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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Baylis & Anor v Haider & Ors [2024] EWHC 187 (Ch) (01 February 2024) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2024/187.html Cite as: [2024] EWHC 187 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (Ch D)
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
(1) John Baylis (2) Elena Kreuder |
Claimants |
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- and - |
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(1) Syed Ali Haider (2) PG Solicitors (t/a Edward Marshall Solicitors) (a firm) (3) Together Commercial Finance Limited |
Defendants |
____________________
Mr George Symes (instructed by Santers Solicitors) for the 1st Defendant
Mr John Beresford (instructed by DAC Beachcroft LLP) for the 3rd Defendant
Hearing dates: 4,5,6,7 & 8 December 2023
____________________
Crown Copyright ©
Introduction
The background bankruptcy and the attempts to refinance July to October 2019
The background - November to December 2019 - the sale to Mr Haider
"The judgment found that the defendants arranged high-interest, unaffordable bridging loans for consumers about to be evicted from their homes, taking huge fees. In some cases, the defendants bought homes for less than their value from owners who were facing repossession and then rented the properties back to these consumers. The defendants were not authorised to arrange mortgage contracts or sale and rent back agreements. The Judge described these breaches as 'exploitative of vulnerable individual consumers' and found that they were undertaken 'to obtain significant personal gain'. LPI will now be required to remove around 22 restrictions registered against individuals' properties. These restrictions were used by the defendants to force the individuals to pay exorbitant fees to LPI. If these were not paid, then the individual could not sell or re-mortgage their property. In some cases, this trapped individuals into high interest bridging loans."
This was precisely the method adopted in relation to the Claimants. By the time that this judgment was issued, LPI's Restriction on the Property had been removed (by Mr Haider) and accordingly this is not one of the 22 restrictions that LPI was required to discharge.
Events following completion on 19th December 2019
The Claimants' case
The legal issues (as between the Claimants and Mr Haider)
a. is void on the basis of non est factum. Mr Hope cites Emmett on Title at 3.008 and the leading case of Saunders v Anglia Building Society (aka Gallie v Lee) [1971] A.C.1004 HL. (see paras.18 to 19 of Mr Hope's Skeleton Argument ("the Skeleton").
b. is void or voidable on the grounds that the parties were at cross-purposes, or on the basis of the Claimants' unilateral mistake. Mr Hope cites Emmet on Title at 3-001 to 3-008 in support. (see paras. 20 to 23 of the Skeleton).
c. If void or voidable, should the Court exercise its power to alter or rectify the register pursuant to Sch.4 LRA 2002 and reinstate the Claimants as proprietors of the Property? (see paras. 32 to 35 of the Skeleton).
a. Whether the Claimants are entitled to restitution of the Property or its value? This is on the grounds that Mr Haider was unjustly enriched by acquiring the Property in circumstances where he only paid partial consideration (the £230,700) to the Claimants. As such, the Claimants say that they are entitled to a return of the Property by way of restitution, alternatively, damages representing its value. (see paras. 24 to 25 of the Skeleton).
b. If any relief is awarded to the Claimants in respect of issues 30 (a) or (b) above, have the Claimants have been unjustly enriched and should they repay Mr Haider the £230,700 paid to the Trustee and/or the £53,500 paid to LPI to discharge the LPI restriction? (see paras. 26 to 27 of the Skeleton).
a. the sale contracts (and TR1) are unenforceable under s26 FSMA 2000. This potentially renders void any contract for a sale and lease-back arrangement, where the purchaser is acting in the course of a business. Even if Mr Haider was acting in that capacity, whether it would be just and equitable for the court to enforce under s28 FSMA 2000 and if so on what terms. (see paras. 28 to 29 of the Skeleton).
b. Subject to the above, the Claimants are entitled to recover the monthly payments to Mr Haider, an indemnity in respect of prospective losses arising from Together's valid security (if determined as such) and/or the costs of the Possession Claim. (see paras. 30 to 31 of the Skeleton).
Issues as between the Claimants and Edward Marshall
a. The scope of duty owed to them by Edward Marshall (the duty to exercise reasonable care and skill being admitted).
b. Whether Edward Marshall breached its duty of care to the Claimants in the circumstances surrounding the execution of the TR1.
c. If so, the extent of any losses taking into account the findings in the claims between the Claimants and Mr Haider.
Issues as between the Claimants and Together
a. Whether the Charge falls to be deleted as a mistake, or whether it continues to bind the Property even if the Court finds that the Claimants are entitled to be registered as proprietors as against Mr Haider. This requires consideration of the Court's powers to alter or rectify the register pursuant to Sch.4 LRA 2002.
b. If the Charge continues to bind the Property, whether any rights enjoyed by the Claimants rank in priority to the Charge on the basis that they have at all material times been in actual occupation of the Property.
