Case No: A3/2012/0653
Neutral Citation Number: [2013] EWCA Civ 227
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR DAVID DONALDSON QC sitting as a Deputy High Court Judge
HC07C01848
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 20/03/2013
Before :

LORD JUSTICE MUMMERY
LORD JUSTICE TOMLINSON 
and
LORD JUSTICE DAVIS
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Between :

	  LIORA SHAMI	Appellant	
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	(1)	MEIR SHAMI
(2)	EYAL SHAMI	Respondent	

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(Transcript of the Handed Down Judgment of
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MR ALI REZA SINAI (instructed by OGR Stock Denton LLP) for the Appellant

The First Respondent appeared in person
  
MR GABRIEL BUTTIMORE for the Second Respondent

Hearing date: 22nd November 2012
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Judgment
Lord Justice Mummery: 
Introductory
1.	This appeal is the most recent chapter in a family dispute about a residential property in London. There have been divorce proceedings in the rabbinical courts in Israel, matrimonial property proceedings in the civil courts of Israel (for 12 years or more) and land registration proceedings in the English courts (for almost 6 years.) Given the poor state of the relationships between the parties, the complications of multiple jurisdictions and the need to traverse some less well-trodden legal by-ways, it is as well to make absolutely clear at the outset (a) what this appeal is not about and (b) what it is about.
2.	First, what it is not about. This appeal is not about the matrimonial property issues already heard and decided as between the divorcing parties in Israel. In particular, it is not about determining (a) as between the divorcing parties, the existence of a trust of real property in England, or the extent of the beneficial interests in it, those matters having already been the subject of two judgments in the Israeli civil courts; or (b) any liability of a third party as an accessory to a breach of trust, or as a constructive trustee; or (c) whether there are any grounds for setting aside legal charges granted to a third party by a divorcing party, as the legal owner of the disputed property, without the knowledge or consent of the other divorcing party; or (d) the precise figures for the indebtedness secured by the legal charges. 
3.	Next, what the appeal is about. This appeal is about the right of a third party to register charges on the disputed property under the provisions of the Land Registration Acts 1925 and 2002 against the opposition of a divorcing party, who relies on the Israeli judgments as establishing the relationship of trustee and beneficiary and an equal beneficial interest in the property. 
The proceedings and the parties 
4.	In Israel there were years of matrimonial property litigation both before and after the grant of a divorce by the rabbinical courts there in 2003. The English proceedings stem from the matrimonial breakdown in Israel played out against the background of an extended family involvement in dealings with the disputed property.
5.	The parties are the wife, Liora, who is the claimant and is represented by Mr Sinai; and her husband, Meir, who is the first defendant, is not represented and has not been able to contribute much of value to this appeal. It is convenient to refer to them in this judgment as “wife” and “husband” respectively, even though they ceased to be such 10 years ago.  The husband’s younger brother, Eyal, is also a defendant and is represented by Mr Buttimore.
6.	The wife and the husband litigated in Israel about the beneficial ownership of a long leasehold residential property located in North London. The brother came into the picture with claims of entitlement to two legal charges granted by the husband without the wife’s knowledge or consent. The wife says that the property was and is held by the husband upon beneficial trusts jointly for her and the husband, and that the legal charges do not bind her or her interest in the property. The brother says that, as far as he is concerned, the property belonged solely to the husband and it is subject to his two legal charges to secure alleged debts, past and future, owing by the husband to him. What little the husband has to say, or is in a position to say, will be touched on in due course. 
7.	The long leasehold interest is in a four bedroomed flat at 3 Douglas Court, Quex Road, West Hampstead London NW6 (the Flat). The husband bought it in his own name more than 20 years ago and registered it at HM Land Registry in his sole name.  
8.	The main dispute is between the wife and the brother about the registration of the brother’s two legal charges made in 1995 and 2006. The husband does not contest his brother’s right to register the charges. The wife, who does, has taken the formal steps to challenge registration. Those steps triggered this litigation.
9.	This appeal is about whether the deputy judge was wrong in his rulings on   the application of the Land Registration Acts to the two legal charges. In the case of the first charge, the wife disputed the registration by a caution. In the case of the second charge, she sought, by a restriction on the Register, to prevent its registration. The issues arising were directed by the Adjudicator to the Land Registry to be decided by proceedings in the High Court.
