Koza Ltd & Anor v Akcil & Ors

MR JUSTICE MORGAN: I have before me an application in hard fought litigation where the principal protagonists are the claimants and the sixth defendant. The first claimant is Koza Limited, a company registered in England and Wales. The second claimant is Mr Ipek, who I understand is a Turkish national. He is the chief executive officer and the sole director of Koza Limited. The sixth defendant I will refer to as Koza Altin, which is a Turkish company which asserts in these proceedings a right to take control of Koza Limited and indeed, in due course, to remove Mr Ipek.

The litigation is all about who should have ultimate control of Koza Limited, and whether Mr Ipek should remain connected with Koza Limited.

What brings the parties to court is the fact that the Republic of Turkey has served upon the United Kingdom government a warrant for the extradition of Mr Ipek to Turkey. I have been provided with a copy of the extradition warrant and I have, of course, read and considered the allegations that are made. No doubt the Republic of Turkey will say that Mr Ipek has been guilty of very serious criminal offences, for which they say the maximum penalty is what is called aggravated life long imprisonment. No doubt Mr Ipek will say that he is entirely innocent of these matters. Indeed, Mr Ipek says, a matter on which I will make no finding, that these allegations are wholly without foundation and are part of a political campaign brought by the Republic of Turkey against him.

It is right to say that the matters of which Mr Ipek stands accused do not directly concern his activities as a director of Koza Limited, but on the other hand, it is said -- again, a matter on which I make no finding -- that the whole course of conduct of the sixth defendant in connection with Koza Limited and in this litigation, is all part of the political campaign against Mr Ipek.

Mr Ipek is taking active steps, with legal assistance, to resist the extradition warrant. He has retained a solicitor, a Mr Drury of BCL Solicitors LLP, and Mr Drury has provided the court with a witness statement which indicates the steps involved in opposing extradition proceedings and he has also helpfully set out a timetable as to the future steps to be taken. Plainly the legal assistance for Mr Ipek costs a substantial sum of money. I understand that fees amounting to something in the order of £75,000 have already been incurred or will shortly be incurred, and by the end of the extradition proceedings, the cost will be greater still. There may be another £100,000, or even more, yet to be expended.

The position is that Koza Limited wishes to pay Mr Ipek's fees in relation to resisting the extradition proceedings. I have been given evidence as to how Koza Limited sees the importance of Mr Ipek to the company.

It may be that Koza Limited sees things the way Mr Ipek sees them, so that Koza Limited's views are heavily influenced by Mr Ipek's own wishes. But it is right to acknowledge that I have been provided with two witness statements from a Mr Mehmet Evran, who describes the role played by Mr Ipek in the business of Koza Limited. Mr Evran says that he is the business development manager of Koza Limited. In his first witness statement he describes the business of that company and its existing projects. He describes its day to day operations. And at paragraph 16 of his first witness statement he sets out the importance to Koza Limited of Mr Ipek. I will not read out that lengthy paragraph into this judgment, but I take full account of the fact that it is there and that description has been given.

In the same witness statement, Mr Evran, under the heading "Difficulties faced by Koza Limited due to the campaign of oppression by the Erdogan regime", describes difficulties of that kind. He says:

Mr Evran then gives examples.

As I have indicated, as I understand the issues in the wider litigation, the claimants say that the role of the sixth defendant in this company dispute is all part of that pattern of behaviour on the part of the government of Turkey, called by Mr Evran, the Erdogan regime.

I have a second witness statement from Mr Evran. He repeats what he said in paragraph 16 of his earlier statement, but now in the context of the matter which is before the court. He again refers to the significance of Mr Ipek and his involvement with Koza Limited. He says at paragraph 11 of his second statement:

And Mr Evran then adds one or two more sentences in support of that remark.

Staying with the evidence before me, the next topic that I need to consider is whether Mr Ipek has sufficient financial resources of his own to pay for the defence of the extradition proceedings. I mention at this point that counsel for Koza Limited and Mr Ipek say that this is an irrelevant matter, but I ought to refer to the material with which I have been provided. That material starts with the eighth witness statement of Mr Plowman. At paragraph 22 of his statement, Mr Plowman says that Mr Ipek has his own means with which to pay personal legal fees. Mr Plowman refers to Mr Ipek's salary from Koza Limited of £250,000 a year. Mr Plowman then suggests that Mr Ipek has considerable wealth and he draws attention to an article in the New York Times of 22 July 2017. He also refers to the property in which Mr Ipek lives in London. It is right to say that Mr Plowman is a solicitor, so he is drawing upon sources of information, rather than giving first hand evidence about these matters.

