England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/11/2007

Mr Justice Briggs :

1. The main application before me today in this protracted and most unfortunate litigation is an application by the Defendants which, in its amended form, seeks:

(1) an order requiring the Claimants to register a charge ("the Second Legal Charge") with the Registrar of Companies in compliance with an undertaking to that effect alleged to have been given to the Court and recorded in an Order made by me on 2 October 2007;

(2) an order requiring the Claimants forthwith to deliver to the Defendants an executed Second Legal Charge in favour of the 2^nd Defendant together with an appropriate Board Resolution authorising the giving of it, by the 1^st Claimant; and

(3) the variation of paragraph 1 of the Order which I made on 2 October by the deletion of that part of it which restrained the Defendants from making further applications to the Land Registry in relation to title No LN 210549 pending registration by the Bank of Ireland of the Second Legal Charge, a Deed of Priority and a First Legal Charge.

2. There is also before me a series of applications for costs arising out of hearings before me on 5 and 11 October 2007, and a hearing before Kitchin J on 9 October, the costs of which he reserved to me. I will deal first with the Defendants' application.
3. This is the latest in a long series of interim applications arising out of proceedings issued by the Claimants against the Defendants seeking to enforce of the terms of, and to obtain damages for breach of, a settlement agreement ("the Settlement") made at the end of a mediation between the parties on 29 June 2007. The Settlement compromised a number of claims and cross claims between the parties which were then the subject of no less than six actual or contemplated proceedings, all arising out of the development of a property known as 37-47 Stoke Newington Road, London N16 8BJ ("the Property").
4. The Property has at all material times been, and continues to be, the subject of an all monies legal charge by the 1^st Claimant Red River UK Ltd ("Red River") in favour of the Governor and Company of the Bank of Scotland ("BOS") pursuant to a debenture dated 11 August 2004 ("the Debenture"), clause 2.7.1 of which contains a covenant by Red River not to create or attempt to create or permit to subsist any mortgage, charge, lien or encumbrance on any of its assets (including the Property) without BOS's previous written consent.
5. By the Settlement, the Claimants agreed to pay the Defendants £1.2 million payable as to £300,000 on or before 31 July 2007 and as to the balance on or before 29 December 2009, together with interest as therein prescribed. By clause 2 of the Settlement the 1st Defendant ("Miss Sheikh") agreed within seven days to deliver up appropriate documentation for the removal of two restrictions on the title to the Property, such documentation to be held to the Defendants' order until payment of the £300,000. Secondly, Miss Sheikh agreed to procure the transfer of all shares held by her mother, the 2^nd Defendant in Red River to the 2^nd Claimant, Ismail Dogan ("Mr Dogan"), again within seven days, and to be held to Miss Sheikh's order until payment of the £300,000.
6. By clause 3 of the Settlement Red River agreed upon payment of the £300,000 and the provision of the documentation referred to in clause 2, to enter into a legal charge "in a form approved by the Bank of Ireland and reasonably acceptable to"… Miss Sheikh, providing, inter alia, for a limitation on sums to be advanced by the Bank of Ireland to £1.75 million.
7. Although not immediately apparent from the express terms of the Settlement, it was made in contemplation of the re-finance by the Bank of Ireland of Red River's debts to BOS, in a sum sufficient to release the £300,000 necessary to enable the Claimants to pay it to the Defendants by the end of July 2007, and the legal charge referred to in clause 3 of the Settlement was intended to be entered into as part and parcel of a composite transaction between Red River, the Bank of Ireland and the Defendants, which was to include a first legal charge in favour of the Bank of Ireland, the Second Legal Charge (provided for expressly in clause 3 of the Settlement) and a Deed of Priority regulating the priority, as between the Bank of Ireland and the Defendants as chargees of the Property. I shall refer to it as "the Composite Transaction". It necessarily also involved the redemption of the charge over the Property created by the Debenture.
8. It is evident that by the time of the Settlement the parties deeply distrusted each other, and that the Settlement did nothing to bring that distrust to an end. Miss Sheikh did not deliver the documents necessary to remove the restrictions on the registered title to the Property within seven days, or by the end of July 2007. Accordingly the Composite Transaction did not proceed in time to enable Red River to pay the £300,000 then due. Mr Hugo Page QC, counsel for the Defendants, told me that Miss Sheikh's apparent failure to comply with clause 2.1 of the Settlement arose from what she regarded as the unreasonable refusal of the Claimants to lodge, for exchange, the Second Legal Charge, so as to ensure that there could not occur any moment when the Property was affected neither by her restrictions, nor by the Second Legal Charge, leaving the Claimants free to dispose of it to her disadvantage.
9. That impasse continued, leading to the issue of the present proceedings and to the hearing of an interim application by the Claimants by Application Notice dated 23 August 2007 before Kitchin J on 3 September. With some assistance from the judge (so I am informed) the parties then agreed for a stay of these proceedings on Tomlin terms set out in a Schedule. It provided, with more precision than as is set out in clause 2 of the Settlement, for the delivery of documents to the Claimants' solicitors by the Defendants sufficient to bring about the removal of restrictions, and for the Claimants' solicitors to hold the documents (including stock transfer forms executed by the 2^nd Defendant) to the Defendants' order pending (a) the payment of the sum of £300,000; (b) the execution by the Claimants of the Second Legal Charge; and (c) the execution of the Deed of Priority. Further terms of the Schedule resolved some issues which had by then arisen between the parties as to the terms of the First Legal Charge and of the Deed of Priority.
10. The Tomlin Schedule by no means exhausted the capacity of the parties to fall out with each other as to the detailed terms to be included in the Composite Transaction. On the contrary, those differences continued to multiply, with the consequence that the Transaction remained in suspense.
