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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Credit & Mercantile Plc v Kaymuu Ltd & Ors [2014] EWHC 1746 (Ch) (05 June 2014) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2014/1746.html Cite as: [2014] EWHC 1746 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building, Royal Courts of Justice 7 Rolls Buildings, Fetter Lane London, EC4A 1NL
		05/06/2014

Mr Tim Kerr QC:

Introduction

1. This case began life in the Tunbridge Wells County Court as a mortgagee's action for possession of an attractive residential property in Kent ("Dalhanna") formerly occupied by the second defendant ("Mr Wishart"). It was transferred to the Chancery Division of the High Court when it became apparent that a determination was required as to whether Mr Wishart was the beneficial owner of Dalhanna and if so whether his beneficial interest overrode that of the claimant ("C&M"), which held a charge over the property. I heard oral evidence from 15 witnesses. I am grateful to counsel for their helpful written and oral submissions.
2. C&M's charge was entered into in June 2010 to secure monies borrowed from C&M by the first defendant ("Kaymuu", not to be confused with Kaymuu Trust), the legal owner of Dalhanna. Kaymuu was controlled by Mr Sami Muduroglu, a now bankrupt businessman and gambler believed to be living abroad. I shall call him "Sami" to distinguish him from his brother, Mr Eren Muduroglu ("Eren"). The third defendant is his trustee in bankruptcy ("the trustee"). Mr Wishart and the trustee were joined to the action at their request.
3. Dalhanna was sold in October 2012 for £1.1 million. C&M seeks to retain £694,072.75 from the net proceeds of sale, to realise its security. Mr Wishart lays claim to the amount held by C&M on the basis that his beneficial ownership of Dalhanna overrode C&M's charge. The balance of £328,158 ("the surplus") has been paid into court, to abide the outcome of this case. The trustee and Mr Wishart both claim the surplus. C&M claims its legal costs of these High Court proceedings from the surplus. The trustee claims reasonable remuneration, costs and expenses from the surplus.

