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Melbourne Aircraft Leasing (UK) Ltd v Algeri & Ors in their capacity as joint and several Trustees of the Project Volar Creditors' Trust - [2022] NSWSC 443 - NSWSC 2022 case summary — Zoe
[2002] VSC 576
- Ford v Scentre Management Ltd (2020) 145 ACSR 654[2018] HCA 38
- MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636[1999] HCA 2
- Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing (2003) 21 ACLC 1505[2003] NSWSC 642
- Newey v Westpac Banking Corporation [2014] NSWCA 319
- Parkview Constructions Pty Ltd v Tayeh (2009) 71 ACSR 65[2009] NSWSC 186
- Re ABC Coupler & Engineering Co Ltd (No 3) [1970] 1 WLR 702[2000] 1 WLR 2478[2000] 1 BCLC 683[2002] HL 6
- Segelov v Ernst & Young 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 6202021/247354
C R Mew (solicitor) (Plaintiffs)
P Crutchfield QC/D Krochmalik/J J Rudd (Defendants)
Proceedings 2021/2483312021/2483482021/2485702021/249677
G Rich SC/P F Santucci (Plaintiffs)
P Crutchfield QC/D Krochmalik/J J Rudd (Defendants)
Proceedings 2021/248856
Judgment (17 paragraphs)
[1]
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)
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.
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").
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.
[4]
Chronology
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).
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]).
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.
[5]
The Court's jurisdiction to determine these matters
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."
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).
[6]
The scope of the Lundy Granite principle and whether it applies to claims under the Trust
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."
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."
[7]
Determination as to whether the Lundy Granite principle is available for claims against the Trust
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.
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.
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.
[8]
The effect of the Aircraft Protocol Agreements
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.
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.
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.
[9]
Whether the Lundy Granite principle would have been engaged on the facts, if it was available for claims against the Trust
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".
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.
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.
[10]
The KWM Plaintiffs' further submissions as to the Lundy Granite principle
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.
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.
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.
[11]
The NRF, ME and KLG Plaintiffs' further or alternative claim under s 443B of the Act
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.
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."
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.
[12]
The KWM Plaintiffs' submissions as to the claim under s 443B of the Act
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.
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.
[13]
Applicable case law and the parties' supplementary submissions
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.
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."
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.
[14]
Determination as to the Plaintiffs' s 443B claim
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.
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.
[15]
Other matters
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.
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.
[16]
Outcome and orders
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.
[17]
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
Parties
Applicant/Plaintiff:
Melbourne Aircraft Leasing (UK) Ltd
Respondent/Defendant:
Algeri & Ors in their capacity as joint and several Trustees of the Project Volar Creditors' Trust
Legislation Cited (8)
Mobile Equipment (Cape Town Convention) Act 2013(Cth)
Aircastle relied on the affidavit dated 30 August 2021 of its senior legal counsel and the managing director of Aircastle Singapore Pte Ltd, Mr Peter Plunkett, which exhibited a bundle of leases and referred to the chronology of events in respect of several applications made by the Administrators in the Federal Court of Australia ("FCA") during the voluntary administration, to correspondence with the Administrators and the entry into Aircraft Protocol Agreements and lease amendment agreements with the Administrators. He also addressed the lodgement of proofs of debt against the Trust and summarised the claims that are pursued by Aircastle in this application relating to unpaid administration period rent. Avation relied on the affidavit dated 30 August 2021 of Mr Duncan Scott, group general counsel at Avation PLC, which addressed relevant leases and maintenance reserve agreements and also referred to the applications brought by the Administrators in the FCA, correspondence with the Administrators, the lodgement and adjudication of proofs of debt against the Trust and the claims brought in this application in relation to "unpaid administration period rent" and "supplemental rent" claimed in respect of the maintenance reserve agreements. Willis relied on the affidavit dated 29 August 2021 of Mr Dean Poulakidas, the Senior Vice President and General Counsel of Willis Leasing Finance Corporation, which referred to the relevant leases, the appointment of the Administrators, the occurrence of an event of default under the engine lease agreements on the appointment of the Administrators and the lodgement and adjudication of the proof of debt, and summarised claims pursued in this application in relation to unpaid administration period rent and other costs.
The NRF Plaintiffs also tendered, subject to confidentiality orders, an Information Memorandum issued by the Administrators to parties which may be potential acquirers of the Virgin companies or their business ("Virgin business") ("NRF-1") and a document described as a "flyer" which was more abbreviated in nature ("NRF-2"). I will address the content of those documents below.
Avolon Airspace UK9 Ltd, CIT Aerospace LLC, Avalon Aerospace UK 8 Ltd and Wells Fargo Trust Company, National Association ATF Avolon Aerospace Leasing Ltd (together, "Avolon"), Floreat Aviation MSN 1407 (UK) Ltd (referred to as "Doric" by reference to its parent company) and Perth Aircraft Leasing (UK) Ltd (referred to as "GKL" by reference to its parent company), represented by Minter Ellison (together, "ME Plaintiffs") sought similar relief. Avolon relied on the affidavit dated 30 August 2021 of its solicitor, Ms Caitlin Murray, who referred to an Aircraft Protocol Agreement between the Avalon entities and the Administrators and proofs of debt lodged against the Trust. Doric relied on two affidavits dated 30 August 2021 and 25 November 2021 of its solicitor, Mr Michael Vickery. In his first affidavit, Mr Vickey referred to the relevant Aircraft Protocol Agreement, Doric's proof of debt against the Trust and the appeal against the adjudication of that proof of debt. By his second affidavit, Mr Vickery corrected several minor errors in his first affidavit. GKL relied on the affidavit dated 29 August 2021 of Mr Sidney Slasky, the president and chief executive officer of GKL, which referred to the leasing arrangements, the appointment of the Administrators and their applications made in the FCA and to correspondence with the Administrators.
Stellar UK 1 Ltd, represented by K&L Gates ("Stellar"), sought similar relief in respect of its claims. Stellar relied on the affidavit dated 27 August 2021 of Mr Charles Leahy, a director of Stellar, which referred to its entry into aircraft operating lease agreements and ancillary documents with Virgin companies and to the basis on which its proof of debt had been calculated, the Trustees' adjudication of that proof of debt and subsequent correspondence.
Aircraft Leasing IV Ltd and Aircraft Leasing VI Ltd ("Castlelake") and GECAS Australia Pty Ltd ("GECAS"), represented by King & Wood Mallesons (together, "KWM Plaintiffs") also sought similar relief in respect of their claims. Castlelake relied on the affidavit dated 30 August 2021 of its solicitor, Mr Cameron Mew, which referred to a loan note subscription agreement in respect of several aircraft, the establishment of the Trust, and the Castlelake lessors' claims against the Trust. Castlelake also relied on the affidavit dated 21 January 2022 of Mr Chris Buckley, who is a director of relevant Plaintiffs and referred (in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission and not proof of the fact) to a contention that the Administrators were personally liable in respect of rental claims after 16 June 2020 and to the suggested prejudice suffered by the Castlelake lessors because they received a lesser amount under the Aircraft Protocol Agreements than the rent payable to them under the aircraft lease agreements for the administration period. That comparison was not persuasive, where, as will emerge below, the real commercial alternative to the Plaintiffs making their Aircraft Objects available to the Virgin companies during the administration and deed administration period, ultimately on the terms of the Aircraft Protocol Agreements, was likely the return of those Aircraft Objects to them in the midst of a global pandemic when aircraft travel and aircraft usage was restricted. GECAS in turn relied on the affidavit dated 30 August 2021 of its solicitor, Mr Mew, and an affidavit dated 21 January 2022 of Mr Simon Siganto. Mr Mew referred to an engine lease agreement, the Administrators' use of the relevant engine, the establishment of the Trust and GECAS' claims against the Trust. Mr Siganto referred to the Administrators' personal liability after 16 June 2020 (in evidence also admitted as a submission under s 136 of the Evidence Act) in which he expressed precisely the same views as Mr Buckley concerning that matter in precisely the same words.
The Plaintiffs' affidavits, individually and collectively, were largely formal in character and did not address the Plaintiffs' decision-making or relevant commercial matters in any substantive way or identify any realistic commercial alternative that was available to them (other than Willis, which sought a return of its Aircraft Objects) during the voluntary administration and deed administration of Virgin companies, to their leaving their Aircraft Objects with the Virgin companies on the basis of such terms as could be negotiated with the Administrators and Deed Administrators, rather than seeking the return of those Aircraft Objects in the midst of the COVID-19 pandemic. None of the Plaintiffs led any evidence of substance that the course adopted by the Administrators and Deed Administrators, to which I refer below, was not to their commercial advantage, or that they did not participate in it for their commercial advantage, or that they could have adopted any realistic alternative course.
The Trustees read an affidavit dated 22 May 2020 of Mr Salvatore Algeri who was one of the Administrators and is now one of the Trustees. That affidavit was originally filed in the FCA proceedings and set out the Administrators' then engagement with aircraft lessors, the then position as to the sale process for the Virgin business, and the reasons why a further extension order was then sought to allow the Administrators to reach agreement with aircraft lessors by way of Aircraft Protocol Agreements, where they would not be prepared to assume personal liability under the relevant leases. The Trustees also read the affidavit dated 25 March 2021 of Mr Richard Hughes, who is one of the Trustees, who referred to the history of the voluntary administration and deed administration of the Virgin companies, the financial position of those companies, the applications made in the FCA proceedings, and the conduct of the sale process of the Virgin business and other aspects of the application.
The Trustees also read Mr Algeri's affidavit dated 23 December 2021 filed in these proceedings, which addressed the position of the Virgin companies following the appointment of the Administrators and the chronology of events, including dealings between the Administrators and aircraft lessors and their representatives, orders made by the FCA in respect of several applications to that Court, the position in respect of the Aircraft Protocol Agreements with aircraft lessors including the Plaintiffs and insurance and maintenance activities undertaken by the Administrators in the course of the voluntary administration. Mr Algeri there fairly recognises the benefits of retaining the Aircraft Objects to the sale process for the Virgin business but his evidence is also, significantly, that the Aircraft Objects were largely not utilised during the administration period (Algeri 23.12.21 [33], [62]) and, as I will note below, payments were made by the Administrators to the aircraft lessors under the terms of the Aircraft Protocol Agreements where such use took place, and the costs of operating the Virgin business generally exceeded its trading receipts during the administration period (Algeri 23.12.21 [43]).
Mr Algeri was cross-examined at some length as to the approach adopted by the Administrators in dealing with the aircraft lessors including the Plaintiffs, steps taken by the Administrators to explore a sale or recapitalisation of the Virgin business and the ultimate outcome of the sale process. He was cross-examined, inter alia, as to work done to assess the Virgin companies' financial position and develop contingency plans in the period shortly before the appointment of administrators (T20) and the view that was promptly formed by the Administrators that an expedited sale process needed to be conducted (T23). He accepted, not surprisingly, that the Administrators' objective in the sale process was to maximise the value of the business and maximise the return to creditors from the administration, and that it would be desirable to retain as many Aircraft Objects as possible, until a sale to a new owner, and the retention of Aircraft Objects would allow "optionality" in the sale process (T25). Mr Algeri also accepted, again unsurprisingly, that the Cape Town Protocol restricted the aircraft lessors' ability to obtain possession of their Aircraft Objects without the Administrators' consent until 19 June 2020 (T27), although, I interpolate, the balance struck by that Protocol also provided some protections for the aircraft lessors.
Mr Algeri was also cross-examined at some length as to the conduct of the sale process although his evidence reflected the chronology of events to which I refer below. Also unsurprisingly, Mr Algeri accepted that the Administrators sought to continue trading the business and sell it as a going concern (T26) or, I interpolate, alternatively recapitalise it, although he also pointed out, fairly, that the ability to do so depended on the Virgin companies' ongoing liquidity (T26). Mr Algeri again acknowledged that the ongoing trading of the business was critical to a recapitalisation of the sale of the business (T28) and accepted the desirability, in general terms, of retaining possession of the Aircraft Objects until a sale or recapitalisation had occurred (T29). He was also cross-examined as to the disclaimer of aircraft leases (T30) and I note the chronology of events in that regard below.
Mr Algeri also fairly acknowledged in cross-examination that the Administrators thought it worth paying insurance and maintenance costs on the Aircraft Objects, because they would obtain a better return for creditors and the business by retaining the Aircraft Objects (T32). It does not follow, of course, that the fact that the Administrators took that step because they thought it was in the interests of the Virgin companies and their creditors that that course was not also in the interest of the aircraft lessors, a matter to which I return below. He also fairly recognised that the negotiation of the Aircraft Protocol Agreements reflected the Administrators' view that it was desirable and in the best interests of the administration to retain the Aircraft Objects, or at least as many of them as possible, and the repossession of aircraft at a late stage of the sale process would be detrimental to a successful transaction (T37).
The Trustees also tendered part of an affidavit dated 11 May 2020 of Mr Vaughan Strawbridge, one of the then Administrators of the Virgin companies, read in proceedings in the FCA (Ex T1), which largely related to the proposed limitation of the Administrators' personal liability in respect of aircraft finance leases and operating leases and proposed arrangements with aircraft lessors including the Plaintiffs involving the entry into the Aircraft Protocol Agreements which I will address further below.
I also bear in mind that, as the KWM Plaintiffs point out, the Convention on International Interests in Mobile Equipment ("Cape Town Convention") and the Protocol to the Cape Town Convention ("Cape Town Protocol"), which had been adopted in Australia by the International Interests in Mobile Equipment (Cape Town Convention) Act 2013 (Cth), and which prevailed over domestic insolvency laws, applied during the administration, and preserved the aircraft lessors' ability to exercise their remedies in respect of a default under the lease, subject to a 60 day waiting period which did not expired until June 2020. The Protocol imposed, during that waiting period, an obligation to preserve the Aircraft Objects and maintain them in accordance with relevant lease agreements. It does not follow, of course, from the fact that the Administrators were obliged to take that course that the steps they took and the expenses they incurred did not, in fact, confer a benefit on the aircraft lessors, by preserving the Aircraft Objects and avoiding the need for them to incur such expenses. I return to the significance of that matter below.
Also on 20 April 2020, the sale process for the Virgin companies commenced, and the Administrators sought "expressions of interest from parties and consortiums in participating in the recapitalisation/future of the business" (Hughes 28.5.21, [25]; Ex J1, 211).
