International Air Transport Association v Ansett Australia Holdings Limited
[2007] HCATrans 515
•5 September 2007
[2007] HCATrans 515
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Melbourne No M51 of 2007
B e t w e e n -
INTERNATIONAL AIR TRANSPORT ASSOCIATION
Appellant
and
ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
First Respondent
MARK A KORDA AND MARK MENTHA
Second Respondents
Office of the Registry
Melbourne No M52 of 2007
B e t w e e n -
INTERNATIONAL AIR TRANSPORT ASSOCIATION
Appellant
and
ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)
Respondent
GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
HEYDON J
CRENNAN J
KIEFEL J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 5 SEPTEMBER 2007, AT 10.17 AM
Copyright in the High Court of Australia
__________________
MR S.J. GAGELER, SC: If the Court pleases, in each matter I appear with MR C.M. CALEO, SC for the International Air Transport Association. (instructed by Clayton Utz)
MR N.J. YOUNG, QC: If the Court pleases, in each appeal I appear with MR M.C. GARNER and MR O. BIGOS for the respondents. (instructed by Arnold Bloch Leibler)
GLEESON CJ: Yes, Mr Gageler.
MR GAGELER: Two completely procedural matters. We have provided your Honours with a copy of the whole of section 9 and Chapter 5 of the Corporations Act as it existed at the relevant times. Unfortunately there is no authorised reprint. I will need to go to some of those provisions in due course. The other thing is, your Honours may have noticed that in volume 2 of the joint appeal book at pages 814 and following there appears an amended deed of company arrangement. That postdates the judgments in the present case and, of course, cannot be received and is irrelevant to any issue in the appeals.
GLEESON CJ: Thank you.
KIRBY J: Could you just help me with a matter which I have not sorted out in my mind and it is entirely preliminary to the case. The matter has been prepared in the written submissions on the basis that you only reach the public law issues second. In other words, you get clear what the IATA agreement is first and that is the way both sides have, I think, pursued the matter.
MR GAGELER: It stems from the way in which Ansett has framed the public law doctrine upon which it relies, but, yes.
KIRBY J: The only thing that occurred to my mind is that the Court has said that where there is written law, one should normally start with the written law and, as it were, get the context of the public law before one goes into the private agreements to the parties. I am not suggesting that that should cause the parties to change the way they are presenting it because ultimately I will sort it out in my own mind. Is that not conceptually the correct way to approach the matter?
MR GAGELER: Your Honour is right. I had prepared a little introduction that I hope will satisfy your Honour ‑ ‑ ‑
KIRBY J: I see. I should have known you would anticipate ‑ ‑ ‑
GLEESON CJ: You and Mr Young have agreed between yourselves on the division of the time?
MR GAGELER: Yes. He drove a hard bargain, but I think I have enough time. Your Honours, this is a technical case and it seems best to define the issues in fairly technical terms. There are three dates that are critical for the purposes of the application of Part 5.3A of the Corporations Act. The first date is 12 September 2001, which was the date of the first appointment of administrators under section 463A of the Corporations Act. The second date was 27 March 2002, which was the date of the resolution of creditors under section 439C(a) of the Act, that resolution being that Ansett enter into a deed of company arrangement. The third date was 2 May 2002, which was the date of execution of the deed of company arrangement, which thereupon became binding on creditors by force of section 444D of the Act and binding on Ansett and the administrators by virtue of section 444G.
Although it nowhere appears very clearly in the judgments or the pleadings or the evidence contained in the appeal books, it may be helpful to recognise that the subject matter of the underlying dispute between IATA and Ansett can be identified in this way; as charges – I am trying to put it neutrally – for transportation services performed under multilateral interline agreements by Ansett as a carrying airline or against Ansett as an issuing airline, those charges being the subject of claims under the IATA clearing house regulations which were notified to IATA after 12 September 2001 and ‑ ‑ ‑
KIRBY J: You are dropping your voice, Mr Gageler.
MR GAGELER: Yes. Notified to IATA after 12 September 2001 and cleared by IATA before 27 March 2002. So notified by Ansett and by other airlines after the appointment of the administrators on 12 September 2001, and cleared before the date of the resolution of creditors on 27 March 2002. To complete the picture of what those claims are, the claims notified to IATA by Ansett after 12 September 2001, were notified by Ansett as the carrying airline, and they were in respect of transportation charges in all cases for transportation services performed by Ansett before 12 September 2001.
The claims notified against Ansett as issuing airline were in all cases in respect of tickets issued by Ansett before 12 September 2001, but in some cases the transportation had occurred before that date, in some cases the transportation had occurred after that date. Nothing turns on that last fact but your Honours ought be aware of it. The resolution of the dispute with respect to those claims for charges, that is, notified after 12 September 2001, cleared before 27 March 2002, turns in the way in which the issues have been framed by the parties, probably on one question, in our submission, and at a pinch on two questions.
The question that definitely arises is the question that divided the Court of Appeal, and that question is, on the proper construction of the multilateral interline agreements and the clearing house regulations what were the rights and obligations of Ansett with respect to those claimed charges as at 12 September 2001, that is, as at the date of the appointment of the administrators?
There are perhaps conceivably a number of possible answers to that question. There are just two in contention between the parties. The answer for which Ansett contends and to which Justice Nettle was persuaded, carrying the majority in the Court of Appeal, is that in respect of each claim where transportation had occurred as at 12 September 2001, Ansett stood in relationship either of the debtor of the relevant carrying airline or as creditor of the relevant issuing airline, as the case may be.
The answer for which IATA contends and which was given by President Maxwell in the Court of Appeal and by Justice Mandie at first instance, is that the only rights and obligations of Ansett at the relevant date were procedural rights and obligations to have each claim made to IATA and cleared by IATA, and the substantive, albeit contingent, right or obligation either to receive from IATA or to pay to IATA whatever balance may become due upon clearance being effected.
GLEESON CJ: Does anybody contend for an intermediate position of the kind that Lord Cross seemed to find in the British Eagle Case, that is, that the rights of Ansett were innominate choses of action having some of the characteristics of debts?
MR GAGELER: Yes. He found that they had the characteristic of a deferred debt, in essence, that is, that there was an underlying right and liability, but there was a contractual moratorium on the enforcement of the right or liability. In essence ‑ ‑ ‑
GLEESON CJ: Does either side contend for ‑ ‑ ‑
MR GAGELER: ‑ ‑ ‑ that is my learned friend’s case. He is saying that the position as currently exists is no advance on the position as the House of Lords considered it in an earlier form of the agreements in British Eagle. Yes.
GLEESON CJ: Thank you.
MR GAGELER: If 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. It appears not to be in dispute that if we are right on construction, the declarations made by the Court of Appeal which appear at pages 798, 799 of the appeal book cannot stand and the declaration made by Justice Mandie, which appears at page 718, ought be reinstated.
