Humphris, in the matter of Hazelton Air Charter Pty Limited v Mentha [2002] FCA 529 (29 April 2002)

Last Updated: 29 April 2002

FEDERAL COURT OF AUSTRALIA

Humphris, in the matter of Hazelton Air Charter Pty Limited v Mentha

[2002] FCA 529

EQUITY - trusts - external administration - application by administrator pursuant to s 21 of Federal Court of Australia Act 1976 (Cth) - declaration sought as to apportionment between parties of sum received pursuant to memorandum of understanding - money held on trust - dispute as to amount of each party's interest in trust - determination and quantification of respective interests in trust - appropriate basis for apportionment - principles of law and equity - where claims given up in exchange for sum paid - respective interests in trust depend on proportionate value of claims given up.

Federal Court of Australia Act 1976 (Cth): s 21

Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 applied

Spence v Union Marine Insurance Company Limited [1868] LR3CP 427 considered

Favenc v Bennett (1809) 11 East 36; 103 ER 917 considered

In re Steel, decd [1979] Ch 218 referred to

Halsbury's Laws of Australia, volume 12 at [185-115] referred to

IN THE MATTER OF HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) (All Administrator Appointed)

MICHAEL JAMES HUMPHRIS as Administrator of HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) v MARK FRANCIS XAVIER MENTHA and MARK ANTHONY KORDA as Administrators of the companies listed in the Schedule attached (All Administrators Appointed)

V 3051 of 2001

GOLDBERG J

29 APRIL 2002

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3051 of 2001

IN THE MATTER OF HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) (All Administrator Appointed)

BETWEEN:	MICHAEL JAMES HUMPHRIS as Administrator of HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) Plaintiff
AND:	MARK FRANCIS XAVIER MENTHA and MARK ANTHONY KORDA as Administrators of the companies listed in the Schedule attached (All Administrators Appointed) Defendants
JUDGE:	GOLDBERG J
DATE OF ORDER:	29 APRIL 2002
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The application is stood over for further hearing on a date to be fixed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3051 of 2001

IN THE MATTER OF HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) (All Administrator Appointed)

BETWEEN:	MICHAEL JAMES HUMPHRIS as Administrator of HAZELTON AIR CHARTER PTY LIMITED (ACN 065 221 356), HAZELTON AIR SERVICES PTY LIMITED (ACN 000 242 928) and HAZELTON AIRLINES LIMITED (ACN 061 965 642) Plaintiff
AND:	MARK FRANCIS XAVIER MENTHA and MARK ANTHONY KORDA as Administrators of the companies listed in the Schedule attached (All Administrators Appointed) Defendants

JUDGE:	GOLDBERG J
DATE:	29 APRIL 2002
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 An issue has arisen between the administrator of Hazelton Air Charter Pty Limited, Hazelton Air Services Pty Limited and Hazelton Airlines Limited (all administrator appointed) ("the Hazelton group") and the administrators of the companies in the Ansett group of companies set out in the Schedule to these reasons ("the Ansett group") in relation to their respective entitlements to the sum of $150m paid to the administrators of the companies in the Ansett group ("the Ansett administrators") by or on behalf of Air New Zealand Limited pursuant to a Memorandum of Understanding dated 3 October 2001 ("the Memorandum").

2 On 19 October 2001, the Hazelton administrator filed an application pursuant to the provisions of s 447A(1) and s 447D(1) of the Corporations Act 2001 (Cth) ("the Act") in which he sought orders that the Court give directions as to, and/or determine, the manner of apportionment between the Hazelton group and the Ansett group of the sum of $150m paid to the Ansett administrators, as administrators of the Ansett group, pursuant to the Memorandum and direct that the Ansett administrators pay to the Hazelton administrator such sum as the Court determines to be apportioned to the Hazelton group. In the course of the hearing the Hazelton administrator, by leave, amended the application to provide that it was made pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) and to seek pursuant to s 21 of the Federal Court Act a declaration as to the manner of apportionment of the $150m between the Hazelton group and the Ansett group.

3 In proceeding number V 3060 of 2001, which was instituted on 2 November 2001, the Ansett administrators sought directions as to the allocation of the $150m paid pursuant to the Memorandum.

4 The circumstances giving rise to the applications are as follows. The Hazelton group became subsidiaries and part of the Ansett group of companies on 30 April 2001 on the completion by the Ansett group of an on-market takeover of the Hazelton group. At that time the Ansett group was a wholly-owned subsidiary of Air New Zealand Limited.

5 As a result of an order made on 17 September 2001, the Ansett administrators were appointed administrators of the companies in the Ansett group (with one exception where the appointment occurred subsequently on 4 October 2001) and the Hazelton administrator was appointed administrator of the companies in the Hazelton group.

6 On 5 October 2001, the Ansett administrators filed an application in the Court seeking an order that the Court approve of the Memorandum, or alternatively an order that the Ansett administrators may properly perform and give effect to it. On 8 October 2001, the Hazelton administrator filed an application in substantially the same terms. The parties to the Memorandum were the Ansett group, the Hazelton group, the Ansett administrators, the Hazelton administrator, Air New Zealand Limited and its subsidiaries (other than the Ansett group and the Hazelton group) set out in Schedule B to the Memorandum ("the Air New Zealand group") and each party who was at any time since Air New Zealand acquired ownership of the Ansett group a director or secretary of any company in the Air New Zealand group or the Ansett group as set out in Schedule C to the Memorandum ("the directors").

