HIGH COURT OF AUSTRALIA
GLEESON CJ,
GUMMOW, KIRBY, HAYNE, HEYDON, CRENNAN AND KIEFEL JJMatter No M51/2007
INTERNATIONAL AIR TRANSPORT ASSOCIATION APPELLANT
AND
ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT
TO DEED OF COMPANY ARRANGEMENT) & ORS RESPONDENTSMatter No M52/2007
INTERNATIONAL AIR TRANSPORT ASSOCIATION APPELLANT
AND
ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT
TO DEED OF COMPANY ARRANGEMENT) RESPONDENTInternational Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3
6 February 2008
M51/2007 & M52/2007ORDER
Matter No M51 of 2007
1. Appeal allowed.
2.Set aside orders 1 and 2 of the orders of the Court of Appeal of the Supreme Court of Victoria made on 16 November 2006, except in so far as those orders varied the orders in respect of the costs of proceedings at first instance, and, in their place, order that the appeal to that Court be otherwise dismissed.
3.The appellant pay the respondents' costs of the appeal to this Court.
Matter No M52 of 2007
1. Appeal allowed.
2.Set aside orders 1 and 2 of the orders of the Court of Appeal of the Supreme Court of Victoria made on 16 November 2006, except in so far as those orders varied the orders in respect of the costs of proceedings at first instance, and, in their place, order that the appeal to that Court be otherwise dismissed.
3.The appellant pay the respondent's costs of the appeal to this Court.
On appeal from the Supreme Court of Victoria
Representation
S J Gageler SC with C M Caleo SC for the appellant (instructed by Clayton Utz Lawyers)
N J Young QC with M C Garner and O Bigos for the respondents (instructed by Arnold Bloch Leibler)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
International Air Transport Association v Ansett Australia Holdings Limited
Contract – Construction – Agreements between the International Air Transport Association ("IATA") and participating airlines provided for the operation of a "Clearing House" in accordance with regulations ("the Regulations") – Pursuant to the Regulations IATA set off debits and credits that would otherwise exist between the airlines – The Regulations provided that no liability or right of action would accrue between participating airlines, including Ansett – Whether the effect of the Regulations was that IATA was the creditor of Ansett to the exclusion of other participating airlines.
Insolvency – Voluntary administration under Pt 5.3A of the Corporations Act 2001 (Cth) ("the Act") – Deed of Company Arrangement – Public policy – Whether Pt 5.3A of the Act or a rule of public policy required that the whole of the debtor's estate be available for distribution to all creditors – Whether any such rule invalidated the effect of the Regulations properly construed.
Insolvency – Voluntary administration under Pt 5.3A of the Act – Deed of Company Arrangement – Order of priorities – Relationship between contractual rights and obligations and the operation of Pt 5.3A – Whether the Regulations purported to circumvent the Deed or were otherwise repugnant to the Deed.
Corporations Act 2001 (Cth), Pt 5.3A.
GLEESON CJ. The primary issue in these appeals is one of construction of a contract, the Multilateral Interline Traffic Agreement – Passenger ("the Agreement"), of which the IATA Clearing House Regulations ("the Clearing House Regulations") are part. If the respondents' construction of the Agreement is accepted, an issue of public policy arises. Whether a similar issue arises if the appellant's construction is correct is a matter of controversy.
The proceedings and the issues
The facts concerning the Clearing House system operated by the appellant ("IATA"), the participation in that system by Ansett Australia Holdings Limited ("Ansett"), the insolvency of Ansett, the Deed of Company Arrangement ("the DOCA") executed on 2 May 2002 pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) ("the Act"), and the claims by or with respect to Ansett under monthly clearances prior to the DOCA, are set out in the joint reasons of Gummow, Hayne, Heydon, Crennan and Kiefel JJ ("the joint reasons").
In December 2002, IATA brought proceedings in the Supreme Court of Victoria challenging decisions by the Deed Administrators of Ansett that IATA was not a creditor of Ansett in respect of the monthly clearances from August to December 2001. In June 2003, Ansett commenced proceedings in the same Court seeking a declaration that the Clearing House Regulations ceased to apply to all claims by or with respect to Ansett upon and by virtue of the execution on 2 May 2002 of the DOCA. The matters came before Mandie J[1], who described the principal issue in both proceedings as a question whether IATA was and remained a creditor of Ansett in respect of the monthly clearances. The amount claimed by IATA was $US4,370,989.
[1]International Air Transport Association v Ansett Australia Holdings Ltd (subject to a deed of company arrangement) (2005) 53 ACSR 501; 23 ACLC 1161.
Relying on the authority of British Eagle International Air Lines Ltd v Compagnie Nationale Air France[2], Ansett argued that, by virtue of Ansett's execution of the DOCA, the Clearing House arrangement "became repugnant to the insolvency legislation and contrary to public policy". This argument was put upon the premise that the Agreement, on its true construction, was not materially different from the agreement that was before the House of Lords in British Eagle and, in particular, that a relationship of debtor and creditor existed between issuing and carrying Clearing House members. The argument of IATA was that, as appeared from the evidence and as was acknowledged on all sides, the Agreement had been re-drafted, following the British Eagle decision, for the purpose of overcoming the effect of that decision, and that under the new Agreement the airlines were not, as between themselves, debtors and creditors. IATA, and IATA alone, it was said, was a creditor of Ansett in respect of the relevant clearances. On that basis, the other airlines never became debtors or creditors of Ansett; neither the DOCA nor any statutory provision required that they be treated as debtors or creditors; and the rights of the general body of creditors of Ansett were not displaced or interfered with by the Clearing House arrangement. Mandie J said:
"In my opinion there was no relevant asset of Ansett, being a debt or other chose in action [arising in favour of Ansett against other airlines when it carried passengers for them], of which the non-airline creditors were deprived by virtue of the clearing house arrangement. It was conceded on behalf of Ansett that, if this was so, the British Eagle principle 'did not bite'. I so conclude."
[2][1975] 1 WLR 758; [1975] 2 All ER 390.
Mandie J declared that IATA was a creditor of Ansett in respect of the transactions the subject of the clearances. The matters went to the Victorian Court of Appeal[3]. Maxwell P reached the same conclusion as Mandie J, that is to say, that according to the Agreement no relationship of debtor and creditor arose between the airlines who participated in the Clearing House system and that, instead, each airline had a monthly liability to, or a monthly claim against, IATA. That, as he saw the case, was all he needed to decide. Nettle JA, with whom Bongiorno AJA agreed, accepted the view for which Ansett contended, which was that debts and rights of action arose between the individual airlines, and they were not extinguished until they had been cleared. On that basis, there was no relevant difference between the Agreement and the clearing house arrangements considered in British Eagle; there was a purported contracting out of the relevant insolvency legislation; such contracting out was contrary to public policy; and the insolvency laws prevailed.
