BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Chancery Division) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Abdullah Nasser Bin Obaid & Ors v Al-Hezaimi & Ors [2018] EWHC 243 (Ch) (16 February 2018)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2018/243.html
Cite as: [2018] EWHC 243 (Ch)

[New search] [View without highlighting] [Printable RTF version] [Help]


Neutral Citation Number: [2018] EWHC 243 (Ch)
Case No: HC-2017-001893

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (CHD)

Rolls Building
16/02/2018

B e f o r e :

MISS AMANDA TIPPLES QC
(Sitting as a Judge of the Chancery Division)

____________________

Between:
(1) ABDULLAH NASSER BIN OBAID
(2) OH-NA REAL ESTATE COMPANY LIMITED
(a company incorporated in the BVI)
(3) TAQA INVESTMENT COMPANY
(a company incorporated in Saudi Arabia)






Claimants
- and –


(1) KHALID ABDULLAH AL-HEZAIMI
(2) OFY LIMITED
(a company incorporated in the BVI)
(3) LATIFAH ASSETS LIMITED
(a company incorporated in the BVI)






Defendants

____________________

Mr R Salter QC and Mr W Edwards (instructed by Baker & McKenzie LLP) for the Claimants
Mr R Anderson QC and Mr A Scott (instructed by Jones Day LLP) for the Defendants
Hearing dates: 11th and 12th December 2017

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    MISS AMANDA TIPPLES QC:

    Introduction

  1. On 28 June 2017 Barling J granted, on the application of the claimants, and without notice, a proprietary injunction and a worldwide freezing order against the defendants ("the June Order"). The injunctions contained in the June Order were discharged pursuant to the terms of a consent order made by Master Clark on 23 October 2017, and sealed by the Court on 24 October 2017 ("the Consent Order").
  2. By application notices dated 1 December 2017:
  3. (1) the claimants seek, amongst other things, a declaration as to the meaning and effect of the Consent Order, alternatively an injunction ("the Claimants' Application"). That application is supported by the second affidavit of Hugh Jonathan Lyons, a partner at Baker & McKenzie LLP ("Baker & McKenzie").

    (2) the defendants seek three declarations in relation to the meaning and effect of the Consent Order ("the Defendants' Application"). This application is supported by the second witness statement of Rhys Elis Thomas, a partner in the firm of Jones Day LLP.

  4. Before turning to the terms of the Consent Order, and the declarations and orders sought, it is first of all necessary to explain the context in which these applications have arisen.
  5. The claim against the defendants

  6. The context of the claimants' claim against the defendants, and the circumstances which gave rise to the applications before Barling J, are that the first defendant, Mr Al-Hezaimi, and the two companies he controls have, it is alleged, defrauded the claimants to the tune of £35 million.
  7. The first claimant, Mr Abdullah Nasser Bin Obaid ("Mr Bin Obaid Sr"), is a successful Saudi Arabian businessman. He and his two sons are now the sole shareholders of the second claimant ("Oh-Na"). He is the chairman (and ultimate beneficial owner) of the third claimant ("TAQA"). The claimants' case is that in 2012 or 2013 Mr Bin Obaid Sr and Mr Al-Hezaimi agreed that the latter would invest in UK real property on behalf of the former, with the purchases being affected by an offshore corporate vehicle. Oh-Na, a BVI company, was incorporated as that vehicle, and Mr Al-Hezaimi was appointed as a director of Oh-Na. The claimants' case is that very large sums of money were paid over in order to make purchases of property and that money has been misapplied, and they are entitled to relief consequent upon that misapplication.
  8. The defence, in short, is as follows. There were discussions in relation to the joint purchase of UK real property and "preliminary steps" were taken. However, the moneys that were paid over by the claimants were nothing to do with that agreement. Instead, the defendants say that the "vast majority" of the payments were connected with an Egyptian medical equipment business ("UIMP") and, in particular, Mr Bin Obaid Sr's acquisition of Mr Al-Hezaimi's 30 per cent shareholding at a price of €30 million. In consequence, it is said that all the relevant moneys became beneficially the property of Mr Al-Hezaimi. The claimants' position is that that defence is entirely untrue, and that many of the documents said to support it are forgeries. In particular, the claimants say that there was never an agreement for the purchase of a shareholding for €30 million.
  9. The claim itself is focused on the acquisition of property in three developments in the UK, which are defined and referred to as:
  10. (1) the City Tower Development, which is a block in Reading;

    (2) the Smithfield Square Development, which is a block of four apartments in Manchester; and

    (3) the much more substantial Assembly Development, which is 125 apartments and 33 parking spaces in a development in Manchester.

    In this judgment I shall refer to these properties collectively as "the Developments".

  11. The defendants describe the Developments as a "portfolio of multiple flats and other real estate in England. Prior to the [June] Order, the Defendants treated these as investment properties to be let or sold as appropriate. The Claimants obtained the [June] Order on the basis that the investment was made and is held for their benefit. The Defendants dispute that" (paragraph 8 of Mr Thomas' witness statement dated 1 December 2017).
  12. The June Order

  13. The June Order is, as I have mentioned, described as a "Proprietary Injunction and Worldwide Freezing Injunction". The Developments referred to above are:
  14. (1) defined in paragraph 5 of the June Order as the "Reading Properties", the "Smithfield Square Properties" and the "Assembly Development Properties"; and

    (2) are set out in detail, together with all the various title numbers, at Schedule D to the June Order.