The second question then, this public policy question, only arises if the construction advanced by IATA is rejected and that advanced by Ansett is accepted. The question then becomes whether by operation or what must, on analysis, be a common law principle of public policy, the clearing house regulations ceased to apply on and from 12 September 2001 on the basis that their application after that date would be inconsistent with or repugnant to the rights and obligations ultimately set out in the deed of company arrangement which was the subject of the resolution on 27 March 2002 and which was executed and commenced on 2 May 2002.
Our answer to that, which I will develop in due course, is that the application for clearing house regulations after 12 September 2001 and before 27 March 2002 was not inconsistent with or repugnant to any right or obligation of Ansett or the administrators or its creditors under the deed of company arrangement. When you look at the deed of company arrangement it is expressed to have some minor retrospective operation back to 27 March 2002, but it simply does not purport to address the rights and obligations of creditors or of Ansett in respect of anything occurring before 27 March 2002.
GLEESON CJ: Now, that second issue identifies Ansett’s fallback position.
MR GAGELER: Yes.
GLEESON CJ: A position to which it is necessary for Ansett to fall back, only if they are wrong on their primary argument about construction.
MR GAGELER: No, Ansett needs to be right about construction of the agreements between the airlines and IATA, and then it needs to be right about its construction of the deed of company arrangement because that is how it gets ‑ ‑ ‑
GLEESON CJ: Your fallback position.
MR GAGELER: My fallback position, yes.
HEYDON J: I think a little while ago you said “Ansett” when you meant IATA.
MR GAGELER: That was probably a source of confusion, I am sorry. We add, perhaps unnecessarily, in answer to the public policy argument that even if there were an inconsistency or repugnancy between the clearing house regulations on the one hand and the deed of company arrangement on the other hand, there is no principle, common law principle, public policy, which would operate retrospectively to deprive the contractual arrangements of the parties of contractual force during that period of administration under Part 5.3A of the Corporations Act.
Whatever the scope of the so-called British Eagle principle, it does not, in our submission, extend that far. So, your Honours, can I start with the question ‑ ‑ ‑
KIRBY J: Could I just ask – I noticed in the footnotes to the written submissions that there have been various cases which have touched on the issues that are being debated, but one would have thought that since 1975 there would have been a number of airline economic failures and therefore a series of experiences in other countries on this score. Has that been analysed, what has happened in the other countries, or are we unique?
MR GAGELER: The answer is although it may seem surprising there are no authorities. Although we have put a number of authorities on our list I am not proposing to take your Honours beyond the decision of the House of Lords in British Eagle. Your Honours, can I then deal with the principle question of the construction of the multilateral interline traffic agreement and the clearing house regulations and ask your Honours to turn to volume 1 of the joint appeal book?
Of the four multilateral interline traffic agreements it is sufficient to look in any detail only at the first of them that your Honours will find at page 120. The others, although differing in some of their verbiage, are in substance to like effect.
At page 120 your Honours see the beginning of the “INTERLINE TRAFFIC AGREEMENT – PASSENGER”. It is, as the heading above it suggests, a multilateral agreement and your Honours can infer from what appears at page 92 of the appeal book that at relevant times there were some 218 airlines which were party to this multilateral agreement. The obvious purpose of the agreement you pick up from the recitals. Within the definitions in article 1 your Honours might note definitions of “AIRLINE, CARRYING”, “AIRLINE, ISSUING”, “MISCELLANEOUS CHARGES ORDER”, “TARIFFS” and “TICKET”. Article 2.1 then provides:
2.1.1 Each party hereto is hereby authorised to issue or complete:
2.1.1.1 tickets, or MCOs exchangeable for tickets, for transportation of passengers,
2.1.1.2 all other documents necessary or appropriate for such transportation;
all in the form approved by, and in accordance with the tariffs and the terms, provisions, and conditions of the tickets, and other documents of the party over whose routes the passenger is to be carried.
So that deals with the issuance of tickets. The acceptance is then dealt with in 2.2 just below it.
KIRBY J: The tickets are the carrier’s ticket? They are not IATA tickets? IATA’s symbol is often on the tickets, as I recall, but they are the tickets of the carrier?
MR GAGELER: That is right, of the carrier.
KIRBY J: The carrier is the one that carries the passenger?
MR GAGELER: Yes, that is right. Then:
2.2.1 Each party agrees to accept each such ticket, or other transportation document and to honour each MCO issued by any other party hereto and to transport passengers and baggage as specified therein, subject to its applicable tariffs and subject to the terms of this agreement and applicable regulations and clearance procedures of the IATA Clearing House.
So there you have in the obligation to accept the ticket and to perform the transportation service, that obligation being expressed from its inception to the subject to the applicable clearing house regulations. One then goes to article 8.1 which appears a couple of pages further over and, omitting some words, it provides:
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 airlines.
The words “in accordance with”, in our submission, are to be read as meaning “as provided by”. What they do is define or explain the content of the agreement to pay for which clause 8.1 provides. They are not, in our submission, directed simply to the manner of payment which accords with the approach of President Maxwell in the Court of Appeal. What article 8.1 is saying is that the obligation of the issuing airline to pay and the corresponding right or entitlement of the carrying airline to receive the transportation charges for the transportation performed under clause 2.2 is qualified or explained or defined by the totality of the clearing house regulations to the extent that they apply substantively as well as to the extent that they apply procedurally.
CRENNAN J: So does that mean you do not characterise the arrangements as those of debtor and creditor?
MR GAGELER: Correct, yes. But for those words.
GUMMOW J: There is no choice of law provision, is there?
MR GAGELER: I think there is. This is mentioned at the end of Justice Nettle’s judgment, but no one suggests or no one has presented evidence to the effect that ‑ ‑ ‑
GLEESON CJ: That was dealt with in British Eagle.
MR GAGELER: Yes. There is no suggestion that the proper law is relevantly any different.
GUMMOW J: Is there a choice of law clause? That is what I need to know.
MR GAGELER: No, there is no choice of law clause.
GUMMOW J: There was in British Eagle.
MR GAGELER: I am sorry, your Honour. Yes, your Honour is right. Article 8.2 then deals with what are undeniably mechanical or procedural matters. It says that:
8.2.1 Billing 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.
That manual is in the appeal books. It begins at page 323. It is entirely procedural and I have no reason to take your Honours to it.
GLEESON CJ: What, if any, significance attaches to the concluding words of 8.1?
MR GAGELER:
unless otherwise agreed by the issuing airline and the carrying airline.
It means that the agreement may well apply as between parties where the clearing house regulations have no application. That can be either because they agree to contract otherwise than in accordance with the IATA Clearing House, or perhaps because they are simply not members or one or other of them is not a member of the IATA Clearing House. That gives content then to the operation of 8.2.3 upon which Ansett places some significant reliance in its written submissions. It provides:
8.2.3 Except as may otherwise be provided in other agreements, rules or regulations, the right to payment hereunder arises at the time such services are rendered by a party hereto or its agent.
So that provision is a default provision. It can be displaced by another agreement or it can be, and in our submission is, displaced in cases to which the IATA clearing house regulations apply by the terms of the IATA clearing house regulations themselves.
