While it may be self-evident, in these difficult economic times participants in the aviation sector, from airlines to owners, leasing companies to financiers and airport operators are all faced with continuing challenges of contract performance, and implementation. There have been a number of recent judicial decisions relevant to the aviation sector on contract interpretation and this paper briefly looks at a number of such cases and their impact and importance to this sector.
Transaction Performance and Implementation
Contract negotiations at any time are challenging. There is pressure on all commercial participants and their representative counsel to cut the best deal but not risk or jeopardise the commercial relationship and bargain, and at the same time have due regard to the competing agendas and timetables for completion and delivery of the participants. In this context it is not unusual for pressure to be brought to bear on counterparties to vary absolute obligations to obligations to be complied with on basis of best or reasonable efforts or endeavours and to reduce or negate absolute restrictions to lesser requirement of a consent provision.
The focus and commercial pressure to be seen to get the deal done at transaction entry stage often can lead to imperfectly drafted contracts where the implications of such concessions and compromises are not fully assessed or understood by principals. This can lead to issues upon implementation and enforcement of such agreements and recourse to rights and remedies.
(a) The meaning of "Airworthiness" and its consequences for aircraft leases In ACG Acquisitions XX LLC v. Olympic Airlines (in Liquidation)1 the airline defendant was estopped from alleging that the aircraft, a Boeing 737-300 aircraft was not in the condition required by the Lease because of representation contained in a signed certificate of acceptable.
Briefly the facts were that prior to delivery to Olympic the aircraft was leased by ACG to Air Asia. As is usual the timing of redelivery was synchronised to minimise time the aircraft was AOG prior to delivery to Olympic. This had an impact on redelivery conditions and timing. Following delivery to Olympic certain defects were discovered including the concerns about the condition of flight control cables and corrosion. This resulted in the aircraft being taken out of service and put into a maintenance repair facility for repair. Subsequently the defendant airline filed for bankruptcy.
ACG claimed the payment of rent and maintenance reserves in the sum of approximately US$4.6 million plus damages, alternatively for conversion in amount of approximately US$6.9 million, less what it received from subsequent lessee, plus the cost of deregistering and exporting the aircraft in order to mitigate its loss.
Olympic counterclaimed damages for breach of contract by ACG in failing to deliver the aircraft in the contracted condition, seeking approximately €6.8 million in respect of cost of hiring substitute aircraft and costs related to attempting to make the aircraft airworthy. Mr Justice Teare in his judgment considered the meaning of airworthiness because it was a major debate between the parties. Neither party were able to refer to any authorities which considered the meaning of airworthiness.2 He stated, an appropriate test of airworthiness is: "Would a prudent operator of an aircraft have required that the defect should be made good before permitting the aircraft to fly, had he known of it. If he would the aircraft was not airworthy."
He further commented that "in the context of a lease of an aircraft intended for the safe carriage of passengers it seems to [me] that the reasonable lessor and lessee would each expect the requirement in the lease that the aircraft be airworthy on delivery to relate to the actual condition of the aircraft and not the assumed condition." On findings of fact, the aircraft was not in an airworthy condition on delivery or in a condition for safe operation.
ACG contended that Olympic was precluded from alleging that ACG delivered the aircraft in breach of the Lease (Schedule2) based on the signed Certificate of Acceptance on 2 main grounds:
- Pursuant to Clause 7.9 of the Lease the statement in the Certificate of Acceptance that the aircraft complies with the delivery condition is agreed to be conclusive proof of that statement.
- Alternatively, ACG argued that that statement gave rise to an estoppel in accordance with the ordinary principles of English law.
The effect of ACG's arguments is that provisions of the lease preclude a claim by Olympic for damages for breach by ACG of its obligation to deliver the aircraft in the condition required by the lease.
Teare J stated that the effect of wording in Clause 7.9 was to waive any right the lessee might otherwise have had under the lease to refuse to accept the aircraft (Clause 3.4). However it did not purport to waive any right the lessee might have to claim damages of the lessor's obligation to deliver the aircraft in the requisite condition. Those rights were separate and distinct.