The Facts

4. Mr Wishart and Sami go back a long way. They first met in about 1998 and became friends and business associates. They were very close; Mr Wishart was the godfather of one of Sami's children. They undertook various property development projects together. Sami had entrepreneurial flair and could be very persuasive. Mr Wishart was and is good at getting things done and bringing ideas to fruition. Over the years, he developed good contacts in the building and allied trades. He was good at sourcing contractors for projects.
5. It is unnecessary to set out details of the early projects they undertook together, between 1999 and early 2004. Several were ultimately unsuccessful, ending with repossessions of properties by lending institutions. There were never any formal written contractual arrangements between Sami and Mr Wishart. Sami was the wealthier of the two, having profited from the trading of futures. He took the lead and Mr Wishart took a subordinate role.
6. I do not have clear evidence of what the informal financial arrangements between them were in those early days. Mr Wishart's evidence was that their understanding was that it was "50-50". I accept that such was their loose understanding, but I doubt whether Mr Wishart received anywhere near 50 per cent of any profits. Their financial arrangements were largely improvised and based on friendship and trust. Evidence of later payments by and to Sami, Mr Wishart and Eren (when he later became involved) is of payments of irregular ad hoc amounts, not always supported by any obvious logic, let alone formal contractual foundation or documentation.
7. From about 29 March 2004, Mr Wishart was remanded in custody on serious criminal charges. On 14 April 2004, while in custody, he executed a general power of attorney in favour of Sami, later revoked on his release from prison. He was unable to take a major active part in their business ventures while in custody. Then in about February 2005, Sami was disqualified from acting as a company director. He looked to his brother, Eren, for assistance. Eren had a background as a City financial trader and, unlike Sami and Mr Wishart, was relatively skilled at handling paperwork and the technical aspects of financing.
8. Mr Wishart stood trial for four months at Woolwich Crown Court on a robbery charge, from about April to July 2005. At the end of July 2005, he pleaded guilty to theft and was convicted of theft and of two counts of having a firearm with intent to commit an indictable offence. He was sentenced to six and a half years in prison, from which he was not released until June 2007.
9. Sami's disqualification and Mr Wishart's incarceration meant that of the trio, Eren was the only candidate to act as director of any company set up as a vehicle for their business ventures. He took over as director of various companies in which Sami had an interest. To raise finance for their business ventures, he was required to sign personal guarantees and give security for loans. He accepted these risks and in return, expected to participate in any profits.
10. I accept Eren's evidence that there was a loose informal understanding between him and Sami that he, Eren, would receive 10 per cent of the profits, if any, from the various business ventures, on the basis that he would "walk away" afterwards, free of further risk and personal guarantees. However, this was subject to discussion of any more specific (but still informal) agreement about how to apportion profits, shares and risk at times when (after paying off creditors) profits were made or imminent.
11. I accept Eren's evidence that as a general proposition, when there were no profits to discuss, only the raising of finance, the three men did not take up time discussing how to apportion potential future profits; there was only the loose arrangement already mentioned, in the background. The trio's method of doing business was to wait until profits were imminent and then discuss informally how to apportion shares and profits after paying off creditors. Even at that stage, it was not their habit to draw up formal documents.
12. In about late 2006, Eren went to live in northern Italy, where he stayed until late 2009, though he frequently returned to England to deal with business matters, in particular a property development project on which he and Sami were working in late 2006. Then in 2007, with Mr Wishart still in prison but soon to be released, the three men became interested in the acquisition of a cemetery site at Kemnal Manor, Chislehurst in Bromley. At first, the focus was on the raising of finance to acquire the site. There were no profits to discuss.
13. Mr Wishart was not involved in the raising of finance for this project, but I accept his and Eren's evidence that the three shared a common intention that Mr Wishart would play a part in the project and receive a share in the eventual proceeds. He had played a part in previous property development projects with Sami and would be an obvious choice of trusted associate when it came to organising the development of the site and the introduction of design and construction contractors to facilitate and execute the construction work needed before the cemetery could start trading.
14. The existence of that common intention is consistent with Mr Wishart's later involvement with finding contractors for the project and with later evidence of discussions about apportionment of profits and the mechanics of the subsequent purchase of Dalhanna, to which I shall come. It is also consistent with the unchallenged evidence of Mr Wishart that the purchase of a property called "Brookside" for £850,000, undertaken at same time as the acquisition of the cemetery site, was intended to be a "side project for the three of us", as he put it, involving the construction of three houses on the site of Brookside.
15. The acquisition of the cemetery proceeded as follows. An investment vehicle called Ravenblack Developments Limited ("Ravenblack"), controlled by a businessman from Northern Ireland, Mr David Hassard, provided £7 million, paid in three tranches on 4 May 2007 (£2.5 million), 21 June 2007 (£1.25 million) and 29 June 2007 (£3.25 million). Mr Hassard was a business contact of Eren's who had a good working relationship with Ulster Bank Limited ("Ulster Bank"). Eren had also had dealings with Ulster Bank.
16. On 4 May 2007, Sami executed a deed appointing Ms Corin Jessup and Mr James Arif to act as his trustees in respect of the purchase of the cemetery site. On 10 May 2007, those trustees exchanged contracts to purchase the site from the co-owners, Messrs Myers and Norman, for £4.5 million. Also on 10 May 2007, Mr Norman contracted with Sami to sell Brookside to him for £850,000. A Northern Ireland limited liability partnership was created, Kemnal Manor Memorial Gardens UK LLP ("KMMG LLP"). Eren and Ravenblack were appointed as members of KMMG LLP on 5 June 2007.
17. Various payments to other projects (and a payment of £250,000 to Sami personally) were made on 22 June 2007. These payments were made through Stephenson Harwood, who acted as solicitors for Sami and Eren. On 27 June 2007, Mr Wishart was released from Spring Hill prison. Two days later, as already mentioned, Ravenblack paid the last tranche of £3.25 million. Its payments were made to Stephenson Harwood and recorded on the ledger for the project kept by Mr Stephen Koehne, the responsible solicitor at Stephenson Harwood.
18. The client of Stephenson Harwood was described as "Springtree Properties" or "Springtree Properties Limited" ("Springtree"). This was a vehicle previously used by Sami, but of which he could not act as a director due to his disqualification. It is probable that Mr Koehne received his instructions formally from Eren, on his own behalf and on behalf of Springtree; but I find the reality was that the two brothers were acting in concert.
19. The cemetery site was duly transferred to Ms Jessup and Mr Arif who, on 3 July 2007, transferred the site to KMMG LLP for a consideration of £7 million, and the same day transferred part of the site back to Mr Myers in consideration of £1. On 8 August 2007, KMMG LLP charged the land it owned at the site to a company called Sedgford Financial Services Limited, as security for a loan (the amount of which is not clear).
20. Mr Koehne also kept a ledger for transactions in respect of Brookside; for example, £34,000 of stamp duty in respect of Brookside was received and paid out by Stephenson Harwood on 19 July 2007. Mr Koehne must have later renamed that ledger, since the copy before me is entitled "Dalhanna", which was only purchased years later in 2010. The ledger includes payments in respect of that later purchase after entries relating to Brookside had ceased to be made.
21. Eren's evidence was that he regarded himself as holding the value of his interest in KMMG LLP on trust for himself, Sami and Mr Wishart in equal shares. I accept that evidence not as a concrete decision set in stone, but as indicative of a loose and vague understanding at a time when a concrete discussion about how to share profits would have been academic and therefore irrelevant to these very practical businessmen. I do not find that evidence inconsistent with his evidence that he would expect 10 per cent of profits in a situation where he could walk away from a project without continuing risk. This was not such a project.
22. On 28 November 2007, KMMG LLP entered into a debenture in favour of Ulster Bank, no doubt as security for borrowing from Ulster Bank, which continued to provide finance for the cemetery later in the history of events, as I shall relate. The charge was over the assets of KMMG LLP.
23. At about this time or earlier in the summer of 2007, Mr Wishart became friendly with Mr Jason Jopson, who owned and directed a construction company, Jaymar Construction Limited ("Jaymar"). Both were keen fishermen and Mr Jopson had a fishing complex at his home. They fished together in England and France, and also discussed business. I accept Mr Jopson's evidence that he became interested in the cemetery project, and that Mr Wishart later proposed that he should become involved in the construction work at the site.
24. However, economic conditions deteriorated sharply during 2008 and the cemetery project did not make progress towards becoming a going concern. Ravenblack and Mr Hassard were in financial difficulties due to a fall in the value of Ravenblack's property investments in Ireland. An architectural consultancy directed by Mr Paul McPartland, Open Architecture (Kent) Limited ("Open Architecture"), had been appointed, but fresh investment was urgently needed to buy out Ravenblack's interest in KMMG LLP.
25. Sami and Mr Wishart knew Mr McPartland from previous projects in which they had worked with him. I accept the evidence of Mr McPartland that Mr Wishart told him in 2009 that he and Sami were negotiating a sale of shares as a way of bringing in new investors, and that some of the proceeds were intended to be used to fund the purchase of a house for Mr Wishart and his partner, Ms Kerry Williams. I also accept Mr McPartland's evidence that Mr Wishart asked him to let him know if he knew of any suitable family homes in the Kent area priced at around £1 million.
26. The search for fresh investors in the cemetery project was unsuccessful until sometime in around late 2009, when Sami was introduced to a Mr Derek Lucie-Smith of Gresham House plc ("Gresham"), an investment house. Mr Lucie-Smith was not called to give evidence. Mr Wishart claims credit for the introduction, but Mr Lucie- Smith gave a different account in a written interview, shown to me without objection from any party. I do not need to decide which account is correct.
27. Eren returned from Italy in late 2009 with the intention of playing a more active role in the cemetery project. He agreed that Gresham should if possible invest in the cemetery and replace Ravenblack; otherwise, he feared, the project would fail financially. I accept Mr Jopson's evidence that at about this time (or in early 2010), Mr Wishart discussed with Mr Jopson the possibility of Jaymar becoming involved in the project as a consultant and builder, and also undertaking development work at the family home he intended to buy using his share of the profit from the new investment.
28. In December 2009, Mr Wishart, Sami and Eren met at a Costa Coffee café in Sevenoaks and discussed the position. I accept the accounts of this meeting given by Eren and Mr Wishart. They are consistent with later events and with the informality of the financial apportionment agreements, which were discussed only when profits were likely soon to be made. By December 2009, that time had come. Gresham had agreed in principle to invest in the project. The purpose of the meeting was to discuss the financial position and agree on how to deal with it.
29. I accept the evidence of Mr Wishart and Eren that the three of them agreed that Sami and Mr Wishart would each take £1.1 million out of the proceeds of the sale to Gresham of shares in the project, and that Mr Wishart would be using his share to buy a family home without obtaining a mortgage. Mr Wishart said he was not particularly concerned about the detailed figures, as long as he was able to buy his long desired family home, without a mortgage.
30. Eren paid closer attention to the figures. Based on an earlier valuation, he considered that the interest he held in KMMG LLP was worth about £17 million. He calculated that the sale of an interest in the project to Gresham would be likely to generate at least £5 million, which he thought would be enough to pay back sums owed to small investors in other projects and some personal debts of Sami's and Eren's, retain a major interest in the cemetery project and draw out some money from the project as well, including enough for Mr Wishart to purchase his house for about £1 million.
31. When he was asked about this meeting in cross-examination, Eren described it as a "fluid agreement" to enable the cemetery project and other projects to go forward, rather than an agreement for a "reckoning". I accept this. He explained, and I accept, that at this stage the three men trusted each other to act fairly and his understanding was that none of them suspected either of the others of being about to take an unfairly large share of the cash. I accept that he regarded it as important to pay debts to friends and associates who had invested in the smaller projects, had been through hard times and justifiably wanted the debts repaid.
32. When that meeting took place, no thought was given to the need to keep funds available for design and construction costs at the site. Eren thought that these costs would be covered somehow and did not realise that in negotiations during the next few months, to which I am coming shortly, Ulster Bank would subsequently give an unexpectedly high estimate of them and require a sum to be retained to cover them. Design and construction costs were left out of Eren's calculations discussed at the meeting.
33. On 11 December 2009, a company called Memorial Holdings Limited ("MHL") was incorporated in Jersey. The controlling shareholder was Mr Lucie-Smith. It was agreed that MHL would acquire an initial 10 per cent holding in KMMG LLP from Eren for £1.13 million. On 23 December 2009 the first tranche of £630,000 was paid to Stephenson Harwood by the company secretary of MHL. It is unclear whether the second tranche was ever paid. Eren suspects it was misappropriated by Sami. On the same day, 23 December 2009, MHL was appointed as a member of KMMG LLP and Ravenblack resigned as a member.
34. The £630,000 was used by Mr Koehne at Stephenson Harwood to make payments to creditors. One was to buy out Ravenblack's interest in KMMG LLP for £150,000. Nearly all the rest was used to pay various other creditors and themselves. Mr Wishart received £15,000; Eren £16,500; and Sami £152,500. £50,000 went to Mr Nicholas McCormack, a long standing contractor business associate of Sami and Mr Wishart, who gave evidence which I accept, that his company, Mormac Construcion Limited ("Mormac") was carrying out work at the cemetery at about this time.
35. Mr Wishart instructed Mr McPartland of Open Architecture to help him search for a property to buy. On 15 January 2010 Mr McPartland emailed a list of properties to Mr Wishart, including Dalhanna which had a guide price of £995,000. Mr Wishart forwarded the email to Sami the next day. Mr Wishart and Mr McPartland visited several properties including Dalhanna. On 29 January 2010, the vendor's agents wrote to Mr Koehne at Stephenson Harwood confirming the proposed purchase of Dalhanna by Stephenson Harwood's client, "The Kaymuu Property Trust (c/o Mr P McPartland)", for £995,000 subject to contract.
36. Mr Wishart's initials are KMW. Sami's last name is Muduroglu, which starts with the letter "M" and includes two "u"s. However, Mr Wishart thinks the last two letters of "Kaymuu" refer to his last initial, "W" or "double u". I am satisfied that Sami devised the name "Kaymuu" and that he intended, at least, the first three letters to refer to the initial letter of Mr Wishart's first name, Kevin. There is no letter "k" anywhere in Sami's name. The last three letters "muu" refer either to Mr Wishart's other two initials, M and W, or to three letters from Sami's surname, or both.
37. Mr Wishart was in discussions with Mr McPartland about Open Architecture carrying out planning and design work at Dalhanna. On 23 February 2010, Open Architecture invoiced "KAYMUU Trust" in the sum of £2,467.50 for a measured and structural survey and attached an outline proposal for architectural services estimated at £17,969 based on an estimated construction cost of £325,000.
38. I accept Mr Wishart's evidence that he hoped to finish the works at the house before the winter, as the roof would have to come off to enable the work to be done. He also planned to construct a two storey extension, for which Mr McCormack later quoted the sum of about £200,000, about a year later, in around May 2011.
39. Gresham had by this time been joined by other investors interested in the project. The negotiations to complete their investments in KMMG LLP, however, ran into a difficulty. Ulster Bank stated that it required cash to the tune of £4.7 million from its proposed facility, to be held by it to cover design and construction costs. This was unexpected and had not been foreseen during the discussions at the café in Sevenoaks the previous December. Eren and Sami decided that a greater than planned proportion of Eren's interest should be sold in order to leave room to draw money out of the project.
40. After further negotiations, in March 2010 Ulster Bank agreed to a retention of £3.067 million in respect of estimated design and construction costs. On 5 March 2010, a company called Memorial Property Investment Limited ("MPIL") was incorporated in Jersey. 50 per cent of its shares were held by Eren, and 50 per cent by MHL. The intention was that the investors would acquire shares in MHL (which, replacing Ravenblack, had become a member of KMMG LLP) and MHL would (and subsequently did, by a process that is not clear) own and control MPIL which would become the operating company for the cemetery's business.
41. Sometime in early 2010, Mr Jopson told his friend Mr Brian McGee, a director of the construction company McGee Group Limited ("McGee), that a friend of Mr Jopson's, Mr Wishart, was looking for a major construction company to build the cemetery, and asked if McGee wanted to bid for the contract. As a result, Mr McGee met with Sami and Mr Wishart on 24 March 2010 at McGee's offices, and they discussed the proposed building project, for which McGee subsequently tendered successfully.
42. Negotiations for the purchase of Dalhanna continued. On 26 March 2010, the vendor's solicitors wrote to Mr Koehne confirming the proposed completion date of 19 April 2010 and enquiring whether "the Trust" wanted to buy certain koi carp in a fishpond at Dalhanna, certain garden tools there and a ride-on lawn mower. Mr Koehne made the letter available to Sami, who emailed it to Mr Wishart the same day.
43. From 30 March to 8 April 2010, the completion monies from the investors were paid into Stephenson Harwood's client account, totalling £6.65 million. These payments were the consideration for transfers to each investor of the agreed number of Eren's shares in MHL, leading to a shareholding position subsequently set out in Schedule 1 to a shareholders' agreement relating to MHL, dated 9 April 2010. Eren was left with a 45 per cent shareholding in MHL.
44. By 31 March 2010, Sami had ceased to be disqualified from acting as a company director. On that date, he caused a company called SMU Investments Limited ("SMU") to be incorporated. The name of the company clearly referred to his own name. He was the sole shareholder and director. It is now in liquidation.
