Jet Midwest, Inc. v Regional Express Holdings Limited trading as Regional Express Airlines (Administrators Appointed)

[2025] NSWCA 101

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Jet Midwest, Inc. v Regional Express Holdings Limited trading as Regional Express Airlines (Administrators Appointed) [2025] NSWCA 101

Hearing dates:

29 April 2025

Date of orders:

16 May 2025

Decision date:

16 May 2025

Before:

Mitchelmore JA at [1];
McHugh JA at [2];
Ball JA at [3]

Decision:

(1)   Leave to appeal granted;

(2)   Appeal dismissed;

(3)   The applicant pay the respondents’ costs in this Court.

Catchwords:

CORPORATIONS – voluntary administration – where respondents are said to be in possession of property belonging to the applicant – where the respondents are in administration – where administrators propose to move under s 442C of the Corporations Act 2001 (Cth) for leave to dispose of the property – whether applicant should be granted leave to proceed under s 440D of the Corporations Act 2001 (Cth) for delivery up of property – leave under s 440D refused

APPEALS – application for leave to appeal – where decision concerns a matter of practice and procedure – whether application raises an issue of principle or a significant injustice will occur if leave is not granted – point of principle raised – leave to appeal granted

Legislation Cited:

Corporations Act 2001 (Cth), ss 435C, 439A, 439C, 440A, 440B, 440D, 442B, 442C, 443B, 443C, 444E, 471B

Cases Cited:

Hill v Esplanade Wollongong Pty Ltd ACN 141 133 708 (subject to a deed of company arrangement) [2018] NSWSC 478

House v The King (1936) 55 CLR 499; [1936] HCA 40

Penfolds Wines Proprietary Limited v Elliot (1946) 74 CLR 204; [1946] HCA 46

Phisci Pty Ltd v Green Frog Nominees Pty Ltd [2008] FCA 638

Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155

Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited (No 2) [2023] NSWCA 246

State of New South Wales v Meredith [2024] NSWCA 287

Category:

Principal judgment

Parties:

Jet Midwest, Inc. (Applicant)
Regional Express Holdings Ltd (ACN 099 547 270) trading as Regional Express Airlines (Administrators Appointed) (First Respondent)
Rex Investment Holdings Pty Ltd (ACN 101 317 677) (Administrators Appointed) (Second Respondent)

Representation:

Counsel:
PM Knowles SC with AEL Flick (Applicant)
MA Izzo SC with BJS Smith (Respondents)

Solicitors:
Norton White (Applicant)
White & Case LLP (Respondents)

File Number(s):

2024/451021

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of NSW

Jurisdiction:

Equity – Commercial List

Citation:

[2024] NSWSC 1343

Date of Decision:

7 November 2024

Before:

Stevenson J

File Number(s):

2024/264848

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 15 October 2019, Rex Investment Holdings Pty Ltd (Administrators Appointed) (Investment) entered into an Aircraft Sale and Purchase Agreement (the ASPA) with Jet Midwest for the purchase of four SAAB 340B aircraft and their component parts for a total price of USD2 million. Pursuant to the ASPA Investment paid a USD200,000 deposit which was held by a firm based in Oklahoma City, USA, pursuant to an escrow agreement. The Scheduled Delivery Date in the case of each aircraft was stated in the ASPA to be “October 31, 2019, or such other date as may be mutually agreed in writing between the Parties”. Payment of the balance of the purchase price was to be made one day before the Scheduled Delivery Date. Title to the aircraft passed on delivery. Delivery was to occur at the facilities of Kingman Airline Services Inc. (KAS) in Kingman, Arizona, USA, where the aircraft was stored on behalf of Jet Midwest for a monthly storage fee.

Jet Midwest continued to pay storage fees for the aircraft until about February 2023, when it was informed that the aircraft were no longer stored at KAS’s facility. It appears that commencing in about October 2020, Investment or its parent company Regional Express Holdings Limited (Administrators Appointed) (Holdings) (together, Rex) had arranged through its agent, 340 Aviation Services LLC, for the aircraft to be disassembled and for some of the parts to be shipped to Rex’s base in Wagga Wagga, NSW and for other parts, including the airframes, either to be scrapped or sold.

Jet Midwest commenced proceedings on 18 July 2024 in the Commercial List against Holdings for damages for conversion or trespass to goods.

On 30 July 2024, Rex went into voluntary administration.

On 6 September 2024, Jet Midwest filed a notice of motion seeking leave to proceed under s 440D(1)(b) of the Corporations Act 2001 (Cth) (the Act) and leave to file an amended summons joining Investment as a defendant and claiming an order that the defendants deliver up any components or parts of the aircraft in their possession and orders for the release of the deposit to it. The primary judge (Stevenson J) refused the application for leave to proceed under s 440D of the Act.

Jet Midwest applied for leave to appeal from the primary judge’s decision. The summons for leave to appeal was heard concurrently with the appeal itself.

