International Air Transport Association v Ansett Australia Holdings Limited & Ors

[2007] HCATrans 159

[2007] HCATrans 159

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M159 of 2006

B e t w e e n -

INTERNATIONAL AIR TRANSPORT ASSOCIATION

Applicant

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 M160 of 2006

B e t w e e n -

INTERNATIONAL AIR TRANSPORT ASSOCIATION

Applicant

and

ANSETT AUSTRALIA HOLDINGS LIMITED (SUBJECT TO DEED OF COMPANY ARRANGEMENT)

Respondent

Application for special leave to appeal

KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 24 APRIL 2007, AT 12.12 PM

Copyright in the High Court of Australia

__________________

MR A.C. ARCHIBALD, QC:   If the Court pleases, I appear with learned friend, MR C.M. CALEO, SC, for the applicant.  (instructed by Clayton Utz)

MR N.J. YOUNG, QC:   If the Court pleases, I appear with my learned friend, MR M.C. GARNER, for the respondents.  (instructed by Arnold Bloch Leibler)

KIRBY J:   Yes, thank you.  There are two affidavits that have been placed on the papers, one of 2 March 2007 by Justin Taede Vaatstra which is on page 311 and the other of Mr Paul James which is on page 149, as to a time default which arose during a long vacation.  I take it that that time default is not in issue?

MR ARCHIBALD:   It is not in issue.

KIRBY J:   Is there any objection to the affidavit of Mr Vaatstra which seems to be simply a vehicle for presenting the regulations before us, the IATA Regulations?  Do you object to that?

MR ARCHIBALD:   No, there is no objection.

KIRBY J:   We read both of those affidavits and you can assume that there is no problem with the time default.  Can I ask you this and I do so on behalf of the Court; if the Court were minded to consider this as a matter for special leave, would the applicant tender an offer to pay the costs of the first respondent in this Court whatever may be the outcome of the matter, not to disturb the costs orders in the Court of Appeal?  In short, if IATA wants the final Court of Australia to examine this as a matter of principle, is it prepared to tender the costs or agree to or submit to a condition of the Court as to the costs in order to have the matter resolved at this level of this country’s judicature?

MR ARCHIBALD:   I would plainly need to get some instructions about that and I will do so as soon as I am able.

HAYNE J:   Could I put it to you this way, Mr Archibald, if this is a matter of principle, so be it.  If this is a matter of particular dispute in the liquidation of a particular airline, other considerations intrude.  Most particularly, if the questions that you say would arise in this matter are questions of general application under continuing IATA arrangements around the world, let it be treated as a question of principle but, at least for myself, it would seem to me that that carries the consequence that the particular creditors of the particular airline should not perhaps have to bear the costs of a second appeal.

MR ARCHIBALD:   I understand that circumstance, your Honour.  There are of course two points of principle which arise here.  One concerns the relationship that obtains between member airlines in respect of the clearing house operations and that, if I may so, the first point I have mentioned, does of course revolve around the arrangements between the parties, albeit that they are global in nature and enduring in nature, last for decade after decade, but the second point that does arise, of course, is one concerning the operation of the principles of public policy and the way in which they engage with Part 5.3A in the Corporations Act.

That matter is not peculiar to the airline industry or those who are involved in the IATA operations or those who are involved in the clearing house operations.  That is a matter of general importance thrown up by the circumstances of this case but ‑ ‑ ‑

HAYNE J:   Do we get to that second point, in any event?

MR ARCHIBALD:   Yes.

HAYNE J:   Do we get to it only if the first point is resolved in your favour?

MR ARCHIBALD:   No.  If the first point is resolved in our favour we do not get to it.  The point being resolved against us so far in the Court of Appeal, it was necessary for the majority in the Court of Appeal to address the point.  The learned President, Justice Maxwell, who was with us on the first point did not find it necessary to address the public policy point.  As things stand it is necessary in any event to ‑ ‑ ‑

KIRBY J:   Can you explain to me how, if you succeed on the first point, the second point does not arise?  Could one not say, approaching this matter, our first duty as a national court established by the Constitution of this country is to have regard to the operation in this country of its legislation and the public policy of giving effect to its legislation is a hurdle that you cannot jump over?  Would that not be one way to approach this matter?  You have engaged my interest now, in this second point, having raised it in resistance to the suggested olive branch I handed out to you on costs.

