[2017] UKSC 57
On appeal from: [2016] EWCA Civ 20
JUDGMENT
Goldtrail Travel Limited (in liquidation) (Respondent)
v Onur Air Taşimacilik AŞ (Appellant)
before
Lord Neuberger, President
Lord Clarke
Lord Wilson
Lord Carnwath
Lord Hodge
JUDGMENT GIVEN ON
2 August 2017
Heard on 27 April 2017
|
Appellant
Michael Gibbon QC
Ms Hannah Ilett
(Instructed by
Druces LLP)
|
|
Respondent
Robert Miles QC
Hilary Stonefrost
(Instructed by Fieldfisher
LLP)
|
LORD WILSON: (with whom
Lord Neuberger and Lord Hodge agree)
INTRODUCTION
1.
The appellant (“Onur”), a Turkish corporation, appeals against orders
made by Patten LJ in the Court of Appeal on 21 January 2016.
2.
An understanding of the nature of his orders requires reference to the
following summary of the background.
(a)
On 22 May 2014 Rose J, [2015] 1 BCLC 89, gave judgment against Onur in
favour of the respondent (“Goldtrail”), a UK company in liquidation, in the sum
of £3.64m plus interest.
(b)
On 15 December 2014 Floyd LJ granted permission to Onur to appeal to the
Court of Appeal against the order of Rose J on the basis that the appeal had a
real prospect of success.
(c)
On 11 June 2015 Floyd LJ, by way of variation of an earlier order for
the imposition of conditions upon the continuation of Onur’s appeal, made it
conditional, among other things, upon Onur’s payment into court (or provision
of other security for it) of £3.64m by 9 July 2015.
(d)
On 29 October 2015, in the absence of any payment into court (or
provision of other security), Goldtrail applied for an order dismissing Onur’s
appeal and on 7 December 2015 Onur cross-applied for an order that the
condition for payment into court be discharged on the ground that it could not
comply with it and that the effect of dismissing the appeal by reference to it
would be to stifle the appeal.
(e)
At the hearing before Patten LJ on 14 January 2016 of the application
and cross-application referred to at (d), Goldtrail, in disputing that the
condition for payment was such as to stifle Onur’s appeal, relied in particular
on the financial relationship between Onur and its wealthy owner, Mr Bagana.
3.
As explained by Patten LJ in his reserved judgment dated 21 January
2016, his orders were first to dismiss Onur’s cross-application and thereupon
to grant Goldtrail’s application for an order that, by reason of Onur’s failure
to comply with the condition imposed on 11 June 2015, its appeal should be
dismissed.
4.
In the above circumstances this court is asked to address the principles
by reference to which the Court of Appeal should determine an application by a
respondent/claimant that, as a condition of any appeal to it, the
appellant/defendant should pay into court (or otherwise secure payment of) part
or all of the judgment sum awarded against it in the court below; and in
particular to identify the principles by reference to which it should appraise
a respondent’s contention that an appellant’s financial relationship with a
wealthy third party is such as to defeat its complaint that such a condition
would stifle its appeal. In the event there has been little dispute between the
parties as to the principles which the Court of Appeal should apply. The more
lively issue has been whether Patten LJ can be seen to have applied those
principles in reaching his conclusions first that Onur’s relationship with Mr
Bagana was such as to defeat its complaint that the condition for payment would
stifle the appeal; second that the condition should therefore remain in being;
and third that, in the absence of compliance (or proposed compliance) with it,
Onur’s appeal should therefore be dismissed.
THE SUBSTANTIVE
DISPUTE
5.
Prior to its liquidation, Goldtrail was a holiday tour company which had
been wholly owned by Mr Aydin. Onur is a Turkish airline, largely owned by Mr
Bagana. In the proceedings before Rose J Goldtrail, by its liquidator, sued
Onur in relation to two agreements and, irrelevantly for present purposes, sued
other defendants in relation to other agreements. The claim against Onur arose
out of the latter’s aspiration to cause Goldtrail to buy seats for its tourists
on Onur’s flights between the UK and Turkey. Such was the context of agreements
that Mr Bagana would buy 50% of Mr Aydin’s shares in Goldtrail for £1m (which
he paid) and that Onur would pay £3.64m (which it paid) to another company
owned by Mr Aydin for its purported brokerage of an agreement by Goldtrail with
Onur to buy a specified number of seats on its flights. Rose J found that,
properly analysed, the payment of £3.64m represented consideration for
Goldtrail’s agreement to buy the seats; that, in breach of his fiduciary duty
to Goldtrail, Mr Aydin had diverted receipt of Onur’s payment away from
Goldtrail to his other company; that Onur had dishonestly assisted Mr Aydin in
thus defrauding Goldtrail; and that it should pay damages to it in that sum.
ONUR’S APPEAL
6.