7 The events and circumstances giving rise to the negotiation and execution of the Memorandum are set out in In the matter of Ansett Australia Limited and Mentha [2001] FCA 1439. The approval of the Memorandum by the Court was sought as a matter of urgency for the reasons set out in that judgment. The Memorandum provided that the Air New Zealand group and the directors would procure the New Zealand Government to pay on behalf of the Air New Zealand group to the Ansett administrators the amount of $150m. The Memorandum provided further that in consideration of that payment and an agreement by the Air New Zealand group and the directors not to prove in the administration or liquidation of the Ansett group (which included the Hazelton group for the purposes of the Memorandum) and to waive certain entitlements to certain amounts, the Ansett administrators, the Hazelton administrator, the Ansett group and the Hazelton group would accept the payment of $150m, the agreement not to prove and the waiver of entitlements in full satisfaction of any outstanding liability or rights under a Letter of Comfort dated 8 August 2001 from Air New Zealand Limited to the directors of three companies in the Ansett group.

8 At the time the application for approval of the Memorandum came before the Court, the Hazelton administrator and the Ansett administrators had not agreed as to the manner in which the $150m was to be apportioned between the Ansett group and the Hazelton group. At the hearing of the application for the Court to approve the Memorandum, the following statement was read to the Court as a statement agreed to be binding upon the Ansett administrators and the Hazelton administrator:

"The manner of apportionment of the amount being paid to Messrs Mentha and Korda as Ansett Administrators between the various companies in the Ansett Group (which includes the Hazelton Group) has yet to be determined. That determination will be made jointly by the Ansett Administrators and Mr Humphris as administrator of the Hazelton Group, and will take account of the interests of those creditors of the Hazelton Group who are not creditors of other companies in the Ansett Group. Failing agreement the matter will be brought before the Court for determination."

9 On 12 October 2001, the Court ordered that it approved the Memorandum and that the Ansett administrators and the Hazelton administrator may properly perform and give effect to it. In accordance with the Memorandum $150m was paid to the Ansett administrators.

10 The Ansett administrators and the Hazelton administrator have undertaken negotiations in an attempt to agree upon the apportionment of the $150m, but have been unable to agree as to the method of apportionment or the amount to be received by the Hazelton group. The Ansett administrators acknowledge that the Hazelton administrator and the Hazelton group have a legitimate claim on the fund of $150m and an interest in it and accept that they hold the amount of $150m in trust for the Hazelton administrator and the Hazelton group as well as for themselves and the Ansett group. However, the parties are unable to agree as to the amount of their respective interests in that fund.

11 During October 2001, the Hazelton administrator required access to the entitlement of the Hazelton group in the $150m to assist in the provision of working capital to keep the business of the Hazelton group running. As a result, an interim arrangement was reached between the Ansett administrators and the Hazelton administrator whereby $1,545,000 was paid by the Ansett administrators to the Hazelton administrator on account of his entitlement to be paid a portion of the $150m. Such payment was made without prejudice to the ultimate determination of the issue and on the basis that the Hazelton administrator would not be personally liable to repay any part of the sum of $1,545,000 unless, as administrator of the Hazelton group, he had assets available to do so after making provision for all priorities and liabilities of the kind provided for in s 556(1) of the Act. This arrangement was recorded in an order of the Court on 2 November 2001.

12 The following provisions in the Memorandum are central to the determination of the present issue:

"Payment of AUD150M from New Zealand Government

(on behalf of the Air New Zealand Group)

9 The Air New Zealand Group and the Directors will procure the New Zealand Government to pay (on behalf of the Air New Zealand Group) to the Voluntary Administrators [defined as the administrators of the Ansett group other than the Hazelton group] AUD150M net of all New Zealand taxes (including GST) within one (1) business day of the fulfilment of the Conditions Precedent, such payment to be made in a manner reasonably required by the Voluntary Administrators so that it is not required to be disgorged on any insolvency or statutory management of any company in the Air New Zealand Group.

10 If the New Zealand Government fails to pay AUD150M in accordance with Clause 9 this Memorandum of Understanding is automatically terminated.

Air New Zealand Group waives all claims

11 In consideration of the release in Clause 12, the Air New Zealand Group and the Directors will not prove in the administration or liquidation of the Ansett Group [defined as including the Hazelton group as well as the Ansett group] and waive all entitlements to be repaid funds advanced, outstanding trade debts or any other money owed whatsoever arising, accruing or falling due prior to the date of fulfilment of the Conditions Precedent (but excluding any claim for unreturned aircraft assets as referred to in Clause 24). As at the date hereof, the Air New Zealand Group claim that the amount owing to the Air New Zealand Group from the Ansett Group is AUD160,389,090 as set out in Schedule D together with other amounts relating to the payment of wages and salaries.

