Cur. adv. vult.
JUDGMENT
21 December. The following judgments were handed down.
SIR NICOLAS BROWNE-WILKINSON V.-C. This case raises a difficult question as to the interaction between the powers of an administrator of a company appointed by the court under Part II of the Insolvency Act 1986 and the right of an airport to detain an aircraft for unpaid charges under section 88 of the Civil Aviation Act 1982 ("the statutory right of detention"). The case has a wider importance since it is the first in which this court has had to consider the new administration procedure for dealing with insolvent companies introduced by the Insolvency Act 1985 and the rights of such administrator to possession of the assets of the company: but see Air Ecosse Ltd. v. Civil Aviation Authority (1987) 3 B.C.C. 492 where the Court of Session had to consider a different point under the Act of 1986.
The facts
I gratefully adopt the summary of the facts given in the skeleton argument lodged by the administrators.
Paramount Airways Ltd. (Paramount) is a charter airline operating out of several United Kingdom airports including Bristol Airport (Bristol) and Birmingham International Airport (Birmingham).
On 7 August 1989 Paramount was insolvent. Its statement of affairs shows a deficiency as regards creditors on that date of over £11m. Amongst its unsecured creditors on that date were Bristol and Birmingham. Bristol was owed £1,215,889-odd. Of this sum just under £700,000 was owed in respect of landing fees, etc. and just over £500,000 was in respect of fuel. In respect of one of the detained aircraft (G-PATB) £267,000-odd was owed in respect of landing charges, etc. and £201,000-odd was owed in respect of fuel. On the same date, 7 August 1989, Paramount was indebted to Birmingham for £466,000-odd for airport charges. Of these about £160,000 was owed in respect of the aircraft detained by them (G-PATA). On 7 August 1989 none of the aircraft operated by Paramount were at Bristol or Birmingham. It follows that, if Paramount had gone into liquidation on 7 August 1989 neither Bristol nor Birmingham would have had any aircraft capable of being detained under the Act of 1982; they would have been unsecured creditors in the liquidation.
On 7 August 1989 an administration order was made by Warner J. under section 8 of the Act of 1986. The administration order was made for the following purposes: (a) the survival of Paramount and the whole or any part of its undertaking as a going concern; (b) the approval of a voluntary arrangement under Part I of the Act of 1986; and (c) a more advantageous realisation of Paramount's assets than would be effected on a winding up. Two chartered accountants were appointed administrators under the order.
At the date of the administration order Paramount was the licensed operator of certain aircraft including an MD-83(G-PATB), a Boeing 737 and an MD-83(G-PATA). Paramount was operating these aircraft under a sub-lease from Irish Aerospace Leasing Ltd. under leases expiring in about 1994. Irish Aerospace Leasing Ltd. was itself the lessee of those aircraft. Air 2000 Ltd., the third respondent to this appeal, was the petitioning creditor.
On 7 August 1989 the administrators entered into an arrangement with Bristol whereby it was agreed that Paramount's aircraft would be permitted to land and depart from Bristol Airport in consideration of Paramount paying Bristol's standard charges. It is not alleged that this constituted a waiver by Bristol of its rights to detain the aircraft for charges incurred prior to the administration order. There was no similar arrangement made with Birmingham. After 7 August 1989 the administrators caused Paramount to continue its trading. Since that date Paramount has flown over 30,000 passengers to foreign destinations from 11 airports in the United Kingdom, including Bristol and Birmingham. In respect of all these flights £6,700,000 has been paid by Paramount in respect of airport charges and fuel to all the airports used, including substantial sums to both Bristol and Birmingham. All airport charges which have been incurred during the course of the administration, including all airport charges payable to Bristol and Birmingham, have been paid by the administrators. The debts now due to Bristol and Birmingham are the same debts that were due on 7 August 1989 in respect of charges incurred prior to the making of the administration order on 7 August 1989.
By the middle of October 1989 the administrators had formed the view that there was a real prospect of a sale of the business of Paramount being achieved on terms which would be beneficial to the general body of Paramount's creditors. Accordingly, notices were sent out to creditors calling the meeting required under section 23 of the Insolvency Act 1986 for Friday 3 November 1989. On 30 October 1989 a meeting took place between representatives of four airports (including Bristol and Birmingham) at which an understanding was reached that none of them would exercise any power of detention until after the creditors' meeting on 3 November 1989.
On 2 November 1989 both Bristol and Birmingham became anxious that, as the holiday season was coming to an end, the aircraft might be about to leave the United Kingdom or otherwise be routed so as not to return to their respective airports. On that date there were two Paramount aircraft at Bristol, G-PATB and the Boeing 737. Bristol applied ex parte to Harman J. for leave to detain the two aircraft and such leave was granted over the hearing of an inter partes application on Monday 6 November 1989. Bristol permitted the Boeing 737 to leave Bristol and fly to Australia. G-PATB was detained and remained detained until 14 November 1989.
On the same day, 2 November 1989, Paramount had aircraft G-PATA at Birmingham. This aircraft had charter commitments with a German firm for weekend return flights. In the course of the afternoon of 2 November Birmingham learned of the order made by Harman J. In conversations with a representative of the administrators, Birmingham was informed that they could not detain G-PATA without leave of the court. Without obtaining the leave of the court, on the same afternoon Birmingham parked a lorry laden with concrete in front of G-PATA. At approximately 6 p.m. that evening the captain of G-PATA arrived at Birmingham and was served with a "lien notice." At about 8 p.m. on 2 November Birmingham obtained ex parte from Hodgson J. an order giving Birmingham leave to detain G-PATA over the hearing of an inter partes application on Monday 6 November, before the Companies Court in London. G-PATA was detained by Birmingham down to 14 November 1989.
The meeting of Paramount's creditors summoned by the administrators took place on 3 November 1989. An offer for Paramount's business and assets was put before the meeting of creditors by the administrators. The meeting was attended by representatives from both Bristol and Birmingham. The offer was approved in principle by the creditors without dissent. The proposed sale was incapable of performance if the aircraft remained detained.
