Hussain v Salam

A party may impugn an agreement as a sham even where the agreement was intended to prevent a third party enforcing a judgment debt. A sham requires acts or documents intended by the parties to create an appearance of legal rights and obligations different from those they actually intended to create. Where a lower decision-maker treats the agreement as conclusive without determining that issue, and without deciding the underlying beneficial ownership, the decision cannot stand. The matter should be remitted for the necessary factual findings. Where credibility findings were inadequately reasoned and the evidence of one party was apparently accepted uncritically, the rehearing should ordinarily be conducted by a different decision-maker.

This was an appeal from decisions of the Adjudicator to HM Land Registry concerning the registration of a transfer of a leasehold property from Zakir Hussain and Abdus Salam jointly into Mr Salam’s sole name. The Deputy Adjudicator found that Mr Hussain had knowingly signed both the transfer and a 1999 general agreement stating that he had no beneficial interest in the property.

Mr Hussain challenged those findings and contended that the general agreement was a sham, or that he had not knowingly participated in it. The central issues were whether the agreement required investigation as a possible sham and, if so, whether the beneficial ownership arising from the original acquisition had been properly determined.

1. Appeal allowed and matter remitted. The Deputy Adjudicator’s decisions were set aside to the extent necessary, and the matter was remitted for rehearing before a person other than the original Deputy Adjudicator.
2. A sham transaction involves acts done or documents executed by the parties which are intended to give third parties or the court the appearance of creating legal rights and obligations different from the actual rights and obligations intended by the parties. The court adopted the formulation in Snook v London & West Riding Investments Ltd [1967] ZQB 786.
3. There was a credible evidential basis for investigating whether the general agreement was a sham, including its alleged use to prevent enforcement against Mr Hussain’s interest in the property. The fact that the agreement may have been intended as a dishonest means of defeating a third party’s claim did not prevent Mr Hussain from impugning it. The court relied on Vickers v Jackson [2011] 3 EGLR 65 (CA) at [20]–[23].
4. If the general agreement was a sham, it could not conclude the question of beneficial ownership or justify registration of the transfer in Mr Salam’s sole name. The Deputy Adjudicator therefore erred in treating the agreement as disposing of the ownership issue without first determining whether it was genuine and, if not, how the property had been beneficially acquired and owned.
5. The appellate court could not itself make the necessary factual findings because it was exercising a purely appellate jurisdiction. The Deputy Adjudicator had also failed adequately to address the credibility of the father and son, whose evidence conflicted on many matters, and appeared to have accepted much of Mr Salam’s evidence uncritically. A rehearing by a different person was therefore appropriate. It was unnecessary to decide the arguments concerning section 25 of the Land Registration Act 2002 or the Land Registration Rules 2003.

• High Court (Chancery Division): Appeal from the decisions of the Deputy Adjudicator to HM Land Registry dated 13 October and 3 November 2011. Appeal allowed and matter remitted for rehearing before a different adjudicator.