11. The matter came before me on 20 September, pursuant to the liberty to apply preserved in paragraphs 1 and 5 of the Tomlin Order of 3 September. It was by that time apparent from evidence relied upon by Miss Sheikh that, while she continued to profess a desire to perform the Settlement, rather than to treat it as repudiated, she had by then reached the unshakeable view that its performance by the completion of the Composite Transaction was unlikely, even if feasible, to serve her or her mother's best interests. After a lengthy hearing on 20 September, I set a deadline of noon on the following day for the delivery by the Defendants of the form necessary to procure the withdrawal of an application to register the Second Legal Charge. I also settled, line by line, the terms of the Second Legal Charge, and I resolved all the points of principle pursuant to which Miss Sheikh was at that stage persisting in objections to the Deed of Priority, in the form which was, by that date, acceptable to the Bank of Ireland and to the Claimants. The object of those exercises was to smooth the path towards the completion of the Composite Transaction which it was envisaged would lead to the payment of the (by then overdue) £300,000 to the Defendants, and to them being given, for the first time, security over the Property in respect of the deferred payment of the balance of £900,000.
12. Miss Sheikh raised further objections to the Deed of Priority which, after an adjournment on 25 September, were resolved against her by Mann J on 27 September, on the basis that she had failed to raise them before me on 20 September.
13. The 2^nd Defendant executed the Deed of Priority on 28 September and delivered it to the Claimants' solicitors. By "executed" I mean that the 2^nd Defendant did everything which she needed to do for the purpose of bringing that document into effect. Since it was one of a number of documents requiring simultaneous completion as part of the Composite Transaction it did not by virtue of her execution of it come into immediate effect.
14. At the end of September, as the result of a further search against the title to the Property requested by the Bank of Ireland, it was revealed that, immediately after the hearing before me on 20 September, the Defendants had applied to register a charge over the Property and, in support of their application, forwarded to the Land Registry a charge in the form of the Second Legal Charge (the terms of which I had by then settled) bearing date 21 September 2007 even though it had not then been executed by Red River. The Bank of Ireland regarded its intended priority under the still pending Composite Transaction to be threatened by that application. As a result the Claimants applied urgently to me on 2 October, first for an Order that the Defendants' application to the Land Registry (which they had lodged on 21 September) be cancelled forthwith, secondly for an injunction restraining the Defendants from making any other application to the Land Registry in relation to the Property until after registration of the First Legal Charge upon completion of the Composite Transaction, and thirdly for an injunction restraining the Defendants in the meantime from entering into any communications with the Bank of Ireland.
15. The second and third of those applications were based upon the Claimants' concern that, notwithstanding her professed desire to perform the Settlement, the 1^st Defendant had by then embarked upon a campaign designed to sabotage the Composite Transaction, and that she would stop at nothing to achieve that objective.
16. On the same occasion Miss Sheikh applied informally (i.e. without an Application Notice) for delivery to her of the Second Legal Charge, on the basis that since it appeared by then to have been executed by Red River, there was no reason why the Defendants should not have it.
17. In three extempore judgments given during the course of the hearing on 2 October, I acceded to the first and second of the Claimants' applications on terms, but refused the third, and acceded in part to Miss Sheikh's application, also on terms. My decisions were reflected in a single Order (the "2 October Order") which recorded undertakings by the Claimants first by way of a cross-undertaking in damages and secondly "to obtain registration of the Second Legal Charge at Companies House". Paragraph 1 of the Order required the Defendants to withdraw their application to register a charge which they had made on 21 September 2007, upon delivery to them of a letter from the Bank of Ireland's solicitors (a) stating that the Deed of Priority had by then been executed by the Bank of Ireland and (b) undertaking on any registration of the First Legal Charge that the Bank's solicitors would simultaneously register the Deed of Priority, lodge with the Land Registry a certified copy of the Second Legal Charge and apply for its registration. Paragraph 1 of the Order also immediately restrained the Defendants from making any further applications to the Land Registry, as the Claimants had sought, pending registration of all three elements of the Composite transaction.
18. Paragraph 2 of the 2 October order required the Claimants to make available to the Defendants a certified copy of the Second Legal Charge upon receipt by them of confirmation from the Defendants that they had withdrawn their application to the Land Registry made on 21 September, and required the delivery to the Defendants of the original of the Second Legal Charge, once no longer required by the Land Registry for registration purposes.
19. Perusal of the transcripts of the judgments which I gave on that day shows, first, that after hearing argument (in the Defendants' case by Miss Sheikh in person), I had concluded that the terms of the Settlement, as amplified by the Schedule to the Tomlin Order, contained by implication an obligation on the Defendants' part to act in good faith in relation to the completion of the Composite Transaction, such that if it were later proved that an exercise in the attempted sabotage of that transaction was being attempted by the Defendants, that would constitute a grave breach of those contractual obligations. I did not regard that breach as sufficiently proved by the evidence as at 2 October.
