England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/07/2008

Mr Justice Floyd :

1. This is a Part 8 claim brought by the Claimant, Royal Oak Property Company Limited, for orders for sale of two properties at 12 Bevin Road, Hayes, Middlesex ("Bevin Road") and 85 All Souls Avenue, London NW10 ("All Souls Avenue"). Bevin Road and All Souls Avenue are registered in the name of the First Defendant, Eyad Iktilat.
2. The orders for sale are based on final charging orders made as a result of litigation between the Claimant and Mr Iktilat (and a Mr Wright who is not a party to these proceedings). The details of that litigation do not matter. Mr Iktilat resists the orders for sale on the grounds that he is not the beneficial owner of the properties. He says that there was no jurisdiction to make the charging orders because, by Section 2 of the Charging Orders Act 1979, a charging order can only be made against property owned by the debtor beneficially. His case is that Maythem Al-Ansari is the sole beneficial owner.
3. The claim was issued on 22^nd December 2005. Mr Al-Ansari was subsequently joined to the action, having raised his claim that he was the beneficial owner of the properties. Master Price ordered that there be an inquiry as to "whether the Defendants and which of them has any interest in the properties". It is that enquiry which now comes before me.
4. Mr Timothy Davey is a director of the Claimant. I permitted him to conduct the case on behalf of the Claimant with the sporadic assistance of Mckenzie friends. Mr Nathaniel Duckworth represented Mr Iktilat. Mr Al-Ansari represented himself, his solicitors having come off the record shortly before the trial.
5. I regret to say that both Mr Iktilat and Mr Al-Ansari were most unsatisfactory witnesses. The evidence they gave orally differed radically from that contained in their witness statements, which they had been happy to swear to or affirm. When giving evidence, their memory of events was highly selective. Moreover they have both wholly failed to comply with orders for disclosure made in the action. In the end I felt unable to rely on much of what they asserted in evidence. I have had to rely on such inferences as can be drawn from the documents.

The statutory provision and the rule

6. Section 2 of the Charging Orders Act 1979 provides so far as material:

"2. Property which may be charged

(1)     Subject to subsection (3) below, a charge may be imposed by a charging order only on—

(a)     any interest held by the debtor beneficially—

(i)     in any asset of a kind mentioned in subsection (2) below, or

(ii)    under any trust;…

(2)     The assets referred to in subsection (1) above are—

(a)     land…"

7. The charging orders here were made on the debtor's interest in land. The debtor's interest must be a beneficial one. There is nothing in the section which lays down any further requirement as to the nature of the debtor's interest. If the debtor has no beneficial interest in the asset (i.e. here, the land), a charging order cannot properly be made.
8. CPR 73.10 provides

"(1) Subject to the provisions of any enactment, the court may, upon a claim by a person who has obtained a charging order over an interest in property, order the sale of the property to enforce the charging order."

9. The rule confers a discretion on the court as to whether to order a sale. The discretion is wholly independent of the discretion to make the charging order. The sanction is an extreme one which should be resorted to only in extreme cases, particularly where the property to be sold is the debtor's home. Nevertheless where it is clear that the debt will not be paid unless an order for sale is made, the order may be justified.

History

The acquisition of the properties

10. Bevin Road was acquired by Mr Iktilat in 1987. He lived there with Lynn Rinaldi from 1991. In 1992 Mr Iktilat transferred half of the beneficial interest in the property into Ms Rinaldi's name. In 2000 Ms Rinaldi moved out. Mr Iktilat bought out Ms Rinaldi's share by buying her another property, but her name remained on the registered title until 2005.
11. Mr Iktilat purchased All Souls Avenue in 2000 initially as an investment property for letting, but later he has allowed relatives to occupy it.

The Trust Deeds and the loan agreement

12. On 21^st August 2003 Mr Iktilat, Ms Rinaldi and Mr Al-Ansari entered into two Deeds of Trust, one for Bevin Road and one for All Souls Avenue. They are so short that I can set one out in full:
DEED OF TRUST

DATE AND PARTIES

THIS DECLARATION is made on the 21 August 2003 between EYAD IKTILAT and LYNN SUSAN RINALDI of 12 Bevin Road, Hayes Middx UB49JJ and MAYTHEM AL-ANSARI of [address]

DEFINITIONS

1. In this deed the following terms shall have the following meanings,

'Property'

means the property of 12 Bevin Road, Hayes Middx UB49JJ Title No NGL561433

'Trustee/Owner'

means EYAD IKTILAT AND LYNN SUSAN RINALDI

'Beneficiary'

means MAYTHEM AL-ANSARI

'Indebtedness'

means all of the money from time to time owing on the security

'clause' and 'schedule'

means respectively clauses or schedules in this deed unless the context shows a contrary meaning.

