Melbourne Aircraft Leasing (UK) Ltd v Algeri & Ors in their capacity as joint and several Trustees of the Project Volar Creditors' Trust

oung Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156 - SIF Holdings Pty Ltd v CRC Gosford Pty Ltd (2021) 392 ALR 697; [2012] NSWCA 174 - Silvia v Fea Carbon Pty Ltd (admin apptd) (recs & mgrs apptd) (2010) 185 FCR 301; [2010] FCA 515 - Timbercorp Securities v Plantation Land (2009) 72 ACSR 620; [2009] FCA 741 - Wells Fargo Trust Company, National Association (trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269 Category: Principal judgment Parties: Proceedings 2021/247299 GECGAS Australia Pty Ltd (Plaintiff) Salvatore Algeri, John Greig and Richard Hughes in their capacity as trustees of the Project Volar Creditors' Trust (Defendant) Proceedings 2021/247354 Aircraft Leasing IV Limited (First Plaintiff) Aircraft Leasing VI Limited (Second Plaintiff) Salvatore Algeri, John Greig and Richard Hughes in their capacity as trustees of the Project Volar Creditors' Trust (Defendant) Proceedings 2021/248331 Airframe Leasing (S) Pte Ltd (a company incorporated under the Laws of Singapore) and others (First Plaintiff) Salvatore Algeri, Richard Hughes and John Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust established in the administration of each of Virgin Australia Holdings & Ors (Defendants) Proceedings 2021/248348 Melbourne Aircraft Leasing (UK) Limited (a company incorporated under the Laws of England) (Plaintiff) Salvatore Algeri, Richard Hughes and John Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust established in the administration of each of Virgin Australia Holdings & Ors (Defendants) Proceedings 2021/248570 Perth Aircraft Leasing (UK) Limited (a company incorporated under Laws of England and Wales) (Plaintiff) Salvatore Algeri, Richard Hughes and John Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust established in the administration of each of Virgin Australia Holdings & Ors (Defendants) Proceedings 2021/249677 Wells Fargo Trust Company, National Association as Owner Trustee for Willis Engine Structured Trust II & Ors (Plaintiffs) Salvatore Algeri, Richard Hughes and John Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust established in the administration of each of Virgin Australia Holdings & Ors (Defendants) Proceedings 2021/248856 Floreat Aviation MSN 1407 (UK) Limited (Plaintiff) Salvatore Algeri, John Greig and Richard Hughes in their capacity as trustees of the Project Volar Creditors' Trust (Defendants) Proceedings 2021/248971 Avolon Aerospace UK 9 Limited (and Others) (Plaintiffs) Salvatore Algeri, John Greig and Richard Hughes in their capacity as trustees of the Project Volar Creditors' Trust (Defendants) Proceedings 2021/249633 Stellar UK 1 Limited (Plaintiff) Salvatore Algeri, Richard Hughes and John Greig in their capacity as joint and several trustees of the Project Volar Creditors' Trust established in the administration of each of Virgin Australia Holdings & Ors (Defendants) Representation: Counsel: Proceedings 2021/247299; 2021/247354 C R Mew (solicitor) (Plaintiffs) P Crutchfield QC/D Krochmalik/J J Rudd (Defendants) Proceedings 2021/248331; 2021/248348; 2021/248570; 2021/;249677 G Rich SC/P F Santucci (Plaintiffs) P Crutchfield QC/D Krochmalik/J J Rudd (Defendants) Proceedings 2021/248856; 2021/248971 J A Arnott SC/A Lyons (Plaintiffs) P Crutchfield QC/D Krochmalik/J J Rudd (Defendants) Proceeding 2021/249633 J A Arnott SC/A Lyons (Plaintiffs) P Crutchfield QC/D Krochmalik/J J Rudd (Defendants)

Solicitors: Proceedings 2021/247299; 2021/247354 King & Wood Mallesons (Plaintiffs) Clayton Utz (Defendants) Proceedings 2021/248331; 2021/248348; 2021/248570; 2021/;249677 Norton Rose Fulbright (Plaintiffs) Clayton Utz (Defendants) Proceedings 2021/248856; 2021/248971 Minter Ellison (Plaintiffs) Clayton Utz (Defendants) Proceeding 2021/249633 K & L Gates (Plaintiffs) Clayton Utz (Defendants) File Number(s): 2021/247299; 2021/247354; 2021/248331; 2021/248348; 2021/248570; 2021/249677; 2021/248856; 2021/248971; 2021/249633