10.	The matters to be determined by the court were whether the wife has a beneficial interest in the Flat and, if so, the extent thereof; whether the brother was entitled to registration of the 2006 charge; and whether the claimant’s caution against the 1995 charge should remain on the register.
11.	In the proceedings the wife also sought, in the alternative, other remedies: an order that the charges should be satisfied out of the husband’s share of the Flat only, an order for the sale of the Flat, a declaration that she has an interest in the Flat overriding any interest of the brother and an account of the rental income received by the husband and his brother from the Flat. 
12.	In his resolution of the issues the deputy judge identified two distinct aspects of the case: (a) the position as between the wife and the husband and (b) the position as between the wife and the brother. That distinction is clearly reflected in the form of the order. The first part of it contained orders as against the husband. The second part of it contained orders as against the brother.   They overlap, but are clearer kept separate.
The wife’s appeal       
13.	The wife’s appeal is from parts of an order dated 22 February 2012  (paragraphs 3,4,5 and 7 to 10) made by Mr David Donaldson QC (sitting as  deputy judge of the High Court) on dismissing some of her claims against the husband and most of her claims against the brother. The effect of those orders was (a) to uphold the registration of a charge dated 15 August 1995 (the 1995 Charge), which was granted on 15 August 1995 and registered on 21 August 1995  and purported to secure the sum of £77,000 plus interest; and (b) to allow the registration of a charge dated 19 October 2006 (the 2006 Charge), which  purported to secure the sum of £69,350.87 and future debts, plus interest. Claims against the husband and the brother for an order for sale and for accounts were adjourned. 
14.	The wife seeks from this court an order against the brother that the 1995 Charge be removed from the Land Register and that the registration of the 2006 Charge be refused. She also challenges the deputy judge’s decision to defer the issues of an order for the sale of the Flat and for an account and inquiry as to income received and disbursements made in connection with the Flat.
15.	I should add that, as regards the husband, the unappealed order against him (a) declared that, as between him and the wife, the judgment obtained by her in the Israeli courts that he holds the Flat on trust in equal shares for himself and the wife is entitled to recognition in proceedings as between them in the English courts, and (b) directed that the register of the Flat in the Land Registry be altered to include a restriction protecting that declared beneficial interest of the wife.    
16.	On 28 May 2012 Arden LJ granted the claimant permission to appeal from the order in favour of the brother, which had been refused by the deputy judge. 
17.	At this point it is worth noting that the wife has not appealed against (a) the finding of the deputy judge that the judgments of the Israeli court regarding her beneficial interest in the Flat did not bind the brother, who was not a party to the Israeli proceedings; or (b) the finding that, as between the wife and the brother, the wife had not in fact established that she has a beneficial interest in the Flat. 
18.	With that introduction I will refer to more of the background before turning to the judgment under appeal and the grounds of appeal.
More background
19.	The wife and the husband, who are Israeli nationals, were married on 8 June 1986. In the early years of their married life they lived in Israel. For a while they ran an import-export business in textiles through an Israeli company in which they were the shareholders. The company bought garments from Israeli designers and manufacturers and re-sold them in Europe. From 1986 the husband came to London, sometimes with the wife, as often as seven or eight times a year on company business, and stayed in hotels or service apartments.    
20.	The husband purchased the Flat in his sole name on 8 January 1990 for £110,000 with the assistance of a loan of £83,000 from the Halifax Building Society. The Flat was registered in his sole name, after some delay, on 18 July 1991. It was subject to a charge executed by the husband in favour of the Halifax on 9 January 1990.
21.	There is a dispute about the source of the balance of the purchase price, which was paid in cash. The wife says that the cash came from their joint funds: the husband and his brother say that it came from the brother as a loan of about £27,000 and legal costs. The brother ran a successful aerobic dance school or studio in Israel and came to London frequently to audition and recruit dancers.
22.	The Flat was let out for short periods as bed sits, the income from which would cover outgoings, including mortgage repayments, though that was not always the case in practice. The Flat was managed on behalf of the brother, who was also in Israel, by a friend of his, Mrs June Smith. The wife and the husband sometimes stayed in a vacant room in the Flat, but from about 1990 the business trips to London ceased, as the company business became unprofitable. The husband incurred some substantial debts.    
