Vol 5 (2008) - Issue 3

Article preview

High Court of Australia Holds Failed Airline Accountable to Global Airline Clearing House

The attack on the World Trade Centre on 11 September 2001 was a crippling event for the airline industry worldwide. But less than 24 hours after the attacks, the Australian airline industry was hit by another crippling event – the decision by the Board of Ansett Australia to place Australia’s second largest airline into administration.

Ansett was a dominant player in the Australian airline industry for over 50 years. Its demise left thousands jobless and many creditors unpaid. One such creditor was the International Air Transport Association (‘IATA’). IATA, formed in Canada in 1945, acts as a Clearing House for the hundreds of thousands of transactions that occur between airlines worldwide each month in relation to the carriage of passengers and cargo. Ansett joined IATA in 1951. Under the Clearing House system, the netting of monthly transactions in the clearance process would result in each member airline either receiving a single payment from IATA at the end of each month or making a single payment to IATA.

After Ansett was placed in administration, a dispute arose between IATA and the Administrators of Ansett as to IATA’s status as a creditor. IATA argued that it was a creditor of Ansett as a result of Clearing House monthly clearances conducted in August to December 2001 (inclusive). The transactions cleared in those clearances had been performed but not cleared through the Clearing House prior to Ansett being placed in administration. The Administrators did not acknowledge IATA as a creditor of Ansett. They argued that the relevant transactions which had been cleared through the Clearing House (and in respect of the balance of which IATA claimed to be a creditor) gave rise to debts owing by and to Ansett (with other airlines). On this basis, the Administrators argued that the clearances purported to deal with the property of Ansett (being the debts said to be owed to it by other airlines) otherwise than in accordance with the insolvency laws by allowing for multilateral netting. Accordingly, the Administrators refused to acknowledge the operation of the August to December 2001 clearances of the Clearing House in so far as those clearances included claims by or against Ansett. The Administrators argued that the proper way of dealing with the transactions, that had not been cleared as at the date Ansett was placed in administration, was for airlines who were ‘debtors’ to Ansett as a result of those transactions to pay Ansett, and for those airlines who were ‘creditors’ of Ansett to lodge a proof of debt in Ansett’s administration.

IATA commenced proceedings in the Supreme Court of Victoria in 2002 seeking to be recognised as a creditor of Ansett. In these proceedings, Justice Mandie found in favour of IATA. The Administrators appealed to the Court of Appeal of the Supreme Court of Victoria who found in favour of the Administrators by a majority of 2:1.

IATA was granted special leave to appeal to the High Court of Australia in April 2007 and, in February 2008, the High Court delivered judgment in favour of IATA by a majority of 6:1.

The proceedings concerned similar issues to those dealt with in the House of Lords decision in British Eagle International Airlines Ltd v Compagnie National Air France [1975] 1 WLR 758 (‘British Eagle’). In British Eagle, it was held that IATA’s Regulations, as they stood at that time, were contrary to the public policy and the provisions of the UK Companies Act. This finding was based on the majority of the House of Lords’ view that the relevant contractual agreements gave rise to debts between individual member airlines in respect of transactions performed for each other. IATA’s contractual documents had been amended in the light of British Eagle and the amended documents applied in the Ansett proceedings.