Flightline Ltd v Edwards and another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Neuberger |
| Judgment Date | 02 August 2002 |
| Neutral Citation | [2002] EWHC 1648 (Ch) |
| Docket Number | Case No: 2344 of 2002 |
| Court | Chancery Division |
| Date | 02 August 2002 |
[2002] EWHC 1648 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Neuberger
Case No: 2344 of 2002
In the Matter of Swissair Schweizerische Lutftverkehr-Aktiengesellschaft
And in the Matter of the Insolvency Act 1986
Mr. Gabriel Moss QC (instructed by Field Fisher Waterhouse) for the Applicant Flightline Ltd.
Mr. Martin Pascoe QC (instructed by Lovells) for the Respondents Nicholas Edwards and James Smith.
Hearing date: 25th July 2002
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr. Justice Neuberger
This is an application by Flightline Ltd ("the applicant"), pursuant to section 130(2) of the Insolvency Act 1986, for permission to continue its proceedings against Swissair Schweizerische Luftverkehr-Aktiengesellschaft ("the Company"). Whether or not such permission should be granted depends on the resolution of an issue of some difficulty. That issue is whether the applicant is a secured creditor in respect of a sum of £3.325m in an account ("the joint account") in the names of Allen & Overy and Field Fisher Waterhouse at the Bishopsgate branch of NatWest Bank plc ("the bank"). The relevant facts are as follows.
The Company was incorporated under the laws of Switzerland in May 1997, and formed part of the Swissair group of companies, which provided commercial air services inside and outside Switzerland. The group collapsed in October 2001, and insolvency proceedings were commenced in Switzerland. On 5th October 2001, the Swiss Court appointed a provisional administrator of the group, and, two months later, it granted a debt-structuring moratorium, which is currently due to expire on 5th December 2002. In Swiss law, this moratorium prevents most actions being commenced or continued against companies within the group.
On 4th April 2002, the respondents, Mr Nicholas Edwards and Mr James Smith, were appointed joint provisional liquidators of the Company by Jacob J, on the Company's own petition. The Company's winding up petition is due to be heard on 16th October 2002. It appears. to be heavily insolvent: the most recent information laid before the Swiss Court suggests that it has assets worth around £180m and liabilities to the tune of around £1.9bn. The Company's assets in England are worth around £11.3m, including the sum of £3.325m in the joint account to which I have referred.
The applicant maintains that it has claims against the Company in connection with arrangements under which the applicant operated routes on behalf of the Company, which arrangements were repudiated by the Company in October 2001. The applicant commenced two separate sets of proceedings in connection therewith. The first set of proceedings related to the period before October 2001, and have been resolved. The second set of proceedings ("the claim") relates to the period after October 2001, and it involves a claim—primarily framed in debt, but also or alternatively in damages—by the applicant against the Company. The applicant's amended particulars of claim were served on 20th March 2002, and no defence has been served because proceedings were automatically stayed on the appointment of the provisional liquidators.
Meanwhile, pursuant to an application made on 16th January 2002 without notice, the applicant obtained a freezing injunction against the Company from Pitchford J. The centrally operative part of the order of 16th January ("the freezing order") provided that:
"Until 6th February 2002 … or further order of the Court … [Swissair] must not remove from England and Wales or in any way dispose of or deal with or diminish the value of or encumber any of its assets which are in England and Wales, whether in its own name or not and whether solely or jointly owned, up to the value of £4,260,747.06."
This is the sum which the appellant apparently is seeking to recover in the claim (inclusive of interest).
The freezing order was expressed to extend to the Company's beneficial interest in any account held by the International Air Transport Association, IATA. This was because it was known to the applicant that the Company was entitled to recover substantial sums of money from IATA.
