International Air Transport Association v Ansett Australia Holdings Ltd

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ.,Gummow,Hayne,Heydon,Crennan,Kiefel JJ.,Kirby J.
• Judgment Date: 06 February 2008
• Neutral Citation: [2008] HCA 3,2008-0206 HCA A
• Court: High Court
• Docket Number: M51/2007
• Date: 06 February 2008

[2008] HCA 3

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Kirby, Hayne, Heydon, Crennan And Kiefel JJ

M51/2007

M52/2007

International Air Transport Association

Appellant

and

Ansett Australia Holdings Limited (Subject to Deed of Company Arrangement)

Respondents

International Air Transport Association

Appellant

and

Ansett Australia Holdings Limited (Subject to Deed of Company Arrangement)

Respondents

Representation

S J Gageler SC with C M Caleo SC for the appellant (instructed by Clayton Utz Lawyers)

N J Young QC with M C Garner and O Bigos for the respondents (instructed by Arnold Bloch Leibler)

International Air Transport Association v Ansett Australia Holdings Limited

Contract — Construction — Agreements between the International Air Transport Association (‘IATA’) and participating airlines provided for the operation of a ‘Clearing House’ in accordance with regulations (‘the Regulations’) — Pursuant to the Regulations IATA set off debits and credits that would otherwise exist between the airlines — The Regulations provided that no liability or right of action would accrue between participating airlines, including Ansett — Whether the effect of the Regulations was that IATA was the creditor of Ansett to the exclusion of other participating airlines.

Insolvency — Voluntary administration under Pt 5.3A of the Corporations Act 2001 (Cth) (‘the Act’) — Deed of Company Arrangement — Public policy — Whether Pt 5.3A of the Act or a rule of public policy required that the whole of the debtor's estate be available for distribution to all creditors — Whether any such rule invalidated the effect of the Regulations properly construed.

Insolvency — Voluntary administration under Pt 5.3A of the Act — Deed of Company Arrangement — Order of priorities — Relationship between contractual rights and obligations and the operation of Pt 5.3A — Whether the Regulations purported to circumvent the Deed or were otherwise repugnant to the Deed.

Corporations Act 2001 (Cth), Pt 5.3A.

ORDER

Matter No M51 of 2007

1. Appeal allowed.

2. Set aside orders 1 and 2 of the orders of the Court of Appeal of the Supreme Court of Victoria made on 16 November 2006, except in so far as those orders varied the orders in respect of the costs of proceedings at first instance, and, in their place, order that the appeal to that Court be otherwise dismissed.

3. The appellant pay the respondents' costs of the appeal to this Court.

Matter No M52 of 2007

1. Appeal allowed.

2. Set aside orders 1 and 2 of the orders of the Court of Appeal of the Supreme Court of Victoria made on 16 November 2006, except in so far as those orders varied the orders in respect of the costs of proceedings at first instance, and, in their place, order that the appeal to that Court be otherwise dismissed.

3. The appellant pay the respondent's costs of the appeal to this Court.

1 Gleeson CJ. The primary issue in these appeals is one of construction of a contract, the Multilateral Interline Traffic Agreement — Passenger (‘the Agreement’), of which the IATA Clearing House Regulations (‘the Clearing House Regulations’) are part. If the respondents' construction of the Agreement is accepted, an issue of public policy arises. Whether a similar issue arises if the appellant's construction is correct is a matter of controversy.

The proceedings and the issues

2 The facts concerning the Clearing House system operated by the appellant (‘IATA’), the participation in that system by Ansett Australia Holdings Limited (‘Ansett’), the insolvency of Ansett, the Deed of Company Arrangement (‘the DOCA’) executed on 2 May 2002 pursuant to Pt 5.3A of the Corporations Act 2001 (Cth) (‘the Act’), and the claims by or with respect to Ansett under monthly clearances prior to the DOCA, are set out in the joint reasons of Gummow, Hayne, Heydon, Crennan and Kiefel JJ (‘the joint reasons’).

