr Collins’ judgment against her and to pay Mr Chakrani a deposit on a purchase by her of the property, which could in turn be re-sold by her at a profit which would enable the liabilities to be cleared (an offer conditional on an improved planning permission to purchase had been received at a price of £2.8m from a third party).  It was submitted that the Karim defendants should not be allowed to rely on the extortionate nature of the fraudulently crafted bait to escape liability for paying damages in respect of it under the warranty of authority; thirdly, it was submitted that the probability of the real Mr Chakrani taking the point, had the transaction been genuine, was so low as to be wholly discounted.
55.	I do not accept those submissions.  As to the first, while it is the case that the transaction was not a genuine one, what was being warranted was a real transaction with a real person.  The fact that Mr Chakrani was not in fact a party to the transaction does not prevent the court from being in a position to assess what Mr Chakrani’s position would have been under the transaction had he in fact been a party to it.  That does, it is true, require the court to make an assessment of what might have been his motivation in entering into such a transaction.  That, however, is an exercise which is capable of being done even though it involves a degree of speculation.
56.	So far as the second submission is concerned, I was not persuaded that the measure of damages for breach of warranty should vary depending on the nature of the breach, i.e. whether innocent, negligent, reckless or fraudulent.
57.	As to the third submission, this seems to me to be a question of fact rather than law, and I am not persuaded by it.  It seems to me relatively likely that Mr Chakrani would have taken the point had he appreciated that it was available to him: certainly there was a greater than negligible chance that he would have done.
58.	I turn therefore to the statutory criteria.  They have to be applied in the context of a transaction which must be assumed to have been a real one for this purpose.  I consider first the claimant’s position in this matter.  It is not a professional money lender, but a property developer.  Mr Kathuria impressed me as a man of great experience, the kind of man who can appraise a development situation to a high degree of reliability and interpret a residual valuation in a flash.  He also exudes personal charm.  I believed him when he said that he had never before been a party to a transaction of this nature, that he had been reluctant to be involved in it, that this participation had partly been motivated by a wish to help his old friend’s son (Mr Sandercock), and that his real interest had been to see if he could participate on an equity basis.  I strongly suspect that if he ever had been given the latter opportunity it would have been to the mutual profit both of himself and Mr Chakrani.  He accepted in cross-examination that he suspected that the reason for the transaction was that the borrower was in desperate financial circumstances.  The £200,000 facility fee was calculated by reference to the 40% return which the claimant usually aimed to achieve on its equity stake in property developments, but he accepted that that return was usually earned over a period of 12 to 18 months rather than 6.
59.	Mr Kathuria knew nothing about Mr Chakrani except that he had, not long before, succeeded in purchasing the property for £200,000.  Mr Kathuria’s own assessment of the market value of the property was that it was probably worth something over £1m, but might be worth considerably more if problems over a ransom strip held by the adjoining owner and the uncertainties over the detail of the planning permission could be resolved.  If his assessment was correct (and the urgency of the transaction precluded resort to independent professional valuers) the risk to the claimant was relatively slight.  He knew of the conditional offer of £2.85m which had been made.
60.	For his part Mr Chakrani was not in fact in desperate financial circumstances.  The reason he was very happy to obtain a substantial sum of money at that particular point of time lay in an informal deal he had agreed the previous year with a cousin in Pakistan to buy some 27 acres of agricultural land in Pakistan from the cousin.  He was under some pressure from the cousin to formalise this deal.  Mr Chakrani was prepared to pay about £10,000 per acre for this land, which he believed had prospects of containing petroleum oil.  He was an experienced businessman.  Mr Kathuria knew nothing of these things,  but he did know that Mr Chakrani was being legally advised by a solicitor in relation to the transaction.
61.	In most normal circumstances in which the Act is likely to be invoked, the court will have little difficulty in holding that a 40% “facility fee” for a 6 month fully secured loan is “grossly exorbitant”.  It would certainly excite the suspicion of the court, as indeed it should have excited Mr Kathuria’s.  I am not however, prepared to hold that it necessarily would have been so held in the circumstances which might have existed in this case had Mr Chakrani in fact been a party to the transaction.  There could have been circumstances in which Mr Chakrani had such an un-missable opportunity to make a large profit that it was worth his commercial while to offer such a huge carrot to obtain immediate liquid funds not obtainable by conventional means.  Had that been the case, the context in which the court would have had to judge whether or not the facility fee was grossly exorbitant, and, if so, whether to exercise its discretion to re-open the transaction, might have been one in which Mr Chakrani had already made, or stood a good chance of making, his super-profit from his Pakistan oil field.  I do not in fact know what the position is.  Moreover in relation to the assumed transaction Mr Chakrani would have had the benefit of legal advice from a presumably honest and competent solicitor.  Even if the court had then been persuaded to re-open the transaction the substitute terms which the court would then have imposed would be likely to have allowed the claimant a substantial reward by way of reduced facility fee.  This was in fact accepted by Mr Brannigan in his submissions.
