Court Clarifies Permission Requirements for Legal Proceedings During Company Administration

Citation: [2024] EWHC 508 (Comm)
Judgment on

Introduction

In the case of CargoLogicAir Ltd v WWTAI AirOpCo 1 Bermuda Ltd [2024] EWHC 508 (Comm), the London Circuit Commercial Court addresses several substantive legal issues. The case focuses on the administration period of a company, the counterclaims raised during that period, and the implications of applications to strike out claims and to amend counterclaims without required permissions. This article distils the key legal principles and outcomes articulated by Deputy High Court Judge Paul Stanley KC.

Key Facts

CargoLogicAir Ltd (CLA), a lessee, and WWTAI AirOpCo 1 Bermuda Ltd (the Lessor), became embroiled in a dispute following a lease termination and subsequent sale of a Boeing 747-400 aircraft. CLA’s administration status triggered the moratorium provisions of the Insolvency Act 1986, Schedule B1, which prevents legal actions against a company in administration without the administrator’s consent or court permission. The Lessor’s filing of a counterclaim, raising issues of lease termination, breach of obligations regarding aircraft documentation, and loss of rent without court permission forms the crux of this case.

The court references Paragraph 43, Schedule B1 of the Insolvency Act 1986, governing legal processes against a company in administration. Permission from the administrator or court is mandatory to proceed with collection. This rule was explored in Bank of Ireland v Colliers International UK plc [2012] EWHC 2942 (Ch), affirming that permission for legal proceedings may be retrospectively granted.

Defensive Counterclaims

It was argued, citing Mortgage Debenture Ltd v Chapman [2016] EWCA Civ 103, that defensive counterclaims may not require permission. However, this applies when the counterclaim is for a set-off defense solely. The Judge determined that permission was needed for parts of the counterclaim seeking damages beyond mere set-off.

Requirement for Permission

The condition of the aircraft and its documentation, the pending sale of the aircraft, and the defendant’s exposure to potential claims due to missing documentation highlight the necessity for permission under the insolvency moratorium. The precedent in Langley Constructions (Brixham) Ltd v Wells [1969] 1 WLR 503 confirms this requirement for claims not limited to set-off.

Granting Permission

The principles for granting permission entail balancing the prospective creditor’s claims against the administration’s purpose. The court must protect collective creditor interests while ensuring the company’s obligations are understood, as elucidated in Sunberry Properties Ltd v Innovate Logistics Ltd [2008] EWCA Civ 1321.

Proprietary Rights

Claims related to proprietary rights are generally granted permission to proceed due to their significance in law, drawing from Sunberry Properties Ltd.

Determination and Preservation of Rights

Even partially defensive claims closely connected to the company’s own claims are likely to receive permission, informed by the equitable principle that defendants should defend without undue restriction.

Imposition of Conditions

The court has the discretion to grant permission on terms, typically imposing conditions to prevent the impairment of administration purposes.

Outcomes

Permission was granted for parts of the Lessor’s counterclaim, particularly for the delivery up of documents and potentially for claims regarding loss of rent. However, this permission was conditioned notably on the Lessor providing better particulars of the quantum of its damages claim and on not enforcing any money judgment without court permission or the administrator’s consent. The Lessor’s claim for damages for early termination and loss of rental income was deemed reasonable in principle and connected closely to CLA’s claim, justifying determination of the issues together.

The requirement for permission for the counterclaim was a significant focus. The necessity to adequately plead and explain the claim before the court grants permission was emphasized, with directions for the Lessor to provide best current estimates for market rent and disclose the sale contract for the aircraft.

No order as to costs was made in relation to the Lessor’s application for further information, deemed premature as proper practice had not been followed.

Conclusion

The judgment in CargoLogicAir Ltd v WWTAI AirOpCo 1 Bermuda Ltd represents a thorough application of insolvency law principles, in particular the moratorium on legal proceedings during administration. It underscores the court’s role in balancing individual creditor rights against collective interests in the wake of a company’s administration. The court’s power to grant permission for legal actions retrospectively under the Insolvency Act 1986 is affirmed, subject to conditions that reflect the necessity to prevent interference with the administration process and the equitable need to allow defendants to defend claims against them fully.