23.	On 15 August 1995 the husband granted the 1995 Charge to his brother to secure the sum of £77,000 plus interest. That charge was registered at HM Land Registry on 21 August 1995. According to the husband and his brother the sum of £77,000 represented £27,000 paid as the balance of the purchase price, additional costs and other payments made by the brother on behalf of the husband, in particular debts due to one David Oliver and to the NatWest, the occasional shortfall in payment of mortgage instalments and outgoings on the Flat.  
24.	Shortly before that, on 26 June 1995, the husband had started divorce proceedings in the Tel-Aviv Rabbinical Court on the ground of the wife’s adultery. 
25.	By a judgment of 23 July 1998 the Court of Family Affairs in Tel-Aviv held, by way of interim declaratory relief, that the Flat was jointly owned by the wife  and the husband, who did not dispute the wife’s half interest in the Flat. The brother was not a party to those proceedings. No evidence was given in those proceedings of the alleged debt owing to him or of his charge on the Flat.  The wife’s claim was based on the general law and on the Spouses (Property Relations) Law, an Israeli statute requiring, by way of an in personam claim, that the assets of each spouse to be ascertained and equalised by a payment or transfer equal to half the difference. 
26.	On 21 January 1999 the wife registered a caution against the Flat at the Land Registry on the basis of the 1998 judgment. Her application stated that, although the husband had registered the Flat in his name, she had the Israeli Court decision dated 23 July 1998 confirming that she was a co-equal owner of the Flat. 
27.	The marriage was dissolved by the Tel-Aviv Rabbinical Court on 6 January 2003. On 21 October 2003 the Tel-Aviv Civil Court made a further order declaring that the husband holds the Flat on trust jointly for himself and the wife in equal shares.
28.	On 2 March 2005 the Tel-Aviv Civil Court ordered that steps be taken towards the sale of the Flat. In May 2005 the husband left Israel for London. Since then he has lived in the Flat. Mrs June Smith, who died about that time, had passed papers relating to the Flat to the brother’s solicitors. The wife, who still lives in Israel, has re-married.
29.	The husband executed on 19 October 2006 the 2006 Charge on the Flat in favour of his brother to secure the sum of £69,350.87. The wife opposed registration of the 2006 Charge. She placed a restriction on the register and  began legal proceedings. On 19 April 2007 the Land Adjudicator gave directions requiring these proceedings to be issued to determine the wife’s beneficial interest in the Flat, the registration of the 2006 charge and the caution against the 1995 charge. 
30.	On 30 January 2007 the Tel-Aviv District Court had given a default money judgment against the husband and ordered that that award should be set off against any proceeds obtained from the sale of the Flat. That judgment was registered in the High Court in England on 22 March 2007. The husband made an unsuccessful attempt to set it aside.
Judgment
31.	In an excellent judgment the deputy judge made the following findings of fact and legal rulings relevant to this appeal.   
Tel-Aviv judgments 23 July 1998 and 21 October 2003
32.	The wife’s primary case in opposing the registration of the brother’s charges was based on the judgments of the Israeli courts.
33.	The deputy judge concluded against the wife that an Israeli judgment declaring the existence of a trust relating to land outside Israel was not entitled to recognition under s.8(1) of the Foreign Judgments Act 1933. It is unnecessary to repeat the deputy judge’s detailed review of the relevant legislation, as the wife does not appeal from that ruling. 
34.	The deputy judge went on to hold that the Israeli judgments relating to a trust of the Flat were entitled to recognition at common law in the English Courts as a judgment in personam and as deciding points of law and fact as between the wife and the husband. Although the 1998 judgment did not identify any fact founding a trust of the Flat, the 2003 judgment referred explicitly to the spouses’ equal shares in the Flat, though without stating reasons for that conclusion.
35.	The wife has not appealed from the ruling of the deputy judge that that Israeli judgments were not binding on the brother.
Common intention 
36.	The deputy judge went on to consider the wife’s case that, even ignoring the two Israeli judgments, and based solely on the factual evidence in these proceedings, the husband held the Flat upon trust for himself and the wife in equal beneficial shares. 