MR ARCHIBALD:   The second point is a point of general import and ‑ ‑ ‑

KIRBY J:   It is a bit like that point that arose in that insurance case – I forget the name of it – where it had international ramifications.  It was before I came on the Court because I decided it in the Court of Appeal of New South Wales, but the court said, “Our starting point is the public policy of a statute of the federal Parliament, namely, the Insurance Contracts Act and parties cannot agree between themselves in a way that is inconsistent with that Act.”  I forget the name of the case.  It was about 1995, I think.

MR ARCHIBALD:   Yes, and I think the court said, “We should keep in mind in looking at these matters the global import and operation of these arrangements”.

KIRBY J:   You will remember in that case the court in the end gave effect not to what the global arrangements were but to what the public policy was in a federal statute of the Parliament of this country.

MR ARCHIBALD:   Yes, but the public policy that would be engaged here, if at all, is a public policy which does not reside in prescriptive provisions of the corporations legislation, it resides, if at all, and quite curiously, on Justice Nettle’s findings, only when creditors come to determine that there should be a deed of company arrangement and determine for themselves what should be the nature and ambit of the substantive content of that deed.

So the creditors are at liberty to decide for themselves what parts of the property of the company, if any, are to be the subject of the deed of company arrangement, which claims of which creditors are to be the subject of the deed of company arrangement and what provisions as to priority of payment should attend that deed.  So they are at liberty to exclude some of the property of the company, at liberty to exclude some of the claims against the company and to choose to apply a regime for distribution which is on principles inconsistent with a pari passu regime, so that nothing in Part 5.3A precludes any of that.

What Justice Nettle determined in applying the principle of public policy to the provisions of Part 5.3A involved his Honour in articulating the principle of public policy in a broader way than had hitherto been the case in the decided matters and applied the principle where it would engage with a contract, a global contract, made in the 1970s at a time at which the provisions of Part 5.3A did not exist.

KIRBY J:   But that is not relevant, is it?  If the Parliament enacts a supervening law then ‑ ‑ ‑

MR ARCHIBALD:   His Honour plainly treated it as relevant, in our submission, and indeed observed that there was some force in the contentions of IATA in that regard.  At page 99 of the application book, paragraph 130, this was, as his Honour said, an argument “failing all else” and the principal arguments had already been addressed by his Honour but:

failing all else there is no reason to suppose that such public policy as may inhere in a deed of company administration entered into in 2002 ‑ ‑ ‑

KIRBY J:   Can I just ask you to pause for a moment because on the face of things it seems to me that both of these issues that are presented by this case are significant issues and that subject to the question of costs that I raised with you we might advance the submissions of Mr Young, but just wait for a moment.  Do not leave the podium, please.

MR ARCHIBALD:   No, I want to see if I have any instructions to deal with a certain matter.

KIRBY J:   I realise that your client is an international body established in Montreal in Canada and you may not be able to get instructions, we do not want to put you in an embarrassing position.  Maybe we could, if we were minded to grant special leave, grant it subject to a condition and then you could take instructions from your client.

MR ARCHIBALD:   Yes, I think that is likely to be the best I can do, certainly within the course of ‑ ‑ ‑

KIRBY J:   I think we will interrupt you for the moment and we will ask Mr Young what he has to say, subject to our making that a condition of the application.

MR ARCHIBALD:   If the court pleases.

KIRBY J:   I realise that salves the pain, Mr Young, but how could you really suggest that these two questions are not significant questions deserving of the attention of this Court?

MR YOUNG:   Can I deal with the policy question first because that is, we would think, the major issue that falls into the category that your Honour has identified.  The other issue is one of construction of a private agreement.  On the policy question, the existence of a rule of policy was not in doubt either at trial or on appeal before the Court of Appeal.

KIRBY J:   But every country has its Corporations Act.  Every country has these provisions and if that argument is right, then you can never in the particular context of international airlines have a system such as IATA has beneficially established for the running of the global airline industry.

MR YOUNG:   Well, so as to defeat applicable insolvency laws in different countries.  That has been the position ‑ ‑ ‑

KIRBY J:   That would be the question but it is obviously a very important question, is it not?

MR YOUNG:   Yes, but that has been the position since British Eagle.  The House of Lords determined that the IATA scheme involved a contracting out of the British liquidation provisions.

KIRBY J:   Yes, but there was a division of opinion in the House of Lords and we no longer follow abjectly decisions of the House of Lords.  We reach our own conclusions.