Mr Ipek does not agree with Mr Plowman's conclusions. In a witness statement prepared for this application, he comments on the article in the New York Times in terms which suggest that little attention should be given to the statements made by the journalist. He says that before his arrest in response to the extradition warrant, his available resources were just over £500,000. He then explains that he has deposited part of that sum, I think ultimately £50,000, as part of his bail conditions. He refers to his income of £250,000 for his work with Koza Limited. He refers to the fact that he has to support four dependent family members who live with him in London, three of whom are at university. He does not identify with figures, what that expenditure amounts to. He then says he has to pay the following legal and related costs. One of the legal and related costs is to defend himself against the spurious criminal charges in Turkey which are the basis of the extradition request. As I understand it, he is not there referring to the cost of resisting the extradition warrant, but he is referring to either current or future costs involved in criminal proceedings in Turkey, although they are, it seems, also the subject of the extradition request. He then refers to other expenditure which he will be required to make. Again, he does not identify the figures. He does not identify how much of the £500,000 minus the £50,000 is left to him, and how much is left to him from his annual payment of £250,000 per annum.

That is not the last piece of evidence before me as to the financial resources of Mr Ipek. In a witness statement served today, Mr Plowman identifies in considerable detail the state of various bank accounts with which Mr Ipek was connected, albeit in 2015. I will not attempt to summarise the very detailed matters set out by Mr Plowman and revealed on studying the exhibited bank statements. Mr Plowman's conclusion is that very substantial sums of money have been available to Mr Ipek in the past. Mr Plowman acknowledges that it is not possible to evidence where the monies are now, but it is to be reasonably inferred that the monies are still in the control of Mr Ipek and his close family members, so that they would be available to him to use for his personal expenditure. It is also said that Mr Ipek has taken steps to dissipate his assets. By that, I take Mr Plowman to mean that Mr Ipek has transferred very substantial sums of money to his family members. That can be said to be dissipating his assets, although it is not incompatible with his earlier statement that the funds are under the control of Mr Ipek, so they could be accessed if Mr Ipek chose to do so.

Insofar as Mr Ipek has taken steps to dissipate his assets, Mr Plowman makes the submission that that should not count in his favour when he now says he does not have the resources to pay the legal fees.

Having described the material before the court, I now need to explain why this matter has been raised in this court. The explanation springs from an order made by Mrs Justice Asplin, as she then was, on 21 December 2016. The order was made on the application of Koza Limited and Mr Ipek, with the sixth defendant being a respondent to the application.

Accordingly, it was Koza Limited and Mr Ipek who obtained significant relief on an interim basis from the court. Effectively, they restrained the sixth defendant and one other from upsetting the current management and governance arrangements of Koza Limited. The matter was to continue, so that Koza Limited could continue to be controlled by Mr Ipek. That relief was made the subject of undertakings.

The co-relative of that relief being made available by undertakings, was that the company gave undertakings in return. The form of the undertakings is that they are expressed in terms broadly similar to the terms of a freezing order, so that for example, paragraph 2.1 of the first schedule says:

There are further provisions about notice being given of relevant events in the course of the business of Koza Limited, and then at paragraph 3 of the third schedule, I find this:

It is paragraph 2.1 and paragraph 3 which have been considered in detail in the course of this application.

The parties are far apart in relation to what the relevant provisions mean. I am going to indicate some provisional views as to what they mean, and in many respects the provisional views favour the claimants because, as will be seen, even reading the words in a way favourable to the claimants, I am able to reach a conclusion not favourable to the claimants, as to the payment of the legal fees in question.

As to the reference to the ordinary and proper course of its business, that phrase would appear to require an assessment of an objective character as to what is the ordinary and proper course of its business. It will be remembered that the whole issue in the litigation is whether Mr Ipek should still be in control of this business, or should be removed from it. However, my provisional view is that it is implicit in the structure of the order that was made that the controls on disposals and dealing is in the context of Mr Ipek continuing to be in control of the business until trial or further order. So it is plainly not open to the sixth defendant to say that something is impermissible because it is being done by Mr Ipek, in control of the business.

Similarly, if the company is able to make good on the facts, an assertion that something is in the best interests of the company because it enables the company to retain Mr Ipek, that too should not be open to challenge just because it is Mr Ipek who is being retained and is being said to be of assistance to the company.

Turning from that point, the relevant provision refers to the ordinary course of the company's business. Counsel on both sides appear to be agreed that "ordinary" is not to be contrasted with "extraordinary". It is not to be said, for example, that defending an extradition warrant expressed in the terms of this extradition warrant brought by the Republic of Turkey, is so extraordinary as to be outside the ordinary course of business. That is not said.

What "ordinary" seems to be endeavouring to describe is that one is looking at something which is much more like the established course of business rather than a fundamental departure from the established course of business. That, as such, does not cause a particular difficulty in this case.

The other word that needs attention is the word "proper". It seems to me that if it is not proper for Mr Ipek, as a director of Koza Limited, to procure Koza Limited to make a substantial payment to him, the payment would not be in the ordinary and proper course of the company's business.

Turning to the question of legal advice and representation, I am inclined to read paragraph 3 of schedule 1 as submitted by the claimants. In other words, the paragraph does extend to legal advice and representation for someone, which is not necessarily the company, but that is subject to the proviso that the funds spent must properly, again the word "properly", relate to legal advice and representation for the company's benefit.