'now' and 'today'

means at the date of this deed.

BENEFICIAL INTERESTS

2. The Trustee/Owner shall hold the Property and the net proceeds of sale and the income from them in trust for the Beneficiary.

INCOME

3. The Beneficiary shall be entitled to all the income derived from the Property and shall be liable for all the mortgage payments and outgoings of the Property.

13. It will be seen that the last three definitions in the first clause are, at least from a draftsman's point of view, somewhat surprising. They are definitions of terms which do not appear elsewhere in the document. Of some significance is the reference to "security" in the definition of "indebtedness". It suggests that there may be more to the overall arrangement than a simple declaration of trust. There was.
14. In 2003 Mr Iktilat wanted to borrow some money. He is unable to recall what he wanted to borrow the money for: it could have been for business or it could have been for a car, possibly a Ferrari. He had approached the banks for a further loan on the securities of his properties, but they had declined. The properties were already the subject of mortgages.
15. Mr Al-Ansari had and has a very substantial business in real property. Mr Iktilat and Mr Al-Ansari were good friends, and remain so to this day. At some point Mr Al-Ansari offered to lend Mr Iktilat the money instead. It was for this purpose that the Deeds of Trust were entered into.
16. The arrangement as described in the written evidence of both Defendants was as follows. Mr Al-Ansari would loan Mr Iktilat money. In return the ownership of the properties would be transferred to Mr Al-Ansari. Mr Iktilat could remain in possession provided he paid the mortgage payments (contrary to the arrangement in clause 3 of the Deeds). It was also said by both Mr Al-Ansari and Mr Iktilat in their written evidence that it was part of the agreement that Mr Al-Ansari would redeem the existing mortgages on the properties and that at that stage Mr Iktilat would formally transfer the properties to Mr Al-Ansari. It is clear that the agreement thus explained involved a complete disposal of the beneficial interest in the properties by Mr Iktilat to Mr Al-Ansari.
17. The agreement thus explained was, as Mr Davey submitted, a very odd arrangement. Mr Iktilat was giving up his principal assets in return only for a loan which, by definition, he would have to repay.
18. In his oral evidence Mr Iktilat initially stated that the arrangement was that Mr Al-Ansari was to hold ownership of the properties only until he paid the money back. He later explained that he did not have a right to demand the properties back, but he "hoped", given the relationship which existed between them, that Mr Al-Ansari would transfer the properties back to him if he asked him to. I have no doubt that the true arrangement involved an understanding that the trust created by the Deeds would come to an end if the money was repaid.
19. That this was so was confirmed by Mr Al-Ansari in his oral evidence. Mr Al-Ansari was clear that, at the outset, the arrangement was that if Mr Iktilat paid back the money, Mr Iktilat would get his properties back. He maintained that after some period of time, if Mr Iktilat had not repaid the money, the properties would not be recoverable. He was wholly unclear as to what period of elapsed time, coupled with non-payment, would make it impossible for Mr Iktilat to reclaim the properties. The period varied throughout his evidence.
20. This version of the agreement at least made some sort of sense, making the arrangement similar to a mortgage. Neither Defendant explained how the alleged agreement by Mr Al-Ansari to repay the existing mortgages fitted in with this version. I find that there was no such arrangement.
21. The amount of money said to have been advanced to Mr Iktilat was said by both Defendants to be £100,000.00 in their written evidence. Mr Iktilat, in his oral evidence, said the sum was "slightly over £100,000". But Mr Al-Ansari said the amount was paid in a first tranche of £25,000 to £30,000 and two days later a further £80,000. He said that he lent Mr Iktilat £125-135,000 in total. No interest was payable. The evidence does not enable me to come to any precise view as to the amount that was loaned, but I accept that a substantial sum was loaned.
22. Both Defendants claimed that the money loaned had not been paid back, or at least not paid back in full. Mr Al-Ansari said that every now and again Mr Iktilat would give him £4-5000. No records of any payments in either direction have been produced.
23. Mr Iktilat made it clear that he and Mr Al-Ansari have been involved together in business transactions of one kind or another since the date of the Deeds. Mr Iktilat described his relationship with Mr Al-Ansari as "like brothers".
24. To say that the evidence about the underlying arrangements between the Defendants was hazy would be to elevate its clarity unduly. Whilst it would appear from the Trust Deed itself that Mr Iktilat was indebted to Mr Al-Ansari in August 2003, there is no reliable evidence as to the amount of the indebtedness thereafter. I am in the position, therefore, of having to infer from other circumstances what the position was in relation to the loan and the beneficial interest in the properties.