The Court held (Ball JA, Mitchelmore and McHugh JJA agreeing), granting leave to appeal but dismissing the appeal:

(1) The case raised a point of principle concerning the interrelationship between ss 440D and 442C of the Act and the extent to which an owner of property in the possession of a company should be permitted to pursue its proprietary rights while the company is in administration. Accordingly, leave to appeal should be granted: [60]-[61].

(2) The primary judge did not err in his consideration of s 442C of the Act. His Honour concluded that Jet Midwest would be adequately protected during the administration sales process, since if the administrators wanted to sell property belonging to Jet Midwest, they were bound to make an application under s 442C. Additionally, it could not be said that the primary judge failed to take into account some material consideration because he did not take account of the damages that Jet Midwest might suffer if it continued to be deprived of its property. His Honour recognised that the question of damages may need to be addressed subsequently to the period of administration. At that time, Jet Midwest could bring an action on the case for the diminution in the value of its property: [35]-[36], [38], [43].

Penfolds Wines Proprietary Limited v Elliot (1946) 74 CLR 204 at 230; [1946] HCA 46, referred to.

(3) The primary judge did not fail to give proper weight to the proprietary rights claimed by Jet Midwest. If the legislature had intended that, as a matter of course, a person claiming a proprietary right should be permitted to pursue that proprietary right against an administrator, it would not have prohibited the exercise of that right without leave of the court and given the administrators a right to deal with that property with leave of the court: [44]-[54].

Phisci Pty Ltd v Green Frog Nominees Pty Ltd [2008] FCA 638, not followed.

(4) The primary judge did not err by concluding that the administrators would be substantially burdened if leave were given. The Commercial List proceedings are substantially broader than an application under s 442C(2)(c) of the Act, since they involve a consideration of Jet Midwest’s claims for trespass and conversion in relation to the whole of each aircraft. Proceedings of that type will be substantially more complicated than proceedings under s 442C(2)(c): [55]-[56].

(5) The primary judge did note err by refusing to grant leave to Jet Midwest to proceed to claim the deposit. His Honour was correct to conclude that the claim was one “of some complexity” and that there was no urgency in dealing with it: [57]-[59].

JUDGMENT

1. MITCHELMORE JA: I agree with Ball JA.

2. MCHUGH JA: I agree with Ball JA.

3. BALL JA: By a summons filed on 4 December 2024 the applicant, Jet Midwest, Inc. seeks leave to appeal from a decision of the primary judge (Stevenson J) delivered on 25 October 2024 refusing Jet Midwest leave to proceed against the first respondent, Regional Express Holdings Limited (Administrators Appointed) (Holdings), and a proposed second defendant in the proceedings below, Rex Investment Holdings Pty Ltd (Administrators Appointed) (Investment), the second respondent, under s 440D of the Corporations Act 2001 (Cth) (the Act) during the administration of both companies. The leave to proceed was sought on the basis that any judgment would not be enforced without leave. The summons for leave to appeal was heard concurrently with the appeal itself. It is convenient in this judgment to refer to Investment and Holdings together as “Rex”.

Background

4. On 15 October 2019, Investment entered into an Aircraft Sale and Purchase Agreement (the ASPA) with Jet Midwest for the purchase of four SAAB 340B aircraft and their component parts for a total price of USD2 million. It was a term of the ASPA that Investment would pay a deposit of USD200,000 to be held by McAfee & Taft, a firm based in Oklahoma City, USA, pursuant to an escrow agreement. The Scheduled Delivery Date in the case of each aircraft was stated in the ASPA to be “October 31, 2019, or such other date as may be mutually agreed in writing between the Parties”. Payment of the balance of the purchase price was to be made one day before the Scheduled Delivery Date. Title to the aircraft passed on delivery. Delivery was to occur at the facilities of Kingman Airline Services Inc. (KAS) in Kingman, Arizona, USA, where the aircraft was stored on behalf of Jet Midwest for a monthly storage fee.

5. Clause 4.2 of the ASPA states that “The Buyer acknowledges and agrees that the Deposit is non-refundable in all circumstances except as provided in Clause 4.3 (Refund of the Deposit) or as otherwise set out in this Agreement”. Clause 4.3 relevantly states that the deposit is refundable if:

(i)   the Buyer delivers a Termination Notice to the Seller in accordance with the provisions of this Agreement; or

(ii)    Delivery of an Aircraft has not occurred by the Cut-Off Date through no fault of the Buyer.

“Cut-Off Date” means “the date falling thirty days (30) after its Scheduled Delivery Date, or such later date as the Buyer and the Seller may agree in writing”.

6. There were delays in putting into place the escrow arrangements for the payment of the deposit and then further delays resulting from COVID-19. For reasons which are not apparent from the evidence, completion never occurred.

7. Jet Midwest continued to pay storage fees for the aircraft until about February 2023, when it was informed that the aircraft were no longer stored at KAS’s facility. It appears that commencing in about October 2020, Rex had arranged through its agent, 340 Aviation Services LLC, for the aircraft to be disassembled and for some of the parts to be shipped to Rex’s base in Wagga Wagga, NSW and for other parts, including the airframes, either to be scrapped or sold.