45. Meetings at Stephenson Harwood's offices to execute all the relevant documents took place from 8 to 12 April 2010, attended by Sami and Eren, with Mr Wishart frequently in touch by telephone to Sami. The documents relating to the sale of Eren's shares and the establishment of MPIL as the operating company (through the sale by KMMG LLP of the cemetery property and business to MPIL) had to be completed and executed. Also on the agenda was the exchange of contracts for the purchase of Dalhanna, in which Mr Koehne was acting for the proposed purchaser, Kaymuu Trust.
46. I am satisfied that Mr Koehne's instructions were to proceed on the basis that the occupier of the property was to be Mr Wishart – whether or not Mr Koehne knew Mr Wishart's full identity and role at that stage. The written evidence of Mr Koehne was that he knew of him only as "Kevin" but understood he was to occupy the house. There was no challenge to Eren's evidence that at one stage during the meetings, Mr Kohne was on the telephone to the solicitors for the vendor and asked Sami the question "does he want the koi carp?" the response to which was relayed by Sami to Mr Koehne after telephoning Mr Wishart.
47. On 8 April 2010 a loan agreement was entered into between MPIL and SMU, whereby SMU agreed to lend MPIL an amount up to a maximum of £3.067 million at 12 per cent interest per annum. MPIL's company secretary later described the purpose of that loan as "the payment of construction costs, professional fees and expenses relating to the development of the [cemetery site]". That is consistent with the evidence of Eren and Mr Wishart, which I accept. The figure of £3.067 million is the same as the retention figure required by Ulster Bank.
48. Eren's evidence, which I accept, was that he understood the £3.067 million would be held by MPIL in its account at Ulster Bank to satisfy Ulster Bank's requirement; and that Sami, supported by advice from Stephenson Harwood, argued that it would be more tax efficient to lend the money through a company, since tax on the interest income would be levied at the lower corporation tax rate rather than the higher personal income tax rate. He said he now considers that Sami had intended to use SMU as an instrument to defraud him. Mr Wishart, I accept, was aware of the loan but was not then aware that SMU had been established to act as the lender.
49. Sami and Mr Lucie-Smith both entered into consultancy agreements (with a subsidiary of MHL) to work for MPIL on the project in return for fixed remuneration, in Sami's case of £150,000 a year. Sami thereafter took an active role in managing the project. Mr Lucie-Smith was much less involved in the project, having no relevant experience in the industry. The two consultancy agreements were entered into during the completion meetings.
50. On 9 April 2010, Mr Koehne made various payments out of the client account from the £6.65 million proceeds of sale of Eren's shares in MHL. This must have been done on the instructions of Eren, who was the legal owner of the proceeds of sale. Mr Koehne's ledger describes the client or matter as KMMG LLP. Sami received £1.1 million, which was described as "[r]elease of share sale funds". Other creditors were paid smaller sums; for example, £150,000 was paid to Open Architecture. Eren was paid £63,000 by way of "[r]elease of share sale funds". Payments totalling £150,000 were made to the wife or wives of one or both brothers.
51. The same day, Sami wrote eight cheques totalling £431,000 on his personal account which used the trading style "Propvest". As related above, he was paid £1.1 million that day from the proceeds of the share sale, but that sum evidently did not reach his account in time for his bank to honour the cheques totalling £431,000. They were returned unpaid. When they were re-presented a few days later, all but two of them were honoured.
52. Also on 9 April 2010, contracts for the purchase of Dalhanna were exchanged. The purchaser was not "Kaymuu Property Trust"; those words were crossed out and "Sami Muduroglu" substituted as purchaser. A new clause 16 was added to the sale contract, stating that "[t]he Buyer shall be entitled to take the transfer of the property in the name of a limited company". The completion date was to be 26 April 2010. The deposit was £95,500. I accept Mr Wishart's evidence that he did not see the contract of sale and knew nothing of these changes.
53. Two days later, on 11 April 2010, Mr Wishart paid the vendor of Dalhanna, a Ms Elaine Wilkins, £3,000 in cash for the koi carp and ride-on lawn mower, obtaining a written receipt. On 12 April 2010, Mr Wishart instructed a removals firm by email to move certain furniture, including a wardrobe, double bed and two sofas, to Dalhanna on 28 April.
54. Eren was becoming concerned that, after all the creditors had been paid, the amount left for him to draw from the share sale was diminishing. I accept his evidence that he was aware that, contracts to purchase Dalhanna having been exchanged, he was conscious that Mr Wishart would not have the money to complete the purchase and required assistance. I accept that he felt under an obligation to help raise funds to complete the purchase and that he agreed to forego his share for the time being, to ensure that enough money was available to complete the purchase of Dalhanna.
55. On 12 and 13 April 2010, in further meetings at Stephenson Harwood's offices, Sami and Mr Koehne, with Eren, tried to think how they could gain access to some of the £3.067 million, still in the firm's client account but earmarked to be loaned to MPIL by SMU to satisfy the requirement of Ulster Bank. On 14 April 2010, the deposit of £95,500 was paid by Stephenson Harwood to the client account of Ms Wilkins' solicitors. For some unexplained reason, a further £500,000 was paid to Sami that day, described as "release of share sale funds".
56. Unfortunately, between 14 and 19 April 2010, Sami lost large sums of money by gambling through an account with an online gambling company which trades as Betfair. Having received £500,000 from Stephenson Harwood's client account on 14 April 2010, he had lost nearly that amount to Betfair by 19 April 2010, as his personal bank statements show. He gambled away an amount approaching £100,000 between 20 and 28 April 2010, and thereafter continued to gamble away large sums when he had money in his personal account with which to do so.
57. On 19 April 2010, Ms Williams, Mr Wishart's partner, ordered a washing machine and tumble dryer from the John Lewis Partnership, for delivery to Dalhanna on 29 April, a few days after the anticipated completion date, paying with her bank card. The deliveries must have been postponed since completion did not take place on 26 April. On 25 April, she ordered a round table and six chairs with cushions and a parasol from a garden centre in Maidstone.
58. I accept Eren's account of how funds were obtained to complete the purchase of Dalhanna. Sami and Mr Koehne needed to release at least £900,000 to complete the purchase, in addition to the deposit already paid. Eren was not involved in the negotiations but was aware of the discussions between Sami, Mr Koehne and Mr Lucie-Smith. His account tallies with the written account of Mr Koehne in a later email dated 24 September 2012, prepared from recollection without documents (apart from the retention figure required by Ulster Bank which Mr Koehne must have wrongly recalled as being £2.5 million).
59. They looked for a way of releasing such an amount from the £3.067 million then held in Stephenson Harwood's client account against an undertaking to make it available to Ulster Bank by way of a loan from SMU to MPIL (as described above). On 26 April 2010 Eren was present in Mr Koehne's office with Sami and they tried to negotiate a way for Mr Koehne to send the completion monies for the purchase of Dalhanna to Ms Wilkins' solicitors, Warners, without breaching the undertaking to keep £3.067 million available to Ulster Bank.
60. Sami told Eren that Mr Koehne had achieved this by sending the completion monies to Warners, but against an undertaking from Warners to hold the completion monies to Stephenson Harwood's order for the time being. Next, they needed to raise an equivalent substitute sum, to enable Warners to cease holding the completion monies to Stephenson Harwood's order and release the completion monies to Ms Wilkins, the vendor.
61. Mr Koehne's ledger for the cemetery project shows that whereas on 14 April 2010 the deposit of £95,500 for the Dalhanna purchase had been included in the ledger for that project, on 26 April 2010 he transferred £990,000 to a different ledger he used for the Dalhanna purchase (formerly used for the purchase of Brookside, as explained above). The description of the transaction was "[r]elease of funds to SMU Investments Ltd – trf [transfer] from [the cemetery project ledger to the Dalhanna ledger]".
62. The Dalhanna ledger then shows that on the same day, Mr Koehne transferred £895,000 to Ms Wilkins' solicitors as "[B]alance purchase price Dalhanna", with a further small payment of a "further balance" of £4,500 the next day. However, completion was delayed because of Warners' undertaking not to release the completion monies to their client, Ms Wilkins. Mr Wishart was not aware of these manoeuvres but was aware from Sami that completion was delayed. Frustrated and anxious, he rang Sami frequently, urging him to resolve the matter so that he could move into Dalhanna with Ms Williams.
63. One of the new shareholders in MHL, Holyoak Investment Inc ("Holyoak", described variously as a Panamanian company and a Jersey based trust), was persuaded to undertake responsibility for providing £990,000, thus reducing SMU's loan facility to MPIL by that amount. On 26 April 2010, Mr Lucie-Smith emailed a Mr Seamus McGuckin, an agent of Ulster Bank, attaching a confirmation letter from Holyoak to that effect. Mr Lucie-Smith's email was before me. Holyoak's confirmation letter was not, but I accept that such was its effect.
64. The following day, Mr Lucie-Smith again emailed Mr McGuckin, proposing that "SMU … can release £950,000 to Sami Muduroglu and be replaced by a £950,000 undertaking from …. Holyoak … ." Mr Lucie-Smith also offered a £2 million guarantee from Sami in respect of Ulster Bank's loan facility for the project. The next day, 28 April 2010, Mr Koehne emailed various people including Sami, saying that "Holyoak have agreed to advance a further £950,000 towards the development costs so as to get the SMU Investments loan reduced by £950,000", and he attached a draft loan agreement between MPIL (as borrower) and Holyoak (as lender), to that effect.
65. Later that evening Eren, on being informed by email of Holyoak's helpful offer, emailed back succinctly to Mr Koehne: "it still says £990,0 [sic] you/they aware of that eren". This was a reference to the amount to be advanced by Holyoak being wrongly stated as £990,000 rather than £950,000. The following morning Eren emailed Mr Koehne again asking for an update as to "the signing position" and adding "also can you tell me exactly what is going for the purchase what if anything is left in the client account". Probably in response to that request, Mr Koehne made a file note "regarding £3,067 owned by SMU … to [MPIL] as per Loan Agreement dated 8 April 2010".
66. He there recorded, among other things, "£950,000 transferred to Dalhanna matter (possibly to be transferred back)". After certain other payments, he recorded "[a] balance remaining of the original £3,067 £1,262,021.40". He noted that from that latter sum, £250,000 was "due to be repaid to MPIL to Derek Lucie-Smith's company" [sic]. Finally, he recorded that the "balance held on this file of £16,961.45 … belongs to Eren Muduroglu on behalf of himself and Sami and save what is required for costs, is to be dealt with in accordance with their instructions".
67. On 30 April 2010, an "overpayment for Dalhanna" of £40,000 was remitted back by Warners to Stephenson Harwood and that amount was then transferred by Mr Koehne from the Dalhanna ledger to the cemetery ledger. This was Mr Koehne's last day working for Stephenson Harwood. From 1 May 2010, he was a partner at a different firm of solicitors then called Summers, now Summers Solicitors LLP ("Summers"). He continued to act for Sami and Eren and the cash balances on Stephenson Harwood's client account were transferred to Summers.
68. Mr Koehne's later written explanations of the chaotic events described above are consistent with such contemporary documents as are before the court. He also added an additional element to his account, not directly supported by the contemporary documents: the grant by Eren to Holyoak of rights in respect of some of his remaining shareholding in MHL. Eren was not a party to the loan agreement (only the draft of which is before me) between MPIL and Holyoak mentioned above. The loan (at 12 per cent interest per annum) was unsecured on the face of the agreement and said nothing about any charge or option to purchase any of Eren's shares in MHL.
69. However, in his email of 24 September 2012 to Mr Wishart, prepared without access to documents, Mr Koehne stated that "Ulster Bank agreed in principle to release £950,000 …, in effect to SMU in return for a charge over Eren's remaining 4000 shares in [MHL] and a personal guarantee of the MPIL loan from Sami". In a detailed letter of 28 March 2013 to the trustee's solicitors, prepared with some but not all relevant documents to hand, he said that SMU's loans "totalled £2,117,000 (originally £3,067,000 was intended but this was reduced by £950,000 in return for Eren Muduroglu agreeing to sell further shares in [MHL] to Holyoak …)."
70. Those explanations, imprecise and unsupported by documents though they are, are not inconsistent with the written and oral evidence of Eren and Mr Wishart. I am led to the conclusion that Eren did grant some form of rights to Holyoak in respect of his shareholding, and that this explains Holyoak's willingness to facilitate release of the £990,000.
71. Eren's evidence was simple: he was the legal owner of the proceeds of the sale of his shares; and as such, he authorised the use of £990,000 of his money to complete the purchase of Dalhanna for Mr Wishart's benefit, as his share of the profits from the cemetery project. As he put it: "end of story". He rejected the suggestion that the money became beneficially owned by SMU, which was to lend MPIL the £3.067 of which that £990,000 formed part. He insisted that SMU was merely a conduit used, he thought at the time, for tax reasons.
72. Eren's evidence of his understanding of the mechanics of the transaction is consistent with the account above, though he did not follow all the details. He also gave evidence that he believes he later, in October 2010, sold a further 5 per cent of his holding in MHL to Holyoak. Mr Wishart's evidence was that he did not follow events at the time. His understanding of the mechanics was based on later investigations and documents, not contemporary knowledge.
73. Mr Wishart did not see the contract for the sale of Dalhanna until 2012, when he became aware that the purchaser named on the contract was Sami and not Kaymuu Trust, and that a new clause enabled Sami to take the property in the name of a company. Eren did not concern himself with the mechanics of the purchase of Dalhanna, other than by agreeing to the steps taken to enable completion of the purchase to take place.
74. The delayed purchase was completed on 11 May 2010. Unbeknown to Mr Wishart, the purchaser was Kaymuu, not Kaymuu Trust. Kaymuu was a recently incorporated limited company owned and controlled by Sami. Mr Wishart set about moving into Dalhanna with Ms Williams. I accept his evidence, supported by purchases of domestic equipment and council tax related correspondence, that they intended Dalhanna to be their family home. I reject the suggestion that Sami and Mr Wishart intended Dalhanna to be developed for resale as a property development project.
75. On 12 and 13 May 2010, Ms Williams ordered high quality television and home cinema equipment, which was delivered on 14 May. I accept Mr Wishart's evidence that he put his fishing equipment in the smallest bedroom, upstairs and had the furniture, previously mentioned, delivered to Dalhanna on 14 May 2010. I accept that two sofas, two double beds, two chests and a wardrobe were moved into the rooms they were intended to occupy. On 14 May Mr Andrew Taylor, a neighbour who shared the same driveway, became aware of his new neighbours moving in.
76. Also on 14 May 2010, C&M instructed Mr Chris Key, of Friend & Falcke (Surveyors) Limited to provide a valuation of Dalhanna as at 19 May 2010. This was because Sami, through Kaymuu, had applied to C&M for a £500,000 loan secured on Dalhanna. I accept Mr Wishart's evidence that he was unaware of this. I do not think it likely that Sami would have wished Mr Wishart to know about the loan. Sami's desire for the loan was probably fuelled by his gambling habit and recent heavy losses. It was probably on 15 May 2010 that the new washing machine and tumble dryer ordered from the John Lewis Partnership (the five year warranty was to expire on 14 May 2015).
77. Mr Wishart's niece, Ms Victoria Wishart, visited on 15 May 2010 with her parents and a friend, Ms Jade Birmingham. They took photographs whose authenticity was faintly challenged but which, I am satisfied, are genuine and correctly dated and timed. The photographs clearly show a sofa, a large mirror, the television equipment and cards on the mantelpiece. I accept Ms Wishart's evidence that she and Ms Birmingham played with Rigsby, Mr Wishart's young red labrador, and took a short video of this.
78. I accept the evidence of Mr Jopson that he and his wife visited Dalhanna in about May 2010, were shown the carp in the fishpond and the house with sofas and beds in the rooms. I also accept Mr McCormack's evidence that he visited on or about 17 May 2010 to advise on cost effective refurbishment materials and saw the "new home" cards on the mantelpiece and a large sofa opposite the mantelpiece. On 18 May 2010, a new television aerial on a pole was installed on a chimney on the roof of the house.
79. Mr Key visited Dalhanna on 19 May 2010. He took photographs, though not of every room. The photographs he took show a car next to the house; the television ariel on the roof; a kitchen with signs of use such as washing up liquid, liquid soap, a bowl of oranges, a toaster and, possibly (though the light is poor) some white goods such as a dishwasher; a shower and bath with a towel; the television equipment; candles and framed photographs inside the living room windows; a stand for hanging washing in the garden; and the six outdoor chairs, table and parasol.
80. Mr Key's photographs do not show beds or sofas, nor Rigsby, nor fishing equipment in the room upstairs, nor cards on the mantelpiece, nor any people. I am satisfied that the physical items were present, notwithstanding Mr Key's evidence to the contrary. I think he is mistaken in saying there were no sofas or beds. I accept that he believed the property was unoccupied except for contractors doing work at the site for whom basic amenities such as use of a kitchen, a loaf of bread and a bowl of fruit were provided.
81. But I think that in forming that belief he overlooked the other signs of more enduring occupation, which I have mentioned. New occupants of a recently purchased house often have little furniture and few possessions at the property near the start of their occupancy. I do not think Mr Key was particularly careful about forming the conclusion he reached. He was aware, and it was recorded in his subsequent report (in schedule 3 to the letter of instruction at Appendix 1), that the property had been bought for £1 million and that the proposed loan was for half that sum.
82. I accept Mr Wishart's evidence that he was told by Sami that Mr Key's visit related to insurance of the property. I accept that Mr Key met Sami at the property and did not become aware, or did not recall becoming aware, of the presence in the kitchen of Mr Wishart and Rigsby, though that does not mean that they were not at the property. Mr Wishart does not assert that he spoke to Mr Key, only that he saw him. I accept Mr Wishart's evidence that he and Rigsby were there for Mr Key to see. I find that either Mr Key did not see them, or that he saw them fleetingly and does not recall this.
83. In his report dated 20 May 2010, Mr Key advised that Dalhanna was worth £985,000 and was suitable as security for the proposed loan. He was not asked to state whether the property was vacant but reported that it was. The report was not meticulous; Mr Key had measured the kitchen but the measurements of the kitchen were not included in the report, though those of other rooms were. He did not measure the dimensions of the utility room. A number of assumptions were made. Searches and soil surveys were not carried out.