The applications for leave to detain by Bristol and Birmingham came before Harman J. in the Companies Court on Monday 6 November 1989, the respondents being the administrators, Irish Aerospace Leasing Ltd. and Air 2000 Ltd. The matter was argued for three days but, given the urgency of the matter, Harman J. had to give an immediate judgment which he delivered on Friday 10 November 1989. The judge held that the airports required the leave of the court under section 11 of the Act of 1986 before exercising their statutory right to detain the aircraft and, in the exercise of his discretion, refused to grant such leave. Birmingham and Bristol appeal against that decision.
Bristol and Birmingham immediately applied to this court to safeguard their position pending appeal. This court directed that the appeal should be heard on 21 November 1989 and that in the interim Bristol and Birmingham should have leave to detain the two aircraft until after the hearing of the appeal or until such earlier time as the sum of £350,000 should be paid into court or otherwise secured, the parties having agreed that in the event that £350,000 was so paid or secured all rights and claims of the airports in respect of the two aircraft should be transferred to that sum. The sum of £350,000 was so provided and the detention of the aircraft ceased on 14 November 1989.
Leave to appeal has been given by Harman J.
The statutory right of detention
Section 88(1) of the Civil Aviation Act 1982 provides:
"Where default is made in the payment of airport charges incurred in respect of any aircraft at an aerodrome to which this section applies, the aerodrome authority may, subject to the provisions of this section - (a) detain, pending payment, either (i) the aircraft in respect of which the charges were incurred (whether or not they were incurred by the person who is the operator of the aircraft at the time when the detention begins); or (ii) any other aircraft of which the person in default is the operator at the time when the detention begins; and (b) if the charges are not paid within 56 days of the date when the detention begins, sell the aircraft in order to satisfy the charges."
Subsection (3) provides that the aircraft shall not be sold without the leave of the court which must first be satisfied that a sum is due for airport charges, that default has been made in payment of such charges and that the aircraft is liable for sale under the section. Subsection (4) requires notice of any application for leave to sell to be given to persons whose interests may be affected by such sale so as to afford them an opportunity of becoming parties to such application. Subsection (6) provides that the proceeds of sale are to be applied in paying any customs or excise duty chargeable, the expenses of detaining, keeping and selling the aircraft, the airport charges which are unpaid and charges due by virtue of section 73 of the Act (which relate to charges for Eurocontrol). The surplus proceeds of sale are to be paid to or among the persons whose interests in the aircraft have been divested by reason of the sale. Subsections (7) and (8) provide that the power of detention and sale is exercisable in relation to the equipment on the aircraft and any stores and aircraft documents carried on the aircraft. Under subsection (9) the power to detain is expressly made exercisable not only on the occasion on which the charges have been incurred but also on any subsequent occasion when the aircraft is on the aerodrome on which the charges were incurred or on any other aerodrome owned or managed by the same authority.
There are two points which should be noted at this stage. First, it is common ground that the sale of an aircraft under this section operates so as to divest all interests in the aircraft so as to vest full legal and equitable title to the aircraft in the purchaser. Even where the charges have been incurred by a person who is not the full legal and equitable owner of the aircraft (such as Paramount in this case) the effect of a sale will be to divest the ultimate owners of the aircraft of their title. Their compensation, if any, lies in the direction under subsection (6) to apply the surplus proceeds of sale "among the person or persons whose interests in the aircraft have been divested by reason of the sale." It follows that the powers under the section provide a strong inducement to those ultimately interested in the aircraft to discharge the debts for airport charges, even though they have not incurred them.
Second, subsection (1)(a)(ii) requires one to determine "the time when the detention begins." In Havelet Leasing Ltd. v. Cardiff-Wales Airport Ltd. (unreported), 29 June 1988, Phillips J. held that, in order to exercise the statutory power of detention, the airport had to do some overt act evidencing the act of detention. He said:
"I hold that detention by an airport authority must be begun by some overt act. Such act need take no particular form. A simple declaration that the aircraft was detained, had it been made to [the operator], would have sufficed; so would an administrative act that would de facto have prevented the aircraft from being flown from the airport."
In that case he held that the fixing to the aircraft of a "lien notice" was the act of detention. That decision has not been challenged by either side in the present case and in my judgment is correct.
Administration procedure
Administration orders were introduced by the Insolvency Act 1985 following a report by a committee on insolvency law and practice under the chairmanship of Sir Kenneth Cork. That report identified a shortcoming in the law relating to insolvent companies. In a number of cases, companies were forced into liquidation even though they were carrying on potentially viable businesses. Such businesses were destroyed for want of a procedure whereby they could be conducted with a view either to restoring the financial health of the company or of enabling the businesses to be sold as a going concern. If the business of the company could be sold as a going concern, it would normally command a substantially higher price than on break-up. The Cork Report contrasted that position with the case where a creditor holding a floating charge had appointed a receiver and manager who was able by continuing to run the company's business to achieve the desired result to the benefit of not only the secured creditors but also the unsecured creditors and shareholders.
The Cork Report also pointed to a separate mischief, viz. the inability in a liquidation to sell the whole of the company's business as a going concern without the co-operation and agreement of those holding fixed charges over its assets.
It is clear that the administration procedure introduced by the Insolvency Act 1985 and now contained in Part II of the Act of 1986 was directed to remedying these mischiefs as the provisions of the Act of 1986 themselves make clear.
Section 8 of the Act of 1986 gives the court power to appoint an administrator if the court is satisfied that the company is unable to pay its debts as they fall due and considers that the making of an order would be likely to achieve one or more of the following purposes under subsection (3):
"(a) the survival of the company and the whole or any part of its undertaking, as a going concern; (b) the approval of a voluntary arrangement under Part I; (c) the sanctioning under section 425 of the Companies Act of a compromise or arrangement between the company and such persons as are mentioned in that section; and (d) a more advantageous realisation of the company's assets than would be effected on a winding up;
So long as such order is in force "the affairs, business and property" of a company are to be managed by the administrator appointed by the court. For that purpose the administrator is given very wide powers to carry on the business of the company, as the agent of the company, including power to take possession of the property of the company: section 14 and Schedule 1, paragraph 1.