[3]Ansett Australia Holdings Ltd (subject to deed of company arrangement) v International Air Transport Association (2006) 60 ACSR 468; 24 ACLC 1381.
In this Court, IATA contends that the construction of the Agreement accepted by Mandie J and Maxwell P should be preferred. IATA further contends that, if its construction of the Agreement is correct, then there was no purported contracting out of any relevant insolvency laws; there was never any relationship of debtor and creditor between the individual airlines; and the questions of public policy considered in British Eagle do not arise.
On one matter the parties agree. The first step is to decide the meaning of the Agreement. Whether there is a further step remains to be considered. Nobody suggested in argument, and none of the judges who have considered this question in Australia, or who have considered a similar question in England, suggested, that the construction of the Agreement is to be approached otherwise than according to the application of the orthodox principles used to decide the meaning of a commercial contract. Naturally, the airlines who were parties to the Agreement, and IATA itself, would have understood the potential significance of the insolvency laws of the countries in and between which the airlines provided services, and the differences between those laws. The risk of insolvency, which stands behind many commercial agreements, undoubtedly formed part of the context in which the Clearing House system was devised and intended to operate. Local insolvency laws, such as those of Australia, have to be applied in the light of the legal relationships created by the contract into which the airlines and IATA entered, but it is the agreement of the parties that establishes those legal relationships. In considering Ansett's public policy argument, it is necessary to be precise about the provisions of the Agreement that are said to offend public policy. There is no evidence, and no suggestion in argument, that the entire Clearing House system was designed to evade insolvency laws. In order to decide whether any aspect of the Agreement offends public policy, it is first necessary to decide what the Agreement means, for that is a matter of substantial dispute.
The construction issue
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure[4]. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market[5]. This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning[6]. Before considering that history, it is necessary to explain, by reference to the text, how the issue of construction arises.
[4]McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22]; Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner.
[5]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22]; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 350.
[6]Singh v The Commonwealth (2004) 222 CLR 322 at 331-338 [8]-[23].
International airline operators regularly issue passenger tickets in respect of journeys where it is contemplated that, for some part, or perhaps the whole, of the journey, the carrier will be another airline operator. IATA is an association of international airline operators. The members of IATA desired to enter into arrangements under which each party might sell transportation over the routes of the others. The Agreement embodies those arrangements.
IATA was incorporated in 1945 under the Statutes of Canada. In or about November 1946, IATA established the IATA Clearing House, which is a division of IATA responsible for the clearance of accounts between member airline operators. The primary functions of the Clearing House are to effect monthly clearances and to pay or collect from IATA members the balance found to be due by or to the Clearing House. This enables airline operators to avoid having to make and receive numerous payments to and from other airlines. Mandie J pointed out that the essence of the process is that appropriate debits and credits are entered against or in favour of each operator in respect of dealings with other operators, and clearances of those entries result in settlements involving either a payment by an airline operator to the Clearing House (IATA) or a payment by IATA to an airline operator, rather than there being a multitude of payments between the operators themselves. Ansett joined this system in 1951, and at all material times since then was a party to the current Agreement.
The Clearing House system is operated pursuant to the Clearing House Regulations. Membership of the Clearing House is open to IATA members on a voluntary basis (reg 4). Application for membership is made pursuant to, and on the terms of, the Regulations. Regulation 9 provides that admission to membership in the Clearing House shall constitute a contract between each member and every other member and IATA, and sets out terms of that contract. Those terms are incorporated in the Agreement by Art 8, which provides:
"8.1 PAYMENT OF TRANSPORTATION CHARGES
Each issuing airline agrees to pay to each carrying airline the transportation charges applicable to the transportation performed by such carrying airline ... in accordance with applicable regulations and current clearance procedures of the IATA Clearing House, unless otherwise agreed by the issuing airline and the carrying airline."
Regulation 9, in the form applicable to these appeals, provides:
"(a)With respect to transactions between members of the Clearing House which are subject to clearance through the Clearing House as provided in Regulations 10 and 11 and subject to the provisions of the Regulations regarding protested and disputed items, no liability for payment and no right of action to recover payment shall accrue between members of the Clearing House. In lieu thereof members shall have liabilities to the Clearing House for balances due by them resulting from a clearance or rights of action against the Clearing House for balances in their favour resulting from a clearance and collected by the Clearing House from debtor members in such clearance;
(b)Notification to the Clearing House of any claim (debit or credit) for clearance shall, subject to the Regulations, constitute an irrevocable authority to clear the same in accordance with the Regulations and current clearing procedures and to pay or collect any balances due by or to the Clearing House as a result of the clearances effected; provided, however, that if the Clearing House receives notification that the amount of a claim that has been notified for clearance has been attached, garnished or otherwise seized by issue of an order of Court, the Clearing House Manager shall, whilst such situation exists, suspend all clearance between the members concerned until notified by both parties that normal clearance between them may be reinstituted. During the period of suspension, the parties affected shall remain absolved from their respective obligations under Regulation 10 to settle only through the Clearing House.
(c)The effecting of a clearance and payment of the balances due to or by the Clearing House in accordance with these Regulations and current clearance procedures shall constitute a satisfaction and discharge of every claim dealt with in such clearance. IATA shall be entitled to recover any balances due to the Clearing House by legal action.
(d)Members of the Clearing House may include in the second clearance in which a new member participates their unpaid claims against the new member referring to pre-membership transactions, unless otherwise agreed between the new member and the member having the claim.
(e)The contract created hereby and the obligations created hereunder shall be binding upon the successors in interest, including administrators, trustees and receivers, of each member."
Other regulations bear upon the question. They include reg 12 which appears in the following context:
"SCOPE OF CLEARANCE
10.The following classes of transactions shall be cleared through the Clearing House and not otherwise in any manner, except for particular transactions or particular classes of transactions with respect to which the parties thereto have expressly agreed that they shall not be cleared through the Clearing House: all transactions between members pursuant to their participation in the IATA Multilateral Interline Traffic Agreements, transactions arising from the Universal Air Travel Plan and Miscellaneous Charges of any nature including the carriage of mail, charters, Pool agreements, airport and terminal charges, aircraft servicing, maintenance and victualling charges, salvage work, catering and ground transportation services, telecommunications, etc and all similar services customarily rendered between carriers, including billings for authorised cash advances made by national airlines to representatives of foreign airlines for the following purposes:
(a)advances to crews for the purpose of accommodation and subsistence;
(b)advances to local representatives of foreign airlines under standing authority and within agreed monthly maxima for the purpose of meeting normal weekly and monthly current airport or town expenditure.
