Goldtrail Travel Ltd v Aydin & Ors

As the “Common Sense v Conspiracy” document made clear, this is the central focus of the appellants’ appeal. The thrust of the appellants’ argument under this ground is that it was uncommercial to regard Goldtrail as having had a free standing opportunity to recover a significant payment for the Viking 5 year Seat Commitment. It is worth making clear that this is a purely factual argument.

The appellants point to the detailed course of negotiations and the fact, already alluded to, that Mr Aydin always wanted £2 million for 50% of his shares in Goldtrail. They say that, although “the deal was subsequently dressed up as a combined share sale and ‘commercial’ agreement”, its essential character remained that of a share sale throughout. There was, the appellants submit, no meaningful evidence to suggest that the overall deal was divisible. The judge failed to consider why, if there was a free standing long-term flying commitment, the appellants would want to buy Mr Aydin’s shares. Mr Wyatt had said in evidence that he did not want to pay twice for anything. In any event, there was a total failure of the consideration paid for the Viking 5 year Seat Commitment. The appellants asked us to engage on an analysis of some of the emails relied upon by the judge, in order to show that it was never intended to pay £1.4 million or any sum for a 5 year seat commitment.

I do not intend to revisit the details of the evidence in this judgment. Suffice it to say that I find the reasoning in paragraphs 94-108 of the judge’s judgment entirely convincing. It is enough to point to one or two of the key points upon which the judge relied. First, she unequivocally rejected the evidence of each of the individual appellants about the non-existence of the Viking 5 year Seat Commitment. She pointed to a number of contemporaneous documents to support the existence of this commitment. These included documents emanating from early on in the negotiations in late 2008, through documents in mid-2009, to Mr Stephensen’s email of 26^th January 2010 to his two colleagues, Messrs Sigurdarson and Wyatt, saying that the £1.4 million was paid by Viking “in form of seat rate commission (for a 5 year seat sale agreement)”. I was not persuaded by the appellants’ submission that the words “in form of” detracted from the obvious significance of this document, sent as it was only amongst the appellants. Mr Stephensen again reported to his colleagues in his aptly named “Project Pirate” presentation that “Viking will be secured with a 5 year seat sale agreement”.

The judge, however, relied most heavily on two post-administration events that seemed to prove beyond real doubt that there was a 5 year seat commitment. The first of these was the minutes of Viking’s board on 22^nd July 2010 recording that it was of concern that it had lost “the long term commercial agreement with the owner of Goldtrail which secures a substantial long-term capacity” (just after Goldtrail’s insolvency). The second event relied upon by the judge was the appellants’ solicitors’ response dated 31^st May 2011 to the liquidators’ letter before action, which itself referred without demur to the “Long Term Seat Commitment Agreement” that Viking and Goldtrail had concluded, pursuant to which the VSSA had been entered into. Mr Eaton Turner’s explanations for these documents turned on the unconvincing evidence of his clients which the judge had wholly rejected. In essence, he said that no seat commitment was needed when his clients would own 50% of Goldtrail. The problem is that the appellants seemed to value the seat commitment at the time, even if with hindsight they wished to disown it. Most importantly, Viking actually signed up to schedule 2 of the Viking Brokerage Agreement which included the terms of the Viking 5 year Seat Commitment. Mr Eaton Turner’s submission that the agreement lacked details rings hollow when one sees that the VSSA was actually entered into pursuant to it, as the appellants own solicitors’ contended. This point also defeats the contention that there was a total failure of consideration.