37.	Having reviewed the evidence, the deputy judge concluded that he was unable to find as a fact any common intention on the part of the wife and the husband that the Flat should be beneficially owned by them both. It is unnecessary to refer to that evidence in detail, as the wife has not appealed against that finding. The important points are that he found that, although the evidence of the husband and the brother was “highly unsatisfactory and contradictory as to the basis of the relationship between them in the purchase of the property” he was satisfied that there was no question, so far as either of them was concerned, of the wife having a share in the Flat. He was also satisfied that the husband never agreed with, or suggested to, the wife that the Flat was to be owned jointly and that there was nothing in the subsequent actions of the parties that led him to a finding that the wife had a beneficial interest in the property.  As to the source of the funds for the purchase of the Flat, the deputy judge found that the £27,000 came from the brother and was paid directly from Israel through a banker friend.  
38.	The deputy judge summed up the legal position as follows:-
“54. Accordingly, the Claimant’s entitlement to a beneficial interest in the London property is entirely dependent on the recognition of the decision of the Israeli court; and in considering the Claimant’s case against the Second Defendant, who is not bound by that decision, I must proceed on the basis that there is no such beneficial interest. This does not involve or result in some form of forensic schizophrenia; the “true” position as determined by this court is rather that there is no beneficial interest, but the First Defendant (unlike his brother) is simply estopped per rem judiciatam from so contending.”    
39.	The deputy judge went on to deal with the position as between the wife and the brother. 
The 1995 charge and contribution to purchase price
40.	As already noted, the deputy judge had found as a fact that the brother advanced £27,000 in early 1990 towards the purchase price of the Flat as a loan. He held that there was no basis for concluding that it was a gift. Although the 1995 Charge was described by the wife as not “genuine”, it was not pleaded that it was a sham and the deputy judge added that he would have rejected any such submission, if it had been made.
41.	The deputy judge found that the 1995 Charge was an effective charge for the stated sum of £77,000, that there was no proper basis for ordering that it be removed from the register and he allowed it to remain on the Land Register. He rejected the contention that the charge was ineffective if or to the extent that any part related to monies which had not in fact been advanced by the brother either at all or by way of loan. 
42.	The deputy judge also concluded that the brother’s security rights under the 1995 charge were not affected by the beneficial interest of the wife declared by the Israeli court. Unlike the husband, the brother was not estopped from disputing the beneficial interest. So, as between him and the wife, the legal position was determined by the deputy judge’s ruling on the evidence in these proceedings that no such interest had in fact been established. 
43.	The deputy judge also found that, even if that were wrong, the charge would not have been affected by any interest of the wife in it. It is unnecessary to go into that aspect of the matter, as no appeal has been brought by the wife against the deputy judge’s factual finding that, on the evidence, she had no beneficial interest in the Flat.   
The 2006 charge 
44.	The judge allowed the 2006 Charge to be registered on the Land Register. He held that:-
“65. …The figure of £69,850.87 is said to represent sums expended by the Second Defendant in relation to the property between 1995 and 2005 and was almost certainly arrived at on the basis of the materials provided by June Smith shortly before her death. Though it is not possible to recreate the precise calculation of that sum, I accept that sums of that order were paid by the Second Defendant during that period. As to the basis on which such payments were made, my earlier comments regarding payments up to 1995 apply similarly, and I do not exclude the possibility that the First Defendant was entitled to reimbursement of some or all of them. Here again, however, that does not impact on the validity or effect of the deed as regards the sum of £69,350.87. As to that amount the covenant, in clause 3.1, to pay the secured monies is independent, and requires no proof, of any outside dealings. Moreover, the 2006 charge is not limited to £69,350.87 but covers all any monies which might subsequently become due…”           
Purchaser in good faith and priority 
45.	The position thus far is that the judge found that it was only in relation to the wife and the husband that the wife was to be regarded as having a beneficial interest and that, as between the wife and the brother, the wife had not established a beneficial interest in the Flat. Accordingly, no priority issue arose as between her claim to a beneficial interest and the brother’s claim to his charges. That conclusion was not challenged on the appeal.
46.	The deputy judge went on to explain that, even if that were wrong, the wife’s  argument would face serious further difficulties in establishing that a registered charge would be affected by the interest claimed by  her, as it would be overreached, if the disposition to the brother was for valuable consideration. 