62.	Accordingly I am not persuaded that, had there been a genuine transaction, Mr Chakrani would have successfully taken the point.  I think however that this case has to be approached on the basis of assessing the chance that he would successfully have taken the point and the chance that the circumstances would then have been such as to persuade the court to exercise its discretion in his favour.  I would assess those chances as about 20%.  Accordingly I would discount the element of damages attributable to the facility fee by that amount.
The claim against Mr Chakrani
63.	I turn now to the claim against Mr Chakrani that he should disgorge the sums received by him as a result of the claimant’s loan.  These were:
i)	the two cheques dated 2^nd May for £80,000 each;
ii)	the subsequent payments of £50,000 and £20,000 which replaced, in part, the third cheque for £80,000 which did not clear;
iii)	the sum of £10,000 which Mrs Karim credited to him against her loan to him of £50,000 (a transaction which made up the balance of the cheque which did not clear); and
iv)	the sum of £60,000 received by him from Mr Iqbal.
64.	This claim raises an issue of some legal interest.  All these sums (with the exception of the £10,000 “credit”) were paid out of the Karim Solicitors client account, that being a bank account maintained by the firm in accordance with the statutory rules for the maintenance of solicitors’ client accounts.  It therefore contained monies of other clients of the firm and was used for the transactions of other clients.  The claimant has therefore to show either that it is unnecessary as a matter of law to establish that its monies can be traced through the account into the payments which were made to or for the benefit of Mr Chakrani, or, if it is necessary so to trace them, that the tracing exercise can be done successfully.  
65.	So far as the tracing exercise itself is concerned the problem for the claimant can be shortly stated.  Applying the first-in first out rule in Clayton’s case to the receipts and payments into and out of the client bank account in the relevant period it can be shown that the first two cheques for a total of £160,000 and the transfer of £50,000 came from the claimant’s money.  But by the time the transfer of £20,000 came to be made there was only £25,121.02  left in the account (£19,271.02 of which could be attributed to the claimant’s money).  By the time the £68,000 went out to Mr Iqbal the whole of the claimant’s money had been exhausted.  This was not clear at the time Mr Rubin prepared his written closing submissions but had become clear by the time he came to address me orally.
66.	Mr Rubin put his case against Mr Chakrani on the following bases:
i)	a proprietary claim against assets identifiable in Mr Chakrani’s hands as representing the sums paid to him out of the client account.  This claim involved, first, an “equitable” tracing of the claimant’s monies into the sums received by Mr Chakrani out of the client bank account, and, secondly, a tracing of those sums into replacement assets;
ii)	a personal claim against Mr Chakrani as a knowing recipient of trust monies.  This claim involved tracing only at the first stage;
iii)	a personal claim against Mr Chakrani for monies had and received (“the restitutionary claim”).  Mr Rubin submitted that tracing was unnecessary to make this claim good.  In his final speech it, therefore, figured as his primary case.
The restitutionary claim
67.	Apart from reliance on general statements of principle in Goff & Jones, The Law of Restitution, 6^th (2002) edition, Mr Rubin relied on the authority of Bannatyne v. D&C McIver [1906] 1 KB 103 for the proposition that where the claimant’s money is paid to an agent [i.e. Karim Solicitors] on a supposed contract with the agent’s principal [i.e. Mr Chakrani] and used to pay off the principal’s debts, the money may be recovered either from the agent or the principal.  He submitted that the same rule should apply where the money was paid to the principal and kept or used by the principal.
