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Ahmed v Khan [2010] EWCA Civ 290

Applications for permission to appeal by husband and associates refusal to strike out wife's pleadings that shares and assets in family companies were held on constructive trust for the husband. Applications refused.

The couple had married in India in 1996 after which the wife moved to the paternal family home in England. They separated in 2004 following which the husband was jailed for rape and false imprisonment after he had tried to get the wife back from her family in Leeds. In the subsequent proceedings the wife claimed that various properties and shares in family companies were held on constructive trust. In the High Court Baron J had struck out a pleading that a company was the husband's alter ego but on each of the assets she concluded that the pleadings were not an abuse of process and disclosed a reasonable cause of action.

In this hearing, counsel for the applicants argued that the judge applied an "issue needs to be tried" approach rather than the "reasonable cause of action" test required by the RSC. He also complained that the judge had made findings of fact or treated the wife's case as established. Wall LJ, after reviewing how the judge handled the pleadings for each asset, rejects these arguments. He comments, at para 23:

"Whilst I accept that there is a distinct line between a finding that a pleading discloses a reasonable cause of action and a finding that a party has an arguable case which ought to be heard, the line is a fine one and I do not think that the judge crosses it...... In my judgment, the judge throughout directs herself according to the pleadings, whilst making it clear that the outcome may not follow them."

He therefore dismisses the applications.

Neutral Citation Number: [2010] EWCA Civ 290
Case No: B4/2009/2645

The Hon. Mrs Justice Baron DBE dated 16th November 2009

Royal Courts of Justice
Strand, London, WC2A 2LL


B e f o r e :

AHMED & ORS (Appellant)

- and - 

KHAN (Respondent)

Harry Oliver (instructed by Messrs Hughes, Fowler, Carruthers - Solicitors) for the Appellant
Philip Sapsford QC (instructed by Messrs Makin Dixon - Solicitors) for the Respondent
Hearing date: 28th January 2010
Crown Copyright ©

Lord Justice Wall:
1. The background to this application is pending proceedings for ancillary relief between Kulsum Khan (whom I will call "the wife") and Muhammed Habeebuddin Ahmed (whom I will call "the husband") following the breakdown of their marriage. The wife's case in those proceedings is, in a nutshell, that the husband's assets are held by others (notably various members of his family) on trust for him; or, to put the matter another way, the husband is the true beneficial owner of assets held by the 2nd to 5th Respondents (whom I shall, collectively, call "the applicants").

2. The applicants comprise Noor Misbahuddin (the husband's mother, whom I shall call "Noor"); Sameena Misbahuddin (one of the husband's sisters, whom I shall call "Sameena"); a family company now called Heat & Eat Properties limited (which I shall call "the company"); and Farah Baig, (whom I shall call "Ms Baig"). Ms Baig is a cousin of the husband who, the judge was told, holds the only share in the company "for the family". The applicants are ably represented in the proceedings by Mr. Harry Oliver of counsel.

3. Unusually, the wife's case was pleaded in particulars of claim, settled by counsel and filed on the wife's behalf on 9 July 2008. She signed them, as being true, on that date. Also in my papers are particulars of claim by Noor and Sameena against the wife, defences filed by both the husband and the applicants and a defence and counterclaim which also appears to be filed on the husband's behalf.

4. The application for permission to appeal comes to this court because the applicants applied to Baron J to strike out the wife's particulars of claim. The judge struck out part of the wife's claims, including her assertion that the company was the alter ego of the husband. However, she allowed the wife's claims to proceed on the basis that in relation to each of the assets in question the pleadings were a sufficient basis for the wife to assert that the shares in the company and the other assets were held on constructive trusts for the husband. The judge refused to discharge the company from the proceedings on the basis that it was the wife's case that the company was the beneficial owner of the family's home and that its shares were held on constructive trust for the husband.

5. For the applicants, Mr. Oliver roundly challenges the judge's refusal to strike out the wife's case.

The background
6. The parties are Muslim and were married in India in accordance with Sharia law on 15 February 1996. The wife, who is an educated woman, was born in India on 8 May 1972, The husband is about 48 and was born in the United Kingdom. His family came to this country in about 1966, When the wife came to this country she joined the husband in the paternal family's home in Southend on Sea.

7. The husband and the wife separated in April 2004, when the wife left in order to live with members of her family in Leeds. The husband took steps to retrieve her. He brought her back to his home by force, and is currently serving a nine year prison sentence following his conviction on two counts of false imprisonment and rape. The husband's criminal conduct is, in my judgement, a factor to bear in mind when Mr. Oliver seeks to take the moral high ground by asserting that it is unjust for the family to have to expend substantial sums in costs in defending the wife's claims.

The financial issues
8. I cannot improve upon the judge's concise and lucid account of the history of the case, and I adopt it for the purposes of this judgment. I reject out of hand the criticisms by Mr Oliver; (a) that the judge allowed the wife (who appeared in person) to give evidence on the merits at the application to strike out; and (b) that she was herself influenced by the wife's "evidence". The judge makes it absolutely plain in paragraph 12 of her judgment that she is not in any sense making findings and that she had to be careful not to take the factual matrix into account as predictive of any outcome. Furthermore, in paragraph 37 of her judgment, she recites the terms of RSC Order 18 rule 19(2).