On 21 April 2020, the Administrators sent letters to lessors and other creditors with security interests in property of the Virgin companies which observed that the Administrators "intend to continue trading Virgin's business" while progressing a potential recapitalisation or sale of the business and observed that the Administrators were "responsible for dealing with the staff and suppliers of the business with respect to the ongoing trading of the business from the date of our appointment" (Algeri, 23.12.21 [14], Ex J1, 211). The Administrators noted that, in respect of equipment that was not being used because of COVID-19 restrictions then in place, they were seeking lessors' consent to waive the liability for any lease payments due or payable or other charges relating to the equipment against the Administrators until specified events, including a sale of business or recapitalisation was achieved, or the commencement of the winding down of Virgin's operations, likely to occur no later than 20 July 2020. The letter foreshadowed that an application could be made to the FCA to extend the period in which the Administrators could give notice under s 443B of the Corporations Act 2001 (Cth) ("Act") disclaiming a lease, as ultimately occurred, and identified the potentially adverse implications for aircraft lessors and other creditors or a disclaimer of the leases as follows:
"If the Administrators were to formally disclaim your lease agreement, it would be detrimental to the sale of business or recapitalisation process and would impact any ongoing benefit you could receive from any process. In the circumstances, the Administrators would prefer not to have to issue the usual notice under Section 443B" (Ex J1, 244)
On the same date, the Administrators issued their initial circular to creditors (Ex J1, 150) and issued a sale flyer in respect of a sale of the Virgin businesses (Ex NRF-2). The flyer indicated that the Administrators were seeking to execute a sale or recapitalisation of the Virgin companies and outlined the proposed process, then anticipating that a binding Implementation Deed would be executed by the end of June 2020; provided information as to the scale of the Virgin business and improvements in its performance over the last three years; and noted that the Virgin companies operated a "young fleet" comprised of 132 aircraft, of which they owned 48% of the aircraft, including owning 40 Boeing 737-700/800 in addition to 39 leased aircraft of the same type.
The Trustees submit that, in the initial period of the administration, until entry into the Aircraft Protocol Agreements, the Administrators were unable to form a view as to whether and to what extent the leased property of the Virgin companies (including the Aircraft Objects) ought to be retained. They point to several matters said to support this conclusion. I find, as the Plaintiffs submitted, that the Administrators had formed the view, at least by the commencement of the administration, that they should retain as many Aircraft Objects as possible in order to assist in selling the business as a going concern (Algeri cross-examination, T 22-24, 29). I also accept that, at that time and until after the Aircraft Protocol Agreements, the Administrators did not know whether particular Aircraft Objects should be retained for the benefit of a potential purchaser of the Virgin business, although there was a strong prospect that many of the B737s and their engines would be needed.
On 23 April 2020, the Administrators applied to the FCA for orders under ss 443A and 443B of the Act ("First Extension Order") on notice to known creditors, which would extend the five business day period specified in s 443B(2)(a) of the Act to 26 May 2020. The Plaintiffs also issued a circular to aircraft lessors (Algeri, 23.12.21 [15]) which recorded the Administrators' view that "the business is not in a position to support rental payments and other financial obligations on Property that is impacted by the restrictions imposed in relation to COVID-19"; again referred to the adverse effects of a disclaimer of leases on a sale of the Virgin business or its recapitalisation; and foreshadowed further engagement between the Administrators and lessors as to their relationship with the business. I accept that at least one basis on which the First Extension Order was sought, as recorded in that circular, was that a disclaimer at that stage would have been detrimental to the sale or recapitalisation of the business, and that is consistent with the significance of maintaining a body of aircraft leases (as distinct from each aircraft lease, or the aircraft leases with any particular plaintiff), in order to facilitate that sale or recapitalisation. Also on 23 April 2020, the Administrators placed an advertisement for registrations of interest in the purchase of the Virgin businesses in the Australian Financial Review and The Australian newspaper (Algeri, 23.12.21; as noted in Ex J1, 373).
On 24 April 2020, the FCA made the First Extension Order which operated to 26 May 2020, and delivered reasons for judgment ("First FCA Judgment") on 29 April 2020 (Algeri, 23.12.21 [5(a)], [16]-[17], Ex J1, 263). On 27 April 2020, the Administrators issued a circular to creditors in relation to the First Extension Order (Algeri, 23.12.21 [18], Ex J1, 342) which advised, inter alia, that the Administrators' personal liability under ss 443A and 443B of the Act would not commence until 26 May 2020, and that notices under s 443B of the Act may not be given until that date.
Solicitors for some of the Plaintiffs were quick to recognise the implications of the relief from personal liability of the Administrators given by the FCA. By letter dated 27 April 2020 (Ex J1, 353), NRF wrote to the Administrators' solicitors and observed that the First Extension Orders made by the FCA:
"remove the right of recourse to the assets of the administration to meet the lease liabilities after the five-day decision period specified in section 443B(2). In the ordinary course, the continued use or occupation of the leased property after the five-day decision period specified in section 443B(2) would constitute debts to which the Administrators' indemnity under section 443D and priority under section 443E would apply. The absolution of the Administrators' personal liability until 26 May 2020 should not otherwise involve a diminution of any rights or protections that would otherwise extend to creditors in the ordinary course of an administration."
Those Plaintiffs did not, however, apply to vary the First Extension Orders made by the FCA.
On 27 or 28 April 2020, the Administrators issued a process letter to interested parties in the sale of the Virgin businesses and issued an Information Memorandum (Algeri, 23.12.21, Ex J1, 373, 788, Ex NRF-1). That Information Memorandum identified counterparties in respect of aircraft rental and the annual rent paid, which was substantial, and other operating expenses, and partly repeated and partly expanded the information in the earlier flyer (Ex NRF-2) as to the aircraft fleet, and referred to the Virgin companies' fleet simplification program directed to providing a single fleet type across the Virgin companies.
Also on 28 April 2020, the Administrators' solicitors sent a letter regarding a proposed Aircraft Protocol Agreement to the legal representatives of each of the aircraft lessors including the Plaintiffs (Algeri, 23.12.21 [19], Ex J1, 356). The Administrators were also appointed as voluntary administrators of Tiger International Number1 Pty Ltd on that date (Algeri, 23.12.21, [2(a)]). On 29-30 April 2020, KWM on behalf of several aircraft lessors including two of the Plaintiffs proposed a form of Aircraft Protocol Agreement (Algeri, 23.12.21, [56(a)], [89]). On 30 April 2020, the first creditors' meetings were held for the Virgin companies to which the Administrators had been appointed (Algeri, 23.12.21, [20], Ex J1, 366). The Administrators informed creditors of an indicative timetable for the restructuring process, commencing with the issue of a sale flyer and non-disclosure agreement to prospective interested parties, and anticipating that non-binding indicative offers would be due by 15 May 2020 (Ex J1, 373). On the same date, a virtual data room for the Virgin businesses was opened to interested parties (Ex J1, 373).
By letter dated 1 May 2020 to lessors, the Administrators enclosed a proposed Aircraft Protocol Agreement which they noted would include a mechanism for calculation of compensation for the Virgin companies' use of Aircraft Objects, as distinct from the rent that would be payable under the leases (Algeri, 23.12.21 [21], Ex J1, 422, 425). In early May 2020, the Administrators also circulated a second Information Memorandum which set out the business plan of the Virgin companies (as noted in Ex J1, 788) and, on 5 May 2020, a management plan (Virgin 2.0) for the Virgin businesses was made available in the virtual data room (as noted in Ex J1, 373). On 6 May 2020, the Administrators sent a letter to aircraft lessors, including the Plaintiffs, regarding the establishment of a data room for lessors in respect of aircraft records and inviting the lessors to arrange physical inspections of their Aircraft Objects (Algeri, 23.12.21, [25]).
On 11 May 2020, the Administrators applied to the FCA for further orders ("Future Agreements Order") on notice to all known aircraft lessors, including the Plaintiffs, advising that they were seeking confirmation that they would not be personally liable to repay any debts or satisfy any liabilities over and above the Virgin companies' assets; were not then seeking to extend the duration of the orders previously made in respect of s 443B of the Act and hoped they could urgently progress execution of protocols with the lessors; and also enclosing a rider to the draft Aircraft Protocol Agreement (Algeri, 23.12.21, [26], Ex J1, 474, 476).
On 12 and 13 May 2020, NRF and the Administrators' solicitors exchanged emails concerning differences in drafting between the form of the draft Aircraft Protocol Agreement which was the subject of the Administrators' 11 May application to the FCA and the version that had been circulated to the Plaintiffs (Ex J1, 479). The NRF Plaintiffs rely on the exchange of emails on 12 and 13 May 2020 to suggest that the draft Aircraft Protocol Agreement was intended to achieve no more than the limitation on the extent of recourse available against the Administrators personally. Nothing turns on that proposition, where there is no suggestion that commercial parties of the apparent sophistication of the NRF Plaintiffs or legal advisers of the sophistication of NRF would rely on that correspondence for their understanding of the Aircraft Protocol Agreements or executed, and no evidence that the NRF Plaintiffs acted any differently by reason of that correspondence.
On 14 May 2020, the Administrators send a letter to aircraft lessors, including the Plaintiffs, responding to questions about the draft Aircraft Protocol Agreement (Algeri, 23.12.21, [27]; Ex J1, 542). That letter relevantly observed that:
"The Protocol terms are required to progress the sale/recapitalisation of the business for the benefit of all creditors, including aircraft lessors and financiers. When this is achieved, there will be an opportunity to renegotiate the lease or financing terms with the successful bidder, including addressing accrued, unpaid rentals, costs or the replacement of letters of creditor presented during the administration …
The draft Protocol document proposes limited recourse and a standstill of rights which requires a deferral of lease/finance payments during the administration period, and which requires that these deferred payments not be a liability of the Administrators in the administration. The underlying basis of this request is due to the current and forecast liquidity position of the Group and the inability of Virgin Group to effectively utilise the financed assets in the forced and restricted COVID-19 environment."
That letter also noted that:
"Despite the negative cashflows, the Administrators are committed to ensuring substantial costs for the care and preservation of aircraft are met so that the fleet remains available for the anticipated sale/recapitalisation and for when operations can commence increased capacity but can't commit to some other costs which some lessors or financiers have asked to be met."
That letter also noted that the draft Aircraft Protocol Agreement contemplated that lessors would withhold exercising their rights under the Cape Town Convention for a period greater than the 60 calendar days there specified, because of the timetable for the sale/restructure transaction, and contemplated finalising the protocol prior to 26 May 2020.
On 15 May 2020, the FCA made the Future Agreements Order, and delivered reasons for judgment ("Second FCA Judgment") on 26 May 2020 (Algeri, 23.12.21 [28]; Ex J1, 575). On the same date, the Administrators issued a "Lessor Q&A" to lessors and financiers of aircraft property, including the Plaintiffs (23.12.21 [28(b)]; Ex J1, 552), which advised that, inter alia:
"The revised Aircraft Protocols will make it clear that the Administrators will have no liability for the obligations of the Virgin Group companies under the leases, and that the liability of the Administrators under the Aircraft Protocols will be limited to the assets of the relevant Lessee from which they are actually indemnified …
If the Administrators form the view that the Aircraft Protocols will not be signed by 26 May 2020, then they will need to make an application to the Court to extend the time period under section 443B of the Corporations Act or potentially to not adopt those Aircraft that are not yet the subject of Aircraft Protocol.
Having regard to the significant debts and obligations that would be imposed by continuing to use the leased aircraft, and the impact of the COVID-19 travel restrictions on the revenue of the Virgin Group, the Administrators are not able to take on personal liability for liabilities that arose in relation to those debts and obligations, even if recourse to the Administrators is limited to the assets of the relevant members of the Virgin Group.
Therefore, if an Aircraft Protocol is not signed, or an order to extend the time period under section 443B of the Corporations Act is not obtained, the Administrators will not utilise the relevant aircraft, such aircraft will remain grounded and the Administrators may be forced to notify you under section 443B(3) of the Corporations Act that they will not be adopting the relevant aircraft."
The proposition that the Administrators would not take on personal liabilities for the aircraft was repeated throughout that document. That document also contemplated that the Aircraft Protocol Agreement would apply instead of the leases for the period of the administration, at least as between the Administrators and the lessors.
Also on 15 May 2020, the Administrators received non-binding indicative offers in relation to the assets and business of the Virgin companies (Algeri 22.5.20 [42]; Strawbridge 2.7.20 [13(d)]; Ex J1, 373). I pause here to note that the NRF Plaintiffs submit that, by 15 May 2020, the Administrators were still in possession of all of the Aircraft Objects, and a benefit to the administration was realised by being able to market the airline for sale as a going concern, with its entire fleet still intact. It seems to me that that proposition significantly oversimplifies the facts. First, it is not self-evident that that benefit required the use of any particular Plaintiff's Aircraft Objects or the use of the Aircraft Objects of the Plaintiffs collectively, where they are a subset of the aircraft lessors and, as I have noted above, a substantial proportion of the Aircraft used by the Virgin companies and particularly its B737s were owned rather than leased by the Virgin companies. Having said that, I also recognise, and the Trustees' evidence makes clear, that the Administrators then took the view that the interests of the administration would be promoted by retaining as many Aircraft Objects as possible. The question of "benefit" to the administration and to the aircraft lessors of the Administrators' retaining the Aircraft Objects is also more evenly balanced, where, as I find below, the aircraft lessors plainly benefitted by the Administrators' incurring the substantial costs of maintaining and insuring the Aircraft Objects at a time that there was no real alternative use from them, by reason of the reduction in travel resulting from the COVID-19 pandemic.
On 16 May 2020, the Administrators' solicitors issued a letter to each of the aircraft lessors, including each of the Plaintiffs, attaching the "Lessor Q&A" and an updated draft of the Aircraft Protocol Agreement (Algeri, 23.12.21, [30], [140]; Ex J1, 587). On 18 May 2020, the Administrators issued a circular to each of the aircraft lessors, including the Plaintiffs, updating them on the progress of the sale process and informing them that expressions of interest had been received and parties were being shortlisted (Algeri, 23.12.21, [31]; Ex J1, 593). On 20 May 2020, the Administrators' solicitors sent an email to the aircraft lessors' solicitors attaching a revised draft of the Aircraft Protocol Agreement (Algeri, 23.12.21 [32]; Ex J1, 647).
On 21 May 2020, the Administrators issued a circular to the aircraft lessors including the Plaintiffs indicating that the Administrators still sought to have the Protocols Agreement signed by 26 May 2020, but foreshadowing an application to the Court to seek an extension of the period provided in order 9 of the First Extension Orders to 16 June 2020, to facilitate signing of an agreed form of Aircraft Protocol Agreement by all relevant parties by that date (Algeri, 23.12.21 [33(a)]; Ex J1, 781). On the same date, a meeting of the committee of inspection of the Virgin companies took place (Algeri, 23.12.21, [33(b)]; Ex J1, 784).
On 22 May 2020, the Administrators applied to the FCA for further orders ("Second Extension Order") (Algeri, 23.12.21, [35]; Ex J1, 852) and on 25 May 2020, the FCA made the Second Extension Order, which extended the time period under s 443B(2)(a) of the Act to 16 June 2020 in respect of "Aircraft Leased Property", and delivered reasons for judgment ("Third FCA Judgment") on 27 May 2020 (Algeri, 23.12.21, [5(c)]).
On 29 May 2020, the Administrators received reaffirmed purchase offers from shortlisted parties (Algeri, 23.12.21; Ex J1, 788, 805, 1406).