Notwithstanding this Teare J went on to consider the terms of the Certificate of Acceptance and noted that it contained a clear and unequivocal representation that the aircraft and the aircraft documents "complied in all respects with the condition required at delivery under Section 4.2 and Schedule 2 of the Agreement, except for the items, if any, listed on the attached Annex 2 (the "Discrepancies")". This representation was significant.
He concluded that,
"The fact that the representation is question is not, on the true construction of clause 7.9, to be treated as conclusive proof of the truth of the representation does not preclude the representation from giving rise to an estoppel. The effect of clause 7.9 is that the delivery of the certificate of acceptance operates as conclusive proof of the matters listed in that clause. That is a contractual right which arises independently of the principles of estoppel."
Arguments put forward by Olympic was that the representation contained in the certificate of acceptance was given and understood as "... simply confirming that the aircraft was in the requisite condition in so far as the inspections had allowed it to form any meaningful view and in so far as they were reasonable capable of revealing any defects or discrepancies".
Teare J noted that there were no words of limitation to be found in the representation given by Olympic and on the contrary, the scope of the statement was that the aircraft complied "in all respects" with clause 4.2 and Schedule 2 was only limited by the defects set out in Annex 2 to the certificate.
Teare J in his judgement stated that "it is necessary to bear in mind that commercial men prefer certainty to doubt". In referring to the requirement to have a certificate of acceptance signed prior to ACG signing a certificate of redelivery, he commented that
"the reasonable man with knowledge of the background would be surprised if the statement in the certificate did not have consequences, and that Olympic having formally stated that the aircraft complied in all respects with the condition required at delivery was nevertheless free to allege to the contrary."
Teare J was persuaded that it would be inequitable for Olympic to be permitted to allege, contrary to the representation, that the condition of the aircraft on delivery did not comply with the lease, notwithstanding that the effect of such an estoppel is to prevent Olympic from pursuing its claim for substantial damages for breach of ACG's obligations to deliver the aircraft in the required condition.
On the facts here the delivery to Olympic was timed to coincide with redelivery from Air Asia and the fact that ACG relied on Olympic representation to its detriment by giving up its right to refuse redelivery was sufficient, to make it inequitable for Olympic to go back on its representation.
ACG claim as summarised above was a claim in debt and damages and Olympic put forward 3 defences:
- No liability to pay rent: Teare J ordered that Olympic was estopped from contending that delivery had not taken place in accordance with the terms of the lease and Olympic had irrevocable and unconditionally accepted and leased the aircraft so that rent became due.
- Total Failure of consideration: Olympic was unable to establish a total failure of the performance for which it had bargained.
- Frustration: Olympic contended that the lease was frustrated by the withdrawal of the airworthiness certificate by the relevant Aviation Authorities and/or by their refusal to renew during the lease. This gave rise to consideration of the "hell or high water clause" or Absolute provisions (clause 5). The need to rely upon the doctrine of frustration only arises in the event that Olympic is unable to allege a breach of the lease by ACG and where the circumstances in which performance would be called for would render it a thing radically different from that which was undertaken by the contract. Teare J was not satisfied in context of a 5 year dry lease where only one year had elapsed that the lease was frustrated.3
ACG's was entitled to judgement on its claim and Olympic's counterclaim was dismissed. As Olympic's is currently in liquidation it remains to be seen if this decision will be appealed.
(b) Use best endeavours, all reasonable endeavours...
Phrases such as "best" efforts or endeavours; "reasonable" efforts or endeavours; "commercial practicable" efforts or endeavours pose a challenge for legal draftsmen as to the scope and effect of the obligation which they impose on contract parties. In context of banking transactions such phrases may appear in covenants and undertakings in facility agreements to manage and monitor borrower performance based on agreed division and allocation of responsibility of project task e.g. bank as provider of finance, property developer to develop green field site into commercial unit. The diligent application (or non-application) by borrower to perform and/or complete tasks on best endeavours basis may ultimately have significant cost implications for lenders when implementing a recovery strategy.
In Jet2.com Ltd v. Blackpool Airport Limited4 the Court of Appeal ordered that the content of a contractual obligation to use "best endeavours to promote" another person's business was not so uncertain as to be incapable of giving rise to a legally binding obligation, although it might be difficult to determine whether there had been a breach of it. The contract parties were a budget airline and a regional airport.