Koza Ltd submits that Mr Ipek’s ability to pay the legal fees, in connection with the extradition, from the financial resources available to him was an irrelevant matter. It seems to me, without the assistance of authority, that it is plainly a relevant matter simply on the ordinary words of paragraph 2.1 and paragraph 3 of the first schedule to the order because both of those paragraphs refer to proper expenditure by Koza Ltd and Mr Ipek’s ability to pay the fees himself will be relevant to that matter.

I will therefore make a finding as to whether on the material before me, Mr Ipek can afford to pay for his own defence from the financial resources available to him.

There is plainly some room for doubt, but on the material before me, it is more probable than not that Mr Ipek can pay for his own defence from the financial resources available to him. The evidence as to the very substantial sums at his disposal, in comparatively recent times, points strongly to that being more probable than not.

Of course, Mr Ipek says that, more recently, the Turkish government has moved against him. There does appear to be evidence that his business activities in Turkey have been confiscated or curtailed. But the funds referred to in the material before me do not appear to have been caught up in such confiscation or curtailment.

I am concerned that the evidence on which I am asked to rely was only provided today. I therefore made it clear to counsel for the claimants that if the claimants wish to answer that evidence, I would permit them to do so. They have not invited me to give them time to answer the evidence. Instead, they have made their submissions on the basis of the material before me. They have submitted that the evidence does not show that Mr Ipek has sufficient finances to fund his defence. I take a different view on the balance of probabilities. They have submitted to me that the matter is doubtful, and therefore, I can not act upon that evidence. The matter is doubtful, but I can only act on that evidence because I must act on the material before me.

If, at some future time, a court has different evidence and there is an explanation as to why the matter should be reviewed in the future and not finally settled today, that will be a different matter, but I will act on the evidence before me, to determine the application at this hearing.

That finding, that Mr Ipek has money available to him, adequate to fund his defence, seems to me to provide the answer to the issues which have been argued.

Dealing with paragraph 2.1 of the first schedule, can it be said that the company is acting in the ordinary and proper course of its business by funding Mr Ipek's legal expenses?

The case for the company is that it wishes to see Mr Ipek succeed. It wishes Mr Ipek to remain in this jurisdiction. It does not wish to see him extradited to Turkey. But there is no reason for the company to fund Mr Ipek's defence. On my findings, Mr Ipek can fund his own defence.

Of course, insofar as Mr Ipek controls Koza Limited, and Koza Limited has the necessary funds, Mr Ipek appears to be saying that he should be free to fund his defence from the company's money and not from his own money. I do not regard that as the proper course of the business of Koza Limited. It appears to be a case of a director of a company acting in breach of his fiduciary duty by using the company money for something which is not the ordinary course of the company's business but is primarily for the benefit of the director on a personal level.

Of course, in one sense, the company and Mr Ipek can negotiate and determine what remuneration Mr Ipek should have for his services. This might be an example of Koza Limited wishing to pay a substantial sum, perhaps £200,000, to Mr Ipek for his services. But that argument, which was not advanced, would not, I think, prevail, in view of an earlier ruling given in this litigation by Mr Spearman QC, sitting as a deputy judge of the Chancery Division, who held that it would not be appropriate for the company to pay remuneration to Mr Ipek in excess of £250,000 per annum.

So my conclusion is that the intended payment by Koza Limited to Mr Ipek to enable him to pay his legal fees, is not a payment in the ordinary and proper course of a company's business.

As to paragraph 3, the intended payment by Koza Limited to Mr Ipek does not "properly" relate to legal advice and representation for the company's benefit.

First of all, if I am right that it is not a proper item of expenditure, it does not properly relate to that matter.

Secondly, it is not for the company's benefit because the company does not need to make the payment to improve its prospects of retaining Mr Ipek within the jurisdiction. Mr Ipek has his own resources. There is no question of Mr Ipek not using his own resources to resist the extradition warrant. Mr Ipek will use his own resources for that purpose.

If he is extradited, it will not be for want of a payment by the company. If he is not extradited, again, it will not be anything to do with payment or non-payment by the company.

Quite apart from those reasons, based upon the ordinary wording of the order in this case, there has been considerable argument as to the wider relevance of the resources of a respondent to a freezing order, when considering exemptions to a freezing order. All I will say on that is that if that had been of direct relevance to the outcome, I would have applied the decision of Mr Justice Males in Tidewater Marine International Inc. v Phoenixtide Offshore Nigeria Limited [2015] EWHC 2748 (Comm), and as I interpret what the learned judge said, in particular in paragraphs 36 to 39, the availability of alternative sources of funds is a material matter, when considering whether to allow a respondent to a freezing order to use frozen monies for the purpose of paying his legal expenses.

If that is right in relation to legal expenses, all that I need to say is that because we are dealing here with the payment of legal expenses, I can not see that a different result would be produced by focusing on the words "ordinary and proper course of business". Beyond that, I need not go. I need not rule upon wider arguments as to whether, in other types of case, where one is dealing with "ordinary and proper course of business", one does or does not have regard to alternative sources of funds.

That, I think, determines all matters which need to be determined for the purposes of this application.