Release of Letter of Comfort claim

12 In consideration of the payment in Clause 9 and the agreement not to prove and waiver in accordance with Clause 11, the Voluntary Administrators, the Hazelton Voluntary Administrator and the Ansett Group will accept the payment in Clause 9 and the agreement not to prove and waiver in accordance with Clause 11 in full satisfaction of any outstanding liability or rights under the Letter of Comfort dated 8 August 2001 from Air New Zealand Limited to the Ansett Group and, subject to receipt of the payment in Clause 9, the Voluntary Administrators, the Hazelton Voluntary Administrator and the Ansett Group release the Air New Zealand Group and all of the Directors from all actions, claims and demands arising out of and/or relating directly or indirectly to the Letter of Comfort, whether or not the Voluntary Administrators, the Hazelton Voluntary Administrator or any company in the Ansett Group are presently aware of the existence of such action, claim or demand. Nothing in Clause 22 shall apply to this Clause.

12A For the avoidance of doubt, upon payment of AUD150M in accordance with Clause 9, the Ansett Group will have no claims against the Air New Zealand Group and the Directors arising out of and/or relating directly or indirectly to the Letter of Comfort.

Conditional Release of Directors

13 Subject to Clause 22 and to receipt of the payment referred to in Clause 9, the Ansett Group, the Voluntary Administrators and the Hazelton Voluntary Administrator release the Air New Zealand Group, and all of the Directors from all actions, claims and demands arising out of and/or relating directly or indirectly to:

13.1 the management or affairs of the Ansett Group;

13.2 any claims arising at common law, in equity or pursuant to statute including but not limited to the Corporations Act, the Corporations Law and the Trade Practices Act;

13.3 any claims arising in the administration of the Ansett Group;

13.4 any transactions or dealings between any company in the Ansett Group and any company in the Air New Zealand Group

in all cases whether or not any company in the Ansett Group or the Voluntary Administrators are presently aware of the existence of such action, claim or demand.

This release does not operate to prevent or in any way hinder the return to the owner of aircraft assets or documents as contemplated by Clause 24.

Release of Ansett Group

14 Subject to receipt of the payment referred to in Clause 9, the Air New Zealand Group and each of the Directors release the Ansett Group, the Voluntary Administrators and the Hazelton Voluntary Administrator from all actions, claims and demands whatsoever which any of them may have on any account whatsoever, including any loans which may be owing.

This release does not operate to prevent or in any way hinder the return to the owner of aircraft assets or documents as contemplated by Clause 24.

...

Deed of Company Arrangement

18 The Voluntary Administrators will take all reasonable steps to propose and recommend (as the case may be) that each company in the Ansett Group enters into a Deed of Company Arrangement which will:

18.1 acknowledge and incorporate the terms of the Memorandum of Understanding or if in existence the Proposed Agreement; and

18.2 seek to `pool' all of the assets and liabilities of the Ansett Group so that for the purposes of the Deed all Ansett Group companies are treated as one company.

...

Employee Entitlements

23 The Voluntary Administrators will use their best endeavours to ensure that the priority creditors are paid all of their entitlements in full."

13 It is also necessary to refer to the terms of the "Letter of Comfort". It is dated 8 August 2001 and is signed for and on behalf of Air New Zealand Limited. It is in the following terms:

"To: THE DIRECTORS

Ansett Holdings Limited (ABN 085 117 635)

Ansett International Limited (ABN 080 622 460)

Ansett Australia Limited (ABN 004 209 410) (the `Companies')

Dear Sirs,

Letter of Comfort

In its capacity as the ultimate parent company and sole beneficial shareholder of the Companies, Air New Zealand Limited (`ANZ') hereby confirms to you that it is its current policy to take such steps from time to time as are necessary to ensure that its wholly owned subsidiaries (including the Companies) are able to meet their debts as they fall due.

We will advise you promptly in the event of any change in this policy.

The previous paragraphs set out our bona fide intention in respect of the matters mentioned, but shall not create any contract between us and any of you, nor a guarantee nor indemnity in respect of our obligations hereunder, enforceable at law or in equity.

Notwithstanding the previous paragraph, we will make available to you on request in writing from time to time advances for the sole purpose of enabling you to pay working capital liabilities incurred by you in respect of property or services purchased or sold in the ordinary course of your business, subject to the following conditions:

a) the maximum aggregate amount of all such advances (whether or not they remain outstanding at any particular time) shall not exceed the equivalent of A$400 m;

b) such advances will continue to be available to you until withdrawn and such withdrawal has been notified in writing to you by Air New Zealand (provided that such withdrawal shall not take effect earlier than 4 weeks after the date that notification is given); and

c) in making a request for an advance you will be deemed to represent, warrant and undertake to us that the advance is required, and will be applied, to pay working capital liabilities of yourself incurred in respect of property or services purchased or sold in the ordinary course of your business.

This Letter of Comfort is governed by New Zealand law."

