The Court of Appeal applied a new legal test for considering whether an appeal had been stifled by a condition to make a payment into court. The appellant could not make the payment itself so the question was whether the appellant’s controlling shareholder would (not could) have made the payment on the appellant’s behalf: Onur Air Tasimacilik AS v Goldtrail Travel Ltd (in liquidation) [2017] EWCA Civ 1830

We first covered this case in 2015 when the court granted Onur Air Tasimacilik AS (Onur Air) a conditional appeal against a judgment for Goldtrail Travel Ltd (Goldtrail). The condition imposed was that Onur Air should pay the judgment sum of GBP 3.64 million into court.1

Controlling shareholder with funds

Onur Air appealed the payment condition on the basis that it could not pay and that its appeal had been stifled. The Court of Appeal refused to remove the payment condition due to the close financial relationship between the airline and its “extremely wealthy” controlling shareholder who – the court said – could have provided the necessary funds.

Onur Air appealed to the Supreme Court, which agreed that, even if an appellant had no assets, a payment condition would not necessarily stifle its appeal if it could raise the money from a third- party, such as a controlling shareholder.

Proper test – would (not could) the shareholder pay?

The Supreme Court found that the Court of Appeal had applied the wrong test when determining whether the payment condition had stifled the appeal. The test was not whether the controlling shareholder could have provided the necessary funds, but whether on the balance of probabilities he would have.

Let’s consider the shareholder again

The Supreme Court remitted the case to the Court of Appeal to apply the proper test. There was no suggestion that the controlling shareholder could not have provided the necessary funds. The only question for Patten LJ to consider was whether Onur Air's controlling shareholder would have made the payment into court.

Patten LJ found that the reasons given by Onur Air as to why the controlling shareholder would have refused to make the payment were “not tenable”. He had made a substantial investment in Onur Air and it was unrealistic to suppose that he would put the investment at risk by refusing to pay a sum which he was, on the evidence, easily able to pay.

Onur Air suggested that the controlling shareholder would only provide funds which were commercial payments necessary to keep the company in business. Onur Air had also given evidence that it required “continuous funding” by the controlling shareholder. Patten LJ found that the payment of the judgment sum into court fell into the same category of “continuous funding”.

Further, Onur Air had not alleged that its appeal was being stifled until the last minute when it was threatened with an order dismissing the appeal. Patten LJ took a dim view of this approach, agreeing with Goldtrail’s counsel that this was a form of “delay brinkmanship”.

The Court of Appeal concluded that Onur Air had failed to discharge its burden of satisfying the court that, on the balance of probabilities, funds would not have been made available to it by the controlling shareholder to meet the payment condition.

Comment

The English courts are generally slow to draw a major or controlling shareholder into litigation where that shareholder is not the real party to the dispute. However, where a shareholder is effectively the main party and is simply hiding behind a company name, the court may look through the company and make an order against the shareholder directly (for example, a third-party costs order).

The Supreme Court’s test reflects that approach. When assessing whether a payment condition stifles an appeal, the court will not find that a company could make the payment just because a controlling shareholder could and might cover it. The court must ask whether the controlling shareholder actually would do.

This case provides a useful example of how the courts are likely to apply the test. Where it is alleged that an associated party will make a payment into court, the necessary starting point is to determine whether the associated party can afford to pay (if not, whether they would pay is a redundant question). The second step is to assess, on the balance of probabilities, whether the associated party would make the payment.

Appellants have a significant evidential burden to overcome to establish that, on the balance of probabilities, an associated party would not make a payment. This case highlights the importance of submitting evidence from the person whom it is alleged could and would provide the necessary funds. The absence of any evidence from the controlling shareholder was described as “odd” by the Supreme Court earlier this year, and it was remarked on again in this judgment.

Onur Air had also put in what the court deemed to be contradictory evidence, simultaneously alleging that the controlling shareholder would only make payments needed to keep the company in business, and also that he was providing continuous funding. This is a reminder that parties should test their evidence to ensure it is robust and consistent.

It is worth noting that Onur Air spent over two years appealing the payment condition, keeping its case alive without ever making the payment. If this was “delay brinkmanship” as suggested by Goldtrail, it was effective. The Supreme Court has now clarified the legal test, which should prevent further lengthy appeals in this area. Patten LJ was also clear that delays in alleging that an appeal has been stifled can be taken into account. Whether this will prevent delay brinkmanship in the future remains to be seen.