In January 2015, following the grant on paper of permission to Onur to
appeal against the order of Rose J, Goldtrail applied for the imposition of
conditions. It was too late for it to apply under Rule 52.3(7)(b) (now Rule
52.6(2)(b)) of the Civil Procedure Rules for the actual permission to be made
subject to conditions. It therefore applied under Rule 52.9(1)(c) (now Rule
52.18(1)(c)) for the court to exercise its discretion to “impose … conditions
upon which an appeal may be brought”. Paragraph (2) of Rule 52.9 (now Rule
52.18(2)) provided that the court should exercise its powers under para (1)
only where there was a compelling reason for doing so.
7.
By its application, Goldtrail requested conditions that Onur should pay
or secure £600k under interim orders for costs made by Rose J; should provide
security for Goldtrail’s costs of the appeal in the sum of £150k; and in
particular should pay into court the sum of £3.64m which Rose J had awarded to
it by way of damages. In response Onur entered no substantive challenge to the
request for the first two conditions. The dispute related to the requested
payment into court of the judgment sum. Goldtrail relied on the agreed fact
that in October 2014, after 22 years of flying its aircraft to the UK, Onur had
ceased to do so; and Goldtrail submitted that, since Onur was likely to have no
other assets even temporarily in England and Wales, there was a compelling
reason for the judgment sum to be secured. Onur’s response was that its
decision to cease flights to the UK had been taken for operational reasons and
that there was no evidence that it had taken steps or would take steps to
obstruct enforcement of the judgment in the event of the dismissal of its
appeal. What at that time Onur did not allege was that the disputed
condition would stifle its appeal.
8.
By an order on paper dated 7 April 2015 Floyd LJ imposed the disputed
condition. Onur exercised its right to cause him to reconsider his decision at
the hearing which took place on 11 June 2015. Although in his judgment Floyd LJ
expressed a willingness to assume that there was a respectable commercial
explanation for the cessation of Onur’s flights to the UK, he maintained his
earlier conclusion that there was a compelling reason for imposing the
condition. Upon Onur’s continuation of the appeal, he therefore imposed the
condition that it should pay into court (or otherwise secure payment of) £3.64m
by 9 July 2015.
9.
On 14 July 2015, by then in breach of the condition, Onur applied for
variation of it so as to permit it to make the payment into court by seven
monthly instalments. On 27 July 2015 Floyd LJ on paper refused the application
but shortly before 21 October 2015, when pursuant to Onur’s request he was due
to reconsider it at a hearing, Onur changed its stance. Its new contention was
that the condition for payment of the judgment sum into court was a breach of
its rights under the European Convention on Human Rights and was unlawful and
that therefore the payment would not be made. So Floyd LJ dismissed the application
for variation and directed that Goldtrail’s oral request for the consequential
dismissal of Onur’s appeal be made by formal application.
10.
Thus it was that on 14 January 2016 Patten LJ heard not only the
anticipated application by Goldtrail for dismissal of the appeal but also a
cross-application by Onur dated 7 December 2015 for discharge of the condition
for payment into court of the judgment sum on the ground - asserted for the
first time - that its continuation in force would stifle the appeal.
11.
The relevant findings, observations and conclusions of Patten LJ in his
judgment dated 21 January 2016 were as follows:
(a)
Mr Bagana was extremely wealthy and had, for example, given evidence to
Rose J that £5m was not a significant outlay for himself personally.
(b)
He directly held 3.67% of the shares in Onur and held 81.19% of the
shares in a company which held a further 92% of the shares in Onur.
(c)
Between 2008 and 2011 Onur had paid substantial dividends to him, which
he had lent back to it, secured against its assets.
(d)
In 2013 he lent US $28m to Onur.
(e)
By 2014 his loan account with Onur had increased to $68m.
(f)
For some reason Onur had guaranteed debts owed to him by another
shareholder.
(g)
As Onur’s largest secured creditor, Mr Bagana was in a position to
decide which of Onur’s unsecured debts should be paid and at what time.
(h)
He had a more than usually close relationship with Onur and effectively
controlled its financial affairs.
(i)
According to Onur’s Chief Financial Officer, Mr Bagana had said that he
would contemplate making further loans to Onur only in exceptional
circumstances to enable it to make commercial payments necessary to keep it in
business.
(j)
With Mr Bagana’s support Onur was able to continue to trade.
(k)
Even had it been difficult for Onur to make the payment into court out
of cash generated from its trading activities, it could have done so with his
support.
(l)
Mr Bagana had “decided not to fund the payment by” Onur.
(m)
Were the court able to take his financial position into account in
assessing Onur’s ability to make the payment into court, its application to
discharge the condition could not succeed.
(n)
In exceptional circumstances the ability of a company to have access to
funds from a third party could be taken into account in assessing the
likelihood that it could make a payment into court.
(o)
To take it into account would not be the same as to oblige that third
party to comply with a condition imposed on a company.
(p)
In the light of all the above features the circumstances were
exceptional.