11.All other transactions including those relating to the purchase or sale of fixed assets such as aircraft, and aircraft engines and components, spares in bulk not obtained for immediate issue, plant and equipment and fittings, premises or properties, and transactions relating to leases may be cleared and settled through the Clearing House provided the consent of the member against which the claim is raised has first been obtained. It is an obligation of members to obtain all necessary approvals from their national bank or other appropriate authority before clearance through the Clearing House.
12.All transactions within the scope of clearance are hereby deemed mutual debts of the parties involved. Unless otherwise agreed to by the parties, a claim for such transaction shall arise upon the performance of the services rendered therefor."
It was common ground, and the evidence showed, that the form of reg 9(a) set out above was the result of amendments to the Regulations made, following the decision of the House of Lords in British Eagle, for the purpose of overcoming the effect of the decision in that case. Unless the purpose of overcoming the effect of the decision was, for some legal reason, impossible of fulfilment, then Ansett's argument must be that the changes were inadequate to produce the intended result. That, in substance, is what Nettle JA decided. He concluded that reg 9(a) "cannot receive effect according to its terms." That is the focus of the issue of construction. The question is whether, in the context of the whole Agreement, including the Regulations, the provision in reg 9(a), that no liability for payment and no right of action to recover payment shall accrue between members of the Clearing House, and that in lieu thereof members shall have liabilities to and rights of action against the Clearing House, has effect according to its terms. Those words spell out what the Regulations in their previous form, without those words, had been held to mean in British Eagle by Templeman J[7], by the Court of Appeal[8], and by the minority in the House of Lords.
[7]British Eagle International Air Lines v Compagnie Nationale Air France [1973] 1 Lloyd's Rep 414.
[8]British Eagle International Airlines Ltd v Compagnie Nationale Air France [1974] 1 Lloyd's Rep 429.
In British Eagle, it was alleged that, at the time of its insolvency, British Eagle, having carried passengers for Air France, was owed a certain sum by Air France, and that such amount was an asset available to the general creditors of British Eagle. Air France's defence was that it owed nothing to British Eagle, and that, under the Clearing House system, British Eagle's only relevant assets or liabilities were rights or obligations between British Eagle and IATA. That defence was upheld at first instance and in the Court of Appeal. Russell LJ summarised the opinion of the Court of Appeal, saying[9]:
"[W]e do not consider that the contract is one that can fairly be said to contravene the principles of our insolvency laws. Those laws require that the property of an insolvent company shall be distributed pro rata among its unsecured creditors: but the question here is whether the claim asserted against Air France is property of British Eagle.
In our judgment it is not: British Eagle has long since deprived itself of any such property by agreeing to the clearing house system."
The same view was taken by the dissenting members of the House of Lords, Lord Morris of Borth-y-Gest and Lord Simon of Glaisdale.
[9][1974] 1 Lloyd's Rep 429 at 434.
The leading judgment for the majority in the House of Lords was given by Lord Cross of Chelsea, with whom Lord Diplock and Lord Edmund-Davies agreed. Lord Cross, after reviewing the detailed terms of the contract (which did not include what are now said to be the critical words of reg 9(a)), concluded, as a matter of construction, that British Eagle had a legal right to payment from Air France, which could properly be called a debt, even though it could not bring legal proceedings against Air France but was obliged to use the Clearing House system to obtain payment. Having reached that conclusion as a matter of construction, Lord Cross then dealt with the argument that the Clearing House system impermissibly conflicted with, or attempted to by-pass, the insolvency laws by subjecting the property of British Eagle (the debt owed to it by Air France) to the claims of the Clearing House. His Lordship came to that argument having first decided that there was property of British Eagle in the form of a debt (or an innominate form of liability not materially different from a debt) owed by Air France. Upon that premise, his Lordship concluded that the Clearing House procedures attempted to achieve a distribution of British Eagle's property which ran counter to the principles of the insolvency legislation. The procedures, he said, provided for a distribution of the property of the insolvent company different from that prescribed by law. This was contrary to public policy and the rules of general liquidation must prevail; not the rules of some special "mini liquidation"[10].
[10]British Eagle International Air Lines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758 at 780-781; [1975] 2 All ER 390 at 411.
The purpose of the amendment made to reg 9(a) was to remove the premise upon which the reasoning of the majority in the House of Lords proceeded (that, at the time of its insolvency, British Eagle owned property in the form of a debt owed to it by Air France), and to restore the contractual position found at first instance, and in the Court of Appeal, and accepted by the minority in the House of Lords. If there never was any property of British Eagle in the form of a debt owed to it by Air France, then there was no attempt to dispose of or deal with such property in a manner inconsistent with the insolvency laws.
A matter of commercial practicality may be noted. A clearing house system has many convenient features, some of which are too obvious to require elaboration. The members of IATA include airline operators in a wide variety of forms of ownership, including government ownership, and those operators are based in localities with different legal systems. It is not difficult to understand why operators might agree to a system that was not merely a method of enforcing legal rights against other operators but was intended to create rights of a different kind. If, properly construed, an agreement between operators meant that they had no property in the form of legal rights against other operators, and no liabilities in the form of debts owed to other operators, then it is difficult to identify any principle of public policy that would make it impossible to give effect to that agreement. This is a matter to which it will be necessary to return.
A matter of drafting practicality also should be noted. In setting out to achieve a contractual result of the kind that IATA says was achieved by the amendment to reg 9(a), it was necessary to find some way of describing that which the Clearing House system was to clear. It is, therefore, hardly surprising that the Regulations make reference to claims arising from the issuing of passenger tickets. Whatever was being subjected to the Clearing House procedure had to be identified for the purpose of that procedure. The transactions on which the procedure operated involved the provision of services for reward. The procedure was to regulate payment for those services. The rights or entitlements upon which the procedure operated had to be identified. The general scheme of reg 9 was to refer to "clearance" of "transactions", and to "claims" for clearance. According to reg 12, a claim for a transaction arose upon the performance of the services rendered.
Nettle JA observed that Art 8.1 of the Agreement provided for each issuing airline to pay each carrying airline the transportation charges applicable. This, he said, created an obligation and correlative right properly described as a debt. However, the agreement for payment in Art 8.1 was expressed to be an agreement to pay in accordance with the Regulations unless otherwise agreed by the issuing airline and the carrying airline. The capacity to opt out of the Clearing House system by agreement between an issuing airline and a carrying airline, and the qualification in reg 9(a) referring to protested and disputed items, indicated that it was contemplated that the ordinary operation of the system would not cover all transactions. That is not inconsistent with the construction of reg 9(a) for which IATA contends. Nettle JA accepted that if reg 9(a) stood alone, it would be hard to resist IATA's argument. Its terms, he said, imply the annihilation of a debt and its replacement with rights as against the Clearing House alone. IATA points out, however, that the matter is not left to implication; and there is not an anterior debt that is annihilated. Subject to the qualification mentioned, the regulation states that no liability shall accrue as between the airlines, and that in lieu thereof members have rights and liabilities against or in favour of the Clearing House.