In my judgment, the judge was entitled to extract from the bogus agreements that the appellants and Mr Aydin had created their essential genuine elements. That she did. There can be no suggestion that her findings were perverse. Once she had determined that the Viking 5 year Seat Commitment was genuine, the rest of her findings followed inexorably. The right to offer that commitment was either property belonging to Goldtrail or an opportunity that Goldtrail was entitled to exploit within section 175(2). It is irrelevant under that sub-section whether Goldtrail could actually have exploited the property or the opportunity. The appellants’ arguments are all directed at showing that Goldtrail would never have been able to do so without the share sale. The short point is that Mr Aydin was paid for that opportunity in breach of his duty to Goldtrail and the appellants knew full well that that was what was happening. They cannot re-write the history they so carefully crafted in the first place in order to avoid liability for what was an obvious fraud on both HMRC and Goldtrail. In my judgment, the judge was right to conclude on the evidence that there was an opportunity of which Goldtrail was deprived by Mr Aydin. I would reject this ground of appeal.

Once again, this is an entirely factual argument which depends on the appellants’ assertion that the judge’s finding ignores commercial common sense. The appellants fasten on the judge’s conclusion that Viking and the appellants would have been ‘equally happy’ to pay the £1.4 million to Goldtrail for the Viking 5 year seat commitment, to submit that this finding was against the weight of the evidence.

I do not agree that the judge’s finding ignores commercial common sense. The appellants point, as I have said, to the evidence that they gave about how nobody would have paid £1.4 million for a 5 year seat commitment they did not need. But the judge rejected that evidence and rejected the suggestion that they had not agreed to pay the £1.4 million for the Viking 5 year Seat Commitment.

The question then arises as to whether the judge was justified in concluding that the Viking 5 year Seat Commitment was “worth” £1.4 million. It is first worth noting that I am not sure that the judge did actually conclude that the commitment was worth, in the sense of having an actual value of, £1.4 million. Rather, I think the judge decided that Goldtrail had lost commission of £1.4 million for which the appellants were liable to compensate it. The basis on which she reached that conclusion was that the appellants could not complain if the court adopted the split that they were prepared to agree as reflecting payments of £500,000 for the shares in Goldtrail and £1.4 million for the commitment.

I think the judge would anyway have been justified in concluding that the Viking 5 year Seat Commitment was worth £1.4 million for a number of reasons. First, I do not accept that the liquidators failed to prove the value of the commitment as was submitted by the appellants. The liquidators alleged that the £1.4 million had been paid for the Viking 5 year Seat Commitment. That was sufficient to establish what it was worth. There was no evidential lacuna, albeit that the judge was right to point out that the evidence as to how the split was concluded was rather sketchy. Secondly, the appellants had themselves told Ernst & Young that Black Pearl was paying £500,000 for 50% of Goldtrail’s shares. Ernst & Young did not suggest that the shares were undervalued. Thirdly, the contemporaneous documents do indeed suggest, as Ms Hilary Stonefrost, counsel for the liquidators, demonstrated, that the appellants intended to pay the £1.4 million for the Viking 5 year Seat Commitment, which they regarded as being of significant importance to Viking and Black Pearl. It is true, as the judge acknowledged, that the split may have been partially motivated by the imperative of evading tax. But I cannot see how it lies in the mouths of the appellants, in circumstances where they devised and participated in a transaction intended to defraud HMRC, to contend that they should be given the benefit of any doubt as to what the commitment was actually worth. This will, however, need to be considered again under ground 4 below. It is also worth noting in this connection that Black Pearl paid £500,000 for the shares it bought, whilst Viking (a different entity) paid the £1.4 million under the Viking Brokerage Agreement. It was Viking that directly benefited from the Viking 5 year Seat Commitment which was the only direct benefit it received for its £1.4 million as part of the Black Pearl deal.

I would reject this ground of appeal.

The appellants repeat under this head all their complaints about the judge’s uncommercial view of the Viking 5 year Seat Commitment. I have already dealt with those complaints and shall not repeat what I have said.

It is important, however, in this context to note that section 175(2) expressly provides that it is immaterial whether the company could have taken advantage of the property or the opportunity. Thus, when considering whether the director is in breach of duty, it is irrelevant to consider whether the company could in fact have benefitted from its own property or taken advantage of its own opportunity. It may not matter for the purposes of this case, but I would have thought that, in those circumstances, if one were considering the compensation that the company was entitled to recover from the director, one would ignore the question of whether or not the company could in fact have availed itself of the opportunity that the director diverted to himself.

