390 All England Law Reports [1975] 2 AIL ER speaking he ought to be bound by the note of findings and reasons subject possibly to the power of the court to remit to find further facts for the consideration of this court. But as the law now stands at the moment it seems to me that it would be quite wrong not to look at any rate at the evidence which the taxpayer puts before the court and to consider, in all the circumstances, whether that renders the decision of the commissioners one which it is hard to support or which ought to be varied in any way. Having considered the evidence, and in particular the failure of the taxpayer to take any steps to attempt to comply with the commissioners’ notice notwith- standing that on at least one of the counts there were documents available which he ought to have brought to the attention of the tax inspector or the commissioners, Iam not minded to alter the decision which has been made by the commissioners. ‘Taking into account all that has been urged by counsel for the taxpayer, as well as the evidence he has put in, I have come to the conclusion that I ought to dismiss this appeal. Appeal dismissed. Solicitors: Ward, Bowie & Co, agents for Turners, Manchester (for the taxpayer); Solicitor of Inland Revenue, Rengan Krishnan Esq Barrister, British Eagle International Airlines Ltd v Compagnie Nationale Air France HOUSE OF LORDS LORD MORRIS OF BORTH-Y-GEST, LORD DIPLOCK, LORD SIMON OF GLAISDALE, LORD CROSS OF CHELSEA AND LORD EDMUND-DAVIES oth, roth, r1th, rath, 16th, 17th pucempeR 1974, 16th APRIL 1975 Company ~ Winding-up— Voluntary winding-up ~ Distribution of assets ~ Application in satisfaction of liabilities - Contract having effect of varying statutory rules ~ Validity — Public policy — Contract entered into for good business reasons and not for purpose of circum- venting insolvency legislation - International Air Transport Association clearing house- Rules of clearing house constituting contract between airline members that mutual debits and credits should be paid through clearing house and in no other way ~ Airline company going into voluntary liquidation - Whether rules binding on liquidator ~ Whether liquidator entitled to sue another airline for debt owed to company - Companies Act 1948, s 302. The International Air Transport Association (‘IATA’) was a body established by an ‘Act of the Canadian Parliament, one of its objects being to provide means for collab- oration between international air transport enterprises. IATA established a clearing house for airlines who wished to become members of it. Each member accepted the regulations of the clearing house which were deemed to constitute a contract between the member, IATA and each of the other members. The object of the clearing house was to provide a facility for the settlement of debts between international airlines which carried passengers and fteight on behalf of each other, Under the standard form of agreement prescribed by IATA an airline (‘the issuing party’) which issued a ticket for transportation over the routes of another party (‘the carrying party’) agreed to pay the appropriate charges ‘applicable to the transportation performed byQ ~ HL British Eagle v Air France 391 such carrying party’. ‘The agreement further provided that settlement of amounts payable pursuant to the agreement between members of the clearing house was to be in accordance with the clearing house regulations. Regulation 18(b) of those regulations provided that debits and credits were payable ‘through the medium of the Clearing House in accordance with the Regulations and current procedure and not otherwise in any manner’. Under the clearing house procedure claims made by a carrying party were notified to the clearing house and the issuing party and there was a ‘clearance’ every month which ‘closed’ in respect of ‘transportation sold’ in any month on the 3oth day of the following month. Within five working days of closure the clearing house notified each member of the balance owed to or by the clearing house. Members in debit were required to pay the sums due from them within seven days of notification and the clearing house discharged the amount due to members in credit on clearance within the next seven days. ‘The plaintiff company and the defendant company were international airlines and members of the IATA clearing house. During the period 1st October to 6th November 1968 the defendant company received services from the plaintiff company exceeding in value those rendered by it to the plaintiff company by '5,934. On 6th November the plaintiff company ceased to carry on business. Accordingly, under the clearing house regulations, the defendant company was indebted to the clearing house in respect of the services provided by the plaintiff company in the sum of £5,934 and the clearing house was indebted to the plaintiff company in the same sum. On 8th November a resolution for a creditors’ winding-up was passed by the members of the plaintiff company. The liquidator took the view that the clearing house arrange- ments were not binding on him and in due course the plaintiff company brought an action against the defendant company claiming payment of, inter alia, the (5,934. The defendant company contended that the clearing house arrangements were binding on the liquidator in respect of all business done by the plaintiff company down to 6th November; that accordingly any net balances owed by airlines in respect of services provided for them by the plaintiff company should be applied in reduction of the net amount owed by the plaintiff company in respect of services provided by other airlines for it and that it was for the clearing house to prove in the liquidation for the net deficiency; and that accordingly, by virtue of the clearing house arrangements, nothing was owed by the defendant company to the plaintiff company. Held (Lord Morris of Borth-y-Gest and Lord Simon of Glaisdale dissenting) - It was open to the courts to refuse to give effect to provisions of a contract which achieved a distribution of an insolvent’s property which ran counter to the insolvency legislation. Accordingly, insofar as the parties to the clearing house arrangements had, by agreeing that simple contract debts were to be settled in a particular way, contracted out of the provisions of 302 of the Companies Act 1948 for the payment of unsecured debts pari passu, those arrangements were contrary to public policy and the general rules of the liquidation prevailed over them. It was immaterial that the arrangements had been entered into for good business reasons and not with a view to circum- venting the insolvency legislation. It followed that, on liquidation, the plaintiff company became entitled to recover payment of the sums payable to it by other airlines for services rendered by it during the relevant period and that airlines which had rendered services to it during that period became entitled to prove in the liquida- tion for the sums payable to them. The plaintiff company was therefore entitled to judgment for the (5,934 (see p 403 b, p 409 j and p 411 g, post). Ex parte Mackay (1873) 8 Ch App 643 applied. Notes For the distribution of assets on the winding-up of a company, see 7 Halsbury’s Laws 4. Section 302, so far as material, is set out at p 409f, post392 All England Law Reports [1975] 2 AI ER (ath Edn) 832, 833, paras 1497-1499, and for cases on the subject, see 10 Digest (Repl) 1003-1011, 6894-6952. For the Companies Act 1948, s 302, see 5 Halsbury’s Statutes (3rd Edn) 337. Cases referred to in opinions Apex Supply Co Ltd, Re [1941] 3 All BR 473, [1942] Ch 108, 111 LJCh 89, 166 LT 264, 10 Digest (Repl) 1033, 7140. Holthauren, Ex parte, re Scheibler (1874) 9 Ch App 722, 44 LJBcy 26, 31 LT 13, 5 Digest (Repl) 1064, 8584. Johns, Re, Worrell v Johns [1928] Ch 737, [1928] All ER Rep 662, 97 LJCh 346, 139 LT 333, [1928] B & CR 50, 5 Digest (Repl) 707, 6178. Mackay, Ex parte, ex parte Brown, re Jeavons (1873) 8 Ch App 643, 42 LBcy 68, 28 LT 828, 5 Digest (Repl) 708, 6187. National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd (1972] 1 All ER 641, [1972] AC 785, [1972] 2 WLR 455, [1972] 1 Lloyd’s Rep ror, HL; rvsg [1970] 3 All ER 473, [1971] 1 QB 1, [1970] 3 WLR 625, CA. Newitt, Ex parte, re Garrud (1881) 16 ChD 522, [1881-5] All ER Rep 1039, 5 LJCh 381, 44LT 5, CA, 5 Digest (Repl) 683, 6017. Peat v Gresham Trust Ltd [1934] AC 252, [1934] All ER Rep 82, sub nom Re MIG Trust Ltd 103 LJCh 173, HL, 10 Digest (Repl) 817, 5310. Williams, Ex parte, re Thompson (1877) 7 Ch D 138, 47 LJBcy 26, 37 LT 764, CA, 5 Digest (Repl) 1032, 8342. . Appeal British Eagle International Airlines Ltd (‘British Eagle’) appealed against an order of the Court of Appeal (Russell, Cairns and Stamp LJJ) made on 26th March 1974 dis- missing an appeal by British Eagle against an order of Templeman J made on 20th October 1972 dismissing an action by British Eagle against the respondents, Compagnie Nationale Air France (‘Air France’). ‘The facts are set out in the opinion of Lord Mortis of Borth-y-Gest. Allan Heyman QC and David Graham for British Eagle. Michael Fox QC and Anthony Hallgarten for Air France. Their Lordships took time for consideration. 