Regulation 9(b), to which Nettle JA referred, refers to an amount of a claim being "attached, garnished or otherwise seized". This, his Honour said, assumes the existence of a debt, at least until clearance. Maxwell P pointed out that, in British Eagle, all the members of the House of Lords rejected the argument that reg 9(b) demonstrated that there were debts owing between members. The provision is necessary to deal with the case where a creditor of a carrier, perhaps not knowing that transactions were subject to the clearance system, went to court upon an assumption that debts were owing between airlines. Provision for temporary suspension of the system in such a case is not inconsistent with reg 9(a).
As to reg 12, its legal effect in a particular jurisdiction may vary according to the laws, including the laws concerning set-off, of that jurisdiction. It is a deeming provision, and part of the need for such deeming arises from the terms of reg 9(a). Without such a provision, transactions the subject of claims might not have the mutuality required for set-off. The form of setting-off for which the system provides is, in the case of a particular member, the setting off of the total of the debit claims notified against that member against the credit claims notified by that member.
The Agreement contains a number of provisions consistent with the meaning for which Ansett contends. The task, however, is to decide the meaning of the Agreement, read as a whole, including reg 9(a) in its present form. There is no repugnancy between reg 9(a) and the rest of the Agreement, or any particular part of the Agreement. The division of opinion among the English judges who considered the Agreement in its unamended form at least shows that the other provisions are not necessarily inconsistent with the result for which IATA contends. What, then, is the legal significance of the fact, evident from the history of the Agreement and acknowledged on both sides, that reg 9(a) takes its present form as a result of an amendment made by IATA and the member airlines in response to the British Eagle decision? As noted earlier, that aspect of the historical context throws light on the purpose and object of the Agreement. It is information that assists in the ascertainment of the meaning of reg 9(a) and it confirms that such meaning is the ordinary meaning conveyed by the text of that regulation[11]. This is a modest use of contextual matter, but it is all that is necessary for present purposes. Regulation 9(a) means what it says. It cannot be ignored. It is not repugnant to some overriding provision. It is consistent with the other provisions. It makes commercial sense. It should be given effect according to its terms.
[11]Compare, in the context of statutory interpretation, Acts Interpretation Act 1901 (Cth), s 15AB(1)(a).
On the true construction of the Agreement, in the case of the transactions the subject of the monthly clearances in question, the property of Ansett did not include debts owed to it by other airline operators and the liabilities of Ansett did not include debts owed by it to other airline operators. The relevant property of Ansett was "the contractual right to have a clearance in respect of all services which had been rendered on the contractual terms and the right to receive payment from IATA if on clearance a credit in favour of the company resulted."[12]
[12]British Eagle International Air Lines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758 at 765 per Lord Morris of Borth-y-Gest; [1975] 2 All ER 390 at 396.
Public policy
Upon the construction of the Agreement accepted above, as the joint reasons explain, the DOCA did not operate to defeat the claim of IATA or to support the claim of Ansett.
The decision of the House of Lords in British Eagle, and of the Victorian Court of Appeal in the present case, and at least the primary argument of Ansett in this Court, concerning the effect of Ansett's insolvency, proceeded upon the premise that the Agreement (or, in the case of British Eagle, the Agreement in an earlier form) meant something different. The premise was that, upon the true construction of the Agreement, the members of the Clearing House stand as to claims to be cleared in relation to each other as debtors and creditors and that this relationship inures until the debt is cleared in accordance with the Clearing House procedures or otherwise settled. On that approach, reg 9(a) is no more than a stipulation that the rights and liabilities arising between members are not to be enforceable except in accordance with the Regulations. Given the premise on which the argument proceeds, the agreement that simple contract debts are to be satisfied, and may only be satisfied, in a particular way is an attempt to contract out of the insolvency laws and is contrary to public policy[13]. The premise having been rejected, that argument falls away.
[13]British Eagle International Air Lines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758 at 780-781; [1975] 2 All ER 390 at 411; Horne v Chester and Fein Property Developments Pty Ltd [1987] VR 913 at 919.
In opening the appeals to this Court, senior counsel for IATA, seeking to define the issues, said that "[i]f the construction question is resolved in IATA's favour, then, on the way in which Ansett seeks to present its public policy argument, the public policy for which it contends is not engaged and that is the end of the matter." That is certainly how Mandie J at first instance, and Maxwell P in dissent in the Court of Appeal, saw the case. The majority in the Court of Appeal, having resolved the construction question against IATA, did not consider whether a public policy issue would have arisen on the alternative construction. Even so, some of the submissions for Ansett in this Court appeared to embrace a wider proposition than that for which the decision in British Eagle stands. The effect of the proposition appears to be that, even if the majority in British Eagle had construed the Agreement (as it then stood) in the same way as the minority (and Templeman J and the Court of Appeal), the Agreement (or some unspecified part of the Agreement) would have been regarded as an ineffective attempt to contract out of the insolvency laws. On that approach, it becomes important to identify what exactly is said to be against public policy, and what the consequences of such a conclusion might be. If it were said, for example, that the whole Agreement is contrary to public policy, then that might have consequences for which nobody contends. If it were said that part of the Agreement is contrary to public policy, then it would be necessary to identify that part.
There is a logical difficulty with the argument. If one construes the Agreement to mean that debts and property rights arise between member airline operators upon the performance of services, and a provision that such rights and liabilities are not enforceable otherwise than through the Clearing House system is treated as contrary to public policy and void, then there remains something on which the insolvency laws (to use Mandie J's word when recording Ansett's concession) may "bite". If, however, the alternative construction is accepted, as it should be, a problem arises. Public policy may render a contractual provision invalid; but it cannot create a contract to which the parties have never agreed. It is one thing to treat the Clearing House system as a mere procedural convenience which operates smoothly enough so long as all participants are solvent but which can have no lawful work to do in the event of supervening insolvency, when the parties are thrown back upon their basic contractual rights and obligations. What if the parties have agreed that there shall be no such rights and obligations as between themselves? They cannot be forced to become debtors and creditors when they have agreed that they would not be so. The argument involves an impermissible attempt to use public policy to create rights and liabilities, and to create for the parties a new agreement different from the agreement they have made.