MR YOUNG:   There was a division of opinion about the effect of the then contract when properly construed.  There was no division of opinion concerning the policy.  The second thing to note is that the policy rule applies in relation to the objective effect of the contract on prevailing insolvency laws from time to time.  It is not a question of an intention to avoid.  The principle established in British Eagle depends on examining the contract as it interacts with a particular insolvency regime under, say, Australian statutes or British statutes and determining whether its effect is to set up a private liquidation and treat some creditors differently than other creditors.

That was not disputed here either.  The only difference about this case is that it is said that Part 5.3A is, in effect, not a relevant insolvency regime for the purposes of the application of the British Eagle principle.  No sound or even persuasive reasons are advanced as to why Part 5.3A should be discounted as not a relevant insolvency regime.  Under Part 5.3A Parliament has established voluntary administrations as an alternative to liquidation.

The content of the deed binds all creditors under section 444D.  The content of the deed is controlled by the statute.  Here the actual deed enshrined a distribution regime equivalent to that which would apply in liquidation under section 556.  The only argument really is that the precise terms of the priority distributions under the deed must await the determination of the creditors and the execution of the deed.

There is a default provision under the regulations and the schedule which is, in the absence of special provisions the statute adopts, the same regime of distribution as applies in liquidation under section 556.  These were the points made by Justice Nettle in his judgment.  His Honour went through the arguments and considered that there was no sound reason, indeed no persuasive reason at all, for treating Part 5.3A and deeds of company arrangements executed under it as anything other than an insolvency regime to which the British Eagle principle applies.

All the other side advances against that conclusion is that the deed of company arrangement is executed well after the making of the multi‑line agreement.  Insolvency administrations by way of liquidation are not very different because Parliament changes the terms of the insolvency regime from time to time, indeed adjusts the priorities.  Employees some decade ago were given a priority they did not have before and that was well after the making of the IATA clearance arrangements.

KIRBY J:   All of this may be right, but how can you deny that this is a matter of very considerable legal importance and of commercial importance and indeed of international importance?  If our Corporations Act steps in in this case, then you cannot operate the IATA arrangement effectively and that would be a great mischief, one would think, on the basis of ‑ ‑ ‑

MR YOUNG:   If there were any reason to doubt the proposition that the public policy should extend to voluntary administrations just as it extends to liquidations, there would be nothing I could say against the fact that it is a significant issue of general importance, but no sound reasons have been advanced as to why the voluntary administration should not be treated as a relevant statutory insolvency regime.  It is said that it is novel.  It is novel only in the sense that there has been no decided case applying the British Eagle policy to voluntary administrations.  It is not novel in the sense of unexpected or unreasonable.

Indeed, in this case the only judges who addressed the issue considered that there was no doubt but that the policy applied to voluntary administrations.  There is no contrary opinion expressed in the Court of Appeal.  The proposition is also advanced that this is the first time in which the policy has been applied outside a liquidation context.  That is not correct.  Justice Nettle discusses the case of Milner at paragraph 143 at application book 102.

In that case the policy was applied to a composition with creditors; not a liquidation but a composition with creditors.  IATA also suggests that the policy does not apply to schemes of arrangement with creditors and cites certain cases.  The cases do not have the effect contended for.  The cases simply decide that a court approved scheme of arrangement under a Corporations Act will continue and will adjust the rights of distribution in a liquidation that would otherwise apply.

Those cases do not have anything to do with the British Eagle policy.  It is simply a question of saying court approved schemes of arrangement under a provision of the Act can affect distributions in liquidations.  Nothing concrete is pointed to as to why this policy should not have the reach that the Court of Appeal said it had.  Beyond making those points, your Honour, which is really to go to the proposition that there is no sufficient doubt about the Court of Appeal’s decision in this regard, we cannot gainsay the fact that the application of a rule of public policy is, if there was any doubt about it, a matter of general importance.  The other part of the case, though ‑ ‑ ‑

KIRBY J:   What do you say about Mr Archibald’s point that it is the other part of the case that correctly or may correctly attract a condition as to IATA paying the costs and that the issue of the general public policy of the Corporations Act is simply a matter of general law of universal importance?

MR YOUNG:   It has importance in respect of any jurisdiction in which you have the equivalent of Part 5.3A and has no broader importance than the potential application of the rule of public policy to deeds of company arrangement under our regime in Part 5.3A.  It does not have the widespread reach that Mr Archibald suggested.  It is a peculiarly Australian issue and therefore we would submit that there is no exception that ought to be made for the possible condition concerning costs.

KIRBY J:   You were going to move to the second point.

MR YOUNG:   Yes, I was going to briefly address the second point which is the construction point.

