British Eagle, which had gone into liquidation. The parties disputed a contract attempting to reset the ranking of debts. The House was asked whether there was a debt due to the insolvent company at the commencement of its winding-up, to which the netting-off provisions of the IATA clearing house rules then applied.
Held: (bare majority) It was not open to parties to contract out of mandatory provisions and that any attempt to do so was void. The appeal succeeded. A clearing house arrangement between a large number of airline companies relating to debts arising as between them was ineffective as against the liquidator of one of the companies. Insofar as the arrangement purported to apply to debts which existed when the members of the company passed the resolution to go into creditors’ voluntary liquidation, it would have amounted to contracting out of the statutory requirement that the assets owned by the company at the date of its liquidation should be available to its liquidator, who should use them to meet the company’s unsecured liabilities pari passu, under section 302 of the 1948 Act. Any purported ‘contracting out’ of the insolvency legislation is contrary to public policy, and such contractual provisions will be disapplied.
Lord Cross discussed ex parte Mackay, saying: ‘In Ex p Mackay 8 Ch App 643, the charge on [the] second half of the royalties was . . an animal known to the law which on its face put the charge[e] in the position of a secured creditor. The court could only go behind it if it was satisfied – as was indeed obvious in that case – that it had been created deliberately in order to provide for a different distribution of the insolvent’s property on his bankruptcy from that prescribed by the law.’
Lord Morris of Borth-y-Gest, though dissenting, agreed that Ex p Mackay was a case where the relevant provisions were ‘a clear attempt to evade the operation of the bankruptcy laws’, or ‘a device for defeating the bankruptcy laws’.
Judges:
Lord Cross of Chelsea, Lord Morris of Borth-y-Gest, Lord Diplock and Lord Edmund-Davies
Citations:
[1975] 1 WLR 758, [1975] 2 All ER 390
Statutes:
Jurisdiction:
England and Wales
Citing:
Appeal from – British Eagle International Airlines Ltd v Compagnie National Air France CA 1974
. .
Cited – Ex parte Mackay; Ex parte Brown; In re Jeavons 1873
Mr Jeavons sold a patent regarding the manufacture of armour plates to a Brown and Co and Cammell and Co in consideration of the companies paying royalties. There was also a loan from the company to Mr Jeavons secured on the royalties. The parties . .
Cited by:
Cited – Commissioners of Inland Revenue v The Wimbledon Football Club Limited, Ellis, Earp CA 28-May-2004
The Commissioners appealed against a refusal of their application for a revocation of the defendant’s voluntary arrangement in that it had failed to comply with section 4. They complained that the arrangement was unfair to them. It had been agreed . .
Cited – Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Cited – International Air Transport Association v Ansett Australia Holdings Ltd 6-Feb-2008
(High Court of Australia) The rules of the clearing house scheme had been modified following the British Eagle decision so as to exclude any liability or right of action for payment between member airlines.
Held: (by a majority, Kirby J . .
Lists of cited by and citing cases may be incomplete.
Company, Insolvency
Updated: 30 April 2022; Ref: scu.197873