Part II of the Act contains two sections designed to protect the property of the company against adverse claims. Section 10 covers the period between the presentation of the petition and the making of the administration order. Section 11 covers the period after the making of the order and is the section directly in point in this case. So far as relevant, it provides:
"(3) During the period for which an administration order is in force - (a) no resolution may be passed or order made for the winding up of the company; (b) no administrative receiver of the company may be appointed; (c) no other steps may be taken to enforce any security over the company's property, or to repossess goods in the company's possession under any hire-purchase agreement, except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as the court may impose; and (d) no other proceedings and no execution or other legal process may be commenced or continued, and no distress may be levied, against the company or its property except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as aforesaid."
"Security" is defined by section 248(b) as meaning "any mortgage, charge, lien or other security."
The administrators in this case contend that the exercise of the statutory right of detention under section 88 of the Act of 1982 falls within either section 11(3)(c) (as being a step taken to enforce any security) or within section 11(3)(d) (as being the levying of a distress or "other proceedings").
Section 15 contains additional provisions relating to property subject to a charge. It distinguishes between floating charges and fixed charges. "Floating charge" is defined as "a charge which, as created, was a floating charge:" section 251. Therefore, for the purpose of determining whether or not a charge is a floating charge, any crystallisation of a floating charge on the making of an administration order falls to be ignored. Under section 15(1) and (4) the administrator is given power to exercise all his powers (i.e. including presumably the right to take possession) over property which is subject to a floating charge; in the event of a sale, the chargee's rights are shifted to the proceeds of sale. The position is different as respects property subject to a fixed charge. The administrator is given no general power to exercise his rights over such property: but the court can give leave to the administrator to dispose of such property, the proceeds of sale being applied in discharge of the secured debt: section 15(2) and (5).
The issues
A. Under section 11(3)(c). (1) Were these aircraft, notwithstanding the fact that they were only leased by Paramount, "property" of the company within the meaning of the subsection? (2) Is the statutory right of detention under section 88 a lien or other security within the definition in section 248 of the Act of 1986? (3) Is the exercise of which requires the leave of the court under section 11?
B. Under section 11(3)(d). (1) Does the detention of the aircraft constitute the levy of a distress? (2) Does the detention of the aircraft constitute "other proceedings" within the meaning of the subsection or does the word "proceedings" mean only legal or quasi-legal actions?
C. If the detention of the aircraft required the leave of the court under section 11(3), did the judge properly exercise his discretion by refusing such leave?
The approach to the construction of the Act of 1986
Before dealing with the issues summarised above, it may be helpful to state what, in my opinion, is the correct approach to the construction of the provisions dealing with administrators contained in Part II of the Act. The judge was very much influenced in his construction by the manifest statutory purpose of Part II of the Act. I agree with this approach. The provisions of Part II themselves, coupled with the mischief identified in the Cork Report, show that the statutory purpose is to install an administrator, as an officer of the court, to carry on the business of the company as a going concern with a view to achieving one or other of the statutory objectives mentioned in section 8(3). It is of the essence of administration under Part II of the Act that the business will continue to be carried on by the administrator. Such continuation of the business by the administrator requires that there should be available to him the right to use the property of the company, free from interference by creditors and others during the, usually short, period during which such administration continues. Hence the restrictions on the rights of creditors and others introduced by sections 10 and 11 of the Act. In my judgment in construing Part II of the Act it is legitimate and necessary to bear in mind the statutory objective with a view to ensuring, if the words permit, that the administrator has the powers necessary to carry out the statutory objectives, including the power to use the company's property.
On the other hand, however desirable it may be to construe the Act in a way calculated to carry out the parliamentary purpose, it is not legitimate to distort the meaning of the words Parliament has chosen to use in order to achieve that result. Only if the words used by Parliament are fairly capable of bearing more than one mgcning is it legitimate to adopt the meaning which gives effect to, rather than frustrates, the statutory purpose.
A. The issues under section 11(3)(c)
(1) Were the aircraft "property" of the company?
Mr. Lightman, for the airports, submits that because the aircraft were The aircraft, he submits, were the property of the ultimate lessor: Paramount has only contractual rights.
"Property" is defined by section 436 as follows:
"'Property' includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property."
It is hard to think of a wider definition of property.
In my judgment, the interest of Paramount under a lease of the aircraft is plainly property within that definition. It is true that, to date, concepts of concurrent interests in personal property have not been developed in the same way as they have over the centuries in relation to real property. But modern commercial methods have introduced chattel-leasing. The Act of 1986 refers expressly to such leases: see section 10(4). Although a chattel lease is a contract, it does not follow that no property interest is created in the chattel. The basic equitable principle is that if, under a contract, A has certain rights over property as against the legal owner, which rights are specifically enforceable in equity, A has an equitable interest in such property. I have no doubt that a court would order specific performance of a contract to lease an aircraft, since each aircraft has unique features peculiar to itself. Accordingly in my judgment the "lessee" has at least an equitable right of some kind in that aircraft which falls within the statutory definition as being some "description of interest. . . arising out of, or incidental to" that aircraft.
(2) Is the statutory right of detention a "security over the company's property?"
Section 248 of the Act of 1986 defines "security" as including a "lien or other security." There was some discussion in the course of argument whether the statutory right of detention is strictly to be described as a "lien." It has many of the features of a lien. It is a right of retention of chattels enjoyed by a creditor against the payment of his charges for services rendered in relation to those chattels, similar to the rights enjoyed by, for example, repairers of goods. The fact that the right is conferred by statute is not inconsistent with it being a lien: see Halsbury's Laws of England, 4th ed., vol. 28 (1979), p. 223, para. 506. However, it is not a possessory lien of the classic type, since (as will appear hereafter) in my judgment the statutory right of detention conferred by section 88 does not give the airport legal possession of the aircraft whilst it is being detained. But there are many species of lien which do not depend on possession, for example certain equitable liens: p. 222, para. 503. In Channel Airways Ltd. v. Manchester Corporation [1974] 1 Ll.R. 456, Forbes J. held that a right very similar to the statutory right of detention but conferred by a Private Act was not strictly a lien.