KIRBY J: What is the status of IATA? I see on 110 and 111 it looks as though it is an incorporated association in the Province of Quebec in Canada.
MR GAGELER: It is created under an Act of Incorporation of the Canadian Parliament.
GUMMOW J: Page 110.
MR GAGELER: Your Honours see that at pages 110 to 111.
KIRBY J: It has no status in international law? It is ‑ ‑ ‑
MR GAGELER: Yes. It is a corporate entity created under the law ‑ ‑ ‑
KIRBY J: That is in municipal law of Canada.
MR GAGELER: Yes, that is right.
KIRBY J: But it has no United Nations status.
MR GAGELER: It is not like the Tin Council, no.
GUMMOW J: I hope not.
MR GAGELER: It is a corporation incorporated under Canadian law. Sorry, your Honour?
HAYNE J: I hope it is not like the Tin Council.
MR GAGELER: I should not have said that. Can I just mention one other thing? I glossed over 8.2.2 but for completeness I should draw your Honours’ attention to it, page 126, again a procedural matter. It says:
Unless 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.
In case your Honours are wondering what that document is, it is what you see beginning at page 157 of the appeal book. It looks like a cover page was omitted, but it is in two parts, part A that begins at page 157 is the regulations and part B that begins at page 175 is the procedures, and you put those together and put a cover on it and it becomes the Manual of Regulations and Procedures.
The clearing house regulations then if your Honours look to page 110 to the Canadian Act of Incorporation of IATA you will see that IATA in clause 5, or section 5, is permitted to make bylaws, rules and regulations of various sorts, and the regulations in question fall comfortably within section 5, paragraph (d).
One then comes to the regulations themselves beginning at page 157. What you see on page 158 is a number of relevant definitions. Your Honours might note the definition of “Billing”, “Clearance”, “To Clear” and “Clearing House” ‑ ‑ ‑
KIRBY J: That is clearance of accounts, accounts for what - in regulation 2?
MR GAGELER: Well, accounts in respect of a whole range of transactions, and I will come to show you that in just a moment. So you see regulation 2, which is the establishment of the IATA Clearing House. You see regulation 4, which deals with membership. It is shown at page 84 of the appeal book that there were at relevant times over 300 participants for relevant purposes, members of the clearing house, of which 216 were members of IATA. You go over then to regulation 8 on the next page, and it provides that:
8.The function of the Clearing House is to effect monthly clearances and to pay to or to collect from members and such other organisations which are entitled to use the services of the Clearing House the balances found to be due by or to the Clearing House, and to take such action as may be necessary or incidental thereto.
I will come back to regulation 9 in a moment, but to answer in part your Honour Justice Kirby’s question, if you go across to regulation 10, just above it you will see a heading “SCOPE OF CLEARANCE” and you will see that regulation 10 specifies the transactions that must be cleared through the clearing house, whereas regulation 11 specifies that there may be other transactions that may be cleared through the clearing house at the option of certain of the participants in those transactions.
Within the scope of the transactions that must be cleared through the clearing house your Honours will see on the fourth line of regulation 10 a reference to:
all transactions between members pursuant to their participation in the IATA Multilateral Interline Traffic Agreements –
So those must be cleared through the clearing house. One then goes to regulation 9.
GUMMOW J: Regulation 13 is important because one of the objects of all of this is to cut down a plurality of currency dealings, I guess.
MR GAGELER: Definitely.
GUMMOW J: And save the costs involved in that, I suppose.
MR GAGELER: Yes.
GUMMOW J: So this fixes upon the dollar, the euro and the pound.
MR GAGELER: That is right, and, your Honours, that is the subject matter of regulation 13, but it is important to emphasise because it is also the subject matter of regulations 14 through to 19. It is all about currency. Your Honour is quite right. Can I go back to ‑ ‑ ‑
KIRBY J: Is there a house history of IATA? Is there some institutional history that has been published that gives a background to the organisation?
MR GAGELER: Yes. If your Honour would be assisted by that, I can attempt to find it and track it down.
HEYDON J: Taking evidence in this Court.
KIRBY J: I just want the background.
MR GAGELER: Happy enough to provide it, your Honour. Regulation 9 then is at the heart of the case and, indeed, regulation 9(a).
GUMMOW J: Regulation 9(a) has been changed since British Eagle, has it not, or added to, is that right?
MR GAGELER: Well, put in in terms and I will show you this in due course. The language of 9(a) pretty much reflects the language of Lord Morris in his minority opinion in the House of Lords. I mean, some of the words are actually drawn from that and I will come to that later.
GLEESON CJ: Are the side notes part of the regulations?
MR GAGELER: I do not know the answer to that, your Honour. I will have that checked. Regulation 9 provides:
The admission to membership in the Clearing House shall constitute a contract ‑ ‑ ‑
HAYNE J: In answer to his Honour the Chief Justice, page 174, article 60 or regulation 60 seems to be the answer to it, does it not?
MR GAGELER: It seems a clear answer, your Honour, yes.
HAYNE J: No.
MR GAGELER: No. Thank you. I was not going to add that. Regulation 9:
The admission to membership in the Clearing House shall constitute a contract between each member and every other member and IATA to the effect following, that is to say:
(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 –
Justice Nettle at page 772 of the appeal book described regulation 9(a) as involving the use of a label. In our respectful submission, that is simply a wrong label for his Honour to use. Regulation 9(a) in form and in substance is a statement of the intended legal incidence of the contractual relationship involved in the tripartite contract between IATA, each member of the clearing house and each other member of the clearing house and it is that tripartite contract with those legal incidents that then get incorporated by reference into article 2.2 and article 8.1 of the multilateral interline agreement.
When regulation 9(a) says that, as “between members of the Clearing House . . . no liability for payment and no right of action to recover payment shall accrue”, there is, in our submission, no reason, as a matter of contract, why it cannot achieve the result to which it literally refers.
There is no allegation and no finding that it amounts to a sham and, on a proper analysis, in our submission, the finding ultimately made by Justice Nettle at page 782 of the appeal book that, as a matter of construction, it does not mean what it says – indeed, says Justice Nettle, it means quite the opposite. It should be construed as meaning that, although liability exists, there is a prohibition or moratorium on its enforcement - that finding, in our submission, just lacks a proper basis. I will explain why that is.
KIRBY J: Was the change in the text at 9(a) and how this was brought about by the IATA council, or whatever it is, proved in evidence?
MR GAGELER: It was. Ansett sought to make something of that in its favour at trial, but the bottom line ‑ ‑ ‑
KIRBY J: I would have thought that favours your side because it shows what was the purpose of the contracting parties.
MR GAGELER: There was not a great deal of resistance, your Honour, to the proposition that Ansett was advancing at trial. Your Honours will note that President Maxwell, at page 755, and Justice Nettle, at the bottom of page 772, both accepted – and this is entirely uncontroversial – that the current version of the clearing house regulations were entered into not only after the decision in British Eagle but with the intention of “[overcoming] the decision” in British Eagle. Really what Justice Nettle’s conclusion amounts to is that, although that was the contractual intention of the parties – and it is a contractual intention that could have been achieved – it is a contractual intention that failed.