8. After Jet Midwest learned that the aircraft were no longer at KAS’s facility, it made enquiries to ascertain the whereabouts of the aircraft which ultimately led it to commencing proceedings on 18 July 2024 in the Commercial List against Holdings for damages for conversion or trespass to goods.

9. On 30 July 2024, Rex went into voluntary administration. The administrators learned of the Commercial List proceedings on 6 August 2024.

10. On 6 September 2024, Jet Midwest filed a notice of motion seeking leave to proceed under s 440D(1)(b) of the Act and leave to file an amended summons joining Investment as a defendant and claiming an order that the defendants deliver up any components or parts of the aircraft in their possession and orders for the release of the deposit to it.

11. Mr Adams Nikitins, one of the administrators, affirmed an affidavit on 4 October 2024 in opposition to the motion. In that affidavit, Mr Nikitins gave evidence that the administrators had commenced on 2 August 2024 a competitive process in respect of “recapitalisation and/or sale of the Rex Companies” (referred to by the parties as the “Sale Process”), which was confidential and continuing.

12. Mr Nikitins also gave evidence of the steps the administrators had taken to identify parts of the aircraft which were in Rex’s possession. That task was not complete at the time Mr Nikitins affirmed his affidavit. However, in a passage quoted by the trial judge (at J[28]) Mr Nikitins said:

From the investigations I explain below, the Administrators have identified that [Rex] has some property in its possession, which appears to be the property of [Jet Midwest]. However, these investigations are ongoing. When the Administrators conclude their investigations and have a comprehensive list of any property and assets that are in the possession of [Regional Express] and appear to be owned by [Jet Midwest], then the Administrators will determine whether they will:

(a) seek written consent from [Jet Midwest] pursuant to s 442C(2)(b) of the [Act] to dispose of any such property and account to [Jet Midwest] for the proceeds of that disposal by way of an agreed procedure;

(b)   seek leave of the Court pursuant to s 442(2)(c) of the [Act] to dispose of the property and, if successful in that application, account to [Jet Midwest] the proceeds of that disposal; or

(c)   where possible, deliver up to [Jet Midwest] any such property.

13. Moreover, in a letter sent the day before the hearing of the motion, the administrators through their solicitors gave Jet Midwest the following update (quoted at J[29]):

The purpose of this letter is to update your client on the ongoing investigations and enquiries of the Administrators and the Company’s progress regarding the stocktake.

The Company has completed a stocktake of the parts and components, which were identified in a shipping container in its Wagga Wagga facility (Facility) … The Administrators were notified of the completed stocktake on the afternoon of Tuesday, 15 October 2024 …

The stocktake identifies that the parts and components (Parts) that are located at the Facility consist of line replaceable units and propeller blades.

We confirm that the Parts have been separated and quarantined at the Facility. The Administrators have instructed the relevant employees of the Company responsible for the Parts not to handle or move these.

Should you confirm that the Parts in Annexure A are your client’s property, the Administrators are willing to make these parts available for your client’s immediate collection.

The Administrators have otherwise instructed the Company to quarantine, count and put aside any items located at PT Nusantara Turbin Dan Propulsi (NTP)’s storage facility, which are identified as your client’s property.

The Administrators have issued a general instruction to the Company not to make use of any of your client’s property which is at NTP’s storage facility and not logged on the Company’s IAS.

We confirm that the stocktake of the Facility at Annexure A and parts put aside at NTP do not represent the conclusion of the Administrators’ investigations in respect of your client’s property, which are continuing in as efficient and thorough manner as possible. (Emphasis in original.)

14. Mr Nikitins, after stating that the administrators were aware of their obligations under s 442C of the Act also said:

Accordingly, in conducting the Sale Process, we acknowledge that where we become aware of property in the possession of the Rex Companies which is not their property, the Administrators are obligated to seek the property owner’s written consent or leave of the Court to dispose of the property.

15. Section 442C gives the administrators power to dispose of property in the possession of the company, even if it does not belong to the company. However, they may only do so with the consent of the owner or leave of the court. And the court may only give leave "if satisfied that arrangements have been made to protect adequately the interests of the secured party, owner or lessor, as the case may be”: s 442C(3).

Reasons of the primary judge

16. In refusing leave, the primary judge focussed on the Sales Process and whether Jet Midwest would be adequately protected during it. In addressing that question, his Honour pointed out that if the administrators wanted to dispose of any property belonging to Jet Midwest as part of the Sales Process, they were bound to obtain the Court’s leave under s 442C and that leave could only be given if the Court was satisfied that arrangements had been made that adequately protected Jet Midwest’s interest: J[33]. His Honour pointed out that “the Administrators will be highly motivated to come to an arrangement that is satisfactory either to Jet Midwest itself or to the Court in this regard, as the Administrators will doubtless wish to conclude the Sale Process in a way that maximises the return to creditors of the Rex Companies”: J[36]. His Honour recognised that the application of s 442C would not necessarily result in delivery up to Jet Midwest of all the SAAB components. But in relation to that point, his Honour thought that it was significant that when proceedings had been commenced Jet Midwest did not seek delivery up, but rather only sought damages: J[38].

