England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/05/2014

MRS JUSTICE ROSE:

I. INTRODUCTION

1. The Claimant company ('Goldtrail') was a holiday tour operator specialising in flights and holidays to Turkey. In 2009 it was seeking to expand its activities to include flights and holidays in Greece. It had operated successfully for about 15 years and by 2008/2009 it appeared to be a prosperous and growing company. Goldtrail did not own or operate an airline itself but bought seats from various airlines to carry its customers. It had an air travel operator's licence granted by the United Kingdom Civil Aviation Authority ('the UK CAA') entitling it to carry over 200,000 passengers. On 16 July 2010, however, Goldtrail was put into administration by its sole director and the owner of 100 per cent of its shares, Mr Abdulkadir Aydin, the First Defendant (known as Kadir). Thousands of Goldtrail customers were stranded overseas and the UK CAA had to deploy monies from the Air Travel Trust to repatriate those customers. As a result, that Trust is Goldtrail's main creditor and is owed over £20 million by Goldtrail.
2. Goldtrail went into liquidation on 1 November 2010. It brings this claim through its liquidators against Mr Aydin alleging that he misapplied the company's money and acted in breach of his fiduciary duties as a director. Mr Aydin has left the jurisdiction and, apart from responding to a letter before claim, he has taken no part in these proceedings. The likelihood of recovering any monies from him is therefore remote. The main claims therefore are against the other Defendants who it is alleged dishonestly assisted Mr Aydin in his misapplication of Goldtrail's money and in his breach of duties.
3. The Second Defendant ('Black Pearl') had an indirect interest in 50 per cent of the shares of an airline called Viking Airlines AB ('Viking'). Both Viking and the Third Defendant ('Onur Air') were in the business of selling seats on chartered aircraft flying to holiday destinations and were suppliers of aircraft seats to Goldtrail, primarily to holiday destinations in Turkey. In the course of late 2009 and early 2010, both Black Pearl and Onur Air were invited by Mr Aydin to buy 50 per cent of his shares in Goldtrail. Black Pearl did not know that Mr Aydin was offering to sell half his shares in Goldtrail to Onur Air and Onur Air did not know that Mr Aydin was offering to sell a half share of Goldtrail to Black Pearl. The people involved in Black Pearl and Viking and the people involved in Onur Air entered into their respective deals with Mr Aydin, each deal comprising a number of related agreements. Pursuant to those two deals, substantial amounts of money were paid by Viking and by Onur Air to Mr Aydin either directly or via a vehicle company he set up in the Seychelles for that purpose called Morning Light Ltd ('Morning Light'). Precisely what those companies were paying for is a matter of dispute between the parties. Also as part of those deals both Viking and Onur Air committed to supplying many thousands of charter flight seats to Goldtrail during the summer 2010 season covering the period May to October 2010. An unusual feature of this case is that it is common ground that the two deals included fictitious agreements purporting to record large payments for brokerage services from Morning Light which it is now agreed were never intended to be supplied. Another matter in dispute is just how much of the documentation recording these deals was a sham, in the sense that that word was defined in Snook v London and West Riding Investments Limited [1967] 2 QB 786 at 802D as being a document intended to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.
4. Goldtrail puts its case against the Defendants in two ways. In broad terms:

i) it is alleged against Mr Aydin that he misapplied Goldtrail's money by causing the company to transfer money to Viking and to Onur Air in order to facilitate the payments that those companies were contractually bound to make to him personally or to Morning Light.

ii) It is alleged that Mr Aydin acted in breach of his fiduciary duty to Goldtrail by allowing his interests to conflict with that of Goldtrail because, as part of the two deals, he caused Goldtrail to enter into a long term commitment to buy seats from Viking and Onur Air over future years but the commission paid by Viking and Onur Air in return for this commitment was paid to Mr Aydin via Morning Light and not to Goldtrail.

iii) It is alleged that the other Defendants dishonestly assisted Mr Aydin in both the misapplication of Goldtrail's money and in the breach by Mr Aydin of his duties.

5. Black Pearl and Onur Air say that they have lost a substantial amount of money themselves as a result of Mr Aydin's fraudulent activity. He has absconded with their money and he never transferred the promised shares to either Black Pearl or to Onur Air before putting Goldtrail into administration. They say that they are the primary victims of Mr Aydin's fraudulent conduct and they deny that they are liable to Goldtrail to make good the losses that Goldtrail has also suffered.
6. I shall refer to the two sets of agreements entered into by Goldtrail as 'the Black Pearl Deal' and 'the Onur Air Deal'. Both Deals have strong similarities but some important differences. Since those involved in the Black Pearl Deal did not know about the Onur Air Deal and vice versa, I have been careful to treat them entirely separately except in one instance where it is legitimate to read across from one Deal to the other.

II. THE BLACK PEARL DEAL

(a) The companies involved in the Black Pearl Deal

7. Black Pearl is a Hong Kong based holding company with two wholly owned subsidiaries, BPI UK Ltd ('BPI UK') and BPI Iceland ehf ('BPI Iceland'). The registered owner of all the shares in Black Pearl is Lakehouse Management AG and the registered owner of the shares of Lakehouse Management AG is Mr Malcolm Grumbridge. During the relevant period the directors of Black Pearl were the Fourth Defendant ('Mr Stephensen') and Mr Grumbridge.
8. Viking is a Swedish charter airline serving United Kingdom and European tour operators. Prior to late 2008 it was a wholly owned subsidiary of European Aviation and Technical Services ('EATS') and EATS was in turn wholly owned by Mr Christian Tadjeran. Viking has a wholly owned subsidiary called Viking Airlines (UK) Ltd ('Viking (UK)'). In late 2008 Mr Tadjeran decided to involve the Black Pearl group in Viking and BPI Iceland bought 50 per cent of the shares in Viking. This purchase was financed in part by the Sixth Defendant ('Mr Wyatt') who injected about £2.9 million into the company and in part by BPI Iceland drawing on funds from its own trading activities. Thereafter BPI UK took an active role in trying to boost the business of Viking by finding it new customers. As a result of the cessation of Goldtrail's business, Viking is now in insolvency proceedings in Sweden. The two directors of Viking at the time the Black Pearl Deal was negotiated were Mr Tadjeran and Mr Peter Evans. After Goldtrail went into administration, Mr Tadjeran and Mr Evans were replaced as directors of Viking by Mr Stephensen and the Fifth Defendant ('Mr Sigurdarson').
9. Meridian Aviation UK Ltd ('Meridian') is a charter agent and an aviation seat and flight broker. It also acts as a collector of payments made for flights to airlines such as Viking by tour operators such as Goldtrail. 66.6 per cent of the shares in Meridian are owned by Jim Wyatt, Mr Wyatt's brother, and the remainder by Mr Andre Cachia. Meridian went into administration in July 2013 after the collapse of Goldtrail.
10. Morning Light was a Seychelles company set up by Mr Aydin for the purposes of these deals to receive monies on his behalf. It is accepted that that payments made to Morning Light were in effect payments made to Mr Aydin personally.

(b) The Black Pearl witnesses

11. There were four witnesses on behalf of Black Pearl, all of whom were cross-examined on their witness statements.
12. The first was Mr Grumbridge who is a solicitor in private practice in England. He met Mr Wyatt in the late 1980s and has worked with him on various projects in the aviation industry. He has been a director of Black Pearl from the time of its incorporation in Hong Kong in June 2007. His evidence concerned the beneficial ownership of Black Pearl and his attendance at meetings. In the event I have not found it necessary to decide the issues in dispute between the parties as regards the ownership of Black Pearl. I regard him as a truthful witness though in the end his evidence was of limited relevance.
13. The other witnesses for Black Pearl were Mr Sigurdarson, Mr Stephensen and Mr Wyatt, the three men who were primarily concerned with the negotiations of the Black Pearl Deal. I refer to the three men collectively as the Individual BP Defendants and, together with Black Pearl, I will refer to them as 'the Black Pearl Defendants':

i) Halldor Sigurdarson was born in Iceland and has been involved in the aviation industry since 2000. He moved to England to study in about 2003 and started working for BPI UK in 2009. He met Mr Stephensen in the summer of 2004 and was introduced to Mr Wyatt in early summer 2006. He has been a director of BPI UK since about December 2008 and has been employed by that company since March 2009. His evidence is that he was employed by BPI UK to provide consultancy services to firms operating in the aviation industry and that he provided these services to, amongst others, Viking and Meridian. His role was to work with clients on financial related matters such as business cases, projections, budgets, cash planning and forecasting. He also worked on commercial matters and negotiations on selling and buying seat capacity.

ii) Magnus Stephensen was appointed as a director of Black Pearl in early 2009. He has also been a director of BPI Iceland since its incorporation in June 2005, together with Mr Sigurdarson. He is Icelandic by birth and was educated in Paris and the USA as well as in Iceland. He has 15 years of experience in a wide range of management areas related to the aviation and travel industry. He has worked for Icelandair and has held directorships in a range of aviation industry companies. He met Mr Wyatt in about 2004 when they were both working for the same corporate group. His evidence as to his involvement in the Black Pearl group of companies is that he was employed by BPI Iceland between 2008 and 2011 as an aviation advisor. He worked on projects with BPI UK, Meridian, Viking, and others. He was introduced to Mr Aydin by Mr Wyatt in about December 2008.

iii) Philip Wyatt was born in England and has been involved in the aviation industry since he was aged 16. He was a director of BPI UK from 29 December 2008 until 29 December 2011. He was also a director and CEO of Meridian between 1 November 2010 and 22 August 2013 (Meridian being majority owned by his brother James Wyatt). He holds many other directorships in aviation companies. The great majority of the activity of the Black Pearl group has been financed by Mr Wyatt although his evidence is that he has no legal or beneficial interest in it.

14. The evidence of the Individual BP Defendants must be treated with considerable caution and I regard much of it as unreliable. I have based this assessment on a number of factors. First, their Defence to the action depends on them establishing that contracts which they negotiated, prepared and approved were sham documents designed to enable both Mr Aydin and Black Pearl to benefit from savings made by Mr Aydin disguising from the tax authorities the price which Mr Aydin was receiving as consideration for the Black Pearl Deal. Any witness whose defence rests on such an assertion is getting off on the wrong foot so far as his credibility is concerned. Secondly, Mr Stephensen and Mr Wyatt at least seemed unfazed at recounting instances of their untruthfulness in their business dealings. For example, at one point towards the end of March 2010 Viking was late in paying an instalment of £300,000 due to Mr Aydin under the Black Pearl Deal. Mr Wyatt emailed Mr Stephensen and Mr Sigurdarson suggesting that Mr Stephensen tell Mr Aydin that the Greek Civil Aviation Authority had taken regulatory action blocking Viking's money until 7 June 2010. Mr Stephensen duly emailed Mr Aydin in apologetic tones telling him that the Greek CAA had insisted that €5 million of Viking money was blocked and that this meant that payments under the Deal could not be finalised until 7 June. He assured Mr Aydin "Please understand that this is completely beyond our control". Mr Sigurdarson was cross-examined about other aspects of this email exchange but did not mention what Mr Stephensen later revealed in his evidence, namely that there was no such intervention by the Greek CAA. The excuse was complete fabrication. Such a casual and opportunistic invention in their business dealings might mean that they would be similarly inventive in their evidence in court if it suited their purpose. I recognise, however, that people who may bend the truth in their business dealings, may balk at giving false evidence under oath. But I am particularly concerned by the Individual BP Defendants' willingness not only to fabricate excuses to Mr Aydin but to falsify documents for submission to regulatory authorities. There are two important instances of this. The first is that some months after the Black Pearl Deal was concluded, Mr Aydin wrote to Mr Wyatt on 9 April 2010 saying:

"Hi Phil

We need to have copy contracts to send to CAA. We need to have a similar contract that we had for SAGA last year, contracts must not have the deposit amounts and we need to show the deposits on a rolling basis. It would also be prudent not to have any seat capacity on the contracts, they can simply state the routes operated and the prices etc may be.

Can we get this arranged for both Greek and Turkish program asap please as CAA now wants the copy of the contracts?"

15. Mr Wyatt's response was swift and helpful:

"Yes we can arrange Monday Kadir. Pls cfm exact deposits and terms you require for contracts.

Thanks

Phil

Ps is this usual?"

16. In response to Mr Wyatt's question what deposits should be shown in the bogus documents, Mr Aydin replied (emphasis added):

"Hi Phil

CAA wants the copy of seat agreements from all the license holders, they try to fish out any deposit arrangements with the airlines. It is best not to show any deposits on it, if we do they may deduct the deposit amounts from the cash flow ratio and ask for an injection. Can you therefore arrange the contracts not mentioning any deposits at all, they will be just CAA purposes.

Best regards

Kadir"

17. The bogus version of the contract between Goldtrail and Viking was duly produced by Black Pearl and Mr Stephensen arranged for it to be signed by the relevant people. On 14 April 2010 Mr Wyatt sent an email to Mr Aydin copied to Mr Stephensen and Mr Sigurdarson attaching a copy of the false version of the contract. He described the document as 'Viking contract for CAA purposes'. On the same day Mr Wyatt sent a bogus version of the seat sale agreement between Saga Airlines and Goldtrail also stated by him to be 'for CAA purposes only' with nil deposits and fully fixed prices. It is apparent therefore that none of the Individual BP Defendants had the slightest qualm about producing bogus versions of agreements at Mr Aydin's request for him to forward to the regulatory authorities. Mr Aydin sent this version of the contract on to the UK CAA and it came to light as a result of these proceedings. The UK CAA did not have a copy of the real agreements as concluded by the parties.
18. Mr Stephensen and Mr Wyatt were adamant that they did not realise that Mr Aydin was going to provide the bogus contracts to the UK CAA – they thought it was being sent only to the Greek and the Turkish regulatory authorities. Mr Wyatt said in his witness statement that he 'quizzed' Mr Aydin about exactly what he wanted the contracts for and Mr Aydin told him that they were for the Greek and Turkish CAAs. The reason was that Goldtrail intended to 'reverse' some of the flights, that is sell them to Greek residents as return flights Greece – UK – Greece and that such seats would be outside the scope of the ATOL licensing regime. However, Mr Wyatt had to accept that the bogus contract sells the same number of seats as the real contract – no reversed seats had been removed. With regard to the bogus FOAL/SAGA contract that he produced, Mr Wyatt says that Mr Aydin told him in a phone call that he was concerned that commercially sensitive material might be leaked if contracts showing deposits were sent to the Turkish CAA. In her skilful and effective cross-examination of the Individual BP Defendants at the trial, Ms Stonefrost appearing for Goldtrail asked Mr Stephensen and Mr Wyatt why the only explanation recorded in the email exchanges as to why the bogus contract should be produced was Mr Aydin's comment that it avoided the risk of further capital requirements being imposed by the UK CAA. If that explanation is correct, then clearly the purpose of the sham documents was to show them to the UK CAA. In response, the two men referred again to the supposedly reassuring telephone call Mr Wyatt had had with Mr Aydin. They accepted that there was no record or reference to this conversation or reassurance in the email traffic at that time.
19. It is clear to me that this supposed reassuring phone call between Mr Wyatt and Mr Aydin is a complete fabrication. Mr Stephensen and Mr Wyatt either realised that the bogus contracts would be sent to the UK CAA or were indifferent as to the use that Mr Aydin intended to put them. Their supposed indignation in their written and oral evidence at the suggestion that they helped Mr Aydin deceive the UK CAA struck me as false and contrived. The email traffic clearly shows that neither Mr Wyatt nor Mr Stephensen hesitated for a moment before agreeing to arrange for false contracts to be made and signed for Mr Aydin to use with the regulatory authorities as he saw fit. If they had sought and obtained some assurance to allay any concerns, they would surely have recorded that in an email.
20. The second instance of their willingness to deceive the regulatory authorities is the creation of a trust to disguise from the UK CAA the fact that Mr Aydin was selling his shares in Goldtrail to Black Pearl. In September 2009 Mr Wyatt emailed Mr Stephensen and Mr Sigurdarson outlining to them the proposed deal with Mr Aydin. He said at the end:

"All food for thought but I think this could work really well for us but Kadir needs to be seen as owner with NO change to alarm CAA"

21. After the deal was concluded in February 2010, there was still some time before the share transfer was to be completed. In early July 2010 a declaration of trust was drawn up under which Mr Aydin declared that he held 50 per cent of the shares in Goldtrail for the benefit of Black Pearl. It appears that it was signed by Mr Aydin but not by Mr Grumbridge (on behalf of Black Pearl) because Mr Grumbridge did not have an opportunity to sign it in the UK before he heard that Goldtrail had gone into administration. Mr Wyatt's explanation for this way of dealing with the transfer of the shareholding changed during the course of his cross-examination on the topic. First he seemed to concede that the purpose was to conceal from the UK CAA that he had any involvement in the ownership of Goldtrail. This is because, as he describes in his witness statement, his previous involvement in failed travel companies has caused a degree of animosity towards him on the part of the UK CAA such that he has in the past 'considered it prudent' not to make explicit his interest in travel companies with which he is involved. When it was put to him that this answer was inconsistent with his case that he was not actually involved as a shareholder or director of Black Pearl, he said instead that it had always been their intention to disclose the change of ownership of Goldtrail to the CAA and that the declaration of trust was to do with the need to have a nominee company holding the shares. I am sure that Mr Wyatt and Mr Aydin intended to use the declaration of trust as a mechanism for avoiding any public record of any change of ownership of the shares in order to deceive the UK CAA into believing that no such change had taken place. That is the only explanation that is consistent with the written record.
22. For all these reasons I consider that the safest course is to rely not on the parts of the written or oral evidence of the Individual BP Defendants which are contentious but rather on the content of the email traffic among them over the relevant period. Even though they seem prepared to lie to others outside their coterie, they did not have any reason to paint a false picture to each other.

