Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Virgin Airlines – special leave to appeal granted by the Australian High Court on a matter of the interpretation of the Cape Town Convention

Further to my report of 4 April 2021 below, the High Court of Australia has granted special leave to appeal on a question of the interpretation of the Cape Town Convention as it applies to the voluntary administration of Virgin Airlines in Australia.  Leave to a party to appeal to the High Court is granted in a minority of cases according to statutory criteria.

The question concerns the extent of an insolvency administrator’s obligation to incur the cost and obligation of giving back possession of aircraft engines of the insolvent to a lessor, in this case, based in the US. Professor David Brown’s recent article in the Insolvency Law Bulletin gives an excellent explanation of the issues.  The transcript of the special leave hearing on 12 April necessarily adds more: see Wells Fargo Trust Company, National Association (As Owner Trustee) & Anor v VB Leaseco Pty Ltd (Administrators Appointed) & Ors [2021] HCATrans 63 (12 April 2021) (austlii.edu.au)

Senior counsel for the lessor pointed out that

“(t)here has not been any decision by a court of ultimate appellate standing in the world so far as we have been able to find out concerning the significance of the conduct claimed by us and upheld at first instance to be required of a lessee upon default in equipment lease and resisted, upheld in the Full Court, on the basis that the words did not require what was in the circumstances of Australia’s location in the antipodes and the lessor’s location in North America as being unquestionably a relatively expensive exercise”.

A date for the hearing by the High Court will be advised in due course.

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The High Court of Australia is hearing a special leave application on Monday 12 April 2021 by the lessor of four aircraft engines to Virgin Airlines valued in the order of US$40m.  A Full Federal Court held that the administrators of Virgin, in being required to return the engines to the US lessor, Wells Fargo, were entitled to simply make the engines available to take back on an ‘as is where is’ basis, rather than to physically return the engines to the US, as argued by the lessor.

Or, as Associate Professor David Brown explains in a recent article, referencing Badfinger, the question is whether the outcome, ‘if you want it, here it is, come and get it’, is correct: see “Give” and “Take”: Virgin Australia, the Cape Town Convention and Aircraft Protocol (2021) 21(1&2) Insolvency Law Bulletin 21, David Brown.

Professor Brown’s article explains that the interpretation of the administrators’ obligations under the Australian Corporations Act 2001 was affected by the requirement to ‘give possession’ of the engines to the lessors under article XI of the Aircraft Protocol to the Cape Town Convention on International Interests in Mobile Equipment – the Cape Town Convention – adopted by Australia in 2013.  He analyses both the trial decision in the lessor’s favour and that of the successful appeal.  The question is whether the High Court gives special leave to appeal from that decision.

Professor Brown gives his expert views on the correctness of the judges’ reasoning and concludes that the outcome will have repercussions beyond Australia, and for all states that have adopted the Convention, and the Aircraft Protocol. It is the first case on the point, and “a rare case” in the jurisprudence in this area, with the potential to “clarify the law when the next airline insolvency comes along [and] influential in the shadows of aviation finance in the meantime”.

The High Court reference is: Wells Fargo Trust Company, National Association (As Owner Trustee) & Anor VB Leaseco Pty Ltd (Administrators Appointed) & Ors (S200/2020)

The Full Federal Court decision is at [2020] FCAFC 168.

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