68.	The facts in Bannatyne were that the defendants had appointed an agent to carry on a branch of their business carried on in London.  The agent was entitled to draw on a London bank account for that purpose.  He had, however, no authority to borrow money.   He borrowed from the plaintiff (who believed he had authority of the defendants) ostensibly on behalf of the firm, and paid money into the account.  That money, or part of it, was then used to pay liabilities of the defendants.  Further payments into the account by the defendants were then taken out by the agent and used for his own purposes.  Further sums were also borrowed by the agent from the plaintiff and paid into the account.
69.	The judge held that, the borrowing being unauthorised, the plaintiff could not recover against the defendants.  The Court of Appeal (Collins MR, Romer LJ and Mathew LJ) held that the plaintiff was entitled to recover from the defendants to the extent to which it could be shown that the plaintiff’s money had in fact been used to pay the plaintiff’s liabilities.
70.	Collins MR’s judgment is (at pp 107-108) as follows:
“The principle on which the plaintiff bases his claim is that stated by Lord Selborne in Blackburn Building Society v. Cunliffe Brooks & Co. [22 Ch D 61 at 71], cited and adopted in his judgment by Rigby L.J. in the case of In re Wrexham, Mold and Connah's Quay Ry. Co. [[1899] 1 Ch 440 at 451]. The Lord Chancellor said: "I think the consistency of the equity allowed in the Cork and Youghal Ry. Co.'s Case [LR 4 Ch 748] with the general rule of law that persons who have no borrowing powers cannot, by borrowing, contract debts to the lenders, may be shewn in this way. The test is, has the transaction really added to the liabilities of the company? If the amount of the company's liabilities remains in substance unchanged, but there is, merely for the convenience of payment, a change of the creditor, there is no substantial borrowing in the result, so far as relates to the position of the company. Regarded in that light, it is consistent with the general principle of equity, that those who pay legitimate demands which they are bound in some way or other to meet, and have had the benefit of other people's money advanced to them for that purpose, shall not retain that benefit so as, in substance, to make those other people pay their debts." That is the principle that is said to give the plaintiff the remedy which he seeks in this case, and it certainly appears to me that, on the facts before us, a strong prima facie case has been established. Some money has found its way into the coffers of the firm in this sense - that it was credited to their account at the bank, and has been applied on their behalf in payment of their liabilities. Whether or not it could be recovered at common law by the lender it is not necessary to decide, though I should think that it could not; but we have to apply the general law, legal and equitable, and it appears to me that, so far as the money can be shewn to have been applied for the benefit of the defendants, in paying claims for which they were legally liable, it can be recovered upon equitable grounds. If so, the plaintiff has a right to an account, and to recover such sums as are found to be due upon that account.”
71.	Romer LJ, at p. 109, said:
“I think this case is governed by the general principle which I am about to state. That principle is one that is well recognized in the present day; and is binding upon us. Where money is borrowed on behalf of a principal by an agent, the lender believing that the agent has authority though it turns out that his act has not been authorized, or ratified, or adopted by the principal, then, although the principal cannot be sued at law, yet in equity, to the extent to which the money borrowed has in fact been applied in paying legal debts and obligations of the principal, the lender is entitled to stand in the same position as if the money had originally been borrowed by the principal. That limitation, and its true bearing upon the position of the lender, shewing that he is not exactly in the position of a person who is entitled to stand in the shoes of the creditor in all respects and therefore entitled to the benefit of any securities of the creditor paid off, is clearly put in the decision of the case of In re Wrexham, Mold and Connah's Quay Ry. Co.”
72.	While it may be right to say, as Mr Rubin did, that a modern analysis reveals this to be a case of restitution on the ground of the unjust enrichment of the defendants, what the case is not, in my judgment, authority for is the proposition that tracing can be dispensed with in order to determine whether or not the unjust enrichment has taken place at the expense of the plaintiff.  Indeed it seems to me clear from the nature of the reported argument of counsel that one of the issues argued was whether tracing in accordance with the rule in Clayton’s case was appropriate in the circumstances, the plaintiff being in a position to establish in accordance with that rule that its money had been applied in the discharge of the defendant’s liabilities.  Romer LJ made it clear that in his view that rule both could, and should, be applied.  The following passage in his judgment at pages 110-111 makes this clear:
“The principle to which I have referred clearly governs this case. The facts speak for themselves, and it cannot be said that this is a mere speculative application on behalf of the plaintiff in the hope that he may be able to shew that some legal debts of the defendants have been paid off by means of money lent by the plaintiff. The bankers' account is in evidence before us, and it appears that the money first borrowed went to the credit of the firm's account at their bankers, which was kept by the agent of the branch establishment. It further appears that immediately after the money was paid in some legal debts of the firm were, in fact, paid off at a time when there was nothing in the bank to meet them except the money which had been borrowed of the plaintiff. 