(c) The negotiation and conclusion of the Black Pearl Deal

23. Much of the evidence about how the Black Pearl Deal came about is uncontentious. Mr Wyatt first met Mr Aydin in November 2008 when they were introduced by a former colleague who had joined Goldtrail to organise the expansion of Goldtrail's business from Turkey to Greece. Following the sale of flights by Viking to Goldtrail in the summer 2009 season, discussions turned to possible investment by Viking in Goldtrail. During the course of 2009 Mr Wyatt and Mr Aydin discussed developing a vertically integrated travel business including Viking, Goldtrail, Meridian and perhaps a Turkish subsidiary. The Individual BP Defendants met Mr Aydin at a restaurant in London on 23 September 2009 to discuss the deal. Mr Stephensen then took over the detailed negotiations of the deal and Mr Aydin provided him with some financial information about Goldtrail. Mr Stephensen and Mr Sigurdarson met Mr Aydin again in October 2009 to discuss more specific details. Mr Stephensen's evidence was that following this meeting, he formed the opinion based on the financial information he had seen that he could not justify a much larger investment than £1,500,000 to £1,750,000 for a 50 per cent stake in Goldtrail. Mr Stephensen says that Mr Aydin stressed at the meeting on October 2009 that the deal would have to be structured 'to be tax beneficial to him': 'he would want to see this structured in a manner where the "official" or stated purchase price was lower and the rest would be via a "side deal"'. Mr Aydin made it clear that he wanted at least £2 million from the sale of the 50 per cent stake.
24. It was Mr Stephensen who came up with the idea of dividing the deal into a share purchase agreement between Black Pearl and Mr Aydin with a reduced payment and another agreement under which Viking would pay a larger sum to Morning Light. Mr Aydin would not have to pay tax on the payments made to Morning Light and the 'saving' would be shared between the counterparties to the overall deal. Mr Stephensen said that the Individual BP Defendants were concerned that if they did not try to accommodate him in some way, they risked not only him walking away and selling his shares to someone else, but also the loss of Viking's existing business with Goldtrail.
25. Mr Stephensen organised a 'due diligence' investigation of Goldtrail by Ernst & Young. This work commenced on 3 December 2009. The Report provided on 22 December 2009 recorded that Black Pearl was proposing to acquire a 50 per cent share in Goldtrail for a total consideration of £500,000. Mr Stephensen accepted in his evidence that Ernst & Young were shown only the draft Black Pearl SPA with the purchase price of £500,000. He explained this as follows:

"The agreement with Mr Aydin was to buy 50 per cent of his shares in Goldtrail Travel Limited for a total consideration of GBP1.9 million. Now, when I approached -- when the deal had been agreed between the parties, I approached Richard Hall, a partner of Ernst & Young, in London, and asked Ernst & Young to carry out financial due diligence of -- for Goldtrail. I did not ask Mr Hall or his associates to provide legal due diligence, tax due diligence or any transaction advice, or provide any transaction advice. Their scope was fairly limited. Now, at the time, I told Mr Hall that the official purchase price would be GBP500,000. There is a very simple reason for that, because I did not intend to start the due diligence process by informing the partners at Ernst & Young that the intention was to structure this deal in somewhat of an unorthodox manner. I didn't think that was the right thing to do and I thought that would complicate things. That is the reason for it. So I did not tell him the total details of the transaction and, therefore, it says what it says in the due diligence report."

26. Given that Ernst & Young were apparently not told that Black Pearl was paying a total of £1.9 million under the Black Pearl Deal, it is clear that they were not being asked to investigate and confirm that the shares were in fact worth that larger amount of money. Mr Stephensen's evidence was that he presented the deal including a summary of the Ernst & Young report to a meeting of the company directors on 12 January 2010 and everyone at the meeting agreed that the Black Pearl Deal should go ahead.

(d) The agreements comprising the Black Pearl Deal

27. The Black Pearl Deal comprised, on its face, a number of different agreements. I describe those which are particularly relevant to this case in the following paragraphs but there were others too including disclosure letters and a shareholders' agreement. First, there was the share purchase agreement (the 'Black Pearl SPA') signed by Mr Aydin on his own behalf and by Mr Stephensen on behalf of Black Pearl. It was dated 19 February 2010. It stated that Black Pearl was buying 50 per cent of the share capital of Goldtrail for a consideration of £500,000 payable in instalments between 19 February and 1 July 2010 as follows:

i) £50,000 on 19 February 2010

ii) £145,000 on 26 February 2010

iii) £145,000 on 7 March 2010

iv) £145,000 on 7 June 2010 and

v) £15,000 on 1 July 2010.

28. Schedule 2 to the Black Pearl SPA stated:

"1. The Purchaser [i.e. Black Pearl] and the Seller [i.e. Mr Aydin] have agreed the following commercial agreement between the Company [i.e. Goldtrail] and Viking:

a. The Company has committed to purchasing a minimum of 100,000 seats per year from Viking via Meridian Aviation at market rates. This arrangement is effective May 1, 2010 and expires on May 1, 2015; and

b. The Company grants Viking the first right of refusal to sell to the Company, all seats required by the Company, in excess of 100,000 seats specified in section 1.a. above."

29. The Black Pearl Defendants say that this recorded agreement between Viking and Goldtrail never in fact existed. Goldtrail says that this agreement did exist and one limb of its claim alleges that the consideration for entering into that commitment should have been paid to Goldtrail but was in fact paid to Mr Aydin. Without prejudice to the issue of whether the agreement referred to in Schedule 2 to the Black Pearl SPA existed or not, I shall refer to this second agreement as the 'Viking 5 Year Seat Commitment'.
30. At the same time that the Black Pearl SPA was signed, there was also an agreement called the Commercial Agreement entered into between Morning Light and Viking ('the Viking Brokerage Agreement'). It was signed by Chris Broad on behalf of Viking. In that agreement Morning Light was described as 'the Broker'. The Viking Brokerage Agreement provided that:

"IT IS NOW AGREED that the Broker shall be compensated for seats committed to and purchased by Goldtrail Travel Limited from Viking according to the following commercial understanding;

1. Commission agreement:

a. This commission agreement relates to a commercial agreement reached between Goldtrail Travel Limited and Viking, dated January 1st 2010. According to this commercial agreement, Goldtrail Travel Limited shall buy a minimum of 100,000 seats per year from Viking, via Meridian Aviation, for the next 5 years at market rates, effective May 1, 2010 and expiring on May 1, 2015.

b. Viking, via Meridian Aviation, shall get a first right of refusal to sell to Goldtrail Travel Limited all seats required by Goldtrail Travel Limited in excess of the 100,000 seats specified in section 1.a.

2. Payment:

For successfully introducing the commercial commitment outlined in sections 1.a and 1.b the Broker shall be paid by Viking a total sum of 1,400,000 GBP (One Million Four Hundred (sic) British Pounds)

The payment shall be completed according to the following payment plan:

i. 300,000 GBP on 22 February, 2010

ii. 350,000 GBP on 7 March, 2010

iii. 350,000 GBP on 7 April, 2010

iv. 200,000 GBP on 7 May, 2010

v. 200,000 GBP on 7 June, 2010"

31. It is common ground that Morning Light did not provide any brokerage services or indeed any other kinds of services in return for the £1.4 million it was paid. It was a sham designed to enable Mr Aydin to receive £1.4 million in a 'tax efficient' manner. Where the parties differ is as to the purpose of the fiction. The Black Pearl Defendants say that everything in the Viking Brokerage Agreement was fictitious – not only the brokerage services but also the reference to the Viking 5 Year Seat Commitment. There were no brokerage services and no Viking 5 Year Seat Commitment. They say that the £1.4 million was simply an additional payment to Mr Aydin personally for his 50 per cent shareholding in Goldtrail. If that is right, then Goldtrail can have no claim to the £1.4 million because it is simply part of the price of the shares paid to Mr Aydin. Goldtrail says that although the brokerage services are a sham, the Viking 5 Year Seat Commitment was real and Viking was prepared to pay £1.4 million for it. Viking paid that £1.4 million to Mr Aydin via Morning Light purportedly for facilitating the Viking 5 Year Seat Commitment but that money rightly belonged to Goldtrail. If that is right then Goldtrail may have a claim to it.
32. On 15 February 2010 an agreement had been concluded between Viking and Goldtrail for the sale of seats on Viking flights to and from Turkey over the summer season ('the Viking/Goldtrail Seat Sale'). The Schedule to the Viking/Goldtrail Seat Sale listed all the flights setting out how many seats on each flight were being purchased and the price of each seat (some in dollars and some in sterling). It stated that the contract price was about £4.3 million plus $9.6 million. At the bottom of the Schedule under the heading payment terms it provided:

"Payment Terms The Charterer [i.e. Goldtrail] shall pay:

1. UKL 250,000 by no later than 31^st March 2010. This payment will be refunded as follows:

a. UKL 125,000 on October 15^th

b. UKL 125,000 on November 1^st

2. The balance of 100% of the price of each Charter by T.T:- the flying Friday-Monday inclusive to be paid on the proceeding (sic) Tuesday and flying Tuesday – Thursday inclusive to be paid by T.T. on the proceeding Friday. Also all taxes, security charges should be paid at these times based on a 90.00% load factor:

3. All payments to be made through Meridian Aviation Limited."

33. Goldtrail's case is that the deposits referred to here were never intended to be repaid. They were the mechanism by which Mr Aydin misapplied Goldtrail's money by transferring it to Viking (via Meridian) in order to enable Viking to make the payments to Morning Light under the Viking Brokerage Agreement. The Black Pearl Defendants say that the deposits were genuine and are a common feature of seat sale agreements. It was intended that the deposits be repaid. Of course, Viking never in fact paid back the deposits at the end of the season because Goldtrail went into administration before the dates for repayment.
34. On 9 February 2010 Goldtrail had entered into another seat sale agreement with a company called Flight Options Aviation Limited ('FOAL') for seats on flights to Greece ('the FOAL/Goldtrail Seat Sale'). FOAL was not in fact an airline so the seats that were sold to Goldtrail under this agreement were seats on aircraft operated by a Turkish airline called Saga Airlines. The contract value of the FOAL/Goldtrail Seat Sale was about £8 million plus $18.9 million for the Summer 2010 season. This agreement set out payment terms as follows:

"Payment Terms The Charterer [i.e. FOAL] shall pay:

1. UKL 250,000 by no later than 19^th February 2010 and UKL 250,000 by no later than 28^th February 2010. These payments will be refunded as follows:

a. 125,000 on August 15^th 2010

b. 125,000 on September 1^st 2010

c. 125,000 on September 15^th 2010 if a continuation of the contract is not agreed

d. 125,000 on September 30^th, 2010 if a continuation contract is not agreed

2. The balance of 100% of the price of each Charter by T.T:- the flying Friday-Monday inclusive to be paid on the proceeding (sic) Tuesday and flying Tuesday – Thursday inclusive to be paid by T.T. on the proceeding Friday. Also all taxes, security charges should be paid at these times based on a 90.00% load factor:

3. All payments to be made through Meridian Aviation Limited."

35. Again, there is a dispute between the parties as to whether these deposits were genuinely to be refunded at the end of the season or whether that part of the agreement was a sham and the intention was always that the deposits would be used to pay the sums due to Morning Light under the Viking Brokerage Agreement.

(e) Payments made following the conclusion of the Black Pearl Deal and the demise of Goldtrail

36. Under the Black Pearl Deal, therefore, there were two sets of instalments of payments due to Mr Aydin: £500,000 due to him personally from Black Pearl under the Black Pearl SPA and £1,400,000 due to Morning Light from Viking under the Viking Brokerage Agreement. I shall refer to all these instalments as 'the Aydin payments'. Moving in the other direction, so to speak, were instalments of deposits due from Goldtrail to Meridian for Viking (£250,000 in one lump sum) under the Viking/Goldtrail Seat Sale and from Goldtrail to Meridian for FOAL (£500,000 in two instalments) under the FOAL/Goldtrail Seat Sale.
37. I will consider in more detail later the timing of these payments because that is a key part of Goldtrail's claim that the payments were in fact misapplications of Goldtrail's money because the intention and effect of them was to enable or encourage Viking and Black Pearl to make the Aydin payments. For present purposes it is enough to say that payments were made back and forth and also that, as the summer season got underway, flight seats were sold by Viking and FOAL to Goldtrail under the two seat sale agreements in accordance with the terms of those agreements. Goldtrail also made the payments for those flights in accordance with the terms of the two seat sale agreements (although sometimes these payments were late or incomplete).
38. There was one event which is significant during this period. I have already referred to the fact that towards the end of March, some of the Aydin payments were overdue and Mr Stephensen had falsely told Mr Aydin that this was because funds were locked up by the Greek CAA. Mr Aydin was chasing payment at the beginning of April 2010 saying that he was reluctant to cause Goldtrail to make further payments unless he was assured that the Aydin payments would be made. After some toing and froing by email, on 12 April 2010 Mr Aydin emailed Mr Sigurdarson copying in Mr Wyatt and Mr Stephensen saying:

"In order to speed the matters, I suggest that I send you £400K today with a strict condition that £350K is returned to me no later than 16^th of April. This will only have you paying £100K more than you are prepared on the 16^th of April and it is not a great deal of money. We can then follow the schedule of £100K on the 7^th and 14^th of May plus £200K on the 7^th of June and complete all the payments. We can then deduct the £150K overpayment from GT with the first departures in May for SAGA and Viking.

… Please let me know urgently so that this £400K can be paid to you today, otherwise we would be going around circles here with nothing achieved for both parties"

39. This course of action was agreed and Goldtrail paid £400,000 to Meridian on 13 April 2010, comprising £250,000 for the deposit which had fallen due under the Viking/Goldtrail Seat Sale on 28 March 2010 and the additional £150,000 agreed in the email exchanges on 12 April. A similar incident appears to have arisen in May 2010 although the documentation is sparse. By May, all the deposits due under the Seat Sales with Viking and FOAL had been paid. On 18 May, Mr Aydin emailed Mr Sigurdarson asking for confirmation that Viking had received £350,000 paid into its accounts. On 19 May Mr Aydin gave some further explanation:

"The money has come out of our accounts. Once you have confirmation that it is in your accounts, please ensure that the relevant portions go to the relevant accounts Halldor. As you know this should be personal £145K and commercial £200K."

40. The 'personal' amount referred to here is the £145,000 which would fall due to Mr Aydin personally under the Black Pearl SPA on 7 June and the £200,000 'commercial' amount is the amount due to Morning Light under the Viking Brokerage Agreement on 7 June. I shall refer to the 13 April and 18 May payments collectively as 'the Extra Viking £500,000'.
41. On 16 July 2010 Goldtrail was put into administration. This was entirely unexpected so far as the Black Pearl Defendants were concerned and it is accepted by Goldtrail that no one at Black Pearl was aware that Goldtrail was in financial difficulties. Seat sales to Goldtrail stopped as at that date. On 22 July 2010 there was a shareholders meeting of Viking, with EATS being represented by Mr Tadjeran and BPI Iceland by Mr Stephensen. The meeting was conducted over the telephone. The shareholders resolved to replace Mr Evans and Mr Tadjeran as directors with Mr Stephensen and Mr Sigurdarson. This was followed by a board meeting of Viking, attended by Mr Stephensen and Mr Sigurdarson also on 22 July 2010. I will need to refer to the minutes of that meeting later.

III. THE ONUR AIR DEAL

42. Onur Air is a company incorporated under Turkish law. It has a Board of Directors (which is required by the Turkish commercial code) and an Executive Committee (which is not so required). The Executive Committee was set up in 2008 to make strategic decisions about the operation of the company. The board of directors of Onur Air at the time of these events comprised Mr Bagana, his daughter Yonca Bagana and Mr Bolukcu. Neither Yonca Bagana nor Mr Bolukcu appears to have played any part in the events giving rise to this claim.

(a) The Onur Air witnesses

43. There were four witnesses giving evidence at the trial on behalf of Onur Air:

i) Mehmet Pekpak worked for Onur Air from February 1998 as Vice President responsible for Sales and Marketing. He was a member of the Onur Air Executive Committee. He resigned from Onur Air on 1 November 2013 following a sale of the business to new owners. His role in Onur Air was to negotiate and agree how many seats on a particular route a tour operator would purchase from Onur Air and for how long. He was also responsible for the day to day management of contracts with tour operators and for ensuring payments from tour operators were received in good time. I found Mr Pekpak to be an honest and helpful witness who gave his evidence with care and consideration. I accept that the evidence he gave in cross-examination was true to the best of his recollection. Much of his witness statement I also accept as true, though the tone of it was rather different from the tone of his evidence in the witness box.

ii) Nedim Gürbüz started working for Onur Air in February 1999 and over the relevant period was Vice President in charge of foreign affairs and cabin crew. He was not a member of the Executive Committee. Mr Gürbüz was a satisfactory witness on some aspects of the case but less so on others. I found his evidence about the disclosure exercise carried out by Onur Air for the purpose of these proceedings unconvincing. He was asked about the absence of many contemporaneous documents relating to these events. His evidence was that a number of personnel at the company had had new computers provided to them; that no effort had been made at the time to transfer their data and documents from their old computers to their new computers and moreover that all the back-up records from their old computers had been destroyed on the initiative of someone in the IT department without his knowledge or permission. Such an explanation would be far-fetched these days even in a small company let alone in a multi-million pound international business like Onur Air. I treat his evidence with some caution.

iii) Hayrettin Hasançebi started working for Onur Air in 2003 and was a member of the Executive Committee until 2012. When he first joined Onur Air his main responsibility was to determine new business strategy and developments. I accept most of his evidence as truthful and helpful.

iv) Cankut Bagana owned 92 per cent of Onur Air between 1995 and 2013 and was the Chairman and Managing Director of the company over that period. His evidence is that he was responsible for the overall operation of Onur Air and he was the ultimate decision maker for the company. He made a witness statement but shortly before he was due to travel to London to give evidence he unfortunately became ill and was unable to attend for cross-examination. I admitted his evidence, which is not of itself controversial, as a hearsay statement.