20. Secondly, it is clear from my extempore judgments given on that day that the provisions in the 2 October Order (including the second of the Claimants' undertakings) designed to bring about the registration and delivery of the Second Legal Charge to the Defendants, were intended to provide "some protection to ensure that [the Defendants] obtain a duly registered Second Charge when this matter proceeds to completion" (my underlining). In context, my reference to "this matter" was to the Composite Transaction which, although by then described by the Claimants as teetering on a knife edge, still seemed reasonably capable of being completed. Those provisions were not designed to bring about either the registration or the delivery to the Defendants of the Second Legal Charge if the Composite Transaction did not proceed to completion, even though it was by then common ground that the Second Legal Charge had been executed by Red River, (and by "executed" I mean the same as I have explained in relation to the execution of the Deed of Priority by the 2^nd Defendant). Again, it was not within my contemplation that merely because of execution, the Second Legal Charge had, by 2 October, come into force and effect, or that it would do so unless and until the Composite Transaction were completed. That it would not do so at any earlier stage is, in my judgment, clearly apparent both from the terms of the Second Legal Charge itself, which I had settled on 20 September, from the terms of the Deed of Priority, and from the fact that, pending the redemption of the Charge in favour of BOS, there could be no new charging structure established in relation to the Property.
21. The Bank of Ireland's solicitors duly provided the letter contemplated by paragraph 1 of my 2 October Order, with the consequence that the Defendants became obliged to, and did, later withdraw the registration application which they had made on 21 September. Matters therefore appeared, at least to the Claimants, to be proceeding towards a completion of the Composite Transaction on 5 October.
22. It is necessary to describe the events of 5 October in some detail. In order to understand them, it needs to be recorded that on 3 October Miss Sheikh presented a creditors' petition for the winding-up of Red River. In paragraph 75 of a lengthy witness statement dated 19 September Miss Sheikh had stated that she was about to present a winding-up petition. In paragraph 29(b) of a further witness statement dated 2 October she had said that "I am issuing a winding-up petition". An imperfect transcript of the hearing before me on 2 October shows that, in relation to the injunction against further applications to the Land Registry, Miss Sheikh raised the question of a winding-up petition, and was told by me that the injunction which I was about to impose did not prevent her issuing a winding-up petition, but did prevent her from applying to the Land Registry in relation to it, pending the completion of the Composite Transaction. Unfortunately, in the events which have happened, the transcript shows that I told Miss Sheikh "You can issue as many winding-up petitions as you like, but you must not apply to the Land Registry in relation to it until this transaction is completed". The combination of that observation and my refusal of the Claimants' application for an injunction preventing her from communicating with the Bank of Ireland appears to have left Miss Sheikh with the impression that she could regard herself as under no relevant inhibition in relation to the presentation and use of a winding-up petition (otherwise than by communicating its existence to the Land Registry), or in the pursuit of uninhibited correspondence with the Bank of Ireland and its solicitors.
23. Shortly after 10.30 on Friday 5 October the Claimants made a further application to resolve a highly technical issue which had arisen between the parties' legal advisers as to the appropriate means of securing registration of the Second Legal Charge at the Land Registry. My 2 October Order was made on the assumption that the normal procedure for the registration of a charge over land by a company was first for it to be registered at Companies House by deposit of the original charge document and, in the meantime, by the lodging of an application for registration at the Land Registry including a certified copy of the charge document. By 5 October, the Defendants' advisers had concluded that they would prefer the original of the Second Legal Charge to be used for immediate registration at the Land Registry. They had therefore become dissatisfied with the terms of the Bank of Ireland's solicitors' undertaking provided for, and given, pursuant to my 2 October Order. Both parties expressed themselves as wishing to complete the Composite Transaction, if possible that day, and in view of the weight of my list, and the extreme technicality of the issue, I directed that they attempt first to resolve the technical issue themselves, in consultation with the Bank of Ireland's solicitors. The transcript shows that they left court for that purpose at 10.44.
24. I next became free at 12.10 on the same day, by which time the parties, both groups of whom appeared by counsel, informed me that they had resolved the technical issue, in a manner with which the Bank of Ireland's solicitors were also content. As Mr Meares put it, for the Defendants, "This is a result where everyone is going away content". Mr Meares also stated his understanding that the Composite Transaction had "probably – completed now". In any event, I was left, after a short argument as to costs, with the clear impression that if the Composite Transaction had not already completed, it would do so later that day. The parties left court at 12.15.
25. The Minute of Order arising from that application later prepared by Mr Smith, counsel for the Claimants (but which had not been drawn up by the time of the hearing on 7 November) shows that the solution to the technical problem which I had (mercifully) been excused from having to resolve, consisted of oral confirmation from the Bank of Ireland's solicitors to counsel for the Defendants (Mr Meares) that the undertaking in the Bank's solicitors' letter of 4 October should, notwithstanding its express terms, take effect as if they had undertaken to lodge the original of the Second Legal Charge rather than merely a certified copy of it with the Land Registry. There was therefore to be no Order on the application, save in relation to costs.
26. It is common ground that, shortly after the parties left court at 12.15, Miss Sheikh laid in front of the 2^nd Claimant an envelope which, when he opened it after her departure into the lift, contained a copy of the winding-up petition. There is an issue, which I do not have to determine, whether Miss Sheikh left in a furtive or hasty manner so as to be unavailable to discuss it. It is, however, common ground that attempts by the Claimants to contact her thereafter on 5 October failed, and that Mr Meares, when contacted by Mr Smith, said that he was without any instructions in relation to the petition.
27. In the meantime, at 12.10, fax transmission records show that Miss Sheikh's firm, Ashley & Co (of which she is the sole proprietor, and of which the only member of staff other than herself is a part-time secretary) sent a fax letter to the Bank of Ireland's solicitors, Burges Salmon, containing (inter alia) the following passage under the heading "The Equitable Mortgage":