3 In December 2002, IATA brought proceedings in the Supreme Court of Victoria challenging decisions by the Deed Administrators of Ansett that IATA was not a creditor of Ansett in respect of the monthly clearances from August to December 2001. In June 2003, Ansett commenced proceedings in the same Court seeking a declaration that the Clearing House Regulations ceased to apply to all claims by or with respect to Ansett upon and by virtue of the execution on 2 May 2002 of the DOCA. The matters came before Mandie J 1, who described the principal issue in both proceedings as a question whether IATA was and remained a creditor of Ansett in respect of the monthly clearances. The amount claimed by IATA was $US4,370,989.

4 Relying on the authority of British Eagle International Air Lines Ltd v Compagnie Nationale Air France 2, Ansett argued that, by virtue of Ansett's execution of the DOCA, the Clearing House arrangement ‘became repugnant to the insolvency legislation and contrary to public policy’. This argument was put upon the premise that the Agreement, on its true construction, was not materially different from the agreement that was before the House of Lords in British Eagle and, in particular, that a relationship of debtor and creditor existed between issuing and carrying Clearing House members. The argument of IATA was that, as appeared from the evidence and as was acknowledged on all sides, the Agreement had been re-drafted, following the British Eagle decision, for the purpose of overcoming the effect of that decision, and that under the new

Agreement the airlines were not, as between themselves, debtors and creditors. IATA, and IATA alone, it was said, was a creditor of Ansett in respect of the relevant clearances. On that basis, the other airlines never became debtors or creditors of Ansett; neither the DOCA nor any statutory provision required that they be treated as debtors or creditors; and the rights of the general body of creditors of Ansett were not displaced or interfered with by the Clearing House arrangement. Mandie J said:

‘In my opinion there was no relevant asset of Ansett, being a debt or other chose in action [arising in favour of Ansett against other airlines when it carried passengers for them], of which the non-airline creditors were deprived by virtue of the clearing house arrangement. It was conceded on behalf of Ansett that, if this was so, the British Eagle principle “did not bite”. I so conclude.’

5 Mandie J declared that IATA was a creditor of Ansett in respect of the transactions the subject of the clearances. The matters went to the Victorian Court of Appeal 3. Maxwell P reached the same conclusion as Mandie J, that is to say, that according to the Agreement no relationship of debtor and creditor arose between the airlines who participated in the Clearing House system and that, instead, each airline had a monthly liability to, or a monthly claim against, IATA. That, as he saw the case, was all he needed to decide. Nettle JA, with whom Bongiorno AJA agreed, accepted the view for which Ansett contended, which was that debts and rights of action arose between the individual airlines, and they were not extinguished until they had been cleared. On that basis, there was no relevant difference between the Agreement and the clearing house arrangements considered in British Eagle; there was a purported contracting out of the relevant insolvency legislation; such contracting out was contrary to public policy; and the insolvency laws prevailed.

6 In this Court, IATA contends that the construction of the Agreement accepted by Mandie J and Maxwell P should be preferred. IATA further contends that, if its construction of the Agreement is correct, then there was no purported contracting out of any relevant insolvency laws; there was never any relationship of debtor and creditor between the individual airlines; and the questions of public policy considered in British Eagle do not arise.

7 On one matter the parties agree. The first step is to decide the meaning of the Agreement. Whether there is a further step remains to be considered. Nobody suggested in argument, and none of the judges who have considered this question in Australia, or who have considered a similar question in England,

suggested, that the construction of the Agreement is to be approached otherwise than according to the application of the orthodox principles used to decide the meaning of a commercial contract. Naturally, the airlines who were parties to the Agreement, and IATA itself, would have understood the potential significance of the insolvency laws of the countries in and between which the airlines provided services, and the differences between those laws. The risk of insolvency, which stands behind many commercial agreements, undoubtedly formed part of the context in which the Clearing House system was devised and intended to operate. Local insolvency laws, such as those of Australia, have to be applied in the light of the legal relationships created by the contract into which the airlines and IATA entered, but it is the agreement of the parties that establishes those legal relationships. In considering Ansett's public policy argument, it is necessary to be precise about the provisions of the Agreement that are said to offend public policy. There is no evidence, and no suggestion in argument, that the entire Clearing House system was designed to evade insolvency laws. In order to decide whether any aspect of the Agreement offends public policy, it is first necessary to decide what the Agreement means, for that is a matter of substantial dispute.

The construction issue

8 In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure 4. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the...