  15. The proprietary injunction is set out at paragraphs 6 to 11 of the June Order.
  16. Paragraph 6 provides that:
  17. "Until after the Return Date or further Order of the Court, the Respondent must not sell or otherwise dispose of, deal with, diminish the value of, mortgage, charge, or otherwise encumber, let or sub-let (save on an Assured Shorthold Tenancy at a full market rent and having first given the Applicant's Solicitors 48 hours' notice in writing of the intention to let or sub-let) any of the Identified Properties or any interest therein."
  18. The "Identified Properties" are defined as meaning "(i) the Assembly Development Properties and (ii) the Remaining Reading Properties", which are defined in paragraph 5 and Schedule D of the June Order.
  19. The proprietary injunctions in relation to the "Remaining Smithfield Square Property", the "Smithfield Square Proceeds Properties or any interest therein", the "Reading Proceeds Properties or any interest therein", the "Further Proceeds Properties or any interest therein", and the "Further Assets" are set out in the same, or similar terms, at paragraphs 7 to 11 of the June Order.
  20. The worldwide freezing injunction is then set out at paragraph 12 of the June Order and provides that:
  21. "Until the Return Date or further Order of the Court, the Respondent must not (1) remove from England or Wales any of his assets which are in England and Wales up to the total value of £35,000,000; or (2) in any way dispose of, deal with or diminish the value of any of his assets whether they are in or outside England or Wales up to the same value."
  22. Then at paragraph 19 of the June Order there is provision that:
  23. "Paragraphs 6 to 11 and 12 above will cease to have effect if the Respondent: (1) provides security by paying the sum of £35,000,000 into Court, to be held to the order of the Court; or (2) makes provision for security in that sum by another method agreed with the Applicants' Solicitors."
  24. Paragraph 21 contains the usual provision about variation or discharge of the June Order.
  25. Agreed protocol in relation to the remittance of rents

  26. The claimants' solicitors are Baker & McKenzie. The defendants' solicitors are Jones Day. By a letter dated 20 July 2017 Jones Day wrote to Baker & McKenzie in the following terms (having referred to email correspondence of 15 and 16 July 2017):
  27. "1. As we indicated, we consider that it is critical for the parties to reach an agreement to ensure that the ongoing essential costs relating to the Identified Properties continue to be met. This includes payments of interest and existing capital payments under OFY Limited's secured facility with Lloyds Bank; ongoing service charges on properties; and other property related costs. Failure to remedy existing defaults and to meet the obligations on a continued basis will have severely detrimental consequences both for our clients, and for the value of the assets which are subject to the Barling J Order. These consequences may include penalties and default interest, but could ultimately lead to foreclosure under the bank's security.
    2. In order to avoid these consequences to our clients, and pursuant to our call yesterday (Thomas/Garfield), we intend to propose an approach that enables these payments to be made from the rental payments, in a manner which provides your clients with transparency and assurance in relation to the surplus, pending agreement (or court directions) in relation to paragraph 19(2) of the Barling J Order.
    3. To set that proposal in context, we summarise below the principal payments and costs arising from the relevant properties."
  28. Jones Day's letter then went on to explain the following in relation to the Assembly Development Properties:
  29. (1) The Assembly Development units are managed by Ascend, previously managed by JLL, although the management is in the process of being transferred. The rented flats yield a gross rent of £112,000 per month (although this will vary if new leases are entered into and existing leases are renewed).

    (2) The rents remitted are net of expenses, which are deducted by the management agents prior to remittal. Expenses include electricity bills, council taxes on vacant properties, new tenants' fees and maintenance charges relating to the entire block.

    (3) As at July 2017, Ascend managed and held information for 78 flats for total gross rent of £79,045 and, of those 78 flats, 14 flats were vacant and on the market. From the gross rental amount, Ascend currently charge a 6% management fee including VAT on the rents prior to remittance.

    (4) In terms of monthly rental remittance, the sums paid can fluctuate considerably from month to month subject to rent collection.

    (5) The rents will be paid into a Lloyds Bank account disclosed by Mr Al-Hezaimi in his asset disclosure statement.

    (6) There is an annual service charge on the properties and associated car parks, amounting to £101,171. This is payable in two instalments, with the payment for the second half of 2017 (July-December) due for payment on 1 July 2017 (and therefore overdue as at the date of Jones Day's letter).

    (7) There are other property-related expenses which arise on an ad hoc basis, and which are outside the expenses deducted from the remitted rents by the management agency (now Ascend). For example, over the last 3 months these have included: (i) repair work to a door in the commercial block: £2,400 plus VAT; (ii) ad hoc council tax on vacant premises – circa £423; (iii) Energy Performance Certificate for the commercial block - £200; (iv) Petty cash expenses of £1,000 for Jenifer Souza over a three month period, in relation to the management of the properties.

  30. In relation to the Reading Properties, Jones Day explained the following:
  31. (1) The Reading flats are let for rents totalling £13,553.90. They are managed by Hamlet Homes, who take 6% management fees incl. VAT (except for 6 flats manged by Jenifer Souza). The rents are paid on a monthly basis into a Santander account disclosed by Mr Al-Hezaimi in his asset disclosure statement.

    (2) The service charge payable on the Reading flats over the next six month period is totalling £12,341.42. This was due for payment on 1 July 2017 and therefore, as at the date of Jones Day's letter, was overdue. A ground rent of £350 is payable on 1 April of each year.

    (3) There will also be occasional maintenance costs in connection with repairs and upkeep of the properties.