In Jet2.com the Court of Appeal held that an obligation to use best endeavours or all reasonable endeavours was not regarded as too uncertain to be enforceable, provided that the object of the endeavours could be ascertained with sufficient certainty. There was an important difference between a clause whose content was so uncertain that it was incapable of creating a binding obligation, and a clause which gave rise to a binding obligation, the precise limits of which were difficult to define in advance. The defendant claimed that it was entitled to refuse to accept aircraft movement outside normal hours if that caused it to incur a loss. The judge held that to what extent a person who had undertaken to use his best endeavours could have regard to his own financial interests, would depend very much on the nature and terms of the contract5. In this instance, scheduling of aircraft movements outside normal hours was seen as essential to the plaintiffs business and therefore fundamental to the agreement. The object of the endeavours and the range of possible endeavours must be considered together in order to decide whether there was a justiciable obligation.
CPC Group Limited v Qatari Diar Real Estate Investment Company6
o ffers some clarification on the interpretation of the extent of the "endeavours" obligations.
Qatari Diar Real Estate Investment Company (QD) and CPC Group Limited (CPC) were joint venture partners for a project to develop the former Chelsea Barracks site in London. The parties entered into a sale and purchase agreement, pursuant to which QD owed CPC various obligations, including an obligation to "use all reasonable but commercially prudent endeavours to enable the achievement of the various threshold events and Payment Dates" (Clause 7.1 of the SPA). In June 2009, QD withdrew the planning application to redevelop the site following the intervention of the Prince of Wales and the resulting public and political objection. This effectively delayed one of the Payment Dates under the SPA.
One of the questions the judge was asked to consider was whether the withdrawal of the planning application was a breach of QD's obligation to "use all reasonable but commercially prudent endeavours".
The judge rejected the submission that QD's behaviour was in breach of this obligation and having considered the Court of Appeal's decision in Yewbelle Limited v London Green Developments 7 found that:
- the wording "all reasonable but commercially prudent endeavours" did not equate to a "best endeavours" obligation; and
- the obligation to use "all reasonable endeavours" does not always require the obligor to sacrifice his commercial interests. Whilst in CPC v QD the inclusion of the wording "but commercially prudent endeavours" helped clarify the obligation, it was not determinative to the judge's decision.
(c) Consent Provisions
In Porton Capital Technology Funds v. 3M UK Holdings Ltd & 3M Company8 the English High Court considered the concepts underlying the requirement to seek and obtain consent on the one hand, and the countervailing measure of other parties entitlement not to consent. The phrase "subject to consent, such consent not to be unreasonably withheld" is regularly used by lawyers is often viewed as an innocuous concession that demonstrates the reasonability. The Porton Capital case considered the consent concept9.
The High Court in England held that vendors of a business on an earn-out basis had not unreasonably withheld their consent to the cessation of the business and were entitled to damages for breach by the purchaser of its contractual obligations to diligently seek regulatory approval for the product and to market it actively. Such judgment and order was made in context where the defendants argued that they had always acted in good faith and in accordance with the share purchase agreement; they were entitled to terminate business in circumstances where they had requested consent, it was not forthcoming and they had offered compensation.
The Court analysed the commerciality surrounding the business in context of claim for damages and while a number of issues were considered there was one central to the case: Did the vendors act unreasonably in withholding consent from the Defendants to terminate the business in late 2008?
In answering this question, the Court gave detailed consideration to the meaning of the phrase itself and where the onus lies in proving whether withholding consent was reasonable. In considering the issue, the Judge agreed with the claimants who had highlighted the following principles:
- the onus is on the party claiming that a refusal is unreasonable to demonstrate its unreasonableness;
- it is not for the party who may withhold consent to demonstrate that it was right or justified, merely that it was reasonable in the circumstances;
- in determining what is reasonable, the person granting/withholding consent are entitled to have regard to their own interests; and
- there is no requirement on the person granting/withholding consent to balance their interests with the other party or to have any regard to the costliness withholding consent may have, unless the balance is completely disproportionate.
