Thunder Air Ltd v Hilmarsson

This is the effective return date of an application which first came before HHJ Behrens (sitting as a Deputy High Court Judge of this Division) on 12 November 2007. On that day the Claimant applied for and obtained from the judge an order against the Defendant under s.4 of the Torts (Interference with Goods) Act 1977 (“the 1977 Act”) requiring him to deliver up to the Claimant on or before 26 November 2007 the property and documents described in the Second Schedule to the order insofar as that material comprised the property of the Claimant; was in the possession or control of the Defendant; and was situated in England and Wales. I will come to the details of the Second Schedule later in this judgment.

The judge also made an injunction against the Defendant until trial or further order restraining him from destroying, tampering with, deleting or altering or from parting with possession or control of the scheduled material except by way of compliance with the order for delivery up. He stood over the balance of the application which was for a freezing injunction and for disclosure of details of various bank accounts and gave directions for evidence.

The Defendant was given short notice of the application and was unable to respond to it substantively at the hearing. He offered through his counsel (Mr Penny) an undertaking to preserve the scheduled material until the effective inter partes hearing and the judge was also told that he intended to dispute the jurisdiction of the court to try the action on the basis that he was domiciled in Switzerland.

Although initially minded to stand over the entire application, Judge Behrens was eventually persuaded by Miss Campbell that the Defendant had no arguable defence to the claim for delivery up of the documents and other scheduled items within the jurisdiction on the basis that he had converted them to his own use. He reached this conclusion without considering any evidence from the Defendant and with no apparent citation of authority.

The order for delivery up has now been complied with in the sense that all of the scheduled material which is held within the jurisdiction has according to the Defendant been delivered up. The Claimant does not dispute this evidence. But the Defendant continues to deny the allegation of conversion and has also now issued his own application seeking a stay of the proceedings on the grounds that the English Court is not the appropriate forum under the Lugano Convention.

The Claimant no longer seeks any interim relief by way of freezing order or the disclosure of the bank accounts. It does, however, seek the continuation of the injunction granted by Judge Behrens limited in terms to material within the jurisdiction. That relief was granted over trial on further order in the action and its continuation is opposed by the Defendant in any event. The order for delivery up has now been complied with and like most mandatory orders cannot be reversed. In any event, the Defendant does not seek the return of any of the material that was handed over. He does, however, contend that there was no basis in law for the order which the judge made and that the Court did not in any event have jurisdiction. If he is right about this he seeks the costs of the action to date. Conversely, the Claimant, whilst limiting the interim relief claimed in the way I have indicated, seeks the costs of the application which the judge reserved to the inter partes hearing.

The Claimant, Thunder Air Limited (“TAL”), is a Cayman Islands company. Its principal asset is a Bombardier Challenge 604 jet aircraft which it acquired on 1 July 2005. In anticipation of the purchase of the aircraft TAL entered into a management agreement on 1 March 2005 with what is described in the contract as Avijet Limited, a limited liability company incorporated under the laws of Lichtenstein. The agreement was signed on behalf of Avijet by the Defendant, Mr Hilmar Hilmarsson who is a commercial pilot and carries on the business of operating executive jets from premises at Farnborough Airport. He is described in the particulars of claim as a director and the Chief Executive Officer of Avijet.

There is in fact no Liechtenstein company called Avijet Limited. The entity through which the Defendant operates his business is Avijet Establishment. The evidence is that this is a Liechtenstein anstalt which has legal personality under Liechtenstein law. It has no shareholders as such, but currently has two beneficial owners, the Defendant and Mr Aevar Bjôrnsson, a business colleague. Under Liechtenstein law a minimum of one director is required and this post is held by Dr Frank Zindel. There is no evidence that he has ever played any active role in the business of Avijet.

Ms Susan Webb, a director of TAL, says in her evidence that she always dealt with Mr Hilmarsson as the effective director of Avijet and that when entering into the management agreement she assumed that she was dealing with a Liechtenstein company rather than anything else. But it is now common ground that Avijet Limited has never existed and the reference in the agreement to Avijet Limited is said by Mr Hilmarsson to have been a mistake on the part of his lawyers.