(b) The negotiation and conclusion of the Onur Air Deal

44. In 2005 Onur Air flew 13,500 seats for Goldtrail to Turkey and this grew to a peak of 325,000 in 2008, reducing to 169,000 in 2009. Goldtrail thus became an important tour operator accounting for about 10 – 15 per cent of Onur Air's turnover. Mr Pekpak described the importance of Goldtrail for Onur Air:

"In my view, it was the most important tour operator from the UK for Onur Air, but was also important for Onur in general. Goldtrail was particularly important because tour operators in the UK usually have an associated airline which the tour operator owns all or part of. … It is therefore good to find a large tour operator which does not have an associated airline (like Goldtrail). Not only did Goldtrail not have an associated airline, but it was also a Turkish specialist which made things better for Onur because most of our flights serve Turkish holiday destinations"

45. In March 2010 Mr Pekpak attended the annual Berlin travel fair and met Mr Aydin there. Mr Aydin told Mr Pekpak that he had decided to sell 50 per cent of his shares in Goldtrail and was having discussions with people about this. He said that if he sold shares to a third party, he did not know if those shareholders would be willing to continue to buy flight seats from Onur Air. Mr Pekpak's evidence was also that Mr Aydin told him that if Onur Air bought the shares in Goldtrail, Goldtrail would exercise its contractual rights to cancel seats it had bought from another Turkish airline and transfer that business to Onur Air. Mr Pekpak realised the importance of this proposal. He understood Mr Aydin to be saying that there was a chance that Goldtrail would not use Onur Air for its 2010 operations at all. Mr Pekpak immediately telephoned Mr Bagana and Mr Bagana invited Mr Aydin to meet him in Istanbul. Mr Bagana asked Mr Pekpak to check what would be the total loss of revenue if Goldtrail cancelled all its flights. Mr Pekpak said that Onur Air might be able to find alternative customers for some of the seats reserved for the summer 2010 season by Goldtrail but that as regards some destinations it would be very difficult to find alternative customers so near to the start of the season.
46. There was a meeting with Mr Aydin in Istanbul at Onur Air's offices on 19 March 2010 attended by Mr Bagana, Mr Bolukcu and Mr Pekpak. Mr Aydin said that he wanted to sell 50 per cent of the shares in Goldtrail for £5 million and that he had already received an offer to buy them for that amount. He said that the new owner of the shares would have a big say in where Goldtrail purchased seats from for the coming season. After that meeting there were further internal discussions. Mr Bagana quickly agreed in principle that Onur Air would buy the shares for that price although he did not know anything about Goldtrail, its accounts or profits. It was then agreed with Mr Aydin that a group from Onur Air would go to London to look into Goldtrail's accounts and finances. Mr Hasançebi sent Mr Pekpak a list of the information he wanted about Goldtrail and Mr Pekpak emailed that list to Mr Aydin.
47. Mr Aydin started to put pressure on Onur Air to conclude the purchase of the shares quickly. On 30 March, Mr Aydin sent through a revised summer 2010 programme indicating how many seats Goldtrail was going to buy over that season from Onur Air. The number was 137,000 – very much lower than in previous years and therefore very disappointing given that for Onur Air the purpose of deal was to increase or at least keep stable the higher volumes flown in previous seasons. The next day, 31 March 2010, Mr Hasançebi, Mr Bagana and Mr Gürbüz flew to London to meet Mr Aydin at the offices of Onur Air's solicitors Mishcon de Reya. At the meeting, Mishcon suggested that a full due diligence exercise be carried out for Goldtrail. Mr Aydin however was concerned that this would take too long. After the meeting the four men went to lunch at a restaurant without the solicitors. During this lunch there were a number of important developments. Mr Aydin proposed a different structure for the deal – a structure that he said that he had used earlier. Mr Hasançebi says that Mr Aydin was clear that he wanted to use this structure. Mr Aydin told them if they adopted this new structure, the price for the shares would be reduced to £4,640,000. Mr Gürbüz's evidence was that at the time it did not occur to him that this was being done for tax purposes and no one mentioned a tax saving.
48. Also at the lunch meeting Mr Hasançebi asked for a longer term commitment from Goldtrail to be included in the deal for a minimum number of seats. His evidence was that he personally made this request at the lunch meeting and that it was agreed then that there would be a five year commitment for a minimum of 150,000 seats not the 137,000 seats that had been proposed. This was later increased to 175,000 seats in 2010 and extended to a commitment by Goldtrail to buy 70 per cent of the seats it needed for UK/Turkey from Onur.

(c) The agreements comprising the Onur Air Deal

49. The first of the main agreements making up the Onur Air Deal is the Onur Air share purchase agreement ('the Onur Air SPA') entered into in early April 2010. The parties to that agreement were Mr Aydin and Mr Bagana. This states that the consideration for 50 per cent of the shares in Goldtrail was £1 million to be paid on completion of the sale on 5 August 2010. Schedule 3 to the Onur Air SPA was a declaration of trust that was to be transferred from Mr Aydin to Mr Bagana on completion of the share transfer. Under this declaration, Mr Aydin declared that he stood as nominee for Mr Bagana and that he has no beneficial interest in the shares. Mr Aydin had explained the reasons for this device and for avoiding an actual transfer of the shares to Mr Bagana in an email to Mr Pekpak on 22 March 2010:

"As I explained at our meeting in Istanbul, if even a rumour of a change in the structure of the company reaches the British Civil Aviation Authority, the Civil Aviation Authority will turn their attention to us and may treat it as a newly established tour operator instead of (permitting) payment of insurance per person, and this is a rather risky situation. For the two important reasons I have mentioned above, this partnership matter must be kept confidential at this stage and also after the partnership has been established, at least until the end of this year, or it will be a headache for us and a number of difficulties will arise. I would ask you to inform Hayrettin and Sehabettin on these matters and request, as a matter of great importance, that this situation is managed in complete confidentiality and secrecy."

50. Also signed on 30 April 2010 was an agreement headed Commercial Agreement entered into between Morning Light and Onur Air ('the Onur Air Brokerage Agreement'). This was in very similar form to the Viking Brokerage Agreement. After describing the parties and referring to Morning Light as 'the Broker' the agreement went on:

"IT IS NOW AGREED that the Broker shall be compensated for seats committed to and purchased by Goldtrail Travel Limited from Onur Air according to the following commercial understanding;

Brokerage agreement:

This brokerage agreement relates to a commercial agreement reached between Goldtrail Travel Limited and Onur Air. According to this commercial agreement, Goldtrail Travel Limited shall

a.i. buy a minimum of 175,000 seats from Onur Air in 2010

a.ii 70 % of its flight capacity from UK to Turkey for the next following years effective May 2011 and expiring 1 May 2014

The seat rates for the above will be based on 2010 summer season flying rates with fuel fluctuations being taken into account.

Payment:

For successfully introducing the commercial commitment outlined in sections 1.a and 1.b the Broker shall be paid by Onur Air a total sum of 3,640,000 GBP (Three Million Six Hundred Forty Thousand British Pounds)

The payment shall be completed according to the following payment plan:

i. 1,000,000 GBP on 6 April, 2010

ii. 1,000,000 GBP on 2 May, 2010

iii. 1,000,000 GBP on 2 June, 2010

iv. 640,000 GBP on 2 July 2010"

51. As with the Black Pearl Deal, it is common ground now that payments made to Morning Light were in effect payments made to Mr Aydin personally and that Morning Light did not provide any brokerage services or indeed any other kinds of services to Onur Air in return for the £3.64 million it was paid. Again where the parties differ is in the nature of the sham set out in the Onur Air Brokerage Agreement, though Onur Air's case is significantly different from Black Pearl's. Onur Air accepts that there was indeed a four year seat commitment entered into between Goldtrail and Onur Air in the terms set out in the agreement ('the Onur Air 4 Year Seat Commitment'). But their case is that the £3.64 million was not consideration for that seat commitment but was part of the consideration for the shares bought by Mr Bagana from Mr Aydin. Although there is no reference in the Onur Air SPA to the Onur Air Brokerage Agreement and indeed the two contracts are between different parties, it is Onur Air's case that they would not have paid any commission for the Onur Air 4 Year Seat Commitment, the whole £4.64 million under the Onur Air SPA and the Onur Air Brokerage Agreement was in fact consideration for 50 per cent of the shares in Goldtrail.
52. There was also an agreement between Goldtrail and Onur Air for the supply of seats entered into on 1 February 2010, though it was later revised to reduce the number of seats purchased. The Onur Air seat sale agreement initially covered whole charters, that is 219 seats per flight and provided that payment should be made seven days before each flight. It did not provide for the payment of any deposits from Goldtrail to Onur Air.

(d) Payments made following the conclusion of the Onur Air Deal and the demise of Goldtrail

53. The payments actually made were slightly different from those required under the agreements comprising the Onur Air Deal. A payment of £1 million was made by Mr Bagana to Mr Aydin on 6 April 2010 as required under the Onur Air Brokerage Agreement. However it was later agreed, for reasons that are not entirely clear to me, that this payment should be treated as Mr Bagana's payment for the shares, even though that payment was not due until 5 August 2010 and the shares were not then transferred. The payment was entered into Mr Bagana's loan account with Onur Air.
54. On 18 May 2010 Mr Aydin started pressing Onur Air to pay all the remaining instalments due under the Onur Air Brokerage Agreement immediately. He said he would cause Goldtrail to pay the required sum to Onur Air so that this could happen. On the morning of 18 May Mr Aydin emailed Mr Pekpak saying:

"Another subject is the payments, as we talked, if I make payments of June and July to you this week from Goldtrail, can you transfer this payment to me on Monday? These payments are to be extracted from June and July flights later on. I'd be pleased if you can inform me on this subject urgently"

55. By the evening of 18 May Mr Aydin was chasing for a reply from Mr Pekpak. On 20 May Mr Aydin wrote to Mr Pekpak saying:

"On the matter of the other payments I mentioned, I can carry out all the outstanding payments to you this week, including the August payment. It does not make any difference to you, of course. I am paying you from Goldtrail from this side, and you are paying me. When it is time to pay, Goldtrail is discounting it from its aircraft payments from here, I mean, there is no change for [you], and you will have not made an early payment or anything. I would be grateful if you could discuss it with Cancut [that is Mr Bagana] and get back to me as a matter of urgency."

56. Mr Pekpak's evidence was that he discussed this with Mr Bagana and Mr Bagana approved the payment of all the remaining instalments in one lump sum, although Mr Pekpak did not know why Mr Aydin wanted all the money in May. On 20 May, Mr Aydin instructed his colleague in Goldtrail to make a payment of £2.65 million to Onur Air insisting that it needed to be in their bank account that day. Mr Aydin told his colleague that the amount would be deducted from Onur Air's invoices for flights in June and July but did not give any other explanation for the payment. On 21 May Mr Aydin was chasing Mr Pekpak again and was assured that the payment to Mr Aydin had been sent. I shall refer to the transfer on 20 May 2010 by Goldtrail of £2.65 million to Onur Air as 'the 20^th May Onur Air Payment'. Mr Pekpak then arranged the payment of £2.64 million to Morning Light on 21 May.
57. In response to the 20^th May Onur Air Payment, an arrangement was arrived at between Mr Pekpak and Mr Aydin whereby Goldtrail would be allowed to reduce its payments for flights bought in June, July and August by £250,000 per week until the £2.65 million had been recouped. In fact though, at the beginning of June Mr Aydin asked if he could recoup the whole of the June allocation in the first week of June. On 16 July 2010 Goldtrail made two payments to Onur Air before going into administration, one payment of £500,000 and one of £750,000.
58. There is a dispute between the parties as to how much of the 20^th May Onur Air Payment had been recouped by Goldtrail deducting sums it owed for flights by the time Goldtrail went into administration. It is common ground, however, that at the time Goldtrail failed, it owed more to Onur Air for fuel and taxes than the outstanding sum of the 20^th May Onur Air Payment. However, Onur Air was paid £1.6 million by ATOL for helping to repatriate Goldtrail's customers.

IV. THE PLEADED CASE

(a) Alleged breaches by Mr Aydin

59. The Amended Particulars of Claim allege that Mr Aydin acted in breach of his fiduciary duties in causing Goldtrail's money to be transferred to Morning Light. The allegation of breach is particularised saying that (i) Mr Aydin did not act in good faith; (ii) he made a profit out of his position of trust; (iii) he acted for his own benefit (including by misapplying Goldtrail's money for his own benefit); and/or (iv) he put himself in a position where his duty to Goldtrail and his personal interest were in conflict. It is said further that Mr Aydin acted in breach of section 175 of the Companies Act 2006 in that he put himself in a position where he had an interest that conflicted with the general interests of Goldtrail and in particular he exploited the property and/or opportunity of Goldtrail. The particulars of the breach of section 175 were, broadly, that the purpose of the Black Pearl and Onur Air Deals was to enable Mr Aydin to make a personal profit from the fact that Viking and Onur Air wanted a commitment that Goldtrail would continue to purchase flight seats from them. It is averred that the sums that Viking and Onur Air paid Morning Light make up the value of Goldtrail's property or opportunity lost as a consequence of Mr Aydin's breach of section 175. The misapplication claim and the breach of section 175 claim are clearly pleaded as alternative bases for establishing the Defendants' liability.

(b) Dishonest assistance in misapplication of Goldtrail's money

60. The accessory claim of dishonest assistance is put against the other Defendants in two ways. First it is alleged that they dishonestly assisted in the misapplication of Goldtrail's money. The particulars of assistance are that:

i) The Individual BP Defendants advised on the structure of the transaction and provided some assistance to Mr Aydin in setting up Morning Light;

ii) Viking received monies from Goldtrail and, in making payments to Morning Light for the benefit of Mr Aydin, acted on the instructions of Black Pearl acting by the Individual BP Defendants;

iii) Onur Air received monies from Goldtrail and made the payments to Morning Light for the benefit of Mr Aydin.

In the circumstances, it is alleged, each of the Second to Sixth Defendants assisted Mr Aydin with the transfer of Goldtrail's money to Morning Light.

61. Ms Stonefrost appearing for Goldtrail made clear at the start and throughout the hearing that Goldtrail was not asserting a proprietary claim to the money. References in the pleading to the money being 'the Claimant's money' or money being 'transferred' were not to be read as suggesting that. What was alleged was that Mr Aydin had misapplied Goldtrail's money by causing it to make the payments to Viking and Onur Air so that those companies would make payments to Morning Light for his benefit. It was alleged that the other Defendants had dishonestly assisted him in this misapplication. The sums claimed at trial under this head were £1.25 million from the Black Pearl Defendants and £2,640,000 from Onur Air, and the total of £3.89 million from Mr Aydin.
62. Some criticism was levelled at the pleading by Mr Eaton Turner for the Black Pearl Defendants and Mr Gibbon QC for Onur Air. They said that what was pleaded was a misapplication of the monies whereas the case pursued at trial was that the payments had been made for an improper purpose. I do not accept this criticism of the pleading. It is perfectly clear what is being alleged. The Amended Particulars set out in detail the documents which it is alleged comprise the arrangement made by Mr Aydin with Viking to transfer the sums set out in the Viking Brokerage Agreement from Goldtrail to Morning Light via Viking and with Onur Air to transfer Goldtrail's money to Morning Light via Onur Air. In respect of both Deals it is alleged that some, if not all, of the monies paid to Morning Light by Viking and Onur Air had originated with Goldtrail and had been misapplied by Mr Aydin in breach of his fiduciary duties with the dishonest assistance of the other Defendants. That is what the trial of the action addressed. The Defendants submitted that what was really being alleged was payments made for an improper purpose and that was different from a misapplication of Goldtrail's money. I disagree. When considering a particular payment made by a company to an individual it is impossible to tell whether the payment is legitimate or not just on its face, without looking at the purpose for which it purports to be made – simply seeing that the company has paid someone £300,000 does not tell you anything about whether it is a legitimate payment until you consider the purpose for which the payment was made. To that extent, any allegation that money has been misapplied has to examine the purpose for which the payment was made. If Mr Gibbon is complaining that Goldtrail is trying to de-legitimise payments that were made in the ordinary course of business by ascribing some underlying ulterior motive to them, then I do not accept that that is what Goldtrail is doing. It has not attacked the ordinary payments for flight seats made by Goldtrail under the seat sale agreements with Viking, FOAL or Onur Air even though it might be said that those agreements and hence those payments are part and parcel of a dishonest scheme to benefit Mr Aydin at Goldtrail's expense. Goldtrail accepts that those are normal payments under binding agreements. The fact that there might have been some ulterior motive for entering into those contractual obligations does not mean that those monies have been misapplied by Mr Aydin. The payments that are attacked as misapplications of Goldtrail's funds are only those payments which are alleged by Goldtrail to be illegitimate payments either because Goldtrail was under no contractual obligation to make them (the Extra Viking £500,000 and the 20^th May Onur Air Payment) or because, though dressed up as deposits under the Viking/Goldtrail Seat Sale and FOAL/Goldtrail Seat Sale, they were not genuine deposits but in effect ex gratia payments by Goldtrail.

(c) Dishonest assistance in Mr Aydin's breach of his duty under section 175 of the Companies Act 2006

63. Section 175 of the Companies Act 2006 ('section 175') provides:

"175 Duty to avoid conflicts of interest

(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.

(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).

(3) This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company.

(4) This duty is not infringed—

(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or

(b) if the matter has been authorised by the directors.

(5) Authorisation may be given by the directors—

(a) where the company is a private company and nothing in the company's constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; …

(6) The authorisation is effective only if—

(a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and

(b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.

(7) Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties"

64. The breach of section 175 is rather more straight-forward. It is alleged that Mr Aydin exploited an opportunity for himself which he should have exploited on behalf of Goldtrail, namely Viking and Onur Air's willingness to pay substantial sums to obtain a commitment from Goldtrail to buy a large number of flight seats over future years. Instead of ensuring that Goldtrail got the benefit of any consideration that its suppliers were prepared to pay in return for such a commitment, Mr Aydin diverted that opportunity to himself by causing that commission to be paid to Morning Light. The value of the claim pleaded under this head is £1.4 million against the Black Pearl Defendants and £3.64 million against Onur Air so that the overall claim against Mr Aydin under this head is £5,040,000.

V. WAS MR AYDIN IN BREACH OF FIDUCIARY DUTY BY MISAPPLYING GOLDTRAIL'S MONEY?

65. The payments challenged here are (a) the £750,000 deposits paid to Meridian by Goldtrail pursuant to the Viking and FOAL Seat Sales; (b) the Extra Viking £500,000 paid by Goldtrail to Meridian and (c) the £2.65 million 20th May Onur Air Payment. There was some debate during closing submissions as to whether misapplication of company money was a free-standing form of breach of fiduciary duty or whether Goldtrail should have pleaded the case by making clear which of sections 171 to 177 of the Companies Act 2006 it was alleged that Mr Aydin had contravened. Mr Gibbon pointed to section 170(3) which provides that the general duties are based on common law and equitable principles and 'have effect in place of those rules and principles as regards the duties owed to a company by a director'. However, Ms Stonefrost relied on a passage in Mortimore Company Directors, Duties Liabilities and Remedies (2^nd ed) paragraph 10.05 which refers to a number of duties which remain uncodified including the director's duty not to misapply the company's property. The authority cited for this is Re Paycheck Services 3 Ltd, HMRC v Holland [2010] UKSC 51. That case concerned the specific duty of a director not to pay a dividend when the company does not have sufficient distributable profits. But Lord Collins said at paragraph 56 that "The only basis on which liability is sought to be placed on Mr Holland is that as a de facto director of the composite companies he was in breach of his fiduciary duty not to misapply their funds by paying unlawful dividends" and the case appears to have proceeded on the basis that such a duty exists. I therefore reject the suggestion that the pleading is defective because it does not express the misapplication allegation as a breach of one of the sections 171 to 177.