9. The assets with which the judge was concerned are: (1) the share in the company; (2) a property at 136, York Road Southend on Sea (the family's current home, which I shall call "136 York Road"); (3) a garage plot at the rear of 107 St. Helen's Road Westcliff on Sea (which I shall call "the garage plot"); (4) Flat 2, 18A St. John's Road, Westcliff on Sea (which I shall call "Flat 2"); (5) shares in Anglo-American Ice Cream Limited (which I shall call "Anglo-American"); and (6) 642, Sutton Road (a storage facility used by Anglo-American, which I shall call "642, Sutton Road").

10. As I have already stated, the judge set out RSC Order 18, rule 19 (which applied in this case) and directed herself carefully to the applicable law by reference (inter alia) to the decision of Bennett J in Rose v Rose (No 2) [2003] 2 FLR 197, the overriding objective, Hughes v Colin Richards & Company [2004] EWCA Civ 266 and a number of first instance authorities, including her own decision in Re G&G (matrimonial property: rights of extended family [2006] 1 FLR 76, the relevant passages of which she appended to her judgment.

11. In my judgment, no criticism can be made of the judge's self directions as to the law. Indeed, I did not understand this to be Mr. Oliver's complaint. As I understood him, his principal complaint was that the judge, having set out the law correctly, then did not apply it: indeed, he says that she applied a quite different and lower test, having previously acknowledged that the correct test, albeit part of a discretionary exercise, was "a high one".

12. In each case, the judge concluded that the wife's pleadings were not an abuse of process and disclosed a reasonable cause of action, namely that the assets in question were held on constructive trusts for the husband and were thus within the reach of the court under the provisions of the Matrimonial Causes Act 1973. The question is whether or not an appeal against her decision would stand a real prospect of success.

13. Dealing with the assets seriatim, the judge dealt firstly with the share in the company. It was not in dispute that, over time, the shareholdings in family companies had been passed between several different members of the family, and the judge's view (which in my judgment she was entitled to hold, although she was careful not to make a finding) was that the manner in which the family had dealt with company shares was not "wholly free from doubt" (paragraph 51). The pleadings alleged that the shares in the company had firstly been gifted to a 12 year old child and then transferred to Ms Baig who held them – even on the applicants' case - "for the family". The judge examined the wife's pleading which asserted that the husband was prepared to take steps to hide the true ownership of property and claimed that funds were transferred between companies depending on which company had cash at any time. In these circumstances, the wife's case on the pleadings was that Ms Baig held the shares on trust for the husband.

14. Having reminded herself of the law relating to constructive trusts, the judge rejected the suggestion that the pleadings were sufficient to establish an express or resulting trust, but concluded that a constructive trust was arguable from the pleadings and from the factual matrix. Having so concluded, the detriment to the husband was obvious ("inter alia he loses control of the asset"). The judge then said:-

58. In the case of G v G I noted that agreements within an Indian family and their methods of holding assets within a family come from a very different cultural mores and one which does not fit wholly or neatly into English concepts of trust law. Therefore, I am clear that to ensure that the court can do justice in this type of case the court needs to be flexible and realistic to ensure justice is done after (and only after) the evidence unfolds. Of course, third parties need to understand the case that they are meeting and simple generalities are not enough. But in this case, given the factual basis which is outlined in the pleadings, there is more than sufficient to make the issue clear and to raise a claim that means, in accordance with the overriding objective, justice requires the issue to be litigated. Where the truth lies only a judge hearing the case will be able to determine. It may be that the evidence of the wife will persuade the judge, it may be that the evidence of the respondents will be conclusive. However, the pleading appears to me to raise sufficient concerns for the issue to be tried.

15. Mr. Oliver makes a number of complaints about the judge's approach. In essence, he says she is moving the goalposts. She is applying the "issue needs to be tried" test rather than the "reasonable cause of action" approach required by the RSC. I do not agree. What the judge is doing, in my judgment, is applying the test of the overriding objective to the pleading. The fourth sentence of the cited paragraph makes an express reference to the factual basis outlined in the pleading and states in terms that "there is more than sufficient to make the issue clear". The reference to "more than sufficient" must refer to the pleading. Whether or not the wife will succeed in establishing a constructive trust is, of course, another matter, as the judge herself expressly recognises.

16. In this context I think it worthwhile remembering that these are family proceedings, and as Baroness Hale of Richmond stated in Stack v Dowden [2007] UKHL 17 at paragraph 42 "an outcome which might seem just in a purely commercial transaction may appear highly unjust in a transaction between husband and wife". In other words, context is everything, and in my judgment the judge was not only entitled, but right to see this as an issue between spouses in the context of a complex family dynamic.

17. Having declined to discharge the company from the proceedings, the judge turned to 136 York Road. It was said by the applicants that this property was held on trust for Sameena. The wife's case was that the trust document was a sham. The judge's view was that the pleading (which asserted that the company owned 136 York Road) was a sufficient basis upon which to argue that the property (like the shares) was held on constructive trust for the husband.

