''British Eagle International Air Lines Ltd v Cie Nationale Air France''

975 Year 975 ( CMLXXV) was a common year starting on Friday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * Arab–Byzantine War: Emperor John I raids Mesopotamia and invades Syria, using ...

1 WLR 758 is a

UK insolvency law United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the ...

case, concerning priority of creditors in a company winding up.

Facts

A number of airlines agreed to set up a clearing house to manage debt and credit accounts among themselves. Each airline in the group owed multiple and changing debts to one another, so to make settlements easier, participants were not meant to claim against one another, but simply enter their transactions in the clearing house, and then settle the balance at the end of each month. The clearing house fell under the authority of the

International Air Transport Association The International Air Transport Association (IATA ) is a trade association of the world's airlines founded in 1945. IATA has been described as a cartel since, in addition to setting technical standards for airlines, IATA also organized tariff ...

, or IATA.

British Eagle British Eagle International Airlines was a major British independentindependent from government-owned corporations airline that operated from 1948 until it went into liquidation in 1968. It operated scheduled and charter services on a domestic ...

went into liquidation, and owed money to the clearing house overall, but was a creditor to

Air France Air France (; formally ''Société Air France, S.A.''), stylised as AIRFRANCE, is the flag carrier of France headquartered in Tremblay-en-France. It is a subsidiary of the Air France–KLM Group and a founding member of the SkyTeam global air ...

. The liquidator attempted to recover the money from Air France and Air France argued it was bound by the clearing house scheme, and could only collect money after netting out the claims of creditors of British Eagle in IATA. So the liquidator challenged the legality of the scheme, as it purported to sidestep the mandatory rules on ''

pari passu ''Pari passu'' is a Latin phrase that literally means "with an equal step" or "on equal footing". It is sometimes translated as "ranking equally", "hand-in-hand", "with equal force", or "moving together", and by extension, "fairly", "without pa ...

'' distribution.

Judgment

The majority of the

House of Lords The House of Lords, also known as the House of Peers, is the Bicameralism, upper house of the Parliament of the United Kingdom. Membership is by Life peer, appointment, Hereditary peer, heredity or Lords Spiritual, official function. Like the ...

(

Lord Cross of Chelsea Arthur Geoffrey Neale Cross, Baron Cross of Chelsea, PC (1 December 1904 – 4 August 1989) was a British barrister and judge who served as a Lord of Appeal in Ordinary between 1971 and 1975. Early life and career Geoffrey Cross was bor ...

Lord Diplock William John Kenneth Diplock, Baron Diplock, (8 December 1907 – 14 October 1985) was a British barrister and judge who served as a lord of appeal in ordinary between 1968 and until his death in 1985. Appointed to the English High Court in ...

and

Lord Edmund-Davies Herbert Edmund Edmund-Davies, Baron Edmund-Davies, PC (15 July 1906 – 26 December 1992) was a British judge. Early life and career Born Herbert Edmund Davies at Mountain Ash ( cy, Aberpennar), Glamorgan (now in Rhondda Cynon Taf), Wales, h ...

) held that the clearing house scheme could not put Air France in a better position than it would be, and could not have the effect of avoiding the insolvency priority rules, which would be against public policy. It was unlawful to attempt to contract out of (what is now) the

Insolvency Act 1986 The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication and ...

, section 107. Therefore, the majority in the House of Lords ruled in favour of the liquidators of British Eagle. Lord Cross gave the leading opinion.

1 WLR 758, 780

Lord Morris of Borth-Y-Gest John William Morris, Baron Morris of Borth-y-Gest, (11 September 1896 – 9 June 1979) was a judge in England and Wales. He was a Law Lord from 1960 to 1975. Early life Morris was born in Liverpool, where his father was a bank manager. He ...

and

Lord Simon of Glaisdale Jocelyn Edward Salis Simon, Baron Simon of Glaisdale, (15 January 19117 May 2006) was a Law Lord in the United Kingdom, having been, by turns, a barrister, a commissioned officer in the British Army, a barrister again, a Conservative Party po ...

gave dissenting judgments.

Notes

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References

*L Sealy and S Worthington, Cases and Materials in Company Law (8th edn OUP 2008) 676-677 United Kingdom company case law United Kingdom insolvency case law House of Lords cases British Eagle 1975 in case law 1975 in British law Air France–KLM

Facts

Judgment

See also

Notes

References