The relevant question in this case is the different one of what compensation the company should recover for the dishonest assistance rendered by the appellants to the director which enabled him to breach his section 175 duties to the company. For my part, I doubt whether, even on this question, it is relevant to enquire whether or not the company could in fact have availed itself of the opportunity that the director diverted to himself. That is because Goldtrail in this case is to be compensated for what it has lost as a result of the assistance rendered by the appellants to Mr Aydin. Once it is determined that Mr Aydin diverted to himself an opportunity or property belonging to Goldtrail for which the appellants were prepared to pay £1.4 million, it follows that Goldtrail has been deprived of that sum. The appellants’ dishonest assistance caused that loss. For my part, therefore, I do not think that an evaluation of the chances that Goldtrail would have been able to secure £1.4 million for the seat commitment was appropriate. I have noted in this regard the dictum of Morgan J in Aerostar Maintenance International Limited v. Wilson & others [2010] EWHC 2032 (Ch) at paragraph 216, which appears to be to the contrary effect (and which the judge cited at paragraph 174 of her judgment). In the light of the fact that I do not regard the question as central to the issues we have to decide, I would not wish to be taken as finally deciding the matter. We did not receive full argument on the point and the matter can await a case where it arises specifically for decision.

In my judgment, the judge was entitled to find, in assessing the appropriate equitable compensation for dishonest assistance in Mr Aydin’s breach of duty under section 175 that the appellants were hoist with their own petard, having agreed the value of Goldtrail’s shares at £500,000. In those circumstances the remainder of the consideration could only properly be for the Viking 5 year Seat Commitment and that is what the judge found. Such a finding was, I think, fully open to her. I would reject this ground of appeal.

The point made under this ground is that the judge failed to consider properly the required connection between the alleged dishonesty and the alleged assistance. The fraud alleged needed to be strictly proved. On the facts, the appellants contend that their dishonesty cannot have been directed at Mr Aydin’s actions in defrauding Goldtrail. The appellants place reliance on the well-known decision of Lewison J (as he then was) in Ultraframe (UK) Ltd v. Guy Fielding and others [2005] EWHC 1638 (Ch), where he approved at paragraphs 1500-1 what Mance J (as he then was) had said in Grupo Torras SA v. Al-Sabah [1999] CLC 1469 at pages 1665-66 to the effect that: “for dishonest assistance, the defendant’s dishonesty must have been towards the plaintiff in relation to the property held or potentially held on trust or constructive trust …”. Lewison J continued at paragraph 1506 by saying that “[a]lthough it is not necessary for the dishonest assistant to know all the details of the whole design, he must, I think, know in broad terms what the design is”.

The appellants, therefore, submit that the judge was wrong to hold that the appellants knew that an identifiable and separate part of the Black Pearl deal was in fact a free standing flight commitment and that the £1.4 million should have been paid to Goldtrail. Much of the dishonesty relied upon by the judge was irrelevant – in particular the tax evasion and the deception practised on the CAA.

I regard this ground of appeal as hopeless. This is not a case, like many of the authorities relied upon, where the dishonest assister lacked vital pieces of information known only to the primary fraudster. This is a case where the appellants knew everything about Mr Aydin’s plan save for one fact that is not relevant to this issue: namely, that he was also selling 50% of Goldtrail to Onur Air. Otherwise, the appellants were fully and intimately involved in constructing and executing the deal. There was no relevant fact they did not know.

It is true that the judge was unimpressed with the scale of the appellants’ dishonesty in relation to peripheral matters such as the tax fraud and the deception of the CAA, but she did not confuse these matters with the question of whether the dishonesty in relation to the assistance provided to Mr Aydin was sufficient to give rise to liability. It obviously was, because the appellants designed the fraud themselves knowing that Mr Aydin was a fiduciary to Goldtrail.

