Goldtrail Travel Ltd v Aydin & Ors

A company director’s sole ownership of the shares does not authorise him to misapply company property, particularly where the company is insolvent or creditors’ interests are engaged. Payments forming part of an apparently ordinary commercial transaction may constitute misapplication when their true purpose is to benefit the director personally. A director also breaches Companies Act 2006, section 175, by diverting to himself an opportunity for the company to receive consideration for a long-term commercial commitment. Dishonest assistance may arise in relation to breaches of fiduciary duty without trust property. Equitable compensation for such assistance is not reduced by sums that the company was allowed to withhold in unrelated or improperly structured transactions.

Goldtrail Travel Ltd, a tour operator in liquidation, claimed against its former sole director, Abdul Aydin, and airlines and associated individuals involved in two transactions concerning the proposed sale of shares in Goldtrail and the supply of flight seats.

Goldtrail alleged that Mr Aydin misapplied company money by arranging payments to Viking Airlines and Onur Air, which then paid him through Morning Light Ltd. It also alleged that he diverted to himself opportunities for Goldtrail to receive consideration for long-term seat-purchase commitments, contrary to Companies Act 2006, section 175. The other defendants were alleged to have dishonestly assisted those breaches.

The principal issues were whether the payments were genuine commercial deposits or advances, whether the seat commitments existed, whether the defendants’ conduct amounted to dishonest assistance, and the proper measure of equitable compensation.

1. Mr Aydin misapplied Goldtrail’s money by causing it to pay £750,000 described as deposits under the Viking and FOAL seat-sale agreements. The court examined the transactions as part of the wider deal and found that the parties never intended the deposits to be repaid. The payments were therefore a mechanism for funding the consideration payable to Mr Aydin.

2. The Extra Viking £500,000 and the 20 May Onur Air payment were also misapplications. Goldtrail had no legal obligation to make those payments. They were made to accelerate payments to Mr Aydin and exposed Goldtrail to the risk of irrecoverable loss without conferring a benefit on it.

3. The Viking five-year seat commitment and the Onur Air four-year seat commitment were genuine. Mr Aydin diverted to himself the opportunity for Goldtrail to receive consideration for those commitments. That conduct breached Companies Act 2006, section 175.

4. Mr Aydin could not approve or ratify his own wrongdoing as sole shareholder. Goldtrail was insolvent or of doubtful solvency, so creditors’ interests were engaged. Further, section 239 required the interested director’s votes to be disregarded, and section 175 could not be authorised by a sole director under its statutory requirements.

5. The court followed Bilta (UK) Ltd v Nazir (No 2) in holding that the company was the victim of the director’s breach for the purpose of claims against the director and dishonest assistants. The fraud was not attributed to Goldtrail so as to defeat the claim by ex turpi causa.

6. Dishonest assistance was available for breach of fiduciary duty even where no trust property was involved. Viking and Onur Air assisted by entering sham brokerage agreements, receiving Goldtrail’s money and paying it to Mr Aydin, and participating in the diversion of the seat-commitment opportunities. The assistance was dishonest under the combined standard applied in Twinsectra Ltd v Yardley and Royal Brunei Airlines Sdn Bhd v Tan.

7. The defendants could not set off sums owed by Goldtrail for flight seats against the compensation payable for the misapplications. Applying Manson v Smith, the payments were not mutual dealings for insolvency set-off purposes, and liability arose only upon judgment.

8. The claim succeeded. The Black Pearl Defendants were jointly and severally liable for £1,125,000, alternatively £1,400,000. Onur Air was liable for £2,650,000, alternatively £3,640,000. The alternatives reflected compensation for misapplication and compensation for the section 175 breach.

First-instance judgment in the High Court (Chancery Division). No earlier appellate decision is stated in the judgment.