(q)
Onur had failed to establish that the condition for payment into court
would stifle its appeal.
(r)
So Onur’s cross-application failed and, in that it had resolved not to
satisfy the condition, its appeal should be dismissed.
PRINCIPLES
12.
To stifle an appeal is to prevent an appellant from bringing it or
continuing it. If an appellant has permission to bring an appeal, it is wrong
to impose a condition which has the effect of preventing him from bringing it
or continuing it. It is as if, on an application of summary judgment, the court
were to grant leave to the defendant to defend the claim and then to attach a
condition for payment which he could not satisfy. In the words of Lord Diplock
in M V Yorke Motors v Edwards [1982] 1 WLR 444 at 449B:
“… that would be a wrongful
exercise of discretion, because it would be tantamount to giving judgment for
the plaintiff notwithstanding the court’s opinion that there was an issue or
question in dispute which ought to be tried.”
Application of article 6 of the European Convention on
Human Rights (being an article which confers its rights on companies as well as
on human beings) yields the same conclusion. The article does not require a
member state to institute a court of appeal but, if it does so, it must ensure
that litigants in that court enjoy its fundamental guarantees: Delcourt v
Belgium (1970) 1 EHRR 355. There will seldom be a “fair hearing” within
article 6 if a court which has permitted a litigant to bring an appeal then, by
indirect means, does not permit him to bring it.
13.
There is a variety of situations in which a party submits that the
effect of granting or refusing an application would be to stifle his continued
participation in the proceedings. He may do so, for example,
(a)
as a claimant of a specified character, in response to an application by
a defendant for him to provide security for costs; or
(b)
as a defendant, in response to an application by the claimant for
summary judgment in which the latter contends, as a fall-back, that, were leave
to be given to defend the claim, it should be subject to a condition that the
sum claimed be paid into court; or
(c)
as a party who has without good reason failed to comply with an order,
in response to an application by the other for an order for him to make a payment
into court; or
(d)
as an appellant, in response to an application by the respondent (as in
the present case) that, as a condition of the appeal, he should provide
security for the costs of it; or
(e)
as a former defendant now an appellant, in support of his application
(as in the present case) that orders against him for payment of the judgment
debt or costs be stayed pending his appeal; or
(f)
as a former defendant now an appellant, in response to an application by
the respondent (as in the present case) that he should, as a condition of the
appeal, pay the judgment debt into court.
14.
There is a qualitative difference between imposing a condition which
requires a defendant/appellant to provide security for the future costs of the
claimant/respondent and one which requires him to pay into court the sum
awarded against him. The effect of the former is that, were his appeal to be
dismissed, the burden of expenditure to be incurred by the claimant/respondent
in resisting the appeal would not be borne by him. The effect of the latter is,
by contrast, even more beneficial for the claimant/respondent. It is that, in
the event (again) of the dismissal of the defendant’s appeal, the judgment sum
would be there, as it were upon a tray, for the claimant to sweep into his pocket
without his needing to undertake any attempt to enforce the court’s order for
payment of it. No doubt a court asked to impose a condition for the payment
into court of the sum awarded will have well in mind that extra advantage for
the claimant and corresponding disadvantage for the defendant. But a party’s
participation in proceedings can be as much stifled by an order for security
for costs as by an order for payment into court of the sum claimed or awarded.
So it is without further reference to that distinction that one may proceed to
address the circumstances in which an order can be said to stifle the
continuation by an appellant of an appeal.
15.
There is no doubt - indeed it is agreed - that, if the proposed
condition is otherwise appropriate, the objection that it would stifle the
continuation of the appeal represents a contention which needs to be
established by the appellant and indeed, although it is hypothetical, to be
established on the balance of probabilities: for the respondent to the appeal can
hardly be expected to establish matters relating to the reality of the
appellant’s financial situation of which he probably knows little.
16.
But, for all practical purposes, courts can proceed on the basis that,
were it to be established that it would probably stifle the appeal, the
condition should not be imposed.
17.
It is clear that, even when the appellant appears to have no realisable
assets of its own with which to satisfy it, a condition for payment will not
stifle its appeal if it can raise the required sum. As Brandon LJ said in the
Court of Appeal in the Yorke Motors case, cited with approval by Lord
Diplock at 449H:
“The fact that the man has no
capital of his own does not mean that he cannot raise any capital; he may have
friends, he may have business associates, he may have relatives, all of whom
can help him in his hour of need.”
18.
It seems that, in particular and as exemplified by the present case,
difficult issues have surrounded the ability of a corporate appellant, without
apparent assets of its own, to raise money from its controlling shareholder (or
some other person closely associated with it); and this is the context of what
follows. When, in response to the claim of a corporate appellant that a
condition would stifle its appeal, the respondent suggests that the appellant
can raise money from its controlling shareholder, the court needs to be
cautious. The shareholder’s distinct legal personality (which has always to be
respected save where he has sought to abuse the distinction: Prest v Prest [2013] UKSC 34, [2013] 2 AC 415, 487, para 34) must remain in the forefront of its
analysis. The question should never be: can the shareholder raise the money?
