Goldtrail Travel Ltd v Onur Air Tasimacilik AS [2017] UKSC 57

Goldtrail obtained judgment against Onur Air for £3.64m. Onur appealed but was ordered to pay the sum into court as a condition. Onur claimed this stifled its appeal. The Supreme Court clarified the test for assessing whether a third party's funds can be considered when determining stifling.

Facts

Goldtrail Travel Ltd, a UK holiday tour company in liquidation, obtained judgment against Onur Air Taşimacilik AŞ, a Turkish airline largely owned by Mr Bagana, in the sum of £3.64m plus interest before Rose J on 22 May 2014. The claim arose out of Onur’s dishonest assistance in Mr Aydin’s breach of fiduciary duty, by which a payment of £3.64m, which properly represented consideration for Goldtrail’s agreement to buy airline seats, was diverted to another company owned by Mr Aydin.

Floyd LJ granted Onur permission to appeal and subsequently imposed a condition under CPR 52.9(1)(c) (now 52.18(1)(c)) that Onur pay £3.64m into court (or provide other security) by 9 July 2015. Onur failed to comply. Following various unsuccessful applications by Onur, including one to pay by instalments and a contention that the order breached its ECHR rights, the matter came before Patten LJ on Goldtrail’s application to dismiss the appeal and Onur’s cross-application to discharge the condition on the basis that it would stifle the appeal.

Patten LJ found that Mr Bagana was extremely wealthy, was Onur’s largest secured creditor having lent substantial sums, controlled its financial affairs, and that Onur could have made the payment with his support. He concluded the circumstances were “exceptional”, dismissed the cross-application and dismissed the appeal.

Issues

The principal issue was the correct principles by which the Court of Appeal should appraise a respondent’s contention that an appellant’s financial relationship with a wealthy third party (such as a controlling shareholder) defeats a complaint that a condition for payment into court would stifle the appeal. A subsidiary issue was whether Patten LJ correctly applied those principles.

Arguments

Onur argued that the condition would stifle its appeal because it lacked the resources to comply, and contended that the Court of Appeal authorities (notably Hammond Suddard Solicitors v Agrichem International Holdings Ltd and Société Générale SA v Saad Trading) were erroneous insofar as they focused on whether a wealthy owner could pay, rather than whether the company itself could raise funds. It maintained Mr Bagana had decided not to fund the payment.

Goldtrail argued there was a compelling reason for the condition, relying on Onur’s cessation of UK flights and the absence of assets in the jurisdiction, and on the close financial relationship between Onur and Mr Bagana, who had repeatedly funded the company.

Judgment

The Supreme Court (Lord Wilson, with whom Lord Neuberger and Lord Hodge agreed; Lord Clarke and Lord Carnwath dissenting) allowed the appeal and remitted the applications to Patten LJ.

Principles

Lord Wilson confirmed that imposing a condition which prevents an appellant with permission to appeal from bringing or continuing it is wrong, citing Lord Diplock in MV Yorke Motors v Edwards:

… 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.

Article 6 ECHR yields the same conclusion. The appellant bears the burden of establishing stifling on the balance of probabilities. Even where the appellant has no realisable assets of its own, the condition will not stifle the appeal if the appellant can raise the required sum, including from friends, business associates or relatives (per Brandon LJ in Yorke Motors):

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 correct test

Where a corporate appellant claims a condition would stifle, and the respondent suggests funds may be raised from a controlling shareholder, the shareholder’s distinct legal personality must be respected. The question is never whether the shareholder can raise the money, but whether the company can. Lord Wilson criticised the additional observations in Hammond Suddard (paras 41(4) and 43) for being expressed in terms of whether the owners themselves could pay. He also rejected the gloss in Société Générale requiring “exceptional circumstances”, noting such a criterion is unhelpful. The correct 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?

The court should not accept emphatic refutations at face value but must judge the probable availability of funds by reference to the underlying realities of the company’s financial position and all aspects of its relationship with its owner.

Application

Lord Wilson was driven to the view that Patten LJ had proceeded by reference to the Court of Appeal’s misconception that, in exceptional circumstances, the test was whether the third party could advance funds rather than whether they probably would. The matter was therefore remitted for redetermination on the correct criterion.

Dissents

Lord Clarke acknowledged his own formulation in Hammond Suddard had gone too far but considered that Patten LJ’s misstatements were not material; the evidence (particularly the absence of direct evidence from Mr Bagana and the second-hand assertion via the Chief Financial Officer) fell far short of establishing stifling. Lord Carnwath agreed, considering the Supreme Court was in as good a position to decide the matter and that Patten LJ would have reached the same conclusion applying the correct test.

Implications

The decision clarifies the test for stifling where a corporate appellant’s relationship with a wealthy shareholder or closely associated person is relied upon by the respondent. The relevant question is whether the company has shown, on the balance of probabilities, that no funds would be made available to it. This reformulation respects the separate legal personality of the shareholder while permitting a realistic enquiry into the probable availability of funding.

The judgment disapproves the gloss of “exceptional circumstances” introduced in Société Générale, observing that such a criterion is dangerous because it risks distorting analysis. Courts must scrutinise emphatic denials from companies and their owners by reference to underlying financial realities and the history of financial support.

The decision is of practical significance to litigants and practitioners dealing with applications for security or payment into court as a condition of appeal, particularly involving corporate appellants supported by wealthy individuals. It demonstrates that the courts will not be deflected by formal denials where the financial relationship suggests funding probably would be made available, but equally that the analysis must focus on the company’s access to funds, not on whether the owner has the capacity to pay.

Verdict: Appeal allowed. The Supreme Court (by a majority of Lord Neuberger, Lord Wilson and Lord Hodge; Lord Clarke and Lord Carnwath dissenting) allowed Onur’s appeal and remitted both applications to Patten LJ for determination of Onur’s application to discharge the condition by reference to the correct criterion, namely whether Onur had established on the balance of probabilities that no funds would be made available to it by Mr Bagana or any other closely associated person to enable it to satisfy the condition.

Source: Goldtrail Travel Ltd v Onur Air Tasimacilik AS [2017] UKSC 57