"Without prejudice to the creation of the Sheikh mortgage, [by which she meant the Second Legal Charge] the beneficiaries of the equitable mortgage reserve their right to enforce their rights and interests, against the Bank of Ireland, in priority to any subsequent legal mortgage the Bank may acquire, inter alia, on the grounds that the Bank of Ireland knows, or has reason to suspect, that the Borrower has acted dishonestly, and fraudulently, in entering into the Settlement Agreement, and consequently the equitable mortgage, and the Sheikh Legal Mortgage.

So that you are fully on notice of all the facts and matter upon which I propose to rely in support of this claim, I am sending you a full set of all the papers in the proceedings.

There is a considerable amount of paperwork to photocopy and collate, which obliges me to do (sic) send the documents to you in a piecemeal fashion. You should be in possession of everything within 7 days. I shall send you indices of the documents, I am posting on to you, or sending you by email."

The copy received by Burges Salmon bears Miss Sheikh's signature.

28. Four minutes later, at 12.14, Ashley & Co sent a further letter to Burges Salmon, on this occasion signed on Miss Sheikh's behalf, stating as follows:

"Further to my letter of even date please consider yourself on Notice that the Borrower is not able to provide you with a properly constituted Board Resolution for the giving of your security, no notice of any proposed Board Meeting having been served upon Rabia Sheikh as a shareholder."

