In Jesseman and another v Patel and another [2022] EWHC 1080 (Ch) the High Court has emphasised the importance of trustees-in-bankruptcy making relevant enquiries about a bankrupt’s financial affairs before embarking on litigation to recover assets in which the bankrupt is believed to hold a beneficial interest.
The applicants were the trustees-in-bankruptcy of the bankrupt, Shafqat Majeed. The respondents, Gazala Ali and her husband Imtiaz Ali, were good friends of Majeed. The respondents were also the freehold owners of a property in Kenley in the London Borough of Croydon, which was their family home.
In 2015, Mr Ali was the subject of a confiscation order in the sum of £2.2m. As a result of the proceedings, the Crown obtained a restraint over Mr Ali’s 50% beneficial interest in the property, which was valued at £125,000. The restraint was protected by a restriction being placed on the title to the property at the Land Registry.
Mr Ali managed to raise the majority of the monies required to pay the confiscation order, save for the sum of £125,000. To avoid the sale of the property, Mr Ali approached Majeed for the balance. Majeed agreed to pay the remaining sum of £125,000 so that the restriction in favour of the Crown could be discharged.
Following the failure of Majeed’s business ventures, he was made bankrupt in 2019. He was subsequently convicted and sentenced for VAT and excise fraud.
It was the appellants’ primary case that Majeed owned a 50% equitable interest in the property at the time of his bankruptcy, by way of a constructive trust. The 50% interest was argued to be Mr Ali’s beneficial share in the property that he had transferred to Majeed under their arrangement. This beneficial interest now vested in the appellants as his trustees-in-bankruptcy. The appellants argued that a constructive trust had arisen because Majeed had acted to his detriment in reliance on the arrangements with Mr Ali that he would obtain a 50% interest in the property. It would be unconscionable to allow the respondents to resile from their representations. In the alternative, it was argued that the sum of £125,000 represented a loan for which repayment had been demanded, with the sum still outstanding. As such an order was also sought for Mr Ali, the second respondent, to repay the same with interest.
It was the respondents’ position that they repaid Majeed the sum of £125,000 in the cash equivalent of dirhams in 2017. At the material time, Mr Ali was living in Dubai and arranged for the money to be paid to an agent of Majeed. It was the accepted that if the £125,000 had been repaid, the appellants’ case would fail.
In dismissing the appellants’ application, the High Court found that Majeed was repaid the sum of £125,000 by the respondents in 2017. The appellants’ application was categorised by the court as being “somewhat ambitious”. The applicants as office-holders with no direct knowledge of any of the material events were criticised for failing to carry out any proper investigation or enquiries with Majeed or his solicitors at the time the payment of £125,000 was made available to Mr Ali. Further, the court observed that the appellants did not challenge the veracity of any statements made by Majid at the material time he completed his bankruptcy questionnaire or bankruptcy interview, in which he confirmed that he had no other assets save for his own family home.
Elizabeth Dwomoh is a barrister at Lamb Chambers