Neither side contends that this invalidated the agreement and the application has proceeded on the basis that the management agreement was entered into by Mr Hilmarsson on behalf of Avijet Establishment which I will refer to in the remainder of this judgment as Avijet. Nor is it pleaded or contended by TAL that Avijet was merely a nominee for Mr Hilmarsson or that its separate legal existence can be ignored for the purpose of deciding the issues which arise.

The position therefore is that on 1 March 2005 TAL entered into the management agreement with Avijet for the operation and maintenance of its aircraft. Avijet manages a number of executive jets based at Farnborough and hires or employs flight crews and maintenance staff for that purpose. Under the terms of the contract Avijet was to manage all the operations of TAL and the Defendant was appointed a director of TAL with full power to engage TAL in any agreements necessary for that purpose.

In his role of director he was authorised to hire an experienced crew; to register and insure the aircraft; to co-ordinate its routes and flight planning; and to organise all necessary maintenance, overhaul and repair work. In return, TAL was to provide the Defendant with funds out of which to meet the monthly operating costs and was to pay Avijet a monthly management fee of Є6000 plus additional fees based on a percentage of rents from charters. Under cl.2.3.2 the Defendant was to provide TAL’s beneficial owners with a “transparent overview of the aircraft’s operations” on request and was to be responsible for the gathering and processing of all invoices for the costs incurred and for keeping a clear audit trail.

The management agreement therefore created or was the source of a variety of obligations. Avijet provided the services of Mr Hilmarsson to TAL for a fee and became contractually liable for the performance of the agreement. Mr Hilmarsson assumed no contractual responsibility under the agreement for the duties he undertook, but as a director of TAL undoubtedly owed to the company fiduciary duties of loyalty and good faith.

Of particular relevance to this application is cl.5 of the management agreement. This provided that:

The agreement was terminated with the consent of both parties on 1 June 2007 and the Defendant thereupon resigned as a director of TAL. Ms Webb says in her first witness statement that TAL had become dissatisfied with the management of the aircraft. There were concerns, she said, about possible financial irregularities and inadequate maintenance and TAL had instigated an audit of the management of the aircraft by Avijet for which it required access to documents and computer records in the possession or control of the Defendant either in his capacity as the former director of TAL or as the Chief Executive Officer or beneficial owner of Avijet.

It is not necessary for the purposes of this application to go into the nature and detail of TAL’s specific complaints, although many of them are outlined in Ms Webb’s evidence. It is enough to record that TAL had these concerns and wished to verify various payments and expenses over the period of the agreement. As early as February 2007 Ms Webb sent an email to Mr Hilmarsson asking for confirmation that certain specified aircraft log books would be available for inspection on 12 February “so as to start the paper audit on the aircraft”. This was of course information which TAL was entitled to under the management agreement. By March 2007 some progress appears to have been made but it was already contemplated that the agreement would be terminated and Mr Hilmarsson requested a transfer date from TAL.

On 6 April 2007 Ms Webb sent an email to Mr Hilmarsson and to Ms Katerina Fliegerova, Airjet’s Operations Officer, setting out a list of outstanding documents and information which TAL required. Ms Fliegerova responded to a number of the items on 20 April but much of the material still remained in Avijet’s possession. On 16 May a quantity of documentation was handed over but in June Ms Webb was still chasing for accounts, agreements and other information and throughout July there was correspondence in which a number of queries were raised about items on credit card statements.

This culminated in a letter of 17 August from Mr Kevin Laker, a director of TAL to the Defendant “ c/o Avijet” in which Mr Laker stated:

A final statement of account

A reply to the email from Keith Laker of 10 July 2007 with supporting evidence

Documents as detailed under the terms of the Management Agreement dated 1 March 2005, including but not limited to those items listed under clauses 5.1 and 5.2, namely:

Accounts

Invoices

Correspondence

Contracts

Manuals

Computer files

Any other written or recorded information

Mr Hilmarsson responded on the same day by promising that TAL would soon receive a final report and a final invoice. This provoked an email in response on 20 August in which Mr Laker set out the items in his earlier letter of 17 August but added this:

On 28 August Mr Laker sent a chasing email to Mr Hilmarsson who replied on 30 August. He said that Avijet was in the process of completing the accounts to the end of May and that these would be ready soon. The email concluded:

This did not satisfy Mr Laker. He sent Mr Hilmarsson a further email on 31 August telling him to stop prevaricating and repeating his request that all of the company documentation should be handed over without delay. This did not happen but on 4 September Ms Nanna Tofte (the Financial Controller of Avijet) replied asking for bank and credit card statements for May 2007 to enable her to finish the final report. Her email offers an explanation as to why credit cards issued by TAL were used to pay various invoices but there is no further response to the request for the outstanding documentation.