29. Having been served with the petition, the Claimants, on advice, considered it incumbent upon them to inform the Bank of Ireland of its existence, with the consequence that, pursuant to s.127 of the Insolvency Act 1986, the Bank of Ireland could not with any confidence assume that completion of the Composite Transaction, at least by Red River, would be otherwise than, at least potentially, void. At 12.55 pm the Claimants applied by counsel without notice to have the petition struck out as an abuse of process. After an adjournment designed to enable notification of the Defendants, if possible, I heard the application in their absence later that afternoon and, for the reasons set out in my extempore judgment (of which there is an approved transcript), struck out the petition. I then regarded it as a blatant abuse of process, not least because it appeared to be a deliberate attempt to sabotage the Composite Transaction, carried out in a surreptitious and underhand manner. I also considered that the company had a bona fide cross-claim against liability for the amounts claimed in the petition, because of alleged breaches by the Defendants of the Settlement. In concluding that Miss Sheikh had acted in an underhand and surreptitious manner I did not recall, in the welter of applications and evidence which had preceded the 5 October hearing, that she had twice in witness statements referred to an intention to present a petition, and that there had been brief discussion about a petition during the hearing on 2 October, when Miss Sheikh represented herself, nor, it appears, did counsel for the Claimants have any such recollection on 5 October (not being counsel who appeared on 2 Oct), the service of the petition shortly before lunchtime on that day having come to them as a complete surprise.
30. Miss Sheikh continued with her planned delivery of documents to Burges Salmon on Sunday 7 October and, on the following Monday, the Bank of Ireland wrote to Red River withdrawing its offer of facilities. The letter explained the decision in these terms:

"We understand from Isadore Goldman (the Claimants' solicitors) that, following the hearing on Friday (5 October 2007) in relation to Sheikhs' Land Registry Application, Ms Anal Sheikh served you with a winding-up petition. Although that petition was struck off later the same day on an ex parte basis, Ms Sheikh has leave to apply to reinstate the petition.

Our solicitors have received a number of faxes and emails (dated 5 and 7 October) from Ms Sheikh putting the Bank on notice of her intention to try to defeat any priority the Bank of Ireland might have and force an early sale of the property. This would put the Bank into a position of having to defend its priority and deal with enforcement action by the second chargee, possibly immediately after completion.

Until these circumstances change the Bank will not be able to proceed with funding and expressly withdraws its offer of facilities."

There has been no change of circumstances. The Composite Transaction was, from that date, at an end. The Bank of Ireland's letter correctly recorded that, because the application to strike out the petition was made in the absence of the Defendants, it was vulnerable to being set aside on the Defendants' application.