Account and sale
47.	The deputy judge deferred the claim for an order for sale saying that there were other substantial questions not so far addressed before those matters could be decided at a separate hearing after further evidence and submissions.
48.	As for an account of the income received from the Flat the deputy judge said that it must form part of a larger enquiry and account about expenditure of the income on outgoings, including payments under the mortgage and whether the husband is entitled to credit for outgoings and for liability to reimburse the brother for any payments made by him, and possibly other matters.
Costs
49.	The deputy judge ordered the husband to pay 50% of the wife’s costs and the wife to pay 80% of the brother’s costs.  
The wife’s submissions
50.	The wife’s submissions did not challenge the rulings of the deputy judge on the effect of the Israeli judgments as against the brother or his finding of fact that, as against the brother, the wife’s evidence in this action had not established that she had a beneficial interest in the Flat.
51.	The main grounds of appeal challenged the deputy judge’s findings on other facts in the case and on the exercise of his discretion.  
The Israeli judgments 
52.	Mr Sinai submitted that, in consequence of the Israeli judgments, there was a relationship of trustee and beneficiary in relation to the Flat, which was recognised in English law and of which the brother had constructive notice. That position was not properly reflected by the mistaken entry of charges on the land register, when they did not represent the true state of indebtedness to the brother.
Contribution of brother to purchase price
53.	Mr Sinai contended that the deputy judge erred in finding the brother had made contribution of £27,000 or thereabouts to the purchase of the Flat. That  finding, he said, was perverse, as it was unsupported by any independent or documentary evidence of a kind that must be available.
54.	The deputy judge had not taken account of other funds that were available to cover the cost of purchase without a loan from the brother. There was also evidence that the London business operated by the wife and the husband was able to pay suppliers and pay for regular international travel. The oral evidence of the brother, on which the deputy judge based his decision, was given for the first time at trial and was unsubstantiated and uncorroborated. His conclusion was also contrary to some contemporaneous documents available from the Halifax. 
Allowing the 1995 charge to remain on the register  
55.	In the absence of a finding of genuine indebtedness for the entire amount charged, Mr Sinai contended that this charge should be removed from the Land Register. There was no evidence of genuine indebtedness secured by the charge, which should not have been registered. Mr Sinai did not assert that the 1995 charge was a sham, but contended that its sole purpose was to defeat the wife’s beneficial interest in the Flat.
56.	Rental payments from the Flat had been received from 23 July 1991 and there was evidence that they, rather than monies lent by the brother, were used to fund the mortgage repayments to the Halifax. It was meant to be a self-financing project.  The brother had not disclosed documentary proof of having paid the mortgage instalments.
2006 charge 
57.	Mr Sinai contends that the 2006 Charge should not be allowed to be registered as securing a loan of £69,350.87 plus further advances secured. The deputy judge failed to find that an agreement for a loan existed, or how much had in fact been advanced by the brother. There was no evidence in support of the amount of the underlying indebtedness secured by the 2006 Charge. 
Purchaser in good faith 
58.	Mr Sinai contended that the brother was not a purchaser in good faith. He was  complicit in the husband’s breaches of trust. The brother had the same notice of the wife’s caution as the Halifax had, when it turned down the husband’s application for increased borrowing under his mortgage to it.   
Account and sale
59.	The deputy judge was wrong to defer the claimant’s claims for an account and for sale. The husband does not oppose a sale. The husband produced no evidence of hardship caused by a sale. He had charged all his interest in the Flat.
Costs
60.	The order for costs in the brother’s favour was unjust and contrary to principle. The wife’s entitlement to costs against the husband should not have been reduced by 50%. She had succeeded on every substantive point against the husband. 
Discussion and conclusions
61.	As noted earlier, there is no challenge in the grounds of appeal to the deputy judge’s ruling that the Israeli judgments did not bind the brother or to the finding that, as between the wife and the brother, the wife has not established that she had or has any beneficial interest in the Flat. In those circumstances, although Mr Sinai submitted that he was not challenging the judge’s findings of fact, the bulk of his submissions faced the well established difficulties of persuading an appeal court to interfere with the primary findings of the trial judge.   