HAYNE J:   That is, in essence, private agreement since varied.

MR YOUNG:   Private agreement since varied.  Moreover, no pointed issue concerning general principles of the construction of agreements like this.

KIRBY J:   But if we were to bring the matter up on the first point, as you describe it, one would not do that disjoined from the second.

MR YOUNG:   No, the two points travel together because our learned friends have to win the construction argument to raise the policy issue.

KIRBY J:   I think Justice Hayne has put the best points that you would want to put on the second point.  Anything else?

MR YOUNG:   Yes.  The criticism of Justice Nettle’s decision was on the basis that he assumed the existence of an antecedent debt in his construction of the relevant provisions.  I would simply like to illustrate why that is not so.  Justice Nettle dealt with the particular point at page 88 of the application book.  This is the passage that was quoted in our learned friend’s submissions from paragraph 94 where the word “annihilate” was used.  The Court will see that what his Honour is doing is identifying a submission made on behalf of IATA.  The submission addressed the meaning of the words “subject to clearance”

The IATA submission was that those words “subject to clearance” in regulation 9(a) had two possible meanings.  The first was that the transaction became subject to clearance and exception because it was a transaction of a particular class.  Their alternative submission was that a transaction only became subject to clearance when notified.  It is in the context of describing that submission by IATA that his Honour said:

the effect of clause 9(a) is, therefore, to annihilate “the amount payable” (ie to annihilate the debt) either at the instant of creation of the debt or, at the latest, upon notification –

“At the instant of creation of the debt” does not assume any antecedent debt.  His Honour simply characterises their argument in a way which does not depend on any finding by his Honour that there was antecedent debt or any assumption about that.  Indeed, his Honour was fully cognizant of the argument advanced by IATA that regulation 9(a) was said to negate the existence from inception of any debt.  He quotes that argument at page 84, paragraph 82 at about line 24 and again at paragraph 85.

His Honour’s ultimate conclusion was not that he would deny meaning to a provision, rather, that he would construe it in the context of the whole of the agreement and when looked at in the whole of the agreement it had to be read down so as to be harmonious and consistent with other provisions.  We would say our learned friends in formulating these special leave questions about construction have really mischaracterised the Court of Appeal’s decision.  Indeed, they have question begged by assuming that the effect of what Justice Nettle did was to disregard an express stipulation.  He did not do that.

He rejected the argument because he construed the stipulation in context and said it must be read down.  That is apparent from paragraph 119 of his Honour’s reasons which is at page 96.  That is the natural meaning of the Interline provision, clause 8.1 when it says there is an obligation to pay from the point of carriage in accordance with the regulations.  The natural meaning of that expression is the obligation to pay is to be enforceable, as later set out in the regulations, not that there is no obligation to pay. 

The one other point I would make about this which confirms the Court of Appeal’s interpretation is this.  There are a series of provisions in the regulations that permit the debt between the airlines, the ticket issuing airline and the carrier airline, to be enforced when clearance becomes unavailable.  It is the garnishee situation, it is the suspension from membership situation and it is the protest of a claim situation.  In any of those situations the underlying debt can be enforced. 

The unavailability of clearance in those instances is not knowing when carriage occurs.  It depends on later events; garnishees, suspension, liquidation, receivership, protest and so forth.  The obligation to pay must arise when carriage takes place otherwise it cannot be revived when future events occur.  That is, in essence, the reading that his Honour gave the whole package of regulations.

It is not adequately addressed by the President.  Can I take the Court to page 59 to 60 of the application book.  In paragraph 24 the learned President explains the billing procedure and he reconciles it with his construction of the regulations on the basis that the billing procedure only applies for valid claims as if the regulations spoke about valid claims as an objectively discernable class of claims that one could tell exists at the time of the carriage.  That is not how the regulations work.

The regulations permit protest and unless the protest is unanimously rejected, it has the effect of excluding a transaction or a notification from clearance.  There is no concept of valid claims.  It depends on a later protest and if the protest is not unanimously rejected, that particular item or claim

is excluded from the clearance system and then it can be enforced as an ordinary debt.  The same weakness attends his Honour’s construction of the suspension regulations.

Can I go to page 62, to regulation 49(c).  His Honour says in paragraph 32 that where suspension occurs under regulation 49(c) transactions can then be enforced “in the ordinary way”.  His Honour reconciles that with this construction by saying that it will be known whether transactions fall into this category or not, but the transactions take place well before claims are notified to the clearance system and the possibility of the suspension removing clearance is not known when the transaction takes place.