Nature of the proceedings and affidavit evidence

1. These proceedings involve nine proceedings heard together, in which several lessors of aircraft and aircraft engines ("Aircraft Objects") to companies in the Virgin Australia group of companies ("Virgin companies"), including VB Lease Co Pty Ltd, Tiger Airways Australia Pty Ltd and Virgin Australia Airlines Pty Ltd, which are represented by three different firms of solicitors challenge the decisions of trustees ("Trustees") of the Project Volar Creditors' Trust ("Trust") in respect of the admission of proofs of debt. I will refer to lessors of Aircraft Objects, including the Plaintiffs, in an abbreviated way as "aircraft lessors", although the relevant leases included leases of aircraft engines as well as aircraft. The Plaintiffs each filed Concise Statements summarising the elements of their claims, pursuant to directions made by the Court, which identify the factual elements of the relevant claims, which are largely not disputed, and the relatively narrow legal issues that are in dispute. The Defendants in turn filed a Response to the Plaintiffs' Concise Statements. The parties also provided a substantially agreed chronology, to which the Plaintiffs added several additional matters, on which I have drawn in setting out material events below. The proceedings were heard together, with certain issues as to quantification deferred, to be determined if necessary after the issues as to priority were determined.
2. I should first refer briefly to the origin of the Trust, before addressing the nature of the Plaintiffs' claims, the affidavit evidence and the issues in dispute. By way of background, voluntary administrators ("Administrators") were appointed to a number of the companies within the Virgin group on 20 April 2020. On 25 September 2020, deeds of company arrangement including a "Primary DOCA" were executed, the Administrators become the deed administrators ("Deed Administrators") and the voluntary administration of the Virgin companies ended. On 17 November 2020, the Primary DOCA was completed and the Trust was established on the terms of the Project Volar Creditors' Trust Deed dated 17 November 2020 ("Trust Deed").
3. Turning now to the nature of the Plaintiffs' claims, Melbourne Aircraft Leasing (UK) Ltd ("Aircastle"), Airframe Leasing (S) Pte Ltd, Airframe Leasing (S) II Pte Ltd, Airframe Leasing (S) III Pte Ltd (together, "Avation") and Wells Fargo Trust Company, National Association as owner trustee for Willis Engine Structured Trust II and others ("Willis"), represented by Norton Rose Fulbright Australia (together, "NRF Plaintiffs"), seek a direction that the Trustees were not justified in rejecting part of their claims against the Trust, so far as those claims were rejected on a priority basis and only admitted as ordinary unsecured claims.

Chronology

1. I now turn to the chronology of events, which was largely agreed between the parties, and in which I have also included additional matters to which the Plaintiffs draw attention. On 25 March 2020, the Virgin companies made an announcement to the Australian Securities Exchange concerning the impact of the COVID-19 pandemic on their business (Algeri, 23.12.21, [12(c)(ii)], Ex J1, 142). Prior to 20 April 2020, an investment bank, Houlihan Lokey, was appointed by the Virgin companies "to seek a recapitalisation of Virgin" (Ex J1, 211).
2. As I noted above, on 20 April 2020, the Administrators were appointed to most of the Virgin companies, including all entities within the group that were contractual counterparties of the Plaintiffs (Algeri, 23.12.21 [2(a)]). Mr Algeri's evidence is that, prior to the appointment of the Administrators, the COVID-19 pandemic had substantially reduced the Virgin companies' core activity of providing passenger flights; from 20 March 2020, Australia's borders had been closed to non-citizens and non-residents; and, by 25 March 2020, the Virgin companies' domestic capacity had reduced by 90% and 125 aircraft had been temporarily grounded (Algeri 23.12.21 [12]). At the time the Administrators were appointed, the Virgin companies had an overall funding requirement of approximately $200 million per month, and about $40 million per month was owed to about 73 aircraft lessors and financiers of Aircraft Objects, including the Plaintiffs (Algeri 23.12.21 [11]-[12]). The Administrators had limited funding at the time of their appointment, because cash and term deposits of the Virgin companies was also frozen by financiers (Algeri 23.12.21 [12]).
3. In opening submissions, the Trustees point to an important factual aspect of the administration of the Virgin companies, that the Administrators assumed control of the Virgin business at a time that it was virtually at a "standstill" by reason of the global COVID-19 pandemic, in an extremely precarious financial state, and when the Aircraft Objects were largely stored rather than used, and that its continuance as a going concern was not assured. This context is significant, where significant parts of the Plaintiffs' approach appears to assume an impairment of their position, by contrast with that which would have existed had a COVID-19 pandemic not existed, the aircraft not been grounded, the Virgin business been operating as a going concern and their lease payments were made in the ordinary course. That was not the reality at the relevant time.

