Lexi Holdings v Luqman & Anor, Court of Appeal - Chancery Division, July 16, 2008, [2008] EWHC 1639 (Ch)

Resolution Date:July 16, 2008
Issuing Organization:Chancery Division
Actores:Lexi Holdings v Luqman & Anor

Neutral Citation Number: [2008] EWHC 1639 (Ch)

Case No: HC06C04067



Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 16/07/2008

Before :


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Between :


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Mr Philip Marshall QC and Ms Ruth Holtham (instructed by DLA Piper UK LLP, 3 Noble Street, London EC2V 7EE) for the Claimant

Mr Paul Chaisty QC and Mr Nigel Bird (instructed by Turner Parkinson LLP, Hollins Chambers, 64a Bridge Street, Manchester M3 3BA) for the Defendants

Hearing dates: 10th − 19th June 2008

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Mr Justice Briggs :


  1. On 16th November 2007 I handed down judgment on applications for summary judgment pursuant to CPR Part 24 against the second, third and fourth defendants. They are respectively the brother and sisters of the first defendant, one Shaid Luqman (“Shaid”). In paragraph 4 of that judgment I said:

    “… the claim, if it is well founded, describes a fraud which is truly shocking in its scale and audacity. It is alleged that, over a period of little more than three years, Shaid misappropriated in excess of £53 million from the Claimant and in addition caused further substantial loss by loans to and transactions with parties connected with the directors, all under the noses of the claimant’s auditors, solicitors and funding bankers, while at the same time gaining the award of Young Entrepreneur of the Year, by the abuse of trust, confidence and esteem conferred upon a person with a serious prior criminal record of dishonesty for which he had been twice imprisoned during the 1990s. A full trial of all the issues would be a very major undertaking indeed.”

  2. The second defendant (“Waheed”) was at all material times a shadow director of the claimant company (“Lexi”). The third defendant (“Monuza”) was a director of Lexi from 14th October 2003. The fourth defendant (“Zaurian”) was a director of Lexi throughout.

  3. As originally pleaded, Lexi’s claim against each of these defendants was that they were liable in respect of the whole of the consequences of their brother Shaid’s misconduct, as having authorised or permitted it. By the time of the five day hearing of the summary judgment applications (in October and November 2007), Lexi had refined its case. As against Waheed the case was that he had been sufficiently actively engaged in Lexi’s business activities for it to be a proper inference that he had authorised and permitted Shaid’s misconduct throughout. As against Monuza and Zaurian it was said that they had incurred liability not by way of active authorisation or permission, but rather by their wholesale neglect in the performance of their directors’ duties, by taking no part in the management or supervision of Lexi’s business, and by taking no steps to appraise themselves of the manner in which it was being conducted.

  4. By advancing its claims against Waheed, Monuza and Zaurian in that general way, it was incumbent upon Lexi to establish (to the high standard required for the purposes of summary judgment) that the large scale fraud which Lexi alleged against Shaid had indeed been committed by him. By the time of the summary judgment hearing, Shaid’s defence had been struck out and he had been barred from defending the claim against him, by reason of repeated failures to comply with court orders against him, for which he had also been committed to prison for contempt of court, for a maximum period of two years. The summary judgment applications against Waheed, Monuza and Zaurian therefore took place in Shaid’s absence, but they adopted a substantial part of his earlier defence, so that it was necessary for Lexi, before it could establish accessory liability on the part of these defendants, to establish its primary case against Shaid in the presence of, so as to be binding upon, these defendants.

  5. The outcome of the hearing of the summary judgment applications may be summarised as follows:

    (1) As against Shaid:

    (a) Lexi did establish the bulk, albeit not the totality, of its claims against Shaid as to misappropriations of assets, as to loans contravening section 330 of the Companies Act 1985, as to property transactions contravening section 320 of the same Act, and as to the creation of a fictitious directors’ loan account: see paragraphs 195 to 199 of my November judgment.

    (b) In relation to a small number of misappropriations alleged against Shaid there were arguable defences available to these defendants, even though Shaid was barred from defending.

    (c) In relation to some of the alleged infringements of section 330 there were triable issues whether the borrowing companies, Lexus, Halfway, KNJ and Beauchamp were connected in the relevant sense with Shaid or with any other director of Lexi, and no evidence in relation to an alleged loan of £425,000 to Serton.

    (d) In relation to the alleged infringements of section 320, the same triable issues as to the relevant connection arose in relation to transactions with the same four companies, Lexus, Halfway, KNJ and Beauchamp.

    (e) There was a triable issue whether the fictitious loan account had caused Lexi any greater loss than that caused by the misappropriations for which Shaid used the loan account as a cover.

    (2) As against Waheed:

    (a) He was liable to the same extent as Shaid for having authorised or permitted all Shaid’s misappropriations and infringements of sections 330 and 320, subject to the exceptions mentioned above.

    (b) There was to be money judgment against Waheed for £41,388,993.16 in relation to those specific misappropriations, and an account and inquiry as to loss suffered by Lexi, or profit made by him arising from the remainder of the misappropriations and the loans and other transactions infringing sections 330 and 320.

    See paragraph 249(1) and (2) of my November judgment.

    (3) As against Monuza and Zaurian:

    (a) They were to have leave to defend all the claims made against them, save for the allegation that, by their total inactivity while directors, they had committed breaches of their duties.

    See paragraph 249(3) of my November judgment.

  6. The reason why I was not satisfied that Monuza and Zaurian’s breaches of duty gave rise to any entitlement of Lexi to a money judgment against them was because I considered that there were triable issues whether their inactivity had caused Lexi any loss. This was because I was not satisfied to the standard required by a summary judgment application that, had they performed their duties, they would either have discovered Shaid’s misconduct or, even if they had discovered it, that they would have been able to bring it to an end: see paragraphs 225 to 228 of my November judgment in relation to Monuza and paragraph 247 in relation to Zaurian. Aspects of the way in which the case had developed against Monuza and Zaurian also led me to the conclusion that it would not have been procedurally fair to either of them to resolve the question of causation against them at that stage.

  7. The outcome of that judgment was that it was necessary for me to give directions for a trial of the outstanding issues, both as between Lexi and Waheed, leaving aside the very large monetary judgment which they had obtained against him and, as between Lexi, Monuza and Zaurian, save only in relation to my finding of breach of duty. Those directions contemplated and were designed to enable all necessary preparation to be made for a single trial of all outstanding issues between Lexi and those three defendants. I gave those directions on 23rd November 2007.

  8. Thereafter, on 6th December Lexi obtained default judgment against Shaid for just under £60 million, together with orders for accounts and inquiries (mainly in relation to the section 330 and section 320 infringements). On 21st February 2008 the Court of Appeal dismissed an application for permission to appeal by these three defendants against my November judgment and consequential orders. On 6th March Waheed informed Lexi that he no longer intended to continue to contest their claims and on 17th March a bankruptcy order was made against him on his own petition.

  9. On 21st April 2008, largely due to Waheed’s departure from the case, a consent order was made between Lexi, Monuza and Zaurian, the effect of which was to extract from the trial, for further consideration thereafter, all quantum issues arising out of the alleged infringements of sections 330 and 320. The consent order also recorded, without resolving, a disagreement between those parties as to whether a further issue, by then pleaded in paragraph 37 of Points of Claim pursuant to my directions in November 2007, should or should not be determined at the trial. That disagreement remained un-determined at the beginning of the trial, and after hearing argument I ruled that the issue (“the paragraph 37 issue”) should be determined at the trial, Lexi’s case in relation to it having been sufficiently deployed by means of the Points of Claim to give Monuza and Zaurian time to...

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