Artist Court Collective Ltd v Sardar Muhammad Ishaq Khan

JurisdictionEngland & Wales
JudgeMr Justice Henderson
Judgment Date07 October 2016
Neutral Citation[2016] EWHC 2453 (Ch)
CourtChancery Division
Date07 October 2016
Docket NumberCase No: CH-2015-000026

[2016] EWHC 2453 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

ON APPEAL FROM THE COUNTY COURT AT CENTRAL LONDON

Rolls Building,

Royal Courts of Justice

Fetter Lane, London EC4A 1NL

Before:

Mr Justice Henderson

Case No: CH-2015-000026

Between:
Artist Court Collective Limited
Claimant/Respondent
and
Sardar Muhammad Ishaq Khan
Defendant/Appellant

Mr Stephen Jourdan QC and Mr William Hansen (instructed by Heritage Solicitors) for the Appellant

Mr Lawrence Caun (instructed by Ronald Fletcher Baker LLP) for the Respondent

Hearing date: 1st July 2016

Judgment Approved

Mr Justice Henderson

Introduction and Background

1

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

2

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

3

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

4

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

5

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

6

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

7

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

8

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

a) a Deed of Trust dated 5 August 2011 ("the Trust Deed"), expressed to be made between Mr Khan and SGR, and signed by Mr Mehmood on behalf of SGR, Mr Khan and (as a witness) Ms Mumtaz;

b) an agreement dated 9 August 2011 ("the Contract") for the sale of the Property by Mr Khan to SGR with full title guarantee for a purchase price of £225,000, subject to 17 numbered special conditions ("the Special Conditions"); and

c) a Land Registry form TR1, also dated 9 August 2011, and signed by Mr Khan, Mr Mehmood on behalf of SGR, and Ms Mumtaz as witness, whereby the entirety of the Property was transferred by Mr Khan to SGR for a consideration of £225,000 of which Mr Khan acknowledged receipt.

9

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

10

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

11

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

12

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

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

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

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

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

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

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

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

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

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

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

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

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

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

35. 19 April 2013 is the date on a Form TR1 signed by Mr Mehmood on behalf of SGR and witnessed by Ms Mumtaz. This form provided for the transfer of the Property by SGR...

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