The Court's jurisdiction to determine these matters

1. It is common ground that the Court has the jurisdiction to determine the Plaintiffs' challenge to the Trustees' adjudication of their claims against the Trust Fund. Clause 7.3(f) of the Trust Deed contemplates that a person whose claim against the Trust Fund is rejected by the Trustees may apply to the Court to determine questions relating to the claim, providing that: "Where the Trustees propose to reject a Claim (whether in part or in full) the Trustees shall send a notice to the creditor informing the Creditor of the proposed rejection and giving the party 14 days within which to make an application to the Court to determine the questions relating to the Claim."
2. The NRF Plaintiffs also submit, and I accept, that the proceedings are properly brought pursuant to r 54.3 of the Uniform Civil Procedure Rules 2005 (NSW), which permits the Court to determine a question arising in the execution of a trust, without the necessity for a general administration order: Gonzales v Claridades (2003) 58 NSWLR 211 at 217-218. It is not necessary to determine the NRF Plaintiffs' alternative claims relying upon s 63(10) of the Trustee Act 1925 (NSW) and s 23 of the Supreme Court Act 1970 (NSW).

The scope of the Lundy Granite principle and whether it applies to claims under the Trust

1. As I noted above, these proceedings involve, first, a dispute as to whether the principle in Re Lundy Granite Co (1871) LR 6 Ch App 462 ("Lundy Granite") applies in respect of the Plaintiffs' claims against the Trust. I will first address the relevant case law, although there seemed to me to be no substantial dispute in these proceedings as to the scope of the principle, if it is properly applicable. The decision in Lundy Granite concerned a landlord's distraint of items belonging to a company that had been left upon a tenant's property, where the company had been permitted into possession of the property and, after a winding up order was made, the liquidator retained possession of the land with a view to a sale of the company's assets on the land. That distraint was allowed to proceed because, inter alia, the liquidator had retained possession of the land for the purposes of the liquidation. James LJ observed (at 466) that: "if the company for its own purposes, and with a view to the realisation of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the court to see that the landlord receives the full value of the property."
2. In Re Oak Pits Colliery Co (1882) 21 Ch D 322 at 329 ("Oak Pits"), Lindley LJ in turn observed that: "The object of the winding-up provisions of the Companies Act, 1862, is to put all unsecured creditors upon an equality, and to pay them pari passu. A landlord who has not put in a distress before the commencement of the winding up is an unsecured creditor. He can prove against the company under sect. 158 for all rent in arrear at the time of his proof, but his right to distrain is taken away by sect. 163, unless circumstances exist which, in the opinion of the court, require it to give him leave to distrain under sect. 87. In all cases, however, in which a landlord seeks to distrain after a winding-up order, or seeks to be paid his rent in priority to other creditors, he must [show] why he should have such an advantage over the other creditors." His Lordship also there observed (at 330), in a passage subsequently quoted with approval by Lord Hoffman in Re Toshoku Finance UK Plc (in liq) [2000] 3 All ER 938; [2000] 1 WLR 2478; [2000] 1 BCLC 683; [2002] HL 6 at [26], that: "When the liquidator retains property for the purpose of advantageously disposing of it, or when he continues to use it, the rent of it ought to be regarded as a debt contracted for the purposes of winding up the company, and ought to be paid in full like any other debt or expense properly incurred by the liquidator for the same purpose."

