Acg Acquisition XX LLC v Olympic Airlines (in Special Liquidation)
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE TEARE,Mr. Justice Teare |
| Judgment Date | 30 April 2012 |
| Neutral Citation | [2012] EWHC 1070 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 Folio 1249 and 1252 |
| Date | 30 April 2012 |
[2012] EWHC 1070 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Mr. Justice Teare
Case No: 2009 Folio 1249 and 1252
Michael McLaren QC and Harriet Jones-Fenleigh (instructed by Simmons & Simmons LLP) for the Claimant
Philip Shepherd QC and Edward Cumming (instructed by Fulbright & Jaworski International LLP) for the Defendant
Hearing dates: 24–27, 30–31 January, 1–3, 6–7 February and 22–23 March 2012
The following guide to the contents of this judgment may assist:
| Introduction | Paragraphs 2–4 |
| Events leading up to delivery | Paragraphs 5–21 |
| Events after delivery | Paragraphs 22–47 |
| Condition of aircraft on delivery | Paragraphs 48–109 |
| Compliance with the required condition on delivery | Paragraphs 110–126 |
| The conclusive evidence clause | Paragraphs 127–136 |
| Estoppel | Paragraphs 137–163 |
| ACG's claim and the defences to it | Paragraphs 164–186 |
| The damages otherwise recoverable by Olympic | Paragraphs 187–211 |
| Conclusion | Paragraph 212 |
This action concerns the lease of a Boeing 737–300 aircraft for a period of five years by its owners ACG Acquisition XX LLC to Olympic Airlines SA, now in liquidation. The material events which span the years 2008 to 2011 may be briefly summarised as follows:
a. The aircraft, having been redelivered to ACG 1 under a previous lease by AirAsia, an airline operator in the Far East, was delivered to Olympic in Singapore on 19 August 2008 and was put into commercial service on 23 August 2008. From then until 6 September 2008 it flew 112 flights. On that day, during a pre-flight inspection at Athens, a defect was discovered in one of the spoiler cables on the left wing. A repair was required before the aircraft could fly again. However, investigations revealed further defects (both to spoiler cables and other parts of the aircraft) which had to be reported to the Greek aviation authority (HCAA). On 11 September 2008 the HCAA suspended the aircraft's airworthiness certificate (ARC). Following an inspection report from Boeing and discussion between ACG and Olympic the aircraft was sent to Europe Aviation ( EA) in Chateauroux, France, for the further inspections required to enable her ARC to be restored.
b. The aircraft arrived in France on 9 January 2009. The work took longer than had been expected and the aircraft did not return to Athens until 23 July 2009. Before restoring the ARC the HCAA required a sample check of the aircraft's compliance with airworthiness directives (ADs). The HCAA was not satisfied with that check and the ARC was not restored.
Olympic carried out no further work on the aircraft which remained at Athens. On 2 October 2009 Olympic ceased trading and entered a creditors' special liquidation.
c. On 29 March 2010 ACG served termination and redelivery notices. The aircraft was not redelivered to ACG until 24 November 2010 at Athens.
d. On 15 January 2011 the Federal Aviation Authority (FAA) permitted the aircraft to be flown to the United States. On 16 September 2011 the FAA issued an Export Certificate of Airworthiness and on 19 September 2011 AeroSur SA, a Bolivian operator, signed a lease for the aircraft and took delivery of the aircraft on 23 September 2011.
These events have given rise to substantial claims on both sides.
e. ACG claims the payment of rent and maintenance reserves in the sum of about US$4.6m to November 2010 plus damages for the loss of rent from 24 November 2010 until the end of the intended term of the lease, alternatively for conversion, about US$6.9m, less what it has and will receive from AeroSur plus the costs of deregistering and exporting the aircraft incurred in order to mitigate its loss.
f. Olympic counterclaims damages for breach of contract by ACG in failing to deliver the aircraft in the contractual condition, namely, Euros 6,798,497 in respect of the costs of hiring substitute aircraft and of attempting to trying to make the aircraft airworthy.
