Abbotswood Shipping Corporation (a company incorporated under the laws of Liberia) v Air Pacific Ltd (a company incorporated under the laws of Fiji and Trading as Fiji Airways)
| Jurisdiction | England & Wales |
| Judge | Adrian Beltrami |
| Judgment Date | 28 June 2019 |
| Neutral Citation | [2019] EWHC 1641 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Claim No. CL-2019-000069 |
| Date | 28 June 2019 |
[2019] EWHC 1641 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice. Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Adrian Beltrami QC
Sitting as a Judge of the High Court
Claim No. CL-2019-000069
Bajul Shah (instructed by Thomas Miller Law) appeared on behalf of the Claimant
Steven Thompson QC (instructed by Bird & Bird LLP) appeared on behalf of the Defendant
Hearing date: Friday, 21 June 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Adrian Beltrami QC:
The Claimant is a company incorporated in Liberia. The Defendant is a company incorporated in Fiji, which carries on business as an international airline under the trading name “Fiji Airways”. The Claim Form erroneously names the Defendant as “Fiji Airways Limited” rather than “Air Pacific Limited” but the pleadings and all subsequent documents have adopted the correct name, which I have accordingly used in the heading of this Judgment. To avoid confusion, the Claim Form ought to be corrected at a convenient point.
By application notice dated 6 June 2019, the Defendant sought, inter alia, an order under CPR 25.12 and CPR 25.13(2)(a) and/or (c) that the Claimant provide security for the Defendant's costs of defending the claim. The amount claimed was £134,694.84 but I was provided with up to date figures at the hearing. The application was supported by the witness statement of Sophie Jane Eyre dated 5 June 2019.
The application was heard at the first CMC, at which I also ordered, by agreement of the parties, that the case be allocated to the Shorter Trials Scheme. I was provided at the beginning of the hearing with the witness statement of Robert Alexander McCunn, dated 18 June 2019, in opposition to the application. Because of the shortage of time, I was unable to give Judgment orally.
Background
The claim concerns two cash security deposits provided by the Defendant as the lessee of two Boeing 747–400 aircraft, msn 24062 and msn 24064, each with four Pratt & Whitney jet engines. The aircraft were initially leased from Singapore Airlines Ltd pursuant to lease agreements dated 11 December 2002 in substantially identical terms. The cash security deposits, paid under the leases, totalled US$1,820,000.
On 2 December 2004, the aircraft were sold to AP62 Ltd and AP64 Ltd respectively and the leases were novated in favour of the new owners (referred to hereafter as the Lessors). Following extension and further agreements, msn 24062 was redelivered in July 2013 and msn 24064 in December 2013. A video boroscope inspection undertaken at the time of redelivery revealed a crack on one of the compressor blades in one of the engines on msn 24064. The Claimant contends that this constituted an Event of Default under the leases, whereas it is the Defendant's case that any damage was within serviceable limits, that there was no Event of Default and in any event that the execution by each of the Lessors of a Return Acceptance Receipt/Certificate constituted conclusive proof of acceptable redelivery, creating in effect a contractual estoppel.
In May 2015, the Defendants commenced two sets of ICC arbitration proceedings, claiming the return of the security deposits from the Lessors. However, on 31 July 2015, the Lessors were struck off the Cayman Islands register of companies for the nonpayment of registry fees.
These proceedings were commenced on 4 February 2019. The Claimant seeks the following relief, as set out in the Claim Form:
“ a. That, pursuant to Sections 1 and 8 of the Contracts (Rights of Third Parties) Act 1999 and/or the term of the relevant contracts the Claimant may in its own right enforce the terms of the two aircraft lease agreements dated 2 December 2002 [… as subsequently amended…]
b. That the terms of the Leases which the Claimant is entitled to enforce in its own right include Clauses 7, 17.1, 21, 26.2.2 and 26.3.1.
c. Consequent on the declarations under a. and b. above as to the accounting position between the Claimant and Defendant and as to what sums, if any, are due from the Claimant to the Defendant.”