16th April. The following opinions were delivered. LORD MORRIS OF BORTH-Y-GEST. My Lords, the plaintiff company (British Eagle’), an international airline operator, claimed from the defendant com- pany (‘Air France’), another international airline operator, the sum of £7,925 18 3d. The claim was that on 8th November 1968 that sum was ‘due and owing’ from Air France to British Bagle and that it was still due and owing at the date of the writ. The answer of Air France was that neither the sum claimed nor any other sum was due and owing to British Eagle either on 8th November 1968 or at any other date, Such a straightforward issue only lacked simplicity for the reason that the contract concerning the mutual rendering of services into which the parties had entered was one which was detailed and elaborate. But central to the contract was a term (to which I will refer) that no amount was to become payable by Air France to British Eagle. Because the contract was detailed it required and received detailed examination at the trial. That appears from a study of the comprehensive and careful judgment of Templeman J. After a full analysis of the contract his clear conclusion was that Air France never owed the sum which British Eagle claimed. The case was taken to~ HL British Eagle v Air France (Lord Morris) 393 the Court of Appeal and was heard over many days by Russell, Cairns and Stamp LJJ. ‘The judgment of the court, which lacked nothing in clarity by reason of its relative brevity, was delivered by Russell LJ. The appeal was dismissed. I would be content to express my agreement with the judgment of the Court of Appeal, but in view of the importance of the case I must state why I consider that the conclusion was correct that no sum became payable or was due and owing by Air France to British Eagle. The reason why 8th November 1968 was pleaded as the date at which a sum of £7,925 1s 3d was due and owing was that on that date a resolution for creditors’ winding-up was passed by the members of British Eagle. Just prior to that date (ie on 6th November) British Eagle ceased to carry on business, Subject always to the operation of any statutory provisions as to preferential payments the rule of fairness enshrined in s 302 of the Companies Act 1948 became operative. The property of British Eagle fell to be applied in satisfaction of its liabilities pari passu. If Air France owed £7,925 18 3d to the plaintiff company then clearly the right to receive that sum was part of the property of British Eagle and would be receivable for the benefit of creditors generally. If, on the other hand, the contract made between the two com- panies did not result in any sum or sums becoming payable or being payable, then the property of British Eagle did not include any right to receive that or any other sum from Air France. If the contract that was in fact made did not and could not have the result that money became payable to or from one party to the other it cannot avail the liquidator to say that the general body of creditors would or might have been better placed if the companies had made different arrangements. When a liquidator takes over the property of a company in order to apply it according to law he may disregard an arrangement pursuant to which there would be application of the property contrary to law; but he cannot disregard or ignore or alter the features of and the nature of the property itself by describing it as something that genuinely it is not. So in the present case if Air France had owed money to British Eagle, but there was a direction to Air France which required them in the event of a liquidation to pay the money to some particular persons rather than for the benefit of all the creditors, the liquidator could prevent what would be an evasion of the law (see Ex parte Mackay!). But if an airline company makes a contract with a number of other airline companies (the contract being in no way colourable but made for commercially beneficial reasons) for the mutual rendering of services on the terms that no money is to become payable between the various parties inter se I do not think that a liquidator while seeking to rely on and to extract a benefit from the contract can do so on the basis of ignoring or transforming some of its terms or on the basis of requiring a breach of its terms. Provided that they have so agreed among themselves international airline operators, as part of their business, sell and issue tickets to passengers in respect of journeys which will not necessarily or wholly be on planes operated by the company issuing the ticket but which may be or may in part be on the planes of another operator or of other operators. In this way an operator sells transportation over the routes of other operators. In the year 1945 by Act of the Canadian Parliament there was incorporated the International Air Transport Association (‘IATA’). One of its objects was to provide means for collaboration between international air transport enter- prises. In the following year (1946) IATA established a clearing house for the benefit of those who wished to become members of it. There could be applications for _ membership. In applying an applicant agreed that the regulations of the clearing house— ‘in their present form or as the same may from time to time be altered or amended and all rules or directions from time to time made or given in pursuance thereof shall be binding on the Applicant and shall be deemed to constitute a 1 (1873) 8 Ch App 643394 All England Law Reports [1975] 2 AI ER contract between the Applicant and I.A.T.A. and every other member for the time being of the clearing house.” British Eagle joined the clearing house in 1958. Air France had joined in 1947. On 1st July 1968 there were 76 members. So at all material times and for some 10 years before 1968 both parties were and had been under contractual obligation (by contract with all members and by each and all with IATA) to observe the regulations. It followed that any interline business affecting the parties was carried on subject to the regulations, In the pleadings British Eagle admitted that both parties were at all material times until the date of the liquidation (8th November 1968) subject to the regulations, rules and directions of IATA. ‘The arrangements involved no element of any fraudulent preference: they could not be said to have been made with a view of giving preference (see the language of s 44 of the Bankruptcy Act 1914). A system is obviously a very convenient one which enables a passenger in one country to purchase from one operator a ticket to his destination though some part or parts of his journey will involve arrangements being made for his being carried by other operators. The system can only be carried out if there is co-operation between the operators. There must be agreement in regard to very many and diverse matters. All the manifold questions which are, by years of experience, known to arise must be settled. So it follows that procedures, rules and regulations must be elaborate. It requires no effort of imagination to appreciate that in the absence of some wide- ranging agreement interline arrangements could necessitate the making of very large numbers of payments by and to and between operators. Much expense would inevitably thereby be entailed. ‘The setting up of the clearing house was designed to enable international operators to avoid the necessity of having to