The question should always be: can the company raise the money?
19.
So one turns to the leading authority of the Court of Appeal in this
area, namely Hammond Suddard Solicitors v Agrichem International Holdings
Ltd [2001] EWCA Civ 2065, [2002] CP Rep 21, which Onur contends to be, in
part, erroneous in principle.
20.
In the Hammond Suddard case the respondent solicitors sued the
appellant company for unpaid fees and it counterclaimed for damages for
negligence. The claim succeeded and in effect the counterclaim failed. The
appellant obtained permission to appeal. It unsuccessfully sought a stay of
execution of the orders made by the judge on the basis that, were they to be
enforced, its appeal would be stifled. The respondents sought the imposition of
conditions upon the permission to appeal. They sought a condition for provision
of security for the costs of the appeal, which the appellant conceded to be
appropriate. But they also sought a condition of payment into court of the
judgment debt and of the sums awarded under interim orders for costs, to which,
analogously, the appellant objected that its consequence would be to stifle its
appeal. The appellant had been incorporated in the British Virgin Islands and
was owned by trustees on discretionary trusts for an unidentified but
apparently wealthy family. The appellant had, so it said, no assets. But could
it raise from its beneficial owners a sum equal to the judgment debt and costs
in order to enable it to make the payment into court? If so, there was “a
compelling reason” within the meaning of Rule 52.9(2) for imposing the
condition sought by the respondents.
21.
In the Hammond Suddard case the judgment of the court was
delivered by my Lord, Lord Clarke (Clarke LJ, as he then was), on behalf of
himself and Wall J (as he then was). Having observed, at (1) of para 41, that
it would be difficult for the respondents to exercise the normal mechanisms of
enforcement against the appellant and, at (2), that the appellant had had
access to resources which had enabled it to secure representation of the
highest quality in the proceedings to date, the court concluded, at (3):
“There is no convincing evidence
that the appellant does not either have the resources or have access to
resources which would enable it to pay the judgment debt and costs as ordered.”
No criticism has been directed at the above conclusion. It
was an impeccable summary of the court’s reason for acceding to the
respondents’ application.
22.
The court proceeded, at para 41(4), to find that the appellant’s
disclosure of its financial affairs had been inadequate. But then, at the end
of the subparagraph, it added an observation in relation to the appellant:
“It has wealthy owners and there
is no evidence that, if they were minded to do so, they could not pay the
judgment debt including the outstanding orders for costs.”
Indeed, in para 43, the court added a second observation
to the same effect:
“Thus we see nothing unjust in
providing the trust which owns the appellant with a choice. If it is in the
interests of the appellant for the appeal to continue, the trust must procure
payment of the current orders.”
I am driven to the view that Onur is right to criticise
the phraseology of the court’s two additional observations. Their intended
meaning may well have been, as Goldtrail suggests, that the appellant had
failed to establish that funds with which the company could make the payment
into court would not be made available to it by its beneficial owners. But,
strictly speaking, it was wrong for the court to express its reasoning in terms
of whether they could themselves make that payment.
23.
In Société Générale SA v Saad
Trading, Contracting and Financial Services Co [2012] EWCA Civ 695 the
Court of Appeal was required to determine applications by Société Générale SA
(“the bank”), which was the respondent to appeals which the two appellants had
been permitted to bring against orders made against each of them for payment to
the bank of US$49m. The first appellant (“Saad”) was a limited Saudi Arabian
partnership and the second appellant (“Mr Al-Sanea”) was a general partner of
Saad and owned 90% of its share capital. One of the bank’s applications was for
a condition to be imposed upon the continuation of each of the appeals that the
appellants should pay the award of US$49m into court; to which the appellants
each responded that any order for payment into court would stifle their
appeals. The court’s conclusion, explained in the judgment of Aikens LJ with
which Rimer LJ agreed, was that a condition, which it proceeded to impose, for
their joint and several payment into court of (only) $5m would not stifle their
appeals. In reaching this conclusion Aikens LJ punctiliously addressed the
factors identified by the court as relevant in the Hammond Suddard case.
Nothing turns on his analysis of why Mr Al-Sanea had failed to make good his
contention that his appeal would be stifled. In relation, however, to the
analogous contention of Saad, Aikens LJ addressed the additional observation
which that court had made in para 41(4). At paras 54 and 55 of his judgment
Aikens LJ said that
i)
the question was whether Saad had a wealthy owner who could not, if
minded to do so, make the payment into court on its behalf;
ii)
it was difficult to judge the legitimacy of imposing upon a company a
condition which would effectively require an owner to fund it;
iii)
but the court’s additional observation in the Hammond Suddard
case had been clear;
iv)
the answer had to be that such a condition should be imposed only in
exceptional circumstances; and
v)
the circumstances of the present case were exceptional.