(a) The Viking and FOAL deposits

66. Black Pearl's case is that the deposits payable under the Viking/Goldtrail and FOAL/Goldtrail Seat Sales were entirely ordinary aspects of the sale of flight seats. It is not pleaded or alleged that the seat sales were a sham or that the flights sold under the agreements were not bought and used by Goldtrail. The fact that the money may have been intended and used to encourage or enable Viking to make the Aydin payments is not enough to convert a normal commercial transaction into a breach of fiduciary duty. Goldtrail's witness, Mr Oakley-Smith who is one of the Goldtrail liquidators, referred to the possibility that the deposits had been 'inflated' or that the prices of seats sold under the SSAs were inflated. That allegation is not pleaded and was not adequately raised before the hearing and I do not consider that Goldtrail is entitled to rely on any such assertion. I therefore assume that the deposits are within the range of values that are usually provided under contracts of this type and that the seats were sold at market rates.
67. Goldtrail's case is that these were not genuine deposits because they were never intended to be repaid to Goldtrail at the end of the season. If one looks at the role that the seat sale agreements played in the overall structure of the Deal and at the way the parties referred to the deposits it is clear, Goldtrail says, that the deposits were not genuine. They were merely part of the mechanism by which money originating from Goldtrail was transferred to Mr Aydin via Viking and Morning Light.
68. I agree that it would not be right to look at the seat sale agreements in isolation from the rest of the Black Pearl Deal and conclude that because they look like ordinary transactions, they cannot constitute a misapplication of Goldtrail's money. There is no doubt that the seat sale agreements were part and parcel of the Black Pearl Deal – they were negotiated, drafted and signed at the same time as the other agreements comprising that deal. The fact that the amount of the deposit was set at an apparently normal level does not mean that it was inevitable that the deposit provisions would be set at that level. The evidence of the Black Pearl witnesses makes clear that the level and timing of the deposit is a key parameter of the agreement that is negotiated between a carrier and a tour operator. In carrying out that negotiation on behalf of Goldtrail, there can be no doubt that Mr Aydin was influenced by the role that the deposits would play in ensuring that the Aydin payments were made. If his motivation had not been coloured by those considerations, he may well have been able to press Viking or FOAL for nil deposits or lower deposits to be included. It is impossible to say that if the seat sale agreements had been negotiated between Mr Aydin and Viking or FOAL in the absence of the rest of the Black Pearl Deal, the same terms would have been agreed.
69. Further, I reject the evidence of the Individual BP Witnesses that deposits are always or almost always included in seat sale agreements. This is for two reasons. First, there were no deposits provided for in the seat sale agreement between Goldtrail and Onur Air. It simply provided for payments to be made seven days before the flights and to be invoiced at the end of each week. There was also no deposit payable in an earlier seat sale agreement between Goldtrail and Saga Airlines entered into in April 2009. There does not seem to be any particular reason why there were no deposits required in those contracts if, as the Black Pearl witnesses say, deposits are an almost ubiquitous feature of seat sale agreements. Secondly, as I have described earlier, Mr Aydin, Mr Stephensen and Mr Wyatt produced a bogus version of the Viking/Goldtrail and FOAL/Goldtrail Seat Sales for Mr Aydin to send to the regulatory authorities showing nil deposits. This indicates that with their considerable experience of the travel business they did not expect that such a contract would strike the CAA as particularly unusual – the last thing that they would want to do is concoct a version of the contract that would set alarm bells ringing within the CAA and risk causing questions to be asked. I therefore do not accept that the deposits must be genuine because deposit are almost always required in seat sale agreements.
70. Goldtrail's case that the deposits were not genuine rests on three bases. The first is the way the timing and level of the deposits was set during the negotiations for the Black Pearl Deal; the second is the way in which the payments were made demonstrates that everyone involved recognised that the deposits were linked to the making of the Aydin payments; thirdly, the way that the Black Pearl Defendants calculated what Black Pearl was required to pay Mr Aydin shows that they deducted the amount of the deposits from the overall consideration payable under the Black Pearl Deal. It would not make sense for them to do this if it was really the parties' intention that the deposits would be returned at the end of the summer 2010 season.

(i) The negotiation of the timing and payment of the deposits payable to Viking

71. Ms Stonefrost produced a table showing how the dates on which the Goldtrail deposit payments under the Viking/Goldtrail and FOAL/Goldtrail Seat Sales and the Aydin payments fell due. This showed that:

i) Deposits were due under the Seat Sales on the following dates (all in 2010):

a) Under the FOAL agreement, £250,000 to be paid by 19 February and £250,000 to be paid by 28 February;

b) Under the Viking agreement £250,000 by 31 March.

ii) Payments were due to Mr Aydin under the Black Pearl SPA in the following instalments (totalling £500,000):

a) £50,000 on 19 February;

b) £145,000 on 26 February;

c) £145,000 on 7 March;

d) £145,000 on 7 June;

e) £15,000 on 1 July.

iii) Payments were due to Morning Light under the Viking Brokerage Agreement in the following instalments (totalling £1,400,000):

a) £300,000 on 22 February;

b) £350,000 on 7 March;

c) £350,000 on 7 April;

d) £200,000 on 7 May;

e) £200,000 on 7 June.

72. In my judgment the material in the contemporaneous emails circulating among the Individual BP Defendants makes it abundantly clear that the timing of the deposits was intended to enable them to be used to make the Aydin payments. A key email is the one sent by Mr Stephensen to Mr Sigurdarson and Mr Wyatt on 26 January 2010. In that email Mr Stephensen said:

"Guys,

Kadir [Mr Aydin] has accepted that we pay him the first 50,000 on feb 7^th. In addition, he has accepted that we pay him only 250k on feb 7^th (ie turning his deposit round 2 days after he pays it to us) and delay the 195k payment under 21 feb".

73. The email then sets out the various payments starting with the three deposits of £250,000 each to be made under the two seat sale agreements, next the instalments of the £500,000 'official' purchase price of the shares and then the remaining £1,400,000 which he describes as being 'in the form of seat rate commission (for a 5 year seat sale agreement)'. At the end of the email Mr Stephensen writes: (emphasis in the original)

"Net cash outflow will therefore be GBP 1,150,000 and be paid as follows:

— GBP 50,000 on Feb 7th, 2010

— GBP 195,000 on 21 Feb, 2010

— GBP 245,000 on 7 Mar, 2010

— GBP 100,000 on 7 Apr, 2010

— GBP 200,000 on 7 May, 2010

— GBP 345,000 on 7 June, 2010

— GBP 15,000 on 1 July, 2010"

74. It is difficult to see how Mr Stephensen could have expressed more clearly to his colleagues the joint intention that the £750,000 Goldtrail deposits were to be used to pay part of the overall £1.9 million price of the Black Pearl Deal. Not only does he refer to turning Mr Aydin's deposit around in two days 'after he pays it to us' in order to pay the first instalment of the 'seat rate commission', he also computes the overall cash outflow in the figures quoted above by deducting the Goldtrail deposits from the Aydin payments. Thus his list of payments shows £50,000 'net' payment being made on 7 February. This is because although the payments schedules set out in the email show that £50,000 is due to Mr Aydin (as an instalment of the £500,000 share price) on 7 February and £250,000 is due from Viking to Morning Light 'in the form of seat rate commission' on 7 February, he regards this as a net payment by Viking of only £50,000 because he deducts the deposit to be paid by Goldtrail to Meridian on 5 February of £250,000. Similarly, he lists the 'net' payment due on 7 March as £245,000 even though on that date an instalment of £145,000 is due to Mr Aydin under the Black Pearl SPA and £350,000 is due to Morning Light as commission for the seat commitment because he deducts from those sums the deposit of £250,000 that will have been paid by Goldtrail to Meridian on 28 February. In fact the dates and times of the payments were revised slightly before the agreements were signed on 19 February. But there is no suggestion that the nature of these payments changed after 26 January.
75. There are other emails where there are clear references to the deposits being used to make the Aydin payments. I refer below to some of the main ones:

i) In an early email dated 24 September 2009, Mr Stephensen referred to Mr Aydin's 'willingness to "fund" the purchase' of his shares in Goldtrail by Black Pearl

ii) In an email of 2 October 2009 Mr Stephensen relays to Mr Sigurdarson and Mr Wyatt the outcome of the discussion he had had with Mr Aydin which included: (emphasis added)

"1 million GBP to be paid before Feb 28th. BPI needs to fork out 250,000 GBP before the end of Dec and Goldtrail will pay a deposit of the same amount before end of Dec. Then Goldtrail will pay a deposit of 250k on Jan 31 and another 250k on Feb 28th. All this will go to Kadir to an account of his choice (guess where…) …"

iii) In an email of 19 October 2009 Mr Stephensen outlined to Mr Aydin the schedules of different payments under the draft agreements at that stage of the negotiations. Against some of the Aydin payments he put "(from GT deposit payment)" indicating that that is how they would be funded.

iv) On 26 November 2009 Mr Stephensen sent Mr Aydin (copied to Mr Sigurdarson and Mr Wyatt) the draft agreements and an 'overall payment plan'. The payment plan was a table of four columns showing against a timeline the Goldtrail deposits of £750,000 (to Meridian for Viking and FOAL), the payments under the Black Pearl SPA and the payments under the Viking Brokerage Agreement.

76. When Mr Sigurdarson was taken to these emails in cross-examination, it was put to him that they clearly showed that the Goldtrail deposits were regarded by all four men as a contribution towards the Aydin Payments. He denied this saying that the reference to the Goldtrail deposits was to reassure the Black Pearl Defendants that there would be no cash flow problems for Viking in meeting the Aydin payments during the winter season. I reject that evidence. There is no reason why the Goldtrail deposits should have been referred to in emails going to Mr Aydin if this was merely an internal company point about how Viking was going to find the cash to make the Aydin payments. More importantly none of the documents refer to how Viking was going to fund the remaining £1,150,000 of the Aydin payments. Mr Sigurdarson accepted that Viking would be receiving other deposits from other tour operators over the winter (Goldtrail made up only about 10 per cent of Viking's business). He had no explanation for why it was only Goldtrail's deposits which were listed in this table or in the other documentation and why there was no discussion of what other deposits would be available to help ensure cash flow to meet the remaining Aydin Payments.

(ii) The actual making of payments when the Black Pearl Deal was implemented

77. What in fact happened with the payments confirms that the Goldtrail deposits were used to fund the Aydin payments and were not intended to be refunded. When there were delays in the payment of the Goldtrail deposits, there was also a delay in the making of the next Aydin payment. The first deposit payment of £250,000 was due from Goldtrail to Meridian under the FOAL/Goldtrail Seat Sale on 19 February 2010. In fact it was not paid on that date. There was some discussion by email among the Individual BP Defendants about the Aydin payments due at the end of February, namely two payments under the Black Pearl SPA (£50,000 on 19 February and £145,000 on 26 February) and the first payment under the Viking Brokerage Agreement (£300,000 on 22 February). Mr Sigurdarson raised the issue with Mr Stephensen and Mr Wyatt. Mr Stephensen replied that there should be a five day lapse between the payment of the deposit by Goldtrail and the first Aydin payment. As the Morning Light bank account details had not been provided, he told Mr Sigurdarson to use the Goldtrail deposit to pay the two Black Pearl SPA instalments. Mr Wyatt then wrote to Mr Aydin on 26 February saying:

"We have received 250K ukl in Meridian Kadir which was 6 days late as it was due last Friday (19 Feb) so I guess ALL payments pursuant to Agreement(s) will be pushed by same and the ukl 250k due today will not be received until next Thursday is that correct?"

78. It was not clear to Mr Aydin where the £250,000 'due today' to which Mr Wyatt was referring came from. He responded a few minutes later that he accepted that because the deposit from Goldtrail should have been paid on 22 February (according to Mr Aydin) and was not in fact paid until 25 February, this justified a delay in the payment of the first instalment of £300,000 under the Viking Brokerage Agreement:

"It is correct that this money [sc. the £300,000] needs to be paid one week after the deposit is paid and I do not expect the first payment of commercial agreement to come in until next Thursday, this will be £300K."

79. However, Mr Aydin was insistent that the instalments due to him under the Black Pearl SPA which had been due on 22 February (£50,000) and 26 February (£145,000) were overdue. There were then internal emails among the Individual BP Defendants trying to clarify the dates and amounts for payment. Mr Wyatt then wrote to Mr Stephensen who had set out the correct position saying:

"CAN YOU GO BACK TO HIM? THE 300K NEEDS TO COME FROM 250K THAT SHOULD OF BEEN SENT TODAY…..

Please ensure Halldor is in the frame"

80. I accept that not all the Aydin payments were shifted forward by the number of days by which the Goldtrail deposits had been delayed. But the emails show clearly that there was a much stronger link between the timings of the payments than the Individual BP Defendants were prepared to accept in their evidence and that it was the understanding of all the parties that the Goldtrail money would be used to fund the Aydin payments. There are other references, for example Mr Wyatt responds to an email chasing the March instalment of £300,000 by chasing another Goldtrail deposit due on 28 February on the basis that these payments 'go hand in hand'. There is another occasion where Mr Stephensen assures Mr Kadir that as soon as Goldtrail pays the next deposit at the end of March, 'it will be returned immediately to you' in the form of an instalment of £300,000 under the brokerage agreement.

(iii) Was there any intention to pay back the deposits at the end of the season?

81. It is true that the seat sale agreements refer to the return of the deposits to Goldtrail at the end of the summer season. However, this is a case in which no written contractual term can be assumed to mean what it says. The Individual BP Defendants said in their evidence that it was the parties' intention that the deposits be returned at the end of the season. Mr Eaton Turner relied on evidence in the emails showing that there was negotiation over the date by which the deposits would be returned. There are two emails on which Black Pearl relies to show such negotiations. In an email dated 12 February 2010 Mr Aydin wrote to the Individual BP Defendants referring to the arrangements for the meeting on 19 February at which all the agreements would be signed. He says that prior to the meeting he has a few points to correct on the seat sale agreements. The fourth point relates to 'Return of deposits'. He says:

'As stipulated in my previous email this is a sticking issue for me. The deposit that is paid to you must be paid back to Goldtrail. Last year we have done this in 4 instalments, as the amount is higher we can do it in 6 instalments this year:'

82. He then sets out six repayments of £125,000 between 15 August and 1 November. Later on 17 February 2010 Mr Aydin writes again changing his mind about what should be provided in the contracts. He says

'to make it easier and tied up with the rest of payment schedules that I will pay you can we make the payment terms as follows for both agreements please:

Viking

Payment of 250,000 UKL to you by 31 March paid back 125,000 on 15 October and 125,000 on 1^st November

Flight Options

Payment to you 500,000 by 28^th or the existing schedule paid back 125,000 15 August, 125,000 01 Sep, 125,000 15 Sep, 125,000 30 Sep…

This will tie it up with the contract payments that Goldtrail will pay you, if we change these to 300,000 as in the last version it messes up the rest of the agreements for the BPI transactions that are tied up to it. It is my mistake, I should have seen this but it is best amended like the above so that we do not have to amend the signed versions of the BPI deal sent to you by Magnus'

83. What would be the point of such negotiation, Mr Eaton Turner asked, if there was no real expectation that the deposits would be returned?
84. Goldtrail in answer point to an email from Mr Wyatt to Mr Sigurdarson and Mr Stephensen on 18 November 2009 in support of the contention that the deposits were never intended to be repaid. Mr Wyatt was setting out the structure of the deal:

"Consideration 1.9m ukl – Paid by Bpi 50k 1 Jan 2010 200k 15 Feb 10 to 15May plus ukl 300k 15 June 09 (Total ukl 1.15 uklM) Balance paid as deposit by GT to Meridian/Viking and rolled (So not clawed back left in place with commercial agreement) ukl 250K 1jan/1feb/1mar' We return these sums within 7 days as a commission payment."

85. I read this as showing that at that stage the men were thinking that the deposits would be paid to Mr Aydin as part of the Aydin Payments and not repaid to Goldtrail; those deposits would be 'returned' to Mr Aydin so that the total consideration paid by Black Pearl was only £1.25 million of the £1.9 million in the overall Deal. As Ms Stonefrost pointed out to Mr Stephensen, the deal being considered in that email was close to the final deal struck in February 2010. Further, on 3 January 2010 Mr Wyatt wrote to his colleagues outlining a number of issues that they needed to consider about the deal, including the impact of the deposit monies 'NOT being in Goldtrail'. Goldtrail also rely on the email of 26 January 2010 that I have already quoted in paragraph 73, above also showing the 'net cash outflow' required from Black Pearl as being £1,150,000 having netted off the £750,000 deposits paid by Goldtrail.
86. Having considered all this evidence carefully, I find that the parties to the Black Pearl Deal did not intend that the deposits would be returned at the end of the season. They were not true deposits but simply a mechanism whereby Goldtrail funded part of the consideration due to Mr Aydin under the Black Pearl Deal. I do not accept that the emails of 12 February 2010 and 17 February 2010 show that there were genuine negotiations about the return dates of the money between Mr Aydin and the Individual BP Defendants. Those emails are focusing on what should be put in the contract documentation which was about to be signed in order to make it consistent with the other documentation. I can see that Mr Aydin would insist that the documents record that Goldtrail would receive the money back, presumably for the same reason as he subsequently decided that it would be even better for regulatory purposes if the contracts in fact showed no deposits payable at all. Those emails do not show that it was really the intention of the parties that the deposits would be returned. The other evidence is, in my judgment, overwhelming in showing that the £750,000 paid by Goldtrail to Meridian was regarded by Mr Aydin and the Individual BP Defendants as going towards the Aydin Payments and reducing the overall amount that Viking had to pay under the Black Pearl Deal.