In summary, the party requesting consent must show that the other party's refusal is unreasonable, which is a question of fact. The refusing party is not obliged to show that its refusal is right, simply that it was reasonable in light of the surrounding facts. It is not required to balance its own interests with those of the other party, unless the balance is completely disproportionate.
In light of the evidence brought before the Court, the Judge found that the claimants were entitled to damages, which were calculated at a level which at approximately $2m which was twice that of the original 3M compensation offer.
On the basis of general principles, it is likely that the question of reasonableness will be one of fact to be decided by a Court objectively in each individual circumstance, but with regard to the position that the onus is on the party seeking consent to demonstrate the unreasonableness of the decision. This may be a more difficult hurdle for a claimant.
The decline in asset values for all commercial enterprises has an impact on financial and other covenants in contracts. Non-compliance with balance sheet tests and other financial covenants are a cause of grave concern in the context of continued requirements to meet objective solvency tests and where companies continue to trade notwithstanding what might be considered to a "technical insolvency" based on asset valuations versus liabilities. This issue is relevant in structured finance vehicles involved in aircraft financing and securitization structures. The legal analysis based on statutory interpretation and judicial decisions have recently come in for renewed focus in England.
The statutory test for insolvency is where a company is deemed to be unable to pay its debts, as provided for in Section 214 Companies Acts 1963. Pursuant to section 213 (e) a company may be wound up by the court where it is unable to pay its debts.
Under section 214 (c) a company is deemed to be unable to pay its debts "If it is proved to the satisfaction of the court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company."
The English court of appeal recently held that a company should not be held to be balance sheet insolvent on the sole basis that its liabilities (including contingent and prospective liabilities) exceed its assets and it rejected mechanistic balance sheet test for insolvency.
In BNY Corporate Trustee Services v Eurosail & Ors10, the Court of Appeal considered in detail, for the first time, the construction of section 123 of the UK Insolvency Act 1986, which sets out circumstances in which a company can be deemed to be unable to pay its debts. The relevant portions of section 123 provide as follows:
"..[a company shall be deemed to be unable to pay its debts ] ...
(1)(e) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due."
(2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of liabilities, taking into account its contingent and prospective liabilities." [ emphasis added to highlight difference when compared to section 214 Cos Act]
The previous position in English law was set down in Byblos Bank SAL v Al-Khudhairy, which considered section 223(d) of the English Companies Act 1948 (a predecessor of section 123 of the Insolvency Act 1986), the English Court of Appeal held that it must assess the ability of a company to pay its debts on its assets as they currently stood and that the prospect of a company acquiring further assets before contingent or prospective debts became due went only to the discretion of the court in deciding whether or not to make an order winding up the company.
In Eurosail the court held that Byblos was of limited assistance in construing section 123 of the Insolvency Act 1986, as the provisions were phrased differently.
The Irish jurisprudence in relation to section 214(c) of the Companies Act 1963, which is in identical terms to section 223(d) of the English Companies Act 1948, is substantially at variance with Byblos. The leading Irish case on the test for solvency is re: Creation Printing11, a case decided in the context of the validity of a floating charge under section 288 of the Companies Act 1963. In that case the Supreme Court held that:
"Solvent" and "insolvency" are ambiguous words. It has now been established by the decided cases that, for the purposes of section 288 of the Act of 1963, the test to be applied in determining this question is whether immediately after the debenture was given, the company was able to pay its debts as they became due. The question is not whether its assets exceed in estimated value its liabilities, or whether a business man would have regarded it as solvent..." [Emphasis added]
Accordingly, it appears that in importing the phrase "as they became due" into the test for insolvency, the Irish courts foreshadowed the implementation in section 123 of the English Insolvency Act 1986 and in so doing adopted what is perhaps a more commercially reasonable position than the judgment in Byblos.
In Eurosail the Court considered first the application of the balance sheet test for insolvency set out in section 123(2) of the Insolvency Act 1986.
It considered, among other things the following paragraph from the Cork Report, which fed into the white paper that became the Insolvency Act 1986: "A balance has to be struck between the right of an honest and prudent businessman, who is prepared to work hard, to trade out of his difficulties if he can genuinely see a light at the end of the tunnel, and the corresponding obligation to 'put up the shutters', when, by continuing to trade, he would be doing so in disregard of those business considerations which a reasonable businessman is expected to observe."