Possibly ham-strung by the doctrine of precedent, the court
in the Société Générale case evidently considered it best to treat the
first additional observation in the Hammond Suddard case by consigning
it to that over-used store-room in the mansion of the law which is designated
as “exceptional circumstances”. Such a criterion is on any view dangerous
because it is not, on the face of it, linked to its context: see Norris v
Government of United States of America (No 2) [2010] UKSC 9, [2010] 2 AC 487, para 56. It sets a “snare … for it may lead to the wrongful downgrading of
the significance of circumstances just because they happen not to be
exceptional or to their wrongful upgrading just because they happen to be
exceptional”: H (H) v Deputy Prosecutor of the Italian Republic, Genoa
(Official Solicitor intervening) [2012] UKSC 25, [2013] 1 AC 338, para 161.
Having, however, an unconstrained ability to reject the phraseology of the
additional observations, we in this court have no need to approve the
superimposition upon the relevant criterion of a test of exceptional
circumstances which neither party before the court seeks to defend. In this
context the criterion is:
“Has the appellant company
established on the balance of probabilities that no such funds would be made
available to it, whether by its owner or by some other closely associated person,
as would enable it to satisfy the requested condition?”
24.
The criterion is simple. Its application is likely to be far from
simple. The considerable forensic disadvantage suffered by an appellant which
is required, as a condition of the appeal, to pay the judgment sum (or even
just part of it) into court is likely to lead the company to dispute its
imposition tooth and nail. The company may even have resolved that, were the
condition to be imposed, it would, even if able to satisfy it, prefer to breach
it and to suffer the dismissal of the appeal than to satisfy it and to continue
the appeal. In cases, therefore, in which the respondent to the appeal suggests
that the necessary funds would be made available to the company by, say, its
owner, the court can expect to receive an emphatic refutation of the suggestion
both by the company and, perhaps in particular, by the owner. The court should
therefore not take the refutation at face value. It should judge the probable
availability of the funds by reference to the underlying realities of the
company’s financial position; and by reference to all aspects of its
relationship with its owner, including, obviously, the extent to which he is
directing (and has directed) its affairs and is supporting (and has supported)
it in financial terms.
APPLICATION TO THE PRESENT CASE
25.
There has been lively argument before the court as to whether, in making
the orders under appeal, Patten LJ must be taken to have concluded, in
accordance with the correct criterion, that Onur had failed to establish that
Mr Bagana would not make £3.64m available to it in order to enable it to comply
with any order for its payment into court. There are grounds for thinking that
such a conclusion might have been open to him. Mr Bagana signed a
statement admitted by Rose J into evidence, in which, so Onur tells this court,
he admitted that he was responsible for its overall operation and made the
ultimate decisions referable to it; and Patten LJ made findings accordingly.
Moreover Mr Bagana’s massive recent loans to Onur to enable it to continue to
trade were on any view of substantial relevance to the probability of a
further, modest advance. Oddly no statement was filed on behalf of Onur by Mr
Bagana himself but the Chief Financial Officer’s evidence was that he would
contemplate making further advances only to enable Onur to make commercial
payments necessary in order to keep itself in business. This second-hand
assertion called for careful scrutiny. But, in circumstances in which Patten LJ
concluded that “it seems clear to me that Mr Bagana has decided not to fund the
payment by the company”, I am driven to the view that this court cannot proceed
on the basis that Onur’s application for discharge of the condition was refused
by reference to the correct criterion. Goldtrail submits with force that Patten
LJ meant to conclude only that, up until that point, Mr Bagana had declined to
fund the payment and that the evidence in support of any wider conclusion was
far too thin. It further submits that for Patten LJ to have found that Mr
Bagana had made a final decision never to fund it would be inconsistent with
his refusal of Onur’s application. Unfortunately, however, I cannot accept the
further submission. The key to the proper construction of his judgment is that,
following a lengthy quotation from the judgment of Aikens LJ in the Société
Générale case, Patten LJ concluded that the circumstances of the present
case were exceptional. In other words he was proceeding by reference to the
Court of Appeal’s misconception, born of the additional observations in the Hammond
Suddard case and developed in the Société Générale case, that in
exceptional circumstances an order for a party, without apparent assets of its
own, to make a payment into court could be justified by whether another person
probably could advance the necessary funds to it irrespective of whether
he probably would do so.
26.
So I would allow Onur’s appeal and remit both applications to Patten LJ
for him to determine Onur’s application for discharge of the condition by
reference to the correct criterion. I should record that Goldtrail put forward
to him an alternative argument against discharge; of course he had no need to
address it but he may now need to do so.
LORD CLARKE:
(dissenting)
27.