 In these circumstances the proper course to be taken is that suggested by my Lord - to direct an inquiry to ascertain what debts and legal obligations of the firm were, in fact, paid off by means of the borrowed money. The point that arose in Clayton's Case [I Mer 572], which was referred to in the course of the argument, will have to be borne in mind in ascertaining what debts were paid off; that is to say, what the plaintiff has to prove is actual payment of the debts, and not what I may call a payment by means of an adjustment of accounts. It was suggested that the equitable principle which, in my opinion, governs this case, ought not to be applied if it turns out that, although the borrowed money was, in fact, applied in payment of debts of the firm, the account of the agent with his principals, if it were continued up to the time when this action was brought, would shew that the agent was not a creditor of the firm. It appears to me that this consideration is not relevant. It might be relevant if the plaintiff were seeking to enforce a different equity, that is, the right to stand in the shoes of the agent as against his principal. That is not the equity which the plaintiff is seeking to enforce in this action.” [italics supplied]
73.	Accordingly I do not think that re-interpretation of the equitable doctrine underlying Bannatyne as an example of a more general restitutionary claim based on unjust enrichment enables one to say that the process of tracing can be dispensed with.
The “equitable” claims
74.	According to authority which is binding on me the claimant must first establish a fiduciary relationship arising either from a division of the legal and beneficial ownership in the monies sought to be traced or from the very nature of the relationship.  In the present case I heard no argument that this requirement was not satisfied.  In support of his submission that it was satisfied Mr Rubin relied on that passage in Lord Browne-Wilkinson’s speech in Westdeutsche Landesbank v. Islington LBC [1996] 2 AC 689 at 716 where he analyses the equity in the stolen bag of coins as arising by virtue of a constructive, and not a resulting trust.  He also relied on the recent decision of the Court of Appeal in Halley v. The Law Society [2003] EWCA Civ 97 where the Court of Appeal adopted that analysis in a case where the claimant had parted with its money under a wholly fictitious and fraudulent contract.  I have no doubt that the requirement is satisfied here, where the claimant has advanced money on the basis of forged documentation and where it has done so by paying it to a solicitor to hold against production of genuine documents.
75.	The question therefore resolves, so far as stage one of the tracing process is concerned, into whether the equitable tracing rules permit one to say that the whole of the £300,000 received by Mr Chakrani is traceable by the claimant.  As indicated above, the difficulty arises if it is necessary to apply the rule in Clayton’s case; it then arises in relation to a sliver of the £20,000 payment and the whole of the £68,000 payment (of which Mr Chakrani received only £60,000).  It would, of course, be particularly ironic if Mr Chakrani were able to deny the claimant recovery of the £60,000.  He would never have received this money but for the unauthorised loan transaction.  At the time he received it he believed it was the claimant’s money.  He had no excuse, as against the claimant, for keeping it and, as I have found, had, or should have had, a bad conscience about holding on to it without divulging to his solicitors the fact of its receipt.  If he were permitted to retain it, it would be pure bounty in his hands, and moreover he would enjoy that bounty at the expense of the wronged claimant.  It would be at the expense of the claimant in the sense that the claimant would be unable to recover the £60,000 from Mr Chakrani, but would be left to its personal remedy against Karim Solicitors (which might in theory be valueless).