The principal factual dispute
The evidence and the approach to it
a. First, although disclosure has been inadequate in some respects, fortunately there is still available a substantial body of contemporaneous email correspondence that in my judgment provides a helpful cross-check on the oral evidence. There are gaps, however. It does not appear that either the TTS files or the Edward Marshall files are complete. Mr Haider's disclosure consisted of the TTS file and no more, which is surprising to say the least.
b. Second, Edward Marshall as a firm has been closed down by the Law Society, and its partners have been struck off. They have failed to participate in these proceedings, notwithstanding that they have been served. Although a Defence was pleaded at a time when the firm's insurers were involved, they ceased to be so involved and therefore the firm itself gave no disclosure and the partners gave no evidence. Although the Edward Marshall file was disclosed, it appears incomplete in that, for example, there is no client care letter and not one attendance note.
c. Third, Edward Marshall appears to have been controlled by a person who was not himself a qualified solicitor, namely Mr Yawar Ali Shah, a struck off barrister who had been convicted of mortgage fraud in 2013 and sentenced to prison. It is apparent from documents obtained from the Law Society that he controlled at least some of Edward Marshall's bank accounts and was present at the firm's offices on 12th November 2019 as per the evidence of Mr Baylis and Mr Eldred. It was Mr Shah who was instrumental in setting up the purported purchase of the Property, in the light of the meeting that took place on 12th November according to the evidence of the Claimants and Mr Eldred, which I accept in this respect. Mr Shah has not been called to give evidence by any party.
d. Fourth, the documentation shows that the sale transaction was conducted in a most unconventional manner, on both sides.
e. Fifth, in my judgment the events of June to December 2019 must be viewed in the context of the bankruptcy of Mr Baylis, and the Claimants' imminent loss of and eviction from the Property. It is evident that they were extremely anxious to find a way of avoiding this outcome desperation might be a more accurate description. For example, the documents presented by LPI which Mr Baylis signed in July 2019 were onerous in the extreme indeed extortionate as the FCA subsequently characterised them. The fact that Mr Baylis was prepared to sign the documents demonstrates the desperation of his position. He had no room for manoeuvre at this point. This was particularly the case by the end of November 2019, after the Trustee's letter sent on 27th November. It would have been clear to Mr Baylis and Mr Eldred that no further extensions of the eviction would be possible, and the Claimants would, in the absence of an injection of funds, lose their house on 3rd December.
f. Sixth, the Claimants have throughout the proceedings, and at the hearing itself, made sustained attacks on the bona fides of Mr Haider. However, a perusal of the pleadings shows that the allegations made against him are nebulous in the extreme. It is put at its highest in the context of the FSMA 2000 claim, when it is pleaded that: "The First Defendant took advantage of the Claimants and/or was otherwise involved (to one degree or another) in a suspicious and questionable association with the Second Defendant". Whilst it is unclear exactly what this is intended to mean, it is clear that the Claimants are not alleging fraud against Mr Haider. However, considerable time and energy was expended at the hearing and in disclosure on seeking to establish a connection between Mr Shah and Mr Haider as to which I shall make certain findings. However, as a matter of legal analysis, it is difficult to see how the Claimants' pleaded case against Mr Haider would be improved by establishing that connection.
g. Seventh, and on the other side of the coin, Mr Haider tried his utmost to distance himself from Mr Shah, denying that there was any meaningful connection between them. Even though the Claimants were able to demonstrate that they were associated as officers of a number of companies, he continued to deny the connection. Further connections emerged in cross-examination, for example that Mr Shah was the landlord of the premises occupied by Mr Haider's accountancy business. The evidence of Ms Armstrong was that Mr Haider was to all intents and purposes an Edward Marshall employee and acted as its bookkeeper. Mr Eldred and Ms Armstrong believed that Mr Haider was related to Mr Shah, and was possibly his son. Mr Haider did not in any way improve his defence to the claim by seeking to deny the connection. His reticence simply fuelled the flames of suspicion.
h. Finally, it must not be forgotten that the impugned transaction involves three parties, in that Together lent a substantial amount of money to Mr Haider, to fund the purchase of the Property, and he has signed a Legal Charge in their favour. Further, whilst the Claimants in particular have given evidence as to their subjective understanding of the critical documents, ultimately the case turns on the objective meaning and effect of the transaction documents, and not on any subjective interpretation.
"22. the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."