I have reached a different conclusion from that arrived at by Lord
Wilson. I am not persuaded that Patten LJ materially misstated the relevant
principles or arrived at the wrong conclusion. It is important to put his
decision in context. The issue throughout has been whether there was a
compelling reason for imposing a condition upon which an appeal may be brought
under what were then CPR 52.9(1)(c) and (2).
28.
Before the case came before Patten LJ it had a long history, largely
before Floyd LJ. As Lord Wilson explains, at no stage when the issues were
before Floyd LJ did Onur contend that payment of the judgment sum of £3.4m (or
the provision of security in lieu) would or might stifle the appeal. Instead it
advanced a whole series of mutually inconsistent explanations, in response to
which Floyd LJ made a series of orders and gave a number of judgments, notably
on 11 June, 27 July and 21 October 2015.
29.
Onur’s applications included an application for permission to pay the
judgment sum in monthly instalments of £500,000. Floyd LJ rejected that
application on the papers, giving clear reasons, on 27 July 2015. His reasons
included this passage, quoted in para 14 of his judgment given on 21 October
2015:
“There is no explanation of how
these sums will be funded.
… If [the appellants] are now
contending that the imposition of the order would stifle the appeal, the
evidence falls far short of showing that to be the case. It is well settled
that a party who wishes so to contend must show that he has explored all means
of providing the necessary security.”
Floyd LJ added that the appellants had a right to renew
the application orally and that he would consider any further evidence that
became available.
30.
Floyd LJ added in para 15 of his judgment on 21 October that he had hoped
to make it clear by that set of reasons that the appellants appeared to be what
he called shuffling around to a position where they were saying that the
payment of the sums of money placed unacceptable strains on their ability to
conduct business, so much so that it was an interference with their right to
appeal that the order should be enforced in its full amount. They did not
however take that step.
31.
In para 17 Floyd LJ said that on 19 October, which was two days earlier,
the appellants did not deal with the previous history but served a witness
statement with only one paragraph as follows:
“Board of Onur Air is of the
opinion that this decision, [which Floyd LJ assumed was a reference to his
order that the judgment sum be paid into court] is unlawful and against the
principles laid down by the European Court of Human Rights. Therefore, the
foresaid sum will not be paid.”
The striking feature of that statement is that Onur was
not even then saying that payment of £3.4m (or the provision of security in lieu)
would or might stifle the appeal. Reliance upon Onur’s human rights was a
wholly new point on the part of Onur.
32.
For various reasons which are not material to this appeal Floyd LJ said
in para 20 that the whole history of the appeal was very unsatisfactory but
that he was very reluctant to strike out an appeal for which permission has
been given without giving the appellants one final chance of explaining the
position. He added:
“If it is now their position that
they are so inhibited by the order for payment of the judgment sum that it is
stifling their ability to appeal, then they should say so. I appreciate that is
not something which they have so far said. They have had ample opportunity, it
might be said, to put forward every argument, but stifling of the appeal is one
matter which they have thus far declined to put forward. It may be that they
are embarrassed by what was apparently said to Rose J about the fact, as Mr
Gurbuz said in evidence, that the company was of such a size that £5m was not a
large sum of money. Whatever the reason for their silence, it seems to me that
they ought to come forward with their evidence now.”
In order to give Onur one last chance Floyd LJ directed
that any application for a final order on the appeal should be made on notice
to the appellants and that appropriate opportunity should be given to both
sides to file evidence in relation to it. He added that it may be that not much
further evidence was required from the respondents but that he was very anxious
that the appeal should not be disposed of without a proper application on
notice for the precise order which Goldtrail now sought.
33.
The matter then came before Patten LJ, who gave judgment on 21 January
2016. There were before Patten LJ an application on the part of Goldtrail for
an order dismissing the appeal and for orders for payment of the judgment sum
and interest. That would of course involve a removal of the stay. Onur opposed
those applications and issued a new application under CPR 3.1(7) for the
variation of the 11 June order by removal of the condition requiring payment
into court of the judgment sum. It did so, as Patten LJ put it in para 15, for
the first time on the ground that the payment of that sum was now beyond the
means of the company and its payment would stifle the appeal.
34.
Patten LJ considered first the application under CPR 3.1(7). I will do
the same. Patten LJ considered the position in some detail between paras 16 et
seq and concludes in para 21 that Onur’s Chief Financial Officer said in a
statement dated 8 January 2016 that there had been a net increase in current
liabilities of US$10m and that the net forecast for 2015 was between US$15 and
US$16.5 m, that Onur’s shortfall remained serious and that this was being
managed by postponing current debt.
35.
Patten LJ summarised the position thus in para 22:
“Ms Erguven says that Onur has
been unable to negotiate extended finance from banks and that existing lenders
have either frozen or closed existing facilities. In these circumstances, the
company has no means to pay the judgment debt. One would expect that, in these
circumstances, Onur would have been forced to cease trading but this is
obviously not the case and the evidence indicates that the airline continues to
operate in Europe and has entered into new contracts, for example, with
Bulgarian Air. An analysis of the financial information carried out by the
liquidators of Goldtrail and set out in the witness statement of Mr
Oakley-Smith recognises the difficulties faced by Onur’s business in the
present climate but identifies a continuing source of funding from Mr Hamit
Cankut Bagana who is the Chairman of Onur and its controlling shareholder.