The freezing order also provided, in the normal way, for "Exceptions to this Order". Thus, it expressly permitted the Company to spend a certain amount "on legal advice and representation", the amount in question being £15,000, subject to increase by agreement. However, despite the standard form of freezing injunction so providing in the relevant Practice Direction (see 25PD.14 at page 518 of the Spring 2002 edition of Civil Procedure), the freezing order in this case, for some unexplained reason, did not state that:
"The [Company] may cause this order to cease to have effect if [it] provides security by paying the sum of £…. into Court or makes provision for security in that sum by another method agreed with the applicant's legal representatives."
The freezing order was continued, subject to a variation which is apparently immaterial for present purposes, by Turner J on 28th January 2002. The Company then applied to discharge the freezing order. On 6th February 2002, the return date for the freezing order, the Court continued the freezing order on the basis that there was insufficient time to deal with the arguments for respectively continuing and discharging the order.
On 14th February 2002, the applicant's application to continue the freezing order and the Company's application to discharge the freezing order both came on for hearing before McCombe J. There was insufficient time for the hearing to be concluded, and the parties reached agreement as to what order should be made pending the resumed hearing. The parties' agreement was embodied in an order on 14th February 2002 ("the February order"). Having referred to the freezing order made by Pitchford J on 16th January and its continuance by the subsequent orders, the February order continued:
"BY CONSENT IT IS ORDERED THAT:
1. Subject to paragraph 3 of this order, the freezing injunction shall continue … until the adjourned hearing … or further order … or the consent of the parties in the meantime.
2. The adjourned hearing … shall take place on a date … to be fixed ….
3. IATA shall be at liberty … to pay from the monies owed by IATA to [Swissair] the sum of £4,760,747.06 into a bank account in the joint names of the solicitors to the parties …
4. Upon the said sum being paid into such joint bank account … the freezing injunction shall immediately cease to have effect …
5. If the sum of £4,260,747.06 is paid into such joint bank account …, it shall be retained in such account and no sums shall be withdrawn therefrom pending further order of the Court or the written consent of both the [parties'] solicitors.
6. If by reason of the payment the sum of £4,260,747.06 into such joint bank account … the freezing injunction shall cease to have effect, the costs of the application dated 16th January 2002 shall nevertheless be reserved to the adjourned hearing of the return date."
Allen & Overy and Field Fisher Waterhouse as, respectively, the solicitors to the Company and the applicant, shortly thereafter opened the joint account, which was recorded by the bank as a "Solicitors Reserve Account" and was specifically described as "Allen & Overy and Field Fisher Waterhouse Joint Escrow General Client Account". The sum of £4,260,747 was paid by IATA to Allen & Overy who immediately paid it into the joint account on 20th February 2002. Shortly thereafter, the adjourned hearing was fixed for 13th March 2002. There then followed negotiations between the parties which resulted in the hearing of 13th March 2002 not being effective, because the parties were able to agree an order, which was made that day ("the March order") by McCombe J. The March order referred to the earlier orders, and then recited that, upon each of the parties giving an undertaking:
"BY CONSENT IT IS ORDERED THAT:
1. The freezing order be discharged.
2. [The Company's] application … opposing the continuation of the freezing injunction and for an inquiry into damages be dismissed.
3. There be no order as to costs.
4. Liberty to apply."
The undertakings were set out in Schedules to the March order. The applicant undertook not to apply to the Court for any further freezing injunction in relation to other claims it might have without first giving the Company's solicitors two clear days' notice. The Company's undertaking which is of central relevance to this application was in these terms:
"Not to withdraw or in any way dispose of or deal with or encumber its interest in the monies in the [joint account] up to a limit of £3,325,000 pending further order of the Court or the written consent of both [parties'] solicitors."
The applicant contends that the effect of the March order was to place the money in the joint account under the control of the Court pending the outcome of the litigation between the applicants and the Company, and that this thereby renders the applicant a secured creditor in respect of the money. Accordingly, if the applicant prevails against the Company in the claim, it will, on this argument, be entitled to satisfy any judgment thereupon arising from the money in the joint account. If this contention is correct; then the applicant argues that it should be given leave to proceed with the claim against the Company, notwithstanding the latter's insolvency.
The respondents, on the other hand, argue that the money in the joint...
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