British Eagle International Airlines Ltd v Compagnie Nationale Air France

JurisdictionUK Non-devolved
JudgeLord Morris of Borth-y-Gest,Lord Diplock,Lord Simon of Glaisdale,Lord Cross of Chelsea,Lord Edmund-Davies
Judgment Date16 April 1975
Judgment citation (vLex)[1975] UKHL J0416-1
Date16 April 1975
CourtHouse of Lords
British Eagle International Airlines Limited
and
Compagnie Nationale Air France

[1975] UKHL J0416-1

Lord Morris of Borth-y-Gest

Lord Diplock

Lord Simon of Glaisdale

Lord Cross of Chelsea

Lord Edmund-Davies

House of Lords

Upon Report from the Appellate Committee, to whom was referred the Cause British Eagle International Airlines Limited against Compagnie Nationale Air France, that the Committee had heard Counsel, as well on Monday the 9th, as on Tuesday the 10th, Wednesday the 11th, Thursday the 12th, Monday the 16th, and Tuesday the 17th, days of December last, upon the Petition and Appeal of British Eagle International Airlines Limited of 11 Ironmonger Lane, London E.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 26th of March 1974, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, seem meet; as also upon the Case of Compagnie Nationale Air France, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 26th day of March 1974, complained of in the said Appeal, be, and the same is hereby, Varied, and that the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice with a Direction to proceed in accordance with the majority Opinions expressed in this House: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants three-quarters of the Costs incurred by them in the Courts below, and also three-quarters of the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments.

Lord Morris of Borth-y-Gest

My Lords,

1

The Appellant Company, an international airline operator, claimed from the Respondent Company, another international airline operator, the sum of £7,925.1.3. The claim was that on the 8th November 1968, that sum was "due and owing" from the Defendant Company to the Plaintiff Company and that it was still due and owing at the date of the writ. The answer of the Defendant Company was that neither the sum claimed nor any other sum was due and owing to the Plaintiff Company either on the 8th November, 1968, or at any other date.

2

Such a straightforward issue only lacked simplicity for the reason that the contract concerning the mutual rendering of services into which the parties had entered was one which was detailed and elaborate. But central to the contract was a term (to which I will refer) that no amount was to become payable by the Defendant Company to the Plaintiff Company.

3

Because the contract was detailed it required and received detailed examination at the trial. That appears from a study of the comprehensive and careful judgment of the learned Judge, Templeman J. After a full analysis of the contract his clear conclusion was that the Defendant Company never owed the sum which the Plaintiff Company claimed.

4

The case was taken to the Court of Appeal and was heard over many days by Russell, Cairns and Stamp L.JJ. The judgment of the Court, which lacked nothing in clarity by reason of its relative brevity, was delivered by Russell L.J. The appeal was dismissed.

5

I would be content to express my agreement with the judgment of the Court of Appeal but in view of the importance of the case I must state why I consider that the conclusion was correct that no sum became payable or was due and owing by the Defendant Company to the Plaintiff Company.

6

The reason why the 8th November, 1968, was pleaded as the date at which a sum of £7,925.1.3 was due and owing was that on that date a resolution for creditors' winding-up was passed by the members of the Plaintiff Company. Just prior to that date (i.e. on the 6th November) the Company ceased to carry on business. Subject always to the operation of any statutory provisions as to preferential payments the rule of fairness enshrined in section 302 of the Companies Act, 1948, became operative. The property of the Company fell to be applied in satisfaction of its liabilities pari passu. If the Defendant Company owed £7,925.1.3. to the Plaintiff Company then clearly the right to receive that sum was part of the property of the Plaintiff Company and would be receivable for the benefit of all creditors generally. If, on the other hand, the contract made between the two companies did not result in any sum or sums becoming payable or being payable then the property of the Plaintiff Company did not include any right to receive that or any other sum from the Defendant Company. If the contract that was in fact made did not and could not have the result that money became payable to or from one party to the other it cannot avail the liquidator to say that the general body of creditors would or might have been better placed if the companies had made different arrangements. When a liquidator takes over the property of a company in order to apply it according to law he may disregard an arrangement pursuant to which there would be application of the property contrary to law: but he cannot disregard or ignore or alter the features of and the nature of the properly itself by describing it as something that genuinely it is not.

7

So in the present case if the Defendant Company had owed money to the Plaintiff Company but if there was a direction to the Defendant Company which required them in the event of a liquidation to pay the money to some particular persons rather than for the benefit of all the creditors the liquidator could prevent what would be an evasion of the law (see Ex parte Mackay L.R. 8 Ch. 643). But if an airline company makes a contract with a number of other airline companies (the contract being in no way colourable but made for commercially beneficial reasons) for the mutual rendering of services on the terms that no money is to become payable between the various parties inter se I do not think that a liquidator while seeking to rely on and to extract a benefit from the contract can do so on the basis of ignoring or transforming some of its terms or on the basis of requiring a breach of its terms.

8

Provided that they have so agreed among themselves international airline operators, as part of their business, sell and issue tickets to passengers in respect of journeys which will not necessarily or wholly be on planes operated by the company issuing the ticket but which may be or may in part be on the planes of another operator or of other operators. In this way an operator sells transportation over the routes of other operators. In the year 1945 by Act of the Canadian Parliament there was incorporated the International Air Transport Association (IATA). One of its objects was to provide means for collaboration between international air transport enterprises. In the following year (1946) IATA established a Clearing House for the benefit of those who wishes to become members of it. There could be applications for membership. In applying an applicant agreed that the Regulations of the Clearing House "in their present form or as the same may from time to time be altered or amended and all rules or directions from time to time made or given in pursuance thereof shall be binding on the Applicant and shall be deemed to constitute a contract between the Applicant and IATA and every other member for the time being of the Clearing House."

9

The Appellants (British Eagle) joined the Clearing House in 1958. The Respondents (Air France) had joined in 1947. On the 1st July, 1968, there were 76 members. So at all material times and for some 10 years before 1968 both parties were and had been under contractual obligation (by contract with all members and by each and all with IATA) to observe the Regulations. It followed that any interline business affecting the parties was carried on subject to the Regulations. In the pleadings the Appellants admitted that both parties were at all material times until the date of the liquidation (the 8th November, 1968) subject to the regulations, rules and directions of Iata. The arrangements involved no element of any fraudulent preference: they could not be said to have been made with a view of giving preference (see the language of section 44 of the Bankruptcy Act, 1914).

10

A system is obviously a very convenient one which enables a passenger in one country to purchase from one operator a ticket to his destination though some part or parts of his journey will involve arrangements being made for his being carried by other operators. The system can only be carried out if there is co-operation between the operators. There must be agreement in regard to very many and diverse matters. All the manifold questions which are, by years of experience, known to arise must be settled. So it follows that procedures, rules and regulations must be elaborate.

11

It requires no effort of imagination to appreciate that in the absence of some wide-ranging agreement interline arrangements could necessitate the making of very large numbers of payments by and to and between operators. Much expense would inevitably thereby be entailed.

12

The setting up of the Clearing House was designed to enable international operators to avoid the necessity of having to make such numerous payments. The system which was devised was that month by month there would be clearances of the sums referable to the services rendered by operators between each other and that such clearances...

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