It sounds attractive for the appellants to ask rhetorically why they would defraud Goldtrail when they were buying half its shares and they did not know of its imminent insolvency. But in my judgment, even that argument misses the point. The fact is that the appellants did assist Mr Aydin to divert Goldtrail’s money, property and opportunities. In effect, Goldtrail was paying Mr Aydin for his shares in Goldtrail, although that was not the substance of the allegation made. The appellants’ eyes were open. They knew all that occurred and they assisted in it. Their relevant dishonesty was in allowing Mr Aydin to divert Goldtrail’s opportunity and Goldtrail’s property to himself via MLL. There was no lack of nexus between the dishonesty and the assistance they gave. I would reject this ground of appeal.

The appellants submit that where the opportunity that is diverted is to receive a payment from the dishonest assister himself, it is inequitable to require that assister to compensate the company by making the same payment again. The dishonest assistant is not liable for profits made by the fiduciary (see Aerostar supra at paragraph 206 per Morgan J, and Ultraframe supra atparagraph 1600).

There is, in my judgment, a simple answer to this point. Whilst it is true that Viking paid the £1.4 million that should have been paid to Goldtrail for the Viking 5 year Seat Commitment, it did not make that payment to Goldtrail. It made it to MLL for Mr Aydin. Viking cannot, therefore, make the argument that it is paying twice. The first time, it paid Mr Aydin for Goldtrail’s opportunity. Now, the appellants must compensate Goldtrail for the loss it sustained. It is to be noted once again that it was Viking, not Black Pearl, that entered into the Viking Brokerage Agreement. Black Pearl cannot rely on Viking having paid MLL for a commitment that Goldtrail was entering into and that Goldtrail should have been paid for.

Since I would dismiss the appeal against the judgment for equitable compensation in the sum of £1.4 million on the basis of the grounds advanced in relation to the section 172 claim, the following grounds (save for ground 12 with which as will appear I have already effectively dealt) are of less importance than would otherwise be the case. I will, therefore, deal with them briefly.

The substance of this ground is that the judge ought not to have allowed Goldtrail to allege at the trial that it was never intended that the deposits should be repaid. This is advanced on the foundation that the judge misunderstood the pleadings that had alleged initially a proprietary claim in relation to the deposits. The Amended Particulars of Claim alleged as follows:-

“10.

These claims relate to the substantial transfers of the [Goldtrail’s] monies to [MLL] for the benefit of [Mr Aydin] …

11.

Certain monies that were paid pursuant to the [VSSA] … were [Goldtrail’s] monies that were misapplied to enable Viking … to make the payments to [MLL] for the benefit of [Mr Aydin].

12.

The claims against [Mr Aydin] in relation to the transfer of [Goldtrail’s] monies are for breaches of fiduciary duty and/or other duty and/or misfeasance as the sole director of [Goldtrail] …”

Paragraph 26 of the Amended Particulars of Claim then recited various documents that tended to show that the various deposits went “hand in hand” with the payments that Viking was making to MLL. Paragraph 27 then referred to a schedule of money transfers that illustrated that point.

The appellants contend, however, that the allegation at trial was the different one that the deposit payments made by Goldtrail under the VSSA and the FOAL SSA had been made for an improper purpose, namely to fund Viking to pay MLL for Mr Aydin’s shares. It is hard to see how it can be said that this is not precisely what the pleading alleges when it says in paragraph 11 that “certain monies that were paid pursuant to the [VSSA] … were [Goldtrail’s] monies that were misapplied to enable Viking … to make the payments to [MLL] for the benefit of [Mr Aydin]”.

The appellants then assert that it “was never suggested that the SSAs were anything other than flying agreements entered into in the ordinary course of business”. But that is precisely what was alleged. It was alleged as the judge found that the agreements had all to be read together, and that whilst the seat buying aspects of the VSSA and the FOAL SSA were ordinary commercial transactions, the deposits were not. The appellants’ defence pleaded and therefore put in issue the genuineness of the seat sale agreements.

