Some transactions that may fall short of criminal fraud can nevertheless result in heavy losses, court actions and deep unhappiness.
When businessman Thor Tjontveit and his Dallas-based company Air Alaska (also trading as World Pacific Air Lease Inc) were ordered by a New York court to pay compensatory and punitive damages totalling $20.9 million to Chinese regional operator Wuhan Airlines late last year, wry smiles came to the faces of those with experience of the flamboyant Norwegian-born Tjontveit.
The judgement related to a civil action brought against Tjontveit and his company alleging breach of contract and fraud. The case arose from a leasing deal which Wuhan signed with Air Alaska in March 1997.
The contract, which followed an introduction effected by a respected broking firm, provided for Air Alaska to deliver a Boeing 737 to Wuhan, which the US company wrongly claimed it had already acquired. By way of security, Wuhan paid $690,000 which was held in escrow by Air Alaska's lawyer.
Also, Wuhan was required to obtain a letter of credit for $9.9 million as security for the monthly lease payments that it would make following delivery of the aircraft.
What happened next is told with striking clarity in the memorandum order of US district judge Jed Rakoff, who presided over the part of the case concerning the breach of contract claim. "Air Alaska, through Tjontveit, went to the New York Office of the Bank of China on 7 July, 1997 and drew down $1.148 million of the $9.9 million letter of credit posted by Wuhan. To obtain the funds, Tjontveit presented the bank with a signed beneficiary statement claiming that Air Alaska was entitled to the money because Wuhan had failed to effect the punctual payment of the monthly rents for the aircraft under the lease. In actual fact, no aircraft had been delivered, or even obtained, by Air Alaska at that point."
And it did not end there. Despite having still failed to perform under the lease agreement, "Air Alaska sent Wuhan a notice of default and, between 4 September and 8 October 1997, drew down the remaining balance from the letter of credit".
Judge Rakoff recorded: "To obtain the draws, Tjontveit again presented documents to the Bank of China inaccurately certifying that rental payments were overdue from Wuhan." Elsewhere in the memorandum order, he referred to "Tjontveit's repeated presentation of false documents in order to effectuate these draws" on the letter of credit.
Air Alaska's attorney meanwhile released to Air Alaska $400,000 of the funds he was holding in escrow as security.
Through his London lawyers Hill, Taylor, Dickinson, Tjontveit has stated that he is appealing the judgement of the New York Court. His lawyers in Dallas have confirmed that his company has filed for bankruptcy protection.
"Deal only with sellers that are well known to you" is the clear advice of Mark Lebow, until recently of New York law firm Coubert Brothers, which represented Wuhan.
Lebow, who now heads the New York office of French aviation law firm Sokolow, Dunaud, Mercadier & Carreras, added: "The aviation industry does not appear to have established a mechanism with which buyers can easily check the integrity of sellers."
The New York judgement was was the second setback for Tjontveit within a year. On 13 May last year, the London High Court ordered Air Alaska to pay Luton-based easyJet $500,000 plus interest of $8,500. This case arose from an abortive deal in late 1997 under which Air Alaska was to have arranged the lease to easyJet of a Boeing 737-300 from German charter airline Germania. The deal fell through but Air Alaska declined to return the $500,000 deposit.
Source: Airline Business