  32. It is therefore clear that the gross rents from the Assembly Development Properties and the Reading Properties are substantial. They are, in gross terms, over £100,000 per month, or £1.2 million per annum (see, for example, paragraph 16 of Hugh Lyons' second affidavit). Further, there is no dispute that this rental income is all derived from the assured shorthold tenancies pursuant to which the various flats within the Assembly Development Properties and Reading Properties have been let by the defendants.
  33. On 21 July 2017 Baker & McKenzie responded on behalf of the claimants to Jones Day as follows:
  34. "Rental Income
    4. Subject to agreement on the specific terms, our clients are generally content for the ongoing costs relating to the Identified Properties to be met from the rental income on those properties and we look forward to receiving your clients' specific proposals for consideration in that regard.
    5. However (and for the avoidance of any doubt) before they agree to any proposal on this issue, our clients will need to ensure they have complete visibility of what sums are being paid to whom, from where and into which accounts rental income is being paid. Such transparency will need to be provided for in your proposal on this issue before it can be agreed by our clients."
  35. On the same day, in Jones Day's third letter of 21 July 2017, the following protocol was proposed in relation to the remittance of rents:
  36. "B. Procedure for Remittance of Rents
    10. We refer to our letter dated 20 July 2017, in which we set out in detail the rental proceeds usually remitted to our clients in relation to the Identified Properties (the "Rental Proceeds"), and of the costs and expenses which arise in connection with them.
    11. We propose that the parties agree the following protocol to allow for the obligations pertaining to the Identified Properties to be met:

    11.1 Your clients will consent to the remittance of the Rental Proceeds to our clients' accounts, to be held subject to the terms of the Barling J Order, as follows:

    11.1.1 in relation to the Rental Proceeds from the Assembly Development Properties, to our clients' account held at Lloyds Bank with account number …; and

    11.1.2 in relation to the Rental Proceeds from the Reading Properties, to our clients' account held at Santander with account number …

    11.2 You will contact the respecting managing agents (the "Agents") to confirm your clients' consent to these payments. The Agents are:

    11.2.1 in the case of the Assembly Development, Ascend;

    11.2.2 in the case of City Tower units 1202, 1203, 1205 and 1208, Hamlet Homes;

    11.2.3 in the case of Vimto Gardens and Smithfield Square, JLL;

    11.2.4 in the case of City Tower units 1201, 1207, 1501, 1504, 1505 and 1508, Ms Jenifer Souza of OFY Limited.

    11.3 Your clients will agree and confirm that the Agents be permitted to:

    11.3.1 deduct from any Rental Proceeds their contractual fees, and any expenses which are required to be paid for the maintenance and upkeep of the Identified Properties; and

    11.3.2 remit the Rental Proceeds in the manner in which they did so prior to the service of the Freezing Order.

    12. The Rental Proceeds, once remitted, may be applied:

    12.1 in payment of interest payable to Lloyds Bank in relation to the Mortgage;

    12.2 payment of service overdue charges in relation to the Assembly Development Properties and the Reading Properties, being respectively the sums of £101,171 and £12,341.42;

    12.3 other sums which are required to be expended directly in connection with the Identified Properties in the ordinary course of business, including council tax payments, and costs in relation to the maintenance and upkeep of the Properties. No single payment in excess of £5,000 will be made without prior consent, and a schedule of payments will be provided to you on a monthly basis."

  37. This protocol, set out in Jones Day's third letter of 21 July 2017, was in due course agreed by Baker & McKenzie, on behalf of the claimants, in an email dated 6 August 2017 which said this:
  38. "We confirm that our clients agree that the rental income from The Assembly and the Reading Properties may be remitted to the Lloyds and Santander accounts, subject to: (a) those sums being used only for the purposes set out in paragraphs 12.1 to 12.3 of your third letter of 21 July 2017, and (b) our clients being provided with monthly statements for both accounts, as previously agreed in correspondence."
  39. By a further email dated 7 August 2017 Baker & McKenzie then said this:
  40. "For the avoidance of doubt, our clients [the claimants] consent to the entirety of your [the defendants'] proposal regarding the remittance of rental payments, as set out in your third letter of 21 July 2017. Our clients also consent to the rental income being used to repay both the interest and capital of the Lloyds mortgage …".