make such numerous payments. The system which was devised was that month by month there would be clearances of the sums referable to the services rendered by operators between each other and that such clearances would be made by the clearing house and would result in settlements involving either a payment by a member to the clearing house or a payment by the clearing house to a member but never in payments being made to or by members inter se. Month by month each operator that had (by contract made with each other oper- ator and with IATA) agreed to be within the scheme, would prepare a statement of invoices and credit notes. The documents would show what was the internationally agreed charge for the servicerendered. But the essenceof the scheme wasthat whereas ordinarily payment would be made of the agreed charge for the transportation of a passenger, under the scheme instead of payments being made to or by operators inter se appropriate debits and credits would in account with IATA be entered against or in favour of an operator in respect of all his dealings with all other operators. Accordingly in the monthly clearance some airlines would be in overall debit while others would be in overall credit: the former would pay to IATA the amounts of their overall debits; the latter would receive from IATA the amounts of their overall credits; the total of the amounts paid by IATA would exactly balance the total of the amounts paid to IATA. The number of actual financial payments would be small indeed as compared to what they would be if there was no scheme. The advantages of the scheme are unquestioned, Though I have only referred to the transportation of passengers the scheme naturally covered the carriage of cargo and mail and covered a variety of items in relation to various services customarily rendered betweencartiers. ‘The argument that the scheme was merely a debt-collecting scheme begs the whole question. The essence of the scheme was that instead of there being debts as between members there should be either debits or credits in an account with IATA but no debts as between members, An operator might be in overall debit with the clearing house even though, had there been no scheme, the operator would have been entitled to receive payments from various other operators.~ HL British Eagle v Air France (Lord Morris) 395 There is no trace in the scheme of any plan to divert money in the event of a liqui- dation. In such an event no change was to come into operation. I see no reason at all to justify seeking to alter the basis on which transactions before the date of a liquida- tion had (by contract) been effected: such transactions took place and services were rendered on the basis that clearance would follow in just the same way as had been the case for many years past. In my view it is not open to British Eagle or to its liqui- dator to seek to alter ex post facto the contractual arrangements pursuant to which they had supplied services to Air France. Nor can any assumption be made as to what, if any, services would have been asked for or supplied, had the services not been rendered on the contractually agreed basis. In the case of operators who wish to enter into arrangements under which anyone “may sell transportation over the routes of others’ it is manifest that the agreement of all concerned is needed and that many matters must be covered by agreement, Each one who enters into the arrangements must undertake to perform his appropriate part so as to ensure that a contract made between any one operator and a passenger will be carried out. So where a carrier wishes to exchange traffic in this way he makes application (to the traffic director of IATA) to become a party to the Interline Traffic Agreement. There is machinery to enable the assent or dissent of other parties to the agreement to be notified. A carrier that becomes a party to the agreement becomes contractually bound to and with all other parties to observe the covenants and terms of the Interline Traffic Agreement. These relate inter alia to matters which are covered under such headings as ‘Issuance of Tickets and Exchange Orders and Com- pletion of Consignment Notes’, ‘Claims and Indemnities’, ‘Commissions’ and ‘Gen- eral’, One heading of the agreement relates to ‘Interline Settlement’, There is first the general provision (see para VI(1)) that ‘each issuing airline agrees to pay to each carrying airline the transportation charges applicable to the transportation performed by such carrying airline . ..” This is followed by a provision as to the settlements of amounts payable pursuant to the agreement. Here everything depends on whether both parties are or are not members of the IATA clearing house. One party or more than one party to tre interline agreement may not be a member of the IATA clearing house. Where that is so then (see para VI(2)(b)) settlements are made directly between the parties. ,But—in important contra-distinction—where parties are members of the IATA clearing house the obligation is different. The agreement in such case provides (see para VI(2)(a)): “Settlements of amounts payable pursuant to this agreement between parties that are members of the IATA Clearing House shall be in accordance with applicable rules and regulations of the IATA Clearing House.’ We are concerned in this case with the dealings of various operators who were all members of the IATA clearing house. So it becomes necessary to refer to the ‘rules and regulations’. The fact that in reference to the appropriate charge for the trans- portation of a passenger which is effected by a different airline from the ticket-issuing airline the various words above quoted were used cannot alter the imperative direction to observe the applicable rules and regulations to the IATA clearing house. When these regulations (to which I must further refer) are examined it will be seen that reg 18 provides as follows: ‘For the protection of creditors in general clearance the admission of each member to membership of the Clearing House shall constitute a contract between such member and every other member and IATA to the effect following, that is to say . . . (¥) That it shall be deemed to be an express term of every contract agreement or arrangement for the time being subsisting between any two mem- bers in respect of which any debit or credit (being a debit or credit of a type for the time being handled by the Clearing House) may arise that the amount of such debit or credit shall be payable or receivable by and through the medium of the396 All England Law Reports [1975] 2 AIl ER Clearing House in accordance with the Regulations and current clearing procedure and not otherwise in any manner In my view it clearly follows that if, as between operators, some transportation charges have been earned and if the operators concerned have been admitted to membership of the clearing house the charges are only payable or receivable by and through the medium of the clearing house. If one member operator sought in an action to recover a charge from another member operator the claim would be bound to fail; no sum would be due or owing or payable. On behalf of British Eagle it was contended that the wording of the interline agree- ment which provided that a ticket-issuing airline (ie a member issuing a ticket for transportation over the routes of another member) agreed to pay to a carrying airline the appropriate transportation charges showed that a debt from the one to the other would arise. So it would if that wording stood alone, And a debt would arise if one ¢ party was not a member of the clearing house. But where both parties are members of the clearing house then the rules and regulations of the clearing house must be followed. The contract must be read as a whole and in my view parties who agreed to be members of the clearing house agreed to be bound by its rules and regulations. The service performed by a carrying airline would normally give rise to an obligation. on the part of an issuing airline to pay the carrying airline: but both agreed and agreed g also with IATA and with all members of the clearing house not to enforce against each other any net claims for services. Instead they agreed that transactions which were governed by those rules should not give rise to any money claim by