1. Mahan Air and Another v 1. Blue Sky One Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Stanley Burnton,Lord Justice Gross |
| Judgment Date | 11 May 2011 |
| Neutral Citation | [2011] EWCA Civ 544 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Cases Nos: A3/2010/1075 (A), (D), (E), (F), (G), A3/2010/0075 (A), (D), (C); A3/2010/1230; A3/2010/0964 |
| Date | 11 May 2011 |
[2011] EWCA Civ 544
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE BEATSON
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Stanley Burnton
and
Lord Justice Gross
Cases Nos: A3/2010/1075 (A), (D), (E), (F), (G), A3/2010/0075 (A), (D), (C); A3/2010/1230; A3/2010/0964
and
and
Hodge Malek QC and John Kimbell (instructed by Piper Smith Watton LLP) for Mahan Air, Blue Sky Aviation Co. FZE
Philip Shepherd QC and Bajul Shah (instructed by Norton Rose LLP) for Balli Group Plc, Blue Sky One Ltd, Blue Sky Two Ltd, Blue Sky Three Ltd, Blue Skey Four Ltd, Blue Sky Five Ltd, Blue Sky Six Ltd and Crypton Ltd
Stephen Moriarty QC and John Passmore (instructed by Clifford Chance LLP) for PK Air Finance US Inc.
Hearing date: 31 January 2011
Approved Judgment
Introduction
In this judgment I refer to the parties as follows:
(1) Balli Group Plc as "Balli".
(2) Blue Sky One Ltd, Blue Sky Two Ltd, Blue Sky Three Ltd as "the SPV companies".
(3) Blue Sky Aviation Co. FZE as "FZE".
(4) Balli Group Plc, the SPV companies, Blue Sky Four Ltd, Blue Sky Five Ltd and Blue Sky Six Ltd as "the Balli Parties".
(5) PK Airfinance US Inc as "PK".
(6) Mahan Air as "Mahan".
(7) Mahan and FZE, which is owned by Mahan, as "the Mahan Parties".
On 31 January 2011 we had before us a number of applications resulting from the orders made by Beatson J following two trials of the claims between the parties to these proceedings. The applications included renewed and original applications for permission to appeal, and interlocutory applications made in connection with pending appeals. Because the Mahan Parties had, in our view, insufficient time to respond to relatively late evidence, we gave directions for them to submit any further evidence and submissions in writing, and for responses to them, and reserved our judgment on applications by PK and the Balli Parties for security for costs of the appeals and for conditions to be imposed on the Mahan Parties' appeals, pursuant to CPR 52.9(1). The outstanding applications that are the subject of this judgment are concerned with the Mahan Parties' means and their ability or willingness to satisfy the judgments against them.
The background
Mahan is an Iranian airline. According to the witness statement of Reza Namakshenas dated 20 February 2011, the deputy managing director — finance of Mahan, 60 per cent of the shares in the company are held by Mahan Group Aviation Services Holding Company ("MAGASH"), on trust for Mow-lal-Movahhedin Charity Institute ("the Institute"), an Iranian entity; the remaining 40 per cent are held directly by the Institute.
The principals of Balli are Iranian expatriates. In 2006 Mahan and Balli entered into a connected and complex series of transactions (comprising 18 written agreements) the object of which was for Mahan to be able to have the use of 3 Boeing 747–400 aircraft that were to be acquired. For this purpose, they had to circumvent US sanctions. It is unnecessary in this judgment to describe the contracts in detail. In summary, Mahan borrowed the capital cost, and on-lent it to Balli, which was then able to and did cause each of the aircraft to be acquired by one of the SPV companies, which are ultimately controlled by Balli. The Balli Parties then leased the aircraft to an Armenian company, Blue Airways LLC ("BAW"), which chartered them to Mahan. Mahan was granted an option to acquire the shares of the SPV companies, subject to certain conditions, including a condition precluding its exercise if it would violate applicable laws or administrative proceedings. None of these aircraft was then registered in Iran, although all three in due course were, based there. These three aircraft, which were operated by BAW for Mahan from Iran, are referred to as "the Package 1 aircraft". Two of those aircraft, referred to as aircraft 2 and 3, were mortgaged by the Balli Parties to PK, which was unaware of the transaction between Balli and Mahan, with the agreement of Mahan (as found by the judge) as security for a loan to be made to the Balli Parties of US$150 million to enable Balli to purchase 3 Package 2 aircraft. Mahan and FZE paid some US$57.8 million to the Balli Parties, which according to paragraph 291 of the Phase One judgment related to the purchase of those aircraft; but that purchase never took place.