The nature of the respective cases can be summarised as follows:
a. ACG claims that the aircraft was delivered to and accepted by Olympic with the result that Olympic became liable to pay rent and maintenance reserves in accordance with the terms of the lease. The condition of the aircraft on delivery conformed with the requirements of the lease and in particular the aircraft was airworthy. If, however, the aircraft was not airworthy Olympic is estopped either by the terms of the Certificate of Acceptance or by law from asserting that it was not delivered in accordance with the terms of the lease and so there is no foundation for the counterclaim. Olympic's failure to pay rent or maintenance reserves was a repudiatory breach of the lease.
b. Olympic claims that the aircraft was not delivered in the condition required by the lease and, in particular, was not airworthy. The terms of the Certificate of Acceptance do not preclude Olympic from claiming that the aircraft was not in the required condition on delivery and Olympic is not estopped from so claiming. In consequence Olympic was never obliged to pay rent or maintenance reserves and Olympic is entitled to claim damages for breach of the lease. Alternatively, if any rent or maintenance reserves were payable Olympic is entitled to claim them back on the grounds that there was a total failure of consideration. In the further alternative the lease was frustrated by the HCAA's suspension of the ARC on 11 September 2008 or by the HCAA's refusal to reinstate the ARC on 17 August 2009.
The events leading up to delivery
A pre-leasing survey of the aircraft was carried out in April 2008 in Kuching, Malaysia by Olympic Airlines Services (OAS), the maintenance repair and overhaul entity (an MRO) used by Olympic to service its aircraft. The purpose of this survey was to enable Olympic to decide whether or not to lease the aircraft. The aircraft was then about 17 years old. Mr. Ladopoulos, a superintendent employed by OAS, and two other inspectors carried out that inspection. The inspection was carried out at night between scheduled flights. Mr. Ladopoulos gave oral evidence. I considered that, although he sometimes had to be asked the same question more than once, he gave his evidence in a helpful manner. He accepted that he had been asked to conduct a "quick inspection."
Mr. Ladopoulos identified problems with the section of the spoiler cables which he could see and also noted that there were many repairs to the aircraft's fuselage. On 12 April 2008 he produced a manuscript note of his findings of which there were 43. In particular, he noted rust on the spoiler cables on the left hand wing and right hand wings (items 9 and 28), he said that the aileron cables must be checked (item 12) and he reported 26 doubler repairs to the fuselage.
On his return to Athens he produced a typed report dated 14 April 2008. He concluded that although the interior of the aircraft was in very good condition the exterior was in average condition "due to the multiple repairs to the fuselage as well as the general findings of the exterior inspection." He recommended that before deciding to incorporate the aircraft into Olympic's fleet "during the next C Check it must be inspected in detail ….and any findings must be repaired. Additional openings may be required other than those provided for by the C Check." A C Check is a maintenance check designed for each type of aircraft by reference to the type of operations the aircraft will be performing and environmental considerations.
AirAsia, the then lessee of the aircraft which was due to redeliver the aircraft to ACG, was to carry out the C Check. AirAsia used the services of ST Aerospace to carry out the C Check and the work required by the redelivery work package. The rationale for carrying out a C Check prior to redelivery is to attempt to harmonise the condition of the aircraft on redelivery with the condition which will be acceptable for onward delivery to the next lessee. The new operator will thus be able to put the aircraft into operation immediately.
Mr. Patrick Ryan, the senior vice-president of the technical services section of ACG 2, attended the inspection in Kuching. He exchanged emails with Steve Dimitriadis of Olympic on 15 and 16 April 2008 in which it was agreed that any "discrepancies" or "findings" could be addressed during the C Check. There was no evidence from Mr. Dimitriadis but Patrick Ryan did give evidence. He did so
in what was, initially, a very defensive manner (especially with regard to the concept of airworthiness). Indeed, his witness statement was so defensive it barely recognised that ACG had an obligation under the lease to deliver the aircraft in a condition with Schedule 2 of the lease. His defensive manner suggested that it would be unsafe to rely on his evidence. However, as his cross-examination progressed he began to be more open and therefore more reliable. But in view of his apparent determination at the outset of his evidence not to give anything away which might be thought to harm ACG's interests I consider it appropriate to approach his evidence with caution, checking it against the contemporaneous documents and the probabilities.
By an amendment dated 12 May 2008 to the lease between ACG and AirAsia the required redelivery condition was amended so that it mirrored the delivery condition intended to be agreed between ACG and Olympic.
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