Determination as to whether the Lundy Granite principle is available for claims against the Trust

1. It seems to me that the Plaintiffs have not established that the Lundy Granite principle should be applied in admitting proofs of debt against the Trust. First, the Plaintiffs identified no English or Australian authority which has extended that principle beyond a winding up, or a distribution of assets on the same basis in an English voluntary administration, and I can see no reason in policy to extend that well-established principle beyond the circumstances in which it arose.
2. Second, I do not accept that a comparison of the Plaintiffs' position under the Trust and that which would have existed in a winding up warrants the sense of deprivation which was a substantial theme in the Plaintiffs' submissions as to why that principle should be applied. There was, of course, no winding up of the Virgin companies, because the airline business was sold and the Trust was established, and the position in a winding up would have been very different, not least because the proceeds of the sale of the business as a going concern which will be distributed to the Plaintiffs and other creditors under the Trust would likely not have been available. There is no requirement that a deed of company arrangement, still less a creditors' trust, replicate the position that would have occurred in a winding up, although creditors may challenge a deed of company arrangement which departs from that order in an appropriate case. No such challenge was brought by the Plaintiffs here. The Plaintiffs did not seek to establish that their economic return from the Trust, which has benefited from the sale proceeds of the business as a going concern, will be worse than their return had they been allowed priority in a winding up where those increased proceeds would likely not have been received.
3. Third, I accept the Trustees' submission that the priority to be afforded to the Plaintiffs' Claims is determined by the proper construction of the Trust Deed, having regard to its text, context and purpose, and in a manner which avoids a construction which is productive of commercial nonsense or works commercial inconvenience. I am not persuaded that the Plaintiffs are entitled to priority, arising from the application of the Lundy Granite principle, on the proper construction of the Trust Deed on the relevant facts. I accept the Trustees' submission that cl 5.2(b)(1)(A) of the Trust Deed provides that the Trust Fund is to be distributed first with respect "to" the Administrators or Deed Administrators "for any amount which they are entitled to be paid or indemnified for under the Primary DOCA", and those amounts arise under cll 15.1 and 15.2 of the Primary DOCA. I also accept that cl 15.1 of the Primary DOCA provides an entitlement to Costs and Remuneration which is personal to the Administrators and Deed Administrators. As the Trustees point out, cl 15.2 of the Primary DOCA in turn provides that the Administrators and Deed Administrators are entitled to be indemnified in respect of certain liabilities. I do not understand the Plaintiffs to contend that the Administrators incurred any relevant "Costs" or any personal liability, as to which they are entitled to be indemnified, and they accept that actual liability of the Administrators was excluded by the First Extension Orders, the Second Extension Orders, the terms of the Aircraft Protocol Agreements and the notices under s 443B of the Act that they ultimately issued, subject to the alternative argument noted below. They instead rely on a "deemed" liability by the application of the Lundy Granite principle, which I have not accepted, or the alternative argument under s 443B which I address below.

