High Court of Ireland Decisions

Judgment Title: Flightlease (Ireland) Limited (In Voluntary Liquidation) v Companies Act

Neutral Citation: [2006] IEHC 193


High Court Record Number: 2006 62Cos

Date of Delivery: 15 June 2006

Court: High Court

“Whether, in the event that the order sought by Swissair Schweizerifche Luftverkehr-Aktiengesellschast in Nachlassliquidation (in debt restructuring liquidation) the “claimant” against Flightlease (Ireland) Limited (in voluntary liquidation) (the “company”) in the Swiss proceedings was granted, that order would be enforceable in the State”.

(i) the transaction in question was carried out during the period of five years prior to the granting of the debt restructuring moratorium;
(ii) the transaction was carried out with the intention of either putting certain creditors at a disadvantage or favouring certain creditors to the disadvantage of others; and
(iii) it was apparent to the other party that the transaction was carried out with the intention described at (ii) above.

A significant part of Flightlease’s commercial decisions were made in Switzerland by Swiss members of the board of Flightlease, such as Lukas Kencht and Frank Schwabe. The offices at Balsberg (in Switzerland) thus constituted a fixed place of business of Flightlease and/or constituted a place from which the representatives of Flightlease carried on the business of Flightlease on a regular and ongoing basis.

In February 2002, shortly after a debt restructuring moratorium had been granted to several companies of the former Swissair Group, SAirlines (a wholly owned subsidiary of SAirGroup) sold its participation in the Volare Group. In the context of this sale the following two settlement agreements were concluded to settle debts which certain Companies of the Volare Group owed against several companies of the former Swissair Group:

These settlement agreements were amended by an amendment agreement dated 15 November 2002 and further amended on 1 August 2003.

Additionally SAirLines, Flightlease, Atrib Switzerland in bankruptcy, SR Technics Switzerland and Swissport International A.G. provided a specific mandate to SAirGroup by separate agreement of 12 November 2002 to act as their agent in the collection of monies from the Volare Companies and in the distribution of those monies to the parties concerned as further explained in the next paragraph. The mandate agreement of 12 November 2002 is governed by Swiss law. SAirgroup, being the parties’ agent, has a presence in Switzerland.

The settlement agreements and amendments provide for periodic instalment payments in favour of Flightlease, Atraxis Switzerland in bankruptcy, SR Technics Switzerland, Swissport International A.G., Deutsche Bank AG, SAirLines and SAirGroup. These agreements further provide that all monies received from the Volare companies shall be paid to SAirGroup in a special bank account in Switzerland. The parties further authorised SAirGroup, as their agent and representative to undertake all necessary steps to collect the monies from the Volare Companies and distribute them to the parties in accordance with an agreed distribution schedule.

Regular (although often delayed) payments have been made to SAirGroup, as the parties’ agent, in pursuance of the said agreements. The monies collected by SAirGroup have in turn been distributed by SAirGroup to the beneficiaries concerned, including Flightlease.

Some payments are still outstanding from the Volare Companies. SAirGroup, as the parties’ agent and representative, is acting on behalf of the beneficiaries (including Flightlease) in the collection of these outstanding monies. The activities of SAirGroup in this regard include the enforcement of a bank guarantee and the submission of a proof of debt in the insolvency proceedings of the Volare Companies.

“An action in personam may be defined positively … as an action against a person with a view to enforce the doing by him of some particular thing e.g. the payment of damages for a breach of contract or for a tort; under this head comes (inter alia) every common-law action, whether on contract or tort, also every equitable proceeding, the objective of which is to compel the doing or not doing of a particular thing, as e.g. the specific performance of a contract …
It may be well, though hardly necessary, to add that an action in personam does not include any proceedings which are not in strictness and “action” at all, such as a proceeding for divorce, judicial separation, restitution of conjugal rights, or for a declaration of nullity of marriage or of legitimacy, or a proceeding in bankruptcy …”

“the common law regarding the recognition and enforcement of foreign judgments is firmly anchored in the principle of territoriality as interpreted and applied by the English courts in the 19th century. This principle reflects the fact, one of the basic tenets of intentional law, that sovereign states have exclusive jurisdiction in their own territory. As a concomitant to this, states are hesitant to exercise jurisdiction over matters that may take place in the territory of other states. Jurisdiction being territorial, it follows that a state’s law has no binding effect outside jurisdiction. Great Britain, and specifically its courts, applied that doctrine more rigorously than other states; see Libman v. The Queen, which deals with the question in its criminal aspect. The English approach, we saw, was unthinkingly adopted by the courts of this country, even in relation to judgments given in sister-provinces.

Modern states, however cannot live in splendid isolation and do give effect to judgments given in other countries in certain circumstances. Thus a judgment in rem, such a decree of divorce granted by the courts of one state to persons domiciled there, will be recognized by the courts of other states. In certain circumstances, as well, our courts will enforce personal judgments given in other states. Thus, we saw, our courts will enforce an action for breach of contract given by the courts of another country if the defendant was present there at the time of the action or has agreed to the foreign court’s exercise of this jurisdiction. This, it was thought, was in conformity with the requirements of comity, the informing principle of private international law, which has been stated to be the deference and respect due by other states to the actions of a state legitimately taken within its territory. Since the state where the judgment was given had power over the litigants, the judgments of its courts should be respected.