The court held that the application of section 123(2) did not simply depend on whether the liabilities of a company exceeded its assets. Rather its application was limited to cases where, although a company was currently able to pay its debts as they fell due, it was, in reality, clear that it had reached the point of no return.
The court also held that the figures set out in the audited accounts of a company were likely to be historic, based on accounting conventions, overly conservative and rarely represented the "only true and fair value". Accordingly, it was for a court in each case to decide if a company had "reached a point of no return".
The court declined to set out detailed guidance on the application of the section but noted that "the closer in time a future liability is to mature, or the more likely the contingency which would activate a contingent liability, and the greater the size of the likely liability, the more probable it would be that section 123(2) will apply".
Despite the differences between the applicable English and Irish legislation, this judgment gives some comfort to directors that they may continue to trade in circumstances where the company can pay its debts as they fall due and where the directors believe on reasonable grounds that they can trade out of a net liability position on the balance sheet.
It appears to have moved the balance sheet test of insolvency from a mechanistic test to an objective but imprecise question of fact as to whether a company has "reached the point of no return". It also provides some welcome guidance on how account should be taken of contingent and prospective liabilities in an assessment of solvency.
Insolvency Proceedings – s. 280 Companies Act
Following commencement of winding up, a creditor claim in liquidation is generally determined by the liquidator to be admissible or not. Liquidation of a company is terminal and can be simply described as a process of collective enforcement of debts12. In circumstances where a lender has an unsecured claim, or is seeking to recover as part of the general body of creditors then issues of relevance may include claims by other group entities and claims litigated outside of Ireland albeit in context of insolvency.
Section 280 (1) Companies Act 1963 gives power to a liquidator or contributory or creditor to apply to the court to determine any question arising in the winding up of a company. The court, pursuant to section 280 (2), if satisfied that the determination of the question or the required exercise of power will be just and beneficial, may accede wholly or partially to the application on such terms as it thinks fit or may make such other order on the application as it thinks just.
In the matter of Flightlease (Ireland) Limited (In Voluntary Liquidation) & Cos Act 13 the Supreme Court on 23 February 2012 delivered a judgment addressing a number of issues arising on liquidation of Flightlease including;
- Whether a claim by bankruptcy officer of Swissair (another group member) for repayment of a monetary sum, is categorised under Irish law as a claim in the liquidation, or as a claim in personam;
- Would an order of a foreign court - in this instance Swiss Courts - be excluded from enforcement in Ireland as arising from a proceeding in bankruptcy or insolvency; and
- Whether common law rules on conflicts of laws include or permit recognition of an order of a foreign [Swiss] court on the basis of a "real and substantial connection test" between the entity and the foreign jurisdiction.
Flightlease AG is the holding company of Flightlease. Each Flightlease entity, Swissair Schweizerifche Luftverkehr-Aktiengesellschast in Nachlassliquidation ("Swissair") and other entities were members of S Air Lines, the subholding company of S Air Group ("S Air"). The S Air Group had a complex corporate structure involving numerous entities in a number of jurisdictions including Ireland. S Air Group and Flightlease AG were in the process of debt restructuring liquidation in Switzerland.
Volare Airlines Spa was an Italian airline who contracted for services from various members of the S Air Group. It was at all material times a creditor of (1) Swissair, (2) to Flightlease and (3) other companies in the S Air Group. By June 2001 Volare was in arrears in payments to Flightlease and other companies in the S Air group. From that date, S Air retained payments due to Volare with the intention of transferring amounts to companies in the S Air group owed money by Volare in discharge of that indebtedness. On 20 September 2001 CHF8,000,000 from the amounts retained were transferred to Flightlease. S Air in effect applied multi-party set off and distribution amongst its group of companies.
On 13th July 2004 a resolution for the winding-up of Flightlease was passed and joint liquidators were appointed. The payment by S Air to Flightlease which related to monies otherwise due by S Air to Volare, and paid by S Air to Flightlease became the basis of two sets of proceedings in Switzerland and Ireland.