31. After an abortive application without notice on 8 October, Miss Sheikh made an application to Kitchin J on 9 October seeking an order that the Land Registry be required to enter a new restriction on the title to the Property, which he dismissed, with costs reserved. On 11 October costs issues arising out of the hearing on the afternoon of 5 October and before Kitchin J on 9 October were restored before me. I directed that all such costs issues, and any application that the Defendants wished to make in relation to the proceedings generally should be reserved to me, and gave directions for the completion of evidence, and for the service upon the Defendants of a note of the hearing on 5 October. That is how the matter now comes before me.
32. In the meantime, following the collapse of the negotiations with the Bank of Ireland, the Claimants have begun negotiations for a substitute re-financing with a proposed lender which (prudently in my judgment) they have so far declined to identify, with a view to obtaining sufficient funds, beyond those needed to redeem the BOS Charge, to pay off the Defendants in full. Those negotiations remain pending.
33. I turn to the applications by the Defendants for an order requiring registration of the Second Legal Charge at Companies House, and for its delivery up. In summary, Mr Page QC for the Defendants submitted that since (i) the Second Legal Charge had been executed by Red River, (ii) Red River had undertaken to the Court to obtain registration of it at Companies House on 2 October, and (iii) that the Settlement expressly provided for £900,000 of the debt owing to the Defendants to be secured by such a charge, there was no reason why it should not now be both registered and delivered. He pointed out that neither side had suggested that the Settlement had been discharged, either by accepted repudiation, frustration, or consent. The Claimants could have no answer to its enforcement by what he accepted was an order for partial specific performance, the effect of which would be to provide the Defendants in substance with a second security ranking after the continuing charge in favour of BOS. Although he accepted that this was not precisely what the Settlement had contemplated, he submitted that since security for the Claimants' debt to the Defendants was an essential feature of the Settlement, there was no reason why, it having been executed, it should not now be given as full an effect as the altered circumstances permit.
34. The Claimants' main riposte was that, having succeeded in sabotaging the Composite Transaction, it would be an affront to justice and equity for the Defendants now to obtain from the wreckage a benefit in the form of a security which fell outwith that contemplated by the Settlement and Tomlin Order, and which my 2 October Order was in no sense intended to bring about, being limited to requiring the taking of steps designed to facilitate the completion only of the Composite Transaction, and nothing else. In my judgment, the Claimants are plainly correct about this. My reasons follow.
35. First, I consider it clear that the purpose of my 2 October Order, read in the light of the judgments which I gave that day, was simply to facilitate the completion of the Composite Transaction, nothing more nor less. Although I noted that the Second Legal Charge had been "completed" it was plain that it was not intended to come into effect other than as part of a simultaneous transaction including the redemption of the BOS charge, the grant of the Bank of Ireland's first charge and the completion of the Deed of Priority. Although not expressed in terms, the Claimants' undertaking to register the Second Legal Charge at Companies House was, just like the Bank's solicitors' letter undertaking in relation to lodging it at the Land Registry, by necessary implication only to come into effect on completion of the Composite Transaction, and not otherwise. Since the Composite Transaction will now never complete, the Claimants' undertaking to register the Second Legal Charge will now never come into effect.
36. By parity of reasoning, there is no reason why the Second Legal Charge should now be delivered up to the Defendants. Although "executed" by Red River in preparation for completion, it was never dated and has never come into force. Ironically, Miss Sheikh's own case, as evident from her firm's second letter to the Bank of Ireland's solicitors on 5 October, is that the Second Legal Charge was not duly executed. In my judgment, the sooner it is forgotten, the better.
37. Secondly, it is abundantly clear that the collapse of the Composite Transaction was caused by Miss Sheikh, and that her conduct in that respect constituted precisely the serious breach of the Settlement of which I warned in the second of my extempore judgments on 2 October. By serving the winding-up petition outside court on 5 October on the Claimants and by her almost exactly simultaneous letters to the Bank of Ireland's solicitors, she caused the Bank of Ireland to withdraw from the proposed re-financing. In short, she sabotaged the Composite Transaction. It was, in my judgment, the plainest possible breach of her implied contractual obligation, under the Settlement and Tomlin Order, to co-operate in good faith in the bringing about of the Composite Transaction, upon which the fulfilment of the express provisions of the Settlement depended.
38. In this respect, Mr Page submitted first that I could not be satisfied in advance of disclosure and a full trial that Miss Sheikh's conduct had caused the Bank of Ireland to withdraw from the proposed re-financing. (Since the hearing I have been notified of a pending application by the Defendants for disclosure about that issue). I disagree. As a matter of common sense, it is easy to see why the combination of the service of the winding-up petition (notwithstanding its abrupt striking out) and Miss Sheikh's express challenges to the priority of any first charge granted to the Bank of Ireland set out in her firm's correspondence on 5 October would have caused any prudent bank to withdraw from the transaction. The Bank's letter on 8 October puts the matter beyond all reasonable doubt.
39. Mr Page submitted further that I could not, without cross-examination, disbelieve Miss Sheikh's evidence that her conduct had throughout been in good faith, that her presentation and service of the petition had not been surreptitious or underhand, and that she had been doing no more than vigorously assert rights which she genuinely believed (whether or not reasonably) would not be overridden by the Composite Transaction.