(b) The Extra Viking £500,000

87. I described the payments made by Goldtrail of £150,000 on 12 April 2010 (in addition to the £250,000 deposit due by then) and £350,000 on 18 May 2010 in paragraphs 38 to 40 above. It is accepted that there was no legal obligation on the part of Goldtrail to make this payment. Black Pearl referred to the Extra Viking £500,000 as an 'accelerated advance flight payment'. This seems to be on the basis that it was agreed between Viking and Mr Aydin that the Extra Viking £500,000 would be recouped by Goldtrail deducting it in instalments from payments due for flights under the Viking/Goldtrail or FOAL/Goldtrail Seat Sales as the season progressed. In fact the whole of the Extra Viking £500,000 was recouped in this manner by mid June 2010.
88. However, the emails of 12 April 2010 show that the payments were not intended to be an advance on flight payments but were to fund the Aydin payments due or about to become due. Mr Eaton Turner submitted that the payment of the Extra Viking £500,000 is a minor matter because it was simply an advance in payments that would shortly become due from Goldtrail anyway for flights that Goldtrail was buying. He said that the evidence shows that tour operators often help airlines out in this manner. I do not accept that characterisation of these payments. They were a straightforward transfer of funds from Goldtrail to Mr Aydin via Meridian to ensure that Aydin payments were made. By making these payments Mr Aydin was exposing Goldtrail to the risk that the money would be irrecoverable if, for example, Viking or FOAL had failed between the date of the payments and the date on which the payment for flights by Goldtrail fell due so that the recoupment of the Extra Viking £500,000 could not have taken place. There was plenty of evidence of the difficulties facing the holiday industry in this May/June period because of the aftermath of the eruption of the Icelandic volcano Eyjafjallajökull in April 2010 and because the FIFA World Cup championships were held in June and July 2010 – an event which tends to reduce demand for holidays as people stay at home to watch the matches. The unexpected demise of Goldtrail, which everyone thought was a successful and substantial company, shows the risks of making such a payment and Goldtrail derived no benefit at all from making that payment. The payment of the Extra Viking £500,000 was not in Goldtrail's interests; it was in Mr Aydin's and Black Pearl's interests only. It was, in my judgment a clear misapplication of Goldtrail's money by Mr Aydin in breach of his fiduciary duties to Goldtrail.

(c) The 20th May Onur Air payment

89. As I have already described, Mr Aydin decided in May 2010 that he wanted to accelerate the payments due to him and Morning Light under the Onur Air Deal rather than wait for the instalments to fall due as the summer progressed. He caused Goldtrail to pay £2.65 million to Onur Air on 20 May 2010. It is accepted by Onur Air that Goldtrail was under no contractual obligation to make this payment - the seat sale agreement between them only provided for payment for flights to be made a few days in advance of the flight being taken. There is no real argument here that the purpose of payment was to cause Onur Air to bring forward the payment of monies to Morning Light and the payment had that effect.
90. The findings I made with regard to the Extra Viking £500,000 paid by Goldtrail to Viking apply with equal force to the 20th May Onur Air Payment. Mr Pekpak referred in his witness statement to the difficulties facing the industry at the time because of the downturn in sales due to the volcanic eruptions and the World Cup. He says:

"The whole situation made me worried, not just because Goldtrail was cancelling seats, but because all tour operators were. Aircraft were not being permitted to take off and holidays were being cancelled. I was concerned for all of our tour operators and so for Onur. I had no specific or additional concern about whether Goldtrail in particular would be able to meet its contractual obligations."

91. This shows how risky it was for Goldtrail to pay out such a large sum of money to Onur Air in the hope that it would be able to recoup it from seat sales later in the season. There was no possible benefit to Goldtrail from making this payment; the benefit was entirely for Mr Aydin to receive early payment of the supposed brokerage fees and for Onur Air in accommodating him without having to find the cash to do so. This was a further misapplication of Goldtrail's funds by Mr Aydin in breach of his fiduciary duties to Goldtrail.

VI. DID MR AYDIN ACT IN BREACH OF SECTION 175 OF THE COMPANIES ACT 2006?

92. Goldtrail's case is, broadly, that Mr Aydin was in breach of section 175 because his negotiation of both the Black Pearl Deal and the Onur Air Deals put him into a situation where his interests in obtaining as much money for himself via Morning Light conflicted with the interests of Goldtrail in obtaining the best deal from the flight providers in return for its commitment to buy seats over future seasons. Goldtrail's case was that in each case, the consideration that was agreed for the brokerage services, which it is common ground were not provided, was in fact consideration for Goldtrail's commitment to buys seats over a number of years. That consideration should have gone to Goldtrail but instead it went to Mr Aydin via Morning Light. The lost income for Goldtrail was, they claim, £1.4 million in the case of the Black Pearl Deal and £3.64 million in the case of Onur Air.
93. The Black Pearl Defendants' defence is that there was no long term seat commitment by Goldtrail to buy seats from Viking. The reference to the Viking 5 Year Seat Commitment in the Black Pearl Deal documents was as much a pretence as the brokerage services. The whole £1.9 million was really consideration to Mr Aydin for 50 per cent of the shares in Goldtrail. By contrast, Onur Air accepts that there was a commitment by Goldtrail to buy seats from it over the following 4 years. But the Onur Air witnesses say that they would not have been prepared to pay Goldtrail for that commitment. They also say that all the Aydin payments were in fact payments to Mr Aydin (directly or through Morning Light) for 50 per cent of the shares in Goldtrail.

(a) Did the Viking 5 Year Seat Commitment exist?

94. Perhaps the key issue in the case against the Black Pearl Defendants was what was the £1.4 million paid under the Viking Brokerage Agreement for? Mr Stephensen's evidence was that Black Pearl considered that the acquisition of 50 per cent of Goldtrail was important for the sustainability and growth of the vertically integrated group that they were trying to build comprising Black Pearl, Viking, Goldtrail and Meridian. His evidence was as follows:

i) They hoped that the relationship would not only preserve Viking's existing business with Goldtrail but would increase it.

ii) The reference in the Viking Brokerage Agreement to a 'first right of refusal' on seat sales over a term of 5 years, made the documentation look more convincing and 'gave Viking the documentation it needed, in accounting terms, to justify payment';

iii) The purpose of the Viking Brokerage Agreement was only to fulfil Mr Aydin's 'tax efficiency' needs;

iv) Black Pearl would never have agreed or have recommended that Viking agree to pay £1.4 million in commission purely for the possibility of selling 100,000 seats per annum or in return for a right of first refusal – such a suggestion was 'commercially ridiculous';

v) There was thus no Viking 5 Year Seat Commitment – this was just part of the structure for paying the total consideration of £1.9 million to Mr Aydin for half the shares in Goldtrail.

95. Both Mr Sigurdarson and Mr Wyatt's written and oral evidence also emphatically denied that the Viking 5 Year Seat Commitment existed for the reasons put forward by Mr Stephensen.
96. I reject this evidence and I find that there was a commitment from Goldtrail to buy seats as recorded in the Schedule to the Black Pearl SPA and the Viking Brokerage Agreement. It is clear from the contemporaneous documents that the parties did intend to enter into a five year commitment. From a very early stage of the discussions amongst the three of them, the Individual BP Defendants were considering a possible long term commitment from Goldtrail to buy seats on Viking. Thus on 27 November 2008 Mr Wyatt sent some sketchy email notes to his colleagues prior to a meeting with Mr Aydin. He said:

'For the Group (Including Turkey) – Meridian put some money in or BPI better still …. And get a commercial Agreement with Kosmar/Goldtrail to buy ALL their capacity from Viking/Meridian subj[ect to] rate, we could start light with a token amount and at the end of next Summer up the anti if necessary – we would want a 10 year commercial deal'

97. There was then a break in discussions about the deal until August 2009 when there is an email from Mr Stephensen to Mr Wyatt, Mr Sigurdarson, Mr Tadjeran, Jim Wyatt and Mr Cachia (part owner of Meridian) in which he refers to a link between a 33 per cent shareholding and a five year flight commitment. Once the device of splitting the payment between the official price for the shares and the commercial agreement had been raised, Mr Stephensen wrote to Mr Aydin on 19 October 2009 setting out the proposed structure:

"2. Viking Airlines and Goldtrail sign a 5 year commercial agreement (not seat rate price specific but at market rates). 1 million GBP Commission will be paid to you personally for facilitating such an agreement. This will be done as an "un-official" side letter to the SPA (see attached commercial agreement letter). This commission agreement would be paid into an off-shore arrangement…"

98. It is true that the payment of £1 million personally to Mr Aydin was later revised to a payment of £1.4 million to Morning Light for fictitious brokerage services relating to the commitment. But there is nothing there to indicate that the 5 year commercial agreement was not real. Mr Aydin's response was that the five year deal being proposed was 'something new' which he would need to discuss. Mr Stephensen's response was that:

"The 5 year deal has nothing to do with the payment terms and schedules which we had discuss[ed] would complete in October, 2010. The 5 year deal was only to give the overall agreement substance, ie to give Viking the first right of refusal of seats to be bought by GT at market rates. Note No rates are being put in there…"

99. Mr Stephensen said when asked about this response that when he said that the five year deal was to give the overall agreement 'substance' he meant only the appearance of substance. There was no real intention to create any obligation on the part of Goldtrail to buy seats. I reject that explanation. Mr Stephensen was drawing a distinction between the Viking/Goldtrail Seat Sale which had set volumes and rates for seats and the Viking 5 Year Seat Commitment. He was reassuring Mr Aydin that it was not expected that the price for the seats over the five years would be the price agreed for the summer 2010 season – they would be paid for at market rates. This kind of discussion makes no sense if the Viking 5 Year Seat Commitment was a sham.
100. There is an email dated 26 January 2010 from Mr Stephensen that he sent only to Mr Sigurdarson and Mr Wyatt. Mr Stephensen sets out in detail the payments to be made under the various agreements. He refers to the instalments due under the Viking Brokerage Agreement as £1.4 million 'paid by Viking in the form of a seat rate commission (for a 5 year seat sale agreement)'. If there was no such commitment he would have indicated in some way that this was a fictitious justification or, more likely, he would have referred to it as paid for brokerage services. There is no reason why he should refer to the Viking 5 Year Seat Commitment in an email to his two colleagues unless that was a genuine commitment from Goldtrail. Similarly, in a presentation prepared by Mr Stephensen for his colleagues drawing on information in the Ernst & Young draft report he sets out the proposed transaction. This includes the statement:

'As part of overall agreement, Viking will be secured with a 5 year seat sale agreement with Goldtrail Travel Ltd, for a minimum of 100,000 seats per year; and a first right of refusal to all additional seats bought in by Goldtrail Travel Ltd

However it is important that Goldtrail continues to buy seats from other Turkish carrier (to some extent) to avoid any relationship complications'.

101. Again, there is no reason why Mr Stephensen should try to deceive his colleagues to whom he is presenting the deal by including something that was intended to be a sham or an artificial device. Later in the same document there is another reference to the £1.4 million being paid for a 5 year seat sale. By contrast, there is no reference to the supposed brokerage arrangements with Morning Light in any of these discussions.
102. After Goldtrail went into administration there was a meeting on 22 July 2010 of the newly constituted board of Viking, now comprising Mr Stephensen and Mr Sigurdarson who had replaced Mr Tadjeran and Mr Evans as directors on that day. In the minutes of the meeting, under the heading "Goldtrail Limited" the minute refers to the fact that Viking had been able to resell some of the Summer 2010 capacity committed to Goldtrail to existing clients. The minutes go on to record: (emphasis added)

"More of a concern is the long-term commercial agreement with the owner of Goldtrail which secures a substantial long-term capacity at the back of which Viking had envisaged growth. Investment is likely to be lost. HS will approach Meridian to discuss commercial implications and other deposits received."

103. Mr Sigurdarson in cross-examination said that this reference to a long-term commercial agreement and to the securing of substantial long-term capacity was referring only to their hope and expectation that the 50 per cent holding that Black Pearl was expecting to acquire in Goldtrail would result in Goldtrail buying more seats. That seems to me most implausible. There was no reason to refer to 'a long-term commercial agreement' or to securing 'long-term capacity' unless there really had been a commitment from Goldtrail to buy seats in accordance with the five year agreement.
104. In addition to the contemporaneous documents, there is the commercial sense of the deal. The Individual BP Defendants' evidence was that no serious due diligence was carried out to value the shares in Goldtrail before the purchase price was agreed. Although Ernst & Young were engaged to produce a report, they were specifically not asked to advise on the value of the business. The Individual BP Defendants' evidence was that there was no need for a commitment from Goldtrail to buy Viking seats because Black Pearl would shortly be the 50 per cent owner of Goldtrail and would be able to influence its purchasing practices through that share-holding. I do not accept that business men of their experience would have been content with that kind of precarious position. Their evidence contrasts with that of Mr Hasançebi as regards the Onur Air Deal. His evidence was that he was not content to rely on Onur Air's proposed 50 per cent holding to ensure future business:

"I personally actually made the request for the flight commitment to Kadir Aydin myself, because, as a 50 per cent owner of the company, we didn't have the full control of the company, so to enable the company to fly with Onur, then I placed in that request. This is what I wanted to say."

105. This is one instance where I consider that it is legitimate to read across from the Onur Air Deal to the Black Pearl Deal since Viking and Onur Air were in the same commercial position vis à vis Goldtrail. Mr Hasançebi's evidence shows that it certainly does make commercial sense for an airline in Onur Air or Viking's position to want to pin down Goldtrail to a contractual commitment. I am sure that the Individual BP Defendants would have wanted a contractual commitment from Goldtrail and not simply to rely on holding a non-controlling interest.
106. The third factor which causes me to conclude that the Viking 5 Year Seat Commitment existed is that in response to the letter before action, the Black Pearl Defendants did not claim that this part of the deal was a sham. On the contrary, they referred to that agreement in terms that make clear that they recognised that the agreement was a real one. They also contended in that correspondence that the price for the 50 per cent shareholding in Goldtrail was £500,000 and not £1.9 million. It was only later that the assertion that the Viking 5 Year Seat Commitment was also a sham was put forward. Mr Stephensen's answer to this point, as I understood his evidence, was that he had been so upset and angry at the unfair and unjust allegations of wrongdoing set out in the letter before action that he caused Black Pearl's solicitors to put forward to Goldtrail's solicitors an entirely untrue version of events in their response. Further, many months later, when he responded to a letter before action directed at him personally rather than just at Black Pearl, he caused his solicitors expressly to adopt as true the false version of events that had been put forward earlier. In my judgment it is more likely that the initial response to the letter before action is closer to the truth.
107. Black Pearl say that even if there was a five year commitment by Goldtrail to buy seats from Viking for a payment of £1.4 million, Goldtrail never fulfilled that commitment and there was a total failure of consideration. Viking would have a very substantial claim, they say, in the liquidation of Goldtrail for the loss of five years' profit. However, the contract that they had to pay the money in return for the Commitment was with Morning Light and not with Goldtrail. They may well have a claim against Morning Light to recover that money. That does not affect the ability of Goldtrail to assert that Mr Aydin diverted the opportunity to obtain a benefit from Viking in return for entering into the Viking 5 Year Seat Commitment and that that was a breach by him of his duties under section 175.
108. I therefore find that Goldtrail did enter into the Viking 5 Year Seat Commitment in the terms set out in the Viking Brokerage Agreement. The consideration for this commitment was an opportunity wrongfully diverted by Mr Aydin from Goldtrail to Morning Light in breach of his duties towards Goldtrail under section 175 of the Companies Act 2006.

(b) Did Onur Air pay anything for Goldtrail's commitment to buy seats?

109. So far as Onur Air is concerned, as I have described, Onur Air accepts that there was a four year commitment from Goldtrail to buy seats from Onur Air as recorded in the Onur Air Brokerage Agreement. But the Onur Air witnesses maintained that the whole of the £4.64 million paid to Mr Aydin was for his shares and none was for the commitment.
110. Having heard the evidence of the Onur Air witnesses, I have concluded that this boiled down to a matter of semantics. Clearly Onur Air thought it was going to get both the 50 per cent shareholding in Goldtrail (though in fact it was Mr Bagana who got this) and the seat commitment and it paid £4.64 million for the overall deal. The evidence was clear that the company itself thought that the flight commitment element of the deal was the more important. That much is clear from:

i) The discussions between Mr Pekpak and Mr Bagana when the sale of the shares was first raised by Mr Aydin – Mr Bagana's initial reaction was not to consider what profit stream they might benefit from by owning half of Goldtrail but how much they would lose in terms of their own seat revenues if Goldtrail took its business elsewhere. He described the reason why he was interested in buying the shares:

"I decided quite quickly that we should purchase the shares. The way I saw it, buying the shares would cost less than the money Onur Air could lose if Goldtrail stopped flying with Onur Air. This means that it was not a complicated decision. I should point out that, as an investment, I did not consider £5,000,000 to be a significant outlay… Therefore I did not give excessive consideration to whether or not to purchase the shares. I didn't consider any formal valuation of the shares, I only considered what the business from Goldtrail was worth to Onur."

ii) The very limited due diligence carried out by Onur Air into the financial position of Goldtrail. Mr Hasançebi accepted that although they asked Mr Aydin for financial information about Goldtrail, this was not used to value the shares but only to check whether Goldtrail was profitable and whether there would be any financial risk for Onur Air, for example by rendering Onur Air liable for Goldtrail's debts.

iii) Mr Gürbüz's evidence was that "the whole purpose" of Onur Air buying the shares in Goldtrail was to protect the flights and revenue Onur Air was selling to Goldtrail.

111. In light of that evidence I do not see how Onur Air can maintain that it was paying only for the shares and not for the Onur Air 4 Year Seat Commitment. I accept that if there had been no seat commitment entered into by Goldtrail but merely a hope on the part of Onur Air that by buying 50 per cent of the shares it would encourage Goldtrail to buy more seats from Onur Air in the future, Goldtrail would not have been entitled to that share purchase price. In that situation Goldtrail would still be free to exercise its best judgment over the coming years as to where the most favourable seat deals could be obtained, even if this meant disappointing those hopes. But once Goldtrail was contractually committed to buying seats in accordance with the Onur Air 4 Year Seat Commitment it had given up an important element of its commercial freedom. If there was consideration to be earned from making that sacrifice, then that was consideration that should be paid to Goldtrail and not to Mr Aydin. I therefore find that there was an opportunity to benefit from receiving consideration from Onur Air in return for a long term commitment to buy seats and that this opportunity was diverted from Goldtrail by Mr Aydin in breach of his duties under section 175 of the Companies Act 2006.

