British Eagle International Airlines Ltd, v Compagnie Nationale Air Frabcem 1975 2 All ER 390, HOL
Citation:British Eagle International Airlines Ltd, v Compagnie Nationale Air Frabcem 1975 2 All ER 390, HOL
Rule of thumb:Can you contract out of the provisions in a statute? No. Can you contract out of the provisions in the insolvency Act? No. Any contract terms which try to contract out of the liquidation process set in statute are not valid terms based upon the principle of public policy. This case is a classic example of public policy being breached due to the terms blatantly trying to contract out of statute, with the terms unenforceable.
Background facts:
The facts of this case were that British Eagle and National Air France were both airlines. They were part of an association where they put money into the association, and if anyone had bought a ticket with one of the airlines, then they could transfer this to one of the other airlines and the other airline would take the money they were owed from the association fund. An airline could take their money out of this fund at any time, but it stated that if another company swapped tickets with another airline they were entitled to take the money paid for the ticket from another airline's share of the fund. British Eagle went into insolvency and people who had bought airline tickets with British Eagle transferred their tickets to Air France. Air France allowed this and took the money they were owed from the Association fund. The insolvency practitioner sought to get this money back from Air France but the association refused to grant them the money for this so the matter went to Court.
Arguments:
The association argued that British Eagle clearly agreed these contractual provisions and they were entitled to take this money under contract. The insolvency practitioner representing British Eagle in the case argued that these contractual provisions were in clear breach of the insolvency Act. The insolvency practitioner argued that as these terms were in breach of statute the principle of public policy was invoked by them and made them invalid terms that did not apply.
Judgment:
The Court upheld the arguments of the insolvency practitioner. The Court affirmed that where someone agrees contractual terms that clearly contravene a statute then these terms are inapplicable, and this was indeed a clear breach of a statute.
Ratio-decidendi:
‘... what Air France are saying here is that the parties to the clearing house arrangements by agreeing that simple contract debts are to be satisfied in a particular way have succeeded in contracting out of the provisions contained in s292 of the 1948 Act for payment of unsecured debts... Such a contracting out must, to my mind, be contrary to public policy. The question is, in essence, whether what was called in argument the “mini liquidation” flowing from the clearing house arrangements is to yield or prevail over the general liquidation. I cannot doubt that on the principle the rules of the general liquidation should prevail', Lord Cross.
'Such contracting out must, to my mind, be contrary to public policy', Lord Cross
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.