In these circumstances, it seems to me that the unpleaded allegation that there was never any intention to repay the deposits was superfluous. It was enough to find as the judge did that the deposits were agreed and paid in order to allow Viking to be able to fund the payments to MLL which was a breach of Mr Aydin’s fiduciary duty in which the appellants dishonestly assisted. The bogus nature of the deposits was, as the judge found, that they would not have been paid in the first place if it were not for the imperative that the payments to MLL demanded that they should be.

In these circumstances, there is, in my judgment, no basis to allow the appellants to rely on the further witness statements that they seek to adduce from Mr Wyatt and two associates. That evidence does not satisfy the tests in Ladd v. Marshall [1954] 1 WLR 1489. Each of the new statements sought be adduced could with reasonable diligence have been obtained for use at trial, and there is no reason to suppose that they would have had any influence on the outcome of the trial or would have any influence on the outcome of this appeal. In these circumstances, I do not need to deal with Ms Stonefrost’s submission that, in any event, the evidence advanced is not, in some respects at least, on its face credible.

I should not leave this ground of appeal without commenting that I do, in fact, think the judge was justified in allowing the liquidators to assert in the course of the trial that the deposits were not truly intended by the parties to the VSSA and the FOAL SSA to be repayable. It would, of course, have been better if that allegation had been expressly pleaded, but it was also part and parcel of the pleaded allegation that Goldtrail’s money had been misapplied to enable Viking to make the payments to MLL under the Viking Brokerage Agreement. If the monies were misapplied as alleged, it follows that it was alleged that they were not truly deposits, and would not be repaid. The reality was that the judge found, as she was fully entitled to do on the evidence, that the deposits were not a genuine part of the seat sale agreements. That was plainly put in issue by the pleadings.

I would, therefore, conclude that the judge was justified in allowing the liquidators to advance the contention that the appellants had never intended to repay the deposits under the VSSA and the FOAL SSA, and that she was right to make a finding to that effect for the reasons she gave.

I shall deal with these grounds together. What is suggested is that the judge was wrong to award equitable compensation for the extra Viking advance of £500,000, when that was recouped by Goldtrail as payment for seats flown before Goldtrail’s insolvency. Ms Stonefrost acknowledged that she could not contest the judge’s finding that the extra Viking £500,000 had indeed been recouped by Goldtrail before its administration.

The judge dealt first with Millett LJ’s decision in Manson supra. He had held that a miscreant director held liable to an insolvent company for sums improperly paid by the company to him could not set off against those claims the sums properly owed to him before insolvency on a director’s loan account. For those loans, he could only prove in the liquidation, because there was no mutual “dealing” between the director and company under Insolvency Rule 4.90, and anyway that rule only applied to debts existing at the time of the winding up. The judge then concluded at paragraph 167 of her judgment as follows:-

“I consider that the reasoning and the principle expounded in Manson applies regardless of whether the purported set off has already occurred by the date of the insolvency. It is true that if the [appellants] now have to compensate Goldtrail for the loss caused by the misapplication of its funds, then they have been seriously disadvantaged by their decision to allow Goldtrail not to pay them for the flights after they had in effect transferred the Goldtrail funds to Mr Aydin. They would now have to attempt to prove in the liquidation for such sums as Goldtrail owes them, just as Mr Manson had to prove in the liquidation for his loan account debt. That in my judgment, is a risk that they took when, having dishonestly assisted Mr Aydin in the misapplication of Goldtrail’s funds, they then allowed Goldtrail to deduct sums from the monies otherwise due for flights. [This “windfall”] is not a reason to allow a dishonest assistor in effect to obtain pound for pound reimbursement”.

I would question the judge’s reasoning in this paragraph, because I think she was addressing her mind to the wrong question. The question was whether the appellants as dishonest assisters of Mr Aydin in the misapplication of Goldtrail’s monies should be required to compensate Goldtrail for the loss of the extra Viking £500,000 that Goldtrail had in fact recovered. Mr Aydin’s misapplication of Goldtrail’s £500,000 did not cause Goldtrail any loss (save perhaps a few weeks’ interest) because the £500,000 was repaid before Goldtrail’s insolvency. The question in Manson was a quite different one, namely whether a defendant to a claim made by a liquidator could use Insolvency Rule 4.90 to set off pre-insolvency debts owed by the company against that claim. He could not.

