Author: Nicola Sharp
17 July 2023
3 min read
Nicola Sharp of Rahman Ravelli details a case where the focus was on the notion of dishonesty.
In the recent High Court case of Executive Authority for Air Cargo and Special Flights v Prime Education Limited (in liquidation) & ors  EWHC, the objective assessment of what constitutes honesty came under scrutiny.
In this case, the defendants were accused of conspiracy to injure by unlawful means and dishonest assistance of a breach of fiduciary duty. In the latter, dishonesty is a necessary ingredient for guilt to be established. This can, however, be difficult to prove.
In this case, the court found the defendants to be dishonest. In this article, I detail Mrs Justice Ellenbogan’s reasons for finding the defendants dishonest.
Mr and Mrs Sekerci were the sole directors of Prime Education, which ran aviation training programmes from the UK. PE Turkey was established to run aviation education and training projects from Turkey. Mr Sekerci was a director and 50% shareholder of PE Turkey, and his business partner held the remaining shares.
Prime Education entered into a contract with the Executive Authority for Air Cargo and Special Flights (EACS). Under the terms of the contract, Prime Education was to supply civil aviation training and consultancy to EACS. Prime Education was required to set up a designated client account for EACS so that some of their payments could fund course fees, accommodation costs and living expenses for students.
EACS paid very large sums of money (around £16 million) to Prime Education but received little in return. It transpired that Mr Sekerci had used the money received from EACS to purchase and develop “two prime sites in Istanbul.”
EACS contended that Prime Education had acted in breach of its fiduciary duties and / or the money they received from EACS was held on constructive trust. Mr and Mrs Sekerci were accused of inducing Prime Education to breach its contract with EACS and of dishonestly assisting in a breach of trust by Prime Education.
In the course of the judgment Mrs Justice Ellenbogen considered the relationship between taking risks in the form of investments and acting dishonestly. Citing the case law, she commented that “Imprudence is not dishonesty, although imprudence may be carried recklessly to lengths which call into question the honesty of the person making the decision. This is especially so if the transaction serves another purpose in which that person has an interest of his own” (Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan  AC 378, PC)
The investments were not good ones, and on the basis of the case law the recklessness of these investments raised questions about Mr and Mrs Serkeci’s honesty. However, they were found to be dishonest on the grounds that:
The judge found that neither Mr nor Mrs Sekerci acted as an honest person would have done in the circumstances, even though the defendants themselves saw nothing wrong in their behaviour. They thought they were entitled to use the money as they did, and that EACS contributed to the non-performance of the contract by failing to provide students with the correct documentation.
However, when faced with an inability to perform the contract due to the counterparty’s own fault, the judge considered that an honest person would have sought instructions. Failing a response, they would have returned the money that had not already been spent, in line with the agreement.
EACS sought costs on an indemnity basis, saying that the finding of dishonesty took the case ‘outside the norm’. Not only had the defendants dishonestly appropriated EACS’ assets but they caused EACS to expend further time and costs in pursuing the matter to a trial in which they protested their innocence. EACS said this was ‘worthy of moral condemnation’ and outside the ordinary and reasonable conduct of proceedings.
However, the judge considered the fact that allegations of dishonest wrongdoing by a defendant had succeeded did not - without more factors being present warrant an award of indemnity costs. Nevertheless, she awarded indemnity costs on the basis that the Serkeci’s pursued a ‘hopeless and dishonest defence’ all the way to trial. They were, therefore, ordered to pay EACS’ costs up to the end of trial on the indemnity basis.
In this case, the fact that the defendants thought they had done nothing wrong did not mean they could not be found to be dishonest. The case showed that a court will consider what an objectively ‘honest’ person would have done in the same circumstances and whether the actions of the defendants were outside the realm of the expectations of an honest person.
Dishonesty alone does not warrant the award of indemnity costs. But it may be a persuasive, contributing factor.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.