In September 2007, Hassan Alaghband, then a director of the claimant SPV companies, signed three blank bills of sale, one for each aircraft. The bills of sale were given to Mr Tahmaseb Mazaheri, at that time Governor of the Central Bank of Iran, for safekeeping pursuant to the terms of an agreement dated 31 August 2007 (the "SLA"). Subsequently Mr Mazaheri handed the bills of sale to Mahan which filled in the blanks and purported to transfer title in the aircraft to FZE. The aircraft, which had been registered in Armenia, were deregistered from the Armenian aviation registry and registered by Mahan on the Iranian register.
The network of contracts did not involve any illegality under English or UK law. However, it fell apart when the US Government discovered that its sanctions had been breached, and took action to enforce them. Hence the disputes between the parties and their rival claims. In essence, because under the network of contracts Mahan was not to acquire ownership (presumably because to do so would cause difficulties under US sanctions), as Beatson J ultimately held, it found itself with no legal right to possession of the Package 1 aircraft.
The first trial, referred to as Phase 1, culminated in the judgment handed down by Beatson J on 21 December 2009. The principal issue before him was whether, as the Mahan Parties claimed, the leases to BAW were shams, intended to disguise their acquisition and beneficial ownership of the aircraft. The judge rejected this claim, and held that the various contracts were intended to be and were binding in accordance with their terms.
The judge held that Mr Mazaheri's execution of the bills of sale had not been effective to transfer title to FZE. He held that the SPV companies owned the Package 1 aircraft beneficially, subject to the PK mortgages; that the option agreement had been discharged; and that Mahan and FZE, which remained in possession of the aircraft, had wrongfully interfered with them, for which the appropriate remedy was an order under section 3(2)(b) of the Torts (Interference with Goods) Act 1977 for delivery up of the aircraft, but with the Mahan Parties having the option of paying damages by reference to their value. He also ordered the Mahan Parties to deliver up the bills of sale to the SPV companies.
The judge ordered the Mahan Parties to pay the costs of the Balli Parties, on some issues on an indemnity basis, with an interim payment of £750,000 to be made by 18 January 2010; and he ordered the Mahan Parties to pay the costs of PK.
Questions of quantum, including the issue as to the value of the aircraft, were left to the Phase 2 trial. The Mahan Parties were held to be entitled to recover the sum of US$57.8 million, subject to any set off available to the Balli Parties, such set off to be determined in the Phase 2 trial.
Beatson J ordered the Mahan Parties to ground the Package 1 aircraft numbered 1 and 3 in Schiphol Airport, to protect the interests of the Balli Parties and PK, from 31 December 2009. On 30 December 2009, the Mahan Parties applied to discharge the grounding order. Hickinbottom J adjourned their application to be heard by Beatson J and in the meantime extended the Mahan Parties' time for compliance to 18 January. On 12 January 2010 Beatson J heard the application. It was refused. At that time, Mahan's position was that it would in due course pay the value of the aircraft as determined in the Phase 2 trial: see paragraph 7 of Beatson J's judgment [2010] EWHC 33 (QB).
The Mahan Parties failed to fly the aircraft to Schiphol by 18 January 2010, and they failed to deliver up the bills of sale. In consequence, contempt proceedings were brought by the Balli Parties, supported by PK. The Mahan Parties' evidence was that the aircraft had been in the air over Turkey en route to Schiphol on 20 January when they were ordered to return to Iran by the Iranian Civil Aviation Authority. Beatson J held that the Mahan Parties were in contempt of court, having failed to take proper and timely steps to comply with the court's order.
The Phase 2 trial culminated in a judgment handed down on 25 March 2010. Beatson J made the following principal orders:
(1) He declared that the mortgage of aircraft 2 to PK was valid.
(2) He ordered the Mahan Parties to deliver up aircraft 1 to Blue Sky One by 22 April 2010; if they failed to do so (and they have not done so), they were ordered to pay to Blue Sky One about $35.5 million plus interest, plus user damages of US$795,000 per month from October 2008.
(3) He ordered the...
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