Flightline Ltd v Edwards and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Luftverkehr-Aktiengesellshaft |
| Judgment Date | 05 February 2003 |
| Neutral Citation | [2003] EWCA Civ 63 |
| Docket Number | Case No: A2 2002 1820 CHBKF |
| Court | Court of Appeal (Civil Division) |
| Date | 05 February 2003 |
[2003] EWCA Civ 63
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Neuberger)
Lord Justice Ward
Lord Justice Laws and
Lord Justice Jonathan Parker
In the Matter of Swissair Schweizerische
Luftverkehr-Aktiengesellshaft and
In the matter of the Insolvency Act 1986
Case No: A2 2002 1820 CHBKF
Mr Martin Pascoe QC and Miss Lucy Frazer (instructed by Messrs Lovells) for the Appellants
Mr Gabriel Moss QC and Mr Jeremy Goldring (instructed by Messrs Field Fisher and Waterhouse) for the Respondents
INTRODUCTION
This is the judgment of the court.
This is an appeal by Mr Nicholas Edwards and Mr James Smith, as provisional liquidators of Swissair Schweizerische Luftverkehr-Aktiengesellshaft ("the Company"), against an order made by Neuberger J in the Chancery Division, Companies Court, on 2 August 2002 granting leave to Flightline Limited ("Flightline") pursuant to section 130(2) of the Insolvency Act 1986 ("the 1986 Act") to continue an action which it had commenced against the Company in the Queens Bench Division on 16 January 200In the action, Flightline claims some £4.2M as money owed to it by the Company, alternatively it claims damages. The judge granted permission to appeal.
The judge's judgment is reported at [2002] 1 WLR 2535, and for the purposes of this judgment we shall take it as read.
The substantive issue before the judge, as before us, is whether (as Flightline contends) Flightline has, as against the appellants, a valid charge over monies standing to the credit of an account at the Bishopsgate Branch of the NatWest Bank in the joint names of Messrs Allen & Overy and Messrs Field Fisher Waterhouse, respectively the former solicitors for the Company and the solicitors for Flightline, limited to £3.325M of those monies. If Flightline has such a charge, with the consequence that it is a secured creditor in respect of any judgment which it may obtain in the action up to a maximum of £3.325M, then it is accepted by the appellants that leave to continue the action should be granted. Conversely, if it has not, then Flightline accepts that such leave should be refused.
The judge concluded that Flightline has a charge over the monies in the joint account to secure any judgment which it may obtain in the action up to a maximum of £3.325M, and he accordingly granted Flightline leave pursuant to section 130(2) to continue the action.
Before the judge, argument was directed solely to the question whether the effect of what took place in relation to the setting up of the joint account was to create the charge for which Flightline contends. On this appeal, however, the appellants seek to raise a further argument, viz. that even if a charge was created, such charge is nevertheless void as against the appellants for non-registration pursuant to sections 395 and 396 of the Companies Act 1985.
After hearing full argument on the primary issue as to whether a charge was created, we concluded that that issue should be decided in favour of the appellants and that the appeal should accordingly be allowed. We therefore indicated to Mr Martin Pascoe QC (for the appellants) and Mr Gabriel Moss QC (for Flightline) that we did not need to hear argument on the secondary issue as to non-registration, and that we would give our reasons for allowing the appeal on the primary issue in writing and hand down our judgments in due course. This judgment is accordingly concerned only with the primary issue as to whether a charge was created.
THE FACTUAL BACKGROUND
The Company was incorporated in Switzerland. It formed part of the Swissair Group, which provided commercial air services in Switzerland and elsewhere. Flightline operated certain routes on behalf of the Company.
In October 2001 the group collapsed, and the Company repudiated its arrangements with Flightline. Flightline then commenced two actions against the Company. The first action related to the period prior to October 2001, and has since been compromised. The second action, which relates to the period after October 2001, is the action with which these proceedings are concerned. As already noted, this action was commenced on 16 January 2002, and seeks recovery of a sum of £4.2M. The claim is primarily in debt, but with an alternative claim for damages.