The effect of the Aircraft Protocol Agreements

1. Next, Mr Rich submits that nothing in the Aircraft Protocol Agreements detracts from the operation of the Lundy Granite principle. I have noted the terms of those Agreements above. That question would only arise if, contrary to my view, the Plaintiffs had first established that the principle applied to a claim under the Trust. Mr Rich points out that, obviously enough, the Aircraft Protocol Agreements did not exclude the application of that principle to Willis, which did not enter into an Aircraft Protocol Agreement. Mr Crutchfield responds that, if the Lundy Granite principle could otherwise apply here (which I have not accepted), no priority arose in the case of Willis, because possession of its Aircraft Objects was retained by arrangement between Willis and the Administrators and for Willis' benefit as much as that of the general body of creditors, while negotiations for entry into an Aircraft Protocol Agreement were being pursued, and Willis' property was surrendered after that time. I address the question of a common benefit in the retention of Aircraft Objects below.
2. Mr Rich then submits that the Aircraft Protocol Agreements do not preclude the other Plaintiffs' claims in reliance upon the Lundy Granite principle, again assuming that principle was capable of applying to the Trust in the first place. He submits that, properly construed, the Aircraft Protocol Agreements were not "intended" to abrogate rights or remedies which the Plaintiffs had in connection with their respective pre-administration leases, relying on cl 3.3(a) of those Agreements, to which I referred above, and that those Agreements were "intended" to ensure that the Administrators would not have a liability under the leases which could be enforced against them personally, as distinct from being recovered (implicitly, as a priority claim) from the insolvent estate of the Virgin companies.
3. Mr Crutchfield responds that the terms of the Aircraft Protocol Agreements, which provided for priority payments in favour of the aircraft lessors of the amounts arising pursuant to those Agreements, are inconsistent with the imposition of liability for rent and other amounts arising under the pre-appointment date leases on a priority basis pursuant to the Lundy Granite principle. He submits that, where possession is kept by agreement, the Lundy Granite principle cannot apply, relying on Oak Pits at 330. He also submits that the proper construction of the Aircraft Protocol Agreements is contrary to the proposition that the parties objectively intended that, in addition to the amounts for which the aircraft lessors were to receive priority under the Aircraft Protocol Agreements, they would also receive priority for rent and other amounts arising under the pre-appointment date leases, in a manner which, he submits would render the limited regime for priority payments for the duration of the Aircraft Protocol Agreements superfluous. It seems to me that, while cl 3.3(a) of the Aircraft Protocol Agreements provides for a reservation of rights by the aircraft lessors, that clause is clear that the rights reserved, including the obligations arising under the pre-existing leases as distinct from the Aircraft Protocol Agreements, "will not constitute a liability of the Administrators" and plainly distinguishes between the liability of the Administrators arising under the Aircraft Protocol Agreement and the liability of the relevant lessees under the pre-existing aircraft leases, which is reserved but not enforceable against, or payable by, the Administrators.

Whether the Lundy Granite principle would have been engaged on the facts, if it was available for claims against the Trust

1. Mr Rich also submits that the Lundy Granite principle was engaged on the facts of this case. That question only arises if, contrary to the conclusion that I have reached above, that principle could apply here, given the terms of the Trust. Mr Rich submits that, on the commencement of the administration, the Administrators commenced a global sale process for the sale of the Virgin business as a going concern. He submits, and I broadly accept that, from the outset of the Administration, the Administrators wanted to, and did, retain as many of the Aircraft Objects (including those of the Plaintiffs, although only subject to orders limiting their liability and later the entry into the Aircraft Protocol Agreements) as they could, for the purpose of selling the Virgin business as a going concern, and thereby securing the best possible sale price for the benefit of the creditors as a whole. He submits and I also accept that that approach reflected the Administrators' view that it was desirable to retain as much of the existing aircraft as possible to provide any buyer with maximum "optionality".
2. Mr Rich also emphasises that the Plaintiffs' primary submission is that the Lundy Granite principle was engaged because Aircraft Objects were retained for the benefit of the administration. They add that, if it was necessary to identify that aircraft objects were "used" in addition to being "retained", the evidence to which the KWM Plaintiffs refer also demonstrates the same point in relation to Stellar and Aircastle (Algeri 23.12.21, [66(c),(d)]) It is not necessary to address this submission, where I have not been persuaded the Lundy Granite principle applies to the Trust for the reasons noted above.
3. Mr Crutchfield responds that the prospect of the property of each of the aircraft lessors being retained by the Administrators during the administration depended on the outcome of negotiations with each of the aircraft lessors to enter into Aircraft Protocol Agreements for ongoing possession and use of Aircraft Objects on agreed terms, and emphasises that the Administrators had made clear to the aircraft lessors that they were unable and unwilling to take on liability for the pre-appointment leasehold obligations, either personally or on behalf of the estate, and that, absent entry into the Aircraft Protocol Agreements, the Administrators would surrender relevant Aircraft Property. I also accept that proposition, which is not inconsistent with the Administrators' wish to retain as many Aircraft Objects as possible on that basis.