By an email dated 30 May 2020 (Ex J1, 1067), Willis advised that the proposed Aircraft Protocol was "unacceptable" and requested that its engines be immediately returned. By a further email dated 2 June 2020 (Ex J1, 1066), Willis again observed that "we do not agree to sign this Protocol and reiterate that we wish to have our engines back immediately". On 4 June 2020, Willis sent a letter to the Administrators stating, that it wished to have its engines remain with the Virgin companies subject to the terms of its leases (Poulakidas, 29.8.21 [20], Ex J1, 1362).
By their letter dated 9 June 2020 to Willis (Poulakidas, 29.8.21, [20]; Ex J1, 1396, 1867), the Administrators repeated the position that:
"There are no circumstances in which the Administrators will be in a position to adopt the leases of your Engines as you seem to request in your letter. This is because of the manner in which Australian insolvency law works, and the circumstances Virgin Australia finds itself in due to COVID-19, all of which have been detailed in numerous conversations and communications with yourselves and other aircraft and engine lessors and secured financiers."
That letter specifically identified the prejudice arising from Willis' proposal for the administration, other creditors and the success of the sale process, including that:
"Your proposal would require the Administrators to prefer Willis over all creditors including employees and particularly other lessors and secured financiers in relation to their Aircraft and Engines, by paying Willis the full amount of the lease costs as per the leases or your Engines, rather than a usage charge referable to actual usage of your engines. This is not something that can be considered."
I note, in passing, that that is the result the Plaintiffs, including Willis, now seeks to achieve in these proceedings.
A further meeting of the committee of inspection of the Virgin companies took place on 10 June 2020 (Algeri, 23.12.21, [34], [38]; Ex J1, 1403).
Between 26 May 2020, the last day of the period provided for by the First Extension Order, and 12 June 2020, the majority of the Plaintiffs entered into Aircraft Protocol Agreements, and Aviation and the Administrators also executed a side letter on 12 June 2020 (Algeri, 23.12.21 [23], [91], [141(e)]; Vickery, 30.8.21 [5]; Mew, 30.8.21, [7]; Leahy, 27.8.21, [12]; Murray, 30.8.21, [5]; Plunkett, 30.8.21, [44]; Slasky, 29.8.21, [30]; Scott, 30.8.21, [49]; Ex J1, 927, 1010, 1036, 1219, 1247, 1275, 1303, 1332, 1367, 1427, 1463, 1493).
Taking the GECAS Aircraft Protocol Agreement as an example (Ex J1, 1010), Recital E noted that, on 15 May 2020, the Administrators obtained orders limiting their liability under the Aircraft Protocol Agreement and they intended to obtain further orders limiting their liability under each lease and, to the extent necessary, the Aircraft Protocol Agreement, and the lessor agreed not to oppose those orders on the terms of the Aircraft Protocol Agreement, and Recital G recorded that:
"This Protocol Agreement sets out the terms and conditions the parties have agreed will govern all dealings with the engine by the Administrators during the Administration."
Clause 1.3 provided for limited recourse in respect of the Administrators, and recorded that the Administrators would not be personally liable to repay debts or satisfy liabilities, to the limit of the assets of the relevant lessee, and cl 1.3(a) provided that:
"Notwithstanding that any liabilities or obligations under this Protocol Agreement or in connection with the transactions contemplated by this Protocol Agreement are debts incurred by the Administrators in the performance and exercise of their functions as joint and several administrators of [the Virgin Group lessee and guarantors], the Administrators will not be personally liable to repay such debts or satisfy such liabilities to the extent that the assets of [the Virgin Group lessee and guarantors] out of which the Administrators are actually indemnified for that liability are insufficient to satisfy the debt and liabilities incurred by the Administrators arising out of, or in connection with, this Protocol Agreement or in connection with the transactions contemplated by this Protocol Agreement."
Clause 1.3(c) in turn recorded that:
"For the avoidance of doubt, it is agreed that the obligations incurred by the Administrators under this Protocol Agreement are the sole obligations of the Administrators in respect of the Lease documents or Engine. In the event that the Administrators elect to do so, the Lessor will not oppose an application being made by the Administrators for an order under s 447A and/or s 443B(8) of the Corporations Act to give effect to this clause 1.3(c)."
By cl 1.4, the lessor acknowledged, inter alia, that the Administrators were acting as agents of the lessee and the "VA Recourse Parties" (as defined) only in entering into and performing the Aircraft Protocol Agreement and were not contracting in their personal capacity. Clause 1.5 preserved the Administrators' right of indemnity in respect of the Aircraft Protocol Agreement. Clause 1.6 provided for the period in which the Aircraft Protocol Agreement would remain in force, until the earlier of the end of the Administration or, relevantly, the issue of a notice under s 443B(3) of the Act and provided that termination would not affect the provisions limiting the Administrators' liability and preserving their indemnity, or any "accrued rights or obligations under this Protocol Agreement".
Clause 3 of the Aircraft Protocol Agreement in turn provided for a standstill in respect of rights arising out of or connected with existing defaults under the lease documents and, by cl 3.3(a), the aircraft lessors reserved all rights, powers and remedies under, or in connection with, the lease documents and the Cape Town Convention and the lessee and each "VAR Recourse Party" acknowledged its obligations under the lease documents continued notwithstanding the Aircraft Protocol Agreement but did not constitute a liability of the Administrators. Clause 4.1 provided for the provisions of Schedules 2-7 of the Aircraft Protocol Agreement to prevail for the period of the Administration, in the event of any inconsistency with the lease documents, although the terms of the lease documents were reserved against the Virgin companies in all other respects. Schedule 2 provided for "Adequate Protection Payments", Schedule 4 imposed certain restrictions on usage, Schedule 5 dealt with maintenance and Schedule 6 with insurance, and Schedule 7 dealt with redelivery during the administration.
The NRF Plaintiffs accept in submissions that, under Schedule 2 of the Aircraft Protocol Agreements, no payments were required to be made unless the Aircraft Objects were used during the administration and that use was profitable, and recognise that payments made under that Schedule were to operate as a reduction of the Companies' liabilities under the relevant leases. They also recognise that, by Schedule 3 of the Aircraft Protocol Agreements, the Administrators were obliged to continue maintenance and insurance in respect of the Aircraft Objects. I return to the significance of the structure of the Aircraft Protocol Agreements, particularly for the Plaintiffs' alternative claim under s 443B of the Act, below.
On 16 June 2020, the last day of the period provided for by the Second Extension Order, the Administrators issued a notice under s 443B of the Act to Willis with respect to several Aircraft Objects (Algeri, 23.12.21, [36], [130]; Ex J1, 890, 1527). The 60 day "waiting period" under Article XI of the Protocol to the Cape Town Convention then expired on 19 June 2020.
On 22 June 2020, the Administrators received two final binding offers for the purchase of the Virgin businesses and, on 26 June 2020, a Sale and Implementation Deed was executed for the sale of the Virgin business to Bain Capital ("Bain") (Algeri, 23.12.21, [41]).
On 30 June 2020, Willis commenced proceedings in the FCA against the Administrators seeking relief under the International Interests in Mobile Equipment (Cape Town Convention) Act 2013 (Cth), and an appeal in these proceedings was determined by the High Court while these proceedings were being heard. A further meeting of the committee of inspection of the Virgin companies took place on 1 July 2020 (Algeri, 23.12.21, [34]). Also on 1 July 2020, Bain assumed the economic risk of the Virgin business and commenced negotiations with multiple parties and stakeholders to undertake a restructure of the business and operations of Virgin, including negotiations with the aircraft lessors in relation to a fleet restructuring (Algeri, 23.12.21, 42(b)).
Subsequent events included further meetings of the committee of inspection and a first instance decision in the proceedings brought by Willis against the Administrators. On 5 August 2020, Virgin Australia Holdings Limited announced that the Virgin companies would move to an "all-Boeing 737 mainline fleet" (Algeri, 23.12.21, [45], Ex J1, 1561). On 11 August 2020, Aircastle entered into an Amended & Restated Aircraft Protocol Agreement in respect of an Aircraft Object (Plunkett, 30.8.21, [46], Ex J1, 1568) and the Administrators issued notices on 13-14 August 2020 under cl 6 of Aircraft Protocol Agreements to several of the Plaintiffs (Algeri, 23.12.21 [47(b)], [92], [96], [98], [125], [142]; Ex J1, 1608).
On 25 August 2020, the Administrators issued their report to creditors under rule 75-225 of the Insolvency Practice Rules (Corporations) ( Algeri, 23.12.21, [12(d)], [67]; Ex J1, 1866) and uploaded the "Bain DOCA proposal for the Virgin Group" to the Administrators' Virgin Australia webpage (Algeri, 23.12.21, [68], Ex J1, 1694). That report noted that the return to unsecured creditors from the DOCAs proposed by Bain, on both the high and low scenarios, would exceed the return on a liquidation involving an asset sale agreement, and substantially exceed the return on a liquidation without a sale of the business as a going concern. It noted that the DOCAs proposed by Bain specified the amount that Bain was willing to contribute to different classes of creditors; observed that the Virgin companies' fleet of 144 aircraft consisted of 44 owned and 100 leased or financed aircraft, and that leases were predominantly operating leases; noted that the Administrators had elected not to continue certain leases previously maintained by the Virgin companies relating to certain aircraft and engines as well as certain service contracts and property leases; and also referred to the litigation brought by Willis, being one of three aircraft lessors which had not executed an Aircraft Protocol Agreement. The report summarised the process undertaken toward a sale of the business or recapitalisation and the objectives of the sale process and the timeline for that sale process, and outlined Bain's offer and the proposed transaction structure, and referred to the establishment of a fund for "Pool A Creditors" under Bain's DOCA proposal. The report summarised the manner in which Pool A would be distributed, with first priority for the Administrator or Deed Administrators for any amount which they were entitled to be paid or indemnified under the Primary DOCA or other DOCAs including "liabilities incurred by them" during the voluntary administration and deed administration of the companies but specifically referred to a distribution "to the Pool A creditors by a pro-rata amount". That approach is retained in the Trust and, as I will note below, expressly contemplates that the aircraft lessors as Pool A Creditors will share with other creditors in a pro rata distribution.
The outline of the anticipated return to creditors in that report (Ex J1, 1980) also makes clear the amount proposed to be distributed to all Pool A Creditors, does not distinguish the position of aircraft lessors in that regard, and the report notes that unsecured creditors within Pool A are expected to receive between 12.8 (high) and 8.4 (low) cents in the dollar. The report also noted (Ex J1, 1985):
"We note that at the time of writing this report while Bain have confirmed the majority of their future aircraft fleet requirements with surplus aircraft to be returned to financiers and lessors, this is an ongoing process and subject to change and documentation. The unsecured portion of secured creditor financiers' claims and the residual lessors' claims are based on aircraft and finance leases that have been identified as not being required by Bain."
On the same date, the Castlelake lessors entered into Amended and Restated Aircraft Protocol Agreements with respect to several aircraft (Algeri, 23.12.21, [91]).
On 4 September 2020, the second creditors' meetings of the Virgin companies were held (Algeri, 23.12.21 [69], Ex J1, 2258). The Trustees point out that, with one exception, the aircraft lessors voted at that meeting in favour of the proposed DOCAs, which received the approval of 96% of creditors, and no creditor, including the aircraft lessors, later sought to terminate those DOCAs or prevent their completion.
From 16 September 2020, the Administrators issued notices under s 443B of the Act to several Plaintiffs in respect of several Aircraft Objects (Scott, 30.8.21, [56]-[57]; Algeri, 23.12.21 [50], [52], [53], [93], [97], [99]; Slasky, 29.8.21 [39]; Ex J1, 2362ff) and other Plaintiffs executed Amending Agreement - Aircraft Protocol Agreement in respect of other Aircraft Objects (Plunkett, 30.8.21 [49]; Leahy, 27.8.21 [12]).
As I noted above, on 25 September 2020, deeds of company arrangement including the Primary DOCA were executed, the Administrators become the Deed Administrators of, inter alia, the Primary DOCA and the voluntary administration of the Virgin companies ended (Algeri, 23.12.21, [2], [70], Ex J1, 2513). The lessees of the Aircraft Objects were each Deed Companies (as defined) so as to fall within the scope of the Primary DOCA.
Clause 1.7 of the Primary DOCA provided that, with an exclusion that is not relevant, the prescribed provisions in Sch 8A of the Corporations Regulations did not apply, and thereby excluded the requirement in Item 4 of Schedule A for the Administrators to apply the Virgin companies' property in the order of priority specified by ss 556 and 560-561 of the Act in a winding up, while preserving priority of eligible employee creditors' claims as required by s 444DA of the Act.
By cl 6.4 of the Primary DOCA, subject to cl 6.6, each Creditor (defined in cl 1 to mean a person who had a "Claim") agreed that upon "Completion" (as defined), its "Claims" were extinguished and released. Clause 6.6 provided that the Administrators (as deed administrators) and creditors agreed that, upon all Claims being released under cl 6.4, each Trust Creditor (as defined) who had a claim could make a claim against the Trust Fund in accordance with the Trust Deed "which is equal in amount to their released Claim". In their opening submissions, the ME Plaintiffs read that clause as converting any "Claim" that would have been admissible to proof under a Deed Company in a winding up into a "Claim" against the Trust Fund. I accept that proposition with the qualification that the provision is directed to the admissibility and amount of claims, and not to priority, which is dealt with by the terms of the Trust Deed.
By cl 11.1 of the Primary DOCA, the Administrators were appointed as Deed Administrators of the Primary DOCA. Clause 15.2 of the Primary DOCA, headed "Right of Indemnity", provides that the Administrators were entitled to be indemnified by the Deed Companies until completion of the implementation steps and from the Trust Fund after completion of those steps. The right of extended to all debts, liabilities or claims whatsoever arising out of or in any way connected to the administration of the Deed Companies and incurred or sustained in good faith and without negligence (cl 15.2(a)); any amount which the Administrators are, or but for the transactions contemplated by the Primary DOCA would be, entitled to be indemnified out of the assets of the Deed Companies for, in accordance with the Act, at law or equity, including any amounts payable pursuant to ss 443A, 443B or 443BA of the Act (cl 15.2(b)); any debts or liabilities to which the statutory indemnity under s 443D of the Act applies (cl 15.2(c)); any amount for which the Administrators were entitled to exercise a lien at law or equity on the property of the Deed Companies (cl 15.2(d)); and the Administrators' 'Costs', which was defined in cl 1.1 to include any expenses incurred in connection with the performance of the Administrators' duties, obligations and responsibilities under the Act during the period of the administration, and includes any "Administration Debt" (as defined in cl 1.1 to include any debt referred to in s 443A(1) or any debt or liability referred to in s 443D(aa) of the Act).
