Re Paramount Airways Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE TAYLOR,LORD JUSTICE FARQUHARSON |
| Judgment Date | 27 February 1992 |
| Judgment citation (vLex) | [1992] EWCA Civ J0227-1 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 92/0149 |
| Date | 27 February 1992 |
In the Matter of Paramount Airways Limited
And in the Matter of the Insolvency Act 1986
[1992] EWCA Civ J0227-1
The Vice-Chancellor
(Sir Donald Nicholls)
Lord Justice Taylor
Lord Justice Farquharson
92/0149
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
(MR JUSTICE MERVYN DAVIES)
Royal Courts of Justice
MR NICHOLAS MERRIMAN Q.C. and MR RICHARD SALTER, instructed by Messrs Wilde Sapte, appeared for the Appellants (Applicants).
MR NIGEL DAVIES, instructed by Messrs Norton Rose, appeared for the Respondent (Respondent).
All legal systems have to deal with the situation which arises where a debtor is unable to pay his debts. Under English law, where the debtor is a corporate body, its assets are sold, the proceeds distributed among its creditors, and then the debtor ceases to exist, i.e., it is dissolved. The law is more merciful to an individual. His property is sold and the proceeds distributed among his creditors. Thereafter, in due course, he is discharged from bankruptcy and is permitted to resume a normal life, freed from the burden of his past debts.
This simple scheme has to be buttressed by statutory provisions concerned to prevent abuse by debtors and to achieve a fair distribution of a debtor's property among his creditors. In some circumstances it would not be reasonable that a disposition of property made by an individual before his bankruptcy, or by a company before being wound up, should be allowed to stand. This may be because of the purpose for which the disposition was made, or because of the time at which it was made. One instance is where a debtor, anticipating insolvency, seeks to discharge one of his debts in priority to the others. For example, a company may pay off its bank overdraft ahead of its other liabilities because the directors have given personal guarantees to the bank. The directors are anxious to relieve themselves of their personal liability, so they decide to use what money is available in repaying the bank and to leave those who have supplied goods to the company to whistle for their money. Another instance is when an individual, anxious about the consequences of his insolvency, gives away his property shortly before he becomes bankrupt. For example, he transfers his share of his house to his wife. Fairness to his creditors demands that he should not be able to deplete his assets in this way in a deliberate attempt to put them beyond the reach of his creditors.
Successive statutes, principally the Bankruptcy Acts and the Companies Acts, contained provisions regulating this subject-matter. They were something of a hotchpot. The provisions are to be found now in the Insolvency Act 1986. They comprise a coherent, modernised and expanded code. Section 238 enables the court, in prescribed circumstances, to make orders restoring the original position where a company has made gifts or entered into other transactions at an undervalue. Section 239 gives the court a like power in respect of a transaction by a company which has put a creditor or guarantor into a better position in the event of the company going into insolvent liquidation than otherwise would have been the case. Sections 339 and 340 contain similar, although not identical, provisions where an individual is adjudged bankrupt. The question raised by this appeal concerns the territorial scope of these provisions and, in particular, of the phrase, "any person" in section 238(2). The appellants, who are the administrators of an English company, Paramount Airways Limited, claim that the words mean exactly what they say: any person. Hence the expression is apt to include the respondent, Hambros Bank (Jersey) Limited. The contrary argument is that Hambros Jersey, as I shall call the respondent, is outside the ambit of the section, because the apparent width of the phrase is subject to an implied limitation that the expression applies only to (1) British subjects and (2) all persons present in England and Wales at the time of the impugned transaction. Hambros Jersey does not fall within either of these heads. Hambros Jersey is part of the Hambros Bank Group, but it is a Jersey company. It carries on business in Jersey, and does not carry on business in England and Wales. Mervyn Davies J. upheld this argument and implied a limitation, although in not precisely these terms. He held that section 238 applies to British subjects, companies registered in England, foreigners present in England and, possibly, foreign companies carrying on business in England. The administrators have appealed from that decision.