    Discharge of the proprietary injunction and worldwide freezing injunction

  41. In October 2017 the parties agreed to the discharge of the injunctions contained in the June Order on certain terms. This agreement is recorded in the Consent Order.
  42. The Consent Order contains the following recitals:
  43. "UPON the Order of Mr Justice Barling dated 28 June 2017 (the "June Order")
    AND UPON the Claimant's application made by notice dated 30 June 2017 for continuation of the June Order (the "Continuation Application")
    AND UPON the Defendants' application made by notice dated 22 September 2017 to set aside the June Order (the "Set Aside Application") …
    AND UPON the Defendants giving the undertakings to the Court set out in Schedule 2 to this Order
    AND UPON the Claimants and Defendants undertaking to the Court to comply with Schedules 3 and 4 of this Order
    AND UPON the Claimants undertaking to the Court that if the Court later finds that this Order has caused loss to a Defendant, and decides that the Defendant should be compensated for that loss, the Claimants will comply with any Order the Court may make".
  44. The Consent Order continues:
  45. "BY CONSENT IT IS ORDERED THAT:-
    Continuation and Set Aside Applications
    1. With effect from 12:00 on 18 October 2017, paragraphs 6-14 and 21 of the June Order shall cease to have effect (without, for the avoidance of doubt, affecting the position down to that time).
    2. There is no order on the Continuation Application except that provided by paragraph 4 below.
    3. The Set Aside Application is adjourned to be heard by the Judge [on] a date to be fixed in the period 20 November to 8 December 2017, with a provisional time estimate of 1 day and the following directions …"
    4. All costs reserved by the June Order remain reserved. The costs of the Continuation and Set Aside Applications are reserved."
  46. The undertakings contained in Schedule II, which the defendants gave to the court, are as follows:
  47. "SCHEDULE II: UNDERTAKINGS
    The Defendants undertake to the Court as follows:
    Definitions
    1. For the purposes of these undertakings, the following definitions shall apply:
    (1) "Security" shall mean the Defendants' right, title, and interest in the assets set out in Schedule III(A) to this Order.
    (2) "Secured Properties" shall mean the Defendants' right, title, and interest in the assets set out in Schedule III(B).
    (3) The "Sales Protocol" shall mean the protocol regarding sales of the Secured Properties, as set out in Schedule IV to this Order.
    Undertaking not to dispose of or diminish the value of the Security
    2. Until further order of the Court, and subject to paragraphs 3 and 4 below, the Defendants undertake not to: (i) dispose of or diminish the value of the Security; or (ii) sell, mortgage, charge, or otherwise encumber, let or sub-let the Secured Properties.
    3. Nothing in paragraph 2 above shall prevent the Defendants from dealing with the Secured Properties in accordance with the Sales Protocol.
    4. Nothing in paragraph 2 above shall prevent the Defendants from dealing with the Security in accordance with the Claimants' prior written consent.
  48. Schedule III to the Consent Order provides as follows:
  49. "SCHEDULE III – THE SECURITY
    A. THE SECURITY
    1. For the purposes of the Schedule II to this Order, the Security shall comprise the following or such other assets as are agreed in writing between the parties from time to time:
    (1) The leasehold titles to the "Assembly Development Properties", as set out in paragraph 3 of Schedule D to the Barling J Order, except for [12 specified title numbers in respect of 9 flats and 3 parking spaces].
    (2) The freehold title to the "Assembly Development Properties", being title number MAN211335, of which Latifah Assets Limited in the registered proprietor.
    (3) The leasehold title to the "City Development Properties", being [11 specified title numbers].
    (4) The leasehold title to the "Brighton Properties", being title numbers ESX378217 and ESX378208, of which … the registered proprietor is OFY Limited.
    (5) The [leasehold] title to the "Smithfield/Vimto Garden Properties", being title numbers MAN241912 (Flat 213 Smithfield Square), MAN252387 (Flat 207 Vimto Gardens) of which OFY Limited is the registered proprietor.
    (6) A cash deposit of £300,000 lodged pursuant to a deposit agreement between OFY Limited and Lloyds Bank.
    (7) Proceeds of sale totalling £1,631,763.33 held in the "RLS Client Account", being account number … at National Westminster Bank.
    (8) Any Sale Proceeds (as defined in Schedule IV below).
    (9) Funds held in any "Agreed Account" (as defined in Schedule IV below).
    B. THE SECURED PROPERTIES
    2. For the purposes of Schedule II to this Order, the Secured Properties shall comprise those assets referred to at paragraphs 1(1) to 1(5) of Schedule III(A) to this Order or such other assets as are agreed in writing between the parties from time to time.
  50. Schedule IV contains the sales protocol and is in these terms:
  51. "SCHEDULE IV – THE SALES PROTOCOL
    1. The Defendants shall be permitted to market the Secured Properties and/or otherwise elicit offers to purchase them ("Offers").
    2. Where an Offer is received, the Defendants shall provide to the Claimants' solicitors: …
    3. Within three working days of being provided with the information required under paragraph 2 of this Schedule C, the Claimants shall consent to the sale that is the subject-matter of the Offer or else state reasons for their refusal so to consent.
    4. Where the Claimants provide such consent, they shall promptly …
    5. Upon receipt of the Sale Proceeds, the Defendants shall be permitted to authorise RLS Law to apply the sums in the following order:
    (1) Deduction of the fees of the marketing agents, the fees of RLS Law, and any other reasonable costs and expenses directly arising from the sale;
    (2) In relation to the Assembly Development Properties, payment to Lloyds Bank in repayment of the mortgage and associated interests and other costs detailed in the schedule to Jones Day's letter dated 7 July 2017 (the "Mortgage") until the Mortgage has been fully redeemed.
    (3) Otherwise, to remit the balance of Sales Proceeds to the RLS Client Account, or any Agreed Account.
  52. The Consent Order therefore includes the Sales Protocol referred to above, however there is no protocol in relation to the remittance of rents. The defendants maintain that the protocol in relation to the remittance of rents was "part and parcel of the injunctions and took effect as agreed exceptions to them" and that "the Rental Proceeds Protocol was part of the injunctions, and fell away with them when the Consent Order was agreed … there was no need for the parties expressly to agree to its falling away – that was a necessary consequence of the Consent Order" (paragraph 62 of the defendants' skeleton argument).
  53. It is the meaning and effect of this Consent Order, in particular Schedules II and III, which is the subject matter of the Defendants' Application.
  54. The Defendants' Application

  55. The defendants seek an Order making the following declarations, namely:
  56. (1) The terms "Security" and "Secured Properties" in paragraph 1 of Schedule II to the Consent Order do not encompass, and the undertaking in paragraph 2 of Schedule II to the Consent Order does not apply, to rent in respect of those "Secured Properties".

    (2) It is an implied term of paragraph 4 of Schedule II to the Consent Order that if the Defendants seek the Claimants' consent to a proposed dealing with the "Security" the Claimants: (i) shall consider the proposal in good faith, disregarding facts and matters extraneous to the value of the "Security"; and (ii) shall not arbitrarily, capriciously, or irrationally withhold their consent to it.