76.	The only basis upon which, at this stage of the argument, Mr Chakrani can assert that it would be unjust to order him to disgorge these monies is, not that they belong in equity to him, but that some person other than the claimant has a better claim in equity to them than the claimant.  A point of an exactly similar kind arose in El Ajou  v. Dollar Land Holdings plc and another (No 2) [1995] 2 AER 213.  In that case, Robert Walker J (as he then was) refused to allow a defendant to pray in aid the possible rights of third party claimants in circumstances where the claimant could show that his money was traceable into the fund out of which the impugned payment was made and where the other potential claimants had not attempted to make any claim but, on the judge’s findings, were in practice most unlikely to do so.  The judge explained, at pp 223-4 that:
“There is not, in my judgment, any rigid rule to be applied as to whether a defendant can ever plead a sort of equitable jus tertii in this type of case. It must, in my judgment, depend on circumstances. I will take an example from the field of family trusts. Suppose that a tenant for life’s interest is charged in equity with two annuities, one payable to A of £700 a year and the other payable to B of £300 a year, but subject to an overall restriction that the total annuities payable should not exceed half the annual income of the trust property, and that half the annual income is for the time being only £500. If, after there has been no annuity payment to anyone for over a year, A sues the tenant for life for £500, B not being a party to the proceedings, should A get judgment for £500 or £350? Normally the answer would be that he should get only his proper proportion, that is £350, but if it appeared from strong (though not conclusive) evidence that B had disappeared and might be dead and that before he disappeared he had indicated that he had no wish to receive his annuity, the position would be different. In those circumstances the court might well order the tenant for life to pay to A the full amount available for the annuities on A giving him a suitable indemnity against any possible claim by B. 
The court’s inclination to take such a course must be considerably stronger if the defendant in question is not, like the tenant for life in my example, a beneficiary and simultaneously a fiduciary under a properly constituted trust, but a mere constructive trustee found to have been in knowing receipt of the proceeds of fraud and so a person who has no claim to retain the traceable money subject to the equitable charges. I note that the conclusion which I have reached seems to be that to which Millett J inclined (as indicated in the last paragraph of his judgment) although, as I have said, Millett J reached no final conclusion on this point and was indeed willing earlier this year to permit further evidence to be adduced before the point was decided (see [1993] 3 All ER 717 at 747).”
77.	In the present case the Law Society intervened in the practice of Karim Solicitors under its statutory powers in July 2003 and has made no claim to these monies.  I have heard no evidence that there have been claims by other clients to be entitled to monies paid out to Mr Chakrani from the client account.  To treat the claimant as being entitled to trace its monies into the relevant payments out to Mr Chakrani will not destroy the ability of the other potential claimants, as against the claimant, to assert their equitable title to those monies.  It will simply be to recognise that, as against Mr Chakrani, the claimant has the better equitable title.  As Robert Walker J. pointed out in his judgment (echoing what Millett J. had said in El Ajou (No. 1) [1993] 3 AER 717 at 735):
“tracing depends not on the actual imposition of an equitable charge but an equity’s capacity to impose such a charge….  The charge itself is notional.”
78.	That theoretical route to the conclusion which (I make no bones about it) I would like to reach faces, however, a problem which I do not think it is open to me to surmount and which does not seem to have been present in El Ajou.  The equitable charge which, notional as it may be, founds the ability to trace is a highly flexible one.  Where money is paid into an account it remains subject to the notional charge. If the money is subsequently paid out into other accounts, the charge will subsist over each of the recipient accounts.  As Millett J. put it in El Ajou (No. 1) ibid at 735-736, the victims are not:
“bound to choose between them.  Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account to which their money has been paid.  Equity’s power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour.”
79.	Goff & Jones (op.cit at §2-50) query whether Millett J. can have been right to dispense with the need to show a proprietary interest as opposed simply to equity’s ability to regard the property as notionally charged.  But whether that doubt is or is not well founded, I have been unable to persuade myself that equity’s notional charge, fertile and almost magical as it is, will suffice to solve the problem presented by the present case.  That problem is that, applying the rule in Clayton’s case, the claimant’s money had disappeared from the bank account before the payment of £68,000 was made.  Hover as it might, equity’s notional charge had nothing on which to alight within the account once the claimant’s monies in the account had been exhausted, as they were by the payment of £20,000 on 15^th May.  The £68,000 was paid from money which came into the account later and which did not derive from the claimant.  The lowest intermediate balance in the account between 15^th May and 23^rd May was as low as £8,991.02 (the balance of monies in the account as at 20^th May).  There was no evidence that the monies subsequently paid into the account (£134,975.00 on 21^st May and £98,000 on 23^rd May) were intended to replace the claimant’s money.  However one approaches the matter it seems impossible to say that the claimant can trace its money into the £68,000 paid to Mr Iqbal:  see Roscoe (Bolton) Limited v. Winder [1915] 1 Ch. 62 approved in Bishopsgate Management Limited v. Homan [1995] 1 AER 347.  A possible argument that it can do so to the extent of the £8,991.02 intermediate balance depends on disapplying the rule in Clayton’s case.  While El Ajou (No2) offers some encouragement to do so, I cannot myself see a principled basis for doing so in a case like the present where, in contrast to El Ajou, the process of applying that rule is factually straightforward. 
