Fund Ourselves Limited (In Administration) v Nadeem Magdy Mostafa Siam & Ors

Web: www.martenwalshcherer.com MR JUSTICE ADAM JOHNSON:

1. I need to deal with an application made to vary three orders of the High Court, two made by the Chancery Division and one made by the Family Division, which, in one way or another, impose restrictions on dealings with the assets of Mr Nadeem Siam and a company associated with him, incorporated in England and Wales, called Woodstock 1 Limited.

2. Woodstock 1 Limited is the owner of an aircraft. This was financed with a loan from Close Brothers Bank. There was a default on the loan and the bank, exercising its right as mortgagee, has taken possession of the aircraft and is now seeking to effect a sale. Complications have arisen in the sale process because of the existence of the three orders I have mentioned, which have become matters of concern to potential buyers.

3. According to the evidence I have available, the way through this tangle identified by the mortgagee, Close Brothers, is to obtain a clear record, memorialised in appropriate orders of the court, that confirms its authority to convey title to the aircraft to an appropriate buyer.

4. Happily, as regards the position between Close Brothers, the mortgagee of the aircraft, and the applicants in the Chancery proceedings and the claimant in the Family proceedings, there is agreement about what should happen, which is that the aircraft should be sold, any relevant costs and expenses due under the mortgage and loan documentation should be deducted from the purchase price, and the balance paid into an account at a firm of solicitors, Wedlake Bell, to be held to the order of the court. So far, so good.

5. Mr Siam, however, has appeared before the court today and made a number of points by way of objection to this course of action. I am grateful to him for appearing by video-link from Egypt. I have been assisted, on the part of Close Brothers, by submissions from Mr Dominic Howells of counsel.

6. I think the appropriate course is for me to run through the points that Mr Siam has raised and set out my conclusions on them.

7. The first point was about service of the application notice relating to the present application to vary the relevant orders. The point made by Mr Siam there is that he is resident in Egypt and that service of official documents needs to be undertaken through the appropriate channels. However, Mr Howells has made the case that Woodstock 1 Limited is an English company and that Mr Siam, as a director of that company, has given an address for service within the jurisdiction via Companies House, and under section 1140 of the Companies Act 2006 and case law interpreting that provision, service at the nominated address against Mr Siam is good for all purposes, whether the documentation served relates to the business of the company or otherwise. That, I think, takes care of the question of service.

8. The second point made by Mr Siam is that there are a number of different freezing orders which are competing against each other. That may be true in the sense that, at the end of the day, there may be a limited pot of money against which parties with competing interests may seek to assert separate claims. However, it does not seem to me there is in any relevant sense a competition as far as the present application is concerned, because the applicants for the Chancery orders and the claimant in the Family proceedings are content with the proposed course of action I have described and indeed positively support it, and have signed consent orders reflecting their assent.

9. The third point is one about the proposed sale value of the aircraft, which I understand to be in the region of £3.1 million. Mr Siam’s point is that the market value of such an aircraft is much higher than that and that a sale at an undervalue would be disadvantageous to him and unnecessary at the present time. He makes the point that the litigation and legal activity around his business affairs has created the impression of a distressed sale, and that will have driven down the achievable price.

10. There may be force in those submissions, but it does not seem to me that they are points that can be dealt with on this application, which is simply for an order varying the orders I have mentioned, on a basis which is agreed by the parties who have the benefit of those orders. If there are points Mr Siam wishes to make about the propriety of the actions undertaken by the mortgagee, they are matters which should be pursued in a separate claim or action under the relevant loan agreement and mortgage. I have no jurisdiction on the present application to deal with such matters; indeed, they have not, I think, been raised clearly before today.

11. The fourth point made by Mr Siam relates to costs. This has a number of elements. One of the points made was that that the administrators in the Chancery proceedings and his ex-wife, who is the applicant for the freezing order in the Family proceedings, should be bearing their own legal fees. As far as this variation application is concerned, my understanding is that that is what they are doing. They seek no order today for recovery of any part of their legal fees incurred in connection with the variation application and the correspondence which has preceded it.

12. The mortgagee, Close Brothers, does seek its costs under relevant provisions contained in the loan agreement and the mortgage documentation, which in various forms give the mortgagee access to a wide set of contractual indemnities in respect of costs incurred by them in the business of enforcement. Close Brothers do press for an order for payment of costs under these provisions and, in the course of his submissions, Mr Howells has directed me to the provisions of CPR rule 44.5, which deal with the situation where the court is invited to assess costs payable to a receiving party under the terms of a contract. In such cases the costs payable are, unless the contract expressly provides otherwise, to be presumed to be costs which have been reasonably incurred and reasonable in amount.