Whether or not the statutory right of detention is strictly to be regarded as a lien, in my judgment apart from any special context it would certainly fall within the description "other security." Mr. Crystal, for the administrators, submitted the following description of a security: "Security is created where a person ('the creditor') to whom an obligation is owed by another ('the debtor') by statute or contract, in addition to the personal promise of the debtor to discharge the obligation, obtains rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor's obligation to the creditor."
Whilst not holding that that is a comprehensive definition of "security," in my judgment it is certainly no wider than the ordinary meaning of the word. The statutory right of detention confers on the airport (as creditor) the right to detain and, with the leave of the court, sell the aircraft for the purpose of discharging debts incurred to that airport by the operator or by previous operators. In my judgment it is plainly a security.
I did not understand Mr. Lightman to take issue with those propositions in general. His submission was that the statutory right of detention has special features which make it sui generis and therefore the word "security" in sections 11 and 248 of the Act of 1986 should be construed so as to exclude this very special statutory right. He pointed out that the statutory right of detention extends to debts owed otherwise than by the person operating the aircraft at the time of detention; that a sale under section 88 can only take place with the leave of the court and operates to divest, not only the debtor's interests in the aircraft, but all other interests such as those of mortgagees and the ultimate owner. Moreover section 88(6) establishes its own order of priorities in the application of proceeds of sale of the aircraft.
Whilst accepting the force of these submissions, they do not persuade me that the words "other security" in the Act of 1986 ought to be given anything other than their natural meaning. The statutory right of detention in section 88, although unusual, is not unique. Parliament has conferred on port authorities similar rights in relation to the enforcement of the payment of port dues: see section 75 of the Port of London (Consolidation) Act 1920, quoted in The Queen of the South [1968] P. 449, 457. We were not referred to any case in which a specific statutory right has been held to fall completely outside the statutory framework laid down for dealing with insolvent companies. Moreover, to construe the Act of 1986 so as to exclude the statutory right of detention from its ambit would run counter to the purposes of the administration procedure since it would leave airports and those enjoying similar rights free to take action to enforce payment of their debts, thereby preventing or hindering continuation of the business by the administrator. In my judgment it would not be right to give the general words "other security" a narrower meaning than they would normally bear since that would tend to frustrate the purposes of Part II of the Act of 1986.
I therefore hold that the statutory right of detention is a "lien or other security" within the meaning of sections 11 and 248 of the Act of 1986.
(3) Is the exercise of the statutory right of detention a "step taken to enforce" a security?
Mr. Lightman submits that the overt act necessary to constitute the exercise of the statutory right of detention (i.e., the blocking of the aircraft or the service of a notice of lien) is not a step to enforce the security but a step to create or perfect the security. He submits that, in the present case, security was either created for the first time by the overt act of detention or, at least, such acts were only done to perfect what until then had been an inchoate security (i.e., a right to create a security by the overt act). The mere detention of an aircraft, says Mr. Lightman, is not the taking of a step to enforce the security.
This is an important point since, to my mind, it raises the question of an administrator's right to possession of chattels which are subject to a possessory lien or similar right. Although there are special features of the statutory right of detention conferred by section 88, the starting point must be to discover what are the rights of the administrator to obtain possession of chattels from those claiming a right of retention the exercise of which involves no positive action by the creditor save a refusal to comply with a request to hand over the chattel. Is such a refusal a "step . . . taken to enforce" the lien or other similar security? Although administrations involving aircraft are likely to be comparatively rare, nearly all administrations will raise the question whether, for example, company vehicles subject to a repairer's lien or goods consigned on the terms that the carrier has a lien on such goods can be withheld from the administrator unless he pays the debt in full.
If retention under such possessory lien does not require the leave of the court under section 11, this will be an exception to the normal rule. The administrator will be forced either to seek to run the business without the chattels so retained or to pay in full and at once the amount owed to the lien holder. As in the present case, it may not be possible to run the business without the chattels. If the creditor claiming the lien is to be paid in full, he will be placed in a uniquely favourable position compared with all other creditors. During the administration an unsecured creditor cannot, without the leave of the court, enforce his debt by action so as to obtain immediate payment: section 11(3)(b). Secured creditors cannot appoint a receiver or enforce their security in any other way: section 11(3)(b) and (c). The policy of the Act is plainly to impose a moratorium on the payment of debts save to the extent that the administrator chooses to pay (in order, for example, to obtain further supplies from a creditor) or the court so directs.
Against that background, I turn to see what guidance is afforded by the words of the Act themselves. I suspect that, save in one regard, the draftsman may have overlooked the need for an administrator (as opposed to a liquidator) to obtain possession of chattels for the purpose of continuing to run the company's business. The only specific provision dealing with liens is section 246 which, so far as relevant, provides:
"(2) Subject as follows, a lien or other right to retain possession of any of the books, papers or other records of the company is unenforceable to the extent that its enforcement would deny possession of any books, papers or other records to the office holder. (3) This does not apply to a lien on documents which give a title to property and are held as such."
"The office holder" is defined by subsection (1) as meaning an administrator, liquidator or provisional liquidator as the case may be.
Mr. Lightman relied on this section as indicating that, save in the case of documents, a possessory lien will be enforceable so as to deny the administrator possession of the chattel subject to the lien and that accordingly no leave would be required under section 11(3). In my judgment that is not necessarily the underlying assumption behind the section. Let me assume for the moment that the assertion of a right to retain a chattel under a lien is within section 11(3). The only consequence is that leave to enforce such right is required: apart from that restriction, the lien holder's right to retain the chattel remains and may well be permitted by order of the court. However, in the case of documents falling within section 246(2) the right to retain as against the administrator is unenforceable: the holder of the lien over documents could not apply to the court under section 11(3) for leave to retain since under section 246(2) he has no right to retain which the court could give him leave to exercise. For that reason, in my judgment there is no necessary conflict between section 246 and a construction of section 11(3)(c) which requires the leave of the court for the exercise of a right of retention under a possessory lien.