80.	My conclusion therefore is that the claimant is not able to trace its money into the £68,000 paid by Mrs Karim to Mr Iqbal, or the £60,000 paid by Mr Iqbal to Mr Chakrani.  It does not follow that the monies are theirs to keep.  But for the fact of the Law Society’s intervention, Karim Solicitors would appear to have an unassailable right to recover the money, as also would the client of the firm whose money was actually used to make the payment.  As a result of the Law Society’s intervention Karim Solicitors’ right to recover monies wrongly paid out of the client account will semble have vested in the Law Society.
Stage 2 tracing
81.	Mr Chakrani used the money he received directly or indirectly from Mrs Karim in the following ways:
i)	On 12^th May 2003 he forwarded a sum of £54,112.55 (5m Rupees) to Pakistan as the first instalment on the purchase of the Pakistan land.  That payment was acknowledged by a “Sale Receipt” dated 12^th May 2003 which recorded that a further 5m Rupees was payable in the first week of June 2003 and the final instalment of 18m Rupees payable on 30^th October 2003.  The document recorded that “the above sale will be effective on payment of RS. 10.00 million on Date Mentioned Otherwise above Sale Receipt will be cancelled and Payment of its Instalment Rs. 5.00 Million will be Seized.”
ii)	On 30^th May 2003, he forwarded a further £53,558.19 to Pakistan in respect of the second instalment of that purchase.  A formal sale agreement, dated 12^th June 2003, seems then to have been entered into which provided, inter alia, for the two initial instalments to be forfeit if the final payment was not made.
iii)	On 30^th June 2003 £135,000 was paid by him with his solicitors’ client account, and pursuant to an order of Patten J dated 3^rd July 2003, a further £47,329 was so paid on that day (a total of £182,329).
iv)	By a subsequent arrangement between the parties the £182,329 was released from his solicitors’ client account to enable Mr Chakrani to complete the acquisition of the Pakistani land.  Mr Chakrani then executed a second charge of 120 Tanners Hill to secure the claimant’s tracing claim up to a value of £290,000.
82.	The claimant asserts in respect of these monies that it is entitled to trace the first two payments into the Pakistani land and are entitled to a lien on that land to secure re-payment of £107,670.74.  It further asserts a right to trace into the £182,329 paid into the solicitors’ bank account.
83.	As I understood her submissions, Miss Andrews did not dispute that the claimant was prima facie entitled to trace into the monies paid into the solicitors’ bank account.  She did, however, assert that the claimant could not trace into the £107,670.74 which was used to pay the first two instalments of the purchase price of the Pakistan land, and ought not be allowed to trace at all.  The submission involved the following steps:
i)	that the equitable right to trace will be barred where it would be inequitable to allow it.  It will be inequitable where a defendant has, to his detriment, changed his position. That change of position defence is the same as that applicable to restitutionary claims;
ii)	Mr Chakrani did change his position to his detriment when he committed to the purchase of the Pakistani land on 12^th May 2003;
iii)	Irrespective of i) and ii) it would be inequitable to allow the claimant to trace at all since it had, from the outset, been insisting on its rights against Mr Chakrani under the Loan Agreement and Charge which were now known to have been forged.
84.	So far as the first of those propositions is concerned, it is controversial to what extent ‘change of position’ affects the right to trace in equity:  se e.g. Snell’s Equity, 31^st edition, pp 28-44.  That was not, however, a controversy which was aired before me.  Mr Rubin accepted the analysis of Goff and Jones, op.cit., at pp 2-042 – 2-043.  The question therefore for me was whether Mr Chakrani had so changed his position as to render it inequitable for the claimant to trace into the Pakistani land.
85.	So far as the facts are concerned, Mr Chakrani’s evidence was that the Pakistani land transaction was one which he had been planning to undertake for a considerable period of time, and had been hoping to conclude with monies raised from the sale of 20 Tanners Hill.  When, therefore, he obtained what he thought were sufficient sums by way of deposit from Mrs Karim he was able to proceed immediately to clinch a deal which would otherwise not have taken place at that particular time.