17. His Honour recognised that the application of s 442C was contingent on the administrators “comprehensively and accurately identifying what property of Jet Midwest is in the possession of the Rex Companies”: J[41]. However, his Honour thought it was relevant that the administrators were officers of the Court and that there was no reason to think they would do otherwise than “their professional best”: J[43].

18. His Honour also thought that “[a]s the Administrators proposed to make, and for all practical purposes are bound to make, an application under s 442C” (J[47]), it would not be appropriate to impose on them the distraction and additional costs of responding to Jet Midwest’s claim in the proceedings, which were directed at achieving the same result “namely determining compensation to Jet Midwest for such loss as it has suffered by reason of the events which I have described”: J[49].

19. His Honour recognised that there may be aspects of Jet Midwest’s claim that will remain unresolved, such as its claim for damages. His Honour thought “[t]hat is a factor to be weighed in the balance but not one which I would consider warrants the granting of leave”: J[50].

20. His Honour considered separately the question whether leave should be given to bring the claim for the funds in escrow. After observing that the claim could be brought once the administration ended, his Honour thought that there were two reasons for refusing leave. One was that the claim was of some complexity. The other was that there was no particular urgency in the resolution of that claim: J[53]-[55].

Relevant legal principles

21. The decision from which leave to appeal is sought concerned a matter of practice and procedure. It did not have the practical or legal effect of finally determining the rights of the parties. Rather, it affected the mechanism by which those rights would be determined and the timing of that determination.

22. The relevant principles which guide the Court's power in deciding whether or not to grant leave to appeal where a matter of practice and procedure is involved are well settled. As this Court observed in State of New South Wales v Meredith [2024] NSWCA 287 at [22]:

… leave to appeal will ordinarily not be granted from a decision involving a matter of practice and procedure unless the application raises an issue of principle or the applicant can demonstrate that a significant injustice is likely to result if leave is not granted. The fundamental reason for this approach is that “unless appellate courts exercise restraint in interfering with decisions of trial judges on matters of practice and procedure, the result will be excessive delays, expense and uncertainty in the conduct of litigation” (see Toppro Pty Ltd v Yoo [2016] NSWCA 119 at [19]). As Bell P observed in Secretary of the Department of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [6] an “application for leave to appeal from an interlocutory decision on a matter of practice and procedure faces the high hurdles which have been referred to consistently by this Court”.

23. Moreover, the decision involved the exercise of a discretion granted by s 440D of the Act. Accordingly, the appeal should not be allowed unless this Court is persuaded that the decision was made in error involving the primary judge acting upon a wrong principle, allowing extraneous or irrelevant matters to guide or affect the decision, by mistaking the facts, or by failing to take into account some material consideration: House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40; Phoenix Institute of Australia Pty Ltd v Australian Competition and Consumer Commission [2017] FCAFC 155 at [43] (concerning an appeal from a grant of leave to proceed under s 444E(3)(c) of the Act).

Jet Midwest’s arguments

24. Jet Midwest’s draft notice of appeal identifies four grounds in respect of which his Honour erred in refusing leave. First, his Honour assumed incorrectly that the administrators would make an application under s 442C(2) of the Act, whereas they would only do so if the Sales Process proceeded. Second, his Honour failed to take into account: (1) the fact that the administrators intended to continue to use parts of the aircraft belonging to Jet Midwest in circumstances where they claimed to have no liability for that use; (2) the fact that the primary relief claimed by Jet Midwest was proprietary; (3) the strength of Jet Midwest’s case; and (4) the fact that the administrators intended to continue to use Jet Midwest’s property in circumstances where they had no right to do so. Third, his Honour erred in concluding that if leave were granted the administrators would be substantially burdened with additional work in defending Jet Midwest’s claim. Fourth, his Honour erred in failing to grant leave to Jet Midwest to pursue the claim for the funds in escrow where it was inevitable that such a claim would have to be brought, given that it was proprietary in nature and there was no other mechanism by which it could be resolved.

25. It is convenient to follow the course adopted by Jet Midwest and consider first its proposed grounds of appeal before considering whether leave to appeal should be granted, since Jet Midwest’s prospects of success on appeal are relevant to the question whether leave should be granted and in a hearing where the application for leave to appeal is heard concurrently with the appeal, as this is, there is no utility in considering the question of leave separately and in advance of the appeal itself.

26. However, before considering Jet Midwest’s grounds of appeal, it is desirable to say something more about the legislative framework in which the questions raised by the appeal arise.