The KWM Plaintiffs' further submissions as to the Lundy Granite principle

1. The KWM Plaintiffs generally adopt the submissions of the NRF, ME and KLG Plaintiffs and make additional submissions specific to the KWM Plaintiffs. I have addressed the matters raised by the NRF, ME and KLG Plaintiffs above.
2. Mr Mew, who appeared for the KWM Plaintiffs, also submits that the Administrators not only retained their Aircraft Objects of the KWM Plaintiffs, but also used those Aircraft Objects as part of continuing to trade the Virgin business during the administration (Algeri 23.12.21, [66]). He submits that, in the case of GECAS, any benefit arising from the Administrators' retention of its engines was "minimal to non-existent", where it was identified fairly early in the administration and sale process that it was likely the Virgin companies would move to an all-Boeing 737 mainline fleet, GECAS's engine was not capable of being installed and used on Boeing 737 aircraft and it did not obtain any new or continuing lease arrangements with the Virgin companies (Siganto [16]). The NRF, ME and KLG Plaintiffs also adopt these submissions, although it is not apparent that they would have advanced their position.
3. Mr Crutchfield responds and I accept that the KWM Plaintiffs (and other aircraft lessors) received Adequate Protection Payments" under the Aircraft Protocol Agreements for such use. He also submits and I also accept that the benefit to GECAS (and other aircraft lessors) associated with the Administrators' continued possession of its Aircraft Objects was reflected by GECAS' negotiation and ultimate entry into an Aircraft Protocol Agreement with the Administrators, and I have addressed that issue above. He submits and I accept that the fact that the prospect of renewed leasehold arrangements did not ultimately come to fruition for GECAS does not deny that the prospect of such arrangements was a benefit and he points to Mr Algeri's evidence was that when Aircraft Objects were identified as being surplus to the Virgin business' requirements, that property was surrendered (Algeri 23.12.21, [46]-[54]; T44). He submits, and I accept in respect of GECAS (and the Plaintiffs generally) that the benefits to GECAS of entry into the ns also included the steps which the Administrators agreed to take pursuant to Sch 7 to assist with the return of the lessor's Aircraft Objects, and Mr Algeri gives evidence in respect of the work required to realign and give possession of GECAS' engine (Algeri 23.12.21, [50]-[53]). I have also addressed the question of storage, maintenance and insurance of the Aircraft Objects above.

The NRF, ME and KLG Plaintiffs' further or alternative claim under s 443B of the Act

1. The NRF, ME and KLG Plaintiffs also submit that, further or alternatively to their submissions relying on the Lundy Granite principle, the rent and other payments due under the pre-administration leases are entitled to priority under s 443B(2) of the Act and Mr Arnott developed that submission in oral submissions.
2. Section 443B applies if, "under an agreement made before the administration began, the company continues to use … or to be in possession of, property of which someone else is the owner or lessor". Section 443B(2) in turn imposes liability upon an administrator "for so much of the rent or other amounts payable by the company" under the relevant agreement that is attributable to a period, here, after 16 June 2020. It is notable that s 443B(2) refers to an amount that is "payable" by the Company, and not to a liability that is accruing but is not payable, and I return to the significance of the term "payable" in that subsection below. In Silvia v Fea Carbon Pty Ltd (admin apptd) (recs & mgrs apptd) (2010) 185 FCR 301; [2010] FCA 515 ("Silvia") at [10], Finkelstein J described the statutory purpose of s 443B of the Act as follows: "The reason for the section is clear enough. The administrator of a company under administration is the company's agent: s 437B. Under the general law, an agent would not be liable for rent due under a lease entered into by his (or her) principal, whether or not the rent fell due before or after his appointment, unless, by his conduct, the agent has adopted the lease. This was thought to be unacceptable in respect of property which the administrator used during the administration in circumstances where s 440C places a bar on an owner or lessor taking possession of his property without the administrator's consent or the court's leave. So, if the administrator allows the company in administration to continue to use leased property for the purposes of the administration, it was thought only fair that the administrator be personally liable for the rent."
3. It is notable, however, that the section assumes the existence of rent due under a pre-appointment lease in respect of property which an administrator has used during an administration. The Court's observations are not directed to the position, which arises in this case, where the amounts due under any pre-appointment leases are varied or suspended, or substituted by other payments to be made by the Administrator under other arrangements, by agreement between the lessors and the Administrators in the course of the administration.