On 17 November 2020, the Primary DOCA was completed and the Creditors' Trust was settled (Algeri, 23.12.21, [71]). The Trust Deed (Ex J1, 2883) defined a "Claim", in respect of a Deed Company, as a "Claim" as defined in the DOCA of that Deed Company. It defined an "Admitted Claim" as "the Claim of any Trust Creditor admitted by the Trustees after adjudication in accordance with clause 7 of this Deed." Clause 2 of the Trust Deed provides that the trust established by it comes into effect with the Administrators as trustees immediately upon completion of the Primary DOCA. Clause 4.1 provided for the Trust Fund to be held on trust, if Primary DOCA completion occurred, inter alia, for the "Pool A Creditors". The term "Pool A Creditors" was defined, in respect of creditors of a Primary DOCA Company, as a trust creditor other than a Pool C Creditor. Clause 4.3 set out the Trustee's powers, including to administer and distribute the Trust Fund and admit claims to proof in accordance with the provisions of the primary DOCA and the Trust Deed and pay those claims in accordance with the Trust Deed, and cl 5.2 provided for distribution of the Trust Funds. Clause 5.2(b)(1) provided for first priority to the Administrators or Deed Administrators "for any amount which they are entitled to be paid or indemnified for under" inter alia, the Primary DOCA. The third priority was to Pool A Creditors that were employees, and the fourth priority:
"To the Pool Creditors on a pro-rata basis in accordance with the dollar value of the Admitted Claims of those Pool A Creditors."
I will return to the significance of that clause below.
Clause 7.1 of the Trust Deed in turn provided for admissibility of claims and provided that, upon the Trust Deed being settled, and in accordance with cl 6.6 of the Primary DOCA:
"Each Claim of a Trust Creditor against a Deed Company will convert to and become a claim against the Trust Fund under this Deed, equal in amount to the Trust Creditor's entitlement to a distribution in respect of the trust creditor's released Claim in accordance with clause 5.2 of this Deed."
Clause 7.3 provides for determination of claims, and applies Pt 5.6 Div 6 Subdivs A, B, C and E, but notably does not apply Pt 5.6 Div 6 Subdiv D which deals with priority, which is addressed by cl 5.2 of the Trust Deed to which I referred above.
From 26-29 April 2021, the Plaintiffs submitted proofs of debt to the Trustees pursuant to the Trust Deed (Algeri, 23.12.21 [72]; Leahy, 27.8.21 [11]-[12]; Murray, 31.8.21 [13]-[14], [27]-[28], [35]-[36]; Vickery, 31.8.21 [12]: Ex J1, 2944ff). From 16 August 2021, the Trustees notified the Plaintiffs of their adjudication of those proofs of debt (Leahy, 27.8.21, [14]; Murray, 30.8.21, [18], [31], [40]; Vickery, 30.8.21, [15]; Ex J1, 3333ff). In those adjudications, the Trustees generally admitted the Plaintiffs' claims for the administration period rent, maintenance reserves and repossession and air worthiness costs in full, but did not accept those claims on a priority basis, although there were some disputes as to aspects of the claims which are not to be determined at this hearing. The Plaintiffs recognise, in opening submissions, that the dispute in this application is directed to whether their claims for administration period rent, and certain Plaintiffs' claims for maintenance reserves, should be accorded priority in the distribution of funds from the Trust. On 30 August 2021, the Plaintiffs commenced the several proceedings. On 30 August 2021, the Trustees issued an amended adjudication notice as to Stellar's proof of debt.
In Re ABC Coupler and Engineering Co Ltd (No 3) [1970] 1 WLR 702; [1970] 1 All ER 650 ("ABC Coupler"), in dealing with claims against a company in liquidation in respect of a lease entered into prior to the winding up, Plowman J observed that, generally, rent accruing after the commencement of a winding up was not payable in full, and was provable in the winding up rather than being treated as an expense of the winding up. His Honour observed that rent may be payable in full where:
"The liquidator has retained possession 'for the convenience of the winding up', and that whether he has done so or not, depends upon his purpose in retaining possession …"
In Toshoku, Lord Hoffman in turn described the principle as follows:
"The principle evolved from Re Exhall Coal Mining Co Ltd (1864) De GJ & Sm 377 and [Lundy Granite] is thus one which permits, on equitable grounds, the concept of a liability incurred as an expense of the liquidation to be expanded to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate. Although in (sic) was originally based upon a statutory discretion to allow a distress or execution against the company's assets, the courts quickly recognised that its effect could be to promote a creditor from merely having a claim in the liquidation to having a prior right to payment in full. By the end of the 19th century, the scope of the [Lundy Granite] principle was well settled."
In Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2002) 174 FLR 1; [2002] VSC 576 at [306]ff ("Ansett"), Warren J reviewed the case law concerning liability for rent arising after winding up pursuant to a lease entered into by the company prior to a winding up, including Lundy Granite and the cases which referred to it. In Grape Corp Management Pty Ltd (in liq) v Grape Exchange Management Euston Pty Ltd (2012) 265 FLR 33; [2012] VSC 112, Sifris J considered the scope of the principle, again in the context of a winding up, and observed that:
"In the lease cases, whether the liquidator has elected to retain possession will be determined objectively by what she or he has said and done. The fact that the liquidator retains possession of the land is not, of itself, sufficient to render the rent an expense of the winding-up. The possession must be for the benefit of the winding up. Thus, it will not be sufficient that possession was maintained if it was also for the benefit of the landlord. Furthermore, not offering to surrender or simply doing nothing will not be regarded as retaining possession for the benefit of the estate.
Commonly, a liquidator may elect to continue occupation of rented premises in order, for example, to continue the company's business pending its sale as a going concern, or as a place to store or auction stock or plant and equipment. In such cases, the incidental liabilities, including rent, rates and other taxes, will be incurred by the liquidator as if they were an expense of the liquidation, notwithstanding that the lease of the premises was entered into prior to the liquidation."
The position was also considered, again in the course of a winding up, in Timbercorp Securities Ltd (in liq) v Plantation Land Ltd (2009) 72 ACSR 620; [2009] FCA 741 ("Timbercorp"), where Finkelstein J held that the principle did not apply, where the liquidators were considering whether to retain possession of the leased land for the purposes of the liquidation, but had not yet decided whether to do so.
The case law was reviewed by the Court of Appeal of England and Wales in Jervis v Pillar Denton [2015] Ch 87; [2014] EWCA Civ 180 ("Pillar Denton"), where Lewison LJ (with whom Sharp LJ and Patten LJ agreed) observed (at [8]) that:
"It is also common ground that whether rent is payable as an administration expense is not a question of an exercise of the court's discretion. Either it counts as an expense, or it does not. If rent falls within the principle known variously as the "salvage principle," "the liquidation expenses principle" or "the Lundy Granite principle" it is an administration expense. If not, not. The origins and development of the principle, which I shall call the "salvage principle", were explained by Lord Hoffmann in Re Toshoku Finance Ltd [2002] UKHL 6; [2012] 1 WLR 671."
His Lordship also referred to common elements of the statutory administration and liquidation regimes in England, observing (at [16]-[18]) that:
"The expenses of an administration are dealt with in r 2.67. Rule 2.67 (1)(a) deals with "expenses properly incurred by the administrator in performing his functions in the administration of the company". Rule 2.67(1)(f) deals with "any necessary disbursements by the administrator in the course of the administration". This rule is modelled on r 4.218 (which applies to expenses of a liquidation) and it is common ground that they are to be interpreted in the same way. In Re Toshoku Lord Hoffmann said (at [38]) that:
"The court will of course interpret r 4.218 to include debts which, under the Lundy Granite Co principle, are deemed to be expenses of the liquidation. Ordinarily this means that debts such as rents under a lease will be treated as coming within para (a), but the principle may possibly enlarge the scope of other paragraphs as well. But the application of that principle does not involve an exercise of discretion any more than the application of any other legal principle to the particular facts of the case."
Thus the salvage principle will apply to the interpretation of r 2.67. [Counsel for the Third Respondent] accepted that this was so in this court, but may wish to challenge that proposition if this case goes further.
It is also common ground that the salvage principle and the right to prove for a debt are not mutually exclusive. Thus the mere fact that a debt is a provable debt does not mean that the salvage principle cannot apply."
His Lordship also cited Toshoku for the content of that principle, observing (at [76]-[77]) that:
"In [Toshoku] Lord Hoffmann explained how the principle worked at [27]:
"My Lords, it is important to notice Lindley LJ was not saying that the liability to pay rent had been incurred as an expense of the winding up. It plainly had not. The liability had been incurred by the company before the winding up for the whole term of the lease. Lindley LJ was saying that it would be just and equitable, in the circumstances to which he refers, to treat the rent liability as if it were an expense of the winding up and to accord it the same priority. The conditions under which a pre-liquidation creditor would be allowed to be paid in full were cautiously stated. Lindley LJ said … that the landlord "must shew why he should have such an advantage over the other creditors". It was not sufficient that the liquidator retained possession for the benefit of the estate if it was also for the benefit of the landlord. Not offering to surrender or simply doing nothing was not regarded as retaining possession for the benefit of the estate."
I accept that whether the salvage principle applies is not a matter of discretion. As Lord Hoffmann explained in [Toshoku] it is a principle that informs the interpretation of the rules which contain the complete list of what could rank as expenses of the relevant insolvency process: see para 16 above. Thus in order to rank as an expense a liability must fall within the rules as interpreted in the light of the salvage principle. But it does not follow from that that the principle, once understood, is incapable of being applied to factual situations that did not confront our Victorian forebears. Although the salvage principle owes its origins to applications relating to distress for rent, it has long outgrown those origins. I agree with [the Appellant's Counsel] that the rationale is a judge-made deeming provision under which the office holder is deemed to have incurred the liability in the course of the winding up or administration. The foundation of the principle is the application of equity. Lord Hoffmann makes this clear not only in the passage just cited ("it would be just and equitable, in the circumstances to which he refers, to treat the rent liability as if it were an expense of the winding up and to accord it the same priority"), but in other passages as well. Thus he said, at para 29:
"The principle evolved from the … cases is thus one which permits, on equitable grounds, the concept of a liability incurred as an expense of the liquidation to be expanded to include liabilities incurred before the liquidation in respect of property afterwards retained by the liquidator for the benefit of the insolvent estate." (Emphasis added)"
Other cases which have applied Lundy Granite in respect of administrations in England include Goldacre (Offices) v Nortel Networks [2009] EWHC 3389 (Ch) and Leisure Norwich (II) v Luminar Lava Ignite [2012] EWHC 951 (Ch). The NRF Plaintiffs rely on these decisions to submit that English Courts have extended the principle to administrations, but also fairly recognise that this reflects the fact that relevant provisions of the Insolvency Rules 1986 (UK) that apply in administrations correspond to those that apply in a liquidation, and that is not the case in a voluntary administration in Australia. They submit that the relevant language is not materially different from the language used in cll 15.1 and 15.2 of the Primary DOCA. I do not accept that submission for the reasons noted below. In oral submissions, Mr Rich fairly acknowledged the differences between the voluntary administration regime in England and in Australia, including in respect of whether a distribution would occur in the same way as a winding up, and accepted that Pillar Denton stood for the proposition that, in substance, if a statutory rule existed in an administration that corresponded to the statutory rule providing for the order of distribution in a winding up, then the Lundy Granite principle would apply in a similar way (T71). That would not be a particularly surprising result, but is not the case here, in the voluntary administration, the deed administration or the Trust.
In Ford v Scenter Management Ltd (2020) 145 ACSR 654; [2020] FCA 1023 ("Ford v Scentre Management"), O'Callaghan J dealt with an application for directions brought by administrators as to the priority which rent would have over other debts or claims in a winding up. Although that decision was made while the administration continued, it was again directed to the position where a winding up had followed, and did not itself extend the Lundy Granite principle, to, for example, a distribution under a deed of company arrangement, still less under a creditors' trust. His Honour observed (at [22]) that the provisions relating to an administrator's liability in Pt 5.3A of the Act would not bear on the question of the ranking of claims in a liquidation under s 556, in a winding up. His Honour observed (at [33]) that:
"Where an administrator (or a liquidator) elects to cause the company to continue in occupation of leased premises for the purposes of the administration (or liquidation), referred to in some cases as the period of 'beneficial occupation', the rent is payable as an expense of the administration or liquidation properly incurred in carrying on the company's business within the relevant governing provisions (in Australia, s 556(1)(a) of the Act)."
That reasoning, of course, refers to the statutory priority regime applicable in a winding up, which does not necessarily apply in a deed of company arrangement or a creditors' trust.
His Honour also referred (at [36]) to the description of the Lundy Granite principle in Pillar Denton (which I quoted above) as a "judge-made deeming provision under which the officer holder is deemed to have incurred the liability in the course of the winding up or administration". The reference to "or administration" here does not support an extension of the provision to a voluntary administration or deed administration or creditors trust under Australian law, where that has not occurred under previous Australian law, including Ford v Scentre Management. His Honour also referred (at [43]) to the application of that principle as "framed by reference to the period during which the company uses the landlord's property to its own advantage" so that "common sense and ordinary justice require the Court to see that the landlord is paid".
I now turn to the parties' submissions. I have had regard to their detailed submissions, made in writing prior to the commencement of the hearing, and to their oral submissions, and I refer to particular issues raised by those submissions below. However, it is convenient to structure this judgment by addressing the issues largely in the manner they are addressed in the helpful "roadmap" of the factual and legal issues in dispute prepared by the Plaintiffs' legal representatives at the Court's request, as supplemented by the Defendants' "roadmap" document which approached the issues in a different order, and the respective parties' response to the others' "roadmap" document. I am conscious that what follows has a degree of complexity which is, perhaps, a reflection on the ingenuity that has been devoted by the Plaintiffs to developing and pursuing the relevant arguments. It would not have been possible to reformulate the parties' submissions in any substantially simpler way without fundamentally changing their character, and I therefore seek to reflect and address those submissions as they were put, largely indicating my conclusions as I address them. However, it seems to me that the issues in the proceedings are ultimately somewhat simpler than those submissions might suggest, and I will decide them below on that simpler basis.
I first address the detailed submissions made by Mr Rich, with whom Mr Santucci appeared for the NRF Plaintiffs, as to whether the Lundy Granite principle applies to the Trust, before turning to the KWM Plaintiffs' submissions. First, Mr Rich submits that their administration period rent and maintenance reserves (to which I refer below) would have been given priority under s 556(1)(a) or (c) of the Act "as if" they were expenses properly incurred by the Administrators, in a winding up of the Virgin companies. Mr Rich submits that the Lundy Granite principle operates where a lessor's property is retained by a liquidator or administrator for the benefit of the insolvent estate. That proposition itself requires qualification, since the case law has only applied that principle in a winding up and in English cases, in a corresponding distribution in a voluntary administration, which would not occur under the Australian voluntary administration regime. Mr Rich also submits that the rationale of that principle (I interpolate, in a distribution of assets in a winding up) is that it would not be just or equitable for a liquidator or administrator to use a lessor's property for the benefit of the insolvent company, or to obtain a higher return for its creditors, "for nothing". They rely on some of the case law to which I referred above, including Oak Pits, Toshoku and Ford v Scentre Management to submit that such rent "ought to be regarded as a debt contracted for the purposes of winding up the company, and the rent of such property ought to be paid in full like any other debt or expense properly incurred by the liquidator for the same purpose".