As set out in the Particulars of Claim, the Claimant contends that it was the sole lender to the Lessors, having bought out previous lenders in October 2008. Although not entirely clear from the Particulars of Claim, my understanding is that the Claimant claims to hold the security deposits pursuant to a form of security assignment granted by the Lessors in favour of the original lenders and then transferred on some basis to it. As a “Financing Party” under the leases, it also claims to be entitled to an indemnity from the Defendant pursuant to clause 17.1. It contends that “ The Lessors and the Claimant” agreed to sell the four engines on msn 24064 to Pratt and Whitney but that the cracked engine then had to be sold elsewhere for a lesser price. The pleaded case arrives at the following conclusion, at [57]:
“ In the premises set out in paragraphs 36 to 52 above Events of Default had occurred as set out above which entitled the Lessor and the Claimant pursuant to Clause 7.2.1 to set-off or apply all or part of the Security Deposit in or towards the payment or discharge of any matured obligation owed by the Lessee, namely the obligation to compensate the Lessor and the Claimant for the reduced value of Engine P727381CN. The reduction in value of Engine P727381CN was a loss, damage or injury arising directly or indirectly out of redelivery of the Aircraft within Clause 17.1 of the Lease which entitled the Claimant to claim indemnity from the Defendant.”
Under the heading “ The Accounting Position between Claimant and Defendant”, the Claimant calculates the “ Total of loss and prejudice to Claimant” at US$1,470,181.18, which then falls to be set off against the value of the security deposits, leaving a balance of “ surplus funds” of US$349,818.82.
By its Defence, the Defendant contends, as I have indicated above, that there was no Event of Default and that, in any event, any complaint about the redelivery was contractually precluded. So far as the legal position of the Claimant is concerned (as to which, it seems, the Defendant has little real information), its primary case is that the Claimant can be in no better position than the Lessors, who had been obliged, on the Defendant's case, to return the security deposits within 30 days of redelivery. The Defendant also advances a Counterclaim in which it pursues three causes of action:
a. A claim for damages against the Claimant for inducing a breach of contract on the part of the Lessors, the relevant breach being the failure to return the security deposits.
b. A claim in unjust enrichment.
c. A claim for the return of the monies represented by the security deposits pursuant to sections 423–425 of the Insolvency Act 1986.
The Claimant has served a Reply and Defence to Counterclaim. At Reply [5], it is contended that the security deposits were in fact held on trust by a security trustee on behalf of the original lenders and so (it may be inferred) now on behalf of the Claimant, although both the basis and intended significance of this allegation are not to my mind clearly articulated. The various causes of action in the Counterclaim are denied principally because, as alleged, the sums in questions were in fact lawfully withheld.
By letters dated 7 May and 15 May 2019, the Defendant by its solicitors, Bird & Bird LLP, demanded from the Claimant payment of the “ surplus” of US$349,818.82 in respect of which no entitlement was alleged by the Claimant. Regrettably, the Claimant did not immediately comply, even though there could be no reason to justify its continued retention of this sum. Only after the Defendant issued an application was payment belatedly made, and I ordered costs in favour of the Defendant in that respect.
The application for security
Pursuant to CPR 25.13(1):
“ The court may make an order for security for costs under rule 25.12 if:
(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
(b) (i) one or more of the conditions in paragraph (2) applies…”
The conditions in paragraph (2) are, so far as material:
“ (a) the claimant is:
(i) resident out of the jurisdiction; but
(ii) not resident in a Brussels Contracting State, a State bound by the Lugano Convention, a State bound by the 2005 Hague Convention or a Regulation State as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982…
(c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so;”
There are, accordingly, at least in theory, three questions to consider: (i) whether one or more of the paragraph (2) conditions is established; (ii) whether in all the circumstances it is just to make the order; and (iii) whether the court should make the order a matter of general discretion. However, there is no obvious reason to think that, at least in most cases, the court would not make an order for security if satisfied that it was just to do so. Hence, any final residual discretion is unlikely to involve a separate consideration.
So far as the paragraph (2) conditions are concerned, there can be no doubt about condition (2)(a). The Claimant is incorporated in Liberia. There has been no suggestion, should it matter,...
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