- Swissair had initially submitted the claim in the liquidation of Flightlease in May 2005 and it was rejected by the joint liquidators of Flightlease in October 2005. Swissair did not avail of right to apply to Irish courts pursuant to section 280 Companies Acts 1963 and instead, without notice to Flightleases' liquidators' instituted proceedings in the Swiss courts seeking the return of certain monies paid by Swissair to Flightlease. The existence of such proceedings was not revealed until after rejection of the proof of debt.
- Promptly following service of Swiss proceedings the liquidators of Flightlease applied to the High Court in Ireland pursuant to section 280 seeking various reliefs including an order to distribute assets of Flightlease. Creditors who acknowledged indebtedness and the joint liquidators of Flightlease entered into a wind down agreement dated 22 December 2003, Swissair was not a party to the write down agreement. The Claim by Swissair for the repayment of the sum of CHF8,000,000 was the only claim in respect of Flightlease preventing the distribution of Flightlease assets in accordance with the wind down agreement.
Questions arose between the Irish and Swiss liquidators as to whether a judgment obtained in the Swiss proceedings (as per 1 above) would be recognized and enforced by the courts of Ireland and an early decision on such question was required by the Irish liquidators to enable them to decide whether or not to participate in the Swiss proceedings. Claim in liquidation or Claim in personam:
One of the central issues is whether the claim sought to be maintained in the Swiss proceedings is to be categorised under Irish law as a claim (1) in the liquidation or (2) in personam. The Flightlease liquidator application pursuant to section 280 was based on Irish conflicts of law rules that a question as to whether a claim is a provable debt is one that falls to be determined in Ireland in accordance with the Irish rules as to the treatment of claims in the winding-up of a company and as to the lodgment, verification and admission of such claims.
In the High Court, the trial judge, Clarke J. rejected the arguments made by Flightlease liquidators and accepted a statement of common law in Ireland from Dicey as follows:
"...claims by or against the insolvent person or entity are determined, as a matter of procedure, within the insolvency process, orders made as a result of such claims could not by that fact alone lose their status as judgments in personam... it is the insolvency process itself, involving the gathering in of assets and their distribution in accordance with the appropriate insolvency law, that is the process which is not properly regarded as in personam"
On appeal before the Supreme Court, Finnegan J., stated that the appeal concerned a single issue relating to Jurisdiction in Personam. He referred to the case of In Re Lines Bros Limited14 Brightman LJ said:-
"If the creditor petitions to wind-up a company, or claims in a liquidation initiated by others, he is not engaged in proceedings to establish liability or the quantum of the liability ...but to enforce the liability.... The liquidation of an insolvent company is a process of collective enforcement of debts for the benefit of the general body of creditors. Although it is not a process of execution, because it is not for the benefit of a particular creditor, it is nevertheless akin to execution because its purpose is to enforce, on a pari passu basis, the payment of the admitted debts of the company"
Finnegan J was satisfied that In Re Lines Bros Limited represents the common law in Ireland and he indicated that the effect of the distinction is that while liability may be established within an insolvency or in separate proceedings the order made in either case is not an order within the bankruptcy which is concerned exclusively with the process of collective execution but rather an in personam or in rem judgment which will be recognised and enforced only in accordance with rules of conflict of laws.
He concluded that the effect of any order made in the Swiss proceedings will be to require repayment by liquidators of Flightlease to Swissair of a sum of money. The nature of that order is that it is an order in personam. "Insolvency proceedings are concerned with collective execution. They are not concerned with establishing liability." The purpose of the Swiss proceedings is to establish liability and such an order will only be enforced in Ireland if Flightlease is present in Switzerland at the commencement of the action or has submitted to jurisdiction and neither was the case.
Irish Rules on conflict of laws: Enforcement of a foreign judgment requiring the liquidators of Flightlease to pay a sum of money falls to be determined under rules of conflict of laws which are set out in Dicey Conflicts of Law Rule 3615
"Rule 36. Subject to rules 37 to 39, a court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition in the following cases:
First case. If the judgment debtor was, at the time the proceedings were instituted, present in the foreign country.
Second case. If the judgment debtor was claimant, or counterclaimed in the proceedings in the foreign court.