In the meantime, in October 2001 insolvency proceedings were taken against the group in Switzerland. On 5 October 2001 the Swiss court appointed a provisional administrator of the group, and in December 2001 it granted a debt re-structuring moratorium, the effect of which (under Swiss law) was to restrict the bringing or continuing of actions against companies in the group. We are told that that moratorium is still in place, and that unless some kind of debt-restructuring scheme is put in place, the eventual liquidation of the group is inevitable.
On the commencement of the action on 16 January 2002, Flightline applied without notice for, and was granted, a freezing order until 6 February 2002 restraining the Company from dealing with its assets in England and Wales, up to the value of £4.2M. The order was expressed to extend to the Company's interest in any account held by the International Air Transport Association ("IATA"), which at that time owed substantial sums of money to the Company. Notwithstanding that the standard from of freezing order as set out in paragraph 14 of the Practice Direction supplementing rule 25 of the Civil Procedure Rules (see, now, page 552 of Vol 1 of Civil Procedure (Autumn 2002 edition)) provides expressly (in paragraph 11(4)) that the freezing order shall cease to have effect if the respondent provides security in a sum to be specified in the order, either by means of a payment into court or by some other agreed method, the freezing order as granted (and as subsequently continued) contained no such express provision.
The Company indicated that on the return date (6 February 2002) it intended not only to oppose any continuation of the freezing order but also to apply to discharge the order. The application to discharge, if successful, would of course have exposed Flightline to liability under its cross-undertakings in the freezing order.
On 6 February 2002 the matter was adjourned to 14 February 2002 with an estimated length of hearing of half a day.
On 14 February 2002 the matter came before McCombe J, but there was not time to complete the argument on that day. Accordingly, by his order dated 14 February 2002 ("the February Order") McCombe J, by consent, adjourned the matter to a date to be fixed and continued the freezing order in the meantime, on agreed terms.
As at 14 February 2002 the Company was expecting to receive from IATA, within the next few days, a payment in excess of £4.2M. The Company was concerned that the entirety of the IATA monies should not be frozen, pending the adjourned hearing. In the event it was agreed that, pending the adjourned hearing, IATA should be at liberty to pay a sum of £4.2M out of monies owed by it to the Company into an account in the joint names of the parties' solicitors, and having done so to release to the Company the balance of any monies owed to the Company, and that thereupon the freezing order should immediately cease to have effect. These terms were duly incorporated in paragraphs 3 and 4 of the February Order. Paragraph 5 of the February Order was in the following terms:
"If the sum of [£4.2M] is paid into such joint bank account as referred to in paragraph 3 of this Order, 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 [firms of solicitors]."
Shortly after the making of the February Order the two firms of solicitors opened the joint account, which was designated by the Bank as a "Solicitors' Reserve Account". It was entitled "Allen & Overy and Field Fisher Waterhouse Joint Escrow General Client Account". On 18 February 2002 £4.2M was paid by IATA to Allen & Overy and held by Allen & Overy in its client account. On 20 February 2002 Allen & Overy paid that sum into the joint account.
The date fixed for the adjourned hearing of the matter was 13 March 2002. In the meantime, however, the parties had reached agreement on terms of compromise of the interlocutory dispute. These terms were incorporated in a further consent order made by McCombe J on 13 March 2002 ("the March Order").
The March Order was expressed to be made on undertakings by the parties. Flightline undertook not to apply for a further freezing order over the Company's assets without giving 2 clear days' written notice of the application. The Company's undertaking was in the following terms (set out in the Second Schedule to the March Order):
"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 [the two firms of solicitors]."
The body of the March Order (which was expressed to be made by consent) provided merely that the freezing order be discharged; that the Company's application to discharge it be dismissed; and that there be no order as to costs. It also contained general liberty to apply.
On 4 April 2002 the appellants were appointed provisional liquidators of the Company. On 16 October 2002 the Company was compulsorily...
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