GUMMOW J: I know, but it assumes that people knew what the reasoning of the majority in British Eagle meant.
MR GAGELER: I suppose they did they best to understand it.
GUMMOW J: Yes, exactly.
MR GAGELER: I have read it many times, and I think I am pretty close to it, your Honour.
HAYNE J: Good.
MR GAGELER: I know. Your Honours, it is subject to dealing with a number of the specific provisions upon which our learned friends rely and to which Justice Nettle pointed to reach the opposite conclusion as a matter of construction. It is, in our submission, clear enough that regulation 9(a) on a literal construction is capable of working in perfect harmony with the overall scheme of the regulations. So what you have in regulation 9(b) is a provision – I will read out the proviso because I need to explain that.
GUMMOW J: But it says, “no liability for payment and no right of action to recover payment shall accrue”. But question: what else that in the law could be regarded as some rights or liabilities do accrue and, if so, how do those rights or liabilities in the law, however one describes them, then measure against the insolvency provision, which sweeps up certain claims. Is that not what it all comes to?
MR GAGELER: That is right. The short answer is, what is there if there is not an underlying existing debt? The answer is, there is a right and an obligation to effect clearance procedurally and there is ‑ ‑ ‑
GUMMOW J: Put it in Anglo common law terms. There could be a right to an injunction at the suit of a member to enforce these procedures.
MR GAGELER: Correct, yes. So there is the right to enforce the procedures and then there is a right by a member against IATA to receive a positive balance and a right by IATA against a member to recover a negative balance where such a balance results from an appearance process. That right can properly be described as a debt if and when it occurs.
HAYNE J: But neither issuer nor carrier has any other relevant right. Is that the tailpiece?
MR GAGELER: That is the tailpiece, yes. Yes.
KIRBY J: Did IATA establish at trial the number of transactions that pursued the trend over the years?
MR GAGELER: The number of transactions over the years?
KIRBY J: That are cleared through this system. I mean, it is difficult to conceive that the international air transport that we know today could happen without something like this.
MR GAGELER: Yes, it is billions of dollars and millions of transactions.
KIRBY J: You say that, but was it proved?
MR GAGELER: I will just see if there is something in ‑ ‑ ‑
KIRBY J: Justice Heydon cautioned me that I must not be receiving any evidence that is not strictly proved.
MR GAGELER: I will see if I can give your Honour chapter and verse.
KIRBY J: Unless it is within judicial notice or general knowledge.
MR GAGELER: I will give your Honour a precise answer. So there is just no difficulty with the literal operation of 9(a) operating in perfect harmony with the basic scheme, and the basic scheme is this. Clause 9(b) provides that:
Notification to the Clearing House of any claim (debit or credit) for clearance shall, subject to the Regulations, constitute an irrevocable authority to clear –
that is an irrevocable authority to the clearing house to clear. That is reinforced by regulation 24, which is to similar effect. Regulation 9(c) then says that:
The effecting of a clearance . . . constitute a satisfaction and discharge of every claim ‑ ‑ ‑
GUMMOW J: Where do we see that?
MR GAGELER: Clause 9(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.
The procedures for clearance are then set out in regulation 20 and following. I will need to come back to regulations 22 and 23 in a moment, but the basic procedures for clearance, beginning at 20 and skipping over to 25, 26, 27, 28, 29 and 30, we have summarised in our written submissions at paragraph 8, but basically there is a process for the notification of claims, for the clearance of claims ‑ ‑ ‑
KIRBY J: I notice in 30 it talks of “completion of debtor settlements”.
MR GAGELER: Yes, that is after clearance has occurred.
GUMMOW J: That is the settlement of what has been struck.
MR GAGELER: That is the debt that is created by the clearance, yes.
GLEESON CJ: The debtor to IATA.
MR GAGELER: To IATA, yes. That is right. That is when the debt comes into existence, in our submission.
KIRBY J: Do all the references to debt or debtor refer to debt to IATA or do you have to bring to our notice a couple of little provisions that cause some embarrassment to ‑ ‑ ‑
MR GAGELER: That would make it too easy and would give my learned friend little to argue about. He will point to ‑ ‑ ‑
KIRBY J: I just wondered when it was coming.
MR GAGELER: Regulation 12, I am coming to it. Your Honours read the judgment and your Honour knows that it is there. I am not avoiding it. I am just clearing the way. Your Honour, where it is suggested that the disharmony between literal operation of regulation 9(a) and other provisions of the regulation lies is in the judgment of Justice Nettle in the proviso to regulation 9(b) in regulation 12 and in regulation 49. I will deal with all of those and, in addition, in the written submissions of Ansett something is made of regulations 22 and 23.
Can I address regulations 22 and 23 first? They are within the part of the regulations that deal with clearance and settlement, and regulation 22 allows for a protest in the case of an improper billing, or what is alleged to be an improper billing, which may result – and your Honours will see this in paragraph (e)(ii) – in:
The Clearing House Manager shall, at his discretion . . .
(ii) eliminate the protested amount from clearance.
That is a possible result of protest. Where there is a dispute about a protest, regulation 23 cuts in. There is referral to a financial committee, and what regulation 23 says in a very dense style is that in the absence of a unanimous finding that the protest is justified the protested claim gets excluded from clearance. So what happens in the case of a dispute between the parties is that under regulation 22 or regulation 23 there will be cases in which some claims, the subject of dispute, will get excluded from the clearance process. That, says Ansett, points to the existence of an underlying debt because when they are excluded obviously the intention of the parties is that they will be able to be enforced as an ordinary debt.
The short answer to the argument is, if you turn back to regulation 9(a), you see in the third line that what it provides for is said expressly to be “subject to the provisions of the Regulations regarding protested and disputed items” so it is subject to regulation 22, subject to regulation 23, and there is not the slightest difficulty in reading 9(a) as only ever applying to items not excluded from clearance as a result of a protest or dispute.
That is, in our submission, a preferable construction, but it does not the slightest bit of harm to our construction, which is relevant for present purposes, to say that 9(a) is capable of applying to all items unless and until excluded from clearance as a result of protest or dispute. That is, there is not the slightest difficulty in saying that the relationship for which 9(a) provides applies up to a certain point of exclusion, and then ceases to apply from that point, in which case the regulations as a whole, but 9(a) in particular, cease to qualify and explain the relationship created by the multilateral interline agreements, article 2.2 and article 8.1. There then springs into existence a relationship of debt between the airlines. There is no difficulty regarding it as having that operation.
The next regulation that is relied upon is the second bit of regulation 9(b), that is, the proviso, and what it provides is:
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.
The argument against us based on regulation 9(b) is that the very reference to claims being attached, garnished or otherwise seized by order of a court must assume that those claims relate to an underlying debt, otherwise you could not have an attachment or seizure of that nature.
