[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 Respondent
Michael Gibbon QC Robert Miles QC
Ms Hannah Ilett Hilary Stonefrost
(Instructed by Druces
LLP
)
(Instructed by Fieldfisher
LLP
)
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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.
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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.
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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
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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
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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
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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
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(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.”
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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):
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“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 AlSanea”) 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,
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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,
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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 secondhand 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
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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.
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… 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,
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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
Page 16
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
Page 17
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
Page 18
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.
Page 19
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
Page 20
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.
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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.