The facts
Before turning to the precise terms of the statutory provisions I must set the scene by referring to the facts. For the purposes of this appeal the barest outline is sufficient. Paramount Airways Limited ("the company") is a company which carries on business as a charter airline. On 7th August 1989 an administration order was made in respect of the company. In the present proceedings the joint administrators are alleging that in July 1989 the company had £1.3m standing to the credit of its bank account in England. The company is also said to have been the beneficial owner of £346,800 held by solicitors in London. These two sums of money were then transferred from England to Jersey by being paid, on the instructions of Mr Ferriday, a director and chairman of the company, to the credit of a bank account held by Ryco Trust Limited, a Jersey company, with Hambros Jersey. Ryco is a company administration agent which is said to have managed Anser General Investments S.A., a Panamanian company, on behalf of Mr Ferriday. Anser is alleged to be owned or controlled by Mr Ferriday. On the instructions of Ryco the money was then transferred to Anser and paid into an account which Anser maintained in Jersey with Hambros Jersey. The payments were in reduction of Anser's overdraft. The administrators are alleging that the company's money was misappropriated and paid away for no benefit to the company. They assert that the payments to Anser were transactions at an undervalue made at a time when the company was unable to pay its debts and within the relevant period of time stipulated in section 240. They seek an order that Hambros Jersey restore the money to the company. They are alleging that the benefit Hambros Jersey received from partial repayment of the overdraft was not acquired in good faith and for value and without notice of the relevant circumstances.
Hambros Jersey has denied this claim, but it admits, for the purposes only of this appeal, that (subject to the jurisdiction point) the administrators have an arguable case against the bank under section 238. An originating application was issued by the administrators on 23rd November 1990, and on 30th November 1990 the registrar gave leave to serve these proceedings out of the jurisdiction. Hambros Jersey applied to set aside that order, and it is against the judge's decision of 14th June 1991 acceding to that application that this appeal was brought.
The company, acting by the administrators, also commenced actions against Mr Ferriday and others in England and Jersey in respect of these transactions. The primary claim against Hambros Jersey is that it is liable to the company as constructive trustee for the sums of £1.3m and £346,800. Hambros Jersey has submitted to the jurisdiction of the English court in respect of the claims in the English action, and the Jersey action has been stayed. Subject to one argument, to which I shall come, concerning the proper application of the relevant insolvency rule, Hambros Jersey does not challenge the judge's view that, if the court has jurisdiction to grant leave to serve these section 238 proceedings on Hambros Jersey out of the jurisdiction, this was a proper case for the court to exercise its discretion in favour of granting leave.
An aid to construction
Next I must refer to an established principle or statutory construction which looms large on this appeal. The principle was stated by James L.J. in Ex parte Blain (1879) 12 Ch. D. 522, 526, in a much quoted passage, as follows:
"It appears to me that the whole question is governed by the broad, general, universal principle that English legislation, unless the contrary is expressly enacted or so plainly implied as to make it the duty of an English Court to give effect to an English statute, is applicable only to English subjects or to foreigners who by coming into this country, whether for a long or a short time, have made themselves during that time subject to English jurisdiction."
Brett L.J. and Cotton L.J. gave judgments to the like effect. That decision concerned the scope of the expression "the debtor" in the Bankruptcy Act 1869. The court held that, despite its literal width, the expression did not embrace two Chileans resident in Chile who had never been to England, although they were partners with persons in England carrying on a business here.
The principle was the subject of authoritative exegesis by the House of Lords recently in the tax case of Clark v. Oceanic Contractors Inc. [1983] 2 A.C. 130. I need refer only to passages in the speeches of Lord Scarman and Lord Wilberforce. Commenting on the judgments in Ex parte Blain (supra), Lord Scarman said (at p.145):
"Put into the language of today, the general principle being there stated is simply that, unless the contrary is expressly enacted or so plainly implied that the courts must give effect to it, United Kingdom legislation is applicable only to...
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