84. Kaymuu took the position, when applying for its loan, that Dalhanna was vacant. This was not true. Mr Koehne of Summers signed answers to enquiries on 24 May 2010 stating that it was vacant, no doubt on misleading instructions from Sami. It is clear that Sami wished C&M to believe that Dalhanna was vacant. I accept Mr Key's written evidence that Sami did not mention that anyone was in occupation. Probably, he thereby contributed to Mr Key's mistaken belief that it was vacant. C&M began the process of approving the loan on that basis.
85. On 29 May 2010, a friend of Mr Wishart's who was a legal executive (now a solicitor) specialising in non-contentious property law, Ms Marina Barnett, visited Dalhanna with her husband. They were shown round the house and saw the sofas and beds, and Ms Barnett, who gave evidence, recalls a coffee table in the lounge. On 4 June 2010, Sevenoaks District Council issued a council tax bill to Ms Williams commencing from 14 May 2010.
86. The loan was advanced to Kaymuu on or about 14 June 2010, though after deductions including for stamp duty in respect of the purchase of Dalhanna (without payment of which Kaymuu's title could not be registered), the net amount advanced was only £444,050.27, with Sami as guarantor of Kaymuu's indebtedness. Sami proceeded to gamble away large amounts in the following two days. C&M's charge over Dalhanna was registered on 22 June 2010.
87. The nearby cemetery project was progressing with the benefit of new investment. McGee's contract with MPIL to carry out the landscaping work for just under £2.54 million was completed on 16 July 2010. Sami played an active role on site in the management of the project, visiting around once a week and effectively taking charge. He undertook activities such as dealing with site security, issuing comfort letters, deciding on forms of construction and dealing with the Environment Agency.
88. Mr Paul Simpson, a former friend and neighbour of Sami who had a security company called 1st Ace Security Limited, was asked by Sami in about July 2010 if he could quote for a closed circuit television system at the house of his friend and business partner, Mr Wishart, who would be developing the property. He visited Dalhanna at about that time and met Mr Wishart and Ms Williams, and his company installed an alarm and monitoring system. His invoice for the work was eventually paid by Sami in the name of Kaymuu.
89. Mr Jopson and his company had a role in both the cemetery project and the works at Dalhanna. I accept Mr Jopson's evidence that Sami would ask him at cemetery site meetings how the work was progressing at "Kev's house". Planning permission for the works at Dalhanna was granted in July 2010. Mr Wishart approached Eren and Sami for funding for this work, which he wanted to obtain from the sale of further shares in the cemetery project. He wanted to instruct Jaymar to carry out the work but not until he was sure the funds for it were available.
90. Mr Wishart liaised with Mr Jopson about the works to be done at Dalhanna. Jaymar was able to obtain payment from Sami, in the name of "Kaymuu Property Trust", under a generic invoice dated 17 September 2010, referring to a "JCT Contract no. 261418918", which was probably not a genuine written contract. Work on the driveway at Dalhanna started in about September 2010. The works were listed in short form and the price, in round figures, was £97,450 plus VAT, which was paid to Jaymar by Sami.
91. However, some of Mr Jopson's men were prevented from entering the site at Dalhanna at the end of September 2010 and telephoned Mr Jopson to inform him that bailiffs were present. This was because Kaymuu had fallen into arrears in respect of its loan, and C&M had appointed a receiver. Mr Robert Kerrigan went to Dalhanna on 28 September 2010, on behalf of the receiver. Mr Kerrigan gave evidence of that and his subsequent visits which differed in some respects from Mr Wishart's account, but not in ways that matter much.
92. The works at Dalhanna were proceeding and Mr Kerrigan found Mr Wishart overseeing them. Mr Wishart was not pleased to see Mr Kerrigan. From him, Mr Wishart received the unwelcome news that Dalhanna was mortgaged to Kaymuu and the mortgage payments were in arrears. Mr Kerrigan may have thought that Mr Wishart was the project manager for the works rather than a permanent occupant. But I think on balance he probably knew or suspected that Mr Wishart was living there as a resident, not just a contractor.
93. Mr Kerrigan accepted that a partner (i.e. Ms Williams) was mentioned and that he had not previously known of a project manager occupying a project site with a wife or partner. They discussed the possibility of a possession order and the time that would take, which Mr Kerrigan said would be about six months. Mr Wishart made contact with Sami by telephone. As a result, Sami agreed to make a payment and C&M agreed to stand down the receiver.
94. Eren disposed of further shares in MHL in October 2010, reducing his holding significantly. Gresham acquired a further 10 per cent stake in MHL for £1.712 million, bringing its stake up to 15 per cent. Eren's evidence was that the disposals raised about £2.5 million, amounting to about 15 per cent of the shares in MHL. The proceeds were distributed to various creditors and according to Eren, Mr Wishart received only about £40,000 or £50,000 because he already had his house, while he, Eren, took out about £400,000 which he considered his due as he had had to wait for his share.
95. On 19 November 2010, SMU and MPIL entered into a further loan agreement for up to £500,000 to cover construction costs and professional fees at the cemetery. £420,000 of the amount credited to the loan account was assigned by SMU to Holyoak. It is probable, though not clear, that this represented part of the quid pro quo for Holyoak's agreement in April and May 2010 to assist in the manner described above, which facilitated completion of the purchase of Dalhanna.
96. In early 2011 Mr McCormack received a visit from MPIL on the subject of allegedly forged invoices totalling hundreds of thousands of pounds, purporting to come from his company, Mormac, which was carrying out construction work at the cemetery site. Mr Lucie-Smith, who was a director of MPIL, later informed Mr McCormack that the amounts invoiced had been paid to Sami. He and others formed the belief that the invoices were part of a fraudulent scheme devised by Sami for his own benefit.
97. In February 2011 Mr Wishart, on the advice of Ms Barnett, asked Sami to arrange for Mr Wishart's interest in the shares held by Eren in MHL to be formally documented. This was the first time it had been suggested that formal documents should govern relations within the trio. Mr Wishart had been very disturbed by discovery of the loan taken out by Kaymuu in respect of Dalhanna and Ms Barnett urged him to formalise his interest and offered to help by drawing up a declaration of trust. Mr Wishart's and Eren's evidence was that Eren still held 3,000 shares in MHL, though this may be an underestimate.
98. Mr Wishart's evidence was that his share was one third. The deed of trust was signed in Mr McPartland's office in Sevenoaks on 18 February 2011 following a meeting between Sami, Eren and Mr Wishart at the Costa Coffee café that day. By the deed, Eren declared that 1,200 of his shares were held in trust for the benefit of Mr Wishart. Eren's evidence was that the figure of 1,200 shares represented a roughly estimated one third of Eren's then shareholding, after taking account of other parties' rights over some of his shares.
99. In April 2011, Eren saw himself as having been unfairly treated by Sami, having trusted Sami and "signed whatever you put in front of me", as he put it in an email of 27 April 2011. He complained that his shares had been largely sold, he was carrying all the risk and was at risk of bankruptcy, while Mr Wishart was living in a £1 million house. He, Eren, was living in a smaller rented house. He proposed three options which would extricate him from the problem of pressing immediate liabilities, the third of which would be to "liquidate my positions asap".
100. In about May 2011, Mr McCormack quoted Mr Wishart a price of about £200,000 for a two storey extension to Dalhanna. In mid-August that year, Mr Key was instructed again to value Dalhanna on behalf of C&M, which was still owed money by Kaymuu. He did not enter the property but undertook a "drive-by valuation". He stopped outside the property, met Mr Wishart and took a photograph of the recently completed new driveway, with Mr Wishart's permission. Mr Wishart became concerned lest the loan should be in arrears again. Mr Key wrote a further report stating, mistakenly as Mr Key accepted, that the property was vacant.
101. On 27 September 2011 Mr Kerrigan returned to Dalhanna after C&M had appointed a receiver again due to further arrears in respect of Kaymuu's loan secured on Dalhanna. Mr Wishart and Ms Williams were just leaving for a funeral. Mr Kerrigan told them there were substantial arrears. Mr Wishart was angry; he telephoned Sami and berated him over the telephone. Sami tried to reassure him that all would be well, that the arrears were due to administrative error and that it would be put right.
102. Mr Wishart, however, had had enough and placed Dalhanna on the market with an asking price of £1.25 million. The agents instructed to market the property described their clients as Mr Wishart and Sami. The latter signed their terms of engagement. Sami then urged him to take Dalhanna off the market as there was a serious offer to purchase Eren's remaining shares in MHL. Eren confirmed this to Mr Wishart. Ms Williams had recently discovered she was pregnant. Mr Wishart decided to take Dalhanna off the market.
103. Then on 18 November 2011, Sami was made bankrupt on the petition of a creditor for a relatively small sum. Mr Wishart was unaware of this. Mr Nicholas Miller was appointed as trustee in bankruptcy. He was the predecessor of Mr Defty, the third defendant who is from the same firm of insolvency practitioners, Kingston Smith & Partners LLP. The works at the cemetery were completed at about this time. Kaymuu was struck off the register of companies on 29 November 2011.
104. In January 2012 Mr Wishart discovered that Sami had been made bankrupt. Sami attended one interview with Mr Miller but thereafter did not cooperate and in consequence a warrant for his arrest was later issued. However, he attempted to remain active in business, running a Gibraltar trading fund with Eren and attempting to acquire a central London property which he wished to develop with Mr Wishart, who was still prepared to work with him even after all that had happened. Ms Williams turned out to be expecting twins, as they discovered at about this time.
105. Mr Miller's investigations proceeded and he obtained information as best he could about the financial dealings of Sami, SMU and Kaymuu from, among others, Mr Koehne. Eren remained disillusioned with his brother and said so in a particularly strongly worded email of 1 May 2012. Another issue relating to fraudulent invoicing was to lead to a claim by McGee against MPIL which was not resolved until an adjudication award was made by a barrister, Mr Tim Elliott QC, about a year later.
106. On 11 May 2012, Kaymuu was restored to the register of companies so that C&M could bring proceedings against it for possession of Dalhanna. On 18 May 2012, Mr Kerrigan again visited Dalhanna on behalf of the receiver appointed by C&M, this time accompanied by Mr Stephen Brennan, C&M's managing director. They spoke over the intercom system to Ms Williams, who told them that Mr Wishart was not there. She telephoned him in a state of distress. He contacted Sami in an angry state.
107. This led to an email sent four days later, on 22 May 2012, by Sami to Mr Kerrigan, stating untruthfully that Mr Wishart and Ms Williams were tenants paying £500 per calendar month and overseeing works at the property. He added, mixing truth with falsehood, that they had been in occupation since completion of the purchase. He predicted that the loan would be redeemed by the end of June 2012 and said he anticipated exiting his bankruptcy by means of an individual voluntary arrangement, while Mr Wishart would soon raise over £1 million by redeeming shares he owned.
108. C&M was unimpressed and issued possession proceedings in the Tunbridge Wells County Court on 25 May 2012. As explained above, those proceedings are, in modified form, now before me. Mr Wishart was aware of the proceedings and was very concerned, in particular because of Ms Williams' advanced pregnancy. He rang Ms Barnett who, though not a litigator, helped him prepare a witness statement which he described in a later witness statement as a "mish mash of the truth"; though it should be emphasised that Ms Barnett acted with complete integrity and honesty, doing her best to help a friend in need.
109. The draft statement was prepared during the evening of 29 June 2012 at Ms Barnett's home. She listened to Mr Wishart's account which in turn was informed by telephone calls to Sami. In the witness statement Mr Wishart began by describing himself as "beneficial owner and tenant" of Dalhanna. The second of those descriptions is now disavowed. Ms Barnett did not regard this as unusual because it is standard practice in her experience to have a tenancy agreement between a trust and the occupants, where property is owned by a trust.
110. Ms Barnett did not know that the idea of a tenancy agreement was a recent invention of Sami's, devised for the consumption of Mr Kerrigan and C&M. She obtained written tenancy agreements from Sami, backdated to 26 October 2011, a few days later. One of these, purporting to be between Ms Williams and Kaymuu, was before me. It was not genuine; it was a recent creation of Sami's. Mr Wishart went along with the idea of a tenancy agreement and included it in his witness statement, but also asserted in the same statement that he was the beneficial owner of Dalhanna. The so- called tenancy agreements were exhibited to his first witness statement.
111. Mr Wishart also described himself in the witness statement, dated 2 July 2012, as a director of Kaymuu. He had tried to get himself appointed as director of Kaymuu on the basis that he was beneficial owner of that company because it owned Dalhanna; but the appointment was impossible because of Sami's bankruptcy. His appointment could not be effective because the beneficial ownership of Kaymuu was vested in Sami's trustee in bankruptcy.
112. The court hearing took place the next day, 3 July 2012. Sami presented the case to the court and Mr Wishart gave evidence. The case was that Mr Wishart was the beneficial owner of Dalhanna and that he had not known about the loan until about five months after it was taken out. The judge made a possession order effective from 10 October 2012. At a different court the same day, a warrant for Sami's arrest was issued, on the basis that he had not honoured various undertakings given in the bankruptcy proceedings.
113. After the hearing, Ms Barnett feared that Sami would disappear, and persuaded him to put his evidence in writing in order to help Mr Wishart fight to establish beneficial ownership of Dalhanna. Sami dictated his statement by telephone and Ms Barnett typed it in the form of a statutory declaration. In it, Sami stated that he had not told Mr Wishart about the purchase in the name of Kaymuu and that the purchase monies came from Mr Wishart's share of the proceeds from the sale of Eren's shares in the cemetery project.
114. From 5 July to 17 July 2012, Mr Wishart sent Sami numerous text messages, expressing his anger and sense of betrayal. On 9 July, however, the two men went together to Mr Koehne's office, and Sami signed the statutory declaration in the presence of an independent solicitor. On 18 July 2012, Mr Koehne provided a "draft note" briefly setting down his part in the history, in particular the purchase in the name of Kaymuu and the application for the loan from C&M. In the draft note, Mr Koehne he said that he was aware from Sami at the time of completion of the purchase that Mr Wishart was to occupy Dalhanna with his "wife".
115. On 12 and 13 July 2012, Mr Wishart remonstrated with Eren in an exchange of emails. Eren put his case which was that he had been unaware of any of the wrongdoing on his brother's part that had harmed Mr Wishart and was not party to it. Mr Wishart accused Eren of being too trusting of Sami, and of not doing enough to protect Mr Wishart's interests. Eren responded that he had shouldered much risk and suffered much loss himself.
116. Eren and Mr Wishart have since agreed to cooperate in the pursuit of Sami, SMU and Mr Lucie-Smith whom they suspect of improper collusion with Sami. They are continuing in their attempts to achieve recovery of monies they believe due to them. I was told that other litigation is afoot in that regard, but I did not need to be told about the details. On 17 July 2012, Sami made a court appearance in his bankruptcy proceedings, was ordered to produce documents but failed to do so. As a result, a further warrant for his arrest was later issued, on 25 September 2012.
117. In further text messages from Mr Wishart to Sami, he continued his recriminations between 17 and 25 July 2012, using vitriolic language, culminating in an offer of advice to Sami to "run rabbit run", advice which Sami was to accept and act upon. Mr Wishart did not see Sami again after July 2012. Eren's evidence is that he is not in touch with Sami either, and that Sami is living abroad somewhere, communicating with his family sometimes by Skype from an undisclosed location.
118. Ms Williams and Mr Wishart voluntarily vacated Dalhanna on 1 October 2012, delivering the keys to Mr Kerrigan. Mr Wishart recouped as much as he could from the works he had carried out by selling some security equipment to 1st Ace Security Limited and recovering part of the cost of the driveway works from Jaymar. On 19 October 2010, Dalhanna was sold for £1.1 million. As already explained, £694,072.72 (including C&M's costs of the possession claim) was paid to C&M and the surplus, namely £328,158.08, was paid into court at C&M's request.
119. Mr Wishart and the trustee were added as parties to the proceedings on 6 February 2013, at their request. The action was transferred to the Chancery Division on that date. The trustee has since interviewed Eren, Mr Koehne, Mr Lucie-Smith and a Mr Tony Ebel, pursuant to section 336 of the Insolvency Act 1986. The notes of their interviews were put before me without objection from any party, but of those interviewees, only Eren gave evidence before me. On 1 May 2013, Mr Defty, the third defendant, replaced Mr Miller on the latter's retirement.
120. Mr Tim Elliott QC gave his written adjudication on 7 May 2013 in the dispute between McGee and MPIL. He held MPIL vicariously liable for fraudulent misrepresentations made to McGee by Sami, as a result of which payments were made by MPIL to McGee for onward payment by McGee to Propvest, which was a trading style of Sami's. Mr Elliott determined the quantum of the claim at just under
121. £800,000, plus just under £15,000 of interest. On 13 May 2013, Eren petitioned to wind up SMU, claiming against it just under £3.8 million. The petition includes an amount of £950,000 "repaid" to Eren on 5 May 2010. This entry is unclear but may refer to the use of £950,000 to complete the purchase of Dalhanna and thus, in Eren's perception, reduce SMU's obligation to Eren by that amount. SMU was wound up in the Companies Court on 20 May 2013.
122. On 31 May 2013 Summers, through Mr Koehne, disclosed to the trustee's solicitors numerous documents including three "Bibles" relating to transactions made by SMU and, with express authority from Eren, the "Bible" in respect of the transactions relating to the acquisition of the cemetery site and business.
123. An agent of the trustee, a Mr James Dowers, interviewed Mr Koehne on 31 May 2013, pursuant to 366 of the Insolvency Act 1986. Mr Koehne was contacted about the hearing before me, but was not called by any party. In his interview, he was asked about various things including the arrangements for the purchase of Dalhanna. His explanation was broadly the same as that given in his email and letter mentioned above. His "draft note" of 18 July 2012 was put to him and he was asked about his understanding of Mr Wishart's interest, if any, in Dalhanna.
124. Mr Koehne stated that he understood from Sami that there would be a "caretaker" living at the property. This was not a word he had used in his draft note and it is difficult to see why a caretaker would be asked if he wanted koi carp, a point not put to Mr Koehne. He did not, in his interview, mention anything about Mr Wishart's "wife" being an intended occupant, as he had stated in the draft note. However, he did acknowledge his understanding that Mr Wishart had some undefined interest in the cemetery project and that "he didn't get a house for nothing".