GLEESON CJ: That, as I understand it, was the principal basis of Lord Cross’ reasoning in British Eagle.
MR GAGELER: We did not see it particularly in Lord Cross in British Eagle. In British Eagle that was the subject matter of the former regulation 18(b). As we read Lord Cross – and I will come to this in due course – Lord Cross seized upon 18(c). That was the former regulation 18(b). I am not sure that there is a reference in Lord Cross’ judgment to 18(b). He seemed to focus his attention on the use of the word “debts” in 18(c) and I will deal with that in due course. If your Honours do have British Eagle to hand, and I do not want to get distracted by it too much just yet, an argument based on regulation 18(b) which was in this form was specifically addressed by Lord Morris and he addressed it at 767G.
GLEESON CJ: Lord Cross deals with it at page 777 in the middle of the page.
MR GAGELER: Yes, I am sorry, your Honour, yes.
KIRBY J: Lord Morris was dissenting, I think.
MR GAGELER: Yes, your Honour is right. Lord Cross treated that as an indication of the construction for which he contended which – for which he found based principally upon regulation 18(c), but he saw that as indicating a further intention in that regard. We would ask your Honours to adopt the approach of Lord Morris at 767 and to note that regulation 9(b) in the proviso really can be said to contemplate nothing more than the fact of an order being made in any one ‑ ‑ ‑
GUMMOW J: Whereabouts is this?
MR GAGELER: Page 767G. It really only points to the fact of an order which could be made in any one of a myriad of jurisdictions and it provides only for suspension not withdrawal from clearance which suggests a contemplation that the order would not be likely to be maintained once the court was apprised of the true relationship between the parties, which is really the essence of what Lord Morris is saying at page 767.
KIRBY J: But why would we prefer Lord Morris given that (a) this was decided a long while ago by the House of Lords, (b) you accepted it and acted on it and (c) the majority view has been applied in many cases although not, it seems, airline cases? It is a big ask, especially the fact that you accepted it and acted on it.
MR GAGELER: No, the question is whether the existence of that proviso contradicts the intention stated in regulation 9(a) to the point where the intention stated in regulation 9(a) cannot be given its obviously intended construction.
KIRBY J: I can understand that argument, that is the construction argument, but that we go back and revisit what their Lordships considered and decided is a big request, I think.
GLEESON CJ: Their Lordships were not construing 9(a).
MR GAGELER: They were not construing 9(a) ‑ ‑ ‑
GLEESON CJ: Our problem is construing 9(a) in the light of (b).
MR GAGELER: That is right. When you look at (b), it is perfectly explicable without the need for it to be treated as contradicting 9(a) and the most satisfactory explanation for it is the one that was given, essentially, by Lord Morris.
GUMMOW J: It is also given by Lord Justice Russell who was, in some ways a more formidable operator in [1974] 1 Lloyds Rep 429 at 433 in the right‑hand column and it might be an idea to look at Lord Templeman too as the trial judge, another formidable operator.
MR GAGELER: That is right. I mean if you add up the number of British judges who decided the point, they ‑ ‑ ‑
KIRBY J: We do not normally do it that way.
MR GAGELER: But your Honour is not bound by anything they say in any event.
GUMMOW J: We are just looking for the cogency, that is all, and then we have to fit it with 9(a).
MR GAGELER: Yes. Although mentioned – and I had forgotten it was even mentioned by Lord Cross, it really is not a significant part of his reasoning – it is mentioned just getting to 18(c). That is the proviso to 9(b). You then go to regulation 49 which deals with suspension from membership in certain cases. Where there is suspension from membership what follows is in paragraph (c) of regulation 49. Airlines become absolved “from their obligation to notify claims” although there is no effect, if you look at paragraph (i), no effect on the obligation of IATA to effect claims that have been notified, but it is said against us that the absolution from the obligation to notify claims carries with it a contemplation that, in respect of transportation which has already occurred, at the date of suspension those claims will be able to be enforced as debts.
So far we do not disagree, but then it is said, so they must always have been debts. That is where our response is simply this, that there is not the slightest conceptual difficulty with a debt springing into existence upon and for the duration of a period of suspension. That can perfectly happen as a matter of contract law. We put in our submissions in reply an extract from the reasoning of Lord Justice Russell in the Court of Appeal in British Eagle and there is no difficulty with that proposition as a matter of contract.
Next, your Honours, and perhaps most significantly, in the judgment of Justice Nettle reliance is placed upon regulation 12. Coming back to your Honour Justice Kirby’s question about the use of the word “debts”, this is where it is. Regulation 12 is, on any view, a difficult provision. What it says in the first sentence is that:
All transactions within the scope of clearance are hereby deemed mutual debts of the parties involved.
It has a lot of problems from any ‑ ‑ ‑
KIRBY J: For whom?
MR GAGELER: Everyone, even Justice Nettle. A lot of problems. It literally deems transactions to be debts, problematic. It raises the question as to who were the parties involved and in what. Justice Nettle read it as meaning involved in the transactions. It can equally, and in our submission more preferably, mean involved in the clearance, but I will deal with that in a moment.
GLEESON CJ: Was it put in there to permit the set‑off that is integral to the clearing house procedure?
MR GAGELER: Yes. We see it, your Honour, basically as reinforcing the structure to which regulation 9(a) points. So if I can just explain our construction ‑ ‑ ‑
GUMMOW J: It is a slightly slippery slope for you though, is it not, because one usually has a contractual set‑off of debts, not unliquidated claim or innominate claim?
MR GAGELER: Regulation 12 is not necessary to establish the structure for which 9(a) provides.
GLEESON CJ: If there were a governing law provision, you might be able to explain regulation 12 by reference to some aspect of the governing law.
MR GAGELER: For example, hypothetically, the Americans may not use the word “debts” in quite the same technical sense that the British use the word “debts”, for example.
HAYNE J: It invites attention to exactly what question you are seeking to answer when you take us through the agreement. What precisely is the question you say is answered?
MR GAGELER: As at 12 September 2001, in respect of transportation which had occurred at that date governed by multilateral interline agreements and later submitted for clearance through the clearing house regulations, did there exist a relationship of debtor and creditor, between Ansett and other participating airlines?
GUMMOW J: What do you mean by “debtor” and “creditor?” We had a debate about this last week actually. The notion of “debt” and the notion of “credit” are not as plain as two pieces of cheese. They are artificial constructs in the law. Now, what do they mean in this particular setting and in our law, too?
MR GAGELER: There are two competing views and I accept that they are slippery concepts and they can mean a whole range of things ‑ ‑ ‑
HAYNE J: I know there are competing views, but what are you saying about debtor, creditor? Whose law for what purpose? Presumably Australian law. Are we thus far?
MR GAGELER: It has to be Australian law. That is the default position ‑ ‑ ‑
HAYNE J: For what purpose are you asking that question? Now ultimately the Corporations Act. I understand that. But what precisely is the question that is being addressed?