    (3) It would be in breach of paragraph 4 of Schedule II to the Consent Order for the Claimants to subject their consent to such a proposal to the condition that the Defendants agree to treat rent in respect of the "Secured Properties" as if it were "Security" and subject to paragraph 1 of Schedule II of the Consent Order.

    The Claimants' Application

  57. The claimants' response to the Defendants' Application is to seek "(a) declaratory relief, and (b) in the alternative, a proprietary injunction as against the named Defendants on the terms set out in the enclosed draft Order".
  58. The draft order the claimants seek is an order in these terms:
  59. "IT IS ORDERED THAT:-

    1. In this Order, the use of terms defined in the Consent Order dated 23 October 2017 (and the Schedules thereto) is continued. In addition: (1) the Consent Order dated 23 October 2017 is referred to as the "October Order"; (2) the rental income derived from the Secured Properties is referred to as the "Rental Income"; and (3) the protocol agreed between the solicitors for the Claimants and the solicitors for the Defendants on 7 August 2017 (a copy of which is annexed to this Order) is referred to as the "Rental Protocol".

    [First alternative form: declaration]

    AND IT IS DECLARED THAT:-

    2. The undertaking given by the Defendants by paragraph 2 of Schedule II to the October Order extends to the Rental Income. Accordingly, with effect from 12 noon on 18 October 2017, the Defendants have only been entitled to deal with the Rental Income (i) in accordance with the Rental Protocol or (ii) with the Claimants' prior written consent.

    AND IT IS FURTHER ORDERED THAT:-

    3. The Defendants shall by 6pm on Friday 22 December 2017 provide to the Claimants' solicitors a written statement of the manner in which any and all Rental Income has been applied after 12 noon on 18 October 2017. The Claimants do have liberty to apply for any further relief that may be required following receipt of such statement…

    [Second alternative form: injunction]

    4. Until trial or further Order, the Defendants shall not deal with dispose of or diminish the value of the Rental Income except (i) in accordance with the Rental Protocol or (ii) with the Claimants' prior written consent…"

    The factual background to the Consent Order

  60. During the course of the hearing, I asked the parties to identify the relevant factual background against which the Consent Order should be interpreted.
  61. The parties are agreed that the factual background is as follows (without prejudice to their written and oral submissions as to the proper construction of the Consent Order in the light of such factual background).
  62. "The Claim; the [June] Order

    (1) The claimants advance (among other things) proprietary claims in respect of certain real properties in England. The claimants maintain that if they succeed at trial, they will be entitled to an account of the rental income received by defendants from these properties on the basis that they are beneficially entitled to them.

    (2) The claimants obtained an interim proprietary injunction and worldwide freezing injunction by the [June] Order. These injunctions are set out at paragraphs 6 to 11 and 12 of the [June] Order respectively.

    (3) The proprietary injunction encompassed various real properties in England that are the subject-matter of the claim (paragraphs 6-10 of the [June] Order) as well as the "Further Assets" (paragraph 10) a term defined as "any personal property (including any debt or other receivable) in England and Wales acquired directly or indirectly with the "Funds". The worldwide freezing injunction encompassed all defendants' "assets" as clarified by paragraph 12 of the [June] Order. It is common ground that the injunctions extended to rent received by defendants in respect of the various real properties.

    (4) Pursuant to paragraph 19 of the [June] Order the injunctions were expressed to lapse upon the provision of security by the defendants as follows:

    "Paragraphs 6 to 11 and 12 above will cease to have effect if the Respondent: (1) provides security by paying the sum of £35,000,000 into Court, to be held to the order of the Court; or (2) makes provision for security in that sum by another method agreed with the Applicants' solicitors."

    The Sales Protocol; the Rental Proceeds Protocol

    (5) Following service of the [June] Order, the parties agreed that the injunctions would not prevent the defendants from dealings in accordance with the so-called "Sales Protocol" and the "Rental Proceeds Protocol".

    (6) Their agreement was preceded by extensive correspondence between the parties' solicitors as to (a) the value of certain real properties and (b) the mechanism for an account in which sales proceeds were to be held.

    (7) The parties' agreement regarding the "Sales Protocol" is contained in the following: Jones Day's 3rd letter dated 21 July; Baker & McKenzie's 1st letter dated 1 August; Baker & McKenzie's letter dated 17 August; Jones Day's 2nd letter dated 17 August; and Baker & McKenzie's letter dated 23 August.

    (8) The parties' agreement regarding the "Rental Proceeds Protocol" is contained in the following: Jones Day's 3rd letter dated 21 July; Baker & McKenzie's 1st letter dated 1 August; Jones Day's 1st letter dated 3 August; Baker & McKenzie's letter dated 3 August; Jones Day's letter dated 4 August; the exchange of emails between Jones Day and Baker & McKenzie between 4 and 7 August."

    The issues

  63. In these circumstances the following issues arise on the two applications:
  64. (1) Scope of the defendants' undertaking not to dispose of or diminish the value of the Security: Is the rent received by the defendants in respect of the various real properties caught by the defendants' undertaking to the court in Schedule II to the Consent Order? I shall refer to this rent as the "rental income" in this judgment.

    (2) Provision of written consent by the claimants under paragraph 4 of Schedule II to the Consent Order: The defendants contend that if the answer to issue (1) is "No", then issue (2) arises. Is the claimants' ability to give consent to any dealing with the Secured Properties by the defendants: (i) policed by the Court as the claimants contend, or (ii) is it necessary to imply a duty of good faith in accordance with the principles set out in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 Lloyds Rep 526, Leggatt J at 548 ([145]; "Yam Seng"), as the defendants contend?