There is another feature of section 246(2) which in my judgment strongly supports the view that the exercise of a right to retain under a lien constitutes the enforcement of the security. Section 246(2) provides that "a lien or other right to retain possession . . . is unenforceable to the extent that its enforcement" would deny possession (my emphasis). The words I have emphasised show that in the Act of 1986 the mere insistence by a lien holder on his right to retain constitutes "enforcement" of the lien. On ordinary principles, the same word used in different sections of the Act should normally be given the same meaning. Hence the word "enforce," when used in section 11(3) in relation to a lien, prima facie includes the assertion by the lien holder of his right to retain.
Therefore, both the limited guidance provided by the words of the Act of 1986 and the desirability of giving effect to the statutory purpose of the administration procedure both point to leave being required under section 11(3)(c). There are however practical considerations which are said to point the other way. First, it is said that by being forced to give up possession of the chattel, the person entitled to a possessory lien over it will lose his security: the loss of possession under a possessory lien involves the loss of the security: it cannot be right that the appointment of an administrator has the effect of turning a secured into an unsecured creditor. But this submission overlooks the fact that the only requirement of section 11(3) is to require the leave of the court to the exercise of the right of retention. In the ordinary case where a lien holder seeks to assert his lien from the outset of the administration, on an application for leave under section 11(3) the court, if satisfied that the administrator needs possession of the chattel, would in the exercise of its discretion normally impose terms whereby the lien over the goods was retained, notwithstanding the loss of possession, or provide some other suitable security for the lien holder.
Again, it is said that it would be ridiculous to require an application to the court in the case of every possessory lien, however small. In m{ judgment that would not be the consequence of upholding the administrators' claim in this case. An administrator in exercise of his powers (particularly those contained in paragraphs 18 and 23 of Schedule 1 to the Act) could agree with the lien holder that possession of the chattel was to be given up on the terms that the lien holder continued to enjoy a non-possessory lien over the chattel.
I therefore reach the conclusion that, in the case of an ordinary possessory lien, the assertion by the lien holder of a right to retain constitutes the taking of a step to enforce his security within section 11(3) of the Act of 1986 and therefore, in default of agreement with the administrator, requires the leave of the court.
Do the special features of the statutory right of detention under section 88 lead to a different conclusion in the present case? Although there are differences between the normal possessory lien and the statutory right of detention, in general the two rights are very similar, viz. a passive right to retain a chattel against payment of a debt. Mr. Lightman urges that there are two matters (one technical, the other practical) which make this case different.
First, he submits that the overt act of detaining the aircraft is the act which creates the security, not one which enforces it. He submits that until there has been that overt act of detention, the airport has no security at all: it merely enjoys the statutory right to create the security by an act of detention. Therefore, he says, such detention cannot be a step taken to enforce the security. There was much discussion in the course of argument as to whether any security existed before the overt act of detention. It was suggested that the security existed at all times when relevant charges existed wherever the aircraft might be; alternatively, that the security came into existence when an aircraft touched down at the airport there being subsisting relevant charges which could give rise to a detention at that airport. I find such analysis artificial and unconvincing. In my judgment Mr. Lightman is right in saying that the airports enjoyed no actual security until they detained the aircraft by an overt act of detention. But I am not persuaded that, just because the overt act of detention created or perfected the security, it was not also the taking of a step to enforce that security. There is no legal reason why the same act should not have a dual effect as being both the perfection of the security and a step taken to enforce it. Plainly, as a matter of commercial common sense, the detention of the aircraft in this case did enforce the right of detention in just the same way as does a refusal by a lien holder to hand over the chattel. The artificiality of the argument can be demonstrated by considering what would be the position if, immediately after the notice of lien was served, the administrators had demanded the giving up of the aircraft. The refusal to meet such demand would have been indistinguishable from the refusal of a lien holder to hand over the chattel subject to a possessory lien. It seems to me unnecessarily artificial to say that in this case there had to be a separate demand for the detained aircraft in order to constitute an enforcement of the security by the airport.
Mr. Lightman's second point concentrated on the mobility of aircraft. Once an aircraft has left the airport, the rights under section 88 come to an end unless and until it returns to that airport. The aircraft may have left the jurisdiction, never to return and be beyond the reach of any order of the court. Even if the aircraft returns to the United Kingdom, it may not return to the same airport. If, therefore, before exercising the statutory right of detention, the airport has to obtain the leave of the court, the aircraft may well have gone beyond recall even if the application is heard within hours and is successful. If, as Harman J. held in the case of Birmingham, the detention of the aircraft before the leave of the court was obtained is a contempt of court as an interference with the possession of an officer of the court, the airport is placed in an impossible position.
These are powerful arguments. Plainly, an airport should not lose its rights under section 88 simply because there is no time to obtain prior leave of the court. But in my judgment on a proper view of the matter the practical repercussions are not as serious as they are submitted to be. I think it unlikely that, after the judgment of this court has been digested, an administrator will seek to spirit away an aircraft without giving an airport time to apply ex parte for an interim order giving leave to detain, which will no doubt be granted on the usual cross-undertaking in damages. If, contrary to that prognosis, an administrator were to make such an attempt, in my judgment an airport would run no risk of being in contempt of court if at the same time as it detained the aircraft it made every effort to obtain the leave of the court which can normally be obtained in a matter of hours. I am unable to agree with the judge that Birmingham may have been in contempt of court in this case if, as I understand the position to have been, they were apprehensive that the aircraft was going to leave that airport almost immediately.
For these reasons, in my judgment the leave of the court to exercise the statutory power of detention contained in section 88 was required under section 11(3)(c). I should make it clear that this decision as to the right of detention under section 88 of the Act of 1982 does not extend to other rights of detention under that Act, for example section 64(7) (operating without a licence) and section 78(5) (noise and vibration).
It is therefore strictly unnecessary to consider the position under section 11(3)(d), but since the judge primarly based his decision on paragraph (d) it is desirable for me to do so.
B. The issues under section 11(3)(d)
(1) Distress.