MR GAGELER: It is slightly difficult for me to answer the question of why one is asking that contractual question. It is slightly difficult for me to answer that because one is asking that contractual question because the answer for which Ansett contends to that question is the starting point for its public policy argument to the effect that the clearing house regulations cannot have applied after 12 September 2001. It is a question that necessarily arises on the way in which Ansett frames its public policy argument, which we do not accept. I do not know if I can give your Honour a better answer than that.
Can I come back to regulation 12 and state the construction for which we contend, and I do not pretend for a moment that any construction of regulation 12 is entirely happy or even slightly easy. When it refers to all transactions it is in the context referring to all transactions within the scope of clearance, the heading above regulation 10, that is, all transactions falling within regulation 10 and regulation 11.
When it is referring to the parties involved it is referring to the parties involved in the clearance of those transactions. All problems with its construction fall away if the reference to debts is read simply as a reference to dealings.
KIEFEL J: I am sorry, read as a reference to?
MR GAGELER: Dealings. But even if it is left at the word “debts” and it is left with the technical English meaning of the word “debt” ‑ ‑ ‑
GUMMOW J: Well, it says “are deemed”, that is the first question.
MR GAGELER: Yes.
GUMMOW J: So for what purpose? For the purpose of striking this balance. That is what it seems to be saying.
MR GAGELER: Yes, that is right.
GUMMOW J: I am not saying hostile to you, but is not that right?
MR GAGELER: That is right, and the deeming, in our submission, it is not deeming things that are not debts to be debts, it is deeming such debts as exist to be mutual, and if you read it that way then what it is seeking to achieve is a multilateral mutuality of – in respect of all parties to all clearances rather than a bilateral mutuality as to the specific parties to specific transactions. If you read it that way, in our submission, it reinforces rather than contradicts regulation 9(a).
GUMMOW J: But it is one of three sections headed “SCOPE OF CLEARANCE”.
MR GAGELER: Yes, that is right. You have to read it in that context, it is all about clearance.
KIEFEL J: But after the process of clearance, IATA accounts to the parties, does it not?
MR GAGELER: Yes, there is a process which results in a clearance amount ‑ ‑ ‑
KIEFEL J: What does it account to the parties for?
MR GAGELER: It will produce a statement to each party as to a negative balance or a positive balance, and for those parties which have a negative balance it will require payment within a specified time into an IATA bank account - this is regulation 28 - and then from that bank account it will the next day or so make a payment to those parties who have a positive balance. At that stage there is a relationship of debtor and creditor, and ‑ ‑ ‑
GUMMOW J: You go to 27, do you not? Rule 27?
MR GAGELER: That is right. Well, I did not want to go through the ‑ ‑ ‑
GUMMOW J: And then there were these creatures emerge called “debtor members”.
MR GAGELER: I do not want to necessarily go through the mechanics, but at that point, at the point of a balance being struck by the clearance process, regulation 9(c) in the last sentence makes clear that there is an entitlement on the part of IATA to recover the balance by legal action. So at that point there is, on any view of what a debt may be, a debt as between IATA and any member with a negative balance.
So, your Honours, in our submission, the factors to which Justice Nettle pointed and to which our learned friends point to contradict the plain language of regulation 9(a) do not achieve that result.
GUMMOW J: Was article 12 in any document considered in British Eagle? Did it get any attention?
MR GAGELER: No. It was inserted after British Eagle.
GUMMOW J: It was after British Eagle.
MR GAGELER: Yes, and, your Honours, to the extent that there is a tension between any of those particular provisions and regulation 9(a) – something that we do not accept – one would resolve that tension in favour of the obvious intention of the parties, that is, if one needed to, one would give primacy to the clear statement of intention in regulation 9(a) and seek to read the other provisions to produce a result harmonious with that.
The historical context is extremely important. As I said in earlier answer to a question from your Honour Justice Kirby, it was common ground, indeed established by the evidence if it was necessary to do so, that this version of the clearing house regulations was entered into with the commercial intention of overcoming the decision in British Eagle and the ordinary principles of contractual interpretation would suggest that the entirety of the agreement should be construed, if possible, as giving effect to that intention.
When one looks at the language of regulation 9(a), one can see that it has elements of the language employed by Lord Morris in his dissent in the House of Lords. If your Honours have British Eagle to hand, can I just point out the passages. At page 763C:
The essence of the scheme was that instead of there being debts as between members there should be either debits or credits in an account with IATA but no debts as between members.
At page 768C ‑ ‑ ‑
GUMMOW J: Has anyone set out the text of section 302 of the 1948 Companies Act?
MR GAGELER: I think Lord ‑ ‑ ‑
GUMMOW J: In the end, that is what was vital, was it not?
HAYNE J: It is in the headnote, I think – is it not?
GUMMOW J: Yes, but not in the judgment.
MR GAGELER: I think the answer is no, your Honour. The answer is no. Page 768C – it is in the headnote.
GLEESON CJ: Yes. That was just pointed out.
MR GAGELER: I am sorry. Sotto voce, I did not hear.
GUMMOW J: They were construing the word “liabilities” in section 302, were they not? That was the debate, was it not? They must have been. The headnote writer correctly thought so.
MR GAGELER: Yes. It was a step in the public policy argument, it seems.
GUMMOW J: No, it is not a public policy question.
MR GAGELER: No. I am sorry, your Honour. I think they may have been construing the word “property” because it is the word “property” that seems to be seized upon in the judgments.
GUMMOW J: The property of the company?
MR GAGELER: The property of the company, yes.
GUMMOW J: Yes, you are right.
MR GAGELER: You see that at 768, the passage I was about to read:
GUMMOW J: Yes; you are correct. That is right.
MR GAGELER:
When one airline effects a transportation in respect ‑
“of a contract”, I think that should be.
GUMMOW J: We had to know what the phrase “the property of the company” means. All we get is debts of which property is a large house. One room is labelled “debt”.
HAYNE J: Rights of action are another quite large room.
MR GAGELER: Yes. The property was characterised in two ways, depending on the construction of the regulations. On the construction adopted by the minority the property of the company was never to receive an amount by way of debt; the property of the company – I am going to read this. Page 768C says:
When one airline effects a transportation in respect [of] a contract entered into by another airline an obligation results. It might be called a debt owed by one operator to another but more accurately it is that which would be a debt but for the agreement made: by the scheme there is an agreement that in lieu of there arising a debtor/creditor relationship between members there will be debits or credits in account with the clearing house –
If you go back to 765, the second line, his Lordship here is referring to the relationship between airlines:
It followed that as between the appellants and the respondents no amounts were ever due or payable. When the appellants went into liquidation the “property” of the company could not and did not include any claim to receive money from the respondents for the reason that the respondents did not owe any money to the appellants. The property of the company included 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.
In our submission, it is clear enough that the draftsman of regulation 9(a) was seeking to make plain that the amended IATA regulations had the commercial intention of achieving that result. The context of British Eagle was a debt claim by the liquidator of British Eagle -claiming debt by the liquidator, British Eagle, against the French carrier.