one party against another but should give rise to credits or debits in account with the clearing house which would result in money claims by or against IATA. It followed that as between British Eagle and Air France no amounts were ever due or payable. When British Eagle went into liquidation the ‘property’ of the company could not and did not include any claim to receive money from Air France for the reason that Air France did not owe any money to British Eagle. The property of the company included the contractual right to have a clearance in respect of all services which had been rendered on the contractual terms and the right to receive payment from IATA if on clearance a credit in favour of the company resulted. f ‘That was the conclusion reached by Templeman J!, who said that the contract created by the clearing house regulations as applied to the parties in these proceedings provided— “that British Eagle agreed that when British Eagle performed a service for Air France or any other member of the clearing house, the appropriate cost should not constitute a debt owed to British Eagle but should confer on British Eagle 9 the right to include the cost as a credit in'a monthly account to be prepared by IATA from information to be supplied by all the members of the clearing house.’ Russell LJ? neatly summarised the position when he said: “We are, in short, of the opinion that, British Eagle having contracted with every other member of the clearing house and with IATA not to enforce its net claim for services against, for example, Air France otherwise than through the clearing house, it could not while a member do so. Nor, in our judgment, is the liquidator of British Eagle in any better position in respect of the claim now made against Air France: for we do not consider that the contract is one that can fairly be said to contravene the principles of our insolvency laws. Those laws require that the property of an insolvent company shall be distributed pro rata among its unsecured creditors: but the question here is whether the claim asserted against 1 [1973] « Lloyd’s Rep 414 at 422 2 [1974] 1 Lloyd's Rep 429 at 433~ ~ HL British Eagle v Air France (Lord Morris) 397 Air France is property of British Eagle, In our judgment it is not: British Eagle has long since deprived itself of any such property by agreeing to the clearing house system. Suppose British Eagle had had an overall credit-on-clearance, that credit would be the property of British Eagle, not the total of net “credit” services to individual airlines ignoring net “debit” services from other individual airlines.’ Operators whose application to join the clearing house succeeds and who therefore agree that the regulations will be binding on them receive a Manual of Procedure. Ic contains five parts and though only one part (Part B) is under the heading ‘Regula- tions’ I consider that reference to the other parts becomes necessary for a proper understanding of the contractual rights and duties of the parties to the multilateral contract between clearing house members. Thus Part A describes the project and includes certain definitions; Part C describes working procedures; Part D contains specimen forms and operating agreements; Part E sets out members’ names and addresses. The whole manual runs to some 56 pages. Though the 76 members (ie the members in 1968) were located in various parts of the world there were only two clearance zones: one was the US dollar zone; one was the pound sterling zone. So that clearance could be effected by the clearing house (which meant the ascertainment of the net monthly balance either due from a member to the clearing house or due to a member from the clearing house) all claims of members had to be converted into a single curtency ie pounds sterling or US dollars. The settling currencies would normally be the pound sterling and the US dollar. It was stated that: “The settling currencies are the currencies in which members have to settle their net indebtedness to the Clearing House, or on which they receive settlements from the Clearing House.’ ‘The net indebtedness was the difference between the total credit items of a member and the total of the debit items of a member. Clearances are effected on a monthly basis and the procedures to be followed in respect of claims are elaborately prescribed, Thus an operator prepares (in duplicate) a separate Form 1 in respect of each other operator for whom a service has been rendered and against whom a credit will result; the form sets out the invoice or credit note numbers; separate forms are required in respect of differently classified ‘billings’; one copy of the form is sent to the operator against whom there is a claim and the original is sent to the clearing house. Then there is Form 2 (see para C4) which an operator must prepare (in accordance with instructions laid down) containing sum- maaries of accounts including claims against other operators respectively in the sterling zone and the dollar zone. ‘Those forms are sent to the clearing house. Then the clearing house prepares and sends a statement (Form 3) to each member: on that— ‘will be entered:—{a) to the member's Credit—the claims of that member; (b) to the member's Debit—the claims against that member; (c) to the member's Debit or Credit—the net balance(s) payable or receivable for the month under clearance.” The timetable which is laid down is as follows, Clearance of accounts for one month will close on the 3oth day of the following month. Thus ‘claims’ in respect of any transportation effected in the month of September must be received by 3oth October. Then the clearing house must complete the processing of members’ claims within five working days. On completion of such clearance the clearing house will send telegraphs or telegrams (in code) to members telling them the balances either owed to or by the clearing house and within three days of the sending of these telegrams the clearing house will despatch, inter alia, Form 3. Then, seven days after the sending of the clearing house cable there is what is called ‘call day’. ‘Settlement by debtors’ (meaning settlement by debtors to the clearing house) must be made before the close of banking business on call day. Then, on completion of ‘debtor settlements’ the398 All England Law Reports [1975] 2 AIlER clearing house settles ‘creditors’ (meaning creditors of the clearing house). Such settlement is effected in pounds sterling and US dollars according to procedure which is notified to members. The clearing house is allowed seven days after the date when those who are its debtors must pay before it need discharge the accounts of those who are its creditors. (In practice it has been found thar the use by the clearing house of amounts that it will have in hand enables interest to be earned which covers the cost of running the clearing house.) ‘The regulations make it clear that the financial responsibility of the clearing house is limited to the sums which it collects. The sums which it collects are the sums due to it from a member who on a balance of debits and credits is in debit to or in debt to the clearing house. Thus reg 17 is in the following terms: “The liability of the Clearing House to any member at the date of any clearance is limited to the sums collected on behalf of such member from debtors in general clearance, together with the net balance of any sum standing to the credit of such member on Standing Deposit Account after deducting all amounts due or to become due to be paid by the Clearing House on behalf of such member to creditors in general clearance and all amounts due from such member to Clearing House under Regulations 21, 22 or 24.” Some reliance was placed by British Eagle on the words ‘sums collected on behalf of such member from debtors in general clearance’. But a reading of the rules and regulations relating to the scheme makes the meaning of those words plain. Certainly, what the clearing house does is done on behalf of its members but the sums collected by the clearing house are not the individual sums relating to the very numerous items arising from transactions between the 76 members; such sums are not collected; the whole basis of the scheme is that the clearing house only collects from some members, ie those members who are found on the over-all