The KWM Plaintiffs' submissions as to the claim under s 443B of the Act

1. The KWM Plaintiffs adopt the submissions of the NRF, ME and KLG Plaintiffs on this issue and add several further submissions, and the NRF, ME and KLG Plaintiffs in turn adopt the KWM Plaintiffs' submissions as to this claim. Mr Mew, for the KWM Plaintiffs, first point outs that, as I noted in the chronology above, on 24 April 2020, the Administrators obtained the First Extension Order, extending the "decision period" under s 443B(3) of the Act with respect to pre-appointment leases to 26 May 2020 (Ex J1, 286). The KWM Plaintiffs then point out that, as I also noted in the chronology above, on 15 May 2020, the Administrators obtained the Future Agreements Order, limiting their liability under s 443A(1) of the Act with respect to the post-appointment Aircraft Protocol Agreements to the Virgin companies' assets (Ex J1, 575). The KWM Plaintiffs then point out that, as I again noted in the chronology above, on 25 May 2020, the Administrators obtained the Second Extension Order, further extending the "decision period" under s 443B(3) with respect to pre-appointment leases to 16 June 2020 (Ex J1, 890), and that the Aircraft Protocol Agreements with the Plaintiffs were entered into after the Second Extension Order was granted. The KWM Plaintiffs then submit that no further orders were obtained by the Administrators extending the "decision period" under s 443B(3) with respect to pre-appointment leases beyond 16 June 2020, except in the case of Willis where a further s 443B order was made by the FCA.
2. Mr Crutchfield responds that that the First Extension Order was in respect of a range of pre-appointment agreements, including aircraft leases, and points out that s 443B of the Act does not in terms refer to a "decision period", although that does not seem to be material for present purposes. He also notes that the Future Agreements Order was in respect of a range of post-appointment agreements, including the then proposed Aircraft Protocol Agreements, and that the Second Extension Order was only directed to aircraft leases, and repeats his earlier submission that s 443B does not refer to "decision period". Putting aside the position of Willis, Mr Crutchfield submits that no further orders were necessary after the Second Extension Order because the Administrators did not continue to use, occupy or remain in possession of leased property under an agreement entered into prior to their appointment, and that use, occupation or possession occurred under the post-appointment Aircraft Protocol Agreement. I have addressed that issue above at some length in dealing with the corresponding submissions by the NRF, ME and KLG Plaintiffs.

Applicable case law and the parties' supplementary submissions

1. I do not accept the Plaintiffs' submission that liability under this section is established from 16 June 2020, because it seems to me that the possession and use of the Aircraft Objects continued in that period on the terms of the Aircraft Protocols rather than the aircraft leases, although the relevant Virgin company's obligations under the leases were preserved so as to be provable under the Trust Deed. It seems to me that, to establish liability under s 443B of the Act, from 16 June 2020, the Plaintiffs must also show that the relevant amounts were "payable by the company under the agreement" and were attributable to the relevant period. For the reasons noted below, I find that no amount was "payable" by the relevant Virgin companies under the aircraft leases during that period from 16 June 2020 until the later issue of s 443B notices, because of the provisions of the Aircraft Protocol Agreements. Rather, an amount was payable by the Administrators referable to the use of the aircraft, in accordance with Sch 2 of the Aircraft Protocol Agreements and the lessor company's liability was preserved for the purposes of a proof of debt against the Trust.
2. I now turn to the applicable case law, as to which I gave the parties an opportunity to make supplementary submissions. In Edelsten v Health Insurance Commission (1988) 90 ALR 595 at 600 ("Edelsten"), Gummow J, in dealing with a definition of "medical expenses" in s 3(1) of the Health Insurance Act 1973 (Cth) as "an amount payable in respect of a professional service", observed that no amount was "payable" in the necessary sense, where a claimant could not sue for the relevant fees by reason of state legislation. That observation was approved in Glass v Defence Force Retirement and Death Benefits Authority (1992) 38 FCR 534 at 537 ("Glass"), where the Court rejected a contention that the word "payable" extended to an amount which "could become payable" if an election was made and observed that: "'Payable' is an ordinary English word signifying that something is presently capable of being paid. If the amount is not capable of being paid unless and until … some other event shall have happened, it is not "payable" in accordance with that ordinary meaning."
3. In Commissioner of Taxation (Cth) v Sara Lee Household and Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [42] ("Sara Lee") and Queensland Premier Mines Pty Ltd v French (2007) 235 CLR 81; [2007] HCA 53 at [55] ("Queensland Premier Mines"), the High Court in turn noted that a reference to an obligation arising "under a contract" may direct attention to the source of the obligation in question. The question of when amounts were "payable" by a company under a contract was also addressed by the Court of Appeal of the Supreme Court of Victoria in Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 ("Grocon Constructors") where the Court referred (at [117]) to the Macquarie Dictionary definition of "payable" as "owed; to be paid; due" and noted that (at [118]-[119]) that "payable" when used in a commercial contract, "refers to an amount which a person has a legally enforceable obligation to pay", and that concept must be considered in the context of the relevant provision and, in a contractual context, the contract as a whole and any inter-related agreements. In Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82, Meagher JA observed (at [137]) (with whom Bell P agreed at [95]) referred to the High Court's consideration of the phrase "under a contract" in the cases to which I have referred above and observed that the description of an amount as "payable" "under" an agreement directed attention to the source of the underlying payment obligation.