14 At the time the Memorandum was entered into, neither the Ansett administrators nor the Hazelton administrator had the opportunity to undertake a detailed examination or investigation of the claims which they might have under the Letter of Comfort and against Air New Zealand Limited and the directors. The Hazelton administrator said in this proceeding that in order to be able to determine the merits of any claim under the Letter of Comfort, the provision of a considerable amount of additional information was required which he then identified and which included an understanding of the circumstances under which the Letter of Comfort was prepared, the identification of the individuals in the Hazelton group (if any) who received the Letter of Comfort and whether they acted upon it, and whether the Hazelton group was the recipient of funds advanced in accordance with the terms of the Letter of Comfort. An amount of $32m was advanced to the Ansett administrators and their predecessors in order to enable the payment of employees' wages. According to Mr Mentha, one of the Ansett administrators, their predecessors had instructed solicitors to make a demand upon Air New Zealand Limited to make further advances under the Letter of Comfort. Twelve million dollars was advanced to the Ansett administrators and $210,961.08 of this money was allocated to the Hazelton group on the basis of its proportion of the total payroll.

15 In the course of the hearing, a number of bases for apportionment were put to the Court by the parties. The Hazelton administrator's initial proposal was that the sum be apportioned in proportion to the respective unsecured liabilities of each of the Ansett group and the Hazelton group which were identified. The Hazelton administrator believed that this was the most equitable basis for apportionment as it was commercial, pragmatic, transparent, realistic and fair.

16 The Ansett administrators initially approached the matter on the basis that the settlement with Air New Zealand Limited was reached on an undifferentiated group basis and that the apportionment should treat the Hazelton group as undifferentiated parts of the total Ansett group. The Ansett administrators proposed that the apportionment be on the basis of known employee entitlements. The Ansett administrators proposed that they would increase these payment to the Hazelton group to a maximum of $4.5m if the Hazelton employees were not paid all of their entitlements in full. The purpose of so doing was to ensure that the Hazelton employee entitlements were paid pari passu with the Ansett group employee entitlements. There were other terms of the Ansett administrators' proposal which it is not necessary to set out in any detail.

17 The parties identified a number of possible bases by reference to which the apportionment of the $150m could be determined:

(a) a comparison of the total gross liabilities of the Ansett group and the Hazelton group;

(b) a comparison of the net liabilities of the Ansett group and the Hazelton group;

(c) a comparison of the employee entitlements of the Ansett group and the Hazelton group which were entitled to priority payment. This basis was supported by the Australian Council of Trade Unions and twelve unions ("the ACTU") which represented the interests of employees and former employees of the Ansett group;

(d) a comparison of the trading losses of the two groups during the period of their respective administrations;

(e) mathematical equality according to the number of claimants to the fund;

(f) a comparison of the claims released under the Letter of Comfort.

18 A substantial body of evidence was led by the parties to demonstrate the figures which would be derived by using these bases of apportionment. I put on one side for later consideration the comparison of the claims released. A number of the calculations were controversial, such as the liabilities which might be incurred, or the recoupments which might be obtained, on the termination of various aircraft leases. There was also controversy as to the basis of determining the quantum of employee entitlements. Differential bases were proffered, namely on a most likely outcome basis and on a liquidation basis. Adopting one or another of these bases resulted in different amounts for total liabilities and net liabilities. The determination of a number of these items was dependant upon matters which are at the present time subject to considerable variation and speculation depending upon future outcomes. A particular area of controversy was the calculation of aircraft leases and remediation costs. A different proportion of the $150m was derived for the Hazelton group depending upon which basis was adopted.

19 The following table shows the indicative portion of the $150m which would be due to the Hazelton group depending upon the basis chosen. These amounts are only indicative because there was disagreement between the parties as to the calculation of some of the figures from which they were derived. Nevertheless, for present purposes, the table is sufficient to identify the relative outcome depending upon the basis used.

Basis	Hazelton	Ansett	%	Amount
Net liabilities	$40.202m	$2.116m	1.864	$2,796,000
Total liabilities	$61.68m	$3.131m	1.932	$2,898,000
Employee entitlements	$1.768m	$779m	0.226	$339,000
Total creditors	$50.136m	$2.836m	1.737	$2,605,500
Trading losses	$10,956,471	$175m	5.89	$8,835,000

20 At the time the Memorandum was entered into there was no agreement, arrangement or understanding between the Ansett administrators and the Hazelton administrator as to the manner in which the $150m was to be used. The Ansett administrators said that they proposed to use the money for the purposes of Pt 5.3A of the Act. Although cl 23 of the Memorandum (par 12 above) provided that the Ansett administrators would use their best endeavours to ensure that priority creditors were paid all of their entitlements in full, it was not a condition or term of the Memorandum that the $150m be used for that purpose. I made the following observation at [74] of my Reasons for Judgment on 12 October 2001 when approving the Memorandum:

"I should point out that the manner in which the administrators use the payment of $150 million is a matter for the administrators to determine and it is no part of the function of the Court to give any indication or direction as to how that amount might, or should be, applied. They have said that they intend to use the settlement proceeds to maximise the chances of the Ansett business remaining in existence and that if that is not possible, they intend to use the proceeds to maximise the return to creditors. They need to say no more at the present time."

21 There is a fallacy in using the basis of trading losses as the parties were in agreement that the determination of the appropriate method of apportionment rested on attempting to ascertain the intention of the parties at the time the Memorandum was executed. A division based on an assessment of trading losses would only be relevant if that had been the subject of agreement by the parties as to the appropriate method of apportionment at the time of the execution of the Memorandum. But this method of apportionment was not adverted to at that time. Apart from what is to be deduced or inferred from the terms of the Memorandum and the statement made to the Court at the hearing of the application for approval of the Memorandum, the parties did not explicitly advert to the manner or method of apportionment of the $150m between the Ansett group and the Hazelton group.