The Issues: Reasoning and Conclusions

Was Mr Wishart the beneficial owner of Dalhanna on completion of the purchase?

125. C&M, through Mr Polli, and the trustee, through Mr Groves, both denied that Mr Wishart became the beneficial owner of Dalhanna on completion of the purchase. If he were not, C&M would not need to engage in the debate about whether Mr Wishart's interest ranked in priority to C&M's subsequent interest as chargee of Dalhanna, either by virtue of a principle akin to an estoppel (see Thompson v. Foy [2009] EWHC 1076 (Ch), [2010] 1 P&CR 16, per Lewison J at paragraph 142), or as an overriding interest under paragraph 2 of Schedule 3 to the Land Registration Act 2002 ("the 2002 Act").
126. The trustee sought to defeat the proposition that Mr Wishart became beneficial owner of Dalhanna in order to lay claim to the surplus for the benefit of Sami's creditors. The trustee conceded that "[i]f it is determined that Mr Wishart did have the entire beneficial interest in Dalhanna then it would appear that the Trustee cannot claim the Surplus" (paragraph 5 of Mr Groves' skeleton argument). But the trustee did not adopt a neutral position on that issue. He contested Mr Wishart's assertion of a beneficial interest in Dalhanna.
127. Mr Mendoza, for Mr Wishart, submitted that this was a clear case of a common intention constructive trust and that it was irrelevant that the completion monies were routed through SMU, which he described as a "sideshow". He submitted that all the witness evidence and all the documents pointed to a common understanding between Sami, Eren and Mr Wishart that Dalhanna was, on completion of the purchase, Mr Wishart's portion of the proceeds of sale of Eren's interest in the cemetery project.
128. Mr Mendoza submitted that Dalhanna was held on a trust arising to enforce an informally expressed intention, and in particular a constructive trust similar to that under the equity in Pallant v. Morgan [1953] 1 Ch 43, where an informal pre- acquisition agreement to purchase a property to be held in a certain manner is broken by one of the parties, and a trust arises to prevent the defaulting party from benefiting unconscionably from his breach.
129. The equity is described in Snell's Equity, 32nd edition, at 24-038 and following, including the authoritative re-statement in Banner Homes Group plc v Luff Developments Ltd [2000] Ch 372, CA; see Chadwick LJ's analysis at 396H-397F and his five propositions at 396H-399D. The agreement need not amount to a contract, and need not be in writing. The beneficiary under the trust must do, or omit to do, something to his detriment, or the acquiring party must derive an advantage from not honouring the agreement, such that it is inequitable for the acquiring party to retain the property for himself.
130. According to the majority view in Crossco No. 4 Unlimited v. Jolan Ltd [2012] P&CR 335, the Pallant v. Morgan equity is not, at present, confined to family cases but is properly analysed as an example of a common intention constructive trust, and does not require the existence and breach of a fiduciary duty by the acquiring party as against the beneficiary under the trust: per Arden LJ at paragraphs 129-130 and 133; per McFarlane LJ at paragraph 122; and cf. the discussion in Etherton LJ's different analysis at paragraphs 74-96.
131. Mr Mendoza submitted that all the elements necessary for a common intention constructive trust were present here. The acquisition had been made in the name of Kaymuu without informing Mr Wishart of the change of owner and subsequent dealing by Kaymuu as owner, by charging the property to C&M. The documents and the written and oral evidence pointed inexorably, he said, to Mr Wishart being a partner in the joint enterprise in respect of the cemetery site, and his share of the profits gained in April 2010 being identified as £1.1 million to be taken in the form of a mortgage-free house of his choosing.
132. He relied on Mr Wishart's contribution to the cemetery project by way of sourcing contractors and attending meetings. He pointed to Eren's evidence which plainly supported the existence of the common intention and came from the legal owner of the shares sold. He relied on Mr Koehne's ledger entries showing the source of the monies used to complete the purchase of Dalhanna. He pointed to Mr Wishart's efforts to find the property, take possession of it and plan and organise the improvement works to the property.
133. Mr Mendoza submitted that, while Mr Wishart did not invest his own money in the cemetery project, neither did Sami; the acquisition cost was paid by Ravenblack. It was no bar to Mr Wishart's interest in Dalhanna that the financial arrangements between the three men were fluid and "ambulatory" in the sense that the understanding evolved over time (as explained in Snell, op. cit. at paragraph 24-053); nor that the arrangements agreed upon at the Costa Coffee café meeting in December 2009 were too uncertain to be enforceable as a contract.
134. Mr Mendoza submitted that it did not matter whether the £950,000 completion monies used to purchase Dalhanna were viewed as belonging in equity to Mr Wishart or to Eren. What mattered was that they did not belong in equity to SMU or to Sami, and that when the purchase was completed, Dalhanna clearly belonged in equity to Mr Wishart, not to Eren (who disclaims any interest), nor to Kaymuu which was the vehicle used to breach the agreement, nor to Sami who set up Kaymuu as his vehicle to breach the agreement.
135. Mr Mendoza submitted that the arrangements negotiated with Holyoak and Ulster Bank for release of the £950,000 were undertaken to give effect to the common intention constructive trust, and that it is plainly unconscionable for Sami or Kaymuu to be permitted to acquire or retain any interest in Dalhanna. That conclusion was not altered, he submitted, by Sami's payments of invoices for improvements to the driveway and for the security system at the property; those too were part of Mr Wishart's share of the cemetery project.
136. Mr Groves, for the trustee, submitted that the arrangements were too ill-defined and vague to amount to a common intention constructive trust in favour of Mr Wishart. He accepted that there was a loose financial understanding between the three men, but said it was too uncertain to create a trust. He contended that the beneficial owner of Dalhanna was Kaymuu, which being owned and controlled by Sami, was now vested in the trustee. He submitted that it was never intended that Mr Wishart would be the legal owner; for tax reasons, it was to be a Jersey Trust.
137. Mr Groves submitted that there was no basis for asserting a constructive trust and that an express trust could not be found in the evidence until 2011, when Eren executed an express written declaration of trust in favour of Mr Wishart, in respect of some of his shares in MHL. He pointed out that Mr Wishart was in prison when the cemetery project was started, had not had any involvement in the arrangements for acquiring the site using investment by Ravenblack, and is not a party to any of the documents governing the acquisition of the cemetery site, which are not said to be a sham.
138. He submitted that once Eren became involved from about February 2005, he asserted inconsistent entitlements: first, a division involving him taking 10 per cent of ultimate profit; and subsequently, an equal division of net profits. He submitted that the business relationship between the three men was one which was "rolling" from project to project and that there was no satisfactory explanation for Mr Wishart deriving an entitlement to Dalhanna without having done any real work or invested any money in the cemetery project.
139. Mr Groves submitted that Eren loaned money (£3.067 million) to SMU, explaining why Eren later petitioned to wind up SMU. The latter acquired legal and beneficial title to the money loaned to it by Eren. SMU then loaned that money to MPIL, which owned the legal title to the cemetery. The schedule of Eren's claims against SMU in its liquidation shows a loan of £950,000 on 26 April 2010 and a repayment, of which however there is no evidence, of £950,000 on 5 May 2010.
140. Accordingly, submitted Mr Groves, Dalhanna was purchased using SMU's money; SMU being controlled by Sami, who decided to acquire Dalhanna through Kaymuu, and was entitled, as against Mr Wishart, to do so. Holyoak, Mr Groves pointed out, subsequently acquired 843 shares in SMU, while it is not shown that it acquired shares in MPIL or MHL. SMU's involvement in the purchase of Dalhanna was therefore genuine; it was not merely a conduit.
141. Mr Groves invited me to find that Mr Wishart did not act to his detriment in the acquisition of Dalhanna; and that Sami (and Kaymuu) did not gain unfair advantage in its purchase: Sami put his own and SMU's money into the purchase; Mr Wishart understood very well that it was to be purchased not in his name but in the name of a different entity, which he understood would be a Jersey trust. He did not do any serious work on the cemetery project and did not pay for the development works at Dalhanna.
142. Mr Polli, for C&M, concentrated his attack on Mr Wishart's credibility as a witness. He said that for the claim to succeed, Mr Wishart would have to show that Dalhanna was bought using his, Mr Wishart's, money. He submitted that any trust must have been in existence before the purchase, since Mr Wishart's beneficial interest in Dalhanna was alleged to have crystallised on completion. The pleaded case for Mr Wishart was that Dalhanna was bought with Mr Wishart's money.
143. Mr Polli attacked Mr Wishart's character as a man with a serious criminal record. He attacked the inconsistency between the account initially given to the county court, in which Mr Wishart indicated that he was aware of Kaymuu's loan, and was a rent paying tenant of Dalhanna as well as beneficial owner; and his subsequent account in evidence before me, in which he disavowed the suggestion that he was a tenant, and denied that he had known of the loan before the possession proceedings.
144. Mr Polli suggested that Dalhanna was intended for resale as a development project. He was reluctant to accept even the obviously genuine evidence of Mr Wishart's intention to occupy Dalhanna as his home with Ms Williams, to the point of questioning the genuineness of the latter's bank card transaction used to purchase domestic appliances, and of Victoria Wishart's photographs which, he faintly suggested in cross-examination of Mr Lockwood, a photographic expert, could have been faked.
145. He persisted in these suggestions in his closing submissions. They were, with respect, unrealistic. He suggested that Mr Wishart must have suppressed written evidence, for example of emails passing between him and Sami. He did not accept that most of their dealings were by telephone and text and that this explained the absence of emails, while there would be no reason to retain text messages before litigation was contemplated.
146. Mr Polli did not accept that Eren's involvement in the cemetery project was much more than as a "front" for Sami. Eren signed what he was told to sign. He gave inconsistent accounts of the agreement about sharing of profits. He did not create any trust of his shares in Mr Wishart's favour in 2007. There was no trust property then and, said Mr Polli, no express trust or common intention constructive trust was created in 2009 either.
147. Mr Polli's submissions on Mr Wishart's role in the cemetery project were similar to those of Mr Groves. Mr Wishart was not the "main man" on the site; he did not attend many of the meetings; he did not enter into a consultancy agreement. He did not commit any acts of detrimental reliance in relation to the acquisition of Dalhanna, said Mr Polli. He did not spend his own money on improvement works. He knew the property was not intended to be purchased in his name.
148. He went on to submit that if, contrary to his primary case, Mr Wishart had any beneficial interest in the £1.1 million earmarked for the purchase of Dalhanna, that beneficial interest was extinguished by Eren's loan of that money (forming part of the £3.067 million) to SMU, a legally binding transaction creating a relationship of debtor and creditor, evidenced by Mr Koehne's corresponding entry in the relevant ledger.
149. He submitted that it would be wrong, under the Solicitors' Accounts Rules (an extract from the 1998 version of which he produced), for Mr Koehne to pay out a sum held by a lender client by way of loan to a borrower client "by a paper transfer from the ledger of the lender to that of the borrower … except with the prior written authority of both clients" (rule 30(2)(b)). Since Mr Koehne must be taken to have complied with that rule, the loan to SMU from Eren must be taken to be genuine, although Mr Polli did not suggest that there was evidence of written authority from Eren and Sami for the transaction.
150. Mr Polli submitted that, in brief, the acquisition of Dalhanna was undertaken by Sami on his own behalf, there was no understanding that Mr Wishart was to be the beneficial owner, and Sami used Kaymuu as his nominee to take the legal title, while the beneficial ownership of Dalhanna remained in Sami and not Mr Wishart.
151. I turn to my reasoning and conclusions on this issue. I have no hesitation in accepting Mr Wishart's contention that he became the beneficial owner of Dalhanna on completion of the purchase. I am satisfied that all the elements of the Pallant v. Morgan equity are present on the facts. The invitation to treat SMU as a genuine vehicle for bona fide transactions leading to the beneficial ownership of Dalhanna residing in Sami (though his nominee, Kaymuu), seems to me unrealistic and inconsistent with the weight of the evidence.
152. The submissions of Mr Mendoza are correct and I accept them. I reject the suggestion that Mr Wishart knew about the loan taken out by Kaymuu and the charge of Dalhanna. His shock and anger when he discovered what Sami had done was genuine, not feigned. The fact that he is no angel and has been convicted of serious criminal offences does not mean the evidence he gave of his betrayal by his former friend is manufactured and untrue. Nor does the fact that he initially gave misleading evidence in the witness statement taken down by Ms Barnett.
153. I reject also the suggestion that Mr Wishart had not done anything to earn Dalhanna and that his assertion of a beneficial interest would represent an unmerited windfall. Mr Lucie-Smith said in interview that he did not think Mr Wishart would get a house for nothing. I agree. He was a longstanding friend and business associate of Sami's and, latterly, Eren's. He had contributed work to earlier projects and received payments for those projects and, in a modest amount, for the cemetery project.
154. In December 2009 it was recognised that he deserved his share of wealth, security and comfort. The three business partners considered that there was enough for each of them to have about £1.1 million in cash or value. There was nothing illogical, far fetched or inequitable about that arrangement. It was informal and some would say unorthodox, but I am quite clear that the arrangement was made.
155. Mr Wishart's claim to the beneficial interest in Dalhanna falls to be tested against the five propositions advanced by Chadwick LJ in Banner Homes at 397-399, which were in turn cited in Etherton LJ's judgment in Crossco No. 4, at paragraph 76. On the existing state of the authorities (and notwithstanding the high respect due to Etherton LJ's contrary minority view in Crossco No. 4), there is at present no distinction between domestic and commercial cases and it is unnecessary to search for a fiduciary duty and a breach thereof, for the Pallant v. Morgan equity to arise.
156. The first proposition is that there must be a pre-acquisition arrangement or understanding between the acquiring party and the non-acquiring party about the manner in which interests will be held in a property to be subsequently acquired. In the present case, I am quite clear that there was such an arrangement or understanding. It did not need to date back to 2007. Nor did it need to relate to the purchase monies for Dalhanna as distinct from the property itself.
157. The existence of such an understanding is clearly proved by the uncontradicted and credible evidence of Eren and Mr Wishart about what was agreed at the Costa Coffee café in Sevenoaks in December 2009. The existence of that understanding was not seriously challenged by C&M or the trustee, nor by any other witness. It is eloquently corroborated by subsequent events and by the documents evidencing the transactions leading to completion of the purchase of Dalhanna, and the conduct of Mr Wishart, Ms Williams and others both before and after completion.
158. The understanding was that each of the three business partners would take from the profits generated by the sale of interests in the cemetery project a sum in the region of £1.1 million; and that in Mr Wishart's case, that sum would be used to purchase a home for him and his partner, without a mortgage, which would be for his benefit and his enjoyment even if not held in his name, and would be his to live in, or sell, or do with as he pleased. It was not a development project and it was not subject to any obligation on Mr Wishart's part to deal with it in accordance with Sami's instructions or wishes, or those of anyone else.
159. Chadwick LJ's second proposition in Banner Homes is that it is unnecessary that the arrangement or understanding should be contractually enforceable. In the present case, it may well not have been contractually enforceable. At the most, Mr Wishart may have acquired a contractual right to £1.1 million. He could probably not have obtained specific performance of any contract to convey Dalhanna into his sole name, though that would not prevent him from calling for the legal title as beneficial owner under a trust.
160. The third proposition is that the pre-acquisition arrangement or understanding should contemplate that one party, the acquiring party, will take steps to acquire the relevant property; and that, if he does so, the non-acquiring party will obtain some interest in the property. That requirement is met here, for the same reasons as already given. The common intention of the three men, including the acquiring party, Sami, and the non-acquiring party, Mr Wishart, was that the latter would obtain Dalhanna, without a mortage, as his home. There was no caveat, rider or qualification to that intention.
161. Fourthly, Chadwick LJ points out in Banner Homes (at 398E) that it is necessary that the non-acquiring party, in reliance on the arrangement or understanding, should do or omit to do something which confers an advantage on the acquiring party in relation to the acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. The existence of the advantage, or detriment, must be such that it would be unconscionable for the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding.
162. That test is also met here. Mr Wishart relied on Sami to obtain Dalhanna for his, Mr Wishart's, benefit. He refrained from taking any step to secure that the purchase could be made in his name. He kept out of the transaction and allowed Sami free rein to undertake the acquisition, trusting him to honour the understanding that Dalhanna would be acquired for Mr Wishart's benefit, and not Sami's. He did not, for example, ask for £1.1 million in cash with which to undertake the purchase. He did all the work of finding the property, with Mr McPartland's help. He made arrangements for the taking of possession.
163. Mr Wishart's trust in Sami enabled the latter to alter the terms of the transaction against his interest, first by securing the contractual right to take the legal title in the name of a company; and secondly, by taking the legal title in the name of Kaymuu and not in the name of a Jersey trust formed for the purpose of holding the legal title for Mr Wishart's benefit. I am in no doubt whatever that it was unconscionable for Sami (and Kaymuu) to act contrary to the arrangement or understanding by appropriating the benefit of Dalhanna for himself.
164. Fifthly and finally, it is not necessary, as Chadwick LJ pointed out in Banner Homes at 399B, that there must be both an advantage to the acquiring party and a disadvantage or detriment to the non-acquiring party. Either will suffice, though often both will co-exist, the detriment to the non-acquiring party often taking the form of staying out of the market which in turn confers an advantage on the acquiring party. Here, both elements are present, though one would have sufficed without the other.
165. I conclude that the beneficial ownership of Dalhanna was vested in Mr Wishart on completion of the purchase. He is therefore entitled to, at least, the surplus, though subject to the competing claims against it which are considered further below.