The airline operators have agreed between themselves and with IATA upon the legal basis on which they will provide services of the kind covered by the Agreement. Public policy does not enable a court to re-write their contract, and bind them to a different agreement. Ansett's public policy argument appears to depend upon an assumption that, notwithstanding their agreement, the "real" or "underlying" legal relationship between the airline operators is that of debtors and creditors, and that this legal relationship is ineradicable. Yet, on the true construction of the Agreement, that is not the basis upon which the operators agreed to provide the services in question. As Lord Morris pointed out in British Eagle[14], the Agreement contained no provision that was designed to come into effect or bring about a change in the event of insolvency, and there is no ground to surmise or assert that a different agreement would have been made but for an attempt to evade insolvency laws. It is one thing to say (as was held in British Eagle and in the Victorian Court of Appeal) that the airline operators, if they were debtors and creditors of each other, could not lawfully agree that those debts and rights of property would escape the effects of the insolvency laws. It is another thing altogether to say that, although the airline operators agreed that they would not enter into relationships of debtors and creditors, the law will impose that relationship upon them, contrary to their agreement.
[14][1975] 1 WLR 758 at 769-770; [1975] 2 All ER 390 at 401.
Insofar as Ansett's public policy argument goes beyond what was decided in British Eagle and is said to apply even if the Agreement has the meaning for which IATA contends, it should be rejected.
Conclusion
I agree that the appeals should be allowed and that consequential orders should be made as proposed by Gummow, Hayne, Heydon, Crennan and Kiefel JJ.
GUMMOW, HAYNE, HEYDON, CRENNAN AND KIEFEL JJ. Since 2000 the corporate respondent to these appeals has been styled Ansett Australia Holdings Limited ("Ansett"), following a change of name from Ansett Transport Industries Limited. In 1951 Ansett became a member of the Clearing House which had been established in 1946 as a department of the appellant, the International Air Transport Association ("IATA"). This litigation arises from events in 2001‑2002 associated with the collapse of the business of Ansett and the impact this had upon the operations of the Clearing House and the dealings between Ansett and the Clearing House.
The Clearing House system
The operations of the Clearing House and of the Regulations ("the Regulations") pursuant to which they have been conducted from time to time will require further consideration later in these reasons. The basic modus operandi may now be stated as follows.
International airline operators regularly sell and issue tickets to passengers for journeys wholly or partly by carriage over the routes of other airlines, carry baggage of such passengers, and issue air waybills for the transport of goods over the routes of other airlines. The operations of the Clearing House avoid the necessity for the airlines to make and receive between themselves numerous payments in respect of such operations.
Debits and credits in accounts of the participating airlines with IATA are netted out at the end of every month. Those airlines with a net credit balance receive a payment from the Clearing House, whilst those with a net debit balance are obliged to pay it to the Clearing House. Payments are not made between the participating airlines themselves.
There is a further aspect of this system which was emphasised in the submissions for Ansett and which should be noted here. This is that the netting-off system is not limited to the set-off of mutual dealings between any two airlines. For example, while mutual dealings between Ansett and, say, British Airways would be listed and set off, the netting-off system would also include (by way of "multilateral" set-off) claims against Ansett by a third airline which was subject to no claim by Ansett for mutual set-off. The claim by the third airline would be met from a pool of funds provided from the dealings between Ansett on the one hand and British Airways and other such airlines on the other hand.
The operation of the Clearing House system as it stood over 30 years ago was considered by the House of Lords in British Eagle International Air Lines Ltd v Compagnie Nationale Air France[15]. There, the appellant ("British Eagle") had gone into a creditors' winding-up. British Eagle asserted a claim to payment of moneys by the respondent ("Air France"). By majority (Lords Diplock, Cross of Chelsea and Edmund-Davies; Lords Morris of Borth-y-Gest and Simon of Glaisdale dissenting) the House of Lords rejected the contention of Air France that the only claim of the liquidators of British Eagle lay against the Clearing House and was subject to the netting-off system. The effect of the decision was that in the liquidation of British Eagle the Clearing House system was ineffective to capture for netting-off under its provisions an asset of British Eagle (the money claim against Air France) which was available for distribution between the general creditors of British Eagle under the pari passu system of distribution mandated by s 302 of the Companies Act 1948 (UK).
[15][1975] 1 WLR 758; [1975] 2 All ER 390. The House of Lords reversed the decision of the Court of Appeal (Russell, Cairns and Stamp LJJ), [1974] 1 Lloyd's Rep 429, which had dismissed an appeal from the decision of Templeman J, [1973] 1 Lloyd's Rep 414.
Several points of distinction should be noted between the situation in the present case and that in British Eagle. First, no claim is made here between particular airlines. It is IATA itself which asserts it is a creditor of Ansett. Ansett denies the efficacy of the Clearing House arrangements to produce such a claim in favour of IATA and against Ansett. Secondly, the terms of the Regulations have been changed since the decision in British Eagle. Thirdly, the present case arises not in a liquidation but in an administration conducted under Pt 5.3A (ss 435A‑451D) of the Corporations Act 2001 (Cth) ("the Corporations Act").
Nevertheless it will be necessary to return to British Eagle. The present parties disagreed both as to what that case decided and as to the application of its reasoning to the facts of this case.
Administration under Pt 5.3A of the Corporations Act
Further reference should now be made to Pt 5.3A. In Brash Holdings Ltd v Katile Pty Ltd[16], Brooking, J D Phillips and Hansen JJ observed:
"Part 5.3A was introduced to provide a means whereby a company which is or may be insolvent may be subjected to control by an administrator to the exclusion of its normal officers for a strictly limited period during which the administrator is charged to investigate the affairs of the company in order to ascertain which of three courses should thereafter be adopted: a deed of company arrangement to be executed by the company, winding up, or simply the cessation of the administration without either of the foregoing. The scheme of Pt 5.3A is that at the end of the strictly limited period of administration, the creditors themselves will decide which of these three possible steps should be taken and in the meantime there is a moratorium on actions or proceedings against the company."
[16][1996] 1 VR 24 at 28‑29. See also Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 37‑38 [47]‑[51].
There were three significant stages in the operation of Pt 5.3A with respect to the affairs of Ansett. They were as follows. First, on 12 September 2001, and pursuant to s 436A, Ansett appointed three persons as administrators of the company. (They were replaced as administrators by the second respondents to the first appeal in this Court later in that month.) Thereafter, clearances were made by IATA in respect of Ansett for the months from August 2001 up to December 2001. The clearance for August showed a debit balance due by Ansett to the Clearing House of $US359,208, that for September a credit balance of $US10,169,045, and those for October and November debit balances of $US5,954,559 and $US2,707,912 respectively. As a result of the December clearance Ansett was treated as having consumed the whole of the September credit and was shown by IATA as having overall a debit balance. This was not paid to IATA and on 5 March 2002 Ansett was suspended from membership of IATA. There were no clearances by IATA for January and succeeding months. Ansett's membership of IATA was terminated on 2 June 2002.
