Goldtrail Travel Ltd v Aydin & Ors

The Court of Appeal upheld most of the judge's factual findings that a complex package of documents and payments constituted a contrived scheme by which the sole director, Mr Aydin, diverted value from Goldtrail to a Seychelles vehicle (MLL) and that the appellants dishonestly assisted him. The court endorsed the judge's application of the law of dishonest assistance and of section 175 of the Companies Act 2006 (duty to avoid conflicts of interest), finding that a genuine five year seat‑purchase commitment existed and that the £1.4m paid under the Viking brokerage agreement represented consideration for that opportunity which was diverted from Goldtrail.

The court also upheld the judge's conclusion that deposits and an extra £500,000 paid by Goldtrail were used to fund payments to MLL and so constituted misapplications of company money, but allowed the appeal in respect of the extra £500,000 because Goldtrail had recouped that sum before insolvency so suffered no ultimate loss. Relief awarded comprised equitable compensation of £1,400,000 for dishonest assistance in relation to the section 175 breach and, as adjusted on appeal, £750,000 for dishonest assistance in the misapplication claim.

Background and parties. Goldtrail Travel Limited, a tour operator, went into administration and liquidation after transactions in early 2010 in which its sole director and shareholder, Mr Abdulkadir Aydin, purported to sell 50% of his shares to Black Pearl Investments Ltd and to Onur Air and to procure a separate five year seat‑purchase commitment between Goldtrail and Viking Airlines. The liquidators sued for equitable compensation alleging that Mr Aydin had misapplied company funds and had diverted an opportunity in breach of his fiduciary duties, with the defendants dishonestly assisting.

Nature of the claims and procedural posture. The liquidators sought equitable compensation for (i) dishonest assistance in relation to a breach of section 175 Companies Act 2006 (the diversion of a five year Viking seat commitment for which £1.4m was paid to MLL) and (ii) dishonest assistance in relation to the misapplication of Goldtrail funds (deposits and an extra £500,000 totalling £1.25m). The case was tried before Mrs Justice Rose in the Chancery Division (HC12D02320). The defendants appealed to the Court of Appeal; Onur Air's separate appeal had been dismissed earlier for procedural reasons.

Issues for decision.

• Whether the five year Viking seat commitment was a genuine opportunity belonging to Goldtrail and, if so, whether it was diverted by Mr Aydin in breach of section 175.
• Whether the appellants dishonestly assisted Mr Aydin in (a) diverting that opportunity and (b) in the misapplication of Goldtrail's money (the deposits and the extra £500,000).
• What equitable compensation, if any, should be awarded and whether any sums recouped by Goldtrail before insolvency should reduce the award.

Court of Appeal reasoning and disposition. The appellate court affirmed the judge's adverse credibility findings as to the individual appellants and her factual determinations that the parties had stitched together sham and genuine elements but that the core five year commitment was real and had been paid for by Viking to MLL. The court accepted that the appellants had assisted in and were aware of the diversion and were dishonest assisters. On remedies the court accepted the judge's approach to measuring equitable compensation for the section 175 breach at £1.4m, but allowed the appeal to the extent that the judge should not have ordered compensation for the extra Viking £500,000 because Goldtrail had already recovered that sum before insolvency; consequently the misapplication award was reduced to £750,000. The appeal was dismissed except for that adjustment.

Wider comments. The court emphasised the role of contemporaneous documents and credibility findings in resolving complex commercial arrangements that were dressed to appear legitimate but in substance facilitated diversion of company property and tax evasion.

Appeal allowed in part and dismissed in part. The Court of Appeal upheld the trial judge’s principal factual findings and conclusions that the appellants dishonestly assisted Mr Aydin in diverting a valuable five year Viking seat commitment (breach of section 175) and in misapplying Goldtrail funds, but allowed the appeal on one remedial point: equitable compensation was reduced in respect of the extra Viking £500,000 because Goldtrail had recouped that sum before insolvency. Rationale: the judge’s credibility findings and analysis of contemporaneous documents were endorsed; appellants’ knowledge and dishonest assistance satisfied the tests for accessory liability, but a sum recouped pre‑insolvency did not constitute loss requiring compensation.

Appeal from High Court of Justice, Chancery Division (Rose J), Case No HC12D02320. Appeal heard in the Court of Appeal (Civil Division), A3/2014/2475, reported at [2016] EWCA Civ 371. (A related appeal by Onur Air had been dismissed by Patten LJ on 16 January 2016 for procedural reasons.)