Is Mr Wishart bound by C&M's charge, applying the principle akin to estoppel referred to by Lewison J in Thompson v. Foy?

166. C&M submitted, through Mr Polli, that if contrary to C&M's case, Mr Wishart acquired a beneficial interest in Dalhanna, the inherent quality of that interest was such that it did not rank in priority over C&M's charge, irrespective of the statutory order of priority in the 2002 Act as between the holder of a registered charge and a person in actual occupation of the property concerned. Mr Polli relied on the principle described by Lewison J as "akin to an estoppel", in Thompson v. Foy (cited above), at paragraph 142.
167. Mr Groves did not make submissions on this issue, the trustee having no basis for impugning the validity of C&M's charge independently of any beneficial interest that Mr Wishart might be able to establish. The trustee makes no claim to the monies retained by C&M by way of enforcing its security. Mr Mendoza resisted the application of the principle, arguing that to apply it in the present context would be an unwarranted extension of the principle beyond that justified by the authorities.
168. Lewison J stated the principle thus, citing from Farwell J's judgment in Rimmer v. Webster [1902] 2 Ch 163, at 173:

"when … the owner is found to have given the vendor or borrower the means of representing himself as the beneficial owner, the case forms one of actual authority apparently equivalent to absolute ownership, and involving the right to deal with the property as owner, and any limitations on this generality must be proved to have been brought to the knowledge of the purchaser or mortgagee".

169. I was referred to a line of cases in which similar arguments were considered, with varying results: see Paddington Building Society v. Mendelsohn (1985) 50 P&CR 244, CA; Abbey National v. Cann (1989) 57 P&CR 381, CA, [1991] 1 AC 56, HL; Skipton Building Society v. Clayton (1993) 66 P&CR 16, CA; Thompson v. Foy (cited above); and Bank of Scotland v. Hussain [2010] EWHC 2812 (Ch).
170. In some of those cases, a person in occupation of property was held bound by a charge over the property where that person had entrusted to another the function of raising funds on the security of the property. The person in occupation could not have the charge set aside merely because the amount raised was more than the person in occupation had anticipated.
171. In the Skipton Building Society case, a husband and wife were in occupation of a property charged to secure a loan procured by forgery of the wife's signature, in circumstances where her husband, who had forged her signature, was found not to have consented to a charge that would prejudice their right of occupation as tenants of the charged property. The Court of Appeal held that their tenancy was binding on the building society.
172. Sir Christopher Slade expressed the principle thus, at 228:

"… where A, the holder of the legal estate in land, has executed a mortgage of the land in favour of B, and C, who claims an interest in the land, has so conducted himself as to give B reasonable grounds for believing that C is consenting to the creation by A of a charge over the land in favour of B which will have priority to C's interest, then C will be estopped from asserting that his interest has priority to B's charge."

173. In Bank of Scotland v. Hussain, Newey J cited that passage (at paragraph 99 of his judgment), cited also the passage from Lewison J's judgment in Thompson quoted above, and commented at paragraph 102 that in some cases:

"the person claiming not to be bound by a mortgage can fairly be taken to have given the legal owner actual authority to enter into it or to have ratified it. Where that is so, the mortgage may be binding on ordinary agency principles.…. ."

174. And at paragraph 105, he commented as follows:

"In my judgment, …. the principle established by the authorities is capable of applying even where there was no direct relationship between the person asserting rights and the mortgagee. …"

175. In Rimmer itself, the plaintiff transferred the legal title to a mortgage bond to a rogue stockbroker, with instructions to sell the bond. Instead, the stockbroker borrowed money from the defendant secured by a mortgage over the bond, and misappropriated the loan monies. The plaintiff was held bound by the mortgage, applying the principle quoted above from Farwell J's judgment. In that case, the plaintiff never intended that the property he had placed in the hands of the rogue should be charged at all, but was bound by the mortgage because he had clothed his agent or trustee with full title to deal with the property.
176. In the present case, I have already rejected Mr Polli's suggestion that Mr Wishart had actual knowledge of the loan secured on Dalhanna, at the time the loan agreement was entered into. However, Mr Polli also submitted that even if Mr Wishart did not know about the loan, he was content to leave all aspects of the Dalhanna acquisition in the hands of Sami, and had therefore clothed him with full authority to act as the legal owner and must be bound by C&M's charge applying the principle akin to estoppel, or on ordinary agency principles.
177. Thus, Mr Polli submitted, Mr Wishart was bound by C&M's charge just as were the occupants in mortgage cases such as Paddington Building Society v. Mendelsohn; Abbey National v. Cann; and Bank of Scotland v. Hussain. In answer to Mr Mendoza's objection that in those cases, unlike this one, a mortgage was always contemplated by the person in occupation, or should have been, Mr Polli pointed out that in Rimmer the principle was held to apply even though the plaintiff never intended the rogue with legal title to the bond to mortgage it at all, only to sell it.
178. Mr Mendoza argued that in the cases where the principle was held to apply, borrowing on the security of the occupied property was always contemplated by the person in occupation. In the present case, argued Mr Mendoza, the context was completely different. Mr Wishart did not even know that the legal owner, Kaymuu, existed, still less that it intended to borrow money on the security of Dalhanna. He thought the legal owner was a Jersey trust holding the legal title for his benefit.
179. Mr Mendoza argued that in this case, what Mr Wishart had entrusted to Sami was authority to buy Dalhanna in the name of the Jersey trust for his benefit, not authority to buy it in the name of Kaymuu and create obligations which were owed by Kaymuu and not the Jersey trust, which never acquired any obligations. He submitted that it was not enough that Mr Wishart knew that an entity existed and that that entity would hold the legal title, without knowledge of any intention that it would encumber the property. He submitted that Rimmer was distinguishable because in that case the plaintiff had actually placed the bond in the physical possession of the rogue broker.
180. Mr Mendoza submitted that his analysis did not lead to injustice to C&M, because its charge would only be overridden by Mr Wishart's interest if his occupation would have been obvious on a reasonably careful inspection of the land at the time the charge was created, and if that were the case, C&M would have a good claim against Friend & Falcke (Surveyors) Limited because of Mr Key's failure to notice and report to C&M that the property was occupied; while if C&M had known it was occupied, as Mr Brennan explained in his evidence, C&M would have required Mr Wishart to waive the priority of his interest as a pre-condition of the loan.
181. After careful reflection and consideration of the authorities and submissions, I have come to the conclusion that the principle identified by Farwell J in Rimmer applies in the present case. It seems to me that Mr Wishart's abstinence from any involvement at all in the mechanics of the purchase meant that he had given Sami the means of representing himself (it does not matter whether directly, or through a corporate nominee) as the beneficial owner of Dalhanna, with full authority to deal with third parties as owner.
182. I therefore consider that Mr Wishart cannot assert his beneficial ownership of Dalhanna in priority to C&M's charge. I bear in mind Newey J's comment that the principle established by the authorities is capable of applying even where there is no direct relationship between the person asserting rights and the mortgagee. I do not think the facts here can be equated with the highly unusual circumstances in in Skipton Building Society v. Clayton, which went the other way.
183. I do not accept that the present case is qualitatively different from Rimmer's case. In both cases, the victim was responsible for giving the fraudster the means of committing the fraud, and entrusted him with authority wide enough to enable him to carry out the fraudulent design in circumstances that did not put the mortgagee reasonably on notice that it was fraudulent.
184. It was therefore incumbent on Mr Wishart to bring his interest to the attention of the mortgagee, if he wished to establish the priority of his beneficial interest to C&M's subsequent charge. He could have done so, by mentioning it to Mr Key or discovering from him who his principal was and contacting the principal, C&M. He was unaware of the need to do so but that is because he placed his trust in Sami and gave him full authority to deal with the outside world as if he, Sami, were the beneficial owner of Dalhanna.
185. It follows that Mr Wishart is bound by C&M's charge and accordingly, C&M is entitled to retain the sum of £694,072.75 being the amount, including interest, required to discharge the debt owed to it by Kaymuu.