Secondly, on 27 March 2002 a meeting of the creditors of Ansett, convened by the second respondents under s 439A, resolved pursuant to par (a) of s 439C that Ansett execute a Deed of Company Arrangement ("the Deed").
Thirdly, on 2 May 2002 the Deed was executed as provided in s 444B. Thereupon, and by force of ss 444D and 444G, the Deed bound Ansett, its officers and members, the administrators, and certain creditors of Ansett. This class of creditors included those with claims against Ansett where the circumstances giving rise to the claims occurred on or before 12 September 2001. Authorities including Hoath v Comcen Pty Ltd[17] indicate that these claims must also still have been current on 2 May 2002, the date of execution of the Deed. Further, and this follows from the construction given s 444D in Brash Holdings[18], the claims are those which would have been admissible to proof under s 553 in a winding‑up of Ansett if the circumstances giving rise to the claims had occurred before 12 September 2001.
[17](2005) 53 ACSR 708 at 711‑712 [17].
[18][1996] 1 VR 24.
Some reference now should be made to certain provisions of the Deed. Clause 4.2 imposed a moratorium upon those bound by the Deed and having a claim against Ansett. They were barred from, among other things, taking any action to seek to recover any part of their claim other than pursuant to the Deed. This provision reflected the terms of s 444E. The moratorium continued while the Deed was in force and related back (by operation of cl 2.2 and s 444C) to 27 March 2002. Clause 14 provided:
"The rules and mechanisms to be applied to proofs of debt and the ascertainment of Claims shall be similar to the rules and mechanisms for such things prescribed by the [Corporations Act] in the context of the liquidation of a company, amended or adjusted as appropriate to make the process as cost effective as possible."
This had the effect of incorporating the general provision made in s 553C respecting mutual dealings and set-off in the case of insolvent companies. Clause 18 of the Deed then laid out an order of priority for the distribution of proceeds.
The position taken by Ansett
Ansett and the administrators submit that the effect of Pt 5.3A of the Corporations Act and the provisions of the Deed is that the Deed operated upon the property of Ansett which existed on 12 September 2001 and whatever claims of other airlines against Ansett existed at that time need to be proved in accordance with the requirements of the Deed; the conduct by IATA of the multilateral set‑off Clearing House arrangements did not and could not achieve any other result. In correspondence between the solicitors for the parties, the administrators contended that the Regulations and Clearing House arrangements did not apply to Ansett's credits and debits which had not been cleared before 12 September 2001, that these credits and debits were to be dealt with only in accordance with the Deed and that this outcome was supported by what had been decided in British Eagle.
Consistently with that position and after execution of the Deed on 2 May 2002, the administrators made demands upon 13 airlines, members of the Clearing House, for payment directly to the administrators of net indebtedness allegedly due and owing to Ansett for the clearance months beginning August 2001 and ending March 2002. The total sum so demanded exceeded $US11 million. Further action by Ansett on these demands was suspended, pending the outcome of the present litigation.
The litigation
Two proceedings were instituted in the Supreme Court of Victoria, one by IATA challenging certain decisions of Messrs Korda and Mentha as Deed Administrators of Ansett and the other by Ansett against IATA seeking declarations about the application of the Regulations. The proceedings were heard together and it is generally not necessary to distinguish between them. At first instance, IATA sought and obtained from Mandie J declaratory relief[19]. This established several propositions. One was that, notwithstanding the appointment of the administrators to Ansett on 12 September 2001, the Clearing House arrangements continued to apply with contractual force between IATA, Ansett and the other members of the Clearing House. Another was that in respect of monthly clearances for August‑December which were effected by IATA after 12 September 2001, IATA was a creditor of Ansett. The amount claimed by IATA from Ansett under these clearances was $US4,370,989.
[19]International Air Transport Association v Ansett Australia Holdings Ltd (2005) 53 ACSR 501; 23 ACLC 1161.
However, Ansett and the administrators brought successful appeals to the Court of Appeal[20]. By majority (Nettle JA and Bongiorno A‑JA; Maxwell P dissenting) the Court of Appeal substituted declaratory relief to the opposite effect of that granted by Mandie J. In particular it declared that IATA was not a creditor of Ansett in respect of the transactions the subject of the Clearing House clearances for the months of August 2001 to December 2001.
[20]Ansett Australia Holdings Ltd v International Air Transport Association (2006) 60 ACSR 468; 24 ACLC 1381.
The majority of the Court of Appeal considered that in respect of each claim where clearance had not occurred before the appointment of the administrators on 12 September 2001, the netting-off system did not apply and Ansett stood thereafter in the relationship of debtor of the carrying airlines or of creditor of the issuing airlines.
On the other hand, Maxwell P (like Mandie J) considered that on 12 September 2001 the relevant rights and obligations of Ansett were (as to procedure) the right to have each claim made to and cleared by IATA, and (as to substance) the contingent right or obligation, upon clearance being effected, to receive the balance from IATA or to pay it to IATA as the case might be. Implicit in this reasoning is that in the administration under Pt 5.3A, as in an insolvent liquidation, whilst claims are to be treated equally, the determination of that equality is left (special statutory provisions apart) to the operation of the general law. Here the terms of the Clearing House arrangements produced, before 12 September 2001, rights and obligations of the character described above. The supervening administration did not change their nature or content. The administrators took those rights and obligations as they found them[21].
[21]cf In re Smith, Knight, & Co; Ex parte Ashbury (1868) LR 5 Eq 223 at 226.
Special leave was granted to IATA to appeal to this Court in each matter, on terms that the costs orders made by the Court of Appeal not be disturbed and that IATA undertake to pay the reasonable costs in this Court of the respondents.
For the reasons which follow, the appeals to this Court by IATA should succeed and the conclusions of Mandie J and of Maxwell P be accepted.
The Clearing House arrangements
It will be apparent that the first task is to consider the relevant terms of the governing documents. At all material times IATA provided for four forms of standard agreements, known as Multilateral Interline Traffic Agreements. These appeals concern two of them, the Multilateral Interline Traffic Agreement – Passenger, and the Multilateral Interline Traffic Agreement – Cargo. The provisions of these agreements are relevantly identical and it will be sufficient to refer to the first of them ("the Passenger Agreement").
The task of construction is to be approached in the manner described as follows by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[22]:
"This Court, in Pacific Carriers Ltd v BNP Paribas[23], has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction[24]."