22 I do not consider that any of the bases for apportionment advanced by the parties is the appropriate method to use or adopt. I will consider separately the basis of a comparison of the claims released under the Letter of Comfort. It is accepted by the Ansett administrators that the Hazelton administrator on behalf of the Hazelton group is entitled to a beneficial interest in the fund of $150m. Such a beneficial interest is to be established by the manner in which the Memorandum was negotiated and its terms, specifically the releases passing between Air New Zealand Limited and the directors and the Ansett administrators and the Hazelton administrator. In short, the fund of $150m is impressed with a trust in favour of the Hazelton administrator on behalf of the Hazelton group. The Hazelton administrator submitted that the trust was either an express, implied or a constructive trust and relied on Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 at 620; Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 at 149, 150, 152, 154; Bahr v Nicolay [1988] HCA 16; (1988) 164 CLR 604 at 618-619 and Trident General Insurance Co Limited v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 at 121, 147. The Hazelton administrator submitted, in the alternative, that the Hazelton group would have a lien or charge over the fund to secure the payment of its beneficial interest in the fund: Hewett v Court [1983] HCA 7; (1982) 149 CLR 639 at 645; Cadorange Pty Ltd v Tonga Holdings Pty Ltd (1990) 20 NSWLR 26 at 38.

23 There is a difference between the basis upon which an express trust, an implied trust and a constructive trust are to be established. An express trust and an implied trust are identified and established by reference to the intention of the parties, whereas a constructive trust arises regardless of intention and is remedial in nature: Muschinski v Dodds (supra) at 613; Meagher and Gummow, Jacobs' Law of Trusts in Australia, 6^th ed, 306.

24 However, the issue is not the existence of the trust, but rather the determination and quantification of the extent of the interest of the Hazelton group in that trust. It is not therefore necessary to reach a concluded view as to the nature of the trust upon which the fund is held by the Ansett administrators.

25 There is no provision in the Memorandum which provides a guide for the conclusion that the intention of the parties was that the fund of $150m was to be apportioned between the Ansett group and the Hazelton group on the basis of proportions of employee entitlements, number of creditors or the relative proportion of liabilities whether total or net. Although cl 18.2 of the Memorandum obliged the Ansett administrators to take all reasonable steps to propose and recommend that all of the assets and liabilities of the Ansett group would be pooled so that, for the purposes of a deed of company arrangement, all companies in the Ansett group would be treated as one company, the Hazelton administrator did not undertake any similar or like obligation. Clause 19 of the Memorandum provided that the Hazelton administrator was to recommend the incorporation of the terms of the Memorandum into any proposed deed of company arrangement to be entered into by the Hazelton group.

26 The Ansett administrators submitted that the measure of the parties' respective interests in the fund was to be found in their promise to pursue pooling across the entire group and in their promise to give priority to employee claims. It was said that the fund was held subject to those promises. The difficulty with that submission is that the Hazelton administrator did not make similar promises, nor did he accept that he was bound by those promises to take the same approach. Further, it was not for the administrators to make the final decision on pooling; that was a matter for the creditors of all the companies in the Ansett group and the Hazelton group to decide.

27 Although the Ansett administrators, by cl 23 of the Memorandum, were to use their best endeavours to ensure that the priority creditors were paid all of their entitlements, no such obligation was assumed by the Hazelton administrator. Although I accept that in the ordinary course priority creditors are given priority in repayment over ordinary and secured creditors, the language used in cls 18 and 23 of the Memorandum does not enable me to be satisfied that one can infer from these clauses a common intention of the Ansett administrators and the Hazelton administrator as to the manner in which the $150m was to be apportioned.

28 The joint statement made to the Court on 5 October 2001 does not take the matter any further. It accepts that no agreement has been reached as to the method of apportionment and assumes that agreement will be reached on the basis that the agreement will take into account the interests of those Hazelton creditors who are not creditors of the Ansett group. The joint statement does not provide any basis on which the proportionate interest of each of the Ansett group and the Hazelton group in the fund of $150m can be identified. For example, taking into account the interests of Hazelton creditors who are not creditors of the Ansett group does not point to a basis of apportionment determined by reference to total liabilities, net liabilities or priority employee entitlements.

29 The manner in which the parties considered how the fund of $150m might be used when received does not provide a measure of the extent of the proportionate interest of each group in the fund. The Ansett administrators recommended the execution of the Memorandum to creditors on the basis that it would provide money to enable the continued operation of the Ansett group, but they made no commitment as to how the fund would be used, nor was there any suggestion as to how it might be used by the Hazelton administrator. In particular, the Ansett administrators specifically rejected a Commonwealth Government suggestion or proposal that the fund be used exclusively for the benefit of paying employees their priority entitlements. Further, there was no agreement between the administrators in relation to any pooling arrangement.