40. To a limited extent, Mr Page was entitled to point to the fact that, both in witness statements and in a brief exchange on 2 October, Miss Sheikh had referred to her intention to present a winding-up petition, and that she denied in evidence being aware that the inevitable consequence of her service of it on 5 October would be, unless it was immediately struck out, or the company obtained a swift validation order, to prevent the Composite Transaction from proceeding. She may not, as Mr Page submitted, have been an insolvency expert.
41. In my judgment, that analysis focuses too narrowly on only part of the picture. In particular, it ignores that, at the same time as her counsel Mr Meares was on her instructions telling the Court that the last obstacle to the completion of the Composite Transaction had been surmounted to the mutual satisfaction of the parties, so that it could immediately proceed, her firm was (as she now says that she had pre-arranged earlier that morning), simultaneously beginning a campaign of correspondence with the Bank's solicitors which can, in my judgment, only have been designed to deter it from thinking that it would obtain good security for a very substantial loan to Red River, and doing so behind the Claimants' back. It was precisely the kind of conduct which the Claimants feared that Miss Sheikh would pursue, and which had led to the Claimants' unsuccessful application to restrain her from communicating with the Bank, on 2 October.
42. Taking Miss Sheikh's conduct as a whole, it needs neither cross-examination nor the other procedures of and preparatory to a trial for me to conclude with confidence that Miss Sheikh both designed and intended to take every possible step not already expressly prohibited by the Court by injunction to sabotage the Composite Transaction, having formed the unshakeable view, soon after making the Settlement, that its completion no longer served her and her mother's best interests.
43. This is therefore a paradigm case in which a party's deliberate flouting of her contractual obligations constitutes an equitable bar to her now seeking specific performance of those parts of it which survive her successful sabotage of the substance of it. Miss Sheikh's mother can be in no better position, having (whether wisely or not) entrusted the day to day performance of her obligations under the Settlement to her daughter and, so far as it is possible to ascertain, made common cause with her daughter in her campaign of sabotage.
44. If, as to which I express no view whatsoever, the Defendants have any remedies available to them under the Settlement, they are henceforth limited to remedies at common law, whether in debt or damages. The Defendants have comprehensively deprived themselves of any opportunity to seek the equitable relief of specific performance. Accordingly, the first two heads of relief sought by the Defendants' application notice are refused.
45. The question whether I should accede to the third head of relief sought, namely the discharge of the injunction restraining the Defendants from making a further or other application to the Land Registry in relation to the Property, is less straightforward.
46. It is plain from paragraph 1 of my 2 October Order (all the more so if read in connection with the extempore judgments which immediately preceded it) that this injunction was intended to be of strictly limited duration, namely until the registration by the Bank of Ireland of the three parts of the Composite Transaction, none of which will now ever be registered. Its objective was to facilitate the completion of that transaction, in just the same way as was the Claimants' undertaking to register the Second Legal Charge, and the requirement for delivery of undertakings in relation to that document from the Bank of Ireland's solicitors.
47. The argument that the injunction ought now to be regarded as spent is therefore, at least at first sight, as strong as the same argument in relation to the obligations of the Claimants which I have held that the Defendants are now unable to enforce. Furthermore, although responsibility for the fact that specific performance of the Settlement has become impossible lies squarely at the Defendants' door, the Claimants having done their unsuccessful best to carry the Composite Transaction to completion, specific performance of contracts requires, as a matter of general principle, mutuality. Either a contract is specifically enforceable in whole or in part, or it is not. Furthermore, while there remained a prospect of the successful completion of the Composite Transaction, conduct of the type prohibited by that injunction would have constituted a breach of its implied terms (as explained in paragraph 7 of the first of my judgments on 2 October). Now that completion of it is impossible it is not easy to identify any express or implied contractual obligation on the Defendants to restrain from making applications to the Land Registry, compliance with which would be enforced by the continuation of that injunction.
48. Mr Smith for the Claimants tried valiantly to persuade me otherwise. He submitted that even if the Bank of Ireland transaction expressly contemplated by the Settlement was no longer capable of fulfilment, there could be discerned from the Settlement a more general compact between the parties that the payments to be made pursuant to clause 1 of the Settlement should be financed by a re-mortgage of the Property, and that continued applications to the Land Registry by the Defendants would, by inhibiting the achievement of that objective, which even now the Claimants are actively pursuing, still amount to a breach of an implied negative obligation. Attractively though that argument was presented, I have not been persuaded by it. In my judgment it is not possible to identify, as if lying behind the Settlement, some more general obligation on the parties to co-operate in a re-financing secured on the Property, different from that expressly contemplated by the references to the Bank of Ireland and the First and Second Charge structure hinted at in clause 3 thereof. The Composite Transaction is that to which the Settlement related. Now that transaction is impossible of fulfilment, and while it is common ground that the Settlement is not thereby rendered nugatory for all purposes, the erection of some more general implied obligation is, in my judgment, a bridge too far.
49. That is not, however, the end of the matter. It is well established that the Court may prohibit by injunction the making of misconceived applications to the Land Registry where their consequence would be improperly to interfere with the rights of the registered proprietor, even in the absence of any contractual relationship between the parties prohibiting such conduct. Furthermore, where the balance of convenience favours such a course, the Court will readily do so in advance of a final determination of any relevant issues between the parties.