In my judgment, therefore, the judge was wrong to hold that the appellants should be required to compensate Goldtrail for the extra Viking £500,000. Goldtrail recovered that money from Viking. It suffered no ultimate loss, and more importantly, the dishonest assistance of Mr Aydin’s misapplication of company funds did not cause any significant loss to Goldtrail – certainly not the sum of £500,000 that the judge awarded in respect of it.

The appellants are, therefore, entitled to succeed under this heading in reducing the award of equitable compensation for their dishonest assistance in the misapplication of Goldtrail’s monies from £1.25 million to £750,000.

This ground was not, in the event, advanced as a free standing ground of appeal. It is, however, quite clear from what I have said already that the appellants were fully aware that Goldtrail’s money, in the form of the deposits, was being used to pay MLL under the Viking Brokerage Agreement. The dishonesty was directly related to the assistance they gave to Mr Aydin to breach his duties to Goldtrail. The judge was right for the reasons she gave to find that the appellants dishonestly assisted Mr Aydin in breaching his duties to Goldtrail by paying out the bogus deposits for the purpose of allowing Viking to pay MLL.

Little time was devoted by Mr Eaton Turner to this ground of appeal. In my judgment, there was nothing disproportionate or inequitable about the remedies that the judge ordered (save in respect of the extra Viking £500,000 for the reasons I have given). The appellants entered into a dishonest deal, knowing that it was dishonest. They did not merely intend to defraud HMRC and to deceive the CAA as has been suggested, they knew and must be taken to have intended that Goldtrail would be defrauded by Mr Aydin and for his benefit. The fact that they were buying 50% of Goldtrail does not make it disproportionate that they should compensate Goldtrail for their wrongdoing. Nor does the fact that they were themselves victims of Mr Aydin’s frauds make it inequitable that they should pay compensation for what Goldtrail has lost. I would reject this ground of appeal.

I have concluded, therefore, that each of the appellants’ grounds of appeal fails, with the exception of the ground concerning the assessment of equitable compensation for the dishonest assistance that the appellants provided to Mr Aydin in relation to the misapplication of the extra Viking £500,000. In that regard, the judge ought to have held that, whilst the appellants were liable to Goldtrail for the dishonest assistance they gave, there should be no equitable compensation for the loss of the £500,000, Goldtrail having recouped that sum before its insolvency. It may be noted that the liquidators never sought to substitute a small claim for lost interest on the money for the few weeks it was not in Goldtrail’s hands.

The appellants repeatedly suggested that the judge had behaved unfairly in the conduct of the trial. I should say, in conclusion, that I see no basis for that submission. The judge plainly took a dim view of the appellants’ fraud, but that did not lead her to conduct the trial unfairly or in any respect inappropriately. Moreover, I think she was entirely justified in adopting the censorious view that she took of the appellants’ conduct in this unhappy matter.

In the result, I would dismiss this appeal, save that I would reverse the judge’s conclusion that the appellants were liable to compensate Goldtrail for the extra Viking £500,000 as part of the misapplication claim. The effect of this minor aspect of the appeal is to amend paragraph 5(a) of the judge’s order to read as follows:-

“As against the [appellants] it is declared that:

a.

Their joint and several liability for equitable compensation for dishonest assistance of [Mr Aydin] in the misapplication of Goldtrail’s money is £750,000 …”

This adjustment has no overall economic effect on the appellants because the declaration in paragraph 5(b) of the judge’s order stands. It provides that the appellants’ “joint and several liability for equitable compensation for dishonest assistance of [Mr Aydin’s] breach of section 175 of the Companies Act 2006 is £1,400,000”.