[22](2004) 219 CLR 165 at 179 [40].
[23](2004) 218 CLR 451.
[24]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461‑462 [22].
Article 8 of the Passenger Agreement is headed "Interline Billing and Settlement". Article 8.1 states:
"Each issuing airline agrees to pay to each carrying airline the transportation charges applicable to the transportation performed by such carrying airline and any additional transportation or non‑transportation charges collected by the issuing airline for the payment of which the carrying airline is responsible in accordance with applicable regulations and current clearance procedures of the IATA Clearing House, unless otherwise agreed by the issuing airline and the carrying airline." (emphasis added)
Article 8.2.3 provides with respect to services rendered by a party to the Passenger Agreement that "the right to payment hereunder" arises at the time those services are rendered; but it also says that this is "[e]xcept as may otherwise be provided in other agreements, rules or regulations". Articles 8.2.1 and 8.2.2 are important in this respect. They state:
"8.2.1Billing of amounts payable pursuant to the Agreement shall be in accordance with the rules contained in the IATA Revenue Accounting Manual as amended from time to time.
8.2.2Unless otherwise agreed settlements of amounts payable pursuant to this Agreement between parties that are members of the IATA Clearing House shall be in accordance with the Manual of Regulations and Procedures of the IATA Clearing House." (emphasis added)
These provisions have the object and effect of giving primacy to the Regulations in any analysis of the rights and obligations flowing from the Passenger Agreement.
The relevant edition of the Regulations is the 13th edition of January 1999. The term "clearance" as used therein is defined in reg 1 as bearing the following meaning:
"The ascertainment each month of the balances due to members by the Clearing House and the balances due by members to the Clearing House after set-off of all claims duly notified to the Clearing House in accordance with these Regulations." (emphasis added)
The term used is "claims" not "debts", and reference to "set-off" must be read with reg 12. The first sentence of that regulation reads:
"All transactions within the scope of clearance are hereby deemed mutual debts of the parties involved."
This confirms that multilateral dealings that otherwise are not "mutual" in the usual sense are within the scope of the definition of "clearance".
Regulation 9 states that admission to membership of the Clearing House shall constitute a contract between each member and every other member and IATA to the effect thereinafter stated. It has been common ground that reg 9 was recast from the former reg 18 as it stood at the time British Eagle was decided[25]. Paragraphs (a) and (c) of reg 9 are of particular importance. Paragraph (a) states:
"With respect to transactions between members of the Clearing House which are subject to clearance through the Clearing House as provided in Regulations 10 and 11 and subject to the provisions of the Regulations regarding protested and disputed items, no liability for payment and no right of action to recover payment shall accrue between members of the Clearing House. In lieu thereof members shall have liabilities to the Clearing House for balances due by them resulting from a clearance or rights of action against the Clearing House for balances in their favour resulting from a clearance and collected by the Clearing House from debtor members in such clearance". (emphasis added)
[25]The text of the former reg 18 is set out, [1975] 1 WLR 758 at 773‑774; [1975] 2 All ER 390 at 405.
Paragraph (c) states:
"The effecting of a clearance and payment of the balances due to or by the Clearing House in accordance with these Regulations and current clearance procedures shall constitute a satisfaction and discharge of every claim dealt with in such clearance. IATA shall be entitled to recover any balances due to the Clearing House by legal action." (emphasis added)
Reference also should be made to regs 38 and 39. Regulation 38 deals with the entitlement of the Clearing House to recovery and states:
"Notwithstanding anything to the contrary herein, the right of the Clearing House to collect claims hereunder is created at the earlier of (a) the time payment is made for services upon which the claim is based or (b) the time such services are rendered by a party hereto or its agent. It is the intent of the members that funds collected by an issuing airline pursuant to accounts for clearance and services provided by a carrying airline pursuant to interline agreements shall be used for discharge of respective obligations of such airlines to the IATA Clearing House." (emphasis added)
Regulation 39 describes the nature of the liability of the Clearing House as follows:
"The liability of the Clearing House to any member arising from any clearance is subject to payment of the balances due by debtor members in the clearance and is limited to any balance in favour of creditor members as the result of the clearance together with the net balance of any sum standing to the credit of such member on Standing Deposit Account after deducting all amounts due from such member to the Clearing House under these Regulations." (emphasis added)
Of reg 39, Maxwell P said that it indicated that the Clearing House was not obliged to pay to a creditor member a credit balance until the debtor members in the relevant clearance had paid their debit balances. His Honour said[26]:
"That the Clearing House does not bear the commercial risk of default is hardly surprising. Its function is to effect a monthly clearance of claims made by members against each other. It is not a bank. It has no funds of its own. ... The Clearing House's immunity from risk is consistent with its function, and in no way inconsistent with its having debtor/credit relationships with its members. After all, a secured creditor does not bear the commercial risk of a default by the debtor, but is no less a creditor for that."
[26](2006) 60 ACSR 468 at 475 [29]; 24 ACLC 1381 at 1386.
The Regulations, in particular reg 9, support the submission of IATA that under the Clearing House arrangements no liability to effect payment arises between airlines and that the only debt or credit which arises is that between IATA and the member airline in relation to the final, single balance of all items entered for the relevant clearance. This is the consequence of the bargain struck by airlines such as Ansett when they became parties to the relevant multilateral agreements. That construction of the Clearing House arrangements should be accepted.
Nettle JA (with whom Bongiorno A-JA agreed) said[27]:
"If reg 9(a) stood alone, it would be hard to resist [IATA's] argument. Its terms do imply the annihilation of the debt and its replacement with rights as against the clearing house alone. But, for the reasons already stated, the provision must be read in context and, in particular, having regard to the other paragraphs of reg 9. The first and perhaps most important of those for present purposes is reg 9(b)."
[27](2006) 60 ACSR 468 at 493 [95]; 24 ACLC 1381 at 1399.
Before turning to reg 9(b) something should be said respecting the second sentence in the above passage. Upon the construction accepted above in these reasons, it is not a matter of "the annihilation" of any otherwise subsisting debt due and owing by one airline to another and the "replacement" of that debt with rights exclusively against IATA. Certainly the contractual arrangements between the respective airlines and IATA for the operation of the Clearing House system gave rise to procedural and substantive rights and obligations of the nature identified earlier in these reasons. However, those substantive rights and obligations, as between airlines, did not have the character or quality associated with the relationship of debtor and creditor as ordinarily understood.
The primary operation of reg 9(b) is to constitute for the Clearing House an irrevocable authority to clear "any claim (debit or credit) for clearance". What follows is a proviso whereby in certain circumstances the Manager of the Clearing House may "suspend" all clearance between certain members and during that period of suspension the parties are "absolved" from their respective obligations to settle only through the Clearing House. The circumstances which enliven the power of suspension are the receipt by the Clearing House of notification that the amount of a claim which has been notified for clearance has been attached, garnished or otherwise seized by issue of a court order.