13. The commentary in the White Book indicates that remedies may be available where a mortgagor considers that a mortgagee has acted unreasonably in incurring enforcement costs. There is a possible issue about that here, because there is a question whether a variation to the orders is really necessary or whether in fact they would permit the proposed sale anyway. I put that point to Mr Howells in submissions, but his counter to it is to rely on the evidence served by Close Brothers, which is that although, technically, it may not have been necessary for variations to have been sought, in practice, in the market, it was going to be an impossibility for Close Brothers to effect an orderly sale of the aircraft without a clear paper trail from the court affirming the authority of Close Brothers to confer good title on any purchaser. I accept that evidence which seems to me consistent with commonsense and an understanding of the concerns that naturally arise in a situation where freezing orders have been made and large-scale litigation is on foot. So I would say that, in principle, the mortgagee should be entitled to recover its costs and that those costs should, in turn, be deductible from the purchase price of the aircraft if and when it is sold.

14. Mr Siam has made the point that this seems unfair because, eventually, he may succeed in defending the litigation in which the injunctions have been made. He says that in the meantime, he should not be forced to pay costs which have only arisen because the injunctions are in place. It may turn out that he is eventually successful, and is able to show they should never have been made at all.

15. Again, there is logic in that submission, but there is a straightforward answer to it, which is that the orders contain cross-undertakings in damages given by the applicants, and the purpose of those cross-undertakings is a commitment given by the applicants to make good any losses that accrue by reason of the orders being in place, if eventually it turns out they should not have been granted.

16. The upshot of all that is that if costs are paid to Close Brothers, but if, at the end of the day, Mr Siam succeeds in showing that the injunctions should never have been made and the costs were incurred because of the injunctions, then he (or Woodstock 1 Limited) should be entitled to recover those costs and indeed any other associated losses from the applicants. So that, I think, deals with Mr Siam’s fourth point.

17. The fifth point concerns the position of Woodstock 1 Limited. Mr Siam made what seems to me to be a fair observation that the orders have been made on the footing that they should not interfere with the usual business operations of the respondents, including in particular Woodstock 1 Limited. He therefore says that it would be fairer and more consistent with the construction of the orders as a whole for any proceeds of sale, once expenses have been deducted, to be paid not to an account in the name of Wedlake Bell, but instead into an account in the name of Woodstock 1 Limited. If that were done, its business operations could continue.

18. I see some logic in that, in the sense that any accounts in the name of Woodstock are frozen, and so funds paid into such accounts should be safe, but held subject to the terms of the relevant orders, which permit expenditure in the ordinary course of business. Nonetheless, I do not consider that the arrangement now agreed with the applicants, namely for payment into the Wedlake Bell account, is in principle objectionable. The applicants will naturally have been cautious about the destination of any excess funds following sale of the aircraft and deduction of expenses (if there are any). I think there are two immediate answers to the point made by Mr Siam. The first is that if the aircraft is sold, then the business operations of Woodstock 1 Limited, at least in their present form, will very largely cease, so it is difficult to see what in practice will be lost. The second point to make is this: it seems to me that in principle the funds paid into the Wedlake Bell account should be held on the same terms as the terms expressed in the relevant orders. I will hear submissions about whether the draft orders before me need to be amended to reflect that fact and/or whether further steps need to be taken to regularise the position with the applicants. But certainly I do not see why the respondents should in principle be worse off under the variation that under the orders themselves.

19. Finally, Mr Siam has made other points about possible arrangements that would allow the aircraft, for a period of time, to continue to be leased, until a position is arrived at where its value has stabilised and it can be sold for a higher sum than the sum apparently on offer at present. Those are not, however, matters that this court can deal with on an application of this kind. It is possible that some kind of commercial arrangement can be entered into with Close Brothers, but that is a matter for negotiation between Mr Siam and Close Brothers and is not something that this court can assist with. - - - - - - - - - - - (This Judgment has been approved by the Judge.) Digital Transcription by Marten Walsh Cherer Ltd 2 nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP Tel No: 020 7067 2900. DX: 410 LDE Email: [email protected] Web: www.martenwalshcherer.com