Although this is not a commercial case in the way that the term would be understood in the Commercial Court, nevertheless the guidance is in my view no less useful in regard to a case of this nature. Fortunately, at the critical moments of the impugned transaction, there is available to the Court a body of documentation and correspondence which provides an objective cross-check on the witnesses' attempts to recollect the events of some four years ago, and their state of mind at that time. Furthermore, the parties' subjective intentions and beliefs when entering into a formal transaction are of secondary importance the nature and effect of the transaction is to be derived primarily from the documents themselves.
The witnesses
a. Mr Baylis. Mr Baylis is a forceful and confident individual, but presented as the classic case of a witness who has convinced himself that a certain version of events was correct and refused to deviate from that version in any respect. He was sure of his ground, sometimes interrupted Counsel and many of his replies strayed into advocacy of his own case. Although he was taken through a long series of emails and documents which clearly referred to a proposed sale of the Property, he constantly repeated the mantra that no sale was ever contemplated, and all he had ever agreed to was an unsecured loan. When asked to comment on the critical emails on 19th December 2019, he responded that he could not recall having seen them or having spoken to Mr Eldred to authorise the transaction. He was complicit in the fiction that the Claimants were not residing in the Property to facilitate the buy to let mortgage from Gemini but tried to pass the responsibility off on to Mr Stevens of LPI (see para.17 of his main witness statement) because he trusted him. Overall, I find myself unable to rely on his evidence save where it is corroborated by the documentation or other more reliable witnesses. Undoubtedly, the Claimants have suffered the great misfortune of having engaged with LPI, whose modus operandi was 'exploitative of vulnerable individual consumers' and undertaken 'to obtain significant personal gain'. At the same time they engaged a firm of solicitors whose conduct was such that the firm's principals have been struck off the Roll and the firm closed down. It is perhaps inevitable that Mr Baylis feels that he has been the victim, even though the Claimants' situation is the result of their own decisions.
b. Ms Kreuder. To be fair to her, it is clear, and I think accepted on all sides, that she was only peripherally involved in the material events. She said that she left everything to Mr Baylis, and relied on what he told her. However, there were unsatisfactory aspects of her evidence. For example, she denied that certain signatures were hers when it suited her, when they were seemingly identical to others that she admitted. I do not think that her evidence is of any real assistance to the Court. Like Mr Baylis, she too was prepared to deceive the lender in the Gemini transaction.
c. Mr Haider. I also found Mr Haider to be an unsatisfactory witness. Quite apart from the inadequate disclosure to which I have already referred, he was not prepared to admit to the obvious and documented connection between himself and Mr Shah, and any admissions had to be dragged out of him in cross-examination. Although, as I pointed out during Counsels' closing submissions, having regard to the legal issues there was no real need to disguise the relationship, he was determined to obscure and conceal the fact that he did have a close connection to Mr Shah. Given that Mr Shah had been convicted of mortgage fraud in 2013, that is perhaps understandable. However, I have concluded that I cannot safely rely on his evidence save where it is clearly corroborated by an independent witness or contemporaneous documentation.
d. Mr Eldred. Mr Eldred was an engaging and personable witness, but one who manifestly found himself in an extremely difficult and delicate position. I think he was trying his best to assist the Claimants, for example by putting the most favourable gloss on the documents which are generally quite clear in their meaning. Some of his answers did not ring true for example, he must have known that the references to the buyer incurring stamp duty referred to SDLT on a purchase, not on a mortgage. Overall, however, I found that his evidence could be relied on, save where he was obviously trying to place an untenable gloss on documents which spoke for themselves. I have also relied on the contents of the letter he wrote to the Claimant's solicitors on 24th February 2022. This appears to give an unvarnished account of the relevant events, without the tendency to fight Mr Baylis's corner which was evident during the course of his oral evidence.
e. Ms Armstrong. Her evidence did not take the matter very much farther. She was adamant that Mr Haider has a close connection to Mr Shah she believed that he was a relative, possibly even Mr Shah's son and spent a great deal of time working at or for Edward Marshall. I consider that her evidence was honest and straightforward, and despite now working for the Claimants' solicitors, she has no reason to lie.