According to Ms Erguven’s most recent witness statement, Mr Bagana has a direct
shareholding of 3.67% of Onur but owns 81.19% of a company called Ten Tour
Turizm Endustri ve Ticaret Anonim Sirket which in turn owns 92% of the shares
in Onur.”
36.
Patten LJ continued as follows:
“23. The analysis carried out
by Mr Oakley-Smith of the 2013 and 2014 accounts suggests that Mr Bagana is the
primary source of funding for the company. His evidence at the trial before
Rose J was that he paid £1m to Mr Aydin as part of the agreement with Onur. He
lent the company $28m in 2013. In the 2014 accounts this is shown as having
increased to $68m. As part of these arrangements, it appears that Onur has
given guarantees to Mr Bagana in respect of debts due to him from one of the
other shareholders although the reasons for this are not explained. Of more
significance is that in the period from 2008 to 2011 substantial dividends were
paid by Onur to Mr Bagana and then loaned back to the company and secured
against its assets in subsequent years. Mr Bagana therefore appears to have
removed equity from the company and to have used the money to establish himself
as a secured creditor. His position as the company’s largest single (and
secured) creditor has put him into the position where he can effectively decide
which of the unsecured debts should be paid and when. This is confirmed by Ms
Erguven in her second witness statement where she says that:
‘I can confirm that Mr Bagana is
fully aware of the position that Onur Air finds itself in in relation to the
payment of the Judgment Sum into court as a condition of the continuation of
the Appeal. He has made it clear that he would only contemplate considering the
possibility of advancing further amounts to Onur Air in the most exceptional
circumstances if they were commercial payments strictly and immediately
necessary in order to keep Onur Air in business due to the already significant
indebtedness of the company to him and the deteriorating financial condition of
the company. Mr Bagana has made it clear to the management of Onur Air that he
believes that if the court were to strike out the appeal on the grounds that
he, as a shareholder, had failed to lend money to Onur Air to enable it to pay
the Judgment Sum into court, that would be a breach of his and Onur Air’s
rights under the European Convention of Human Rights.’
24. The liquidator’s
evidence is that Mr Bagana is an extremely wealthy man who said to Rose J in
his evidence that he did not regard £5m as a significant outlay for himself
personally. Ms Erguven’s response to this is that she is unable to comment on
his alleged wealth and business activities.
25. Some of the argument has
centred on whether the financial information produced by Onur justifies its
alleged belief that it is unable to pay the £3.64m and that, to be made to do
so, would lead to the stifling of the appeal. Mr Gibbon cautioned me against
attempting to second guess the assessment of the financial state and prospects
of the company made by its own directors and officers and I am obviously alive to
those difficulties. But even taking Ms Erguven’s assessment at face value, it
is apparent that a decision has been taken that Onur is able to continue to
trade with the support of Mr Bagana and that it could, with that financial
support, have made the £3.64m payment even if it would have been in
difficulties in generating sufficient cash for that purpose from its trading
activities. It seems clear to me that Mr Bagana has decided not to fund the
payment by the company and if I can take his financial position into account in
assessing Onur’s ability to satisfy the condition either prior to 9 July 2015
or thereafter then the CPR 3.1 (7) application to vary cannot succeed. There is
no evidential basis for concluding that the condition could not have been
complied with or that, if complied with, it would stifle the appeal.
26. Mr Gibbon submitted that
it could only be in exceptional circumstances that the court would take into
account on this kind of application the financial position of a third party
such as Mr Bagana. To do so risks blurring the distinction between a company
and its shareholders or other funders which the law habitually respects. But it
is clear as a matter of authority that the ability of third parties to fund the
company may be relevant in appropriate cases and that there is no
jurisdictional bar to the court taking their position into account in
determining whether an allegation of stifling has been made out. There is, I
think, an obvious distinction between whether such a third party can be said to
be under any sort of obligation as a result of an order made against the company
and whether, in considering the likelihood of the company being able to make a
potential payment, its access to third party funding should be taken into
account.”
37.
Patten LJ then referred to Société Générale SA v Saad Trading,
Contracting and Financial Services Co [2011] EWCA Civ 695 and to a decision
of the Court of Appeal in Hammond Suddard Solicitors v Agrichem
International Holdings Ltd [2001] EWCA Civ 2065; [2002] CP Rep 21, where I
gave the judgment of the court, which comprised myself and Wall J.
38.