    (3) Claimants' entitlement to a further injunction: The claimants contend that if the answer to issue (1) is "No", then issue (3) arises. If the surplus or net rental income (ie after payment of all property related expenditure) is outwith the scope of the defendants' undertaking contained in Schedule II to the Consent Order, are the claimants entitled to a further injunction freezing these moneys pending trial of the claims against the defendants?

  65. I deal with these issues in turn below.
  66. Issue 1: Does the defendants' undertaking extend to rental income?

    The defendants' submissions

  67. The defendants were represented before me by Mr Robert Anderson QC, leading Mr Andrew Scott. The defendants maintain that that the determination of the Defendants' Application only involves questions of construction. However, they say, it is important to be clear about what is being construed as it is not the Consent Order per se. Rather, it is the parties' agreement "for an alternative form of security as envisaged by paragraph 19(2) of the [June] Order", in furtherance of which the Consent Order was made. The security agreed, which they define as the "Agreed Security", is in the form of undertakings by the defendants to the court, which are set out in Schedule II of the Consent Order. The defendants therefore say the question is one of contractual construction, to be determined in accordance with familiar principles (see, most recently, Wood v Capita Insurance Services [2017] 2 WLR 1095, per Lord Hodge JSC at paras [10] to [13]).
  68. The defendants submit that the undertaking not to dispose of or diminish the value of the Security does not extend to rental income for three reasons:
  69. (1) First, the natural and ordinary meaning of the agreed language is that the material undertaking extends to, but no further than, the "Security". That term does not include the rental income of the "Secured Properties". They say that is a powerful factor against the claimants' construction – particularly in the context of a document drafted by professional legal advisers.

    (2) Second, they say their construction is how a reasonable reader apprised of the relevant background would interpret the material terms. It would not occur to such a reader that the parties intended the material undertaking to cover rental income in circumstances where: (i) the purpose of the Agreed Security (as defined by the defendants) was to identify a form of security equivalent to £35 million paid into court; (ii) the defendants had proposed various "UK Assets" for that purposes; (iii) the defendants' proposal never included the rental income of those "UK Assets" (insofar as they represent real property), still less their "fruit"; (iv) the claimants' never requested that in response – on the contrary, their objections (such as they were) concerned the value of the "UK Assets"; (v) although a Rental Proceeds Protocol had been agreed as part of the interim arrangement referred to above, it was not incorporated into the Consent Order; and this in circumstances where (vi) the Sales Protocol was so incorporated. Pausing there, the points made at (ii) to (iv) above relate to negotiations leading to the Consent Order and are inadmissible as such.

    (3) Third, if there were any doubt, it should be resolved in favour of the defendants' construction. This is because of the principle of strict construction: JSC BTA Bank v Ablyazov (No 10) [2015] 1 WLR 4754 ("Ablyazov"), per Lord Clarke JSC at [19]. An undertaking not to deal with "fruits" of a property would be hopelessly vague. In the context of an agreement intended to be enforceable by penal sanctions, the parties cannot be taken to have intended such an undertaking in the absence of clear language to support it. The defendants say there is no such clear language here.

    The claimants' submissions

  70. The claimants were represented before me by Mr Richard Salter QC, leading Mr William Edwards. The claimants maintain that the defendants' undertaking not to dispose of or diminish the value of the Security extends to the rental income (so that the defendants may not use this income as they wish). The claimants make the following, among other, points in support of this submission:
  71. (1) The undertaking contained in Schedule II to the Consent Order falls to be construed against the backdrop of the June Order and the proprietary claims asserted by the Claimants; and the fact that much of the value of the properties in question lies in their capacity to generate a rental income. Therefore, if the claimants succeed at trial, they will be entitled to an account of the rental income received by the defendants from properties which are beneficially theirs.

    (2) The expression used in the undertaking, "right, title, and interest", clearly encompasses the entire bundle of rights possessed by defendants in relation to the relevant assets. Given that the defendants occupy the position of a mesne tenant, sub-letting under assured shortly hold tenancies which generate the rental income, the bundle of rights encompasses not merely its rights as tenant but also its rights as a landlord.

    (3) Thus "right, title, and interest" in respect of properties which are let is sufficiently wide to cover the defendants' right to receive rental income before it is received. Once received, rental income falls within the definition of "Security" and the defendants are not entitled to "dispose of" it except as permitted by the exceptions provided by the Undertaking. The claimants stress that they accept the defendants may properly use the rental proceeds to pay property-related expenditure in accordance with the rental protocol.

    Discussion

  72. The general approach to the construction of documents is now well established. There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, HL at 912-913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean (see Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, HL per Lord Hoffmann at [14] (1112A-B)). The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement (see, most recently, Wood v Capita Insurance Services Ltd [2017] 2 WLR 1095, SC at [10] (1099B), per Lord Hodge JSC). In this case the agreement between the parties is contained in the Consent Order, and it is the undertakings contained in the Consent Order that the court has to ascertain the objective meaning of.
  73. The June Order, as explained above, contained a proprietary injunction and a worldwide freezing injunction. The claimants' claim is advanced on the basis that, if they succeed at trial then they are entitled to have the Developments transferred into their name, together with all the rental income arising therefrom. That claim is, of course, very much in dispute.
  74. The position at present, and the position at the outset of this claim in June 2017, is that the defendants, as landlord, let the properties within the Developments pursuant to assured shorthold tenancies. (This is recognised in terms of the proprietary injunction at paragraphs 6, 8, 9 and 10 of the June Order, which contains an exception permitting the defendants to let or sub-let the properties subject to the injunction "on an Assured Shorthold Tenancy at a full market rent and having first given the Applicant's Solicitors 48 hours' notice in writing of the intention to let or sub-let".)
  75. Further, there is no dispute that:
  76. (1) The Developments are investment properties, which can be sold or let.