The Transfer Documents

25. At some date which is unclear, Land Registry Forms TR1 were completed in respect of both properties and signed by Mr Iktilat and Mr Al-Ansari. Neither Defendant has disclosed any other documents in relation to the transfers recorded.
26. The TR1 in respect of Bevin Road purported to record a transaction dated 21^st June 2004 transferring the property from Mr Iktilat to Mr Al-Ansari. The consideration stated to have been received was £250,000.00.
27. The TR1 in respect of All Souls Avenue also purported to record a transaction dated 21^st June 2004 transferring the property from Mr Iktilat to Mr Al-Ansari. The consideration stated to have been received was also £250,000.00.
28. There is no credible explanation of how these documents came to be completed in this way. The explanation in the written evidence of Mr Iktilat and Mr Al-Ansari was that these documents were created in order to "formalise" the arrangements they had earlier described. This would have been a conceivable step to take if the arrangement had been as originally described, namely a complete transfer of the beneficial ownership, although it would not explain why a consideration of £250,000 was entered on each form. But, as I have said, neither Mr Iktilat nor Mr Al-Ansari in their oral evidence supported the original version of the arrangement.
29. In his oral evidence, Mr Iktilat professed ignorance of whether he received £250,000 in respect of each property, although he accepted that he would have remembered if he had actually received the consideration in June 2004. In September 2005 he asserted to Deputy District Judge Pearce in the Central London County Court that the document was evidence that he had "signed over" the properties in June 2004 for the sum of £250,000.00 each. There was no mention of the 2003 Deeds to the Deputy District Judge.
30. In his oral evidence, Mr Al-Ansari appeared to have no real idea when or why the documents were created. He proffered no explanation for the figure of £250,000 entered as consideration.
31. There is a complete lack of any of the other documentation which one would expect to exist and throw light on a transaction of this nature. I am unable to draw anything reliable from either Defendant's oral account of the matter. One thing which is clear is that these TR1 documents, and Mr Iktilat's assertions to the Deputy District Judge in 2005, are consistent with Mr Iktilat believing that he held a valuable interest in the properties by June 2004.

The charging orders

32. The judgment pursuant to which the charging orders were obtained was dated 27^th April 2005.
33. Interim charging orders were made against Bevin Road and All Souls Avenue on 9^th June 2005 and 8^th September 2005 respectively. These each provided that

"1. The interest of the judgment debtor Eyad Iktilat in the asset described in the schedule below [Bevin Road and All Souls Avenue respectively] stand charged with [payment of the sums due]"

34. The final charging orders were both made on 9^th November 2005. The final charging order against All Souls Avenue secured payment of £77,589.39 together with costs of £204 and any further interest falling due. The final order against Bevin Road secured payment of £46,806.13 with the same provision for costs and interest.

The 2005 mortgage by Mr Iktilat

35. Somewhat surprisingly given his assertions that the Trust Deeds disposed of his beneficial interest in the properties, in May 2005 Mr Iktilat obtained a mortgage against Bevin Road. This is further strong evidence that, whatever may have been the position in 2003, by May 2005 the First Defendant considered that he had a significant beneficial interest in Bevin Road on which he could raise money. There is, again, an almost complete lack of the relevant documents. Mr Duckworth invited me to accept the explanation for this offered by Mr Iktilat and Mr Al-Ansari, namely that Mr Iktilat acknowledged that he ought to have obtained Mr Al-Ansari's consent, and that it was subsequently agreed that the amount of the mortgage should be added to the original loan. I have no hesitation in rejecting this explanation.

The Land Transaction Returns

36. On 15^th August 2005 the Inland Revenue issued a receipt to Mr Al-Ansari for the payment of stamp duty of £2500 on All Souls Avenue and for the submission of a Land Transaction Return.
37. On 6^th September 2005 the Inland Revenue issued a Land Transaction Return certificate in respect of All Souls Avenue, giving 21^st June 2004 as the date of the transaction.
38. On 4^th August 2005 the Inland Revenue issued a Land Transaction Return certificate in respect of Bevin Road, giving 21^st June 2004 as the date of transfer.
39. Such certificates are issued when the stamp duty for the transaction has been paid. The underlying transactions were never registered with Land Registry however.