Findings of fact
Events following completion on 19th December 2019
a. I find that Mr Haider never met the Claimants prior to completion. I reject his evidence that he visited the Property and met them there. There were no direct communications between them. The only communications between them were channelled through their respective solicitors TTS for Mr Haider and Edward Marshall for the Claimants. Communications between Edward Marshall and the Claimants were almost invariably channelled through their agent, Mr Eldred.
b. In the absence of any separate side agreement between vendor and purchaser, necessarily any agreement between them must derive from the formal documents. The formal documents consist of the contract and the TR1. The form of contract that can be found in the TTS file purportedly exchanged on 29th November but in reality exchanged on 29th December 2019 provides that the Property is sold with the benefit of an Assured Shorthold Tenancy, a copy of which was sent to TTS solicitors in late November. The enquiries raised by TTS in their letter of 17th December assume that the vendors will vacate see enquiries 8 and 13. The documentation sent by TTS to Together indicates that Claimants are out of possession. Accordingly, there is nothing in the formal documents to suggest that the Claimants have a right to occupy the Property after completion.
c. Although the parties intended that there should be a sale of the Property to Mr Haider, they all seem to have made the assumption that the transaction would be reversed within a matter of months, once the monies (derived from Mr Haider's mortgage) were paid to the Trustee and Mr Baylis's bankruptcy was annulled. Once this happened, Mr Baylis could raise sufficient funds through equity release to repay Mr Haider who would transfer the Property back to the Claimants. It may be noted that Mr Haider, in his email dated 12th December 2020, refers to a 3-month agreement period within which the Claimants would buy the Property back.
d. This may well have been an unrealistic assumption on the part of the Claimants. They had to repay Mr Haider the £230,000 paid to the Trustee, but also his costs and stamp duty of around £10,000. In addition they would have to discharge the monies owing to LPI, in order to remove the Restriction. Eventually, the sum of £53,500 was paid by Edward Marshall in order to obtain registration. LPI claimed to be entitled to such a large amount by reference to the extortionate terms of the agreement signed by Mr Baylis in July 2019 before Edward Marshall were instructed. Accordingly, the Claimants would have needed to raise approaching £300,000 to effect the buy back from Mr Haider. Nevertheless, they were confident that they could do it, as was Mr Eldred. Although the Claimants had signed the agreement with LPI, they do not seem to have been aware that the Restriction secured such a large amount, nor did Edward Marshall advise them of this fact.
e. However, because the Claimants, and Mr Haider, assumed that the buy back would take place within a few months, they do not seem to have given any thought to the legal basis for their continued occupation of the Property after completion. There was certainly no mention of a tenancy, and the monthly payments that they agreed to pay were specifically related to Mr Haider's mortgage instalments.
f. TTS do not seem to have been involved in the discussion of the buy back agreement. Given the terms of the draft contract dated 29th November, TTS solicitors would have been under the impression that the vendors the Claimants were vacating the Property. Accordingly, there were no contractual terms agreed regularising the Claimants' continued possession post-completion.
g. In both sets of County Court possession proceedings, and in his Defence to the Claim, Mr Haider contends that the Claimants are in possession in some capacity as tenants. He has also pleaded, and given evidence, that he spoke to the Claimants prior to completion and agreed that they could remain in possession after completion. This is denied by the Claimants. I reject Mr Haider's evidence in this regard. I find that they never met, and therefore there was no discussion between them as to the Claimants' remaining in possession after completion.
h. As a matter of legal analysis, therefore, in my judgment the Claimants had no formalised right to remain in possession after completion. The Claimants' assumption was that they would retain possession pending buy back, making the mortgage repayments. It may be inferred (see his email of December 2020) that this was also Mr Haider's assumption. At best, they remained in possession as tenants at will pending the reversal of the transaction. If they were unable or unwilling to buy the Property back, they could not expect to be able to remain in occupation. However, the possibility never seems to have occurred to them, nor did their solicitors Edward Marshall advise them to this effect.
The findings as they relate to the pleaded issues
Alteration/rectification of the register under Sch.4 LRA 2002
"(1) The court may make an order for alteration of the register for the purpose of (a) correcting a mistake
(b) bringing the register up to date
(c) giving effect to any estate, right or interest excepted from the effect of registration
(2) An order under this paragraph has effect when served on the registrar to impose a duty to give effect to it."
The meaning of exceptional circumstances
66 Thus, in a case within para.6(3),[10] the court must ask itself two questions: (1) are there exceptional circumstances in this case? and (2) do those exceptional circumstances justify not making the alteration? The first of these questions requires one to know what is meant by 'exceptional circumstances' and then to establish whether such circumstances exist as a matter of fact. Thus the process involved in the application of para.6(3) of schedule 4 to the 2002 Act is not identical to the exercise of the discretion involved in section 82(1) of the 1925 Act.
67. 'Exceptional' is an ordinary, familiar English adjective. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual or special, or uncommon; to be exceptional a circumstance need not be unique or unprecedented, or very rare but it cannot be one that is regularly, or routinely, or normally encountered Further, the search is not for exceptional circumstances in the abstract but those which have a bearing on the ultimate question whether such circumstances justify not rectifying the register."