The legislative framework

27. As the primary judge observed (at J[13]), the object of Pt 5.3A of the Act is to provide a regime aimed at maximising the chances of an insolvent company, or as much as possible of its business, continuing in existence or, failing that, achieving a better return for creditors and members than an immediate winding up would. It does that by providing for the appointment of administrators of the company who are given a limited period of time in which to investigate alternatives to liquidation and to prepare a report to creditors setting out their recommendations. At the end of that period, the normal outcome is that the company executes a deed of company arrangement, which has been approved by creditors, or the creditors resolve that the administration should end (usually following a recapitalisation of the company) or the company is wound up: s 435C(2); see also s 439C. But it may end in other circumstances, including by order of the court because the court is satisfied that the company is solvent: s 435C(3)(a).

28. The initial period of administration is in the order of a month, but it may be extended by the court: see s 439A. In this case, at the time the primary judge delivered his judgment, the period had been extended to 25 November 2024. At the time of the hearing in this Court, a further extension until 30 June 2025 had been granted.

29. During the period of administration, the company cannot be wound-up: s 440A. More relevantly for present purposes, under s 440B third parties are restricted, unless the administrators agree or the third party obtains leave from the court, from exercising rights they have “in property of the company, or other property used or occupied by, or in the possession of, the company”, as set out in a table at the end of that section. That table includes a restriction on “an owner (other than a lessor) of property used or occupied by, or in the possession of, the company …” from “[taking] possession of the property or otherwise [recovering] it …”. Absent consent from the administrators or leave of the court, a proceeding in court against the company or in relation to any of its property cannot be begun or proceeded with during the period of administration: s 440D.

30. As has already been mentioned, s 442C gives the administrators a right with leave of the court to deal with property that does not belong to the company. The court may not grant leave unless it is satisfied that adequate arrangements have been made to protect the owner’s interests. Under s 443B, if the company is in possession of property pursuant to an agreement entered into before the administration, the administrator becomes personally liable for any amount payable by the company under the agreement while the company remains in possession of the property during the term of the administration. The section creates an exception where the administrators give notice that the company does not propose to exercise rights in respect of the property and notice of the location of the property, if that is known or with reasonable diligence could be ascertained: s 443B(3). The administrators are not otherwise liable for the company’s debts: s 443C.

31. As is apparent from this brief outline, during the period of administration, the creditors of a company and those whose property is in the possession of the company cannot take action against the company to recover the amount that they are owed or their property, except with leave of the court. Moreover, the administrators are given the right with leave of the court to dispose of property in the possession of the company that does not belong to the company provided the interests of the owner are adequately protected. The evident purpose of this provision is to give the administrators the ability to sell the business of the company as a going concern, even if the business uses or depends on the property of others. The provisions relating to leave, which obviously are at the heart of this case, are analogous to the provisions which permit a creditor with leave to bring an action against a company which is the subject of a deed of company arrangement (s 444E) or a company in liquidation (s 471B).

32. However, as the primary judge recognised, the circumstances in which leave will be given are different. Relying on the decisions of Gleeson JA in Rialto Sports Pty Limited v Cancer Care Associates Pty Limited; CCA Estates Pty Limited; Davjul Holdings Pty Limited; Armmam Pty Limited (No 2) [2023] NSWCA 246 at [22] and Hill v Esplanade Wollongong Pty Ltd ACN 141 133 708 (subject to a deed of company arrangement) [2018] NSWSC 478 at [19], the primary judge said that the court was “cautious” about giving leave to proceed against a company in administration (J[17]) and that a ”stricter approach” (J[18]) was taken in such cases. Those statements of principle may be accepted. But they reflect a more fundamental difference. In the case of a company in administration, the stay is a temporary one, while the administrators formulate a plan to preserve as much of the business of the company as possible. The stay aids that object by preserving the assets of the company while the plan is being formulated and by ensuring that the administrators are not unnecessarily distracted by having to deal with court proceedings, which, if they need to be brought, can be brought later, when the company is trading or is operating under a deed of company arrangement or is in liquidation.

33. On the other hand, in the case of a company under a deed of company arrangement or in liquidation, the stay is a permanent one in favour of other procedures for the distribution of the company’s available assets amongst its creditors. Consequently, the question of leave raises different considerations in the different types of case. In the case of a company in administration, the central question for the court is the effect a grant of leave will have on the ability of the administrators to secure the objects for which they were appointed. In the other cases, the central question is the effect of the leave on the orderly and proper distribution in accordance with the deed of company arrangement or the Act of the available assets of the company. Given those differences, in the case of a company under administration it will be more difficult for a creditor, or the owner of property, to persuade the court that a grant of leave is necessary or appropriate.

34. Against that background, it is possible to turn to the grounds of appeal.

Section 442C of the Act

35. Jet Midwest contends that the primary judge erred in his consideration of s 442C of the Act because he wrongly assumed that the administrators were bound to make an application under that section and failed to take account of the fact that Jet Midwest would not be fully compensated for the losses it has suffered under that section.

36. Neither of those contentions is correct.

37. After observing that the course the administrators proposed to take was to dispose of some property belonging to Jet Midwest (as part of the Sale Process), to return some property that had been identified in their solicitors’ letter dated 17 October 2024 and to “quarantine, count and put aside” items located at its storage facility located at PT Nusantara Turbin Dan Propulsi, the primary judge said (at J[31]):

As the Administrators accept that it appears that [Rex] is in possession of Jet Midwest’s property, and indeed is using that property as incorporated into its fleet, it is clear enough that the Administrators are bound to take this course [that is, an application under s 442C] as part of the Sale Process.