All of these provisions are premised upon a revival of the underlying debt and therefore the construction that there was never a debt is not consistent or harmonious with the whole package of regulations.  That is the effect of the Court of Appeal’s construction.  In our submission, it is plainly correct and there is no reason to doubt it but we accept that it is not really this issue that raises any question of general importance.  We would say this does not.  It is really only an accompaniment to the British Eagle point and for the reasons we have said, there really is no issue of general importance going beyond Australia concerning the application of that principle to a voluntary administration.  If the Court pleases.

KIRBY J:   Yes, thank you, Mr Young.  Yes, Mr Archibald.

MR ARCHIBALD:   As to the public policy point, in our submission, there is a substantial and considerable controversy.  Justice Mandie, the primary judge, having had the matter fully argued before him observed in his Honour’s reasons that he had difficulty in understanding how the contentions of Ansett could be sustained.  He makes that observation in paragraph 47, page 27 of the application book that the principle of public policy has always been articulated hitherto in terms of preservation of the pari passu principle; that is to say, the British Eagle principle has been taken to denote a principle of public policy that applies within the liquidation sphere where a pari passu distribution regime is mandated by the legislation itself.  What Justice Nettle held to be the principle goes well beyond that.  What his Honour articulated as the principle appears at page 99 of the application book, line 32.  His Honour said:

Hence 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 –

That extends the proposition beyond the liquidation principles to laws of insolvency generally and the proposition is that one cannot achieve a distribution different to that for which the laws of insolvency provide.  One understands that a little better when one absorbs the content of the passage which his Honour extracts from the article of Mr Mokal at the foot of page 99 to page 100.  There the proposition is that one cannot:

bargain for immunity from the collective bankruptcy regime –

and at the end of the extract –

[I]t is forbidden for a creditor to leave his assigned place in the queue and step ahead of others.

With the provisions of Part 5.3A, unlike the provisions of Part 5.5, the liquidation regime, the legislation does not assign a place in the queue and therefore it is certainly consistent, even with his Honour’s novel and expanded articulation of principle, to conclude that that principle would not engage with Part 5.3A in any event because there is no prescription within the legislation assigning a place in the queue to creditors.  All that Part 5.3A at the end of the day does is give statutory force to whatever the content may be of the arrangements upon which the creditors voluntarily determine.  As I was indicating in our submissions in‑chief, that may be a variable content radically different from any pari passu regime and may omit property and omit debt, as is commonly the case to achieve the advantages of voluntary administration. 

So there is a very real question, putting it at the very lowest, as to whether the extension by his Honour is justified, in any event, going beyond anything hitherto articulated in the decided cases and, further, whether even on his Honour’s formulation that would not engage with the provisions of Part 5.3A.  The other major point that emerges is the point that I was addressing when the Court asked to hear from Mr Young, namely, that in all the decided cases that one observes, whether they be the liquidation cases including and since the British Eagle decision or even the old bankruptcy cases to which Justice Nettle referred, the legislation in question was in place and had its prescriptive content at the time at which the contract was made.  Ordinarily, the engagement of a contract with principles of public policy will be determined when the contract is entered into. 

Here, the consequences of the operation of Part 5.3A are that the engagement would not occur not when the administration occurs but only if and when the creditors determine upon the particular content of their arrangement and the notion that public policy could engage in that way and operate, so to speak, retrospectively to impugn and vitiate a contract here made 30 years ago is something which even Justice Nettle observed entailed

submissions of considerable force.  That aspect of the matter is also worthy of consideration by the Court.  Those are the essential responses on the point of principle.  I have not really addressed orally on the construction points that we have articulated in our written outline what we essentially say on that point.

KIRBY J:   Yes, thank you, Mr Archibald.

In both matters the Court relieves the applicants from the time default that occurred in the commencement of the proceedings.  The Court grants special leave in both matters upon condition that (a) the orders for costs made in the courts below are not disturbed, and (b) the applicant files with its notices of appeal its written undertaking to pay the reasonable costs of the respondent of and incidental to the appeals. 

The matters are appropriate for a single appeal book, one would think.

MR ARCHIBALD:   A single day, yes.

KIRBY J:   A single day.  Do you agree with a single day? 

MR YOUNG:   Yes, your Honour.

KIRBY J:   Yes, very well.  The Court notes that the matters will be concluded in a single day and they will be treated as a single appeal.

AT 12.50 PM THE MATTER WAS CONCLUDED