30 The various bases advanced by the Ansett administrators and the Hazelton administrator for apportionment (other than a comparison of the claims released under the Letter of Comfort) have an element of fairness and appropriateness about them, but they are not predicated upon any legal or equitable principle. Nor can they be established by reference to the intention of the parties. I am not satisfied that it was the common intention of the parties that the fund be apportioned on any of the bases propounded by the parties. The various bases propounded provide convenient methods for the distribution of the fund, but they are not based on any principle which identifies or measures the extent of the interest of each of the Ansett group and the Hazelton group in the fund at the time it was created and impressed with the relevant trust in favour of the Hazelton group. It is not for me to reach a fair, appropriate, equitable or just conclusion as to how the fund of $150m is to be apportioned. That may be a consequence or result of my resolution of the matter. Rather, my task is to determine, by reference to appropriate principles of law and equity, what was the extent and measure of the interest in the fund of the two groups at the time at which it was agreed to create the fund, namely the time of the execution of the Memorandum.

31 Fairness or appropriateness is an insufficient basis on which to determine the interest of the Hazelton group in the fund of $150m. In Muschinski v Dodds (supra) Brennan J said at 608:

"The flexible remedy of the constructive trust is not so formless as to place proprietary rights in the discretionary disposition of a court acting according to vague notions of what is fair."

Dean J said at 615-616:

"The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles: ...

...

Under the law of this country - as, I venture to think, under the present law of England ... - proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion ... subjective views about which party `ought to win' ... and `the formless void of individual moral opinion': ..."

32 I consider that the proper principle to be applied to determine the extent of the respective interests of the two groups in the fund and the manner of its apportionment between them is to determine what was bargained away or given up, by each group in exchange for the receipt of the $150m and then to place a value on what each group bargained away or gave up. In this way it is possible to identify the relative value of what was relinquished in exchange for an interest in the fund of $150m.

33 What occurred, by the execution of the Memorandum, was that the Air New Zealand group and the directors procured the payment of $150m to the Ansett administrators, albeit on behalf of themselves and the Hazelton administrator, in exchange for the Ansett administrators and the Ansett group and the Hazelton administrator and the Hazelton group each giving up something of value. Each of them gave up such claims as they had against the Air New Zealand group and the directors arising out of, or relating directly or indirectly, to the Letter of Comfort. The giving up of those rights was confirmed by the emphatic language of cl 12A (par 12 above).

34 Prior to the execution of the Memorandum each group had a claim or a potential claim against Air New Zealand Limited under the Letter of Comfort. The claim of each group, which had a value, was exchanged for an interest in the fund of $150m which is to be measured by the relativity of the claims of the two groups which were foregone.

35 In the absence of any agreement as to the apportionment of the $150m between the Ansett group and the Hazelton group, I consider that the measure of their respective proprietary interests in the fund of $150m is to be determined by reference to the relative proportions of the value of the rights or claims which each of them bargained away and gave up in exchange for the receipt of the $150m. Each of them had a share in the fund of $150m proportionate to the value of what they had bargained away.

36 This approach reflects the application of what has been called the principle of proportion. An illustration of the principle is found in Spence v Union Marine Insurance Company Limited [1868] LR3CP 427. The plaintiff shipped on a boat 43 bales of cotton which were insured by the defendant. In total, 1,876 bales were shipped on the boat. The boat was wrecked and all the cotton was damaged or lost. Most of the cotton that was damaged could not be identified by reference to its owner. Of the 1,876 bales shipped 231 were lost and 1,645 bales arrived without any distinguishing marks on them. The plaintiff contended that all of its bales (apart from 2 bales) should be considered as included in the lost bales because as a result of the damage to the remaining bales, it was impossible for the plaintiff to retain the identical bales which it had shipped and insured. The Court rejected the plaintiff's argument. The Court said at 437:

"In our own law there are not many authorities to be found upon this subject; but, as far as they go, they are in favour of the view, that, when goods of different owners become by accident so mixed together as to be undistinguishable, the owners of the goods so mixed become tenants in common of the whole, in the proportions which they have severally contributed to it."

The Court continued further at 439:

"We cannot assume that the whole of the plaintiffs' forty-one bales were amongst those that were destroyed, any more than we can assume that they all formed part of the 1645 which were brought home; and we see no means of determining the extent of the interest of the several owners, except by adopting a principle of proportion, and which would, we think, be equally applicable in determining the plaintiffs' portion of the 231 bales that were totally lost as of the 1645 which arrived in this country, though without marks.

The principle of proportion is that which was applied by Lord Ellenbrough, where one gross sum was paid to a broker in respect of two debts due to different principals without distinguishing how much was paid in respect of each: Flavenc [Favenc] v. Bennett 11 East, at p.41. It is also the principle adopted in cases of general average, and of jettison, where it is not known whose goods are sacrificed, as stated by Cassaregis and Emerigon in the passages that were quoted in the argument; and we think it is the proper principle to apply to this case."

Spence v Union Marine Insurance Co (supra) was cited with approval in Indian Oil Corp Ltd v Greenstone Shipping SA [1987] 3 All ER 893 at 903, and in Re Stapylton Fletcher Ltd [1995] 1 All ER 192 at 208-209.

