Red River UK Ltd and Another (Claimants) Anal Sheikh and Another (Defendants)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 30 April 2010 |
| Neutral Citation | [2010] EWHC 961 (Ch) |
| Docket Number | Case No: HC07C02257 |
| Court | Chancery Division |
| Date | 30 April 2010 |
[2010] EWHC 961 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Justice Henderson
Case No: HC07C02257
Mr Robert Leonard (instructed by Isadore Goldman) for the Claimants
Hearing dates: 16, 18, 19, 23, 24, 26, 29 and 30 March 2010
Judgment on Liability
Mr Justice Henderson:
Introduction
This action concerns the fallout from an ill-fated property deal which has already engendered several years of acrimonious litigation. The property in question (“the Property”) is the site of a former Esso petrol station in Stoke Newington, London, N16 at 37–47 Stoke Newington Road immediately south of the junction with Barretts Grove. The Property has development potential, and on 5 July 2004 conditional planning permission was granted by the London Borough of Hackney for a mixed commercial and residential development on the site, comprising 32 residential units on four floors over a parade of six commercial units together with underground storage facilities and 20 car parking spaces.
Legal title to the Property is vested in the first claimant, Red River (UK) Limited (“Red River”), a UK-registered company which was established as a special purpose vehicle for the purchase of the Property by the second claimant, Mr Ismail Dogan, a Turkish businessman who has at all material times lived and worked principally in England, although he retains a Turkish domicile. The solicitor who acted for Red River and Mr Dogan in relation to the purchase of the Property was the first defendant, Miss Anal Sheikh, a sole practitioner who practised under the style of Ashley & Co at 49 Blackbird Hill, London, NW9. The second defendant, Mrs Rabia Sheikh, is Miss Sheikh's mother. She is an old lady, now 81 or 82 years of age, and in poor health.
I will usually refer to the defendants as Miss Sheikh and Mrs Sheikh respectively, although I will also at times (and without intending any disrespect) refer to them by their initials as AS and RS.
The purchase of the Property was completed, after a number of vicissitudes, on 11 August 2004. The purchase price, which had been increased following an earlier dispute with the vendor, was £1.825 million plus VAT of £319,375, making a total of £2,144,375. Mr Dogan was unable to raise the whole of the purchase price himself, as he and Red River were in some financial difficulties at the time. £1,444,375 was borrowed by Red River from the Bank of Scotland, secured by a first legal charge on the Property and a debenture whereby Red River granted the Bank fixed and floating charges over its assets. According to a completion statement apparently prepared by Miss Sheikh on 2 September 2004, Mr Dogan himself contributed £436,705. The balance was provided by Miss Sheikh, in a sum (according to the statement) of £381,517.83, comprising a “credit for fees” of £70,000 and an actual payment of £311,517.83. The total amount thus contributed to the purchase by Red River, Mr Dogan and Miss Sheikh was £2,262,597.83, the difference from the purchase price being accounted for by various professional fees, expenses and disbursements.
It was agreed that Miss Sheikh's contribution should be treated as a loan by her to Red River, and that she should in addition be allotted 35% of the shares in Red River. It was later also agreed that she should become a director of the company. Steps were duly taken to increase Red River's issued share capital to 100 ordinary shares of £1 each, and 35 of the shares were transferred to Miss Sheikh's mother. It is common ground that Mrs Sheikh has at all times held those shares as a nominee for her daughter.
In addition, Miss Sheikh's interests were further protected by a restriction on the registered title of the Property (title number LN 210549). Apparently on the day of completion, 11 August 2004, Mr Dogan on behalf of Red River and Miss Sheikh in her capacity as Red River's conveyancer both signed an application by Red River to enter a restriction in the following terms:
“No disposition of the registered estate by the proprietor of the registered estate is to be registered without a written consent of Rabia Sheikh care of Ashley & Co, 49 Blackbird Hill, London NW9 8RS.”
However, no steps were taken by Miss Sheikh to have the restriction entered on the register until the following year, and the date of entry shown on the register is 19 October 2005. It was then followed some eight months later by a further restriction, entered on 9 June 2006, which provided that:
“No disposition of the registered estate by the proprietor of the registered estate is to be registered without a certificate signed by Anal Sheikh of 49 Blackbird Hill, London NW9 that she is satisfied that the person who signed the consent required by the above restriction registered on 19 October 2005 is Rabia Sheikh.”