38. It is apparent from the context that the primary judge recognised that some of Jet Midwest’s property would be returned to it and some would be quarantined during the period of administration and that what his Honour was concerned with was whether Jet Midwest would be adequately protected in relation to property belonging to it that the administrators proposed to sell as part of the Sale Process. The conclusion that his Honour reached was that Jet Midwest would be adequately protected because, if the administrators wanted to sell property belonging to Jet Midwest, they were bound to make an application under s 442C. In the paragraphs following J[31], his Honour explains why that was so. In particular, he pointed to the fact that the administrators would have to satisfy the court under s 442C(3) of the Act that arrangements had been made that adequately protected Jet Midwest’s interests: J[33]-[36]. His Honour also said that Jet Midwest could make an application under s 442C(5) for an order under s 442C(4) that the administrators not carry out the sale, which his Honour thought provided “a powerful incentive for the Administrators to come to an arrangement satisfactory either to Jet Midwest or to the Court”: J[37]. His Honour went on to compare the protection that gave Jet Midwest with the effect that court proceedings would have on the administrators – an issue to which it will be necessary to return.

39. None of this involved a misunderstanding of the law or facts or the taking account of an irrelevant consideration. Rather, it involved the primary judge examining closely whether Jet Midwest’s interests during the administration would be adequately protected insofar as those interests concerned the property it owned which was still in the possession of Rex. His Honour’s statement that the administrators were “for all practical purposes … bound to … make an application under s 442C” must be understood in context as a statement that they were bound to make such an application if they wished to proceed with a sale of the business carried on by Rex, which is what they proposed to do.

40. As to the second point, Jet Midwest submitted that its interests would be prejudiced because Rex was continuing to use some of its property which would diminish in value over time and with use, something for which it would receive no compensation. It complains that the primary judge failed to take account of that fact in reaching the conclusion that leave to proceed should not be granted. Jet Midwest also submitted that it would receive no compensation for the loss of revenue that it may be able to earn from its property if the property were returned to it. Nor would it be entitled to recover the equivalent of rent from the administrators under s 443B, since Rex was not in possession of Jet Midwest’s property pursuant to an agreement.

41. None of these arguments was raised in the written submissions provided to the primary judge. During the course of oral argument, the following exchange occurred between the primary judge and Mr Knowles SC, who appeared for Jet Midwest:

KNOWLES: Changes over time and we see at least, for a person in the position of my client, the attraction in being able to elect to recover in specie rather than by way of damages. Now it might be said against that well any measure of the account on an application if approved under 442C could take into account the current market value of the claim. The difficulty with that is, and I can take your Honour to some evidence of this, but just as the market value of aircraft and aircraft parts go up, the nature of the highly regulated industry is that some of the parts are what’s described as time limited, that is the hours on which they are used for flights are measured--

HIS HONOUR: Because of fatigue and other things like that.

KNOWLES: Fatigue, et cetera. The value of the parts goes down - of some parts goes down as they approach either their end of life or the time for where, because of the number of hours that’s reached, that reconditioning or repair is required. And what the administrators are essentially proposing is that under s 442C they will account for property that they will sell but there is no proposal to either measure or compensate my client for the use and the potential effect on value of parts whilst they elect to keep planes in the sky. And ultimately it comes down, it comes down to this, that their position is we should take a ticket and get in line with other creditors and await the 442C application to have this dispute.

HIS HONOUR: But looking at 442C(3), and I’ve never practically looked at this before but it says, “The Court can only grant leave if satisfied relevantly that arrangements have been made,” split the infinitive, “adequately to protect your client’s interests,” and your client could raise all the arguments that you’ve just raised to me and say our interests can only be protected if the goods are transferred to us in specie or if we get paid their current value and so on, so--

KNOWLES: But we would be doing that in a position where we, because we won’t have had the forensic processes available in litigation including the availability to obtain admissions, the availability to obtain discovery and indeed subpoenas, potentially, from third parties, we won’t be in a position to determine what is the property of ours that they are going to be selling, where is the property of ours that they no longer do hold because the allegations as I said--

42. The primary judge did not specifically return to the issue in his judgment. However, it seems plain from the transcript that his Honour thought that the issue could be addressed under s 442C; and much of his Honour’s judgment was directed at explaining why s 442C provided Jet Midwest with adequate protection. Moreover, his Honour recognised that “[i]t may well be that at the conclusion of the process under s 442C, there will be aspects of Jet Midwest’s claim which will remain to be resolved: for example, its claim for damages” (J[50]). As Mr Izzo SC, who appeared for Rex, pointed out, Jet Midwest could bring an action on the case for the diminution in the value of its property: see Penfolds Wines Proprietary Limited v Elliott (1946) 74 CLR 204 at 230; [1946] HCA 46, where Dixon J explained the tort in these terms:

There remains the remedy for special damage sustained by the owner of a chattel who is out of possession. This was a special action on the case and does not depend on the plaintiff’s having the immediate right to possession. More usually the action was brought by an owner whose right to possession was suspended. … The foundation of the action is the damage and “permanent” damage to the chattel must have occurred, that is damage which would enure to the “reversioner.”