37 In Favenc v Bennett (1809) 11 East 36; 103 ER 917, the defendants had purchased two parcels of coffee from a broker. One parcel cost more than £707 and the other cost more than £272. The defendants accepted a bill for £800 which was more than either of the two amounts alone but less than the total. There was no specific appropriation of the amount to either parcel. Lord Ellenbrough CJ concluded that the amount should be apportioned between the respective owners of the coffee in the proportions which their debt bore to the total of the debts.

38 Neither the Ansett administrators nor the Hazelton administrator placed any evidence before the Court as to the value of the rights which they had given up in exchange for the payment of the $150m. The Ansett administrators submitted that the claims of the Hazelton group which were released were of less significance and value than those released by the Ansett group and that an "employee" basis or conservative "yardstick" should be adopted towards the apportionment. This approach was contested by the Hazelton administrator who submitted that the claims that were released extended to claims which might have been maintained directly by the Hazelton group.

39 The Hazelton administrator submitted that the strength or weakness of the theoretical claims released was not relevant to determining which creditors between the Ansett group and the Hazelton group were in the parties' minds when agreeing to apportion the $150m, that is to say whether they were considering creditors generally or employees only.

40 I do not consider that this is a correct approach to valuing the respective interests of the Ansett group and the Hazelton group in the $150m fund. The strength or weakness of the claims released is relevant to determining the measure and relativity of the claims foregone in exchange for an interest in the fund. As I have found earlier, there was no common intention of the parties that the fund be apportioned on any basis determined by reference to a particular class of creditor.

41 The Ansett administrators submitted evidence in relation to the legal significance of the claims which had been released and bargained away in the Memorandum. They said that the strength of their claims under the Letter of Comfort was to be found in the ability of the three Ansett companies, to whom the Letter of Comfort was addressed, to call for performance of the working capital loan facility obligation in the second part of the Letter of Comfort. They pointed out that there were impediments to the financial recovery of this claim and that there were difficulties with their contractual claim under the first part of the Letter of Comfort. Various submissions were made as to the strength and weaknesses of the claims of the Ansett group and the Hazelton group under the Letter of Comfort but neither party essayed a value of its claims or a value of the claims of the other party.

42 The Ansett administrators submitted that whilst it was neither possible nor desirable to undertake a conclusive assessment of the comparative strength of the claims released by reference to particular companies in the Ansett group, including those in the Hazelton group, it could be concluded with confidence that the potential claims of the Hazelton group were of less significance and of considerably less value than those released by the companies in the Ansett group, particularly the three Ansett companies to whom the Letter of Comfort was addressed. That may be so, but that approach says nothing as to the value of the respective claims.

43 The Hazelton administrator identified a number of potential claims which had been released by it in the Memorandum in respect of which the Hazelton group might have had a direct claim against the parties released. The Hazelton administrator pointed to a claim by it as a third party who was intended to receive a benefit under the Letter of Comfort and to a claim for reliance loss based on representations or s 52 of the Trade Practices Act 1974 (Cth) under the Letter of Comfort. However these claims were not developed in any detail nor were they assigned a monetary value.

44 The Hazelton administrator submitted that it was not appropriate to weigh and consider the competing strengths and weaknesses of claims under the Letter of Comfort between the various companies in the Ansett group and the Hazelton group for a number of reasons. However cogent those reasons may be, they do not allow an assessment of the relative interest of each party in the fund of $150m. Certainly they do not lead to the result that the fund should be divided up equally between all the companies in the proportions of the number of companies in each group.

45 The Hazelton administrator submitted that if I was unable to determine the common intention of the parties as to the method of apportionment, the equitable maxim "Equity is Equality" was relevant. The Hazelton administrator relied on the following passage in Halsbury's Laws of Australia, volume 12 at [185-115]:

"Generally speaking, equity looks to an equal distribution of profits and losses proportionate to the claims or liabilities in question."

In In re Steel, decd [1979] Ch 218 (cited as a footnote to that passage), Megarry V-C said at 226:

"When the maxim `equality is equity' comes to be applied, it often, and I think usually, will mean mathematical equality, in that no other basis of equality can be discerned: but given suitable circumstances a true equality of treatment may require the application of a mathematical inequality, and instead a proportionate equality. ...

There seems to me to be a real difference between shares of a fund on the one hand and legacies of fixed amounts on the other hand: one moves in a world of proportions, and the other in a world of determinate sums."

(See also Bialkower v ACOHS Pty Ltd (1998) 83 FCR 1 at 13).

46 As I have observed earlier, there was no common intention of the parties as to the method of apportionment at the time the Memorandum was entered into. Although the Hazelton administrator and the Ansett administrators were no doubt acting in the interests of all creditors of the two groups and the Ansett administrators agreed to use their best endeavours to ensure that priority creditors were paid their entitlements in full, it does not follow that there was agreement, or a common intention, that the fund would be divided or shared by reference to relative proportions of outstanding priority employee entitlements. Indeed, there was no such agreement or common intention in particular in relation to identifying any particular group of creditors who might benefit from the payment.

47 Against this background, the maximum "equity is equality" is to be applied not by reference to the number of companies in each group, three in the case of the Hazelton group and forty-one in the case of the Ansett group, but rather by reference to the proportionate share of the fund measured by the extent and value of the claims or rights given up in exchange for an interest in the fund.

