British Eagle International Airlines Ltd v Compagnie Nationale Air France
| Jurisdiction | England & Wales |
| Judgment Date | 26 March 1974 |
| Judgment citation (vLex) | [1974] EWCA Civ J0326-4 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 March 1974 |
[1974] EWCA Civ J0326-4
In The Supreme Court of Judicature
Court of Appeal
Civil Division
Lord Justice Russell,
Lord Justice Cairns and
Lord Justice Stamp
Mr ALLAN HEYMAN, Q.C. and Mr DAVID GRAHAM (instructed by Messrs Stephenson, Harwood & Tatham) appeared on behalf of the Appellants (Plaintiffs).
Mr MICHAEL FOX, Q.C. and Mr ANTHONY HALLGARTEN (instructed by Messrs Theodore Goddard & Co.) appeared on behalf of the Respondents (Defendants).
LOUD JUSTICE RUSSELL: The Judgment I am about to deliver is the Judgment of the Court.
The facts in and problems arising from this case are very fully canvassed and set out in the report of the hearing below and Judgment of Mr Justice Templeman (1973 1 Lloyd's Reports, 414) and against that background this Judgment can be reasonably brief.
Stated shortly, the position was this. Most major airlines are members of I.A.T.A. For the general convenience of world-wide air passengers and consignors of cargo, it is the practice of airline "A" to issue, for example, to an air passenger a ticket through to his destination, though airline "A" does not supply flights the whole way. The passenger would need to change at some stage to airline "B" for the rest of the journey. Airline "A" would receive payment for the whole flight from the passenger in the currency of the country of departure. This system would involve a proportionate payment by airline "A" to airline "B" on the basis that the latter had rendered services to the former. That is a very simple example of the rendering of services by one airline to another, and there were many different circumstances in which such services would be rendered between airlines, giving rise to a complicated network of debits and credits, with added complications in currency matters. It would obviously be of major convenience if a clearing house was sot up by the major airlines and I.A.T.A. whereby each airline could avoid settling with each of the 70 or more other airlines separately the balance in terms of debit and credit in respect of services rendered between it and the other airline. This is what was done by agreement between I.A.T.A. and all airline members ofI.A.T.A. wishing to participate in the clearing house. The Clearing House was not itself a corporate or other body; it was an activity conducted by I.A.T.A. — a Canadian corporate body, pursuant to the agreement to which all "Clearing House" members of I.A.T.A. and I.A.T.A. itself were parties.
Expressed in its simplest terms, the system was that in respect of every calendar month there was a clearance: sums for services inter se rendered to and by clearing house members based upon returns for the month to the clearing house were brought into calculation: in the result some airlines were in respect of the month in overall debit on clearance and others in overall credit on clearance: the former would pay the respective amounts of their overall debits to the Clearing House (I.A.T.A.) and the Clearing House would pay to the latter the respective amounts of their overall credits on clearance.
On the 6th November, 1968, British Eagle (an English limited company) ceased to operate, and on the 8th November resolved upon a creditors' voluntary winding-up. At this time British Eagle had rendered services to the defendant Air France since the end of August, 1968 (cross services in respect of which month had been fully settled all round through the Clearing House) to a value substantially in excess of services rendered to British Eagle by Air France in respect of the same period. But in respect of the same period other members had rendered nett services to British Eagle to a value greatly in excess of the last-mentioned value, and if all inter-airline services for the period up to the 6th November, 1968, are processed through the Clearing House, British Eagle will be shown to be nett debtors on clearance in a substantial sum. In this action the liquidator of British Eagle sues Air Francein the name of British Eagle for a sum of money on the footing of debt for nett services rendered by British Eagle to Air France after setting off contra services by. Air Prance to British Eagle. He contends that he is entitled to sue for that sum as a debt from Air France disregarding the Clearing House agreement. The operation of the Clearing House agreement if carried through will, he asserts, result in the sum claimed not being available to the general body of British Eagle's creditors, but on the contrary being made available to a limited body of creditors for nett services rendered to British Eagle. This is correct. It is to be observed that it is a matter of indifference to Air Franco whether they pay the sum to the liquidator or (so to speak) bring it into the Clearing House pool in reduction of Air Franco's debtor-on-clcarance position: in fact it is hold by I.A.T.A. in suspense; if the liquidator succeeds, the clearance will be adjusted so that Air France does not pay twice, and all airlines which have a nett credit against British Eagle will prove for their respective nett credits as unsecured creditors: if the liquidator fails, I.A.T.A. will prove for the nett sum for which British Eagle is debtor on clearance, any deficiency in a 100% dividend falling proportionately upon those airlines whose services to British Eagle in the period exceeded in value British Eagle's contra services to them respectively. Air France is therefore fighting not so much its own battle as a battle on behalf of I.A.T.A. and those airlines who are in nett services credit vis-a-vis British Eagle.
The liquidator contends that the operation of the Clearing House agreement in the circumstances will infringe a cardinal principle of the laws of administration in insolvencyin this country, which is exemplified in section 302 of the Companies Act, 1948. Just — he says — as it is not possible to contract out of the bankruptcy requirement that there must in bankruptcy be set off mutual credits and debits, as is shown by the case of Halesowen Presswork & Assemblies Ltd. v. National Westminster Bank Ltd. (1972 Appeal Cases, 785), so it is not possible to contract out of the principle that creditors (other than preferred or secured creditors) must be paid pari passu: and the effect of the Clearing...
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