43. It could not be said that the primary judge failed to take into account some material consideration because he did not take account of the damages that Jet Midwest might suffer if it continued to be deprived of its property. His Honour recognised that the question of damages may need to be addressed subsequently. Given the way the issue was addressed by the parties, it was not necessary for his Honour to identify those damages with any more specificity than he did.

Failure to take account of relevant considerations

44. Jet Midwest identifies four matters that it says the primary judge failed to take account of in exercising his discretion to refuse leave.

45. The first is the failure to take account of the fact that the administrators were using and proposed to continue to use aircraft parts belonging to Jet Midwest for profit in Rex’s business in circumstances where the administrators claim to have no liability to Jet Midwest in respect of that use.

46. The gravamen of this complaint is not that the primary judge failed to take account of the fact that Rex was using and proposed to continue to use the parts. The primary judge plainly took account of that fact. Rather, the complaint is that the primary judge did not take account of the fact that the administrators had no liability to Jet Midwest in respect of that use. In fact, what was put to the primary judge (orally, not in writing) was that it was unclear whether the administrators had any personal liability for use of the property during the administration.

47. In essence, this complaint mirrors the earlier one that the primary judge failed to take account of the fact that Jet Midwest would not be compensated for the use of its parts during the administration. For the reasons given earlier, the submission is not correct.

48. Moreover, the submission overstates the significance of the issue. There was no question that at the time of the hearing before the primary judge Rex was using parts belonging to Jet Midwest. The question was whether it should be given leave to bring proceedings seeking delivery up of those parts. That required the primary judge to balance the effect that the granting of leave would have on the Sale Process with Jet Midwest’s rights in respect of the parts, which had been seriously modified by the Act. At the time the issue was being considered, the expectation was that the Sale Process would be concluded within about six weeks of the hearing. Even if leave had been granted, it was highly unlikely that the substantive questions raised by Jet Midwest’s amended claim could be resolved within that time. But until the claim was determined, there was nothing to stop Rex from continuing to use the parts. Consequently, the relevance of any continued use of the parts was at most peripheral to the real issue between the parties. The real issue was whether the proprietary rights asserted by Jet Midwest should, through a grant of leave to pursue those rights, be permitted to take priority over the administrators’ rights (subject to leave under s 442C(2)(c)) to sell part of that property through the Sale Process. That was the issue on which the primary judge correctly focussed.

44. The second matter that the primary judge is said to have failed to take into account does go to the heart of the issues between the parties. It is said, in effect, that the primary judge failed to give proper weight to the proprietary rights claimed by Jet Midwest.

45. In support of that submission, Jet Midwest relies on the statement of Finkelstein J in Phisci Pty Ltd v Green Frog Nominees Pty Ltd [2008] FCA 638 (Phisci) at [22] that:

Neither s 440D nor Pt 5.3A of the Corporations Act is designed to deprive a person of his property. In most cases it would be wrong to prevent an owner of property bringing a proceeding for its recovery simply because the defendant happens to be in administration: In re David Lloyd & Co, Lloyd v David Lloyd & Co (1877) 6 Ch D 339 at 344.

Jet Midwest also relies on the general principle that, in the case of a company in liquidation, courts will as a matter of course grant leave to proceed to a plaintiff seeking to enforce proprietary rights.

51. The general position in relation to liquidations may be accepted. However, as I have sought to explain, the principles relating to the granting of leave to bring proceedings are quite different where a company is in administration. As to the statement of Finkelstein J in Phisci, in my opinion, it should not be followed, since his Honour appears to have overlooked the combined effect of what was then s 440C (which provided that “the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of the property or otherwise recover it, except … with the administrator’s written consent … or … the leave of the Court …”) and s 442C. If the legislature had intended that, as a matter of course, a person claiming a proprietary right should be permitted to pursue that proprietary right against an administrator, it would not have prohibited the exercise of that right without leave of the court and given the administrators a right to deal with that property with leave of the court. These provisions reflect a policy choice made by the legislature in favour of preserving the assets used by the company in its business and permitting the administrators to sell those assets even if they do not belong to the company in certain circumstances over permitting those with a proprietary interest in property in possession of the company to enforce whatever rights they have. The primary judge made no error in proceeding on that basis.