But a state was under no obligation to enforce judgments it deemed to fall outside the jurisdiction of the foreign court. In particular, the English courts refused to enforce judgments on contracts, wherever made, unless the defendant was within the jurisdiction of the foreign court at the time of the action or had submitted to its jurisdiction. And this was so, we saw, even of actions that could most appropriately be tried in the foreign jurisdiction, such as a case like the present where the personal obligation undertaken in the foreign country was in respect of property located there. Even in the 19th century, this approach gave difficulty, a difficulty in my view resulting from a misapprehension of the real nature of the idea of comity, an idea based not simply on respect for the dictates of a foreign sovereign, but on the convenience, may necessity, in a world where legal authority is divided among sovereign states of adopting a doctrine of this kind.”
Later La Forest J. continued:-
“As Dickson J. in Zingre v. The Queen, citing Marshall C.J. in The Schooner Exchange v. M’Faddon, stated, ‘common interest impels sovereigns to mutual intercourse’ between sovereign states. In a word, the rules of private international law are grounded in the need in modern times to facilitate the flow of wealth, skills and people across state lines in a fair and orderly manner. Von Mehren and Trautman have observed in ‘Recognition of Foreign Adjudications: A Survey and A Suggested Approach’ (1968), 81 Harvard Law Review 1601, at p. 1603: The ultimate justification for according some degree of recognition is that if in our highly complex and interrelated world each community exhausted every possibility of insisting on its parochial interests, injustice would result and the normal patterns of life would be disrupted.’

Yntema (though speaking more specifically there about choice of law) caught the spirit in which private international law, or conflict of laws, should be approached when he stated: ‘In a highly integrated world economy, politically organized in a diversity of more or less autonomous legal systems, the function of conflict rules is to select, interpret and apply in each case the particular local law that will best promote suitable conditions of interstate and international commerce, or, in other words, to mediate in the questions arising from such commerce in the application of the local laws’. As is evident from throughout his article, what must underlie a modern system of private international law are principles of order and fairness, principles that ensure security of transactions with justice.

This formulation suggests that the content of comity must be adjusted in the light of a changing world order. The approach adopted by the English courts in the 19th century may well have seemed suitable to Great Britain’s situation at the time. One can understand the difficulty in which a defendant in England would find himself in defending an action initiated in a far corner of the word in the then state of travel and communications. The Symon case, supra, where the action arose in Western Australia against a defendant in England, affords a good illustration. The approach, of course, demands that one forget the difficulties of the plaintiff in bringing an action against a defendant who has moved to a distant land. However, this may not have been perceived as too serious a difficulty by English courts at a time when it was predominantly Englishmen who carried on enterprises in far away lands. As well, there was an exaggerated concern about the quality of justice that might be mated out to British residents abroad; see Lord Reid in The Atlantic Star.

The world has changed since the above rules were developed in 19th century England. Modern means of travel and communication have made many of these 19th century concerns appear parochial. That business community operates in a world economy and we correctly speak of a world community even in the face of decentralized political and legal power. Accommodating the flow of wealth, skills and people across state lines has now become imperative. Under these circumstances, our approach to the recognition and enforcement of foreign judgments would appear ripe for reappraisal. Certainly, other countries, notably the United States and members of the European Economic Community, have adopted more generous rules for the recognition and enforcement of foreign judgments to the general advantage of litigants.

However that may be, there is really no comparison between the interprovincial relationships of today and those obtaining between foreign countries in the 19th century. Indeed, in my view, there never was and the courts made a serious error in transposing the rules developed for the enforcement of foreign judgments to the enforcement of judgments from sister-provinces. The considerations underlying the rules of comity apply with much greater force between the units of a federal state, and I do not think it much matters whether one calls these rules of comity or simply relies directly on the reasons of injustice, necessity and convenience to which I have already adverted. Whatever nomenclature is used, our courts have not hesitated to cooperate with courts of other provinces where necessary to meet the ends of justice.”
Finally, in relation to the case before the court La Forest J. said the following:-
“I am aware, of course, that the possibility of being sued outside the province of his residence may pose a problem for a defendant. But that can occur in relation to actions in rem now. In any event, this consideration must be weighed against the fact that the plaintiff under the English rules may often find himself subjected to the inconvenience of having to pursue his debtor to another province, however just, efficient or convenient it may be to pursue an action where the contract took place or the damage occurred. It seems to me that the approach of permitting suit where there is a real and substantial connection with the action provides a reasonable balance between the parties. In a world where even the most familiar things we buy and sell originate or are manufactured elsewhere, and where people are constantly moving from province to province, it is simply anachronistic to uphold a ‘power theory’ or a single situs for torts or contracts for the proper exercise of jurisdiction.”

“The ground of appeal propounded, amended so as to substitute the name of the respondent in the decree of divorce granted in England for the petitioner, would involve, essentially, not a re-hearing of the petition, but a fresh and totally different hearing, seeking to establish facts showing a real and substantial connection between the parties to that divorce and the United Kingdom (the so called Indyka principle) and, as a preliminary to such further inquiry, persuade this court to declare, upon a theoretical set of facts, that decisions of both this court and the former Supreme Court were fundamentally wrong, notwithstanding that the law of this country and the actions of citizens of this country, based upon that law, have assumed it to be as so stated at least since 1957. In that context, public policy is not confined to the status of a child as here, but extends to the affairs of the community as a whole over the last decade (since Gaffney v. Gaffney [1975] I.R. 133 or over 28 years since Mayo Perrott v. Mayo Perrott [1958] I.R. 336). In my judgment, it would be utterly wrong to embark upon such an inquiry”.