The 2005 mortgage by Devon Property Limited

40. Devon Property Limited is a company of which Mr Al Ansari was a director. By letter dated 1st September 2005, Devon Property Limited received an offer of a loan for the purpose of an investment property purchase from HSBC Bank plc. HSBC Bank was to be under no responsibility to ensure that the loan was used for that purpose. The offer was limited to the sum of £270,000. The loan offer provided for security to be given by way of first legal charges on a number of properties including Bevin Road and All Souls Avenue. The loan would not become available without the bank being satisfied that (i) all matters relating to the security were acceptable to it; (ii) there is good and marketable title to the security; and (iii) the security has been validly and unconditionally executed and delivered to it. Oddly, a second version of the letter bearing the same date offers the lower sum of £155,000.

The offer and the part payment

41. Some time in February 2006 Mr Al-Ansari offered £10,000 to the Claimant to invite him to abandon the claim. On 8^th November 2007 Mr Iktilat paid £15,571.58 towards the judgment.

The criminal proceedings

42. In February 2008 the Defendants and others were arrested on charges of money laundering and drug offences.
43. Save for the one point which I shall mention, the existence of those charges is of course irrelevant to anything I have to decide: for the purposes of this case they are both deemed quite innocent of those charges. The exception is that, in consequence of the criminal proceedings which are pending against both Defendants, a restraint order was made on 11^th February 2008 against both Defendants under section 41 of the Proceeds of Crime Act. Having been made aware of these proceedings, the Crown Prosecution Service has made it clear that it has no objection to the sale of the properties provided that the net proceeds are paid into an appropriate account pending the outcome of the criminal proceedings. They have expressly confirmed that this means the proceeds of sale after discharge of the Claimant's charging orders.
44. The Defendants contend that the restraint order has an impact on the exercise of my discretion to order a sale.

The application to set aside the original judgment

45. On 21^st May 2008 Mr Iktilat applied in the Central London County Court to set aside the original judgment. That application has not yet been heard. After the evidence was completed I was told that the application has now been fixed for 8^th August.

Discussion

46. The Claimant's case was that the original Deeds of Trust were a sham. When I pressed him as to what he meant by this, Mr Davey hinted that he believed them to be forgeries designed to avoid the effect of the charging orders. I refused to allow Mr Davey to develop this case, because that allegation had never been squarely put in any pleading or witness statement. In any event I heard from witnesses to the Deeds and I am satisfied that they were executed on the dates which they bear.
47. Nevertheless it appears from the evidence (and from the face of the Deeds themselves) that the Deeds were not self contained transactions but were part of a wider transaction of some kind. The Deeds were entered into as security for the loan of some sum of money by Mr Al-Ansari to Mr Iktilat in 2003. Whilst the money was owed, Mr Iktilat held the properties in trust for Mr Al-Ansari. But I am satisfied that Mr Iktilat had the right to cancel the deed in the event that he repaid whatever was owing. To that extent, the Deeds considered in isolation do not give the whole, or indeed a true picture of the transaction
48. Mr Davey argued, therefore, that the arrangement between Mr Iktilat and Mr Al-Ansari was an equitable mortgage. The arrangement has all the main characteristics of a mortgage. Although an equitable mortgage involves the creation of an equitable interest in the mortgagee, the mortgagor retains a right of redemption which is not a mere personal right but a beneficial interest in the land. That is what happened here when the Deeds were entered into. Because the arrangement had the character of a mortgage, a mortgage it remained. Nothing that happened between Mr Iktilat and Mr Al-Ansari could interfere with the mortgagor's right to redeem.
49. Mr Duckworth argued that even if the arrangement is to be regarded as an equitable mortgage, the beneficial interest was nevertheless placed in Mr Al-Ansari and Mr Iktilat had no beneficial interest for the duration of the trust. That, he said, was the difference between an equitable mortgage, which passed the equitable interest, and an equitable charge which left the interest where it was and subjected it to a charge in favour of the lender.
50. I have come to the conclusion that Mr Iktilat retained a beneficial interest in the property under the arrangement with Mr Al-Ansari. He retained the right to redeem the property. Fisher & Lightfoot's Law of Mortgage (12^th Edition) at paragraph 1.9 describes the equity of redemption in this way:

"The equity of redemption arises as soon as the mortgage is made and is an interest in land which the mortgagor can transfer, lease or mortgage, just like any other interest. "