GUMMOW J: Yes. Just what is going on is explained by Lord Justice Russell at the bottom of 431, quite helpfully I suspect, last paragraph:
It is to be observed that it is a matter of indifference to Air France . . . Air France is therefore fighting not so much its own battle as a battle on behalf of IATA and those airlines who are in net services credit ‑ ‑ ‑
MR GAGELER: Yes. Well, here IATA is fighting the battle.
GUMMOW J: Yes.
MR GAGELER: But it has some parallels. Your Honours have seen a sentence or so in our written submissions and a ground in our notice of appeal where we challenge the construction of the majority in British Eagle, but that seems a rather vain exercise in a sense. We are not concerned in the present case with construing the regulations as they stood at the time of British Eagle. Our fundamental point is that the regulations as amended after British Eagle were clearly intended to reflect the minority construction in the House of Lords. That minority construction we say should have been preferred at the time but, in any event, it should be preferred as the proper construction of the present regulations.
Your Honours, that brings me to the second question. That is as much as I want to say about the first question. As I said, if we are right on the first question, then on the way in which Ansett frames its case, one does not reach the second question.
The second question is if a relationship of debtor and creditor existed between Ansett and the other airlines as at 12 September 2001, did the clearing house regulations cease to apply on and from 12 September 2001 by reason of the operation of some principle of public policy operating by reference to the deed of company arrangement resolved to be entered into on 27 March 2002, and in fact, entered into on 2 May 2002.
Can I show your Honours very briefly the way in which Justice Nettle reasoned to the ultimate result on this point? In his judgment at page 785, having found at page 782 that regulation 9(a) as a matter of construction did not do what might have been thought it was intended to do, and the construction adopted in British Eagle of the former regulations applies in the new regulations, having found that as a matter of contract, turning to this principle of public policy he identified the principle at page 785, line 30 or so as having:
the effect of the principle, properly understood, is that a creditor may not lawfully contract with a debtor so as to achieve a distribution of property in insolvency which is different to that for which the laws of insolvency provide -
So that in essence is the principle, or what the principle stands for, as he identified it. He then goes on at page 787, line 22 or so, to say that:
the combination of Part 5.3A and the contents of a deed of company administration entered into in accordance with its provisions are no less a collective statutory regime for the distribution of property in insolvency than are the provisions of Part 5.5 -
So major premise is that the principle applies to a distribution of property in insolvency. The minor premise is that Part 5.3A read with the contents of a deed are provisions that apply in insolvency for that purpose. Then he goes on at pages 794 to 795 to say that there is an inconsistency between the operation of the clearing house regulations and the provisions of the deed of company administration. Where he identifies that inconsistency appears at about line 42 on page 794 where he says:
Clause 4.2.5 of the Deed prohibits a creditor from taking any action whatsoever to seek to recover any part of its claim other than pursuant to the Deed . . . Clause 1.4.1 of the Deed provides that, to the extent that there is any inconsistency between the Deed and “any other obligation binding on the Company” the Deed prevails. As I see it, therefore, each of the airlines is bound by the deed to enforce its claims against Ansett only in accordance with the Deed and because the provisions of the Clearing House Regulations for the clearance of claims are inconsistent with the provisions of the Deed, the Deed prevails.
There are two pretty fundamental problems, in our submission, with that chain of reasoning. One is that the principle which his Honour identifies at page 785 is stated at too high a level of abstraction. In a sense it is stated too widely and in a sense it is stated too narrowly. The underlying principle of contract law, the underlying common law principle, is that which we have extracted in our written submissions at paragraph 34, a half sentence we have taken from the joint judgment in Akai footnoted on that page. The principle, in our submission, properly identified as a matter of contract law is that the courts may disregard or refuse effect to contractual obligations which, whilst not directly contrary to any express or implied statutory prohibition, nevertheless contravene the policy of the law as discerned from a consideration of the scope and purposes of a particular statute.
GUMMOW J: What happened in Akai that called for that remark?
MR GAGELER: I think it was almost a passing remark in Akai, your Honour. Your Honours referred, in support of that remark, to a judgment of Justice McHugh where the idea is teased out a little more, but the principle as stated in our submission is a distillation of the underlying contractual principle. What it requires is for one to look very carefully at the scope and purposes of the particular statute involved.
In our submission, when you do look carefully at the scope and purposes of Part 5.3A, what you do not take from that is a legal policy retrospectively to unravel transactions occurring after the commencement of an administration, simply because they end up being inconsistent with whatever is contained in the deed of company administration that might or might not ultimately be entered into. That is one problem, probably the fundamental problem with his Honour’s approach. This is really sufficient for my purposes, when his Honour gets to the question of the construction of the Ansett deed of company arrangement and says at page 794 about line 42 that:
Clause 4.2.5 of the Deed prohibits a creditor from taking any action whatsoever to seek to recover any part of its Claim other than pursuant to the Deed -
what his Honour is ignoring entirely at that stage is the temporal operation of the deed. Clause 4.2.5 of the deed of company administration is expressed to apply on and from 2 May 2002. It is simply not addressing itself to anything that happened before 27 March 2002. I will come to that in a moment, but it is a fairly clear answer to what his Honour said. Can I go in my remaining allocated time ‑ ‑ ‑
HAYNE J: Just before you do, is there not a provision of the administration provisions that, in effect, freezes everything pending consideration of a deed, or do I misremember?
MR GAGELER: Not entirely. There is certainly a freezing of enforcement action during the period of administration, but part of the process of administration is, in some cases, to attempt to see if the company can trade its way out of the predicament that it is in, so the answer is no. I will take your Honours to Part 5.3 immediately, if I may.
Some of your Honours have looked at in a case called MYT Engineering 195 CLR 636. I just mention that. The question was whether the deed had to be executed as a deed. There are some passing remarks about the overall structure and origins of Part 5.3A in that judgment. Nothing we could see bears directly on any issue currently before the Court. Part 5.3A begins with section 435A, page 558 if your Honours are looking at the bound compilation that we have provided. It provides that:
That is recorded in the submission -
any repugnancy only arose when a DOCA was executed and had the force of law under s.444D of the Act‑
The difficulty with my learned friend seeking now to rely upon section 437D is, even if it were engaged by the language of subsection (1) being fulfilled, it would raise the factual inquiry that is necessary under subsection (2), and there was simply no exploration of that at trial. We would say, your Honours, in any event, that if you look at section 437D(1), what it is concerned with is the entering into of a new transaction or dealing. It is not addressed to the performance ‑ ‑ ‑
GUMMOW J: Yes, but section 437A has to be coped with.
MR GAGELER: Yes, but section 437D was sought to be raised. Section 437D is not engaged simply by the performance of obligations under an existing transaction or dealing. In any event, it cannot be raised because, if you got through subsection (1) you would go to subsection (2) and it raises a highly contestable factual inquiry. That deals with that.