Determination as to the Plaintiffs' s 443B claim

1. It seems to me that the amounts for which liability accrued under the terms of the aircraft leases, during the period from 16 June 2020, cannot be described as an amount of rent "payable by" the relevant Virgin companies under those leases that is attributable to the period from that date, for the purposes of s 443B(2) of the Act. Lease payments were not "payable" by the Virgin companies to the aircraft lessors in the period from 16 June 2020, still less was it payable under the aircraft leases, where any right to payment of that rental at that time was excluded by the Aircraft Protocol Agreements. Although, as I have noted above, the Virgin companies' liability continued to accrue under the leases, as preserved by the Aircraft Protocol Agreements, it cannot be said that that liability gave rise to any obligation to pay the relevant amounts under the leases during that period. To the contrary, the effect of the Aircraft Protocol Agreement was that the relevant Virgin companies were not required to make payments under the leases during that period; as I noted above, the Administrators' were instead required to make Adequate Protection Payments under the Aircraft Protocol Agreements; and those amounts were to be a deduction from the amounts of rent that would ultimately be proved against the Trusts, as distinct from paid by the Virgin companies. Nor does liability of the Administrators arise under the Aircraft Protocol Agreements where they were post-appointment agreements that were not within the scope of s 443B of the Act.
2. The Plaintiffs' alternative claim under s 443B of the Act from 16 June 2020 therefore fails. As I noted above, had I reached the contrary view, I would have deferred making orders and directed that notice be given to other creditors and allowed an opportunity for the former voluntary administrators and other creditors to seek orders, nunc pro tunc under s 447A of the Act or under s 443B(8) of the Act (which the Plaintiffs undertook not to oppose, by the Aircraft Protocol Agreements) seeking to vary or exclude the operation of s 443B of the Act in respect of these liabilities and preserve the pro rate distribution to Pool A Creditors (including the Plaintiffs) which is expressly provided under the Trust.

Other matters

1. I note, for completeness, that Mr Arnott and the KWM Plaintiffs in opening submissions also addressed a claim that the Plaintiffs are subrogated to the Administrators' rights to indemnity in submissions. Mr Crutchfield responds that, where the Administrators are not personally liable for rent payable in respect of the aircraft leases, and are not entitled to a corresponding indemnity from the Trust, no question of subrogation arises. It is not necessary to address that question given the conclusions that I have reached in respect of their claim to priority under the Lundy Granite rule and under s 443B of the Act.
2. The Plaintiffs also advanced a further submission as to the status of "maintenance reserves", which they contend should be treated in the same way as lease payments. The Trustees identify several reasons why claims in respect of "maintenance reserves" could not be allowed priority, even if claims in respect of rent under aircraft leases were allowed such priority. It is not necessary to address those issues, where I have held that priority is not established in respect of claims for rent under the aircraft leases under the Lundy Granite principle and s 443B of the Act, and no party contended that the claim for priority for maintenance reserves could succeed if the claim for rent under aircraft leases did not. So far as this is a question of construction, there would be no particular difficulty with an appellate Court determining the matter, if it reaches a different view to that which I have reached as to these matters.

Outcome and orders

1. For these reasons, then Plaintiffs' appeals against the Trustees' determination as to the priority of their claims fails in all of the proceedings, although it will be necessary to determine any remaining disputes as to quantification. I direct the parties to bring in short minutes of order to give effect to this judgment, including as to the costs of this stage of the proceedings, within 7 days.

Amendments 19 April 2022 - Amendment to representation. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 April 2022