The administrators claim that, by detaining the aircraft, the airports were levying a distress within the section and that therefore the leave of the court is required. This was the primary ground of the judge's decision. I am unable to agree with his view on this point. There is no doubt that the statutory right of detention has many similarities to the ancient remedy of distraint: it is a right for a creditor to exercise control over chattels, whereby the debtor is prevented from using them, as a pledge for the payment of a debt owed by the debtor to the creditor. But it lacks one essential feature of a distraint, namely that under the statutory right of detention the aircraft is not taken into the possession of the airport. Under section 88, the power is to detain, not to seize and detain. The airport can take all necessary steps to prevent the aircraft leaving and to prevent any spares and documents being removed from it: but it has no right to exclude the owner from the aircraft completely. Therefore in my judgment the statutory right to detain is not strictly a right of distraint.
Moreover, although statutes have created statutory rights of distress, counsel could find no case in which a statutory provision had been held to be a right of distraint in the absence of clear words describing the right as a right to distrain. Distress is an ancient remedy and to a degree obsolescent. In my judgment in the absence of clear words in section 88 describing the right to detain as being a right of distress, it would be wrong to treat it as such.
(2) "Other proceedings."
The administrators submit, and the judge held, that the detention of the aircraft required the leave of the court as being "other proceedings. . . against the company or its property."
I have no hesitation in rejecting that view. In my judgment the natural meaning of the words "no other proceedings . . . may be commenced or continued" is that the proceedings in question are either legal proceedings or quasi-legal proceedings such as arbitration. It is true that the word "proceedings" can, in certain contexts, refer to actions other than legal proceedings, e.g. proceedings of a meeting. In Quazi v. Quazi [1980] A.C. 744 the House of Lords held that a divorce by Talaq in Pakistan constituted other proceedings within the statutory phrase "judicial or other proceedings." But in that phrase the word "other" must have referred to non-judicial proceedings since judicial proceedings had already been expressly referred to. No such special feature is present in section 11(3)(d).
Further, the reference to the "commencement" and "continuation" of proceedings indicates that what Parliament had in mind was legal proceedings. The use of the word "proceedings" in the plural together with the words "commence" and "continue" are far more appropriate to legal proceedings (which are normally so described) than to the doing of some act of a more general nature. Again, it is clear that the draftsman when he wished to refer to some activity other than "proceedings" was well aware of the word "steps" which he used in section 11(3)(c).
The judge took the view that the words "other proceedings" covered
"every sort of step against the company, its contracts or its property which may be taken and the intention of Parliament by section 11 is to prevent all such, without the leave of the court or the administrators."
In my judgment, however anxious one may be not to thwart the statutory purpose of an administration, the judge's formulation must be too wide. If the word "proceedings" has this wide meaning, all the other detailed prohibitions in section 11(3) would be unnecessary. Moreover such a construction would introduce great uncertainty as to what constituted commencement or continuation of proceedings. Would the acceptance of a repudiation of a contract by the company constitute a "proceeding"? Would a counter-notice claiming a new tenancy under the Landlord and Tenant Act 1954 be a "proceeding"? In my judgment, the judge's view would produce an undesirable uncertainty which, in view of my construction of section 11(3)(c), it is unnecessary to introduce into the Act.
C. Did the judge properly exercise his discretion by refusing leave to enforce?
The judge, in the exercise of his discretion, refused to grant the airports leave to enforce their security. He took the following matters into consideration. First, he referred to the fact that there was or might be a deficiency as against unsecured creditors of £11m. or more. The judge had taken the view that the airports were not secured creditors and therefore should not be allowed to gain priority over the other unsecured creditors by detaining the aircraft. Next, he referred to the fact that the detention of the aircraft would prevent the realisation of the business as a going concern which had been approved at the meeting of creditors, attended, without dissent, by representatives of both Birmingham and Bristol. Next, he took into account the fact that throughout the administration the airports had stood by and taken the benefit of the flying operations carried out by the administrator throughout the summer in return for which they had received very substantial sums in excess of what they would have received had the business gone into liquidation on 7 August. He treated the airports as "blowing hot and cold," taking the benefits while they might and then seeking to assert inconsistent rights thereafter. Finally, as I have said, he took the view that Birmingham by obstructing the aircraft before obtaining the leave of the court was probably in contempt of court and took this into account.
In my judgment the judge took into account the relevant factors and did not take into account any irrelevant factors save the view, which I do not share, that Birmingham may have been in contempt of court. However, it is clear that that factor would have made no difference to the exercise of his discretion, since he pointed out expressly that the same matter could not be taken into account as against Bristol: yet he reached the same conclusion in relation to both airports. Therefore, in my judgment the exercise of his discretion is not reviewable in this court.
I would for myself go further and say that I completely agree with his decision. If, at the outset of an administration a secured creditor wishes to enforce his security in a way inconsistent with the achievement of the statutory purposes, he should make his position clear at the outset. To stand by and accept all the benefits of an administration and then, at the eleventh hour, seek to enforce a right which is inconsistent with the achievement of the statutory purpose is in my judgment unacceptable. The position in the present case is worse since on 7 August there were no aircraft at either Bristol or Birmingham; therefore at the commencement of the administration by the court the airports were unable to make themselves into secured creditors by exercising the statutory right of detention. Only as a result of the operations of the administrators, acting under the administration order, did the aircraft ever come to Bristol or Birmingham again. They are seeking to achieve an outcome where, as a result of the administration of the company under the order of the court, they achieve greater rights than they would have done had the company gone into liquidation on 7 August. Further, they have reaped substantial benefits by the continued operation of the aircraft, giving rise to the payment by the administrators to both Bristol and Birmingham of substantial charges as they accrued due. In my judgment, whilst the administration procedure should not be used so far as possible to prejudice those who were secured creditors at the time when the administration order was made in lieu of a winding up order, nor should it be used so as to give the unsecured creditors at that time security which they would not have enjoyed had it not been for the administration.
I have had the opportunity of reading the judgment of Woolf L.J. with which I agree. I have also read the judgment of Staughton L.J. I share his concern as to the practical results of our decision but believe that the suggestions made by Woolf L.J. meet a number of the practical difficulties.