The Trustees respond that the Lundy Granite principle must be applied "cautiously", as arising in a liquidation where possession of the subject property is retained by an external administrator for the benefit of the estate, where the lessor is not able to obtain possession of that property, and where the lessor is able to demonstrate why he or she should have the advantage of payment in full over the other creditors. They submit that, as I will note below, the principle cannot apply where possession is kept by arrangement with the lessor, or for the joint benefit of both the company and the lessor, and where there is no agreement that the rent shall be paid, referring to Toshoku at [23]-[27]; Re Oak Pits at 330; Ansett at [307]-[322] for that proposition. The Trustees do not accept that the principle applies in an administration, especially where (as in this case) the administration is not followed by a winding up.
Mr Rich in turn submits that, where the Lundy Granite principle applies, a pre-appointment liability which was not, in fact, incurred as an expense of the administration or winding up, will be deemed or treated by a court as if it were an expense incurred by the administrator or liquidator, and accorded the same priority, referring to Toshoku at [25]-[27], [29] and Timbercorp at [20], [22]. He submits that, in a winding up, a provable debt or claim which would otherwise "rank equally" with all other unsecured debts and claims proved in the winding up pursuant to s 555 of the Act is, by operation of the Lundy Granite principle, deemed to be an expense properly incurred by a relevant authority for the purposes of s 556(1)(a) of the Act and must be paid "in priority to all other unsecured debts and claims"; referring to Grapecorp v Grapecorp Exchange (2012) 93 ACSR 1 at [79]-[81], [84]-[85], [118] and Ford v Scentre Management at [36], [41]. He submits that, whether the liquidator or administrator actually incurred a liability for rent, or is actually liable for rent, is irrelevant to the application of the Lundy Granite principle (I interpolate, again when it applies in a distribution in a winding up) and, where the liquidator or administrator had actually incurred or is in fact liable for rent, the Lundy Granite principle is unnecessary for the lessor to obtain priority. The Trustees respond that that this may be so in a winding up but it is not the correct question to ask in the circumstances of this case where the administration was followed up by the Primary DOCA and the Trust. I return to those matters below.
I now turn to the issue whether the Lundy Granite principle should be applied to claims against the Trust. As I noted above, the Plaintiffs represented by Norton Rose Fulbright, Minter Ellison and K&L Gates ("NRF, ME and KLG Plaintiffs") adopted a common position, largely articulated by Mr Rich, and seek to extend the Lundy Granite principle from its original application in a winding to the administration of the Trust, although their submissions travel well beyond the question whether there is room to apply that principle on the proper construction of the Trust Deed. Mr Rich submits that the Lundy Granite principle applies to the Primary DOCA and the Trust Deed, and that the equitable principle for which Lundy Granite stands is not derived from or dependent upon the particular statutory priority regime that applies in a winding up. He submits that principle springs from a recognition that it is just and equitable that creditors who have benefitted from the use of a lessor's property during an insolvent administration should pay the lessor for that use, and that it is consistent with a principled development of the law to apply Lundy Granite to the Trust that, he submits, has arisen and takes its force from Pt 5.3A of the Act. He also refers to the development of the principle in England in Pillar Denton and the other recent English case law to which I referred above.
The Trustees respond that the Plaintiffs do not point to any Australian authority which has recognised the application of the Lundy Granite principle other than in the context of a statutory winding up to which the order of priorities in s 556(1) of the Act applies; that the English cases on which the Plaintiffs rely in respect of the application of the principle to an administration arise in the legislative context where, as I noted above, since the introduction of the Insolvency Rules 1986 (UK), the same statutory order of priorities applicable to winding up applies during the administration. They submit that it would be contrary to the text, context and purpose of the Trust Deed, and to principle, to apply the equitable Lundy Granite principle to the Trust. They also point out that a creditors' trust does not "take its force" from Pt 5.3A of the Act; and a deed of company arrangement and a trust are governed by different legislative and general law principles which can operate independently of one another: Parkview Constructions Pty Ltd v Tayeh (2009) 71 ACSR 65; [2009] NSWSC 186 at [74] ("Parkview").
I do not need to determine a question of the generality of that put by the NRF, ME and KLG Plaintiffs in submissions, where the ultimate question here is whether that principle can apply, where a distribution from the Trust is to be made in accordance with the terms of the Trust Deed. To the extent that a more general question arose, I am not persuaded that it would be a principled development of the Australian law to extent the scope of the Lundy Granite principle beyond the distribution of assets in a winding up regime in which it has well-established application, or a distribution of assets analogous to a winding up, to the very different context of a distribution of assets in a deed administration or creditors' trust. The decision in Pillar Denton and the other recent English decisions provides little support for such an extension, where they are directed to the statutory voluntary administration regime in the United Kingdom which, as I noted above, provides for a distribution to be made in the same manner as in a winding up, and does not have the flexibility of a deed of company arrangement or creditors trust.
I also do not accept that creditors' trusts generally or the Trust in this case takes their or its force from Pt 5.3A of the Act. To the contrary, persons who are beneficiaries of such trusts give up the benefits arising from the statutory regime, as Barrett J observed in Parkview at [74]ff, where his Honour long ago warned that the protective mechanisms available under Pt 5.3A cease to apply once a creditors' trust has been constituted and the deed of company arrangement under which it was established has been terminated, and that this involves a shift from a regime incorporating a court-administered scheme of creditor protection to one in which creditors are merely trust beneficiaries.
Turning now to the narrower question of the proper construction of the Primary DOCA and Trust Deed, Mr Crutchfield submits and I accept that the Trust Deed is to be interpreted having regard to its text, context and purpose, and in a manner which avoids (if the terms permit) a construction which is productive of commercial nonsense or works commercial inconvenience: Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156 at [83]; SIF Holdings Pty Ltd v CRC Gosford Pty Ltd (2021) 392 ALR 697; [2012] NSWCA 174 at [73].
Mr Rich in turn submits that the Trust Deed requires the Trustees to admit, reject or pay a "Claim", being the same debt or claim that would be admissible against a Deed Company in accordance with Pt 5.6 Div 6 of the Act, if the Deed Company had been wound up, under the definition of "Claim" in the Primary DOCA and the Trust Deed. I have referred to the relevant provisions of the Primary DOCA and the Trust Deed above. I note, however, that the identification of whether a claim is admissible, and for what amount, is distinct from any question of priority. Mr Rich also submits that, although the Trust Deed does not incorporate Pt 5.6 Div 6 Subdiv D of the Act, this does not prevent the Lundy Granite principle from applying in the context of the similar priority regime laid down in cl 5.2 of the Trust Deed. However, the proper question is not whether the Trust Deed prevents the Lundy Granite principle applying, with a barely concealed premise that its application is the starting point, but how that principle comes to apply to the Trust Deed and the Trust in the first place.
Mr Arnott, who appears for the ME and KLG Plaintiffs, also advanced wider submissions as to the proper approach to the construction of the Primary DOCA. He referred to Re Antquip Hire Pty Ltd (subject to Deed of Company Arrangement) (in liq) [2020] NSWSC 487 at [65], where Rees J recognised the "statutory force" of deeds of company arrangement and to the High Court's observation in MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; [1999] HCA 24 in that regard, and observed (at [70]) that deeds of company arrangement should be construed as statutes, or more precisely, as subordinate legislation, while expressing the view that that approach may be unfortunate. Her Honour also referred to the High Court's observation in Mighty River International Ltd v Hughes (2018) 130 ACSR 427; [2018] HCA 38 that a deed of company arrangement can, as here, replace "creditors' claims with rights as beneficiaries of a creditor's trust with the trust funded by third parties". In Goldus Pty Ltd (subject to a Deed of Company Arrangement) v Cummins (No 4) [2021] FCA 1095 at [183], Colvin J in turn noted that a deed of company arrangement operated as a form of statutory instrument which had binding affect upon the persons specified in ss 444D and 444G of the Act, and noted that it would be necessary to focus upon the terms of the instrument and "perhaps" matters of context that will be known to anyone interested in the affairs of the company, and that, if a deed was to be understood in a particular commercial context, then the relevant matters should be recited within the Deed, so that interested parties would be able to understand its operation. It seems to me that these matters do not significantly advance a resolution of the matters in issue here.
Mr Crutchfield responds that cll 6.4 and 6.6 of the Primary DOCA and cl 7.1(a) of the Trust Deed (which I have set out above) made clear that "Claims" (as defined) were extinguished and replaced with an entitlement to make a claim against the Trust which is equal in amount only, and is to be distributed in accordance with the terms of the Trust Deed, including the "waterfall" provision in cl 5.2 of the Trust Deed. He points out that that "waterfall" departed from the statutory order of priorities applicable in a winding up and made no provision for distribution to "Pool A Creditors" other than on a pro rata basis, and also made no provision for priority payment of pre-appointment date lease liabilities as "deemed expenses". I return to the significance of those matters below.
Mr Rich also submits that the Lundy Granite principle here operates in two ways. He submits that the first is to deem a "Claim" by the aircraft lessors to be something which it is not, relying on Toshoku at [25]-[27] and [29]. As I noted above, that case and that proposition is directed to the application of that principle in a winding up, and this submission assumes but does not establish that it can be applied to a distribution under the Trust Deed, notwithstanding the express term providing for a distribution to Pool A Creditors (including the aircraft lessors) on a pro rata basis. Mr Rich in turn submits that the Lundy Granite principle operates to treat the Plaintiffs' provable debts as if they were expenses incurred or paid by the Administrators for the purpose of the administration, but that proposition also assumes the application of that principle outside a winding up and despite the terms of the Trust Deed, which is the matter it is seeking to establish.
Second, Mr Rich submits that that the Lundy Granite principle operates by deeming rent and other amounts owing to the Plaintiffs under the pre-administration leases for the period of the administration to be "Costs" "incurred" under cll 15.1(a) or 15.2(e) of the Primary DOCA or a debt, liability or claim arising out of or in any way connected to the administration and "incurred" under cl 15.2(a) of the Primary DOCA, or an amount for which the Administrators would have been entitled to be indemnified under cl 15.2(b) of the Primary DOCA, and the amounts owing to the Plaintiff and deemed to have this characterisation would be entitled to priority within cl 5.2(b)(1)(A) of the Trust Deed. In the NRF Plaintiffs' opening written submissions, Mr Rich similarly submitted that the administration period rent payable to the aircraft lessors was properly classified, by the time the Primary DOCA came to be executed, as an expense incurred by the Administrators for the purpose of the administration, and liability to pay that rent was neither "extinguished" nor released by cl 6.4 of the Primary DOCA. That proposition also requires the extension of the Lundy Granite principle to the Primary DOCA in the absence of a winding up and depends upon the proposition that the Aircraft Objects were not used for the benefit of the aircraft lessors as well as for the benefit of the administration, which I do not accept below. It seems to me that, in any event, cl 6.4 of the Primary DOCA, in its terms, extinguished all Claims (as defined), so as to allow them to be proved under the Trust.
Mr Crutchfield responds that the Plaintiffs' approach is contrary to the text of cl 5.2(b) of the Trust Deed as a whole and is unsupported and contradicted by the contextual indications as to the meaning of the clause; and that there is no licence for "judicial rewriting"' of the Trust Deed and the Court must give effect to that language used: Newey v Westpac Banking Corporation [2014] NSWCA 319 at [91].
It seems to me that the Plaintiffs' claims are not an actual "Cost" under cl 15.1 of the Primary DOCA, or an amount attracting indemnity under cl 15.2 of the Primary DOCA, to which the Administrators or Deed Administrators would otherwise have been entitled to a priority distribution under cl 5.2(b)(1)(A) of the Trust Deed since that clause does not in its terms extend to "deemed" liabilities. Clause 5.2(b)(1)(D) of the Trust Deed expressly provides for the Trust Fund to be paid to Pool A Creditors (which include the Plaintiffs) on a "pro rata" basis in accordance with the dollar value of the admitted claims. The Trustees point out and I accept that cl 5.2(b)(1) of the Trust Deed does not (unlike ss 555 and 556 of the Act) provide for different components of a creditor's total claim to be dealt with at different points in that clause; the aircraft lessors are Pool A Creditors falling within that clause; and there seems to me to be no room for an implication that will elevate their priority by applying the Lundy Granite principle, where that would be inconsistent with the express provision for distributions to them on a pro rata basis in that clause.
The Trustees submit, and I accept, that this conclusion is reinforced by the absence of any express provision for priority of the Plaintiffs' claim, by contrast with cl 8 of the Primary DOCA which provides that creditors who pursue an insured claim and obtain payment from the insurer on account of a claim may retain that amount in full satisfaction of the right to receive a distribution from the Trust Fund and thereby allows priority for these creditors and cl 10.9(a) of the Primary DOCA which allows priority for claims by employees with respect to their entitlements. Although it is not necessary to that conclusion, the rule 75-225 Report also gives no indication that the unsecured portion of aircraft lessors' claims would be afforded priority under the Primary DOCA and the proposed creditors' trust. The references to priority of equipment lessors' claims in that document are, by contrast, directed to the secured part of the claims where those creditors have limited recourse security over the aircraft or engine asset in question. I return below to whether the Lundy Granite principle would apply have applied, on the facts, if it were otherwise available as a matter of construction.
Mr Rich also submits that whether the Administrators did or did not assume a personal liability under the pre-administration leases cannot prevent the Lundy Granite principle from operating because any personal liability of a liquidator or administrator is irrelevant to that principle, relying on Ford v Scentre Management above at [21]-[23]. That submission again depends on the premise (which I have not accepted) that the Lundy Granite principle applies as though the administration of the Trust was a winding up, rather than having any foundation in the terms of the Trust Deed. In response, Mr Crutchfield repeats his submission that the Lundy Granite principle applies to a winding up under s 556(1) of the Act, and there is no scope for its application, as a matter of construction and of principle, to the terms of the Trust Deed and, on the proper construction of the Trust Deed, there is only priority for amounts that the Administrators were entitled to in respect of "Costs" or by way of indemnity. He again submits that the Administrators were not personally liable for rental due under the aircraft leases and there was nothing in respect of which they needed to be indemnified, although this depends on the issues as to the application of the Lundy Granite principle and s 443B of the Act.
It seems to me that the Plaintiffs' submission that the Aircraft Protocol Agreements did not exempt the Administrators from liability, but limited their liability, does not assist them. The Administrators were not personally liable for the amounts payable under the aircraft leases, because I have not accepted that the Lundy Granite principle applies in a distribution under the Trust Deed, so as to contradict the express provision for a pro rata distribution to Pool A Creditors including the aircraft lessors; that principle would also not be engaged on the facts, at least for the Plaintiffs other than Willis, where I find below that there was a benefit both for the administration and the aircraft lessors in the retention rather than the return of the Aircraft Objects, as a matter of fact; and I also find below that the Administrators were not liable under s 443B of the Act in the period from 16 June 2020, because they then used the Aircraft Objects pursuant to the terms of the Aircraft Protocol Agreements, and the Virgin companies' liabilities under the Pre-Appointment Leases were preserved by, but not then payable under, the terms of the Aircraft Protocol Agreement.