18. The judge then dealt with the garage plot. Once again, she rejects the concepts of express and resulting trusts. The judge then says (paragraph 65): -

Given the allegations in paragraph 6, I consider there is sufficient to consider it to be a constructive trust arising because there is a file note that he was not going to proceed in his own name. Initially, because the plot was only worth £5000 I was minded to strike out the claim in relation to the garage plot was de minimis. Accordingly, when I gave my oral reasons at the end of submissions I struck out the claim. However, after judgment, Mr. Oliver on behalf of the respondents indicated that this was illogical, given I was permitting the next claim (in relation to flat 2) to remain. I accept that submission. I regard the point that he raised as correct and therefore, exceptionally, I am prepared to reinstate this part of the pleading. Accordingly, I will decline to strike out that paragraph in toto. The claim in relation to a constructive trust will therefore remain.

19. Mr Oliver makes a number of point about this paragraph, to which I will return when I have dealt with the judge's disposal of the other assets.

20. In relation to Flat 2, Noor is the registered owner. The wife's case is that on a date unknown to her it was agreed between Noor and the husband that Noor would hold the property for the husband's benefit. She relies on its acquisition at auction on 10 November 2004 when the purchaser was stated to be the company. Once again, the judge was not satisfied that the pleading justified an express or resulting trust, but did consider that a constructive trust might be construed from the words in the pleading.

21. The judge then turned to Anglo-American. The registered shareholders were Sameena, Noor, and the wife. Was the allocation of additional shares designed to water down and effectively eliminate the wife's interest? The judge's view was that the pleadings made out a case, although, once again, it would be for a judge to decide whether the case succeeded. As the judge put it:-

It requires a judge to hear all the evidence and consider whether in all the circumstances of the case the allocation of new shares in 2004 was for the purpose of seeking to override the wife's share of 35% in that company. Such an agreement and cause of action could found a proper claim. In those circumstances, it would seem to me that the court would be entitled to consider whether any of the new shares were held in some way on trust for the husband. Consequently, I do not strike out any of the claims in para graph 11.

22. Finally, the judge dealt with the wife's defence to the claim made by Noor and Sameena that she held 642 Sutton Road on trust for them. The judge took the view that because the wife had pleaded the defence in person, the reality was that the wife was asserting that the trust document was a forgery and the trust a sham. She refused, accordingly, to strike out the defence.

23. Whilst I accept that there is a distinct line between a finding that a pleading discloses a reasonable cause of action and a finding that a party has an arguable case which ought to be heard, the line is a fine one and I do not think that the judge crosses it, In other words, I do not think that she applies the wrong test. I have already acquitted her of making findings of fact or treating the wife's case as established; by like token I acquit her of deciding the case on the basis that the wife's case needed to be heard. In my judgment, the judge throughout directs herself according to the pleadings, whilst making it clear that the outcome may not follow them. Subject to what follows, therefore, this application must be refused.

24. In relation to the garage plot (paragraph 65 which I have set out at paragraph 18 above) Mr. Oliver has a further point. The judge had given an ex tempore judgment during the course of which, as paragraph 65 of her judgment makes clear, she had struck out the claim relating to the garage plot, although she had not struck out the claim relating to Flat 2, which was pleaded in a very similar way. Counsel drew up the order, and submitted it to the judge . She returned it, having altered it by removing the reference to the claim to the garage plot. This alteration was brought to the judge's attention, and the applicants sought the judge's reasons for making the alteration to her judgment. Rather than give a separate judgment on the point, the judge revised her ex tempore judgment to include what is now paragraph 65.

25. Mr Oliver has obtained a copy of the transcript of the hearing before the judge in which permission to appeal was applied for based on inconsistencies within the original oral judgment. As he puts it, the approved judgment is not in fact the judgment given by the court but a hybrid of retrospective summary for the reasons given (augmented in places) together with a brief explanation for the decision to reverse the position on the garage plot.

26. Were this point of pivotal importance, I would undoubtedly give the applicants permission to appeal in relation to it It seems to me that they clearly raise an arguable point. However, I have come to the clear conclusion that an appeal on this one point would be disproportionate to the issues in the case and contrary of the overriding objective.

27. Whilst I should make it clear that I accept Mr. Oliver's submission that the overriding objective cannot be used to oust the test properly to be applied by the judge in deciding whether or not to strike out a pleading, it can in my judgment properly be used as the judge has sought to use it, and as a basis for refusing permission to appeal on a given point, where the resolution of that point would be unduly expensive, time-consuming or otherwise disproportionate.

28. The applications were expertly argued by Mr Oliver, and I am conscious that my response to them does not match the thoroughness with which they were put to me. As I put it to Mr Oliver in argument, it is clear what the judge was attempting to achieve: the question is whether or not she was entitled to act as she did. Having re-read the relevant papers, I have come to the conclusion that she was. The applications for permission to appeal will, accordingly, be refused.