52. The third matter the primary judge is said to have failed to consider is the strength of Jet Midwest’s case. That is not correct. As the matter had developed, the applicant advanced two principal cases. First, it sought damages for trespass and conversion. Second, it sought delivery up of property belonging to it that Rex continued to possess. The primary judge accepted that “it appears that [Rex] is in the possession of Jet Midwest’s property, and indeed is using that property as incorporated into its fleet” (J[31]). Indeed, that was the starting point of his analysis under s 442C. Consequently, his Honour accepted that, absent the provisions of Pt 5.3A of the Act, Jet Midwest had a strong case for the delivery up of its property. But that was not the question. The question was whether Jet Midwest should be permitted to pursue that claim. In answering that question, the primary judge properly took into account the fact that the property had no particular value to Jet Midwest (since it had originally only made a claim for damages), Rex was using the property in its fleet, which the administrators were seeking to sell to maximise the return to all creditors and, if the administrators did seek to sell the property, there was a mechanism in place which provided adequate protection to Jet Midwest.

53. As to the claim for damages, the primary judge recognised that Jet Midwest may have a claim for damages. But that claim was not obviously strong. It depended on the precise circumstances in which the aircraft had been disassembled and, in particular, Rex’s role in that. It also depended on the applicable law and the possible application of a two-year limitation period that existed under Arizona law, assuming that was the applicable law. Finally, it depended on the nature of the damages claimed by Jet Midwest and whether those damages were available for trespass and conversion. The answers to none of those questions was obvious on the material before the primary judge. However, the primary judge recognised that Jet Midwest may have a claim for damages and he acknowledged that that was a factor in favour of granting leave. However, it is apparent that his Honour thought that that factor was outweighed by other considerations.

54. The fourth matter the primary judge is said to have failed to take into account is that the administrators intended to continue to use Jet Midwest’s property in circumstances where they had no right to do so. It is clear from what has already been said that the primary judge took into account the fact that the administrators intended to continue to use property that appeared to belong to Jet Midwest. The real complaint appears to be that the primary judge failed to conclude that the administrators had no right to use the property. Two things may be said about that submission. First, it was not put to the primary judge that the administrators had no right to use the property. Second, there is no reason to think that that proposition is correct. The administrators were clearly entitled to retain possession of the property, subject to any order that might be made by the court on application of Jet Midwest. As I have sought to explain, the reason the administrators were entitled to retain the property was to allow them to continue to conduct Rex’s business during the administration. In that context, a right to use the property must be implicit in the right to retain possession of it.

The conclusion that the administrators would be substantially burdened by proceedings

55. Jet Midwest submits that the primary judge’s conclusion that the administrators would be substantially burdened if leave were given was incorrect because, on the primary judge's conclusions, it was inevitable that the administrators would need to address the question of what property belonged to Jet Midwest and its value. It would make little difference to the administrators whether that happened because leave was given to proceed with the proceedings in the Commercial List or because it was dealt with in the context of an application for leave under s 442C(2)(c) of the Act.

56. I do not accept that submission. It overlooks the fact that the Commercial List proceedings are substantially broader than an application under s 442C(2)(c), since they involve a consideration of Jet Midwest’s claims for trespass and conversion in relation to the whole of each aircraft. That will raise factual questions concerning how the aircraft came to be disassembled and how parts came to be shipped to Wagga Wagga. It will also involve questions of the applicable law and the quantification of damages. Proceedings of that type will be substantially more complicated than proceedings under s 442C(2)(c) concerning the question whether the administrators should be permitted to dispose of parts which they admit belong to Jet Midwest and which Jet Midwest accepts have no value to it other than their commercial value.

The claim to the deposit

57. The final issue raised by the notice of appeal is the primary judge’s refusal to grant leave to Jet Midwest to proceed to claim the deposit.

58. There was no error in that aspect of his Honour’s decision. His Honour was correct to conclude that the claim was one “of some complexity” (J[53]). That is because it is unclear on the evidence whether it could be said that there had been a failure to deliver the aircraft by the “Cut-Off Date” and, if so, whether that had occurred through no fault of Investment, with the result that it is unclear whether cl 4.3 of the ASPA applies. Moreover, his Honour was correct to conclude that there was no particular urgency in circumstances where Jet Midwest had waited approximately four years before taking any action. Those were both relevant matters for the primary judge to take into account, and both pointed to the conclusion that leave should be refused. Contrary to what seemed to be implicit in some of Jet Midwest’s submissions, that did not mean that Jet Midwest would never be given leave to pursue its claim for the deposit. It just meant that it would have to wait until the administration was complete, which at the time his Honour considered the matter was expected to be within a period of approximately six weeks.

59. Underlying the conclusions reached by the primary judge was the view that it would be better to allow the Sale Process to proceed and for any remaining issues between the parties to be determined once that had happened. That conclusion did not involve any error on the part of the primary judge.

Conclusion and orders

60. For those reasons, in my opinion, no error is disclosed in the approach taken by the primary judge. However, the case raised a point of principle concerning the interrelationship between ss 440D and 442C of the Act and the extent to which an owner of property in the possession of a company should be permitted to pursue its proprietary rights while the company is in administration.

61. For those reasons, in my opinion, leave to appeal should be granted and the appeal should be dismissed. The applicant should pay the respondents’ costs in this Court.

**********

Decision last updated: 16 May 2025