48 Both parties identified and explained the difficulties involved in valuing the claims given up in exchange for their interest in the fund. In an affidavit sworn on 22 October 2001 the Hazelton administrator said that at that time he had not had the opportunity to instruct his legal advisers to undertake a detailed examination of the strength or weakness of possible claims against Air New Zealand Limited arising out of the Letter of Comfort. He said that an assessment of any potential claims by the Hazelton group and the Ansett group against Air New Zealand Limited pursuant to the Letter of Comfort was extremely difficult as was the assessment of the strength of potential claims against the directors.

49 At the time of the application for the approval of the Memorandum, the Ansett administrators had not conducted what they described as an adequate investigation of the claims of the Ansett group under the Letter of Comfort or against the Air New Zealand group and the directors. They had received legal advice as to the steps which had to be taken before a more definite view could be expressed as to the strength of the claims under the Letter of Comfort.

50 Nevertheless, if the task at hand is to determine and value the extent of the interests of the Ansett group and the Hazelton group in the fund of $150m, an attempt must be made by the parties to value the claims given up in exchange for those interests. To adopt an apportionment based on the other alternatives proffered by the parties is to ignore principle and, in effect, conduct a conciliation or an ex aequo bono arbitration which is not the task of the Court.

51 A number of the submissions of the parties led in this direction. For example, the Hazelton administrator said that his proposal to apportion the $150m in proportion to the unsecured liabilities of the Hazelton group and the Ansett group was "commercial, pragmatic, transparent, realistic and fair". That may be so, but it is not a basis upon which the Court can resolve the present issue. The matter must be determined by reference to principles of law and equity, rather than by reference to notions of commerciality and fairness.

52 The application should therefore be stood over for further hearing to enable the parties to present material and submissions on the issue of the extent, assessment and valuation of the claims which were given up in exchange for an interest in the fund of $150m.

I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.

Associate:

Dated: 29 April 2002

Counsel for the Plaintiff:	JWS Peters
Solicitor for the Plaintiff:	Holding Redlich
Counsel for the Defendants:	SP Whelan QC and S Sharpley
Solicitor for the Defendants:	Arnold Bloch Leibler
Counsel for Australian Council of Trade Unions and twelve unions:	JBR Beach QC and BF Quinn
Solicitor for Australian Council of Trade Unions and twelve unions:	Maurice Blackburn Cashman
Dates of Hearing:	2, 16, 29 November 2001, 15 April 2002
Date of Judgment:	29 April 2002

SCHEDULE

Ansett Australia Limited (ACN 004 209 410)

501 Swanston Street Pty Ltd (ACN 005 477 618)

Aeropelican Air Services Pty Ltd (ACN 000 653 083)

Airport Terminals Pty Ltd (ACN 053 976 444)

Aldong Services Pty Limited (ACN 000 258 113)

Ansett Aircraft Finance Limited (ACN 008 643 276)

Ansett Australia Holdings Limited (ACN 004 216 291)

Ansett Aviation Equipment Pty Ltd (ACN 008 559 733)

Ansett Carts Pty Limited (ACN 055 181 215)

Ansett Equipment Finance Limited (ACN 006 827 989)

Ansett Finance Limited (ACN 006 555 166)

Ansett Holdings Limited (ACN 065 117 535)

Ansett International Limited (ACN 060 622 460)

Ansett Australia and Air New Zealand Engineering Services Ltd (ACN 089 520 696)

Bodas Pty Ltd (ACN 002 158 741)

Brazson Pty Limited (ACN 055 259 008)

Eastwest Airlines (Operations) Ltd (ACN 000 259 469)

Eastwest Airlines Limited (ACN 000 063 972)

Kendell Airlines (Aust) Pty Ltd (ACN 000 579 680)

Morael Pty Ltd (ACN 003 286 440)

Northern Airlines Limited (ACN 009 607 069)

Northern Territory Aerial Work Pty Limited (ACN 009 611 321)

Rock-it-Cargo (Aust) Pty Ltd (ACN 003 004 126)

Show Group Pty Ltd (ACN 002 968 989)

Skywest Airlines Pty Ltd (ACN 008 997 662)

Skywest Aviation Limited (ACN 004 444 866)

Skywest Holdings Pty Ltd (ACN 008 905 646)

Skywest Jet Charter Pty Ltd (ACN 008 800 155)

South Centre Maintenance Pty Ltd (ACN 007 286 660)

Spaca Pty Ltd (ACN 006 773 593)

Traveland International (Aust) Pty Limited (ACN 000 275 936)

Traveland International Pty Limited (ACN 002 275 936)

Traveland New Staff Pty Ltd (ACN 080 739 037)

Traveland Pty Limited (ACN 000 240 746)

Walgali Pty Ltd (ACN 005 258 921)

Westintech Limited (ACN 009 084 039)

Westintech Nominees Pty Ltd (ACN 009 302 158)

Whitsunday Affairs Pty Ltd (ACN 009 694 553)

Whitsunday Harbour Pty Limited (ACN 010 375 470)

Wridgway Holdings Limited (ACN 004 449 085)

Wridgways (Vic) Pty Ltd (ACN 004 153 413)

(All Administrators Appointed)