balancing to be in debit to the clearing house and only collects from such members the amounts of their respective individual debits. I am unable to accept British Eagle's contention that IATA was merely the agent of each member to collect and to pay inter-airline debts. ‘The contractual basis between all members and between all members and IATA was as I have described it. I may here add that though at the trial evidence was called as to Canadian law (for the reason that the agreement was to be construed according to Canadian law) it was agreed on the hearing of the appeal that the law to be applied did not differ from English law. Thave referred to reg 18(b). I must refer to other parts of the regulation. Following the opening words: ‘For the protection of creditors in general clearance the admission of each member to membership of the Clearing House shall constitute a contract between such member and every other member and IATA to the effect following, that is to say...” paras (a), (Q), (d) and (¢) are as follows: “@) That, notification to the Clearing House of any credit or debit for clearance shall subject to the Regulations constitute an irrevocable authority to Clearing House to clear the same and for that purpose to collect or pay (as the case may be) the amount thereof in accordance with the Regulations and current clearing procedure and to make all necessary sets off in that behalf and to pay any ultimate balances due as a result of the clearances effected. The foregoing shall not apply in the event amounts claimed by one Member become attached, garnisheed, or otherwise validity seized through proper legal proceedings in the hands of another member who appropriately notifies the Clearing House to that effect. On receipt of appropriate notification of valid legal process, the Clearing House~ HL British Eagle v Air France (Lord Morris) 399 Manager shall, whilst such situation exists, suspend all clearance between the members concerned until notified by both parties that normal clearance between them may be reinstituted. During the period of suspension, the parties affected shall remain absolved from their respective obligations under Regulations 18(b) to settle only through the Clearing House . . . “(© That the effecting of a clearance in accordance with the Regulations and current clearance procedure shall constitute a satisfaction and discharge of every debt dealt with in such clearance irrespective of whether the member by whom such debt was incurred shall be on balance in credit or debit as a result of such clearance save that if such member shall be in debit on balance such member shall remain liable to pay to the Clearing House.the amount by which such member is so in debit on balance. ‘(@ Notwithstanding the foregoing provisions it shall be open to any two members to agree between themselves that any particular transaction or class of transaction between them shall be settled otherwise than through the Clearing House, in which case debits or credits arising in respect of those transactions shall not be notified to the Clearing House and this Regulation shall not be applicable thereto. “(© In case of bankruptcy or liquidation of any one member of the Clearing House, the management of the Clearing House may, pending bankruptcy pro- ceedings in the country of the member concerned, freeze the account of such member if the management consider it desirable for the protection of the other members or of the Clearing House so to do.’ It may here be said that under reg 18(e) no freezing of the account of British Eagle took place. Reliance was placed by British Eagle on some of the words in this regulation. Thus in reference to reg 18(a) it was argued that mention of amounts claimed bya member becoming attached, garnished or otherwise validly seized showed that debts were owed to and from’a member from and to another member. But in my view the provision in reg 18(a) was necessary because some creditor of a member, knowing that there had been transactions with another member but not knowing that the transactions had been on the terms of reg 18(b) might well go to court and obtain an order or an interim order; but an English court knowing of the provisions of reg 18(b) could not in my view make, or after coming to know of the provisions continue, an order; that would be for the reason that as between members operating the scheme there would be no debts inter se. ‘A further argument was developed in reliance of the words in reg 18(c) that a clearance constitutes a satisfaction and discharge of every ‘debt’ dealt with irrespective of whether the member by whom ‘such debt was incurred’ was on balance in credit or debit as a result of such clearance. The same argument was advanced in reliance on some words in Part A of the Manual of Procedure dealings with definitions and giving general information. Thus in para Ax3 it is stated: ‘Clearance under Stage I comprises monthly “balance clearing”, ie, the offsetting monthly of the total owed by a member to all other members for inter- line transactions against the total owed to the member by all other members followed by settlement in either Pounds Sterling or U.S. Dollars or both Pounds Sterling and U.S. Dollars.” In my view the purpose and intention of those agreeing to the scheme is plain. The use of particular wording here and there in some parts of the manual cannot cloud it. ‘As was pointed out by the Court of Appeal it is not surprising that in the numerous and elaborate explanations and rules and regulations, words referring to the sicua- tions of members as bilateral debtors or creditors can be found. That is because the whole system is based on such bilateral situations. Though so based, the pith and400 All England Law Reports [1975] 2 All ER essence of the scheme is that such situations are superseded in the contractual terms which, under the scheme, must be made. When one airline effects a transportation in respect of a contract entered into by another airline an obligation results. It might be called a debt owed by one operator to another but more accurately it is that which would be a debt but for the agreement made; by the scheme there is an agreement that in lieu of there arising a debtor/ creditor relationship between members there will be debits or credits in account with the clearing house. Alternatively the effect of the scheme is that when a debtor] creditor relationship arises it is by agreement superseded so that only a debt to or from the clearing house can result, On either view the only ‘property’ owned by British Eagle on 8th November 1968 was the right (if on balance they proved to be in credit) to receive a payment from the clearing house. In my view the effect of the scheme was that if on clearance a member proved to be in credit with the clearing house such member in default of receiving payment could sue IATA. Similarly IATA could sue a member who on clearance proved to be in debit and failed to pay the clearing house. There could of course be agreement between two members (see reg 18(d)) to treat a transaction or class of transactions as excluded from the scheme. I do not find it necessary to refer to all the provisions in the Manual of Procedure. Naturally they include rules as to how disputes as to the correctness of items are to be dealt with and as to what is to happen if a member fails to pay an amount due from him to the clearing house, There is procedure (see para C14) for the reversal of credits. Though the clearing house maintains its debt against the defaulting debtor it— ‘will reverse all credits made in the previous month to the creditors of that debtor so that, until the delinquent debtor has settled, the unsettled clearance will fall appropriately on the creditors concerned.” Members may for various reasons (see reg 7) be suspended or expelled from the clearing house (one reason being if a member commits an act of bankruptcy or enters into winding-up) and members may resign (see reg 33(a)) after six months’ notice: but (see reg 33(b)(i)) a member whose membership has for any reason ceased must, during the six months following, settle through the clearing house all charges billed by other members provided that such charges ‘relate to transactions accrued due at the effective date of the termination of membership’. There