Exceptional circumstances Mr Haider
a. This is not a case of an innocent proprietor whose title has been lost as a result of fraud, forgery or some other wrongdoing. In this case, the Claimants fully intended to execute a TR1 in the form that was eventually presented for registration. The jurisdiction to rectify only arises because (on this hypothesis) Edward Marshall committed a technical error in finalising the TR1 on completion. The insertion of the price of £460,000 was not part of a fraudulent design. It simply regularised the document to accord with the draft that Mr Baylis had approved.
b. By the same token, the Claimants have benefited from the transaction, in that the sums raised by Mr Haider and paid to Edward Marshall have been used to discharge Mr Baylis' bankruptcy debts and obtain an annulment of his bankruptcy. As the undertaking to the Trustee's solicitors makes clear, if not for the payment of £230,700 to the Trustee, she would not have agreed to release the Bankruptcy Restriction and co-operate in the annulment application.
c. Apart from being exposed to the liability to repay Together for the sums borrowed to fund the purchase, Mr Haider has also procured the removal of the LPI restriction against the Property, which was necessary in order to obtain registration. The liability to LPI, of £53,500, arose because Mr Baylis had signed the "Emergency Funding and Property Fee Sale Agreement", which contained extremely onerous terms. It appears that this amount was paid by Edward Marshall (under threat of litigation from TTS) to LPI's solicitors to procure the removal of the Restriction. It must be inferred that the funds used to pay LPI ultimately derived from Mr Haider, in the form of the purchase price paid by TTS to Edward Marshall, since no other monies would have been available.
d. Altogether, therefore, the Claimants have benefited substantially from the sale to Mr Haider.
Exceptional circumstances - Together
Overriding interest
Restitution
The claim under section 26 FSMA 2000.
" there is some force in the point that it is unlikely that Parliament could have intended that a person who wrongly, but reasonably, believes that he is not contravening a statute should be better off than a person who was, reasonably, unaware that the statute applied."
As was the case in Helder (at 44) it was reasonable for the parties not to appreciate FSMA 2000 was in point, not least because in this case the Claimants' entitlement (if such it was) to remain in occupation was never spelled out in the documentation or expressly agreed, and can only have arisen through some sort of implication.
a. Primarily, that the Claimants have benefited from the arrangement, in that they have received an injection of funds from Mr Haider which they would otherwise not have been able to access. They have used these monies (in part) to discharge Mr Baylis's liabilities and obtain the annulment, and also cleared the LPI Restriction from the title to the Property.
b. By the same token, Mr Haider has borrowed substantial sums from Together and remains liable to repay the capital and interest.
c. The Claimants have had the use of the Property, which the First Defendant's purchase enabled, for which (after November 2019) no payments in rent or interest were made. Without Mr Haider, they would have been evicted from the Property on 3rd December 2019.
d. The First Defendant has lost the opportunity to invest the purchase monies elsewhere.
e. The purchase price of the Property was at least the full market value, without any discount to reflect the Claimants' continued occupation thereof.
f. The Claimants have not identified, and cannot identify, respects in which they would have been better placed if Mr Haider had been an "authorised person" for FSMA purposes. Essentially, they would have received a windfall by taking advantage of the FSMA 2000 point.
The Possession Claim
Claims against Edward Marshall
The claims against Together.
Mr Haider's claims against Edward Marshall.
Judgment
Note 1 And current employee of Boys & Maugham, the solicitors who are acting for the Claimants in this Claim [Back] Note 2 For the record, I am extremely unhappy on behalf of my client that Mr Baylis as an undischarged bankrupt would take a step such as he had to frustrate the realisation of this asset by his trustee in bankruptcy for the benefit of his creditors, and fully reserve my clients position on that. email from Mr Symes sent at 11.09 on 4th [486] [Back] Note 3 Mr Baylis denies that he signed this document. [Back] Note 4 It is likely that this was Ahdel Hussein, referred to above. [Back] Note 5 See para.16.2.4 of the Reply and Defence to Counterclaim [Back] Note 6 See paragraph 21 above [Back] Note 7 See paragraph 24 above [Back] Note 8 This refers to the email from TTS, forwarded to Mr Baylis on 19th December, which sets out the buy back terms. [Back] Note 9 This passage was approved by the Court of Appeal in Dhillon v Barclays Bank Plc [2020] 2 P. & C.R. 19 [Back] Note 11 See para.50 of Mr Hopes Skeleton Argument [Back] Note 12 Para. 88. Cann [1991] 1 AC 56, 94, Bristol and West Building Society v Henning [1985] 1 WLR 778 and Paddington Building Society v Mendelsohn (1985) 50 P & CR 244 were cited in support of this proposition. [Back]