50. I asked Mr Page why the Defendants were anxious to obtain a release from the injunction granted on 2 October, not least because, as pointed out by Mr Smith, they remain for the moment protected by the restrictions which they have already lodged, since their applications to withdraw them remain held by the Claimants' solicitors to the Defendants' order, pursuant to clause 2 of the Settlement and to the terms of the Tomlin Schedule pending, at least, payment of the £300,000. The Claimants have not suggested that those restrictions should be removed until a time when payment of the £300,000 is rendered possible by the imminent completion of an alternative re-financing for which they are now negotiating.
51. Mr Page's reply was that the Defendants wished to seek protection on the Register for what they claim already to enjoy, namely an immediate equitable charge of the Property arising from the terms of the Settlement itself, and in particular from the Claimants' agreement to confer the Second Legal Charge, in clause 3 thereof. Pending trial of that question, Mr Page submits that the balance of convenience lies in favour of the Court permitting the Defendants to apply to the Land Registry to protect that claimed right. Mr Page points out, not without force, that on a balance of convenience test, the Claimants have the protection of a set-off for any loss they may incur by such conduct, against the substantial amount which they otherwise owe the Defendants, whereas the Defendants would obtain nothing of substance from a mere cross-undertaking in damages by the Claimants.
52. If the matter depended purely upon the balance of convenience, Mr Page's submission would carry considerable weight. But in my judgment it is unnecessary to have recourse to the balance of convenience, albeit that it is conceded by both parties that this ought to be treated as an interim application. This is because I consider it fanciful to suppose that the Defendants have an equitable charge over the Property by virtue of the Settlement.
53. The basis upon which such a charge would be recognised in equity, from a contract to grant a Legal Charge, is that the contract in question is liable to be specifically enforced. Equity regards as done what ought to be done. In the present case, whatever may have been the position at the time of the Settlement, it is now clear beyond doubt that the provision for the grant of the Second Legal Charge in clause 3 of the Settlement is incapable of specific performance, both because it is now impossible and because the Defendants have by their misconduct deprived themselves of that remedy by their sabotage of the Composite Transaction, of which the Second Legal Charge was to be an integral part.
54. Mr Page submitted that such a conclusion would be "to rewrite the Settlement" since the provision of security for the deferred part of the payment of £900,000 to the Defendants was a central part of the bargain. I agree that security for the Defendants was a central part of the bargain, but their lack of entitlement to it now has nothing to do with rewriting the contract, and everything to do with their breach of it, for which they have only themselves to blame.
55. It follows, in my judgment, that the Defendants are therefore seeking the discharge of the injunction restraining them from making applications to the Land Registry precisely for the purpose of making that type of improper and, in my view, vexatious application which the Court has jurisdiction, regardless of contract, to restrain. Furthermore, since it is obvious that to permit the Defendants to continue with the making of vexatious applications to the Land Registry will put at risk the ability of Red River to deploy its rights in relation to the Property by a beneficial re-financing (and one which, if successful, will substantially benefit the Defendants as well), it is both just and convenient that they should continue to be restrained from doing so, at least in the short term.
56. Mr Smith submitted that since the existing provision for the expiry of the present injunction contained in my 2 October order is now ineffective, the injunction should be varied by providing for its extension for a defined period, sufficient to permit the Claimants to bring their alternative re-financing negotiations to a satisfactory conclusion if they can. I agree, and I will hear submissions as to the length of the period which should be defined. In the meantime the parties are of course to be at liberty to apply.
57. Subject therefore to that necessary modification of the injunction, I refuse the third limb of the Defendants' application as well.
58. I turn now to the outstanding costs applications, and first with the costs of the application to strike out the petition made by the Claimants in the absence of the Defendants on 5 October. The Claimants seek their costs of that application on the standard basis, not least because in the light of the Defendants' undertaking to Kitchin J on 9^th October not to seek to set aside the striking out of the petition, it is now clear that the successful outcome of that application is beyond contest.
59. Mr Page submits that I was only persuaded to take the exceptional course of striking out the petition without hearing Miss Sheikh because I acceded to the submission that she had acted in an underhand and surreptitious manner, whereas proper research and disclosure would have shown that she had already, in the manner which I have described, warned both her opponents and the Court of her intention to present a petition. That was an omission, but in my judgment not one which was either intentional or, in the extraordinary circumstances in which the petition was served, culpable. In any event, the petition was an abuse of process for reasons other than the manner in which it was presented and served, namely because it was a central part of the Defendants' campaign to sabotage the Composite Transaction, and because the debt upon which it was based was bona fide disputed on substantial grounds.
60. Miss Sheikh must therefore pay the costs of the Claimants' application, as sought, on the standard basis.
61. I turn to the reserved costs of the Defendants' application to Kitchin J on 9 October. Since he dismissed that application, costs should follow the event, and Mr Page did not suggest otherwise. The Defendants must therefore pay the Claimants' costs of that application.
62. Finally, there are the costs of the hearing before me on 11 October. As Mr Page points out, that hearing enabled the Court to give directions for the effective preparation and hearing of the applications with which I am now concerned. The costs of 11 October are therefore to be costs in the Defendants' application, as to the burden of which I will now hear submissions.