was no expulsion of British Eagle and they remained members of the clearing house until 6th May 1969. The financial position at the date when British Eagle went into liquidation was as follows. In respect of items of transportation to 3oth September 1968 (the closure date of which for clearance was 30th October) there were net debits against British Eagle in relation to 53 members, the total of these being £71,796, and there were net éredits in favour of British Eagle in relation to 14 members the total of these being £27,045. So British Eagle were net debtors to the clearing house for £44,771. The case for British Eagle involves (unless under the scheme clearance of these items was effected before 8th November) that British Eagle could sue for and could recover from 14 members or companies (one of them being Air France) sums totalling (27,025 while 53 members would have to prove in the liquidation for various separate amounts? totalling £71,796. In reference to this period the net credit of British Eagle vis-a-vis Air France amounted to £1,992, In my view there was in any event a ‘clearance’ (see reg 16 and regs 12, 14 and 15) before 8th November (and see reg 18(c)) and British Eagle could not recover this sum. In respect of all items of transportation from the end of August to 6th November (including therefore the items above mentioned) there were net debits against British Eagle totalling £174,455 and there were net credits in favour of British Eagle totalling £27,337. So if British Bagle’s contentions were correct there could be recovery in full from certain members of separate sums totalling £27,337 and various other members could make individual claims in the liquidation for amounts which would total £174,455. That would suit the general creditors better than-if there was only a proofHL British Eagle v Air France (Lord Morris) 401 in the liquidation by IATA for (147,118. Within these figures (assuming that merely as figures they are correct) the net position as between British Eagle and Air France was that there were credits in favour of British Eagle totalling 24,417 and credits in favour of Air France totalling £16,492—the difference between these two being the amount of £7,925 claimed in the proceedings. British Eagle acknowledge that a set- off in accordance with the provisions of s 3x of the Bankruptcy Act 1914 as applied by s 317 of the Companies Act 1948 would be appropriate. Even if British Eagle were right in their main contention this figure would, in my view, have to be reduced by the amount of £1,992. But for the reasons which I have set out none of these various sums constituted debts between member companies at the date of the liquidation; they were not sums which one member owed to another; they were not sums for which one member could sue another; the various services and transactions had been rendered and had taken place pursuant to perfectly valid (and indeed highly beneficial) multilateral contracts which provided that any resultant receipts or payments would only be from or to IATA. Isee no reason to think that the contracts which were entered into by the members of the clearing house offended against the principles of our insolvency laws. Services rendered before the end of September 1968 were, as I have stated, the subject of ‘clearances’ within the scheme before the date of the liquidation. ‘Clearance’ differs from ‘settlement’ (see regs 12, 14 and 15) and ‘clearance’ in regard to the September items was complete before 8th November. Services rendered during October and the first few days of November were in my view rendered under perfectly lawful contracts which were made in the same way as contracts had been made for years past. Because of the terms of the contracts which were made British Eagle had no claims against and no rights to sue other individual members of the clearing house. Itis a general rule that a trustee or liquidator takes no better title to property than that which was possessed by a bankrupt or a company. In my view the liquidator in the present case cannot remould contracts which were validly made. He cannot assert or assume or surmise that different contracts could or might have been made and then advance claims on the basis that such different contracts had in fact been made. In the contracts that were made there was no provision which was designed to come into effect or to bring about a change in the eventof a liquidation. In Ex parte Mackay! there was such a provision. On the sale of a patent by one who became bankrupt royalties were payable to him; money had been lent to him and there was an arrange- ment that one-half of the royalties payable should be retained towards satisfaction of the debt; but there was also an arrangement that in the event of bankruptcy the whole of the royalties might be retained until the debt was fully paid. It was held that there was a good charge on half the royalties but that it could not extend to the other half. That would have enabled one creditor to obtain a preference. It would have been ‘a clear attempt to evade the operation of the bankruptcy laws’. As James LJ put it?: a manisnot allowed, by stipulation with a creditor, to provide for a different distribution of his effects in the event of bankruptcy from that which the law provides.” To the same effect Mellish LJ said?: ‘. a person cannot make it a part of his contract that, in the event of bank- ruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws.” 1 (1873) 8 Ch App 643 2 8Ch App at 647 3 8Ch App at 648402 All England Law Reports [1975] 2 All ER In the present case there was no part of the contract and no stipulation which came within the principles so stated. In the present case what the liquidator is seeking to do is to replace the terms of the contract that was made and so substitute different ones. ‘There is no provision in the contracts now under examination which could ration- ally be regarded as a ‘device for defeating the bankruptcy laws’ (see Re Johns!), Nor could there be any inference that there was such a device. In the case just cited Tomlin J said?: ‘Ithink the true inference to be drawn from the consideration of this document before me—just as the true inference was drawn in Ex parte Williams§—is that there is here a deliberate device to secure that more money should come to the mother, if the son went bankrupt, than would come to her if he did not; and, that being so, it seems to me that the device is bad.” I see no reason why the contractual terms which were binding as between British Bagle and Air France should not also be binding on the liquidator of British Eagle. In Ex parte Holthausen‘ there was a contract to give security in respect of money to be advanced. It was held that the contract could be enforced against a trustee in liquidation. James LJ said: *... the law of England is, that, with certain exceptions, the trustee in bank- ruptcy is bound by all the equities which affect a bankrupt or a liquidating debtor; that is to say, if a bankrupt or a liquidating debtor, under circumstances which are not impeachable under any particular provision connected with his bankruptcy or insolvency, enters into a contract with respect to his real estate for a valuable consideration, that contract binds his trustee in bankruptcy as much as it binds himself.” He also said® that in an English bankruptcy, ‘the trustee stands exactly in thesame posi- tion as the bankrupt himself stands in’. To the same effect were the words of Mellish LJ6 ‘that that which is personally binding upon the debtor is also binding upon his trustee’. So in Ex parte Newitt” the right of the landowner pursuant to his contract with his builder was not defeated by the commission of an act of bankruptcy by the builder before the landowner exercised his right. So in Re Apex Supply Co Ltd8 Simonds J found no difficulty in upholding a contractual term in a hire-purchase agreement which provided that if the hiring company went into liquidation and if the owner company retook possession within a period of months from the date of the agreement a sum should be payable by way of compensation for the depreciation of the goods hired. In the liquidation of the hiring company a proof which included that sum was allowed. There was a bona fide hire-purchase agreement and Simonds J said? that it would be ‘extravagant’ to suggest— “that this is a clause which is aimed at defeating the bankruptcy laws or at providing for a distribution differing from that which the bankruptcy laws permit.’ In the present case I can sce nothing that is in any way objectionable in the bona [1928] Ch 737, [1928] All ER Rep 662, [1928] Ch at 748, [1928] All ER Rep at 644 (3877) 7 Ch D 138 (4874) 9 Ch App 722 9Ch App at 726 9 Ch App at 727 (1881) 16 Ch D 522, [1881-5] All ER Rep 1039 [1941] 3 All ER 473, [1942] Ch 108 [ro4r] 3 AIL ER at 478, [1942] Ch at 114 wevausenn° a HL British Eagle v Air France (Lord Morris) 403 fide contracts which were made and I can see no reason which can justify the liquidator in seeking to disregard some parts of their terms. I would dismiss the appeal. LORD DIPLOCK. My Lords, I have had the advantage of reading the speech prepared by my noble and learned friend, Lord Cross of Chelsea. I agree with it, and with the order which he proposes. LORD SIMON OF GLAISDALE. My Lords, I entirely agree with the speech delivered by my noble and learned friend, Lord Morris of Borth-y-Gest. Talso agree with Russell LJ, delivering the judgments of the Court of Appeal, that British Eagle had long since deprived itself of the right to claim from Air France payment for the interline services British Eagle had performed for Air France. In fact one can identify precisely the moment when this happened. It was when para (2) was added to para (1) of art VI (interline settlement’) of the interline agreement. Thenceforward no party to the interline agreement had any right to claim direct payment for interline service: its right thereafter was to have the value of such service respectively credited and debited in the monthly IATA clearing house settlement account. Since this was a bona fide commercial transaction, and not a ‘deliberate device’ to give a preference on liquidation, nor was that ‘the whole scope and object’ of the interline agreement, nor its ‘dominant intention’, nor was it ‘aimed at anything of that kind’, the liquidator of British Eagle has no higher claim than the company had before liquidation (Bx parte Holthausen!; Re Johns; Peat v Gresham Trust Ltd; Re Apex Supply Co Ltd), I agree that National Westminster Bank Ltd v Halesowen Presswork and Assemblies Ltd¥ applies by analogy to s 302 of the Companies Act 1948, so that one cannot contract out of its terms, But, in view of para (2) of art VI of the interline agreement (and the consequent provisions of the IATA Regulations and Manual of Procedure), the ‘property’ of British Eagle (for the purpose of s 302) did not include any direct claim against Air France for the value of interline services performed by British Eagle for Air France but merely the right to have the value of such services brought into the monthly settlement account. Nor was this latter right of British Eagle against Air France a ‘debt’ for the purpose of s 31 of the Bankruptcy Act 1914 (made applicable by s 317 of the Companies Act 1948). A debt is a sum of money payable in respect of a liquidated money demand and recoverable by action. By reason of para (2) of art VI of the interline agreement, there was no such sum of money payable by Air France to British Eagle in respect of the latter's interline services performed for the former, nor was any such, or indeed any, sum recoverable by action on the part of British Eagle. I would therefore dismiss the appeal. LORD CROSS OF CHELSEA. My Lords, if the members of a group of traders are entering day in and day out into numbers of transactions with one another it may be much to their mutual advantage to agree that the liabilities arising out of the individual transactions shall not be settled directly between the members concerned but that a ‘clearing house’ shall be set up to which every member will give notice of each transaction to which it is a party and which will at regular intervals strike a x (1874) 9 Ch App 722 2 [1928] Ch 737, [1928] All ER Rep 662 3, [1934] AC 252, [1934] All BR Rep 82 4 [ig4r] 3 All BR 473, [194] Ch 108 5. [1972] 1 All ER 64r, [1972] AC 785404 All England Law Reports [1975] 2 All ER balance between them all showing what, as a result of all the transactions into which it has entered during the relevant period, is the net amount which each member is in credit or in debit as the case may be. Those in debit will then pay to the clearing house the amounts of their debits, the total of which will of course be the same as the total of the amounts owing to the members in credit, and the clearing house will in its turn pay over to such members the sums due to them. The question to be decided in this appeal is whether if a member of such a group becomes insolvent the clearing house system continues to apply to its credits and debits which have not been cleared at the date of the insolvency or whether they should be dealt with in the general liquidations on the same footing as its ‘non clearing house’ assets and liabilities. ‘The group of traders in question are the airlines which are members of the Inter- national Air Transport Association (IATA’) Clearing House. IATA was incorporated in 194s by an Act of the Canadian Parliament with the object of encouraging collabora- tion among air transport enterprises and one of its first actions was to establish a clearing house for the benefit of those of its members who wished to use it. A clearing house system is peculiarly appropriate to the operations of international airlines since each of them is every day carrying passengers and cargo on behalf of other airlines which will have received payment from the passenger or consignor of the full amount payable for the whole distance covered though only part of it is going to be flown in the aircraft of the airline issuing the ticket, the remainder being flown in the aircraft of another airline, to which the issuing airline will be liable to make an appropriate payment. Instead of a vast number of cross remittances in a variety of different currencies one has, under the clearing house system, a single payment to or by the clearing house in either dollars or sterling which, to use the words of the IATA clearing house Manual of Procedure, ‘concurrently collects and settles a member's world- wide debts’. By 1968, 76 airlines were members of the IATA clearing house. The volume of credits and debits notified annually to the clearing house is enormous— amounting in 1971 to over $6,000 million—and of that as much as 91 per cent was dealt with by the offsetting of credits and debits so that only nine per cent remained to be dealt with by actual payments to or by the clearing house. IATA prescribes a standard form of ‘Inter-line Traffic Agreement’ for use by its members who wish to ‘sell transportation’ over one another's lines. In the agreement “issuing airline’ is defined as ‘a party hereto which issues a ticket or exchange order or completes a consignment note for transportation over the routes of another party to this agreement’, and ‘carrying airline’ as— ‘a party hereto over whose routes a passenger, baggage or cargo is transported or is to be transported pursuant to a ticket actually issued or to be issued on exchange for an exchange order or pursuant to a consignment note.” Section VI—which deals with interline settlement—provides as follows: “() Each issuing airline agrees to pay to each carrying airline the transpor- tation charges applicable to the transportation performed by such carrying airline and any additional transportation charges collected by the issuing airline for the payment of which the carrying airline is responsible. “@\(a) Settlement of amounts payable pursuant to this agreement between parties that are members of the IATA Clearing House shall be in accordance with applicable rules and regulations of the IATA Clearing House ...” ‘Then sub-para (b) deals with the settlement of amounts payable pursuant to the agree- ment involving one or more parties that are not members of the IATA clearing house. The position, therefore, is that whether or not the parties are members of the .clearing house the issuing airline incurs an obligation to the carrying airline to make it a money payment in respect of the services rendered by it but that if both parties are members of the clearing house—and they do not agree, as they can,HL British