VII. MR AYDIN'S POSITION AS SOLE SHAREHOLDER AND DIRECTOR OF GOLDTRAIL

112. Black Pearl and Onur Air raise two points to counter the allegation that Mr Aydin's misapplication of Goldtrail's money was a breach by him of his fiduciary duty to Goldtrail. Both the points arise from the fact that Mr Aydin was not only the sole director of Goldtrail but also the owner of all the shares.

(a) Approval or ratification of conduct by sole shareholder or sole director

113. The Defendants assert first that Mr Aydin, in his capacity as shareholder, must be taken to have approved of his own conduct in causing Goldtrail to pay the Viking deposits, the Extra Viking £500,000 and the 20th May Onur Air Payment so that this cannot in law amount to a breach of duty. I note that this is different from a related question as to whether the Defendants can say that they were not dishonest in any assistance they gave to Mr Aydin because they knew that he was the sole shareholder as well as the sole director of Goldtrail and so assumed that he was, qua shareholder, approving his own conduct qua director – I deal with that question later.
114. I do not accept that Mr Aydin could approve the misapplication of Goldtrail's fund in his capacity as sole shareholder. The evidence of Mr Oakley-Smith, one of Goldtrail's liquidators, is that by March 2010 Goldtrail was insolvent. It appeared from its consolidated management accounts sent to the UK CAA to be solvent only because an item referred to as 'marketing income' was incorrectly booked as an asset of the company. Mr Oakley-Smith notes that the effect of the marketing income item on the apparent profitability of the company was pointed out to Black Pearl by the draft Ernst & Young report prepared in December 2009 for their benefit, although it is not suggested that either Black Pearl or Onur Air knew that the item was incorrectly booked. The significance of this for the current point is that once the company becomes insolvent, the director no longer owes duties solely to the shareholder but also to the creditors of the company. In Vivendi SA v Richards [2013] EWHC 3006 (Ch) Newey J expressed the principle in the following terms:

"148. While the interests of a company are normally identified with those of its members, the interests of creditors can become relevant if a company has financial difficulties. In West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, Dillon LJ (with whom Croom-Johnson LJ and Caulfield J agreed) endorsed (at 252-253) the following statement of Street CJ in Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722:

"In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration."

149. The interests of creditors can "intrude" even when a company may not strictly be insolvent. For example, in Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] 2 BCLC 153 Mr Leslie Kosmin QC (sitting as a Deputy High Court Judge) put the position as follows (at paragraph 74):

"Where a company is insolvent or of doubtful solvency or on the verge of insolvency and it is the creditors' money which is at risk the directors, when carrying out their duty to the company, must consider the interests of the creditors as paramount and take those into account when exercising their discretion."

(The emphasis has been added.)"

115. I have no doubt that Mr Aydin ought to have considered the interests of the creditors of Goldtrail as well as his own interests as shareholder before making the payments and I am equally sure that he did not do so and that the payments were to the detriment of the creditors.
116. Further, section 239 of the Companies Act 2006 provides that where the shareholders are called upon to ratify a director's breach of duty, the votes of that director are to be disregarded. Gore-Browne On Companies (45^th edition) notes at paragraph 17[2] that this provision makes a clear change in the previous law. In Bilta (UK) Ltd (in liquidation) and others v Nazir and others (No 2) [2013] EWCA Civ 968 ('Bilta') the Court of Appeal stated that:

"In Salomon v A. Salomon & Co Ltd [1897] AC 22 the House of Lords affirmed that the property of even a so-called one man company belongs to the company and not to its director or shareholder and that the only means for a sole shareholder lawfully to extract assets from the company is by a distribution of capital carried out in accordance with what is now s.830 of the Companies Act 2006. By the same token, the sole director/shareholder owes to the company the fiduciary duties spelt out in s.172 of the Companies Act and cannot use his control of the company to ratify his fraudulent acts against the company particularly where the interests of creditors would be prejudiced: see Companies Act s.239(3) and (7) … "

117. This inability of a sole director to ratify his own wrongdoing in general meeting is not alleviated by the Duomatic principle as the Court of Appeal made clear in Ultraframe (UK) Ltd v Fielding [2004] RPC 479, para 40: "… if a director of a company 100% owned by himself decided simply to take the assets of the company for himself, he would not be able to rely on the Duomatic principle, because such conduct could not be considered a bona fide distribution of profits and would be a reduction of capital and ultra vires the company without the sanction from the court".
118. Therefore both because of the insolvency of Goldtrail at the time the contested payments were made and because of section 239 of the Companies Act 2006, I hold that Mr Aydin was not able, in his capacity as sole shareholder, to approve or ratify his misapplication of Goldtrail's money.
119. In similar vein, section 175 (set out at paragraph 63, above) provides that the duty to avoid a conflict of interest is not infringed if the director is authorised by the directors to put himself into the situation where the conflict arises. But subsection (6) provides that authorisation for that purpose is effective only if the matter was agreed to by the directors without the counting the director in question or would have been agreed to if his vote was not counted. As Mr Aydin was the only director, it was not possible for him to take advantage of the authorisation provision.

(b) The principle in Stone & Rolls Ltd v Moore Stephens

120. Onur Air argues that it is the real victim of Mr Aydin's fraudulent activity, having paid a very substantial amount of money to him and to Morning Light and with nothing now to show for it. Mr Gibbon therefore seeks to rely on the decision of the House of Lords in Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39. In that case the company sued its former auditors for their breach of duty or negligence in failing to prevent the company's director from defrauding banks. The banks had successfully sued the company for deceit and the auditors accepted, for the purposes of the argument that they owed the company a duty of care, that they were in breach of that duty and that but for that breach, the fraud would have ended earlier. The auditors raised a defence against the company of ex turpi causa non oritur actio. Their Lordships held that the defence succeeded and the claim should be struck out because the fraud of the director was attributed to the company of which he was the sole directing mind and will and beneficial owner. In the present case, Mr Gibbon and Mr Eaton Turner submit, Mr Aydin's fraudulent conduct should be attributed to Goldtrail so that Goldtrail cannot then rely on that fraud in pursuing Onur Air and Black Pearl.
121. The answer to this submission is provided by the Court of Appeal in Bilta cited earlier. In that case, two defendants were alleged to have dishonestly assisted former directors in a breach of their fiduciary duty. They sought to strike out the claim brought against them by the company on the grounds that since the company was itself a party to the fraud against HM Revenue & Customs, it could not claim against the other conspirators for losses which it suffered as a result of the fraud. Patten LJ (with whom the Master of the Rolls and Rimer LJ agreed) distinguished Stone & Rolls, holding that whether the conduct of an agent, including a director, created a personal liability on the part of the company depended on the context in which the issue arose; that as between the company and the defrauded third party, the company was not to be treated as the victim of the wrongdoing but as one of the perpetrators. However, where the company itself sought compensation for a breach of fiduciary duty owed to it by the director, as between it and the director the company was the victim of the wrong and the director could not defeat that claim by attributing his own wrongful conduct to the company.
122. In Bilta the alleged fraud was perpetrated both on the company which was deprived of any funds with which to meet its liability to pay VAT and on HMRC which was therefore unable to recover VAT owed by the company. Patten LJ discussed whether it mattered that the company was the primary or secondary victim of the breach – it was argued that the company was only a secondary victim in the sense that the loss it suffered only arose because of its inability to compensate HMRC, the primary victim of the fraud. Patten LJ held that it did not matter; the company was the direct victim of the breach of duty relied on: (see paragraph 45 of his judgment)

"It ought therefore not to matter whether the conspiracy alleged in these proceedings had as its object a VAT fraud on HMRC or is limited to depriving Bilta of the proceeds of sale from the [carbon credits]. In both cases the directors and the other defendants will have committed or aided a breach of fiduciary duty and other wrongs against the company for which Bilta can sue. In neither case should it be open to the directors and their accessories such as the appellants to rely upon a process of attribution to defeat the claim."

123. I note there that Patten LJ did not draw any distinction between the directors and those accused of dishonestly assisting the breach. The present case is, the Defendants say, different from both Stone & Rolls and Bilta because it was not suggested in either of those cases that the defendants were victims of the fraud. Here, they say, Mr Aydin had an overarching plan which involved absconding with Black Pearl's and Onur Air's money and putting Goldtrail into administration leaving the Defendants not only without any shares in Goldtrail but also being owed substantial sums for unpaid flight seats. In my judgment that does not make any difference to the application of the decision in Bilta. The judgment of the Court of Appeal in Bilta makes clear that where proceedings are brought by a company against a former director and his dishonest assistants for breach of fiduciary duty, the company is the victim of that breach. Moreover, the fraud perpetrated on the defendants was not perpetrated by Goldtrail but by Mr Aydin in his separate capacity as a shareholder of Goldtrail, when he failed to transfer the shares pursuant to the SPAs (despite having been paid the money for those shares) and when he put Goldtrail into administration. Those were not fraudulent activities that can be attributed to Goldtrail. The fact that Mr Aydin defrauded not only Goldtrail but also the Defendants does not prevent Goldtrail pursuing this claim against them.

VII. DISHONEST ASSISTANCE

124. The applicable law regarding dishonest assistance is, of course, common to both limbs of Goldtrail's claim and to both the Black Pearl and the Onur Air Deals. There are three aspects of the law that I must consider: can there be a claim based on dishonest assistance of a breach of fiduciary duty as well as for a breach of trust; what amounts to 'assistance' for this purpose; and what amounts to 'dishonesty' for this purpose?

(a) Dishonest assistance of a breach of fiduciary duty

125. Mr Gibbon submitted that there are important respects in which the directors of a company are not in the same position as trustees and that the concept of trusteeship and directorship should be kept separate. He also submitted that although the tendency over recent years has been to assume that there can be dishonest assistance of breach of fiduciary duty (as opposed to dishonest assistance of breach of a more traditional trust), this has not been the subject of consideration by the higher courts. The limits of such an extension of the principle have not been tested.
126. There are cases decided at first instance in which the court has held third parties liable for dishonestly assisting breaches of fiduciary duty. In JD Wetherspoon PLC v Van de Berg & Co Ltd and others [2009] EWHC 639 (Ch), Peter Smith J rejected a submission that claims in dishonest assistance cannot succeed unless there is property held on trust, the breach of which would give rise to accessory liability. The judge referred to the comments of Peter Gibson J in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 where he said:

'The trust need not be a formal trust. It is sufficient that there should be a fiduciary duty relationship between the "trustee" and the property of another person. The manager of a company may owe a fiduciary duty to that company in relation to the information he acquires in that capacity such as to constitute the manager or trustee within the category "knowing assistance"'

127. Peter Smith J concluded at paragraph 518 of Wetherspoon that in order to establish accessory liability there was no requirement for there to be trust property:

"Accessory liability does not involve a trust. It involves providing dishonest assistance to someone else who is in a fiduciary capacity [and] has committed a breach of his fiduciary duties …. I can see no logic or grave difficulty where the fiduciary is involved who has committed a breach of his fiduciary duty that an accessory who acts dishonestly in relation to those breaches should not be liable. It must not be forgotten that in most cases the breach can only occur as a result of the activities of the assistor"

128. I respectfully adopt the conclusion that there is no justification for restricting liability to trustees in charge of trust property. That was also the conclusion of Andrew Smith J in Fiona Trust & Holding Corporation and ors v Privalov [2010] EWHC 3199 (Comm) at paragraph 61 where he said:

"A defendant is liable for procuring or assisting in a breach of trust or fiduciary duty if a person acted in breach of a fiduciary duty owed to the claimant, and the defendant dishonestly persuaded that person to do so or assisted him to do so. … It is not necessary that the breach of duty should involve property held on trust or its misapplication or misappropriation: "A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists a breach of trust or fiduciary obligation", per Lord Nicholls in Royal Brunei Airlines v Tan [1995] 2 AC 378 p.392G. …. I agree with the view expressed by Peter Smith J in J D Weatherspoon v Van de Berg, [2009] EWHC 639 (Ch) that liability for dishonest assistance does not require dealing with trust property and adopt his reasons for so concluding."

129. I therefore do not regard the fact that the wrongful conduct which the Black Pearl Defendants and Onur Air are alleged to have assisted dishonestly is a breach of fiduciary duty by Mr Aydin means that the Defendants cannot be liable to Goldtrail for such assistance.

(b) Did Viking and Onur Air assist Mr Aydin's breaches of duty?

130. The question of what conduct is sufficient to amount to 'assistance' was discussed by Rimer J in Brinks Ltd (formerly Brink's-Mat Ltd) v Abu-Saleh & Ors [1996] CLC 133 where the claimant pursued a claim for dishonest assistance against Mrs Elcombe who had accompanied her husband on road trips to Switzerland during which he laundered part of the proceeds of the Brink's-Mat robberies, transported in a holdall in the boot of their car. The judge found that Mrs Elcombe had known that the purpose of the trips was to courier money but that she did not realise that it was part of the proceeds of the robbery. She believed rather that it was being moved as part of a tax evasion exercise on the part of Mr Parry who gave them the money. It was alleged that she knew that the exercise was a dishonest one and that her role in it was to provide her husband with her company on the long road trip and also 'to cloak what she knew to be an illegal operation with the apparent innocence of a family holiday or an antique buying trip'. Rimer J held that Mrs Elcombe had not provided relevant assistance.
131. In my judgment, however, there cannot be any doubt that Viking and Onur Air's conduct crossed the line into assisting Mr Aydin to misapply Goldtrail's money and to divert the opportunity to earn consideration for entering into a long term seat purchase commitment from Goldtrail. Mr Stephensen put Mr Aydin in touch with Mr Grumbridge who in turn introduced Mr Aydin to a solicitor who could help him set up Morning Light in the Seychelles. Both Viking and Onur Air entered into sham brokerage agreements with Morning Light, knowing that no brokerage services were going to be provided, in order to facilitate the making of payments to Mr Aydin. They then went on to make those payments to Morning Light in the months before Goldtrail went into administration. Further, they both received money from Goldtrail knowing that Mr Aydin caused Goldtrail to pay it in order to encourage them to make the Aydin payments and to facilitate the making of those payments. They both accepted the commitment from Goldtrail to buy seats in future seasons but contracted with Morning Light to pay consideration for that commitment to Morning Light rather than to Goldtrail. This was clearly a case where, to adopt Peter Smith J's phrase, Mr Aydin's breaches of duty could only occur as a result of the activities of Viking and Onur Air. Indeed, so far as Viking is concerned, it was Mr Stephensen who suggested splitting the Deal into the Black Pearl SPA and the Viking Brokerage Agreement in order to avoid paying tax.

(c) Was the assistance given by Viking to Mr Aydin in fact given by the Black Pearl Defendants?

132. The Black Pearl Defendants argue it was not Black Pearl that entered into the main agreements making up the Black Pearl Deal but Viking – any assistance given to Mr Aydin was given by Viking and not by them. The Individual BP Defendants' case is that they were merely advisers or consultants to Viking under consultancy agreements between their employers and Viking under which their services were provided to Viking for a fee. Mr Stephensen's evidence was that although no doubt the views of the Individual BP Defendants were influential they were not the decision takers in Viking; "we were very much the go-betweeners and facilitators". They all say, further, that Mr Tadjeran, the director and indirect owner of Viking, was the real decision-maker albeit that he received their advice and recommendations as to how to conduct the business.
133. This is another aspect of their evidence in their witness statements which I cannot accept as it is entirely contradicted by the written contemporary record. Mr Sigurdarson was regarded as in control of the cash flow of Viking and outgoings were approved by him. He admitted in cross-examination that his role was to oversee cash flow and that if there was a request that Viking make a payment, it was referred to him particularly during the winter period where there were cash flow constraints. It was he who would have had to decide whether to object to the payment or let it go ahead. Mr Wyatt also wanted to be sure that Mr Sigurdarson was in control of the money. In an email of 3 January 2010 to his colleagues, Mr Wyatt refers to the importance of ensuring that Mr Sigurdarson 'controls the money – Viking and Meridian'.
134. Mr Aydin specifically asked Mr Wyatt at the outset of the negotiations on 2 September 2009:

"Can I ask whether Magnus is a large shareholder in BPI Please and if we get anywhere with this deal would the money be paid from BPI? Are there any other decision makers besides yourself and Magnus in the process?"