This is, in effect, what Ansett attempted to do in advance by the contractual arrangements it made with the other airlines that were utilising the Clearing House. Whether this was effective or ineffective to extinguish the initial debt occasioned by the provision of services by the carrying airline for the issuing airline, once insolvency supervened it became necessary to re-examine the private contractual arrangements to see if they could stand with the fundamental purposes of administration of the affected corporation in insolvency, pursuant to the scheme established by Pt 5.3A of the Corporations Act.
In answering that last question, I remind myself of the fundamental words of Bowen LJ written more than a century ago in Ex parte Milner[123]:
"[T]he creditors who take part in the scheme act upon the faith and understanding that they are all coming in upon terms of equality, and if a deed is prepared to carry out this equal distribution, every creditor who executes it does so on the faith that there is no private bargain with any of the other creditors which will destroy this equality."
[123](1885) 15 QBD 605 at 616.
The cardinal principle that sustains this conclusion is quite similar to that which this Court upheld in Akai Pty Ltd v People's Insurance Co Ltd[124]. That was a case where a contract of insurance with an Australian company contained a clause, inserted by the insurer (a Singapore company), providing for disputes to be referred to the courts of England. Allowing the appeal, this Court concluded that it was essential for an Australian court, whose jurisdiction was invoked, to measure any such contractual stipulation against the requirements of the applicable Australian public law. In that case the relevant law was the Insurance Contracts Act 1984 (Cth). In Akai, the majority in this Court observed[125]:
"The grant of a stay would involve the [Australian] court so exercising its discretion as to stay its process in favour of an action in a court where the statute would not be enforced. This stay would be granted on the basis that in so doing a contractual obligation would be implemented. But the policy of the Act, evinced by s 8, is against the use of private engagements to circumvent its remedial provisions. To grant a stay in the present case would be to prefer the private engagement to the binding effect … of the law of the Parliament. This indicates a strong reason against the exercise of the discretion in favour of a stay. The policy of the law and of the Constitution militates against a stay.
In the event, it is unnecessary to decide the case solely upon this basis. That is because the Act itself provides, in s 52, a direct answer. … The section operates to render void a provision of the Policy which would … have the effect of excluding, restricting or modifying … the operation of the Act. The phrase 'the operation of this Act' includes the operation, to the advantage of Akai, of s 54. In the Court of Appeal, Kirby P so held in his dissenting judgment[126], and we agree."
[124](1996) 188 CLR 418.
[125](1996) 188 CLR 418 at 447 per Toohey, Gaudron and Gummow JJ.
[126]Akai Pty Ltd v People's Insurance Co Ltd (1995) 126 FLR 204 at 215-216 (NSWCA), misreported in (1996) 188 CLR 418 as (1995) 126 FLR 204 at 225.
Conclusion: contracting out unsuccessful: The reasoning in Akai applies to the present case. This is so although there is not here an express statutory prohibition on contracting out of the provisions of Pt 5.3A of the Corporations Act as existed under the Insurance Contracts Act. Doubtless this was so because the scheme of that Part of the Corporations Act is to commit to a majority of creditors the decision, in the first instance, of whether or not to execute a deed of company arrangement. Once that has occurred, the familiar principles of insolvency law take effect. These include the normal consequences for the protection of the company itself and its creditors inter se against those who, in Mr Mokal's words, try to "leave [their] assigned place in the queue and step ahead of others".
Inconvenience and policy: I appreciate that the outcome that I favour, alike with the majority of the Court of Appeal, would inconvenience IATA and its members, just as the outcome in British Eagle would doubtless have done.
On the other hand, the Clearing House secures for participating airlines a distinctive priority, amounting to a preferential discharge at full price of unsecured obligations owed by an insolvent airline to other airlines. If effective, this would protect recipients of such payments at the cost of the equity defended by the priorities otherwise contemplated by the insolvency provisions of the Corporations Act and established by the Deed.
No doubt unpaid airline pilots, employees, small contractors and other unsecured creditors would have their own views about the comparable merits of their respective claims upon the property of Ansett and the competing claims of large corporate airlines. They might well regard such airlines as much better able to absorb and defray the losses caused, exceptionally, by the financial collapse of an air carrier. This Court is not concerned to weigh the competing merits of the claims of the several creditors. Its only obligation is to give effect to the requirements of the applicable Australian law.
Where, as I would hold, the private contractual arrangements between Ansett, other airlines and IATA before the insolvency conflict with the provisions and fundamental purposes of the public law on corporate insolvency, it is the latter that must prevail. The Clearing House will continue to govern, with efficiency and mutual benefit, the overwhelming number of transactions between participating solvent airlines. If greater protection for participants in the Clearing House is required, it may be possible to achieve it by different contractual stipulations, involving for example novation of the original debt[127]. More likely, any such greater protection would require statutory provisions of a specific or general kind or international treaty arrangements given legal effect by municipal law.
[127]See the General Regulations of the London Clearing House described in Goode, Principles of Corporate Insolvency Law, 3rd ed (2005) at 219.
It is basic to the success of the equitable distribution of property amongst creditors, which lies at the heart of the statutory system on insolvency, that particular creditors may not, by their own private contractual dealings, bargain between themselves so that, if insolvency occurs, they will effectively be immune from the discipline of the statutory ranking. If that could be done by private contract, as IATA argued here, the operation and policy of the administration of a company in insolvency under statute would be seriously threatened. Effectively, it would be rendered optional. Individual creditors by their contractual arrangements could circumvent the statutory provisions and the important social and economic policy they reflect. I deprecate departures from the fundamental principles of insolvency and bankruptcy law which it is the duty of this Court, so far as it can, to uphold.
In a choice between private contract and public statute, this Court's clear obligation under the Australian Constitution is to give effect to the statute. This is what the majority of the Court of Appeal did. They were correct to do so. Their orders should not be disturbed by this Court.
All airlines, and IATA itself, when they reflect upon it, would fully understand Mr Mokal's metaphor that creditors of an insolvent company must not "be allowed to leave [their] assigned place in the queue and step ahead of others". Airlines have to deal all the time with passengers and shippers who try to jump the queue. Such conduct is not acceptable at airports or in airline offices. Nor, without clear and express legal authority, is it acceptable in courts of law or elsewhere, once the provisions of insolvency law have been engaged and apply. There was no such legal authority here. The individual creditors must therefore be told to return and take their proper place in the queue.
Orders
The appeals to this Court should be dismissed with costs.