    (2) The assured shorthold tenancies give rise to a rental income of over £100,000 per month.

    (3) There is expenditure in respect of the Developments, such as capital and interest payments in respect of loans, service charges and costs relating to the maintenance and up-keep, which need to be paid, and failure to pay this expenditure will have an adverse impact on the value of the Developments over time.

    (4) The expenditure under (3) above has been paid by the defendants (or their agents) from the rental income received from tenants under the assured shorthold tenancies. The claimants say that the rental income is, in fact, the only means by which this expenditure can be paid. This is because, apart from the Developments, Mr Al-Hezaimi's assets within the jurisdiction are negligible. The claimants say this by reference to Mr Al-Hezaimi's statement of assets produced in these proceedings pursuant to the June Order. Indeed, towards the end of the hearing the defendants accepted that the expenditure under (3) above should be paid from the rental income as, in reply, Mr Anderson QC said his clients would give an undertaking to this effect, to ensure that the value of the Developments would not be diminished over time.

  77. The June Order contained, in standard form, the usual provisions for terminating the effect of the proprietary and freezing injunctions, namely payment into court or by agreement with the claimants' solicitors. The relevant provision here is paragraph 19(2) which provided that "paragraphs 6 to 11 [the proprietary injunction] and 12 [the worldwide freezing injunction] will cease to have effect if the Respondent [the defendants]: … (2) makes provision for security in that sum [£35,000,000] by another method agreed with the Applicants' Solicitors". That provision in the June Order made it clear that it was a matter to be agreed with the claimants' solicitors as to whether the method of providing security proposed by the defendants was acceptable. Further, there is plainly a difference between the payment of £35,000,000 into court, and the provision of real property as security. This is because in deciding whether to accept real property as security, a relevant consideration will inevitably be the market value of the property, together with an assessment of the potential changes in the market over time. I agree with Mr Salter QC, that it is not possible to attach a "hard-edged" figure to the property identified as "Security" in Schedule III to the Consent Order. This is simply because it is inevitable that the market value of the Developments will change, whether by increasing or decreasing, over time. It is in these circumstances that it was a matter for the claimants to decide whether the method the defendants proposed for securing the sum of £35,000,000 was acceptable or not.
  78. It was pursuant to paragraph 19(2) of the June Order that the parties then agreed the terms of the Consent Order, and that order was then made and sealed by the Court and, as result of the undertakings the claimants and the defendants each gave to the court, "with effect from 12:00 on 18 October 2017, paragraphs 6-14 and 21 of the June Order shall cease to have effect" (paragraph 1 of the Consent Order).
  79. Paragraph 2 of Schedule II provides that: "until further order of the Court, and subject to paragraphs 3 to 4 below, the Defendants undertake not to: (i) dispose of or diminish the value of the Security; or (ii) sell, mortgage, charge or otherwise encumber, let or sub-let the Secured Properties".
  80. "Security" means "the Defendants' right, title, and interest in the assets out in Schedule III(A) to this Order". Schedule III(A) provides that "for the purposes of Schedule II to this Order, the Security shall comprise the following or such other assets as are agreed in writing between the parties from time to time" which are listed as (i) a number of leasehold and freehold titles (paragraphs A1(1) to (5)), and (ii) money (paragraphs A1(6) to (9)). "Secured Properties" means "the Defendants' right, title, and interest in the assets set out in Schedule III(B)", which are the leasehold and freehold titles identified in Schedule III(A).
  81. In relation to the language used in the Consent Order, the defendants developed their submissions with these points:
  82. (1) As the word "rent" is not mentioned in the definitions of "Security" or "Secured Properties" the rental income is not, and cannot be, caught by the defendants' undertaking contained in paragraph 2 of Schedule II.

    (2) The right to receive the rental income is a contractual right of an assured shorthold tenancy, rather than an incidence of the defendants' registered proprietorship of the freehold or leasehold titles of the Developments. This means that the rental income does not arise under the defendants' right, title or interest in any of the freehold or leasehold assets identified in Schedule III(A) to the Consent Order.

    (3) The Consent Order does not include any protocol in relation to the remittance of rents and, if there is no mechanism setting out how expenditure is to be paid in respect of the Developments, then it does not make any sense for the rents to be caught by the defendants' undertakings in Schedule II. On the contrary, this is a strong indicator that the rents are not included.