Third case. If the judgment debtor, being a defendant in the foreign court, submitted to the jurisdiction of that court by voluntarily appearing in the proceedings.
Fourth case. If the judgment debtor being a defendant in the original court, had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings to submit to the jurisdiction of that court or of the courts of that country."
On the facts Swissair could not satisfy the evidential hurdles under Rule 36. Accordingly Swissair contended that it was open to the High Court in Ireland to apply in the present case a real and substantial connection test either instead or in conjunction with the test in Dicey first case and referred to two decisions of the Supreme Court of Canada which held that the traditional common law test has been replaced by a "real and substantial connection test"16.
In the High Court Clarke J. set out 6 reasons for holding that the Canadian jurisprudence should not be adopted17 which were upheld by Finnegan J in the Supreme Court and are summarised as: (1) lack of other common law authorities; (2) contrary academic commentary; (3) ability to order affairs based on a view as to the applicable law; (4) common law evolves to meet new circumstances. A gradual evolution enjoys advantages over more rigid statutory regime however due to potential for retrospective effect such change can work an injustice; (5) courts in Ireland cannot engage in alteration of the common which would amount to legislation and (6) no consensus in the common law world as to the need for the change identified in Canada.
In response to Swissair's contention Finnegan J. concluded that "The change contended for by Swissair is of such significance that it would in my opinion exceed the judicial function to re-state the common law in such a way. Such change should be by legislation".
Mr. Justice O'Donnell agreeing with the conclusion and results proposed by Finnegan J. concluded that "notwithstanding the defects of the approach currently embodied in Rule 36 in Dicey & Morris, it is at least predictable. The real and substantial connection test has not received sufficient support in other jurisdictions, is itself so inherently uncertain, and would require such significant alteration of the grounds for refusal of enforcement, that its adoption would not produce any measurable improvement in Irish law, even if it could be achieved by judicial decision alone, which I doubt. Any change in this area, while desirable, would in any event probably require detailed legislation, preferably on a multilateral basis".
The decision of Clarke J., in the High Court was upheld in the Supreme Court.
The fact that the liquidators engaged in litigation, between members of what once was the same international group highlights the significance of accurate and complete documentation and payment arrangements between group companies and related companies so as to minimize creditor disputes and admittance or rejection of claims, all of which ultimately impacts on the potential recovery for the general body of creditors. Upon the commencement of creditor process via debt restructuring and winding-up, each entity is subject to laws of its home jurisdiction including EU and other bilateral treaties and conventions18 and singular focus of liquidator is to recover and collect for general creditors.
1  EWHC 1070 (Comm) (30 April 2012)
2 Teare J considered the meaning of seaworthiness in the context of carriage of goods by sea which is well established
3 Whilst unnecessary, Teare J went on to consider the damages which would have been payable by ACG if the estoppel argument had not succeeded. And in anticipation of possible reversal on appeal, he outlined the findings which he would have made. [para 187-211]
4  EWCA Civ 417. 2 April 2012
5 Yewbelle Ltd v. London Green Developments Ltd  EWHC 3166 (Ch)  1 EGLR 137
6 EWHC 1535 (Ch)
7 See fn 54
8  EWHC 2895 (Comm)
9 Although the phrase "such consent not to be unreasonably withheld" (or delayed) is very commonly used in lending and security documents in Ireland, we are unaware of a similar judicial consideration of the issue in Ireland
10  EWHC 2005 (Ch),  1 WLR 1200
11  IR 353
12 In Re Lines Bros Limited  Ch.1, 20 Brightman LJ
13  IESC 12
14 See fn 66 above
15 Dicey, Morris & Collins, The Conflict of Laws, Rule 36 – Jurisdiction of Foreign Courts at Common Law (1) Judgment in Personam – First Case 14th Edition
16 A number of Canadian cases on this point were considered in support of this argument including De Savoye v Morguard Investments Limited and Credit Foncier Trust Company 3 S.C.R. 1077 and Saldanha & Ors v Ferderick H. Beals & Another  3. S.C.R.416
17 IESC 12 at page 22
18 European Council Regulation (EC) No1346/2000 on insolvency proceedings
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.