Mr Crutchfield points out, and the chronology which I have set out above demonstrates, that negotiations between the Administrators and the aircraft lessors to the terms on which the Aircraft Objects would be retained commenced shortly after the Administrators' appointment and continued until all of the aircraft lessors other than Willis entered into Aircraft Protocol Agreements between 26 May 2020 and 12 June 2020. He also points out that, after no agreement was reached with Willis on 10 June 2020, possession of its Aircraft Objects was surrendered on 16 June 2020. He submits that the Virgin companies retained possession of the Aircraft Objects by arrangement with the aircraft lessors and for the purpose of their endeavouring to enter into Aircraft Protocol Agreements, and until those negotiations had concluded, there was not and could not have been any beneficial occupation of property in the Lundy Granite sense. I do not accept that submission, where the Administrators in fact retained the Aircraft Objects, where the aircraft lessors could not require their return within the 60 day period under the Cape Town Convention, and at least obtained the advantage of their retention and the associated "optionality" for the sale process. However, I do accept Mr Crutchfield's further submission that, while those negotiations took place, the aircraft lessors received the benefit of ongoing maintenance, storage and insurance costs being met by the Administrators, and I return to that question in dealing with a limit to the Lundy Granite principle below. Mr Crutchfield also submits, and I accept below, that that the Administrators' possession and use of the Aircraft Objects subsequently took place on the terms of the Aircraft Protocol Agreements, other than for Willis whose Aircraft Objects were surrendered.
Mr Crutchfield also submits, and I also accept, that there is no basis for inferring, and no evidence was led by the Plaintiffs to establish, that the prospect of a going concern sale of the business depended on the retention of any one or more aircraft lessor's Aircraft Objects, where the Virgin companies owned approximately half of the Virgin aircraft fleet (Ex NRF-1, 11); all but three aircraft lessors would ultimately executed an Aircraft Protocol Agreement (Algeri 23.12.21, [39]); and there is no evidence that the Virgin business could not have been sold as a going concern of marginally smaller scope had one of the Plaintiffs or several of them taken the same approach as Willis and required the surrender of their Aircraft Objects.
I broadly accept Mr Rich's submission as to the nature of the Administrators' objectives in the sale process, subject to the further findings I reach below as to the limit to the Lundy Granite principle. However, this does not assist the Plaintiffs where I have found that principle cannot apply having regard to the terms of the Trust, and the limit to the Lundy Granite principle to which I now turn applied, other than in respect of Willis, in any event.
Mr Crutchfield refers to several cases where the Lundy Granite principle has not been applied where property is retained for the benefit of both the insolvent estate and the lessor: Re Progress Assurance Company (1870) LR 9 Eq 370; Re Bridgewater Engineering Company (1879) 12 Ch D 181; Re Lancashire Cotton Spinning Company (1887) 35 Ch D 656. In Oak Pits at 330, Lindley LJ observed that this limitation applied where a liquidator "kept possession by arrangement with the landlord and for his benefit as well as for the benefit of the company". On the face of it, such an "arrangement" exists here, informally while negotiations towards Aircraft Protocol Agreements took place, and then formally from the point of entry into the Aircraft Protocol Agreements, and the benefit to the aircraft lessors is apparent both in the storage, maintenance and insurance obligations which the Administrators undertook and the further obligations which they assumed by the Aircraft Protocol Agreement. I have not neglected the application of the Cape Town Protocol in this respect, but the fact that the lessors choices were constrained by that Protocol does not exclude such an arrangements, but explains the context in which they sought to achieve a better commercial result by those negotiations and the entry into the Aircraft Protocols.
Mr Rich fairly recognises that the Lundy Granite principle will not apply (or will no longer apply) once property is being retained for the joint benefit of the insolvent estate and the lessor. Mr Rich submits that it is not the case that any benefit to the lessor, however insubstantial, precludes the operation of the principle, "irrespective of the nature of that benefit, the intention of the parties and the circumstances of the case" and the Court must "look at the matter from a broad common sense point of view", referring to ABC Coupler at 721. Mr Crutchfield responds, by reference to ABC Coupler, that whether or not possession is being kept for the joint benefit of the parties is to be determined by reference to the parties' intentions, assessed objectively and in all the circumstances of the case.
Mr Rich also submits that the benefits on which the Trustees rely upon do not preclude or defeat the application of the Lundy Granite principle. He submits and I accept that Willis did not enter into any agreement or arrangement for the retention of their Aircraft Objects for their benefit, and demanded the return of their Aircraft Objects on 2 June 2020 (Ex J1, 1066), before they could take any step to take possession under the Cape Town Protocol. Mr Crutchfield responds, inter alia, that, Willis continued to negotiate with the Administrators as to the ongoing possession of its Aircraft Objects until 10 June 2020 (Ex J1, 1362, 1396 and 1399; Algeri, 23.12.21, [127]-[129]; T168) and was given possession of its Aircraft Objects on 16 June 2020 but did not take possession of them for five months (Algeri, 23.12.21, [130]-[138]), presumably because of the ongoing dispute as to the manner in which they would be delivered to it, now resolved by the High Court in the Administrators' favour. I am not persuaded that any joint benefit is established in respect of Willis, at least from 2 June 2020 when it sought to require the return of its Aircraft Objects.
Mr Rich also submits that the other Plaintiffs' willingness to negotiate with the Administrators, during the 60-day waiting period that applied under the Cape Town Protocol, does not mean the Aircraft Objects were retained for their benefit in the meantime. He points out that, during that period, it was within the Administrators' power to disclaim the leases, while the Plaintiffs were unable to obtain their Aircraft Objects without the Administrators' consent due to the First and Second Extension Orders and the provisions of the Cape Town Protocol Mr Crutchfield responds that the relevant leases were not disclaimed by the Administrators during the period prior to entry into the Aircraft Protocol Agreements or surrender of Willis' property because the aircraft lessors were negotiating with the Administrators for ongoing possession and use of their Aircraft Objects by the Administrators (Algeri, 23.12.21, [55]). He also submits that, by negotiating and ultimately entering into the Aircraft Protocol Agreements, the aircraft lessors exercised a commercial judgment to permit the ongoing possession and use of their property on defined terms, and those arrangements necessarily exclude an equitable Lundy Granite priority, on the basis that it is inconsistent with the terms of those arrangements and there is otherwise no reason for equitable principle to operate where possession was by agreement and no statutory moratorium was in place following the expiry of the 60 day period under the Cape Town Convention and Protocol after 19 June 2020. Mr Crutchfield also repeats his earlier submission that the Plaintiffs can point to no evidence to suggest that repossession of any of their Aircraft Objects would have had any relevant impact on the prospect of a going concern sale, and submits that the Aircraft Protocol Agreements (cl 1.6) contemplated that the arrangements could last up to the end of the administration, which occurred in many cases.
Mr Rich in turn submits that the Plaintiffs conduct in entering into the Aircraft Protocol Agreements should not be "held against them". No question of that kind arises, where those Agreements are simply a relevant fact in the assessment whether the retention of the Aircraft Objects was also for the joint benefit of the Plaintiffs (excluding Willis) who entered into them. Mr Rich also submits that those agreements were entered into a matter of weeks prior to an anticipated sale of the Virgin business, where the Administrators feared adverse effects on the sale transaction if the Aircraft Objects were repossessed and sought the aircraft lessors' support to secure a sale that would benefit all creditors. It does not follow that the retention of the Aircraft Objects was not for the Plaintiffs' as well as the creditors' benefit, where the alternative was a disclaimer of them in the midst of a pandemic, and where the Administrators incurred substantial costs which would otherwise have been incurred by the aircraft lessors in retaining them. It is striking that the Plaintiffs do not lead evidence and there is no reason to think they were acting in anything other than their own rational commercial interests in entering those arrangements, or that they could have put the Aircraft Objects to any alternative profitable use had they not entered those arrangements.
Mr Rich in turn submits that the Administrators' payment of maintenance, storage and insurance costs was a necessary incident of the Administrators' ongoing use or retention of the Aircraft Objects and was a positive obligation imposed on them by the Cape Town Protocol (Art XI(5)); the Administrators chose to incur these costs rather than avoid them by disclaiming the Aircraft Objects because they considered it was for the benefit of the administration to do so; and to fulfil a small portion of the obligations legally owed under the aircraft leases did not confer a substantial benefit on the aircraft lessors. Mr Crutchfield responds that it may be inferred that the benefits conferred on the aircraft lessors by the Administrators paying maintenance, storage and insurance costs were part of the reason the aircraft lessors were prepared to negotiate with the Administrators as to terms for ongoing possession and use of Aircraft Objects pursuant to the Aircraft Protocol Agreements, rather than demand that those Aircraft Objects be surrendered in the absence of the leasehold liabilities being assumed by the Administrators (Algeri, 23.12.21, [55]). I accept that inference is available and I more readily draw it where the Plaintiffs led no evidence as to these matters.
Mr Crutchfield also submits that, having regard to all of the circumstances and assessing the matter objectively, the Plaintiffs are to be taken to have intended that possession of the Aircraft Objects be kept by the Administrators for their benefit as much as for the general body of creditors: ABC Coupler at 721. It seems to me that the payment of maintenance, storage and insurance costs did confer a substantial benefit on the Plaintiffs, where the alternative was a surrender of Aircraft Objects which would have left them bearing those costs, where the Aircraft Objects likely could not be put to an alternate use in the COVID-19 pandemic, and I again more readily reach that finding where the Plaintiffs led no evidence that an alternative profitable use of the Aircraft Objects was then available to them. Mr Rich also submits that the "mere fact" that the Plaintiffs stood to receive a better return in the administration (or, more precisely, a subsequent deed of company administration or creditors' trust) if a higher price were obtained from the sale of the Virgin business is not a relevant benefit, again referring to ABC Coupler at 721. This submission provides no answer to the other benefits received by the Plaintiffs to which I referred above, including the saving of storage, maintenance and insurance expenses.
The Plaintiffs also submit that the prospect that their Aircraft Objects would be re-leased to the new owner of Virgin was a mere hope, and not a substantive benefit. They point out that no right to such a benefit was contained in the Aircraft Protocol Agreements or elsewhere, and as it happened, the decision as to which Aircraft Objects were retained turned on the preference of the new owner to use Boeing 737s in the continuing business. Mr Crutchfield responds that the prospect of securing ongoing leasing arrangements with any purchaser of the Virgin business was a real and tangible benefit for the aircraft lessors, and it is again notable that the Plaintiffs led no evidence to suggest that, in the midst of a global pandemic, the Aircraft Objects could have been profitably redeployed elsewhere. They submit that prospect would have been lost to each of the aircraft lessors if any of them had insisted on the surrender of their Aircraft Objects, and that is why each chose to negotiate with the Administrators for ongoing possession and use of their property on defined terms. I accept that inference is available and I more readily draw it where the Plaintiffs led no evidence as to these matters. Mr Crutchfield also point out that the terms of the Aircraft Protocol Agreements included a matching right in favour of the aircraft lessor contained in cl (f) of the definition of 'Redelivery Trigger' in those Agreements. He also points out that Avation sought access to bidders for the Virgin companies' business with a view to exploring ongoing opportunities for the lease of its aircraft (Algeri 23.12.21 [120]), Stellar enquired as to the timing of its negotiations with Bain (Algeri 23.12.21 [146]) and ultimately entered into new lease terms (Algeri 23.12.21 [148], as did Castlelake [Algeri 23.12.21 [94]) and Aircastle (Algeri 23.12.21 [47]). I also do not accept the Plaintiffs' submission as to the lack of value of the opportunity to have their Aircraft Objects put to use by the new owner of the business had no economic value, particularly in a pandemic, or was not an important consideration in their commercial decision-making, where they led no evidence to support it.
The Plaintiffs' submission and the evidence led to support them do not establish that the retention of the Aircraft Objects was not for the Plaintiffs' as well as the creditors' benefit, where the alternative was a disclaimer of the Aircraft Objects in the midst of a pandemic, and the Plaintiffs led no evidence they could have put them to any alternative profitable use, and I am satisfied that the Plaintiffs in fact obtained a significant benefit in avoiding continuing costs and in access to the lease opportunities with a new owner of the business. Approaching this issue from a broad and common sense point of view, it was for the joint benefit of creditors generally and the Plaintiffs (other than Willis, which wished to have its aircraft engines returned) that the Administrators should retain the Aircraft Objects, store, maintain and insure them and pay the fee payable under the Aircraft Protocol Agreements as they were used. That inference is supported by the Plaintiffs' (other than Willis') consent to the Aircraft Protocol Agreements and the then state of the travel and aviation market. For these reasons, even if, contrary to the conclusion I have reached, the Lundy Granite principle could apply in a manner that contradicted the express terms of the Trust, it would not have applied here since the use of the Aircraft Objects was for the joint benefit of the Plaintiffs and the administration.
I also accept the Trustees' wider submission that:
"It is otherwise not inequitable for no Lundy Granite principle to apply in the case of the Primary DOCA and the Creditors' Trust in circumstances where:
● the Corporations Act expressly authorises a regime whereby a deed of company arrangement may depart from the statutory priority that applies in a winding up;
● there was no reference in the Section 75-225 Report or other document in advance of the second meetings of creditors suggesting that the Aircraft Lessors were to be afforded any priority in the Creditors' Trust in respect of the unsecured portions of their claims;
● the statutory regime in Division 11 of Part 5.3A of the Corporations Act permits a creditor to apply to set aside a deed of company arrangement on a number of different bases (including broadly "for any other reason"); and
● in this case, no application to set aside the Primary DOCA and wind up the Virgin [c]ompanies was made or even threatened by any of the Aircraft Lessors and all Aircraft Lessors voted in favour of the Primary DOCA, other than Willis (which voted against) and Wells Fargo atf Avolon (which abstained)."
I can see no equitable principle, arising under Lundy Granite or otherwise, which would be advanced by departing from the pro rata distribution provided under cl 5.2(b)(1)(D) of the Trust Deed for Pool A Creditors of the Trust to the obvious disadvantage of creditors other than the Plaintiffs. The Plaintiffs did not identify any basis on which equity would override the terms of the Trust, where the general principle is that the trustee's duty is to adhere to the terms of the trust deed, and other equitable rules apply subject to the provisions of the trust deed: Green v Wilden Pty Ltd [2005] WASC 83 per Hasluck J at [466]. The Plaintiffs also did not submit that the present circumstances fell within the limited class of cases in which the Court could override the terms of the Trust under s 81 of the Trustee Act 1925 (NSW): see, for example, Re Dion Investments Pty Ltd (2014) 87 NSWLR 753; [2014] NSWCA 367 at [92]; Re Project Volar Creditors' Trust established in the administration of Virgin Australia Holdings Ltd & Ors [2021] NSWSC 425 at [8]ff. It is not apparent to me that they would do so.