51. I think the equity of redemption is a sufficient interest in land to bring Mr Iktilat within the terms of section 2 of the Charging Orders Act 1979.
52. Mr Duckworth submitted that Mr Iktilat's equity of redemption was an inadequate interest where it is sought to enforce a charging order by sale of the land. But for my part I am unable to see why, if the equity of redemption is to be regarded as an interest in land, it should not be an interest in property within the CPR Part 73, justifying an order for sale of the property.
53. It follows that I do not think the Trust Deeds themselves were adequate to divest Mr Iktilat of all beneficial interest in the properties.
54. I will nevertheless go on to consider what happened after the Deeds were entered into.
55. The inference which I draw from the subsequent history is that, at the latest by mid 2004, Mr Iktilat was no longer the trustee of the properties for Mr Al-Ansari. He was purporting to enter into a transaction as the beneficial owner of the properties, as recorded in the Forms TR1. Those transactions were never completed. So in May 2005 he was able to obtain the mortgage on Bevin Road with Matlock Bank. That transaction must have been on the basis that he was the beneficial owner. Nothing that happened thereafter would have altered that.
56. Mr Duckworth for Mr Iktilat made a number of points as to why I should not hold that the beneficial interest was vested in Mr Iktilat.
57. Firstly he says Mr Al-Ansari advanced the money and has not been repaid. I am not prepared to accept that submission. It is not possible to accept the unsupported assertions of the Defendants that the money has not been repaid. I think it is far more likely that they settled the accounts between themselves in the course of their various business transactions sometime before June 2004.
58. Secondly he relies on the Forms TR1. It seems to me that these are more consistent with Mr Iktilat being the beneficial owner by June 2004 than they are with Mr Al-Ansari still being the beneficial owner.
59. Thirdly he relies on the suggestion that Mr Al-Ansari sought funding to redeem the existing mortgages in September 2005. It is true that Mr Al-Ansari was proposing to offer the Properties as security for loans from HSBC to Devon Property Limited. The HSBC offer letters support this. But the documents only constitute the offer of money for investment property purchase. If Mr Al-Ansari was going to buy the Properties offered as security from their beneficial owner, the documents would have looked no different. I do not think the documents lend support to the theory that Mr Al-Ansari was already the beneficial owner.
60. Fourthly he relies on the payment of Stamp Duty by Mr Al-Ansari. I am equally unable to place any weight on this. It is more plausible that Mr Al-Ansari was proposing to go through with a purchase of the properties from Mr Iktilat which was never completed. It provides no independent support for a theory that Mr Al-Ansari was already the owner of the properties.
61. Accordingly I hold that the whole legal and beneficial ownership of the properties remains with Mr Iktilat.

Discretion

62. It is clear to me that without an order for sale the Defendants have not the smallest intention of paying the judgment debt. Mr Duckworth submitted that if I came to that conclusion I should nevertheless not order the sale of the properties for the following reasons.
63. Firstly, he submitted that the existence of the application to set aside the judgment meant that it would be wrong to order the sale now. If the original judgment was set aside, it would follow that the charging orders would fall away as well.
64. I have not heard any argument on the merits of the application to set aside the judgment, and it would therefore be wrong for me to express any view about them. I accept Mr Duckworth's submission that it would be wrong to order the sale whilst there is any prospect that the judgment might be set aside. I am nevertheless concerned that the Claimant has been kept out of what he claims to be his money for some very considerable time. On the basis of this ground I am prepared to stay the order for sale until final judgment on the application to set aside (including any appeal), on condition that the First Defendant undertakes to pursue the application in the County Court with due diligence.
65. Secondly Mr Duckworth relied on the existence of the restraining order. I consider that this point is adequately met if the net proceeds of sale after payment of the judgment debt are paid into a special account.
66. Mr Duckworth also urged on me that the amount of equity in the properties was unknown, and that the judgment debt, given the part payment, might be satisfied by the sale of one property, e.g. All Souls Avenue alone. He fortified this by reminding me that Bevin Road was Mr Iktilat's home, and I should not order the sale of that property unless satisfied that it was necessary. I bear in mind the fact that Bevin Road is Mr Iktilat's home.
67. It seems to me that, balancing all these considerations, I should make an order for the sale of both properties. But I should order the sale of All Souls Avenue to take place first, the sale of Bevin Road to take place thereafter and only in the event that the proceeds of sale after deduction of prior charges are inadequate to satisfy the amount, if any, still outstanding on the judgment debt. The order will be stayed until the conclusion of the proceedings to set aside the underlying judgment, including any appeal, provided those proceedings are prosecuted with due diligence.