The trustees of Mr Munir sought declaratory relief of varying kinds in relation to the ownership of a number of properties, orders for possession and sale and relief against the effect of a deed of trust as a transaction at undervalue and/or as a transaction defrauding creditors. The facts were commonplace: title to the properties in issue appeared to be the bankrupt’s, but deeds of trust were adduced by the defendants in an attempt to show that in truth they were held for various beneficiaries. There was, however, an unusual complication in that reliance was placed on three deeds, one made in 2007, but the main two entered into in 2008 and 2010. The trustees’ case was that they were shams, and it is in his review of the authorities on this point that the interest in ICC Judge Mullen’s judgment lies.
The judge began with Diplock LJ’s statement of the law in Snook v London and West Riding Investments Limited:
“[I]t is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities…that for acts or documents to be a ‘sham,’ with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a ‘shammer’ affect the rights of a party whom he deceived.”
He moved from there to the principles set out by Arden LJ in Hitch v Stone:
- The court was not restricted to examining the four corners of the document. It may examine external evidence, including the parties’ explanations and evidence of their conduct.
- Following Snook, the test of intention was subjective. The parties must have intended to create different rights and obligations from those appearing from the document and to give a false impression of those rights and obligations to third parties.
- The fact that the act or document was uncommercial, or even artificial, did not mean that it was necessarily a sham.
- The fact that parties subsequently departed from an agreement did not necessarily mean that they never intended the agreement to be effective and binding: it may be that they simply decided to vary their agreement.
- The intention must be a common intention.
The judge also looked at Painter v Hutchinson on unilateral intention and at Minwalla v Minwalla in which Singer J said:
“… Some of the earlier cases, including in particular some observations of Diplock LJ in Snook v London & West Riding Investments Ltd suggest that in order for the court to conclude that a document or transaction is a sham, it is necessary that all the parties to it must have a common intention that the ‘…documents are not intended to create the legal rights and obligations which they give the appearance of creating.’ However, in Midland Bank PLC v Wyatt DEM Young QC held, as to that principle ‘…I do not understand Diplock LJ's observations regarding the requirement that all the parties to a sham must have a common interest to be a necessary requirement in respect of all sham transactions. I consider a sham transaction will still remain a sham transaction even if one of the parties to it merely went along with the shammer not either knowing or caring about what he or she was signing. Such a person would still be a party to the sham and could not rely on any principle of estoppel such as was the case in Snook, the Defendant there not being a party to the transaction at all’.”
Singer J drew support for that view from both Hitch v Stone and from a 2004 paper on the topic by Stuart Pryke:
“In order for a trust to be found to be a sham, both of the parties to the establishment of the trust (that is to say the settlor and the trustees in the usual case) must intend not to act on the terms of the trust deed. Alternatively in the case where one party intends not to act on the terms of the trust deed, the other party must at least be prepared to go along with the intentions of the shammer neither knowing or caring about what they are signing or the transactions they are carrying out.”
Judge Mullen was content to adopt Singer J’s approach, although he reached his conclusions in Munir largely on the basis of his assessment of the witness evidence and the facts. Although, in this instance Mr Munir chose to take no part in the proceedings; the Judge found the deeds were a sham without any evidence from the bankrupt, relying instead upon third parties as to his intention and on the lack of contemporaneous written documentation.
As so often in these cases, expert evidence appears not to have assisted the court as much as internal contradictions in the respondents’ case:
“While I note the forensic document examiner's report as to the authenticity of documents in earlier applications in this bankruptcy, there has been no finding that those documents were in fact forged and, if so, by whom. It is, however, apparent that Mr Munir has repeatedly made inconsistent statements about the ownership of the properties registered in his name and produced inconsistent documents. The three deeds that I have to consider cannot all have been intended to have effect. They cannot co-exist with each other.”
The judge also alluded to the well worn proposition in Re Mumtaz Properties:
“In my judgment, contemporaneous written documentation is of the very greatest importance in assessing credibility. Moreover, it can be significant not only where it is present and the oral evidence can then be checked against it. It can also be significant if written documentation is absent. For instance, if the judge is satisfied that certain contemporaneous documentation is likely to have existed were the oral evidence correct, and that the party adducing oral evidence is responsible for its non-production, then the documentation may be conspicuous by its absence and the judge may be able to draw inferences from its absence.”
The trustees succeeded in obtaining the relief they sought. An action by certain respondents seeking opposing relief was dismissed.