On this basis, the KWM plaintiffs submit that they would be entitled to the benefit of the Lundy Granite principle, assuming the principle is engaged. I do not accept that submission, both because I do not accept that principle is engaged in respect of distributions from the Trust and because I find the limit to that principle applies for the reasons noted above.
Mr Arnott submits, first, that the Virgin companies continued to be in possession of each Plaintiff's property during the administration, for the purposes of s 443B, from 20 April 2020 until the issuance of s 443B notices to the relevant Plaintiffs or, in the case of the Aircastle, Castlelake and Stellar Plaintiffs, the conclusion of the administration on 25 September 2020 (referring to s 443B notices at Ex J1, 1527, 1643, 2362, 2373, 2391, 2397). Mr Crutchfield responds that any possession in the period of liability for which the Plaintiffs contend, on and from 16 June 2020, was governed by a post-appointment arrangement, the Aircraft Protocol Agreements, which (as I noted above) referred, in Recital G, to their setting out "the terms and conditions the parties have agreed will govern all dealings with the [Aircraft Objects] by the Administrators during the Administration". He also submits that the Virgin companies were also not in possession of two of Avation's aircraft which were re-let and/or sub-let before the issue of the s 443B notice (Algeri [120]). It is not necessary to determine that matter given the findings I reach on other grounds.
Mr Arnott submits that the Administrators were liable under s 443B(2) of the Act for rent payable under the aircraft leases from 16 June 2020, the date of the expiry of the Second Extension Orders. He submits that s 443B applies and, on the proper construction of the section, the only way to avoid liability is "subject to this section" is either to give a notice under s 443B(3) or obtain an order from the Court waiving liability under s 443B(8). He submits that each of the pre-administration leases listed in Sch 1 to the respective Aircraft Protocol Agreements continued in effect after the Aircraft Protocol Agreements were entered, and the Virgin companies agreed their obligations continued in effect after the Aircraft Protocol Agreements were entered (cll 3.3(a) and 4.1), and "therefore" s 443B(1) continued to be engaged on and after the expiry of the Second Extension Orders on 16 June 2020. I do not accept this submission, because I do not accept that s 443B of the Act applied in the relevant circumstances for the reasons noted below.
Mr Arnott submits that, by cl 4.1 of the Aircraft Protocol Agreements, the parties agreed that, during the period of the administration, the Administrators would comply with the obligations in Schedules 2 to 7, which included in Sch 2, making "Adequate Protection Payments", which were to be made without limiting the rights of the Plaintiffs "to make a claim in the Administration" and were to be applied to reduce the amount owning for maintenance reserves and rent due and payable by the Virgin companies under the leases. He submits that these obligations, including the obligation to make Adequate Protection Payments, were post-administration liabilities adopted by the Administrators to which s 443A(1)(c) applied. That submission does not advance the Plaintiffs position so far as the Adequate Protection Payments were concerned, since those payments were paid by the Administrators as they fell due and cannot now be proved against the Trust.
Mr Arnott then submits that that:
"This meant that, from 16 June 2020, there was rent and other amounts (such as maintenance reserves) payable by the Virgin companies under pre-administration leases which was attributable to a period of the type described in s 443B(2) and which created a statutory liability of the Administrators under s 443B(2), which liability attracted the right of indemnification set out in s 443D(a) and which would have been entitled to priority under s 556(1)(c)(i) had the Virgin companies be wound up."
I explain below why I do not accept that submission, because no amount was "payable" by the Virgin companies under the aircraft leases in the relevant period. I also note that the Administrators' possession of the Aircraft Objects and the amount of the "Adequate Protection Payments" payable from that date, and paid, arose under the Aircraft Protocol Agreements rather than under pre-administration leases, although the Plaintiffs' rights against the relevant lessors under the leases were reserved, subject to the terms of the Aircraft Protocol Agreements. As I noted above, the Trust Deed expressly provides for the discharge of the Plaintiffs' claims arising from that matter as Pool A Creditors on a pro rata basis with other Pool A Creditors.
Mr Crutchfield responds that the possession and use of the Aircraft Objects by the relevant lessees after the expiry of the Second Extension Orders took place under the terms of the Aircraft Protocol Agreements (for which all parties acknowledged the receipt of valuable consideration), and not the pre-appointment date leases and s 443B of the Act did not apply. He also submits that the clauses of the Aircraft Protocol Agreement dealing with the reservation of rights under the pre-appointment date leases only served to confirm that the rights under those pre-appointment date agreements were being reserved on a "standstill" basis (cl 3) while the Aircraft Protocol Agreements were in effect. He submits that the result was that performance of the obligations under the Aircraft Protocol Agreements was not to be taken as affecting rights accruing under the pre-appointment date leases or as otherwise amounting to a waiver or variation of such rights beyond the period of operation of the Aircraft Protocol Agreements, so that, for example, those pre-appointment date liabilities might be proved for in the administration in the usual course, subject to the lessor's obligation to account for the receipt of adequate protection payments under item 3(d) of Sch 2. He submits that those clauses do not change the fact that possession and use of the Aircraft Objects for the duration of the Aircraft Protocol Agreements, which were entered into before 16 June 2020, took place under those Agreements, and refers to cll 3.2, 3.3(a) and 5 as to possession and cl 4.1 and Sch 2 and Sch 4 as to use of the Aircraft Objects. He also submits that cll 1.3(a), 1.3(c), 1.4(a)(iii), 1.4(b), 1.4(c) and 3.3(a) and item 3(c) of Sch 2 make clear that the extent to which the Administrators were incurring obligations on behalf of the relevant lessees, personally and as agents, was limited to that arising under the Aircraft Protocol Agreements, and not the pre-appointment date leases which were the subject of a standstill arrangement on a reservation of rights basis.
Mr Arnott then submits that it is plain from cl 1.3(c) of the Aircraft Protocol Agreements that the parties contemplated the liability of the Administrators under s 443B of the Act (I interpolate, if it were established) would and could continue after the Aircraft Protocol Agreements, as this clause expressly referred to s 443B(8) of the Act. Mr Crutchfield responds that the reference in that clause to s 443B of the Act was directed to making clear that obligations incurred by the Administrators, who were contracting as the agents of the Virgin lessees, under the Aircraft Protocol Agreements were the sole obligations of the Administrators in respect of the leases and Aircraft Objects, and that s 443B(2) would have no application to the possession and use of Aircraft Objects pursuant to the Aircraft Protocol Agreements while those agreements were in place, because possession and use was not to be regarded as arising under the pre-appointment date leases. I have addressed the submissions as to that issue above. Mr Crutchfield also submits that the second sentence of clause 1.3(c), indicating that the lessors would not oppose orders under s 443B(8), supported that submission. I do not accept the Plaintiffs' submission in this respect, where the reference to s 443B(8) was to an order that could be sought for more abundant caution but which, on the findings that I reach below, was not required.
Mr Arnott also submits that liability under s 443B(2) of the Act (I interpolate, if it were established) would be a liability or obligation "under" the Aircraft Protocol Agreement or "in connection with the transactions contemplated by" this Aircraft Protocol Agreement and "incurred by the Administrators under" the Aircraft Protocol Agreement for the purposes of those Agreements, because the Aircraft Protocol Agreements contemplated the continuation of the leases past entry into those Agreements, which engaged s 443B(1) following the expiry of the Second Extension Order. Mr Crutchfield responds that cll 1.3(a) and 1.3(c) of the Aircraft Protocol Agreements do not treat pre-appointment date lease liabilities as being incurred by the Administrators as "transactions contemplated" by those Agreements, as that would be contrary to the terms of cll 1.3(a), 1.3(c), 3.3(a) and 4.1, and item 3(c) of Sch 2, and the purpose of entering Aircraft Protocol Agreements that established a separate regime governing the terms of the possession and use of the Aircraft Objects during the remainder of the administration. The debate as to this issue seems to me to be consequential on the question whether s 443B of the Act applies, and I find that it does not below.
Mr Arnott also submits that the Future Agreements Order was the only order made by the FCA in relation to the Aircraft Protocol Agreements and that it limited rather than extinguished the liability assumed by the Administrators under the Aircraft Protocol Agreements to pay the Adequate Protection Payments to the Plaintiffs. In opening submissions, Mr Arnott also submits that the effect of cl 1.3(a) of the Aircraft Protocol Agreements (which I quoted above) was to limit the Administrators' personal liability under or connected to the Aircraft Protocol Agreements. He seeks to read that clause as a recognition that liabilities under the Aircraft Protocol Agreement or in connection with the transactions contemplated by it are debts incurred by the Administrators in the performance and exercise of their functions as Administrators. It seems to me that clause recognises the possibility that would be the case, where the word "any" recognises that some liabilities or obligations arising under the Aircraft Protocol Agreement or in connection with the relevant transactions may have the character, rather than acknowledging that all such transactions did have that character. It seems to me that clause preserves, but does not expand, the position which would otherwise exist.
Mr Arnott also submits that the Administrators' liability under s 443B(2) is entitled to priority under cl 5.2 of the Trust Deed, because any amount which the Administrators are or would be entitled to be indemnified out of the assets of the Virgin companies including any amounts payable pursuant to s 443B is an amount for which they are entitled to be paid or indemnified under cl 15.2(b) (or alternatively, (a), (c) or (d)) of the Primary DOCA, within cl 5.2(b)(A)(i) of the Trust Deed. He submits that the question whether the Administrators' liability under s 443B(2) is limited to the assets of the Trust Fund established under the Trust Deed does not arise, because the claim is only made against the Trustees, not the Administrators, and only in respect of the limited pool of the Trust Fund, and that no claim has been made or is pressed beyond what is available in the Trust Fund.
Mr Crutchfield responds that, properly construed, the prospective obligations provided for under the Aircraft Protocol Agreements were the sole liabilities incurred by the Administrators on behalf of the relevant lessees and, under s 443A(1), as modified by the Future Agreement Orders, the Administrators were personally liable for those prospective liabilities on a limited recourse basis (and those liabilities have been satisfied), and s 443B was not engaged in the circumstances. He also submits that, in any event, the aircraft lessors expressly agreed by cl 1.3(c) of the Aircraft Protocol Agreements that the Administrators would not be liable for any pre-appointment date lease liabilities pursuant to s 443B(2), and there is no reason why parties cannot waive or limit any statutory right arising under s 443B(2). He submits that even if, contrary to the Trustees' submission, a liability by reason of s 443B(2) was held to arise in respect of possession of any of the Aircraft Objects beyond 16 June 2020, there is no reason why the Court could not now make an order pursuant to s 443B(8) excusing the Administrators from such liability, consistently with the parties' intention as expressed in clause 1.3(c) of the Aircraft Protocol Agreements.
The KWM Plaintiffs also submit that several textual matters in the Aircraft Protocol Agreements establish that the Administrators' continuing use, occupation or possession of the Plaintiffs' Aircraft Objects after 16 June 2020 was under the pre-appointment leases so as to satisfy s 443B(1), and their submissions in this respect largely overlap with those of the NRF, ME and KLG Plaintiffs, which I have addressed above. They again refer to cl 1.3(c) of the Aircraft Protocol Agreements which I have addressed above. They also refer to the definition of "Redelivery Trigger" in cl 1.1 which includes the Administrators issuing a notice under s 443B(3) of the Act.
The Trustees respond, at some length, to these submissions in their response to the KWM "roadmap", submitting that:
"…[I]nsofar as the parties by clause 1.3(c) contemplated s 443B, that was to expressly make clear that the obligations incurred by the Administrators (who were contracting as the agents of the lessees) under the Aircraft Protocol Agreement were the sole obligations of the Administrators in respect of the Lease Documents, Aircraft or Engines. That is, to make clear that, consistently with s 443B(1), s 443B(2) would have no application to the possession and use of Aircraft Objects pursuant to the Aircraft Protocol Agreements, because possession and use was not to be regarded as arising under the pre-appointment date leases. In that context, the second sentence of clause 1.3(c) clarified that the lessors would not oppose orders under s 443B(8) to make clear what was otherwise express from the first sentence of clause 1.3(c).
As to the reference to s 443B(3) notices under the Aircraft Protocol Agreements, such notices were required to be issued as part of bringing the Aircraft Protocol Agreements to an end and providing for the Aircraft Lessors to take redelivery of their Aircraft Property thereafter, so as to ensure that beyond the period of operation of the Aircraft Protocol Agreements, any possession of Aircraft Objects prior to redelivery would not be regarded as engaging any liability under any pre-appointment date leases for the purposes of s 443B (which were placed on standstill on a reservation of rights basis for the duration of the Aircraft Protocol Agreements) (see clauses 1.6 and 5(a)-(e) and Schedule 7). That is, these references support the proposition that for the duration of the Aircraft Protocol Agreements, possession and use of Aircraft Objects took place under those agreements and not the pre-appointment date leases.
Put another way, the reason why the Aircraft Protocol Agreements referred to s 443B(3) notices, and the reason why these notices were ultimately issued to the Aircraft Lessors, is because the Aircraft Leases remained on foot on a standstill basis for the duration of the Aircraft Protocol Agreements, such that upon and following the termination of use or possession under the Aircraft Protocol Agreements (but, critically, not while those agreements were in force), the relevant Virgin lessees would otherwise be in occupation of the Aircraft Objects under the pre-appointment leases. To avoid any such liability, and to ensure that there was no lacuna in the period following the Aircraft Protocol Agreements coming to an end, it was necessary for the Administrators to issue s 443B(3) as part of bringing the Aircraft Protocol Agreements to an end.
These matters reinforce (rather than detract from) the proposition that possession and use of Aircraft Objects took place under the Aircraft Protocol Agreements and not the pre-appointment date leases."
The KWM Plaintiffs in turn submit that the Administrators subsequently issued s 443B(3) notices to several Plaintiffs, with the notices making specific reference to the relevant pre-appointment lease agreements (Ex J1, 2512). They submit that, if s 443B(1) was not satisfied, there would not have been any need for the Aircraft Protocol Agreements to refer to the provisions in s 443B or for the Administrators to issue s 443B(3) notices. I give little weight to that submission, since it would have been sensible in any event to give such notices for more abundant caution.
The KWM Plaintiffs then submit that, if s 443B(1) is satisfied, the personal liability imposed on the administrators by s 443B(2), like the personal liability imposed by s 443A(1), cannot be excluded by agreement. They also submit that both s 443A and s 443B of the Act have the common purpose of providing "prospective creditors with assurance of payment" (Harmer Report at [88]; Explanatory Memorandum to the Corporate Law Reform Bill 1992 at [561]). They submit that, bearing in mind the "common objective" of those sections, there is no reason to prohibit a contracting out of personal liability under s 443A, but permit a contracting out of personal liability under s 443B.
