Hakmi v Hakmi and others

Legal charge – Illegality – Sham – Disputes arising in connection with property owned by three brothers and development project work in Dubai involving two of them – Claimant brother seeking removal of first legal charge on property in which he acquired interest – Claimant seeking removal of second legal charge purporting to secure fifth defendant brother in respect of claim for profit share in Dubai project – Whether first charge constituting sham – Whether claimant entitled to removal of second charge – sums being due under terms of legal charge – Claim allowed in part – Counterclaim dismissed The claimant and the first and fifth defendants were brothers. The second, third and fourth defendants were companies incorporated in the Marshall Islands and controlled by the fifth defendant. The claimant commenced proceedings against the defendants when disputes arose between the brothers in connection with two contractual commercial relationships. The first relationship involved all three brothers. The first and fifth defendants purchased Park Hospital in Liverpool in which the claimant acquired a 45% interest in a transaction entered into between the three brothers. The intention was either to resell the property at a substantial profit or to develop it, neither of which happened. The claimant contended that his brothers had failed to tell him that the property was subject to a £400,000 charge in favour of their uncle which had been assigned to the third defendant. Accordingly, the claimant argued that the charge did not in equity affect his 45% share in the property; and that, in any event, the charge was a sham and did not secure any debt. Alternatively, the charge was ineffective to bind his share in the property and should be removed from the charges register. The second relationship was between the claimant and the fifth defendant. The fifth defendant went to Dubai to join the claimant who was working there on a property development project through a company. The fifth defendant began to work for the company and a dispute arose regarding his remuneration. The fifth defendant argued that, although he had been employed on a contract for a relatively low amount, it had been agreed with the claimant that he would be entitled to one third of the profits of the development and 3% commission on all sales. The claimant sought relief against the fifth defendant in respect of a villa and a car transferred to him and used while he was in Dubai, which the fifth defendant claimed to be part of his remuneration. The fifth defendant counterclaimed pursuant to an alleged oral agreement for payments on account of commission and profit share. The claimant also sought the removal of a second charge placed on the Liverpool property purportedly to secure the fifth defendant in respect of the claim for a profit share. Held: The claim was allowed in part. The counterclaim was dismissed. (1) A document was a sham if it was intended by the parties to give third parties or the court the appearance of creating legal rights and obligations which differed from those which the parties in fact intended to create. The court was slow to find that an agreement was a sham, and would not do so unless it was no more than a piece of paper which the parties had signed with no intention of it having any effect other than that of deceiving a third party and/or the court; the fact that a document was uncommercial, or even artificial, did not mean that it was a sham. The parties’ motive for executing a document, which was intended to give rise to the rights and obligations which it evidenced, was irrelevant; it was not undone merely because there was an ulterior purpose in doing it: As to the amount of an advance being shown as greater than had been in fact made, there was no legal principle that parties could not agree to assume a certain state of affairs at the time the contract was concluded, even if that was not the case. A party was estopped from denying the truth of the factual statements or assumptions made in a contract or deed. On the evidence in the present case, the claimant had been informed about the first charge on the Liverpool property before he acquired his 45% interest. The first charge was not a sham and the claimant had failed to established that no debt was due under that charge. Snook v London & West Riding Investments Ltd [1967] 2 Q.B. 786, Miles v Bull [1969] 1 QB 258, Close Asset Finance Ltd v Taylor [2006] EWCA Civ. 788; Solcom Trading Ltd v Tatik Inc [2012] EWHC 3464 (Ch), Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221 and Earp v Kurd [2013] PLSCS 220 applied. (2) As regards the Dubai project, the evidence indicated that it had been agreed that the fifth defendant would receive much greater remuneration than his nominal salary, including the sums that he was in fact paid and the villa and the car that had been transferred to him by the claimant. However, there had been no agreement whereby the fifth defendant had been entitled to a third of the profits of the development, or 3% commission on sales, or the specific sums on the account which he claimed. Accordingly, the fifth defendant’s claims would be dismissed and the claimant was entitled to an order removing the second charge on the Liverpool property. Michael Booth QC and Hugh Miall (instructed by Paget-Brown (UK) LLP) appeared for the claimant; John de Waal QC and Caoimhe McKearney (instructed by MSB Solicitors, of Liverpool) appeared for the defendants. Eileen O’Grady, barrister