Dealing with the way in which the case has become somewhat clearer insofar as it is based upon the deed of company arrangement in oral argument before your Honours, the case is really put in this way. Ansett asked as at 12 September 2001 what claims existed against Ansett within the meaning of section 553 and 444A(4)(i) of the Act, and what property did Ansett have within the meaning of section 501 and section 444A(4)(b).
It asked that question because it says that the effect of the statute – it is by no means clear to me how much public policy is still in play – is that the property then existing; that is as at 12 September 2001, is to be applied in satisfaction of the claims then existing in accordance with the deed of company arrangement and not otherwise. That is, in substance, what is sought to be got out of the statutory scheme.
Now, the basis for that submission appears to rely solely in section 444D(1) of the Act. If you look at section 444D(1), it does not do what Ansett seeks to have it do. For a start, it refers to binding all creditors. What is a creditor? A creditor is a person who currently has a debt or claim which answers the description in section 553 – that is a claim with certain historical characteristics that arose out of circumstances that existed as at 12 September 2001 but which is currently in existence as at the date of the deed of company arrangement.
There would be no point in its seeking to bind persons who have already been paid. There is some authority to the effect that that is the proper construction of the word “creditor” in this context. Can I give your Honours two references. One is Hoath v Comcen Pty Ltd (2005) 53 ACSR 708, a decision of Justice Barrett. The other is Australian Licenced Aircraft Engineers’ Association vAnsett Australia Ltd (2003) 127 FCR 487, believe it or not, a decision of Justice Gyles in the Federal Court. That is one point: “Creditors” means current creditors.
The second point is that section 444D does no more than bind creditors to the terms of the deed. It does not seek to give the deed any wider operation than it purports to have in its terms. If you go back to section 444A(4), it is the deed that specifies the property of the company – I am looking at paragraph (b). It is the deed, then – in paragraph (c) that specifies the nature and duration of any moratorium period for which the deed provides. The deed goes on and does the other matters mentioned in (h) and (i), but it all turns on the terms of the deed.
If you look at the terms of the deed in the present case, going back to page 277 of volume 1 of the appeal books, consistently with the meaning of the word “creditor” in section 444D(1), as interpreted in the cases to which I have referred, the definition of “Deed Creditor” at page 280 is, in our submission, referring to a person who has – present tense – a claim, a claim having the characteristics set out in the definition at page 279. You first have to have, now, the claim which existed historically.
Secondly, if you look at the extent of the moratorium for which the deed provides, picking up the language of section 444A(4)(c), that is the moratorium in clause 4 at page 292, indeed, that is the heading to clause 4, “MORATORIUM CREATED BY THIS DEED”, and it is clear enough that the duration of that moratorium is during the deed period. It is extended backwards only by the interim effect purportedly given by clause 2.2, relevantly back to the section 439C resolution, 27 March 2002. In effect, it would in any event be achieved by section 444C of the Act. So that is the extent of the moratorium. That is the extent to which the enforcement of claims is limited.
If you go to property which is dealt with in clause 18 at page 302 through to 303, by reading it with a gloss Ansett would somehow read it as having the effect that the assets to be realised need to be assets that existed as at 12 September 2001 and you simply do not get that out of anything in the language or in the structure of the deed. The assets with a small “a”, the assets with a capital “A” happen to be the assets as they may exist during the period of the deed.
So, insofar as the deed says anything about the enforcement of claims, it has nothing to say about the enforcement of claims before 27 March 2002 and insofar as the deed deals with the distribution of property, it has nothing to say about any dealing in property before 2 May 2002, the commencement of the deed itself.
If it is necessary to determine the nature of the property and the nature of the claims as at 12 September 2001 and to make our position quite clear, the property of Ansett relevantly on our construction of the interline agreements and the regulations is precisely as stated by Lord Morris in his dissenting speech in the House of Lords at page 765B where he said that:
The property of the company [relevantly] included the contractual right to have a clearance in respect of all the 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.
That, in our respectful submission, is the only relevant property of Ansett and, lest it be said that I am putting a submission that was not put below, may I read two sentences from the written submissions of IATA before the Court of Appeal where it was said, “The only subject matter arising from any bilateral transaction between member airlines which might constitute a chose in action is a right to have the item placed into the clearance process. If such a right constitutes property, it is not property of which Ansett has been deprived.”
That is the property and, so far as the claims against Ansett are concerned, the claims went no further than a future contingent claim to be paid if and when a clearance resulted in a particular balance and that is the right which IATA asserts as a creditor in the present proceedings.
Your Honours, can I deal very briefly with the construction of the clearing house regulations issue that was being pretty much joined on that. I will respond only to a number of very particular submissions that were made. It was said that the reference in regulation 22 to billing amounted to one airline invoicing another necessarily, it was said, containing an acknowledgment of an underlying debt. That is not so when one has regard to the definition of “billing” in regulation 1.
Secondly, some criticism of President Maxwell’s statement at page 746 was made. President Maxwell said that regulation 9(a) applies only to valid claims. What he was obviously meaning was that it applied only to claims which were not disputed and therefore not excluded under regulation 22 and regulation 23, that is, the effect that the carve out contained in regulation 9(a) itself.
Next, it was said that regulation 12 is to be inferred to have the purpose which Justice Nettle identified and that is of ensuring the availability of set‑off as between airlines under section 31 of the UK Bankruptcy Act and equivalents in other jurisdictions. That is an odd purpose given that Justice Nettle acknowledged and Mr Young acknowledged that it is the purpose to achieve something that cannot be achieved contractually, so it is jousting at a windmill to start with.
It cannot be achieved contractually in the United Kingdom or in Australia, but it is speculated there may be other jurisdictions where it can be achieved. If one is going to speculate about other jurisdictions one may well speculate that there are other jurisdictions where the term “debt” does not have the same technical meaning as it might have in the United Kingdom or in Australia.
Finally, it was said that where a suspension from clearance occurs under regulation 9(b) or where a member is suspended from the clearing house under regulation 49, there is nothing in the regulations that allows for a right to payment to then spring up between the airlines. Therefore, it is
said, the whole scheme must assume that the underlying right to payment existed right throughout.
We did not suggest in our written submissions in reply and we did not mean to suggest today that the regulations have the effect of causing a right to payment to spring up as between airlines. It is the withdrawal of the regulations that causes the right to payment to spring up between airlines. That springs up not by virtue of anything in the regulations but by virtue of article 8.1 having withdrawn from it the obligation under regulation 10 of the regulations to comply with the regulations led by invoking regulation 9(a). If you like, picking up the language of Lord Morris at page 768, we accept that there would be under article 8.1 a debt but for the agreement to comply with the regulations. When that agreement results in regulations application being withdrawn, the debt springs up. If the Court pleases. Those are our submissions in reply.
GLEESON CJ: Thank you, Mr Gageler. We will reserve our decision in this matter and we will adjourn until 10.00 am tomorrow.
AT 4.06 PM THE MATTER WAS ADJOURNED
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