The claim form was issued on 5 October and served on 22 October with the particulars of claim. It seeks an order for delivery up of the Claimant’s property and documents under s.3 of the 1977 Act and for damages. As indicated earlier, the application notice seeks an interim order for delivery up under s.4 of the Act and for ancillary injunctive relief.

The 1977 Act abolished the tort of detinue and limited actions for tort in relation to goods to conversion, trespass to goods and negligence: see s.1. “Wrongful interference” is defined to mean one or other of these causes of action.

The usual relief granted for torts of this kind is an award of damages which in cases of conversion can equal the value of the goods. But the Court retains a discretion under the 1977 Act to make an order for delivery up whether on a summary basis under s.4 or as a final judgment under s.3. Relief, whether by way of damages or an order for delivery up can however only be granted against a person who is in the words of the statute “in possession or control of the goods”: see s.3(1).

In the particulars of claim TAL seeks relief against Mr Hilmarsson in three separate capacities: (i) personally; (ii) as a director of Avijet and (iii) as a director of TAL. The pleaded claim against him as a former director of TAL is for an account but this has now been abandoned and the Claimant seeks permission to amend the particulars of claim by deleting the last sentence of paragraph 3. This is not opposed and I will grant that relief. This leaves the claim for conversion which is brought against him both personally and as a director of Avijet. As I indicated earlier in this judgment, Mr Hilmarsson is not in fact a director of Avijet but one of its two beneficial owners and the argument on the application for interim relief has therefore proceeded on that basis.

It is alleged in paragraph 3 of the particulars of claim that documents and other property belonging to TAL are currently in the possession and control of the Defendant. The Schedule to the particulars of claim (which forms the basis of the Second Schedule to the order of 12 November 2007) lists various classes of documentation including bank and credit card statements; third party invoices and bills in connection with the management and operation of the aircraft; service agreements; correspondence; crew training records and contracts in connection with the fuel, staff and charters of the aircraft. Also included are computer files and all computer equipment belonging to TAL plus office furniture, aircraft spares and fixtures and fittings.

The Defendant in his evidence says that, apart from uncollected furniture and some training records relating to crew members who had ceased to fly on TAL’s aircraft when the management agreement ended, such of this material as exists has been handed over. He accepts that invoices and accounting records were retained to enable Avijet to complete the final accounts but this was made clear in the exchange of emails I referred to earlier and was not an unequivocal refusal to hand the property over to TAL. After the proceedings were issued and the schedule attached to the particulars of claim was served, Mr Hilmarsson says that he instructed members of Avijet’s staff to hand over as many of the documents and other items as could be found. These were all stored at Avijet’s premises at Farnborough and on 25 October 2007 two crates of documents were given to a representative of TAL (Mr Kevin Shalit) who called to collect them. A few days later a C-D Rom was handed over containing copies of emails with Ms Webb relating to the operation of the aircraft. Mr Hilmarsson says that he believed that this accounted for all the relevant documentation with the exception of a few emails relating to handling requests in respect of the Claimant’s aircraft and some crew training records. Copies of these were handed over on or about 26 November. Since then Mr Hilmarsson says that he has discovered some further emails stored on his own computer but it was stolen from his car and he has been unable to provide copies to his solicitors or TAL.

In his later witness statement Mr Hilmarsson raises an issue as to the form in which the documentary material was stored at Avijet’s offices. He says that the vast majority of the documents handed over under the order of 12 November 2007 were held by Avijet in electronic form on its computers and that all hard copy documents were handed over by Avijet prior to the issue of the proceedings or immediately following service of the claim form on him. This is disputed by TAL and is not an issue which I can resolve on this application. It is, however, common ground that documents stored in electronic form do not constitute goods within the meaning of the 1977 Act. Any claim under the 1977 Act is limited to the hard disk of the computer and does not include the files stored on it: see Dunn & Bradstreet v Typesetting Facilities Ltd[1992] FSR320; St. Alban’s City & District Council v International Computers Ltd [1996] 4 AER 481.