If Mr Wishart's beneficial interest by its nature took priority over C&M's charge, was Mr Wishart's interest postponed to C&M's charge as a result of its registration, or did his interest as beneficial owner override the charge, applying the tests in paragraph 2 of Schedule 3 to the 2002 Act?

186. In view of my conclusion above this issue does not arise. As Browne-Wilkinson LJ commented in Paddington Building Society v. Mendelsohn (cited above) at page 248, "[i]f the rights of the person in actual occupation are not under the general law such as to give any priority over the holder of the registered estate, there is nothing in section 70 [of the Land Registration Act 1925, the predecessor of Schedule 2, paragraph 3 to the 2002 Act] which changes such rights into different and bigger rights".
187. However, I propose to address the issue anyway, in case it assists the parties in the event that this matter should go further. It is important that a first instance court should deal with all the significant issues raised, whether or not they are necessary to the court's decision, in view of the possibility of an appeal (see Kuligowski v Kenward [2003] EWCA Civ 1896 per Sir Martin Nourse at paragraph 46).
188. The issue is whether, in accordance with section 29 of, and paragraph 2 of Schedule 3 to, the 2002 Act, Mr Wishart's beneficial interest overrode C&M's charge. Section 29 provides, so far as material:

(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.

(2) For the purposes of subsection (1), the priority of an interest is protected—

(a) in any case, if the interest—

(i) …..

(ii) falls within any of the paragraphs of Schedule 3, or

(iii) …. ."

189. Paragraph 2 of Schedule 3 to the 2002 Act provides, so far as material:

An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for—

…..

(c) an interest—

(i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and of which the person to whom the disposition is made does not have actual knowledge at that time;

… .

190. The correct approach to these provisions was considered by Lewison J in Thompson v Foy at paragraphs 118-129. As Newey J pointed out in Bank of Scotland v. Hussain at paragraph 90, the passage at paragraph 127 of Lewison J's judgment dealing with "actual occupation" was endorsed by the Court of Appeal in Link Lending Ltd. v. Bustard [2010] EWCA Civ 424. I adopt the same approach. Applying that approach, I have no doubt that Mr Wishart was (with Ms Williams) in actual occupation of Dalhanna as at 14 June 2010 when the charge in favour of C&M was executed by Kaymuu.
191. They had moved their furniture and possessions into Dalhanna, were sleeping there at night and using the property as their residence. They had taken delivery of television equipment and domestic appliances, received visitors and started discussing improvement works. As a matter of plain language and common sense, they were in actual occupation of Dalhanna on 14 June 2010. If it matters (as to which see Lewison J's judgment in Thompson v. Foy at paragraphs 122-126), Mr Wishart was also in actual occupation of Dalhanna at the later date when C&M's charge was registered, on 22 June 2010.
192. Mr Groves, understandably, did not involve the trustee in this argument, as the trustee has no interest in it. The contest was between C&M and Mr Wishart. Mr Mendoza did not suggest that C&M had actual knowledge of Mr Wishart's beneficial interest in Dalhanna, within paragraph 2(c)(ii) of Schedule 3 to the 2002 Act. He contended that Mr Wishart's occupation of Dalhanna would have been obvious on a reasonably careful inspection of the land at the time of the disposition, i.e. on 14 June 2010.
193. I remind myself that (as Lewison J pointed out at paragraph 132 in Thompson), the question is a hypothetical one. Thus, the issue is not what Mr Key should have concluded when he visited on 19 May 2010. The question is whether Mr Wishart's occupation would have been obvious on a reasonably careful inspection of Dalhanna on 14 June 2010. No actual inspection was carried out that day.
194. However, I am clear in my mind that if a reasonably careful one had been carried out that day, the occupation of Mr Wishart (with Ms Williams) would have been obvious. I infer that, at least, those signs of enduring occupation picked up by Mr Key, and also those that he missed, would have been evident a month later. A reasonably careful inspection on 14 June 2010 would, very likely, have included an encounter with Mr Wishart himself.
195. I therefore find that Mr Wishart's interest, if it had been of such a nature and quality as to enjoy priority over C&M's charge, would not have been postponed to that charge by virtue of its registration because Mr Wishart's interest was one that fell within paragraph 2 of Schedule 3 to the 2002 Act, namely an interest belonging at the time of the charge to a person in actual occupation of the land and not one falling within the exception in paragraph 2(c)(i) of Schedule 3.

If C&M's charge is enforceable, is C&M entitled to its costs from the surplus, under the principles derived from Parker Tweedale v. Dunbar Bank plc (No. 2) [1991] Ch 26, or pursuant to the terms of the mortgage deed?

196. C&M contends that it is entitled to add its legal costs of these High Court proceedings, on an indemnity basis, to the secured debt and thus to take those costs from the surplus. C&M has already recovered its county court costs of the possession proceedings, as part of the sum retained. Mr Polli submitted in his skeleton argument that C&M's defence against Mr Wishart's claim was a defence of the title to Dalhanna and therefore as much for Kaymuu's benefit as for C&M's.
197. Thus, he argued in his skeleton argument, they fell within Nourse LJ's second proposition in Parker-Tweedale v. Dunbar Bank plc (No. 2) [1991] Ch 26, at 33C-D, and were allowable as "the mortgagee's costs, reasonably and properly incurred, of proceedings between himself and a third party where what is impugned is the title to the estate."
198. Alternatively (and in oral argument), Mr Polli contended that C&M was entitled to take its costs from the surplus pursuant to clause 3.13 (and its sub-clauses) of the mortgage deed executed by Kaymuu. He argued, relying on the reasoning in Gomba Holdings (UK) Ltd. v. Minories Finance Ltd (No. 2) [1993] Ch 171, CA, that the terms of the mortgage deed here were such that the mortgage debt included the costs of the present proceedings even if those costs would be irrecoverable under the general law.
199. Mr Wishart contended that C&M was not entitled either under the general law or under the mortgage deed to take its costs of these proceedings from the surplus. He argued, through Mr Mendoza, that the mortgagee (C&M) was defending title to its security and thus its costs fall within the exception to the general rule that a mortgagee is entitled to add its costs to the mortgage debt: Parker-Tweedale v. Dunbar Bank plc (No. 2) [1991] Ch 26, per Nourse LJ at 33D, 38D-E. He argued that Mr Wishart is not bound by the contractual terms entered into as between C&M and Kaymuu.
200. Mr Wishart's position was shared by Mr Groves, for the trustee. Mr Groves further submitted that the terms of the mortgage deed here were materially the same as the operative term in the Parker-Tweedale case (cited in Nourse LJ's judgment, at 32F-G) which, as experienced leading counsel for the mortgagee had rightly accepted in that case, was "intended to apply to the costs, charges and expenses recoverable by the mortgagee out of the mortgaged property under the general law, neither more nor less" (ibid. at 32G-H).
201. In the Gomba Holdings case, the action was between mortgagor and mortgagee and there were no proceedings involving any third party. The issues related to the extent of the mortgagee's entitlement to costs as against the mortgagor and the basis of assessment of those costs. At page 186F, Scott LJ noted that the inclusion in the mortgage deed of the words "however incurred" after the words "all costs charges and expenses" did not mean that costs which were unreasonably incurred could be recovered.
202. Scott LJ also observed, obiter, that "[t]he words, 'however incurred' presumably avoid the exclusion of the third category of costs, charges and expenses referred to by Nourse LJ in Parker-Tweedale ….". But proceedings involving third parties were not the focus of the argument, and the observation was not necessary for the court's decision. Mr Groves pointed out that the exception recognised and affirmed in Parker-Tweedale had stood for upwards of 125 years; and that very clear words in a mortgage deed would have to be used if the exception were to be ousted.
203. In Fisher & Lightwood's Law of Mortgages, 13th edition (2010), at 55.9, the learned authors state, citing the Gomba Holdings case in the footnotes, as follows:

"A mortgage deed may, and almost invariably does, contain express provision regarding the mortgagee's entitlement to recover from the mortgaged property costs incurred by him. Nonetheless, the principle in law that a mortgagee is entitled to add to the secured debt those expenses properly incurred underlies all such contractual provisions and, presumably, is to be borne in mind when interpreting them."

204. Here, by clause 2.2, Kaymuu charged by way of legal mortgage:

"the Property [Dalhanna] as a continuing security for:-

all present and/or future indebtedness of the Mortgagor to the Lender on any account whatsoever as mentioned in clause 3.1 hereof

all other liabilities whatsoever of the Mortgagor to the Lender present future actual or contingent

all costs and mortgagees' expenses arising hereunder as hereinafter provided together in each case with interest thereon …. ."

205. By clause 3.1, Kaymuu covenanted:

"to pay to the Lender all money and discharge all obligations and liabilities which now are or at any time hereafter may be due and owing …. and all legal and other costs charges and expenses on a full indemnity basis".

206. By clause 3.13, Kaymuu covenanted:

"3.13.1 … to pay on a full indemnity basis to the Lender …. the amount of all expenses properly incurred by the Lender … in relation to this Legal Charge with interest thereon … and until repayment such sums and interest shall be charged upon the Property

3.13.2 For the avoidance of doubt IT IS HEREBY AGREED that the expression "expenses" includes all costs moneys charges and expenses properly paid and all liabilities properly incurred by the Lender … (including legal costs charges and expenses ascertained as between solicitor and own client) on or in connection with or incidental to the Property and this Legal Charge and all expenses herein covenanted by the Mortgagor to be paid in particular in connection with

3.13.2.2 …. investigating any matter in relation to the Property and/or considering enforcing or attempting to enforce the rights and powers of the Lender … hereunder or under the general law

3.13.2.3 doing or considering any other matter or thing whatsoever which the Lender

… reasonably considers to be for the benefit of or preservation of or the more advantageous realisation of the Lender's security".

207. As a matter of ordinary language, "doing or considering any … thing whatsoever" would include defending proceedings impugning the mortgagee's title to its security. It is not suggested that it would be unreasonable for the lender to form the view that Mr Wishart's claims should be defended. The more difficult question is whether defending against Mr Wishart's claims is doing a thing "for the benefit of or preservation of or the more advantageous realisation of the Lender's security".
208. I do not think that C&M's defence against Mr Wishart's claims was a thing done for the "more advantageous realisation" of C&M's security. Either the security was good against Mr Wishart or it was not. Was C&M's defence against Mr Wishart's claims a thing done "for the benefit of or preservation of … the Lender's security"? On a broad reading of those words, they are capable of bearing that meaning.
209. But I have come to the conclusion that those words should be construed more narrowly and should not be read as excluding the exception for the third category of costs identified in Parker-Tweedale. They should be read as reflecting the general law there set out and not seeking to alter it. The words "for the benefit of or preservation of … the Lender's security" should be interpreted as identifying the scope of costs ordinarily recoverable by a mortgagee.
210. It seems to me that Mr Groves is right when he says that clear words would be needed to oust the exception for the third category of costs in Parker-Tweedale. The relevant clause in that case referred to:

"[a]ll costs, charges and expenses properly incurred hereunder by [the mortgagee] and all other moneys properly paid by [the mortgagee] in respect of the said costs, charges and expenses or otherwise together with interest thereon as aforesaid shall be charged on the mortgaged property".

211. Those words could, on a broad reading, be considered as wide as the words in the present case. They do not expressly exclude the cost of defending an action brought by a stranger to the mortgage. Yet the mortgagee's experienced leading counsel did not submit that they were apt to exclude the exception for the third category of costs, where such an action is brought. Instead, he sought to argue the position by reference to the general law and to put an end to the exception by asking the court to overrule it.
212. That exercise would have been unnecessary if the mortgagee had been held simply to have contracted out of the exception. I do not think the exercise was unnecessary in that case, nor in the present case. I am mindful that the drafting of any provision intended to displace the exception would be such as to affect the rights of a third party stranger to the mortgage.
213. While this is not intrinsically impossible (since the mortgagee's right is a property right against the secured debt), it is a strong thing. Hence, Nourse LJ observed in Parker-Tweedale at 38D:

"… the exception is … explicable on the simple ground that the mortgagee's right to costs, being one which, like the duty of care, arises out of the particular relationship between him and the mortgagor, exists only where the proceedings are between the mortgagee and the mortgagor of his surety."

214. By that reasoning, I have come to the conclusion that the terms of the mortgage deed do not assist C&M here as against Mr Wishart, and that it is not entitled to recover from the surplus its costs of defending against Mr Wishart's claims. However, it is, in the ordinary way, entitled to recover (and already has recovered as part of the sum retained) its initial costs of the proceedings against Kaymuu to obtain possession of Dalhanna. Those costs were incurred in the ordinary course of enforcing the mortgage contract and realising its security, and fall within the first category of costs identified in Parker-Tweedale.

Is the trustee entitled to reasonable remuneration, costs and expenses from the surplus?