Contribution of £27,000 by the brother to purchase price
62.	The source of the balance of the purchase price of the Flat is a question of primary fact. It was decided by the deputy judge on the basis of the evidence before him. In my judgment, he was entitled to make the finding that he did. Mr Sinai was hampered in his attack on the deputy judge’s findings by the absence of a complete transcript of the evidence of the wife and the husband.
63.	The Halifax documents relied on by Mr Sinai do not establish the ultimate source of the balance of the purchase price paid on completion. The source was not identified in the Halifax documents. As for the availability of other funds the position was that neither side produced any documents corroborating the source of the funds. As for the argument against the evidence given by the brother for the first time at the trial, that is an attack on the credibility of oral evidence. It was for the deputy judge to make that judgment. He accepted the evidence of the brother and the husband that the brother was the ultimate source of the balance.   
Allowing 1995 charge to remain on the Land Register
64.	The suggestion that the deputy judge did not make a finding of indebtedness for the entire amount charged does not affect the validity of the charge. A charge would remain valid and properly registrable as securing the underlying debt, even if it is not established that the whole sum is outstanding. In any event the deputy judge in fact found that the charge secured a loan of an initial £27,000 together with certain other payments mentioned in his judgment, including a payment to a solicitor and to Mr David Oliver, who had obtained a charging order over the Flat and to whom £9,000 had been paid by the brother on the husband’s behalf. The deputy judge found as a fact that the charge deed created a binding obligation for the payment of £77,000 plus interest as between the husband and the brother. That finding was not challenged on the appeal.      
Registration of 2006 charge
65.	This is the most troublesome aspect of the case.
66.	There was no pleading to the effect that the loan for £69,350.87 was not genuine or was a sham, though the case opened at trial was that 2006 charge was not genuine. The deputy judge found that sums of that order were paid by the brother, that the charge covered any monies that might become due and that the charge should be registered.  
67.	Mr Buttimore reserved the right to contend that the deputy judge had made a decision on the actual sums due to the brother which was res judicata between the wife, on the one hand, and the husband and his brother, on the other hand. However, I am not satisfied that it was necessary for the deputy judge to decide, or that he was entitled, on the evidence before him, to find how much was owed to the brother. That was not an issue which he was required to decide. The focus was on the registration of the charge rather than on the precise amount of the indebtedness secured by it.  It will be a matter for more detailed consideration when it has to be decided how much the brother is entitled to be paid out of the proceeds of sale of the Flat.      
Purchaser in good faith
68.	This objection was beside the point, as the deputy judge found that, as against the brother, the wife had not established a beneficial interest in the Flat which would bind him. As a matter of law, he was not bound by the Israeli judgments obtained in proceedings in which he was not a party and, as a matter of fact, the wife had not established, as against the brother, that the Flat was held by the husband on trust. The position of the husband was different, as he was estopped by the Israeli judgments from asserting that the wife was a beneficiary under a trust.   
Account and sale 
69.	In my judgment, the deputy judge was entitled to come to the conclusion that it was premature for him to consider the question of the sale and accounts. It was within the discretion of the court to adjourn those matters, which were not addressed in the skeleton arguments or the subject of completed evidence, such as proper valuation evidence.   
Costs
70.	As for the costs order regarding the issues between the wife and the husband the deputy judge was entitled on the material before him to exercise his discretion to order the husband to pay a proportion of the costs of the wife, who had not been wholly successful, and to order the wife to pay the majority of the costs of the brother, who had been mainly successful. I do not detect any error of principle and it cannot be said that the costs orders were plainly wrong.
Result
71.	I would dismiss the wife’s appeal. I have not been persuaded by the arguments of Mr Sinai that the deputy judge was wrong on any of the points challenged by the wife in this appeal.  
72.	Any beneficial interest that the wife has in the Flat exists solely by virtue of the Israeli judgments. They were obtained only against the husband.  The brother was not a party to the matrimonial proceedings between the husband and the wife. He was not bound by decisions made in them.
73.	Apart from the Israeli judgments, the wife has not established that she has any beneficial interest in the Flat as against the brother.  As he is neither affected by those judgments, nor by an implied trust of the Flat (if any) established under English law, his charges on the Flat are registrable.
74.	I express no view on any other disputes that may need to be resolved. 
Lord Justice Tomlinson:
75.	I agree.
Lord Justice Davis:   
76.	I also agree.