This means that there can be no claim under the 1977 Act for wrongful interference with any documents that were stored on Avijet’s own computers or with the emails stored on Mr Hilmarsson’s computer. It must also follow that Judge Behrens was wrong to include in that order the computer files listed under paragraph 4 of the Second Schedule.

The tort of conversion is committed when the person in possession or control of the goods either refuses without justification to comply with a demand by the owner for their return or in some other way evinces a positive and overt intention to treat them as his own to the exclusion of their true owner. In practice a demand followed by an unreasonable refusal to return the goods will be the most obvious way of proving the necessary act of appropriation but it is not the only way. In Kuwait Airways Corporation v Iraqi Airways Co. [2000] 2 AC 883 Lord Nicholls (at paragraph 39) set out the essential ingredients of the tort in these terms:

In this case TAL relies in its particulars of claim on the emails and letter sent by Mr Laker on 10 July, 17 August, 20 August and 31 August 2007 and what is said to be the Defendant’s unsatisfactory response to these requests. But these demands did not include either the computers or the office furniture, aircraft spares and fixtures and fittings referred to in the schedule to the particulars of claim and did include computer files which (as mentioned earlier) are not goods for the purposes of the 1977 Act. If one excludes these items and limits the claim to the categories of documents kept at Farnborough in hard copy form then two issues arise: (i) whether the Defendant himself was in possession or control of the material at the relevant time; and (ii) if so, whether the failure to deliver up documents after the demand amounted to an assumption of possession or ownership sufficient to constitute the tort of conversion.

Miss Campbell accepts that the documents were on the evidence in the physical possession of Avijet at the time of the various demands and that the Defendant cannot be made liable on the basis that he had possession of them. But she contends that they were in his control because as one of its two beneficial owners he had it within his power to cause Avijet to hand over the documents in compliance with the demands for their return. As proof of this she relies in particular on the fact that Mr Hilmarsson did arrange for the balance of the documentation and other property to be handed over to TAL once the order of 12 November 2007 had been made which was, of course, in terms an order for the delivery up of the scheduled property and documents so far as they were in the possession or control of the Defendant.

There is no doubt that Mr Hilmarsson was able to direct Avijet’s staff to produce the material referred to in the order but it does not follow from this that the documents can be said to have been in his control at the time of the demand, or indeed at any time when they were also in the possession of Avijet. Control in the context of ss.3 and 4 of the 1977 Act means control of the goods. Under normal circumstances this is co-extensive with possession but if goods are handed by the Defendant to a nominee (e.g. a bank or storage facility) to hold them on his behalf and to his order, then they clearly remain under his control notwithstanding the absence of physical possession.

In this case, however, Avijet was not Mr Hilmarsson’s nominee. It acquired possession of the documents and other material in the course of performing the management agreement under which it alone was contractually liable to manage all operations of TAL: see cl.1.1. Although the documents were (under cl.5.2) the property of TAL they remained in the lawful possession of Avijet for the duration of the agreement and arguably for so long as it still had contractual duties to perform.

In these circumstances Avijet clearly had legal possession of the documents at their inception and retained legal possession until its contractual entitlement to them came to an end. By the same token, it also had control of that material. The issue therefore for me is whether Mr Hilmarsson also had control of the same items on the basis that he was one of the owners of the anstalt and could exercise de facto control over its staff.