215. The trustee, opposed by C&M and Mr Wishart, seeks an order from the court providing for a reasonable allowance to be paid to the trustee in respect of the work done by him (and by his predecessor, Mr Miller) in relation this case, in his capacity as trustee in bankruptcy of Sami. Mr Groves pointed out that if he were successful in establishing that the trustee, standing in Sami's shoes, is entitled to the surplus, then the trustee's reasonable remuneration and legal costs would also fall to be paid out of the surplus. In his skeleton argument, Mr Groves explained that "[t]he Trustee joined in the proceedings to protect the interests of the creditors in the bankruptcy of Sami".
216. In the event, the trustee has not succeeded in establishing that he is entitled to take the surplus for the benefit of Sami's creditors. Nevertheless, Mr Groves seeks an order providing for a reasonable allowance to be paid to the trustee out of the surplus. As he explained in his skeleton argument: "[i]n the event that Mr Wishart is successful in establishing that he had the entire beneficial interest in Dalhanna the Trustee will claim his legal costs of the litigation as being a necessary party to the proceedings and assisting in the determination of the true position as amongst the parties".
217. Mr Groves invited the court to direct an enquiry by a registrar of the Companies Court and an account to establish the amount of his reasonable remuneration on a time cost basis, at a rate of approximately £300 per hour, plus disbursements including the costs of retaining solicitors and counsel. In the hope of avoiding further and perhaps disproportionate costs, I asked Mr Groves to estimate approximately the amount that would constitute a reasonable allowance.
218. After taking instructions, Mr Groves explained that the approximate calculated value of the trustee's work, on the basis of an hourly rate of about £300 (excluding VAT), would be in the region of £320,000 (excluding VAT). However, only about a quarter of that time spent is considered to have been spent on matters relevant to this case. He therefore sought, as an approximation, a sum in the region of £79,000 plus VAT from the surplus, in addition to disbursements which would include solicitors' and counsel's fees.
219. He informed me that the trustee's solicitor and counsel appear in the present proceedings on a "no win no fee" basis. The trustee had the benefit of a creditors' resolution approving his fees on the usual time cost basis, with no uplift. He indicated that, to save further costs, he would be content for the court to assess the amount of the allowance rather than to remit the matter to a registrar of the Companies Court for an enquiry and the taking of an account.
220. The legal basis of the trustee's claim is the jurisdiction of the court explained in Berkeley Applegate (Investment Consultants) Ltd [1989] 1 Ch 32. The principle, as stated by Mr Edward Nugee QC in the Berkeley Applegate case at page 50, is that:

"… where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised included the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest … or by a receiver appointed by the court whose fees would have been borne by the trust property …; and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity … ."

221. As pointed out by HHJ David Cooke in Green v. Bramston [2010] EWHC 3106 (Ch), at paragraph 18, it is not necessary that the person to whom the allowance is made should be a trustee of the property concerned. It is sufficient that he is "a person who has done work or incurred expenditure which benefits the beneficiary". The allowance is discretionary, and "not circumscribed by precise rules" (ibid.).
222. In Re Sports Betting Media Ltd (in administration) [2007] EWHC (Ch), [2008] BCC 177, Briggs J, at paragraphs 10 and 11, identified the scope of the jurisdiction broadly, accepting the submission that:

"… the court has an inherent jurisdiction to require persons beneficially interested in property to subject their beneficial entitlements to a right of payment to persons who have come otherwise than by officious intermeddling into the position of fiduciaries in relation to the relevant fund and have incurred time and cost in realising the fund and identifying the entitlements of the beneficiaries and paying out to those beneficiaries their entitlements."

223. However, the discretion will not normally be exercised in favour of a person pursuing, or investigating whether to pursue, an interest adverse to that of the beneficiary, i.e. where the person seeking the allowance maintains that the beneficiary is not entitled to the property from which the allowance is sought; as distinct from the situation where the allowance is sought in respect of work done for the purposes of advancing, enforcing and giving effect to the beneficial interests of those entitled to the trust property: see per HHJ David Cooke in Green v. Bramston at paragraphs 35-36.
224. While HHJ David Cooke did not rule out the grant of an allowance from trust property in respect of work done to advance an interest adverse to the person subsequently found to be the beneficiary under the trust, it is clear that he considered that this would be wholly exceptional. I agree. In such a case it is not enough to show that the work done "benefited" the beneficiary by helping to show that his claim was good despite the efforts of the doer of the work to argue the contrary. Unsuccessful litigants often do work in their own interest, the fruits of which turn out to favour their adversary's; yet they are normally ordered, for their pains, to pay costs not receive them.
225. In the present case Mr Defty, the trustee, gave evidence to the following effect. He said that there would be a deficiency in Sami's estate; the assets were wholly insufficient to meet the substantial claims against the estate running into tens of millions of pounds. His firm had expended hundreds of thousands of pounds' worth of time and labour, and on disbursements, investigating possible ways of swelling the coffers of the estate for the benefit of the creditors.
226. He explained that he has been in correspondence with Betfair about Sami's gambling. The only other potential assets for the estate are the surplus in this case, and about £300,000 in cash in the hands of the liquidator of SMU. Mr Defty accepted the possibility that the whole of the estate would be consumed by his or his firm's fees, but denied that his participation in the action was intended for his own benefit to recover fees rather than benefit Sami's creditors.
227. Mr Defty explained that he had tried to prove in the liquidation of SMU but the liquidator had rejected his proof of debt, a decision he had appealed but he had not yet served the appeal on the liquidator. He accepted that the statutory declaration of trust executed by Eren in favour of Mr Wishart, dated 18 February 2011, indicated that Mr Wishart had an interest in the cemetery project.
228. He explained that he had not interviewed Mr Wishart, though Mr Wishart had on his own initiative come to see him in about May 2013, to explain his side of the story and convince him that Sami was "crooked". Mr Defty said he did not think it necessary to interview Mr Wishart because he was to be a witness in these proceedings and Mr Defty already knew his point of view which was that the trustee was "barking up the wrong tree".
229. Mr Defty referred to the documents evidencing the acquisition of the cemetery site in 2007 and explained that he (or his firm, or Mr Miller his predecessor) had acquired them from Mr Koehne and the trustee therefore became obliged to disclose them once he became a party to these proceedings. He said that it had not been suggested to him that the loans from SMU to MPIL were sham transactions. He said he believed SMU had about £300,000 in cash and he did not know how much SMU's creditors were claiming in the liquidation, but it was likely to be substantial, i.e. considerably more than the available assets.
230. He said that he felt he was in a "no win situation" as he could be criticised by parties such as Eren or C&M if he were to "walk away from the money in court". He explained that he felt that it was inevitable that if he did not take part in this action, the complexity of the issues was such that he would have had to make an application for directions from the court; and that he did not make such applications lightly because of the expense.
231. Mr Mendoza reminded me that the jurisdiction was to be "sparingly exercised" even where the work done did not further an interest adverse to the beneficiary's. He submitted that this was not a case for exercise of the jurisdiction; on the evidence, Sami's creditors would be likely to get nothing from the bankruptcy even if the trustee had been successful in establishing entitlement to the surplus, because it would barely suffice to discharge the trustee's fees and disbursements. The plain inference was that the trustee was seeking to benefit himself and not Sami's creditors.
232. Mr Polli, for C&M, supported Mr Mendoza. C&M's claim to costs from the surplus, addressed above, conflicted with the trustee's claim to remuneration and disbursements from the surplus, should it prove insufficient to cover both. Mr Polli said that while he was grateful to the trustee for entering the arena and taking C&M's side in contesting Mr Wishart's beneficial interest in Dalhanna, the fact remained that the trustee had taken sides which rendered the case unsuitable for an allowance under the Berkeley Applegate jurisdiction. This was not a case in which there had been a husbanding of the bankrupt's assets.
233. Mr Polli accepted that the transcripts of the statutory interviews with Mr Koehne, Eren and others might not have been disclosed but for the joinder of the trustee, but submitted that other documents such as those evidencing acquisition of the cemetery site could have been obtained in some other way, had the trustee not applied to be joined. There could have been an order for third party disclosure, usually obtainable on an appointment before a Master at a cost of less than £10,000.
234. Mr Groves, for the trustee, submitted that Mr Defty and his firm could not be expected to work for nothing; that a civilised form of bankruptcy is the price society pays for entrepreneurship; and that the trustee should have an allowance. There was no other fund from which he could be remunerated. If the creditors of the bankrupt were unhappy with the level of the trustee's remuneration, they could challenge it in other proceedings.
235. Mr Groves accepted that the trustee had argued against the beneficial interest of Mr Wishart in Dalhanna, but submitted that this was not necessarily fatal to the claim. He pointed out that the jurisdiction is discretionary and the discretion is not circumscribed by rules. He submitted that the present case was very unusual and that the trustee had done right by joining in the proceedings.
236. Mr Groves eloquently rehearsed the trustee's difficulties. Mr Wishart's witness statements had been inconsistent with each other. The legal owner of Dalhanna was clearly Kaymuu, which was owned and controlled by the bankrupt, who had effectively asserted beneficial ownership and claimed that Mr Wishart and Ms Williams were tenants at Dalhanna, which was consistent with the misleading tenancy agreements attached to Mr Wishart's first witness statement.
237. The trustee was not aware of Mr Wishart's full position until October 2012, when he made his second witness statement and applied to be joined to the proceedings. Dalhanna was then sold and the surplus paid into court. Mr Miller then applied in February 2013 to be joined to the proceedings, to avoid having to apply to the court for directions; and in consequence facilitated the disclosure of many useful documents throwing light on the issues.
238. Those documents included Mr Koehne's ledgers, said Mr Groves. They were obtained by applying to the Croydon County Court in the bankruptcy proceedings, since Mr Koehne required either an order of the court or the consent of Eren before he felt able to disclose them. The proceedings were withdrawn when Eren's consent was forthcoming, and Mr Koehne voluntarily disclosed the ledgers and later, under cover of his letter of 31 May 2013, many other documents. The interview transcripts were disclosed with the permission of the Croydon County Court.
239. I turn to my reasoning and conclusions on this issue. I have considerable sympathy with the trustee and can well understand why he decided to join the action rather than stand frustrated on the sidelines, unable to do more than await the court's decision and pursue other avenues of recovery for Sami's estate, if any, while counselling patience to the creditors. I recognise the contribution of the trustee, his solicitors and counsel in elucidating the issues and facilitating production of documents.
240. Nonetheless, I have come to the clear conclusion that this is not a case in which I should exercise the court's discretion to grant an allowance under the Berkeley Applegate jurisdiction. I think this is a case where it would be most unusual to grant an allowance because of the trustee's decision to enter the arena and take sides in the argument. I do not think the circumstances are so exceptional that an allowance should be granted.
241. If the trustee had taken a neutral stance on the beneficial ownership of Dalhanna and had confined his role in the proceedings to advancing a written claim to an allowance and providing documents to the parties and the court, without appearing unless invited by the court (absent any indemnity from creditors), his claim for an allowance would have been lower and the arguments for it stronger. Nor was the claim for an allowance made at the time of, and as a condition of, the trustee's application to be joined in the action, as could have happened.
242. Without intending any disrespect or discourtesy to Mr Groves, his instructing solicitors, the trustee or his firm, I am unable to conclude that the trustee needed to side with C&M for the sake of Sami's creditors. Normally, a trustee in bankruptcy who engages in contentious litigation on the creditors' behalf does so at their risk as to costs and sometimes, particularly if the bankrupt's assets are insufficient, his own. The present case was complicated but so are many insolvency cases where the assets available are greater than in this one.
243. The real issue is whether it would be inequitable to allow Mr Wishart to enjoy his beneficial ownership of the surplus without subjecting it to the condition that he should remunerate and indemnify the trustee from it. I am clear in my mind that it would not be. The trustee must have been aware, or could easily have become aware, that C&M would be concerned to dispute Mr Wishart's beneficial ownership and had no reason to doubt its competence to do so effectively.
244. As for the documents provided by the trustee, all he needed to do was provide what documents he could, in so far as they could not be provided by, or at the expense of, other parties. Only in the case of the statutory interview transcripts was his cooperation and consent clearly required to achieve their disclosure. Mr Koehne's ledgers could have been obtained by other means. As it turned out, Eren's consent was all that was needed, and was readily forthcoming.
245. Mr Koehne might well have produced documents from his file, voluntarily or otherwise, without the trustee's involvement other than by giving his consent in so far as the client had been Sami. It is true that the expense of securing disclosure of documents in Mr Koehne's possession might have been greater without the trustee's active participation than it was, but it would not necessarily have been greater; while considerable cost would have been saved if the trustee had not taken an active role in the litigation and appeared at trial.

Other Matters

246. At the hearing, certain other potential issues were identified. In particular, the question of priority as between C&M and the trustee could arise in respect of their competing claims against the surplus could arise if the surplus were not sufficient to cover both. In the event, the trustee's claim against the surplus has not succeeded. There are also possible questions of set-off against the surplus in respect of any costs orders that may be made.
247. I have come to the conclusion that any such further issues are best dealt with as consequential matters for consideration on hearing the parties after this judgment has been handed down. I will hear counsel on all consequential matters together, including questions as to costs.

Conclusion

248. For those reasons, I decide the issues as follows:

(1) C&M is entitled to retain the amount it holds from the proceeds of sale of Dalhanna.

(2) Mr Wishart is entitled to the surplus paid into court in respect of the balance of the proceeds of sale.

(3) C&M is not entitled to add to the mortgage debt and recover from the surplus its costs of the present High Court proceedings.

(4) The trustee is not entitled to recover from the surplus any amount by way of remuneration, costs and expenses.

249. I will hear counsel for the parties on all consequential matters and on the form of the court's order.