135. Mr Wyatt's reply was "Magnus and I can make the decision but will always want unity". I read that answer as meaning that he and Mr Stephensen were the people able to make the decisions necessary to conclude the Deal but that they had both to agree to a course of action before it could be adopted. Their control was certainly reflected in the wording of Schedule 2 to the Viking Brokerage Agreement which records the existence of the Viking 5 Year Seat Commitment stating that Mr Aydin and Black Pearl 'have agreed the following commercial agreement between' Goldtrail and Viking. Just as Mr Aydin was able to commit Goldtrail to that agreement, Black Pearl was able to commit Viking to it.
136. It is also apparent from the email exchanges I have described earlier concerning the delays in and accelerations of the Aydin payments in implementation of the Black Pearl Deal that Mr Sigurdarson, Mr Wyatt and Mr Stephensen were in charge of how much was paid by Viking and as to the timing of those payments.
137. When the Black Pearl Deal was being negotiated in Autumn 2009 and early 2010, there is very little evidence to suggest any involvement in the discussions with Mr Tadjeran. Ms Stonefrost took Mr Sigurdarson through all the emails in which the details of the structure of the Black Pearl Deal were being discussed with Mr Aydin and amongst the Individual BP Defendants, pointing out that Mr Tadjeran was not copied in to any of them. Mr Sigurdarson accepted that Mr Tadjeran had not been involved directly in the negotiations of the deal between Viking and Goldtrail. He accepted that Mr Tadjeran was not sent either the drafts or the final versions of the various agreements comprising the Deal. He then qualified his evidence by asserting that there were 'quite frequent communications' between him and Mr Tadjeran and between Mr Wyatt and Mr Tadjeran. When asked why there was no email traffic evidencing this, he said that Mr Tadjeran does not use email much but rather discusses things over the telephone or face to face. This was clearly not true, however, since as regards the issue of the proposed application to be made by Viking (UK) for an aircraft operating certificate in the period up to July 2009, Mr Tadjeran was copied in to the email traffic and responded regularly to emails. By contrast, his inclusion as a copy recipient of emails after October 2009 when the negotiations over the Black Pearl deal started in earnest was very limited.
138. Mr Stephensen also said that he spoke to Mr Tadjeran several times a week and that Mr Wyatt spoke to him on a daily basis. Mr Stephensen said in his evidence that Mr Tadjeran was 'not a very active man on email' and that he 'does not use' email. However, he also had to accept that in relation to the Viking (UK) project, Mr Tadjeran had been copied into and had responded to email traffic without any apparent problem. The suggestion that on a project where Mr Tadjeran was involved on a day to day basis (that is the Viking (UK) project) he was copied in on emails but on a project where he was less involved all communications were over the telephone or in face-to-face meetings does not ring at all true. When he was challenged on the absence of any references to these conversations and meetings in the voluminous email traffic between Mr Stephensen and his colleagues, Mr Stephensen referred to documents which were not among the emails put to him by Ms Stonefrost. In re-examination a single email was put to him, dated 9 August 2009 (that is before the negotiations on the Black Pearl deal were properly underway) in which there was a reference to a phone call between them. That one email is certainly not enough to convince me that there were any discussions of substance about the Black Pearl deal between Mr Tadjeran and Mr Stephensen or Mr Wyatt. It is most implausible that such frequent discussions had taken place and yet nothing had been said that deserved a mention in emails. It still does not explain why Mr Tadjeran was not copied in to any of the emails circulating the draft or final versions of the agreements that Viking was going to sign. I therefore reject Mr Wyatt's and Mr Stephensen's evidence that Mr Tadjeran was closely involved by telephone or face to face meetings in any discussions about the Black Pearl Deal.
139. Finally on the question of Mr Tadjeran's involvement, there is the issue of whether there was a Viking board meeting (that would comprise Mr Tadjeran and Mr Evans) on 12 January 2010. The Individual BP Defendants were all adamant that there was. They were questioned about the fact that there was no record of this board meeting and indeed, in a minute of a later board meeting of Viking (held in July 2010 once Mr Sigurdarson and Mr Stephensen had taken over from Mr Tadjeran and Mr Evans as the directors of Viking) the minutes record that 'No evidence was found on any board meetings having been held during the year'. Both Mr Sigurdarson and Mr Stephensen tried to explain this away by stating that it meant that they had not found any physical evidence in the form of minutes. Even taking into account the fact that English is not Mr Sigurdarson's native language, I find it incredible that the fact of a Viking board meeting at which the Black Pearl Deal had been approved would not have been referred to in the note of 22 July if it were true that Mr Sigurdarson and Mr Stephensen had been in the room on 12 January 2010 when Mr Tadjeran and Mr Evans had been convened and voted on the deal. It is accepted that there was a meeting on 12 January 2010 because there was late disclosure of email traffic fixing the date and sending round an agenda. But I find that it was not a formal board meeting of Viking. It was a general meeting of the people involved in Black Pearl, Viking and Meridian to discuss various matters that they were all involved in including the Goldtrail deal.
140. When it came to approving the Black Pearl Deal, the Viking Brokerage Agreement was signed by Christopher Broad to whom Viking had delegated a very wide power of attorney to enter into agreements on behalf of the company. As a result, there was no need for a Viking board resolution to approve the signing of the agreements.
141. I therefore find that the assistance given by Viking to Mr Aydin to enable him to carry out his breaches of fiduciary duty towards Goldtrail was assistance also given by the Individual BP Defendants. They cannot distance themselves from the consequences of their actions by arguing that it was Viking only who gave that assistance and not them.
142. Mr Stephensen was a director of Black Pearl throughout the relevant period. It was accepted that his actions are therefore attributable to the company so that Black Pearl is liable to the extent that Mr Stephensen is liable. I do not therefore have to decide an issue which was explored at trial namely whether Mr Wyatt held an indirect beneficial interest in the shares in Black Pearl.

(d) Was the assistance given by the Black Pearl Defendants dishonestly?

143. The test for dishonesty here is that set out by the House of Lords in Twinsectra Ltd v Yardley and others [2002] UKHL 12 where Lord Hutton, with whom Lord Slynn of Hadley, Lord Steyn and Lord Hoffmann agreed, described the three possible standards which can be applied to determine whether a person has acted dishonestly. There is a purely subjective standard whereby a person is only regarded as dishonest if he transgresses his own standard of honesty even if that standard is contrary to that of reasonable and honest people; there is the purely objective standard whereby a person acts dishonestly if his conduct is dishonest by ordinary standards of reasonable and honest people, even if he does not realise this, and there is a combined standard:

"… which combines an objective test and a subjective test, and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest"

144. His Lordship, having considered the test that had been applied by Lord Nicholls of Birkenhead in the earlier case of Royal Brunei Airlines Snd Bhd v Tan [1995] 2 AC 378 confirmed that dishonesty is a necessary ingredient of accessory liability and that (at paragraph 36):

"dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct."

145. In Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, Lord Hoffmann considered whether it must be shown that the alleged dishonest assister turned his mind to the ordinary standards of honest behaviour and to whether his conduct fell below those standards. He held that it was not necessary. It was only necessary to show that the defendant's knowledge of the transaction rendered his participation contrary to normally acceptable standards of honest conduct. He did not need to be shown to have had reflections about what those normally acceptable standards were.
146. In the present case there is abundant evidence that the Black Pearl Defendants were fully aware that they were involved in a transaction that was thoroughly dishonest. All the Black Pearl Defendants knew that some of the documents signed as part of the Black Pearl Deal or shortly afterwards were sham documents, namely the fictitious brokerage agreement between Viking and Morning Light and the bogus seat sale agreement produced later for Mr Aydin to provide to the regulatory authorities showing that there were no deposits payable (see paragraphs 14 onwards above). There was also the proposed declaration of trust to be made by Mr Aydin in relation to the Black Pearl share purchase in order to conceal the change in ownership from the UK CAA.
147. All the Black Pearl Defendants knew that the reason put forward by Mr Aydin for restructuring the deal to introduce the fictitious brokerage agreement with Morning Light was so that Mr Aydin could evade paying tax. The Individual BP Defendants were rather coy about accepting this in cross-examination, taking the stance that so far as tax affairs are concerned they were not their brother's keeper and it was up to Mr Aydin and his advisers what he chose to reveal to the tax authorities. I reject this evidence as it is clear that the structure was put forward by Mr Stephensen with the intention that both Mr Aydin and Black Pearl would benefit by a reduction in the overall price of the Deal reflecting Black Pearl's 'share' of the tax Mr Aydin would not have to pay. They knew and intended that Mr Aydin would only declare to tax the money paid under the Black Pearl SPA.
148. Mr Eaton Turner said that this conduct was of the scale of paying the gardener in cash and not demanding an invoice. He did not go quite so far as to say that the conduct was not dishonest but he argued that it was not relevant to the breach of fiduciary duty because Mr Aydin did not owe any duty to Goldtrail to pay the right amount of tax for an asset of his that he sells. The requirement of some connection between the accessory's dishonesty and the breach of trust assisted by him was discussed in the Brink's-Mat case discussed earlier. Rimer J considered whether there would be sufficient dishonesty established if it were shown that Mrs Elcombe had thought that the cash was being moved about in order to evade tax and not because it was the proceeds of a robbery. He said that he was unpersuaded by the argument that an accessory can be made accountable to the beneficiaries as a constructive trustee regardless of whether he had any knowledge of the existence of a trust. He said that:

".. the law had never gone so far as to give a beneficiary a remedy against an accessory who dealt with a trustee in ignorance that he was a trustee, or who knew that he was a trustee but had no reason to know or suspect that the transaction in which he was assisting was in breach of trust. … a claim based on accessory liability can only be brought against someone who knows of the existence of the trust, or at least of the facts fiving rise to the trust"

149. In that case, the issue did not arise as he found that her conduct did not amount to assistance. But he also found that she was not aware of any connection between the couriering of the money and the Brink's Mat robbery. Her dishonesty was limited to believing that the money was Mr Parry's and was being transported for tax evasion.
150. I do not regard that case as authority, therefore, for the need for such a close relationship between the dishonesty and the breach of fiduciary duties as Mr Eaton Turner submitted was necessary. Here there is no doubt that the Black Pearl Defendants knew that Mr Aydin stood in the position of a fiduciary as director of Goldtrail and they knew that the money they received was paid by Goldtrail at Mr Aydin's behest. They knew that the structure of the Deal was, to use Mr Stephensen's word 'unorthodox' – that is why they did not tell Ernst & Young about it when they instructed the firm to carry out limited due diligence on Goldtrail but told them that the consideration of for the sale of shares was £500,000 not £1.9 million. It is also why they did not tell their solicitors about the true nature of the Deal when the response to the letter before claim was drafted in 2011. Mr Wyatt accepted in cross-examination that if Mr Aydin had been accepting money personally (though Morning Light) in return for the Viking 5 Year Seat Commitment, that "would be totally wrong and criminal against the company". He put this forward as a reason why I should find that Black Pearl, about to own 50 per cent of Goldtrail, was most unlikely to be complicit in Mr Aydin taking a substantial amount of money out of Goldtrail. This was part of the Black Pearl Defendants' case that the Viking 5 Year Seat Commitment did not exist. I have found that it did exist. I find that the Individual BP Defendants and (through Mr Stephensen) Black Pearl were fully aware that the Black Pearl Deal was dishonest and a breach by Mr Aydin of his fiduciary duties.

(e) Did Onur Air give its assistance dishonestly?

151. In considering this issue, I remind myself that the Onur Air witnesses did not know anything about the Black Pearl Deal. However, the dishonest aspects of the two deals are similar:

i) The Onur Air executives knew that Goldtrail was entering into the Onur Air 4 Year Seat Commitment but that the consideration for this was being paid to Mr Aydin via Morning Light. As experienced senior corporate officers they must have realised that this was improper.

ii) Onur Air entered into the sham Onur Air Brokerage Agreement knowing that Morning Light had not provided any brokerage services in return for the very substantial sum it was being paid.

iii) Mr Bagana helped Mr Aydin by putting in place a trust mechanism to conceal the change of ownership of Goldtrail from the UK CAA. Mr Hasançebi's evidence was that he understood the reason for the secrecy was two fold; to prevent other suppliers to Goldtrail knowing that Onur Air was the 50 per cent owner but also to conceal the change from the UK CAA as they might then treat Goldtrail as a new entity which would affect the levels of insurance premium. Onur Air was thus knowingly involved in a deal that was structured in part in order to undermine the UK CAA's regulatory role in supervising tour operators for the benefit of the public. Mr Hasançebi's evidence was that he queried the reason for the trust mechanism with Mr Aydin and was told that it was just a temporary measure and that the rules on changes of ownership would soon change and that he would inform the UK CAA later. Assuming that conversation did take place, it does not justify Onur Air's connivance in the disguise.

152. I therefore find that Onur Air was dishonest in the assistance that it gave Mr Aydin in misapplying Goldtrail's money and in diverting the opportunity to benefit from entering into the Onur Air 4 Year Seat Commitment from Onur Air to him personally.

(f) Does Mr Aydin's position as sole shareholder and director affect the Second to Sixth Defendants' dishonesty?

153. I held earlier that Mr Aydin was not able, as a matter of law, to approve or ratify his own conduct so as to prevent that conduct being a breach of his fiduciary duties towards Goldtrail. There is a separate question raised by the Defendants, namely whether Mr Aydin's position within Goldtrail means that they were not dishonest in assisting Mr Aydin because they knew that he was the sole shareholder and director of the company. I do not accept that that provides any defence in the circumstances of this case. Goldtrail was a substantial trading company with employees and creditors, not just a shell vehicle. Even if there was no suspicion that the company was in financial difficulties, I do not consider that ordinary people would regard it as honest for the sole shareholder of such a company in effect to treat its money as his own. Further there is no evidence that any of the Defendants ever turned their minds to the issue of Mr Aydin's role as owner of the company or sought any reassurance from him as to the propriety of what was proposed. It was suggested that they were entitled to assume that Mr Aydin had approved or ratified his own conduct. But if they should be assumed to know enough about English company law to know that a director's conduct can be approved by the shareholders or directors then they should be assumed also to know that in this case, that was not legally possible for the reasons I have already explained. In addition, the Defendants must have realised not only that the Deal they entered into involved a depletion of Goldtrail's resources but that it was putting Goldtrail in a position whereby it was deceiving the regulator as to its ownership and liquidity.
154. In my judgment the combined standard test propounded in Twinsectra and Royal Brunei Airlines is satisfied here, even though the Defendants knew that Mr Aydin was the sole owner of Goldtrail.

VIII. REMEDY

155. The question of what remedies are available against a dishonest assistor was considered by Lewison J (as he then was) in Ultraframe (UK) Ltd v Guy Fielding & Ors [2005] EWHC 1638 (Ch). At paragraph 1600 he said:

"1600. I can see that it makes sense for a dishonest assistant to be jointly and severally liable for any loss which the beneficiary suffers as a result of a breach of trust. I can see also that it makes sense for a dishonest assistant to be liable to disgorge any profit which he himself has made as a result of assisting in the breach. However, I cannot take the next step to the conclusion that a dishonest assistant is also liable to pay to the beneficiary an amount equal to a profit which he did not make and which has produced no corresponding loss to the beneficiary. As James LJ pointed out in Vyse v. Foster (1872) LR 8 Ch App 309:

"This Court is not a Court of penal jurisdiction. It compels restitution of property unconscientiously withheld; it gives full compensation for any loss or damage through failure of some equitable duty; but it has no power of punishing any one. In fact, it is not by way of punishment that the Court ever charges a trustee with more than he actually received, or ought to have received, and the appropriate interest thereon. It is simply on the ground that the Court finds that he actually made more, constituting moneys in his hands "had and received to the use" of the cestui que trust.""

156. The Defendants also rely on the case of Target Holdings Ltd v Redferns (a firm) and another [1996] 1 AC 421 ('Target'). In that case Redferns were solicitors for a company called Crowngate which was purchasing two plots of land. The Claimant, Target, agreed to lend money to Crowngate to finance the purchases. Unknown to Target, the properties were being bought for substantially less money than the amount they were asked to loan. The security provided to Target by a charge over the properties for the loan was therefore inadequate. Redferns were also instructed to act as solicitors for Target and Target transferred to Redferns the loan monies with instructions that the money should be released once the purchase of the properties and the creation of the charges in favour of the lender had been completed. It was common ground that Redferns acted in breach of trust by paying away the loan monies otherwise than in accordance with Target's instructions. However, the purchase of the properties was then completed and the charges over the properties were then created for Target's benefit so that Target in fact got precisely what it intended to get out of the transaction namely making a loan to Crowngate secured by charges over the properties. Crowngate became insolvent and the sale of the charged properties did not generate enough money to repay the loan. Target sought to recover the balance of the unpaid loan from Redferns. Target argued that Redferns had committed a breach of trust by paying away the monies without instruction and that they therefore came under an immediate duty to restore the whole of the monies paid away. Lord Browne-Wilkinson noted at the outset of his speech that 'The breach of trust committed by Redferns left Target in exactly the same position as it would have been if there had been no such breach…'. Hence, he said, in any ordinary use of words, the breach of trust had not caused any of the actual loss ultimately suffered by Target. The argument in the case proceeded on the factual assumption that there was no causal link and also on the basis that there was no fraud or negligence on the part of Redferns but merely an innocent breach of trust. Lord Browne-Wilkinson (speaking for a unanimous House) held that there was no liability to make good the loss in those circumstances (at page 432E-433A emphasis added):

"At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put "in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation": Livingstone v. Rawyards Coal Company (1880) 5 App. Cas. 25. 39. per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same. On the assumptions that had to be made in the present case until the factual issues are resolved (i.e. that the transaction would have gone through even if there had been no breach of trust), the result reached by the Court of Appeal does not accord with those principles. Redferns as trustees have been held liable to compensate Target for a loss caused otherwise than by the breach of trust. I approach the consideration of the relevant rules of equity with a strong predisposition against such a conclusion."

157. He went on to hold (at page 437C-E) that the assessment of quantum is not fixed at the date when the breach occurred but rather at the date of judgment, at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the beneficiary back into the position it would have been if there been no breach. To do otherwise may, as it would have done in that case, lead to compensating the beneficiary for a loss which on the facts known at trial, it has never suffered.