WOOLF L.J. I have read the judgments of Sir Nicolas Browne-Wilkinson V.-C. and Staughton L.J. Subject to what I have to say hereafter I agree that this appeal has to be dismissed for the reasons given by the Vice-Chancellor.
I am concerned about the practical implications of our judgment. While I regard it as most important that the clear policy of Part II of the Insolvency Act 1986 which the Vice-Chancellor has identified should not be frustrated, I also regard it as important that that policy should not result in Part II of the Act of 1986 interfering unduly with the statutory rights of detention given to airport authorities under section 88 of the Civil Aviation Act 1982 and the more general rights of those who are entitled to detain goods under a lien.
It appears there are four problems which have to be considered.
(1) The prejudice which would be caused to a person entitled to the statutory right to detain under section 88 of the Aviation Act 1982 or to the right to detain under a possessory lien (the detainor) if he is not entitled to detain the aircraft or other goods pending an application for leave to enforce his right under section 11(3)(c) of the Act of 1986. (The interim detention problem).
(2) Unless the amount of charges which are unpaid is reasonably substantial the detainor will not consider it worthwhile incurring the costs of making an application for leave and so for practical purposes the right of detention could become worthless. (The costs problem).
(3) Different people can have an interest in an aircraft or other goods. If the effect of section 11(3)(c) is to make it necessary for an application to be made to the court for leave to detain where any of those persons are the subject of an administration order, it could be extremely difficult for the detainor to ascertain whether or not he can lawfully detain an aircraft or other goods without leave of the court. (The multiplicity of interests problem).
(4) Different interests in an aircraft or other goods can change hands without the detainor being aware of this. Problems could arise when there is an assignment to a company subject to an administration order after an aircraft or goods had been detained if this meant that the continued detention would be automatically unlawful because of the absence of leave of the court. (The successive interests problem).
In my judgment these problems are made less serious if it is appreciated that it is not the creation of the security without the consent of the administrator or the leave of the court which is prohibited by section 11(3)(c) but the taking of steps to enforce that security. You are not taking steps to enforce a security unless by relying on the security you are preventing the administrator doing something to an aircraft or other chattel in which he has an interest which he would otherwise be entitled to do. Taking first the case of the ordinary repairer who is entitled to retain goods until his charges are paid. Unless and until someone who is entitled to possession of those goods seeks to obtain possession of the goods, the lien holder does not take steps to enforce his lien. The security which is given to the lien holder entitles him to refuse to hand over the possession of the goods, but until he makes an unqualified refusal to hand over the goods he has not in my judgment taken steps to enforce the security for the purposes of section 11(3)(c) of the Act of 1986.
Similarly the right or security which section 88 of the Act of 1982 gives to the aerodrome authority is to detain pending payment either (i) the aircraft in respect of which the charges were incurred or (ii) any other aircraft of which the person in default is the operator at the time when the detention begins. The right is to prevent the operation of the aircraft by detaining it. The activities which constitute operating an aircraft are extensive and akin to any act of management as is indicated by the definition of "operator" in section 105 of the Act of 1982 as meaning "in relation to an aircraft . . . the person having the management of the aircraft for the time being or, in relation to a time, at that time." It is only when the airport authority takes steps to prevent what would otherwise be the lawful operation (in that sense) of the aircraft that it enforces its security. While the same act can constitute the creation of the security and the enforcement of the security, there is nothing to prevent the aerodrome authority creating their security prior to their taking steps to enforce that security. Thus, for example, placing a notice on the aircraft would create the security even if the identity of the operator was not known. The security would be enforced when the operator arrived at the airport and tried to operate the aircraft.
Like the Vice-Chancellor, I find section 246(2) of the Act of 1986 helpful in determining what amounts to steps to enforce security for the purposes of section 11(3)(c). Section 246(2) refers to denying possession as being enforcement in the case of a lien, so in the case of the statutory right to detain contained in section 88 of the Act of 1982 it will be the denial of the ability to operate the aircraft which will constitute the enforcement.
How then does this approach assist with the problems which I have identified?
The interim detention problem
A person who comes into possession of goods lawfully is not guilty of conversion or other unlawful interference with those goods if he does not hand those goods over immediately he receives a demand from a person who is in fact entitled to possession of the goods. He is entitled first to take a reasonable time over verifying the right to the possession of the person who requires the goods to be handed over: see Clerk and Lindsell on Torts, 16th ed. (1989), p. 1236, paras. 22-28/29. By analogy I would not regard a person who is otherwise entitled to a lien as enforcing that lien if he does not make an unqualified refusal to hand over the goods to an administrator but instead indicates to the administrator that unless the administrator consents to his exercising his right to detain, he will apply promptly to the court for leave and does so. In my view such conduct would not amount to taking steps to enforce the lien within the meaning of section 11(3)(c) of the Act of 1986.
The position would be exactly the same in relation to the detention of an aircraft under section 88 of the Act of 1982. I would not treat the aerodrome authority as taking steps to enforce the statutory right to detain if an application is promptly made to the court and the aerodrome authority makes it clear that it is only preventing the removal of the aircraft pending determination of the question of whether it is entitled to exercise its statutory right to detain. The aerodrome authority may have brought the statutory security into existence but it is not exercising its statutory right to detain the aircraft pending payment. It is preventing the removal of the aircraft in order to ascertain whether it is entitled lawfully to detain the same pending payment. This action would not amount to conversion or wrongful interference with the aircraft. Nor would it amount to contempt. If this is the position, then it is unlikely that Parliament intended section 11(3) to prevent and make unlawful the retention of the aircraft pending the decision of the court.
Even if my interpretation of section 11(3) is not correct, the subsection expressly provides that the administrator can give his consent to the enforcement of the security and I would expect the administrator to consent to the detainor exercising his rights until an application could be made to the court bearing in mind that in a case where the administrator urgently requires the goods the court would be able rapidly to make an interim order.
The costs problem
On the interpretation of section 11(3)(c) of the Act of 1986 which I have adopted there would be no need for the detainor to make an application to the court unless this is required by the administrator. If the amount at stake is small, then I would expect the matter to be dealt with between the parties without the need of the intervention of the court. If either party acted unreasonably, then the court could be expected to use its powers in relation to costs so as to protect the party who was unreasonably involved in court proceedings.