Eagle v Air France (Lord Cross) 405 that the particular payment in question shall be made directly to the carrying airline by the issuing airline—it must be made by the application to it of the clearing house system. ‘An airline as a condition of becoming a member of the clearing house agrees that the clearing house regulations as altered or amended from time to time and all rules and directions from time to time made or given in pursuance thereof shall be binding on it and shall be deemed to constitute a contract between it and IATA and every other member for the time being of the clearing house. The regulations and the rules of procedure of the clearing house are voluminous and a number of them are referred to in detail in the judgment of Templeman J} in the present case. The core of the matter, so far as concerns the question at issue in this appeal, is contained in reg 18 which is in the following terms: ‘For the protection of creditors in general clearance the admission of each member to membership of the clearing house shall constitute a contract between such member and every other member and IATA to the effect follow- ing, that is to say:—(a) That, notification to the Clearing House of any credit or debit for clearance shall subject to the Regulations constitute an irrevocable authority to Clearing House to clear the same and for that purpose to collect or pay (as the case may be) the amount thereof in accordance with the Regu- lations and current clearing procedure and to make all necessary sets off in that behalf and to pay any ultimate balance due as a result of the clearance effected. ‘The foregoing shall not apply in the event amounts claimed by one Member become attached, garnisheed, or otherwise validly seized through proper legal proceedings in the hands of another member who appropriately notifies the Clearing House to that effect. On receipt of appropriate notification of valid legal process, the Clearing House Manager shall, whilst such situation exists, suspend all clearance between the members concerned until notified by both parties that normal clearance between them may be reinstituted. During the period of suspension, the parties affected shall remain absolved from their respective obligations under Regulation 18(b) to settle only through the Clearing House. (b) That it shall be deemed to be an express term of every contract agreement or arrangement for the time being subsisting between any two members in respect of which any debit or credit (being a debit or credit of a type for the time being handled by the Clearing House) may arise that the amount of such debit or credit shall be payable or receivable by and through the medium of the Clearing House in accordance with the Regulations and current clearing procedure and not otherwise in any manner. (c) That the effecting of a clearance in accordance with the regulations and current clearance procedure shall constitute a satisfaction and discharge of every debt dealt with in such clearance irrespective of whether the member by whom such debt was incurred shall be on balance in credit or debit as a result of such clearance save that if such member shall remain liable to pay to the Clearing House the amount by which such member is so in debt on balance. (d) Notwithstanding the foregoing provisions it shall be open to any two members to agree between themselves that any particular transaction or class of transaction between them shall be settled otherwise than through the Clearing House, in which case debits or credits arising in respect of those transactions or classesof transaction, shall not be notified to the Clearing House and this Regulation shall not be applicable thereto. (e) In case of bankruptcy or liquidation of any one member of the Clearing House, the management of the Clearing House may, pending bankruptcy proceedings in the country of the member concerned, freeze the account of such member if the management consider it desirable for the protec- tion of the other members or of the Clearing House so to do.’ 1 [1973] x Lloyd's Rep 414406 All England Law Reports [1975] 2 AIER Forms are prescribed on which claimants notify their claims to the clearing house and the other airlines concerned. There is a ‘clearance’ every month which ‘closes’ in respect of ‘transportation sold’ in any calender month on 3oth of the month following—e g the clearance of the accounts for August closes on 3oth September and claims in respect of services rendered in August which are received after that date are carried forward to the next clearance, The clearing house does not concern itself with disputes between members and if an airline disputes a claim made against it by ‘protesting’ to the clearing house the ‘protested’ item is eliminated from the current clearance. The clearing house is directed by the Manual of Procedure—para C7—to ‘complete the processing of members’ claims within 5 working days of closure’ and ‘On completion of clearance’ or, as it is put in reg 15, “As soon as clearance is effected’, to ‘notify members telegraphically, in code, the balances owed to or by the Clearing House’. Within three working days of the despatch of the telegrams the clearing house sends each member a form (Form 3) which shows in detail how the sum mentioned in the telegram has been arrived at, ie setting out on the one hand the claims made by the member against other airlines and on the other the claims made by other airlines on it, and showing at the end the balance in dollars or sterling owed to or by the clearing house, Members who are in debit must pay the sums due from them to the clearing house by ‘call day’, which is the seventh day following the despatch of the clearing house cables. Notwithstanding that they have been included in the clearance items may be ‘protested’ up to the day before ‘call day’. The clearing house is directed to discharge the amounts due to members in credit on clearance within seven days of the date specified for payment by debtors, i e call day, and we were told that the entire cost of running the clearing house is on fact covered by the interest earned by the clearing house in the few days in question on amounts paid to it by members in debit and not yet paid over to members in credit. It is, however, expressly provided—see reg 17—that the liability of the clearing house to members is limited to the amounts collected on their behaif from debtors in clearance. If, therefore, a member in debit on clearance fails to pay the balance due from it on call day the members to whom the amount in question would have been paid have no claim against the clearing house. Moreover the Manual of Procedure (para Cr4) provides: ‘In the event that a debtor's settlement remains outstanding at the date of closure of the subsequent month's clearance, the Clearing House, whilst maintain- ing the debt against the defaulting debtor, will reverse all credits made in the previous month to the creditors of that debtor so that, until the delinquent debtor has settled, the unsettled clearance will fall appropriately on the creditors concerned.” ‘The meaning of that—as I understand it—is that insofar as members have been given credit on a clearance for claims against another member who defaults they will have to be debited on the next clearance with the sums for which they were—as the event proved—wrongly given credit so that the clearing house shall not be out of pocket. This ‘reversal of credits’ is not however to have any effect on the position as between the clearing house and the defaulter; he remains liable to pay to the clearing house the balance due with interest—and if and when it is received from him it will be paid over by the clearing house to the other members concerned. Finally, it is to be ob- served that though under reg 7(d) a member which is wound up either voluntarily or compulsorily is liable to suspension or expulsion by the director general, liquidation does not under the regulations have of itself any automatic effect on the position of a member as regards the clearing house or the other members. One may now turn to consider the facts in this case. British Eagle International Airlines Ltd—the plaintiff in the action—became a membeé of the IATA clearing house in 1958 and is now in ‘creditors’ voluntary winding-up’ pursuant to a resolution