(a) Remedy for the misapplication of Goldtrail's money

158. So far as the claim based on the misapplication of Goldtrail's money is concerned, Goldtrail submits that the matter is straight forward. Pursuant to the Black Pearl Deal £750,000 was transferred by way of bogus deposits and the Extra Viking £500,000 from Goldtrail to Viking in order to facilitate the Aydin payments. So far as Mr Aydin's liability to Goldtrail is concerned, it is not controversial that as he has received the money via Morning Light he is liable to account to Goldtrail for £1,125,000. Similarly as regards the 20th May Onur Air Payment, I have found that that was a misapplication by Mr Aydin of Goldtrail's money and, since he has received the £2.65 million by payments by Onur Air to Morning Light, he is liable to pay that money back to Goldtrail.
159. The question is whether the matter is similarly as straight-forward as regards the other Defendants' liability. Goldtrail accepts that since the dishonest assistors have not themselves profited from the receipt of the monies because they paid it over to Mr Aydin, they are only liable to compensate Goldtrail for the loss that Goldtrail has suffered, they are not liable themselves to account for the profit that Mr Aydin has made. Goldtrail submits, however, that the quantum of Goldtrail's loss is in fact the same as the monies misapplied so that the Black Pearl Defendants are liable to pay equitable compensation to Goldtrail of £1,125,000 and Onur Air is liable to pay equitable compensation of £2.65 million.
160. The Defendants resist this quantification of damages on the grounds that Goldtrail's loss should be reduced by the amount by which it was allowed to underpay for flight seats over the summer 2010 season before Goldtrail went into administration. The Black Pearl Defendants argue that the whole of the Extra Viking £500,000 had been 'recouped' by Goldtrail before 16 July and that that since it is not contested that Goldtrail took the benefit of the flights and presumably sold them on to its own customers, Goldtrail cannot be described as having 'lost' that £500,000. Similarly Onur Air argue that by the 16 July a certain amount of the £2.65 million (the precise amount is disputed) had been set off against monies owed by Goldtrail for seats flown in June and July 2010. Further, as at 16 July, the value of Onur Air seats flown but not paid for by Goldtrail exceeded the unrecouped balance of the 20th May Onur Air Payment. Onur Air therefore deny that Goldtrail has suffered any loss as a result of Mr Aydin's breaches and its dishonest assistance. The Defendants rely on Target as authority for the principle that compensation for breach of fiduciary duty is limited to the loss actually suffered by the beneficiary, at least where that duty arises in the context of a commercial transaction rather than a traditional trust. Here, they say, we know that by the time of the trial Goldtrail had recouped some if not all of the misapplied moneys by not paying for flights - its loss should be reduced by that amount.
161. There are in my judgment two impediments to the success of that argument. The first is that Target was a case concerning the relevance of a causal link between the breach of trust and the loss suffered by the beneficiary as a result of the underlying transaction in which the fiduciary duty arose. It proceeded on the basis that the breach of duty did not cause the loss because of the way the transaction ultimately played out. In the present case, there is no issue of causation. There is no doubt that Mr Aydin's conduct, dishonestly assisted by the Defendants as I have found, caused loss to Goldtrail of the sums claimed. Nothing that happened subsequent to the transfers of funds to Viking and Onur Air broke or negated that causal link between the breach of duty and the transfer of the funds out of Goldtrail. The loss claimed by Goldtrail is not a loss arising independently of the breach of trust because of some defect in the underlying commercial transaction. There was and remains an immediate and direct link between the misapplication of the money by Mr Aydin and the sums claimed under this head. The benefit of hindsight, to which Target says the court assessing damages must have regard does not lead to the conclusion that the breach of duty did not ultimately cause Goldtrail any loss.
162. What happened subsequent to the breach of trust was that other aspects of the on-going transaction following the breach of duty resulted in a benefit being obtained Goldtrail which the Defendants now seek to set off against the loss caused by the breach. The question whether they can set off those sums leads me to the second impediment to the Defendants' submissions, the decision of the Court of Appeal in Manson v Smith (liquidator of Thomas Christy Ltd) [1997] 2 BCLC 161 ('Manson'). I preface what follows by saying that I found the application of Target and Manson by far the most difficult and perplexing aspect of this case. Mr Manson was the director of a Thomas Christy Ltd and lent it significant sums recorded on a director's loan account. The company went into insolvent liquidation and the liquidator established that some payments that had been made to Mr Manson had been improper. Judgment having been obtained for sums totalling about £27,000, Mr Manson sought to avoid a writ of fieri facias by arguing that he was entitled under rule 4.90 of the Insolvency Rules 1986 to set off the sum of £27,000 which he had been ordered to pay against the balance due to him on his loan account of £109,000. Jacob J held that Mr Manson was not entitled to set off the £27,000 against the loan account debt. The Court of Appeal (Millett LJ) refused permission to appeal.
163. Rule 4.90 of the Insolvency Rules provides as follows:

"4.90(1) This Rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any credit of the company proving or claiming to prove for a debt in the liquidation.

4.90(2) [Excluded debts]

4.90(3) An account shall be taken of what is due from each party to the other in respect of the mutual dealings, and the sums due from one party shall be set off against the sums due from the other.

…

4.90(8) Only the balance (if any) of the account owed to the creditor shall be provable in the liquidation. …"

164. Millett LJ held that there was no set off under rule 4.90 for two reasons. First, the misappropriation of the company's assets by the director did not amount to a dealing between him and the company for the purposes of r 4.90. The second reason was that r. 4.90 only applied where mutual debts existed at the date of the winding up because the application of the rule was 'immediate and self-cancelling'. As at the date of the liquidation, there was no debt owed by the director to the company because that only arose as a result of the subsequent misfeasance judgment. Millett LJ concluded his short judgment with the observation that the result, although it may seem 'somewhat technical' was right because if Mr Manson's argument were correct, that would mean that the director who had acted improperly would be able to recover the whole of the moneys owed to him by the insolvent company at a pound in the pound by setting off his misfeasant receipts against the debt owed to him rather than having to prove for the monies owed to him in the liquidation like the other creditors. Mr Manson therefore had to pay the liquidator the £27,000 he owed the company and then, presumably, prove in the liquidation with the other creditors for the £109,000 the company owed him without being able to make that deduction.
165. How does Manson apply in the present case? In my judgment, the misfeasant payments made to Viking and Onur Air are, according to Manson, not to be treated as 'dealings' between them and Goldtrail for the purposes of r. 4.90. Even though the payments were referred to in the litigation as 'accelerated advance flight payments' and such payments are sometimes made in this sector, the evidence I have already described shows that these were not payments made as part of normal business dealings between a tour operator and its seat provider. These were made as part of the deal between Mr Aydin and seat providers for his own benefit and contrary to the best interests of Goldtrail. The second part of the Manson ratio applies here too. The Defendants' liability to compensate Goldtrail for the loss of the £750,000 'deposits', the Extra Viking £500,000 and the 20^th May Onur Air Payment arises only once there is a finding by this court that Goldtrail's hard-fought claim succeeds.
166. The Defendants argued that even if Manson applied to prevent them from being able to set off monies still owed by Goldtrail for unpaid flights as at 16 July, it does not require or entitle the court to unravel the set off that had already occurred before that date. So far as the Extra Viking £500,000 is concerned, all of that had been recouped against payments otherwise due from Goldtrail for flights during June and a large proportion of the 20^th May Onur Air Payment had also been recouped by then. This would presumably mean that had Mr Manson received the misfeasant payments by way of a credit to his on-going loan account as a reduction of the company's indebtedness to him, Millett LJ's decision would have been different. But there is nothing in Manson to support that suggestion. The mechanism by which Mr Manson received the misfeasant payments (whether by credit to his loan account or by separate cheque) does not seem to have been regarded as important by the court. Certainly the mechanism does not affect the two bases on which the case was decided; it does not change the nature of the transaction and hence whether it amounts to mutual dealing and it does not affect the time at which the misfeasant director becomes liable to compensate the company for its loss. As a matter of principle it would also be contrary to the observations of Millet LJ about the justification for the Manson decision because it would mean that the misfeasant director does thereby obtain pound for pound repayment of his loan to the company to the extent that the loan is treated as extinguished by the payment.
167. 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 Defendants 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. The Defendants say that this results in a 'windfall' for Goldtrail because it has had the flights and Viking and Onur Air will in the end not be paid for them. I do not accept that characterisation of what has happened – every insolvent company obtains a similar 'windfall' by keeping the goods it has bought before the insolvency and only paying pence in the pound for them. But that is not a reason to allow a dishonest assistor in effect to obtain pound for pound reimbursement.
168. The Second to Sixth Defendants urged on me the justice of the case. Mr Gibbon referred in his closing submissions to:

"the instinctive reaction of my clients, which is that, in circumstances where, yes, we did get an advance payment, but it has been entirely used, we have flown these flights, we are still out of pocket, how can it be equitable, how can the law allow a situation to arise in which we are still being told that we owe £2.65 million because of receiving that advance payment in relation to the very contract which we then performed?"

169. He referred to a passage in the judgment of Lord Neuberger MR in Sinclair v Versailles [2011] EWCA Civ 347 where he cited Target and stated:

"… although it is subject to limiting principles, equitable compensation is a more flexible concept than common law damages. Kirby J in the High Court of Australia put it this way in Maguire v Makaronis (1997) 188 CLR 449, 496:

"[Equitable] remedies will be fashioned according to the exigencies of the particular case so as to do what is 'practically just' as between the parties. The fiduciary must not be 'robbed'; nor must the beneficiary be unjustly enriched." "

170. In so far as the broad justice of the case is relevant to my decision, I bear in mind that the principal creditor of Goldtrail is the Air Travel Trust. The Trust had to pay airlines, including Onur Air and Viking, to repatriate Goldtrail's stranded customers in July 2010. Part of the dishonest assistance provided by these Defendants involved their assisting Mr Aydin in disguising the true terms of the Black Pearl and Onur Air Deals from the UK CAA thereby potentially frustrating the regulatory oversight that the UK CAA has over tour operators as the quid pro quo for its responsibility for picking up the pieces when a tour company fails. As between the Air Travel Trust and these Defendants, it seems to me clear where the justice of the case lies.
171. I therefore hold that the Defendants are not entitled to set off against the loss suffered by Goldtrail from the misapplication of its money any sums owed by Goldtrail for flights, regardless of whether those sums were owed before or at the date of Goldtrail's entry into administration. The sums misapplied - that is £1,250,000 in respect of Viking and £2,650,000 in respect of Onur Air – are the sums lost by Goldtrail as a result of Mr Aydin's actions dishonestly assisted by the other Defendants. Goldtrail's claim for equitable compensation for that loss is not off set by the business dealings between the parties in relation to the sales of flight seats.
172. In the light of that conclusion, I do not need to decide the legal issues as to whether it makes any difference that the compensation is payable to Goldtrail from the Black Pearl Defendants but the set off was made against monies owed by Goldtrail to Viking. There is, however, a factual issue about the amount of the monies that had been recouped against flight payments owed by Goldtrail to Onur Air as at 16 July 2010. Goldtrail's primary case was that this does not matter because none of the 'recoupment' can be set off according to the decision in Manson. Onur Air's primary case was that this did not matter because at that date, the amount owed by Goldtrail to Onur Air for unpaid flights exceeded any unrecouped amount of the 20^th May Onur Air Payment. But in case I am wrong in agreeing with Goldtrail's analysis and in case also Onur Air's primary case is wrong and it is entitled to set off only those sums that had been recouped as at 16 July, I set out briefly my findings of fact on this issue.
173. Mr Pekpak's evidence, which I accept, was as follows.

i) The initial agreement with Mr Aydin was that Goldtrail could set off £250,000 per week from the sums due from it in sterling in June July and August 2010. It appears that flights were paid for by Goldtrail in sterling but that other sums such as fuel surcharges and passenger taxes were paid in dollars or euros.

ii) On 3 June 2010 Mr Aydin wrote to Mr Pekpak noting that Goldtrail still owed about £725,000 to Onur Air for the first week in June (having deducted £250,000) plus over US$1 million and over €11,000. He said that Goldtrail was having difficulty meeting these payments 'because of the very hefty payments to you' and that he needed to keep the Goldtrail company accounts at a certain level. He therefore wanted to avoid paying the whole of the sterling amount due and still deduct £250,000 the following week. This would mean that Goldtrail would only pay the US dollar and euro amounts in the first week of June. June was a difficult time for tour operators because the Football World Cup led to a fall off in holiday bookings that month.

iii) Mr Pekpak agreed to that with the result that all the deductions that they had previously agreed would be spread equally across the four weeks of June were in fact made in the first two weeks; about £750,000 in the first week and £250,000 in the second week.

iv) In July the parties reverted to the original agreement to deduct £250,000 each week.

v) By the time Goldtrail went into administration on 16 July therefore, it had been entitled to deduct a further £500,000 from the sterling sums owed to Onur Air for flights, leaving £1,150,000 unrecouped.

(b) Remedy for the breach of section 175 of the Companies Act 2006

174. What equitable compensation is payable to Goldtrail for dishonest assistance in respect of the breach of section 175? It is the commission which Goldtrail should have received for entering into the Viking 5 Year Seat Commitment and the Onur Air 4 Year Seat Commitment. In Aerostar Maintenance International Limited v Wilson & ors [2010] EWHC 2032 (Ch) the defendant Mr Wilson, a director of the claimant company, AMIL, was found to have diverted a business opportunity from AMIL to another company, Avman, in breach of his fiduciary duties. Other defendants had dishonestly assisted him. Morgan J considered the remedies available. As regards Mr Wilson, he held that AMIL was entitled to an account of the profits made by Mr Wilson resulting from the breach of fiduciary duty or alternatively to equitable compensation. AMIL could elect between the two. The dishonest assisters were also liable to account for the profits they had personally made from the breach and in the alternative they were liable to pay equitable compensation for loss and damage if any that had been caused to AMIL by reason of the relevant wrongdoing: see paragraph of the judgment. For the purpose of assessing equitable compensation it is necessary to ask, Morgan J held, what would have happened in relation to AMIL if the equitable wrongdoing had not occurred. He then considered the factual issue whether the contracts which had been made between customers, Galaxy and Romaero, and Avman would have been entered into on the same terms by those customers with AMIL, had Mr Wilson not wrongly diverted those contracts to Avman. He held that they would have. Morgan J then said this (paragraph 216):

"I now need to consider whether the loss suffered by AMIL for which it is to be compensated is the loss of the benefit of the contracts with Romaero and Galaxy or the loss of the opportunity of securing those contracts. In my judgment, the loss is the second of these. Accordingly, I need to consider whether it was certain or very nearly certain that AMIL would have secured those contracts. If so, AMIL should recover by way of compensation 100% of what it has lost by reason of being prevented from entering into those contracts. If, on the other hand, it was not certain or very nearly certain that AMIL would have secured those contracts but it nonetheless lost the opportunity of securing them, then I need to assess its chances of securing the contracts. … My overall assessment is that AMIL had an 80% chance of being able to secure the contracts. It was that 80% opportunity which AMIL lost and for which it should receive compensation."

175. What is the equitable compensation to which Goldtrail is entitled here? I have no difficulty in deciding that if Mr Aydin had decided to agree with Viking and Onur Air that commission would be paid to Goldtrail rather than to Morning Light in return for the seat commitments, those companies would have been equally happy with that arrangement. It did not matter to them whether the consideration was paid to Mr Aydin or to Goldtrail provided that Goldtrail was committed to buying seats from them over the coming seasons. I therefore find that Goldtrail had a 100 per cent chance of obtaining the commission if it had not been prevented from doing so by the Defendants' conduct.
176. The next issue is the value of the commission that would have been paid to Goldtrail for the seat commitments. I have already rejected the Defendants' evidence that Viking and Onur Air would not have been prepared to pay anything for that commitment. All the evidence shows that the principal aim of both Deals was to enable the airlines to retain and improve upon the scale of their sales to Goldtrail rather than to enjoy a share of the profit stream from Goldtrail's own business as a tour operator. Given that the consideration for Goldtrail's seat purchase commitment was bound up with the consideration for Mr Aydin's shares, how should I split the total consideration for the Black Pearl Deal and the Onur Air Deal between payment to Mr Aydin for the shares and payment to Goldtrail for the seat commitment?
177. The evidence as to how the split was arrived at in both deals was rather sketchy. I accept that it may well have been decided upon by Mr Aydin on the basis of how much of the overall sum he was prepared to pay tax on and that neither Viking nor Onur Air gave any thought to the split between the value of them of the shares and the value to them of the seat commitment. My conclusion on this point is that the Defendants cannot complain if the court adopts the split that they were prepared to agree as reflecting a reasonable valuation of the shares on the one hand and the commitment on the other. The merging of the two values is part and parcel of their participation in the dishonest scheme not only to deprive Goldtrail of the commission to which it was entitled but also to share the benefit of disguising from the tax authorities the total consideration earned by Mr Aydin. Further, there is evidence that the parties were careful to devise the Deals in a way which made them plausible from a business point of view. The documentation comprising the two Deals, and the invoices subsequently provided by Morning Light against payment under the sham brokerage agreements were intended, amongst other things, to get the Deal past the companies' respective auditors and be reflected in their annual accounts. It was important for them, therefore, that the fee supposedly paid to Morning Light for brokering the seat commitments should not look untoward as regards the value to the companies of those commitments.
178. I therefore find that:

i) the value of the lost commission for which Mr Aydin and the Black Pearl Defendants are liable to compensate Goldtrail is the same as the value they purported to agree that Viking would pay to Morning Light for brokering that commitment, namely £1,400,000.

ii) the value of the lost commission for which Mr Aydin and Onur Air are liable to compensate Goldtrail is the same as the value they purported to agree would be paid to Morning Light for brokering that commitment, namely £3,640,000.

179. Of course, these sums in compensation are alternative rather than additional to the sums due for the misapplication of Goldtrail's money.

IX. CONCLUSION

180. In summary my conclusions are as follows:

i) Mr Aydin acted in breach of his fiduciary duty to Goldtrail by misapplying Goldtrail's money when he caused Goldtrail:

a) to pay the so-called deposits (£750,000 in total) under the Viking/Goldtrail and FOAL/Goldtrail Seat Sales because they were not genuine deposits in that there was no intention that the money would be repaid at the end of the summer season;

b) to pay the Extra Viking £500,000 to Meridian when there was no legal obligation to make that payment and the payment was not in the interests of Goldtrail but only in his interests and in the interests of Viking;

c) to make the 20th May Onur Air Payment when there was no legal obligation to make that payment and the payment was not in the interests of Goldtrail but only in his interests and in the interests of Onur Air.

ii) Mr Aydin was in breach of his duty under section 175 of the Companies Act 2006 in diverting to himself, via Morning Light, Goldtrail's opportunity to obtain consideration from Viking and Onur Air in return for Goldtrail making a commitment to purchase minimum numbers of seats on flights in future seasons.

iii) The fact that Mr Aydin was the sole director and shareholder of Goldtrail does not prevent his conduct from being a breach by him of his fiduciary duty and Mr Aydin's fraudulent conduct is not attributed to Goldtrail in order to allow the Defendants to raise a defence of ex turpi causa non oritur actio to defeat Goldtrail's claim in this action.

iv) Viking and Onur Air dishonestly assisted Mr Aydin's breaches of fiduciary duty and the assistance given by Viking was in fact given by the Black Pearl Defendants.

v) So far as Mr Aydin's liability is concerned:

a) Mr Aydin is liable to Goldtrail for £3,775,000 in respect of his misapplication of Goldtrail's money (being £1,125,000 arising from the Black Pearl Deal and £2,650,000 arising from the Onur Air Deal); alternatively

b) Mr Aydin is liable to Goldtrail for £5,040,000 in respect of his breach of section 175 of the Companies Act 2006 (being £1,400,000 in respect of the Black Pearl Deal and £3,640,000 in respect of the Onur Air Deal)

vi) The Black Pearl Defendants and Onur Air are not entitled to set off against the equitable compensation due from them to Goldtrail the monies owed to them by Goldtrail in respect of seat sales prior to Goldtrail's administration.

vii) The Black Pearl Defendants are jointly and severally liable to pay equitable compensation to Goldtrail of:

a) £1,125,000 in respect of their dishonest assistance in the misapplication of Goldtrail's money; alternatively

b) £1,400,000 in respect of their dishonest assistance in the breach of section 175 of the Companies Act 2006

viii) Onur Air is liable to pay equitable compensation to Goldtrail of:

a) £2,650,000 in respect of its dishonest assistance in the misapplication of Goldtrail's money; alternatively

b) £3,640,000 in respect of its dishonest assistance in the breach of section 175 of the Companies Act 2006.