  83. The difficulty with this analysis is that it fails to take into account the very wide words used to define the terms "Security" and "Secured Properties" in Schedule II. The leasehold titles identified in Schedule III have been let by the defendants, whether as the owner of the property or mesne lessee, pursuant to assured shorthold tenancies. It is on this basis that the defendants have the right to let the properties and be the landlord under the assured shorthold tenancies.
  84. Accordingly the defendants' ability to let the properties pursuant to ASTs, and receive the rental income under those ASTs, is and has been derived from the defendants "right, title and interest" in those assets. There is no other basis on which the defendants could have entered into, or would have been able to enter into, assured shorthold tenancy agreements with tenants. Indeed, the definition of "Security" and "Secured Properties" is so wide that, if the parties had intended this definition to exclude the rental income, then this exclusion would have needed to be expressly stated using clear wording. There is no provision in Schedule II to the Consent Order which excludes the rental income from the defendants' undertaking in paragraph 2.
  85. Further, I note that the other assets identified in Schedule III include a cash deposit of £300,000 lodged "pursuant to a deposit agreement between OFY Limited and Lloyds Bank" and £1,631,763.33 held in an account at the National Westminster Bank (paragraphs 1(6) and 1(7) of Schedule III). These sums will attract interest. The defendants have not suggested that interest on these sums is not caught by the undertaking contained in paragraph 2 of Schedule II.
  86. I accept that there is no protocol in relation to the remittance of rents contained in the Consent Order. However, I do not accept that, as a sales protocol was included, that means by implication the parties intended to exclude the rental income from the scope of the defendants' undertakings contained in Schedule II. It seems to me that the answer to this point rests in paragraph 4 of Schedule II which provides that "Nothing in paragraph 2 above shall prevent the Defendants from dealing with the Security in accordance with the Claimants' prior written consent".
  87. In August 2017 Baker & Mckenzie, as solicitors for the claimants, provided written consent to "the entirety of the [defendants'] proposal regarding the remittance of rental payments, as set out in [Jones Day's] third letter of 21 July 2017". Therefore, as at the date of the Consent Order, the defendants already had the claimants' prior written consent to use the rental income to pay and deal with all the issues in relation to on-going expenditure identified in Jones Day's third letter dated 21 July 2017. That written consent has not been withdrawn by the claimants at any time and, in accordance with that consent, the defendants can use the rental income to pay all the property-related expenditure in relation to the Developments. Indeed, it seems to me that the defendants need to do so in order to comply with their undertaking not to diminish the value of the Security. There is no evidence or indeed anything in the factual background before the Court, to show that the defendants could make the necessary payments in respect of expenditure from any other source.
  88. However, the defendants maintain that this consent has fallen away because the offer contained in Jones Day's third letter dated 21 July 2017 was made on this basis: "We propose that the parties agree the following protocol to allow for the obligations pertaining to the Identified Properties to be met: … Your clients will consent to the remittance of the Rental Proceeds to our clients' accounts, to be held subject to the terms of the Barling J Order, as follows: ..." (underlining added; see paragraphs 17 and 22 above). The defendants say that, because the proprietary and worldwide freezing injunctions contained in the June Order have ceased to have effect, then the protocol in relation to the remittance of rents has also come to an end. I do not agree with this analysis of the situation. The protocol provided the agreed method, or machinery, to allow all necessary payments to be made in respect of the Developments in the context of the proprietary and worldwide freezing injunction, thereby ensuring that value of the Developments was not adversely affected by the June Order. However, the rental income was subject to the June Order. In this context it does not seem to me that, if the proprietary injunction and worldwide freezing injunction were replaced by undertakings to the court, that should inevitably mean that the claimants' written consent (provided in emails dated 6 and 7 August 2017) as to how the defendants were entitled to use the rental income should simply fall away. I agree with the point made by Mr Salter QC in his submissions – this cannot happen in silence. Rather, for such consent to be withdrawn by the claimants in the present context, it would need to be clearly expressed in writing. Indeed, as matters stand, there is no reason for the claimants to withdraw the consent provided in August 2017 as it crucial that the defendants have it in order that all necessary out-goings are paid in respect of the Developments so that their value is not diminished. The protocol agreed between the parties in relation to the remittance of rents has survived the making of the Consent Order and remains in place.
  89. I have reached the very clear conclusion that the rental income is caught by the defendants' undertaking to the court contained in paragraph 2 of Schedule II to the Consent Order. This means that the defendants cannot dispose of that rental income without the claimants' prior written consent. I do not consider that there is any ambiguity in relation to the meaning of the Consent Order in this regard and, in these circumstances, the submission Mr Anderson QC made based on Ablyazov does not arise (see paragraph 41(3) above).
  90. Further, in the light of the continuation of the protocol in relation to the remittance of rents, it seems to me that the claimants are entitled to be provided with monthly statements in respect of the Lloyds and Santander accounts: see Baker & McKenzie's email dated 6 August 2017 (paragraph 23 above).
  91. Issue 2: Provision of consent by the claimants

  92. The defendants' point here is that, if the rental income was outwith the undertaking contained in Schedule II to the Consent Order, then the claimants cannot refuse consent to ASTs (which are otherwise acceptable) on the basis that the rental income should be held as if the undertaking did extend to it. Or, put another way, the claimants cannot get through the back door, what they are not entitled to through the front.
  93. In the light of my conclusion on issue (1), this issue does not arise. However, I am not persuaded that, in the context of the Consent Order, the defendants' approach is the right one. I do not see that there is any need to rely on Yam Seng and an implied duty of good faith in the performance of contracts in the present context. This is because I agree with the point made by the claimants, namely the safeguard here is that the undertakings are given to the court: and if the claimants unreasonably refuse to allow the defendants to do something they wish to do, the court would release them from the undertaking to the extent necessary. This is therefore a very different circumstance to the contractual cases where terms have been implied (see, for example, Yam Seng at para [145]).
  94. Issue 3: Further injunction

  95. The claimants maintain that, if they are wrong in their case as to the construction of the Consent Order, then they ask the court to grant a limited proprietary injunction, designed to protect these rental proceeds (in particular the surplus after payment of property-related expenditure), in respect of which they assert a proprietary claim, until trial. The defendants say this application is unsustainable as it is pursued in contravention of the agreement which led to the making of the Consent Order, and is otherwise an abuse of process. In any event, there is no need for me to say any more about this last aspect of the Claimants' Application. This is because, in the light of the clear views I have reached on issue (1), the claimants do not need to pursue this as a fall back. The rental income is within the scope of the defendants' undertaking contained in Schedule II to the Consent Order.
  96. Conclusion

  97. In relation to the applications before me I will: (a) dismiss the Defendants' Application; and (b) make the declaration sought in paragraph 1 of the Claimants' Application.


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2018/243.html