86.	Miss Andrews submitted that this involved him in a sufficient change of position to bar the claimant’s right to trace.  She founded  herself on a passage in the speech of Lord Templeman in Lipkin Gorman v. Karpnale Limited [1991] 2 AC 548 at 560 where he said:
“An innocent recipient of stolen money may not be enriched at all; if Cass had paid £20,000 derived from the solicitors to a car dealer for a motor car priced at £20,000, the car dealer would not have been enriched. The car dealer would have received £20,000 for a car worth £20,000. But an innocent recipient of stolen money will be enriched if the recipient has not given full consideration. If Cass had given £20,000 of the solicitors' money to a friend as a gift, the friend would have been enriched and unjustly enriched because a donee of stolen money cannot in good conscience rely on the bounty of the thief to deny restitution to the victim of the theft. Complications arise if the donee innocently expends the stolen money in reliance on the validity of the gift before the donee receives notice of the victim's claim for restitution. Thus if the donee spent £20,000 in the purchase of a motor car which he would not have purchased but for the gift, it seems to me that the donee has altered his position on the faith of the gift and has only been unjustly enriched to the extent of the secondhand value of the motor car at the date when the victim of the theft seeks restitution. If the donee spends the £20,000 in a trip round the world, which he would not have undertaken without the gift, it seems to me that the donee has altered his position on the faith of the gift and that he is not unjustly enriched when the victim of the theft seeks restitution. ”
87.	Miss Andrews submitted that in relation to the £107,670.74 Mr Chakrani was in the position of the innocent person in that passage who has spent money on a world cruise which he would not have undertaken but for the unexpected bounty which he has received.  I do not agree for the following reasons.  First, Mr Chakrani did not consume the £107,670.74:  he spent it on obtaining an interest in land.  The apposite analogy is not therefore with the world cruise but with the acquisition of the motor car.  Secondly, this was not a case where Mr Chakrani undertook a transaction which he would not otherwise have undertaken.  On the evidence the receipt of the claimant’s money affected the timing of the transaction but not the transaction itself.  Thirdly, while Mr Chakrani may have been innocent and ignorant of the breach of trust at the time when he paid the first instalment (and I find that he was), he cannot contend that he was at the date when he paid the second.  By that time he was aware that the monies he was using were the fruits of a fraud which had been practised (in his name) on the claimant.  Whatever might have been the position had he then allowed the initial instalment to be forfeited, I do not think that he should be allowed to pray in aid his own knowing use of the claimant’s money to secure his interest in the land in order to defeat the claimant’s right to trace its money into that land.
88.	So far as the third proposition is concerned, there was no evidence before me to support the proposition that the claimant’s contingent reliance, as against him, of its rights under the forged charge caused him to change his position to his detriment:  the existence of the charge in no way impaired the marketability of the property.
89.	If it is correct that all of the £229,271 of the claimant’s money received by Mr Chakrani into bank accounts controlled by him is traceable by the claimant into assets now held by him, there is no reason in principle not to hold him personally accountable in respect of that amount as a constructive trustee.  The terms of the second charge which he has entered into in fact recognises that liability (subject to the claimant’s establishing its entitlement to trace).  I would, therefore, accept that an appropriate form of remedy is to order Mr Chakrani to discharge the lien which the claimant would otherwise enjoy over the Pakistani land by paying it the sum of £229,271.
90.	The claimant is also entitled, in my judgment, to a personal remedy against Mr Chakrani in respect of the £10,000 of its monies which were immediately used by Mrs Karim to reduce pro tanto Mr Chakrani’s indebtedness to the firm.  That follows from the principle applied in Bannatyne v. McIver [1906] 1 KB 103, the equity recognised in that case being independent of any degree of guilty knowledge on the part of Mr Chakrani.
The claim against Mr Iqbal
91.	Mr Iqbal played no part in these proceedings until, at the trial, he gave evidence on his own behalf as to the circumstances in which the £68,000 was paid to him.  In his witness statement he volunteered that he was prepared to repay the £8,000 which he had retained, together with interest.  Since, for the reasons I have already given, the claimant is not entitled to trace its money into that payment, Mr Iqbal was not obliged so to volunteer, but was prudent to do so:  the circumstances in which he received the £68,000  and retained the £8,000 were such as to make it unconscionable for him to retain it:  he knew that a fraud had been perpetrated on the claimant and that the monies were only paid to him as a result of that fraud.  If he were now to submit to a judgment for repayment against an indemnity from the claimant in respect of other claims, he will not be troubled with further claims against him.