The Trustees respond that s 443B(1) is not engaged but, even if it were, there is no reason to interpret that section as precluding a party in whose favour s 443B(2) operates from waiving or otherwise bargaining away any entitlement arising under the subsection. They point out that, by contrast with s 443A(2), which is expressed as having effect despite any agreement to the contrary, s 443B contains no such prohibition on contracting out of the provision. The Trustees take issue with the existence of a common purpose in ss 443A and 443B, and also submit that:
"In contrast to s 443A, which applies when the administrator incurs a prospective liability, s 443B(2) operates by default to render an administrator liable for rent and other amounts arising under a pre-appointment date agreement in the circumstances there provided. It is for that reason that s 443B(8) contemplates that a court may excuse an administrator from liability where the default provision works unfairness, for example because the administrator is unaware of the existence of the property: Harmer Report at [91]. So understood, there is no reason to regard the terms of s 443B, and s 443B(8) in particular, as exhaustive of the circumstances in which an administrator may be relieved of liability, in the sense of precluding the very party in whose favour the statutory entitlement under s 443B(2) arises from agreeing with the administrator to waive or otherwise forego that entitlement, a fortiori where there is no equivalent of s 443A(2)."
I need not address the detail of that submission, where the legislature has prohibited contracting out in s 443A of the Act and not in s 443B of the Act, and the Court should give effect to the legislation as enacted.
The KWM Plaintiffs also point out that s 443B(8) provides that:
"Subsection (2) does not apply in so far as a court, by order, excuses the administrator from liability."
They submit that, in the absence of a court order, s 443B(2) "applies". I do not accept that submission, where that subsection identifies a circumstance in which the section does not apply, rather than providing that is the only circumstance in which it does not apply, or prohibiting informed parties with sophisticated legal advisers, such as the aircraft lessors, limiting the scope of the obligations to which s 443B applies by contract.
The KWM Plaintiffs also submit that a court order under s 443B(8) may only excuse an "administrator" from liability and, where the Trustees no longer hold office as the Administrators, does not permit the Court to excuse them from liability as former administrators. The Trustees respond that, even if a s 443B(2) liability arose, the Court could and would excuse the (former) Administrators from such a liability pursuant to s 443B(8), consistently with the agreement expressed in cl 1.3(c) of the Aircraft Protocol Agreements. They submit that there is no reason to regard s 443B(8) as containing any relevant temporal limitation on the Court's power to excuse an administrator from such a liability, in the sense of precluding a former administrator from applying for relief under the section, where the liabilities for which relief is sought will necessarily relate to the period in which the person was acting as administrator. They point out that the effect of the Plaintiffs' position in this regard is that a former administrator could be held liable by a court under s 443B(2) (here at the instance of the Plaintiffs), notwithstanding his or her retirement from office, but could not at the same time seek relief from that liability under s 443B(8). They submit that there is no support for that proposition in the text of s 443B, and that the authorities support the proposition that relief may be granted retrospectively: Nardell Coal Corporation (in liq) v Hunter Valley Coal Processing (2003) 21 ACLC 1505; [2003] NSWSC 642 at [106]; Wells Fargo Trust Company, National Association (trustee) v VB Leaseco Pty Ltd (administrators appointed) [2020] FCA 1269 at [180]. I do not consider it necessary to decide this question, where I find below that liability under s 443B is not established, and any question as to relief should be determined in the different circumstances which would arise if an appellate court reached a different result.
The KWM Plaintiffs also acknowledge that the Court has a general power under s 447A (and a similar power under s 90-15 of the Insolvency Practice Schedule (Corporations) 2016 (Cth)) to make an order about how s 443B(8) is to operate, but submit that power does not permit the Court to make such an order having retrospective effect, and that the effect of the order would be to cause the surrender of their "lawfully vested rights", referring to Re New Bounty Ltd (2015) 107 ACSR 504 at [220]-[230]). They submit that, upon the completion of the Primary DOCA, their rights against the Virgin companies were converted into vested beneficial interests in the trust fund. It seems to me likely that, at present, the KWM Plaintiffs do not have such an interest in the Trust, but only the right to have it properly administered, but it is not necessary to decide that question for the reasons noted below.
The Trustees respond that Plaintiffs do not have any "vested" rights, because the Court at all times had the power to make orders under s 443B(8) and they submit that the content of any such right is also limited by the Plaintiffs' express agreement, by cl 1.3(c) of the Aircraft Protocol Agreements, not to oppose any application under s 443B(8). They submit that orders excusing the (former) Administrators from liability under s 443B(2) would not relevantly affect any vested rights. I again do not consider it necessary to decide this question, where I find below that liability under s 443B is not established, and any question as to relief should be determined in the different circumstances which would arise if an appellate court reached a different result. Had I reached a 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.
The KWM Plaintiffs also refer to observations in the FCA's judgment in respect of the Future Agreements Order to which I have referred above, and to aspects of Mr Strawbridge's affidavit in support of that order, which they submit are "the most important contextual matters to be considered" when construing and giving effect to the Aircraft Protocol Agreements. The Trustees in turn emphasise references in Mr Strawbridge's affidavit to the inclusion of "a limited recourse clause, which provides that the Administrators will only be liable under section 443A on a limited recourse basis" and to a
"limitation of liability clause, which provides that the Administrators will not have any personal liability arising from entry into the Aircraft Protocol or the performance of any services to the Lessor or any of the Finance Parties (as those terms are defined in the Aircraft Protocol) in accordance with the terms of the Aircraft Protocol or the relevant Aircraft Leases, except to the extent of the limited recourse …"
It seems to me this evidence, and the FCA's reference to the Aircraft Protocol Agreements in its judgment, are a fair paraphrase of the proposed Aircraft Protocol Agreements but provide little assistance as to the application of s 443B of the Act. The Trustees also point out that the application for the Future Agreements Order relevantly sought orders under s 443A of the Act and was directed to the an exclusion of personal liability on the part of the Administrators for post-appointment obligations arising under the Aircraft Protocol Agreements. They point out that, where that application was not directed to orders under s 443B, it would not be expected that the evidence addressed whether the Administrators would liability for pre-appointment leases under the terms of the Aircraft Protocol Agreements. I have addressed the terms of the Aircraft Protocol Agreements above.
Turning now to the parties' further submissions as to these matters, Mr Crutchfield relies on the cases to which I have referred above for the propositions that, for an amount to be "payable", it must be the subject of a legally enforceable obligation to pay; an amount is not "payable" if it would not be required to be paid until a future event occurs; and the phrase "under an agreement" directs attention to the source of the relevant right or obligation. He submits that no amounts were properly "payable" by the Virgin companies under the aircraft leases, given the terms of the Aircraft Protocol Agreements, again referring, inter alia, to Recital G and cll 1.3(c), and 3.2 and 4.1 and Sch 2 of those Agreements which I have noted above. He submits that:
"The significance of these provisions of the Aircraft Protocol Agreements is that in the period attributable to possession and use of relevant Aircraft Objects, being the period following expiry of the Second Extension Orders and during which the Aircraft Protocol Agreements were in force, no amounts were payable by the lessee companies under the pre-appointment leases for the purposes of s 443B(2). This is because, by reason of the parties' post-appointment agreement, the pre-appointment payment obligations under the leases which might otherwise have been attributable to the period of possession and use were not subject to any present, legally enforceable obligation to pay during that period (Edelsten, Glass, Grocon). Rather, the lessors had agreed not to enforce any rights under the leases unless and until the occurrence of a specified event, namely the cessation of the Aircraft Protocol Agreements (Edelsten, Glass), and had expressly acknowledged by item 3(c) of Schedule 2 that the only amounts payable by the lessee companies to the lessors for the relevant period would be those amounts arising under Schedule 2 (i.e. "no other payment shall be made by the lessee for the Relevant Period"). Any amounts arising under the pre-appointment date leases were thus not presently payable in the period attributable to possession and use of the subject property, but rather were suspended for the duration of the Aircraft Protocol Agreements, and subject to the contingency that they may either become provable in a winding up or otherwise in the administration (for example pursuant to a deed of company arrangement), as item 3(c) of Schedule 2 acknowledged (i.e. "without limiting the rights of the lessor to make a claim in the administration"), or might otherwise become payable as against the relevant companies following the cessation of the administration. But at no stage during the period attributable to possession and use were any such amounts payable under the pre-appointment leases.
The reason why the liabilities under the Aircraft Leases were not "payable" during the period of the Administration after 16 June 2020 was not by reason of the statutory prohibitions in sections 440B, 440D and 440F of the Corporations Act. Rather, the claims were not an obligation that was capable of being enforced by the Aircraft Lessors because, by that point in time, they had, by agreement, obliged themselves not to recover amounts that would otherwise have fallen payable during that period. Therefore, consistent with the conclusion of the Full Court in Edelsten, the amounts were not "payable" notwithstanding that the amounts continued to accrue as a liability in the external administrations of the relevant Virgin Companies.
Absent any legally enforceable obligation on the lessees to pay any such pre-appointment lease amounts during the period of possession and use, which the lessors had agreed not to enforce, it follows that there were no amounts payable under the pre-appointment leases for the relevant period, for the purposes of s 443B(2)."
Mr Crutchfield also submits that:
"For substantially similar reasons, the source of any payment obligations by the lessees to the lessors attributable to the period of possession and use were those arising under the Aircraft Protocol Agreements, and not under the pre-appointment leases (Sara Lee, Queensland Premier Mines, Inghams Enterprises), with the consequence that the amounts claimed by the plaintiffs are not to be regarded as properly arising under s 443B(2). This is because the obligation on the part of the lessees to pay for any possession and use of the property in the period of operation of the Aircraft Protocol Agreements was solely and expressly contained within the Aircraft Protocol Agreements."
On that basis, the Trustees submit that there was no possession, use or occupation by the relevant Virgin companies of Aircraft Objects under any pre-appointment leases at any relevant stage following expiry of the Second Extension Orders, being the period of possession and use under the Aircraft Protocol Agreements, and no amounts were payable under any pre-appointment leases in the period attributable to possession and use of the Aircraft Objects under and for the duration of the Aircraft Protocol Agreements.
Mr Rich responds by again drawing attention to the terms of s 443B of the Act, and the references in that section to a company continuing to use or occupy property "under an agreement made before the administration" and to "amounts payable by the company under the agreement." That language, of course, highlights the question whether an amount was payable by the company under that agreement, since the Plaintiffs do not contend that, for example, the administrator would be required to pay rent under the section if the company was then occupying or suing the property on the basis that no rent was payable. Mr Rich submits that such an agreement would not be "enforceable" against the company after the administration has begun, by reason of ss 440B and 440D of the Act. That submission neglects the fact that both of those provisions do not prevent enforcement, with the administrator's consent or the Court's leave and, in any event, the more fundamental issue here is not any statutory limitation on enforcement during an administration but the restriction on the aircraft lessors' right to payment under the pre-appointment aircraft leases, by the terms of the Aircraft Protocol Agreements.
Mr Rich submits that, by contrast with Edelsten, the phrase "payable by the company under the agreement" cannot require that action could be taken against the company to recover payment, given the terms of ss 440B and 440D, because that would deprive s 443B of "any operation". That proposition requires qualification, since a right to payment would arguably still be enforceable, if it could be enforced by the administrator's consent or the Court's leave, but it is also not apparent how it would assist the Plaintiffs if an amount is not enforceable (or payable), not by reason of a statutory stay, but by reason of an agreement that it need not be paid at the relevant time. Mr Rich's further submission that the section is directed to "amounts that would be recoverable by an action under the company, if it were not in administration", under an agreement made before the administration highlights the difficulty for the Plaintiffs if such amounts would not then be recoverable under the aircraft leases. Mr Rich then addresses the several cases to which I have referred above and submits that Edelsten and Glass were decided in a different statutory context, and repeats the proposition that I noted above, that an amount is "payable" if it "would be recoverable" (implicitly, under the relevant agreement) if the company were not in administration.
Mr Rich also submits that the cases as to the meaning of "under an agreement" are of limited assistance in respect of s 443B of the Act. I am not persuaded by that submission, where a phrase of ordinary usage would ordinarily be expected to have a consistent meaning, unless context or any statutory policy displaces that meaning. Mr Rich also submits that the source of the administrator's liability is under s 443B rather than under the agreement, but that submission does not assist the Plaintiffs where that statutory liability only arises if rent or other amounts are "payable by the company under the agreement" as attributable to the relevant period. For completeness, Mr Rich also referred to two cases referring to the similar phrase used in s 419A(4) of the Act and Silvia to which I referred above.
Mr Arnott in turn addressed the scope of s 443B generally, which I have addressed above, and submitted that the KLG Plaintiffs contend that an amount "payable by the company under [an] agreement" in s 443B(2) means "an amount arising from a payment obligation sourced in an agreement entered into before the administration". The expanded concept of "arising from" adopted in this submission is not supported by the phrase "payable … under", and would lead to the odd result that an amount could be treated as payable under an agreement, although the parties had agreed that it would not be payable under that agreement, so long as it "arises from" that agreement. Mr Arnott also submits that an amount should be treated as "payable" if it accrues as a result of possession of the leased property, although the statutory scheme precludes the lessor "enforcing those amounts" during the administration. I have addressed Mr Rich's similar submission above. It seems to me that this submission does not sufficiently recognise the need for a liability to be "payable" under the relevant agreement, even apart from the administration, and (like Mr Rich's similar submission) does not assist the Plaintiffs if an amount was not "payable" under the aircraft leases by reason of the standstill arising under the Aircraft Protocol Agreement, rather than by operation of any statutory stay on enforcement. Mr Arnott also urges the need for caution in applying the meaning given to "payable" in other contexts in this context, a matter that I also addressed in dealing with Mr Rich's similar submission above, and also seeks to distinguish the case law to which I have referred above.
Mr Arnott also submits that amounts were here "payable" because they were "owing or due under the leases, whose operation throughout the standstill period was persevered by the [Aircraft] Protocol Agreements."" That submission seems to me to elide the distinction between an amount that is "payable", on the one hand, and an amount that is not payable but continues to accrue on the basis that it need not be paid, on the other. Mr Arnott also refers to the cases which I have addressed above as to when an amount is "payable" under an agreement and submits that:
"the company's obligation to pay the priority amounts is so sourced in a pre-administration agreement, because it arises by reason of the clauses requiring the payment of rent (and other amounts) in the pre-administration leases. As noted already, the Plaintiffs do not understand this to be controversial. The obligation to pay those amounts cannot arise under the [Aircraft] Protocol Agreements, which contain no provisions for the payment of those amounts. Instead, the Protocol Agreements preserved the operation of the pre-administration leases, though they were stood still during the period of the administration."
The reference to "priority amounts" in this submission assumes that the question as to the administrators' personal liability under s 443B of accrued rent under the aircraft leases, then subject to a standstill under the Aircraft Protocol Agreements, is determined in the Plaintiffs' favour. It seems to me that this submission also does not assist the Plaintiffs, where any obligation to pay rental under the aircraft leases was, as Mr Arnott recognises, subject to the standstill in the Aircraft Protocol Agreements; the obligation to pay Adequate Protection Payments arose under the Aircraft Protocol Agreements, which were post-administration agreements; and the amounts payable under those Agreements were paid, leaving the balance of accrued rent under the leases to be proved against the Trust.
The KWM Plaintiffs in turn adopt the supplementary submissions made by Mr Rich for the NRF Plaintiffs, which I have addressed above.