Miss Campbell accepts the general proposition that the director of a company does not ipso facto have possession or control of its assets. As an agent of the company his actions are treated as those of the company provided that he acts within the scope of his lawful authority. The wrongful withholding of property in the name of and by the company may ground liability for conversion on the part of the company but will not result in personal liability in tort for the directors. A useful illustration of this principle can be found in the judgment of Park J in Joiner v George [2002]EWHC 90(Ch) at paragraphs 22 – 26 where he deals with the liability of a managing director for the acts of the company which he had authorised:

Whilst accepting these principles Miss Campbell sought to distinguish the present case on its own facts. She pointed to evidence in Ms Webb’s witness statement that Mr Hilmarsson obviously had day to day control of the Aviject operation and was ultimately able to procure the delivery up of the documents to TAL. She referred to a recent decision of Floyd J in Schlumberger Holdings Ltd v Electromagnetic Geoservices AS [2008] EWHC 56 (Pat) in which he ordered the claimants to disclose documents belonging to other companies within the Schlumberger group which were not themselves parties to the action on the basis that these documents were under the claimant’s control within the meaning of CPR 31.8(1). He did so because the claimant had already included documents in the possession of those companies in its own lists and because the evidence revealed that “the party has already enjoyed and continues to enjoy the co-operation and consent of the third party to inspect his documents and take copies”.

It is clear from this passage in his judgment that the facts of that case were special because as Floyd J himself recognized earlier in his judgment, the authorities on disclosure do not treat the documents of a subsidiary as those of the holding company simply on the basis of shareholder control. In Lonhro Ltd v Shell Petroleum Co. Ltd[1980] 1 WLR 627 Lord Diplock said this (at p.636F) about the liability of Shell to disclose the documents of its African subsidiary:

Miss Campbell referred me to a passage in Lord Diplock’s speech which comes immediately after the section quoted above in which he said that the position might be different in the case of a one-man company depending on the facts of that case. But for the outcome to be different there must, I think, be a situation in which the separate identity of the company can effectively be ignored. In this case there is nothing to support an argument that Avijet was Mr Hilmarsson’s nominee or that its director and other beneficial owner ever gave Mr Hilmarsson blanket authority to treat its property as his own. The fact that he ran its business and was able in that capacity to give directions to its staff does not in my judgment give him control of its property in the sense required under ss. 3 and 4 of the 1977 Act. At all times, the documents remained in the possession and control of Avijet and in directing the employees of Avijet to deliver up the documents and other material to TAL he was as a matter of law acting as its agent. The case is in my judgment indistinguishable on its facts from those considered by Park J in Joiner v George.

For these reasons I am not satisfied that the Claimant has established a serious issue to be tried on the liability of the Defendant for conversion even applying American Cynamid principles: see [1975]AC 396 at p.407G. The injunction granted by Judge Behrens will therefore be discharged. In these circumstances it is unnecessary for me to spend any further time on the question whether the failure to deliver all the material referred to in Mr Laker’s various emails was sufficient to amount to an act of conversion. That issue can be determined (if at all) in any future proceedings which TAL may decide to institute against Avijet.

That leaves the Defendant’s application contesting jurisdiction. As mentioned earlier Mr Hilmarsson’s case is that he has at all material times been domiciled in Switzerland and this is not contested. Art. 2 of the 1988 Lugarno Convention (which was given effect to by s.3A of the Civil Jurisdiction and Judgments Act 1982 (“the 1982 Act”) as inserted by the Civil Jurisdiction and Judgments Act 1991) requires persons domiciled in a contracting state, whatever their nationality, to be sued in the courts of that state. On that basis the Defendant should have been sued in Switzerland. There are, however, a number of exceptions to this general rule including art.5(3) which provides that a person domiciled in a contracting state may nonetheless in another contracting state be sued:

Over and above this, the Claimant relies on s.24(1)(a) of the 1982 Act which provides that:

If the Defendant is liable for the tort of conversion on the basis of the facts alleged in the particulars of claim then the tort clearly occurred in England, but my decision that Mr Hilmarsson was not in control of the goods for the purposes of s.3 of the 1977 Act also concludes the issue of jurisdiction in his favour. It is for the Claimant to establish a good arguable case that the Defendant committed the tort of conversion in order to found jurisdiction under Art.5(3): see Canada Trust Co. v Stolzenberg (No.2) [2002] 1 AC 1. For the reasons already given TAL has not done that.

It is, I think, correct that Judge Behrens did have jurisdiction under s.24(1) to entertain an application for interim relief under s.4 of the 1977 Act notwithstanding the future challenge to jurisdiction. But the substantive application on jurisdiction has to be determined in favour of the Defendant and it follows that all further proceedings in the action will be stayed.