In the light of the submissions in this case, I recognise that my
formulation of the principles is not entirely accurate. The basic principle is
that stated by Brandon LJ with the approval of Lord Diplock in M V Yorke
Motors v Edwards [1982] 1 WLR 444 at 449H (as quoted by Lord Wilson):
“The fact that the man has no
capital of his own does not mean that he cannot raise any capital; he may have
friends, he may have business associates, he may have relatives, all of whom
can help him in his hour of need.”
The cases show that in a case such as this the burden is on
the person (or entity concerned) to show that he cannot find relevant capital
to support him.
39.
In Hammond Suddard I tried to make that clear in para 41(3)
quoted by Lord Wilson in his para 21:
“There is no convincing evidence
that the appellant does not either have the resources or have access to
resources which would enable it to pay the judgment debt and costs as ordered.”
I adhere to that principle. So the question here is
whether Onur either has the resources or access to resources to pay the sum of
£3.64m.
40.
The statements of principle which I recognise went too far are those
referred to in my paras 41(4) and 43 as identified by Lord Wilson in his para
22 above. In para 41(4) I added, of the appellant:
“It has wealthy owners and there
is no evidence that, if they were minded to do so, they could not pay the
judgment debt, including the outstanding orders for costs.”
In similar vein I said this in para 43:
“Thus we see nothing unjust in
providing the trust which owns the appellant with a choice. If it is in the
interests of the appellant for the appeal to continue, the trust must procure
the payment of the current orders.”
41.
I am also of the view that, in so far as the Court of Appeal went
further in Sociėtė Gėnėrale SA v Saad Trading,
Contracting and Financial Services Co [2012] EWCA Civ 695, it went too far.
42.
In short, where the relevant company does not have appropriate resources
of its own and the question is whether it has access to the resources of others,
the question is whether the company would (not could) have had access to the
resources. The onus that it would not is on the company concerned.
43.
On the facts of this case, the question is whether Onur has shown on the
balance of probabilities that it did not have access to the relevant resources.
On the basis that the only resources available to Onur were through Mr Bagana,
the question is whether, on the balance of probabilities he would have provided
the funds.
44.
As I see it, the strength of Goldtrail’s case is this. Onur at no stage
focused on this precise point. As Lord Carnwath puts it in para 48, there was
no direct evidence from Mr Bagana on the point. In short, he does not address
the question whether he would have declined to provide funds to Onur. Again, as
Lord Carnwath puts it, the only relevant evidence on the point was that of
Onur’s Chief Financial Officer that Mr Bagana would contemplate making further
loans to Onur but only “in … exceptional circumstances [to enable it to make]
commercial payments … necessary … to keep [it] in business”. I agree with Lord
Carnwath that the evidence falls far short of establishing that the condition
would in fact stifle the appeal. I would only add that there has been no
suggestion until very recently that the condition would stifle the appeal and
that the new aspect of Onur’s case is not so much that the appeal would be
stifled as reliance on its human rights, which is not explained and is
far-fetched in the extreme.
45.
I would dismiss the appeal.
LORD CARNWATH:
(dissenting)
46.
I gratefully adopt Lord Wilson’s exposition of the facts and of the law,
which was in effect common ground by the end of the hearing. Although Patten LJ
(faithfully applying the authorities binding on him) may have misstated the law
in some respects, I agree with Lord Clarke that these were not ultimately
material to his determination.
47.
In any event, where an error such as this may have occurred,
particularly one resulting from previous case law binding on the lower courts,
the interests of justice require us in my view to avoid adding unnecessarily to
the delay and expense borne by the parties. Our rules do not require us to
remit the case to the lower court if we are in as good a position to decide it
ourselves. This in my view is such a case. All the evidence is before us. I
strongly agree with Lord Wilson that the court should not take even an “emphatic
refutation” by the company or the owner at face value. As he says: “it should
judge the probable availability of the funds by reference to the underlying
realities of the company’s financial position; and by reference to all aspects
of its relationship with its owner”. Applying that approach to the present
case, particularly against the background described by Lord Clarke, I have no
doubt that Patten LJ would have arrived at the same conclusion, and I would do
the same.
48.
There was no direct evidence from Mr Bagana himself. Although Patten LJ
accepted that he had “decided not to fund the payment by” Onur, I take that to
be no more than his inference from its opposition to the order. There is no
direct evidence of such a decision. The only relevant evidence was that of
Onur’s Chief Financial Officer that Mr Bagana would contemplate making further
loans to Onur, but only “in … exceptional circumstances [to enable it to make]
commercial payments … necessary … to keep [it] in business”, and that he
regarded the court’s requirement of such support as infringing his human
rights. The latter suggestion is of course nonsense, since there is no doubt as
to his ability to fund the company if he wishes. As to why he does not regard
the present case as sufficiently “exceptional”, there is no explanation. This
in my view falls far short of proving, on the balance of probabilities, that
the condition would in fact stifle the appeal. Lord Wilson does not suggest
otherwise.
49.
In these circumstances, no other reason having been given for remitting
the case, I would uphold Patten LJ’s order and dismiss the appeal.