This second restriction was entered pursuant to an application by Miss Sheikh herself dated 8 June 2006, and there is no indication on the application form, or, so far as I am aware, anywhere else, that it had the agreement of Red River or Mr Dogan.
The net effect of these two restrictions (“the Restrictions”) was that no disposition of the registered estate by Red River could take place without the written consent of Mrs Sheikh, such consent to be certified by Miss Sheikh. The Restrictions play a pivotal part in the present action, because (as I shall explain) it was Miss Sheikh's failure to provide the necessary Land Registry forms for removal of the Restrictions in August 2007, following the conclusion of a settlement agreement between the parties in June 2007, which precipitated the present proceedings. From Red River's point of view, it is imperative that the Restrictions should be removed from the title, and that this should be achieved by early May 2010 at the very latest, because their removal is a precondition of the unconditional exchange of contracts for a long-delayed sale of the Property by Red River to a housing association, Metropolitan Housing Trust Limited. The date for unconditional exchange has been extended to 19 May 2010 but (according to Mr Dogan's evidence, which I see no reason to doubt) cannot be extended any further.
I should note at this point that the loan by Miss Sheikh to Red River, and the arrangements which were made to protect her investment, all took place at a time when she was acting for Red River and Mr Dogan as their solicitor. Despite the obvious conflict of interest, she appears to have taken no steps at all to ensure, or even to advise, that they should be separately represented. However, although Red River and Mr Dogan have at various times expressed understandable concerns about this aspect of the matter, and although there must in my view be serious issues about the propriety of Miss Sheikh having acted as she did, such concerns form no part of the present action, and in particular there is no challenge on that ground to the validity of either of the Restrictions.
Unfortunately, the business relationship between Mr Dogan and Miss Sheikh soon broke down, and a number of disputes between them led to the commencement of at least six separate sets of proceedings, including a professional negligence claim by Red River against Miss Sheikh, proceedings by Mr Dogan to remove her as a director of Red River, a petition by Miss Sheikh under section 459 of the Companies Act 1985, and an unsuccessful application in April 2007 for cancellation of the Restrictions. It is unnecessary for me to trace the history of these disputes in any detail, because they were all resolved by a successful mediation between Red River, Mr Dogan and Miss Sheikh which took place on 29 June 2007. The terms of settlement were negotiated over the course of a long day at the offices of Mills & Reeve, solicitors, in London. Mr Dogan was present with one of his sons, his daughter, his accountant, and his solicitor, Mr Daniel Schaffer, who is the senior partner of Isadore Goldman. Miss Sheikh was accompanied by her financial adviser, Mr Nitin Sampat, and by Mr Guy Hodgson, a partner of Mills & Reeve who were acting for her professional indemnity insurers. The very experienced mediator was Mr Bill Marsh, who was for 11 years executive director of the Centre for Effective Dispute Resolution in London and was one of its leading mediators with extensive experience in a wide range of commercial and other disputes. At about 10 pm on that day, the parties entered into a written settlement agreement (“the Settlement Agreement”) which was signed by Mr Dogan on behalf of himself and Red River, described as “Party A” in the document, and by Miss Sheikh on behalf of herself and her mother, described as “Party B”. The terms of the Settlement Agreement are of crucial importance, so I will now describe them in some detail.
The Settlement Agreement
The Settlement Agreement recited that the parties had invested in the Property as development land, that five sets of proceedings had been issued as a result of the dispute between the parties, including those which I have mentioned above, that there was a further dispute in progress in the Willesden County Court in which Ashley & Co was seeking to recover fees from Mr Dogan and his son Ismet Dogan, and that the parties had agreed to settle the Dispute (defined as meaning the five claims and the additional claim) on the terms then set out.
Clause 1 provided that Party A (Red River and Mr Dogan) would pay to either Miss Sheikh or her mother, as might be directed, a total of £1.2 million payable as to £300,000 on or before 31 July 2007, i.e. within little more than one month, and as to the remaining £900,000 on or before 29 December 2009, that is to say within a period of...
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