Multiplicity of interests problem
The lien holder only needs to concern himself with an administrator of a company who claims to be entitled to possession of the goods. It is therefore not necessary for the lien holder to take the initiative and seek to find out whether there is any company in relation to which an administration order has been made which has an interest in the goods. The position is the same under section 88 of the Act of 1982. The aerodrome authority is only concerned with a company the administrator of which is seeking to operate the aircraft. If an administrator is seeking to operate the aircraft, then he will have to identify himself to the airport authority and the airport authority will then be able to decide whether in relation to that operator it would be appropriate to apply to the court for leave. Pending a claim to operate the aircraft being put forward by an administrator, it is perfectly in order for the aerodrome authority to establish its security. It will only need to enforce that security if and when someone seeks to operate the aircraft. If that person is not a company in relation to which an administration order has been made, then the airport authority is entitled to enforce its security. If it is a company which is subject to an administration order, then the subsection envisages that the security should be able to be enforced with the leave of the administrator or the court and so it must be implicit that the detainor should have the opportunity to obtain that consent. The airport authority will not have that opportunity if it has to allow the aircraft to be operated pending an attempt to obtain the consent.
The successive interests problem
If a right to a lien has been enforced against a person otherwise entitled to possession who is not entitled to the protection of section 11 of the Act of 1986, the fact that that person assigns its interests in the goods to a company which is subject to an administration order will not mean that the lien holder in consequence of the assignment contravenes section 11. It will only be necessary for the lien holder to obtain the consent of the administrator or of the court when the administrator of the company which has acquired the interest in the chattels seeks possession of the same. The position is exactly the same with regard to an aerodrome authority exercising its statutory right to detain. The fact that that statutory right has been enforced against a company which is not subject to an administration order is of no relevance in deciding whether or not steps have been taken to enforce the security in the event of an administration order subsequently being made in relation to that company or that company assigning its interest to another company which is the subject of an administration order.
It is for these reasons that I do not anticipate that in practice there should be any difficulty as a result of the interaction of the right of detention given by section 88 of the Act of 1982 and the effect of making an administration order because of section 11 of the Act of 1986. Different problems may arise if the aerodrome authority wishes to exercise its right of sale under section 88 of the Act of 1982. However, this is not a subject which it would be appropriate to consider on this appeal.
There are, however, two other points which I would make. The first is that I see a parallel between our decision on this appeal and the very recent decision of the House of Lords in In re Smith (A Bankrupt), Ex parte Braintree District Council [1989] 3 W.L.R. 1317. The statutory provisions which the House of Lords had to consider were different. The House of Lords were considering the effects of bankruptcy on the imposition of a committal to imprisonment in default of paying rates. However, the policy which Lord Jauncey of Tullichettle identified in his speech with which the other members of the House agreed in that case was similar to that identified by the Vice-Chancellor in this case and in my view the decision provides some support for our conclusion on this appeal.
The other point is that while I regard the passage from Phillips J.'s judgment in Havelet Leasing Ltd. v. Cardiff-Wales Airport Ltd. (unreported), 29 June 1988 cited by the Vice-Chancellor as accurately stating the law, I would not wish to be taken as approving Phillip J.'s decision on the second issue between the parties in that case. In interlocutory proceedings Hirst J. had taken a different view from Phillips J. and, as the issue does not directly arise on this appeal, I would prefer to leave the point open as it could well be that there is considerable merit in the approach of Hirst J.
STAUGHTON L.J. I agree that this appeal should be dismissed for the reasons given by Sir Nicolas Browne-Wilkinson V.-C. However, I feel bound to add that I have misgivings as to how our decision may affect other cases in the future.
Take the case of a road haulage company in respect of which an administration order is made. At the time one of its lorries has just been repaired by a garage owner, at a cost of £1,000, and is ready for collection upon payment of the bill. The company's driver arrives to take the lorry away, but is refused delivery until the bill is paid. That, as it seems to me, may be unlawful conduct on the part of the garage owner, for which there would be a remedy in damages. Yet he may not even know that an administration order has been made, although it is required to be advertised under the Insolvency Rules.
In case it be thought that the lorry driver would promptly provide that information - adding, perhaps, that the garage owner need not be deceived by section 246 of the Insolvency Act 1986 into thinking that he is free to exercise his lien, because the Court of Appeal has held that section 11(1)(c) still requires the leave of the court to be obtained - let us consider a slightly different case. Suppose that the lorry is not owned by the road haulage company, but hired by it under a lease from a finance company; and that it is the finance company in respect of which the administration order has been made. Again the garage owner may not know of the administration order, and nobody may tell him about it. But he may incur liability in damages if he refuses delivery until his bill is paid.
In such cases the liability may be small. But it could be very much larger in the case of an airport that detains an aircraft which is about to leave full of passengers. No doubt airport managers will soon be aware of the hazards they face in detaining any aircraft without making all necessary inquiries as to its operator and owner; but that does not seem to me to improve their situation much.
I hope that it will indeed prove possible for garage owners or airport managers to obtain leave of the court promptly, within a matter of hours. But what of the costs involved? To obtain legal advice and assistance on an area of the law which I would regard as recondite, perhaps in unsociable hours, is bound to be expensive. Even if such applications are one day heard for the most part in a county court, I would imagine that the garage owner would face a bill of £500 at least, and probably more. Is it to be expected that he will recover his costs, as a matter of course, from the administrator? If not, the best advice that his solicitor could give him would be to forget his lien and deliver up the lorry forthwith.
Since writing this judgment I have had the advantage of reading the judgment which is to be delivered by Woolf L.J. It may well be that the difficulties which I foresee will be overcome in the manner which he suggests; we heard no argument about them, and I express no opinion one way or the other. For the present I consider that the effect of section 11(1)(c) should be kept carefully under review in the future. As the law stands, and as I have already said, I would dismiss this appeal.
ORDER
Appeal dismissed with costs.
Crown Copyright acknowledged
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