Aquila Wsa Aviation Opportunities II Ltd v Onur Air Tasimacilik as
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 15 March 2018 |
| Neutral Citation | [2018] EWHC 519 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2016-000783 |
| Date | 15 March 2018 |
[2018] EWHC 519 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Cockerill DBE
Case No: CL-2016-000783
David Caplan (instructed by White & Case LLP) for the Claimant
Stephen Cogley QC (instructed by Freeths LLP) for the Defendant
Hearing dates: 17 February 2018
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.
This is an application for summary judgment brought by the Claimant (“Aquila”) against the Defendant (“Onur”) arising out of an agreement to lease an aircraft engine (“the Engine”) dated 11 September 2015 (“the Lease”).
Aquila is an Irish company and its activities include leasing aircraft and aircraft-related assets. Onur is a commercial airline based in Turkey which operates a fleet of around 25 aircraft.
On 11 September 2015, the parties entered into the Lease. The Lease was made up of two parts: a set of standard International Air Transport Association Master Short Term Engine Lease Agreement terms (“the Master Agreement”) and various bespoke terms presented in a document entitled “Lease Agreement” (“the Lease Agreement”).
At the time of conclusion of this agreement Onur signed a key document in this dispute – an acceptance certificate (“the Acceptance Certificate”). As will be explained further below, the provision of such a document was contemplated by the terms of the Lease. The terms of the Acceptance Certificate as given are as follows:
“[Onur] hereby confirms to [Aquila] that: (i) [Onur] has unconditionally accepted the Engine for all purposes hereof and of the [Lease]; (ii) [Onur] has inspected the Engine and the Engine satisfies the conditions set forth in the [Lease] and this Acceptance Certificate constitutes conclusive proof that the Engine satisfies such conditions; and (iii) [Onur] has no rights and/or claims against [Aquila] with respect to the delivery condition of the Engine.”
Unlike many aircraft lease arrangements, the Lease in this case was a very short term arrangement, with an anticipated duration of just 10 months from September 2015. The Engine was required by Onur as a stop-gap, to temporarily cover one of Onur's other PW4168 engines whilst it underwent a shop visit. That gap was actually only 90 days, but 10 months was the minimum term available in the market at the time.
The Engine had first been marketed to Onur by TES Parts Ltd (“TES”), which was responsible for the bulk of the negotiations leading to the Agreement on behalf of World Star Aviation (“WSA”), whose vehicle, Aquila, came to own the Engine.
The Engine was delivered on 22 September 2015. Onur says that it manifested a number of problems from an early stage. On 25 December 2015, however, it is common ground that a major failure occurred. The aircraft upon which the Engine had been installed experienced a “surge event” associated with a failure of the Engine as the aircraft was in the climb phase following its take off, on a flight with 186 passengers and 10 crew on board. Fortunately the air crew were able to make an emergency landing and there was no loss of life or serious injury to passengers or crew. The Engine was thereafter removed from the aircraft and has not been used since.
It is Onur's case that the cause of the failure was a “latent defect” in the high pressure turbine module in that the Engine's 1st stage HPT Brush Seal Support and inner air seal were defective and liable to complete failure at any point (“the Defect”). This, Onur says, rendered the Engine inoperable for passenger carrier purposes. Onur says that the Defect would or ought to have been known to Aquila, because there had been 58 reports of Part 55 cracking and 15 instances of the Defect causing an in-flight shutdown as at early 2012 and in particular because the Defect had in March 2012 been made the subject of an Airworthiness Directive (“AD”) – AD 2012-18-03 – issued by the Federal Aviation Administration, as well as a “Service Bulletin” issued by the Engine's manufacturers. The AD did not require any immediate action, but did require all potentially affected engines to have the relevant parts examined and/or replaced the next time the HPT module was removed from the engine.
Onur says that the consequence of the Defect was that the Engine was a “ticking time bomb” when it was delivered under the Lease.
What is in focus before me however is not the evidence as to the cause of this failure, but a preliminary point which is, in summary, whether Onur's defences have any real prospect of success or whether the terms of the Lease and the Acceptance Certificate preclude any such defences.
The relevant contractual background
There is not a lot between the parties on what the various contractual documents say. In summary the relevant provisions are as follows.
Clause 5 of the Master Agreement provides:
“ WITHOUT PREJUDICE TO 2.2.2, 2.3, 9 OR 12, THE ENGINE PACKAGE IS TO BE DELIVERED AND LEASED HEREUNDER ‘AS IS, WHERE IS’.
SAVE AS EXPRESSLY STATED IN THIS AGREEMENT, PARTIES UNCONDITIONALLY AGREE AS FOLLOWS, IT BEING EMPHASISED THAT THE FOLLOWING IS FUNDAMENTAL TO THE TERMS OF THIS AGREEMENT:
(i) LESSOR MAKES NO WARRANTIES, GUARANTEES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH REGARD TO THE ENGINE PACKAGE; AND
(ii) LESSEE WAIVES ALL RIGHTS, REMEDIES AND DAMAGES, INCLUDING INCIDENTAL AND CONSEQUENTIAL DAMAGES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH REGARD TO THE ENGINE PACKAGE, AND LESSOR IN THAT CAPACITY (AND, FOR THE AVOIDANCE OF DOUBT, ITS INSURERS) SHALL HAVE NO LIABILITY THEREFORE .
NOTHING IN 5(II) SHALL AFFECT THE LEGAL LIABILITY OF LESSOR, IF ANY, UNDER LAW ARISING FROM ITS WILLFUL MISCONDUCT OR GROSS NEGLIGENCE PROVIDED THAT NEITHER THE TERMS OF THIS AGREEMENT NOR LESSOR'S CAPACITY HEREUNDER SHALL ITSELF EXPAND ANY SUCH LIABILITY.”
(“Engine Package” is elsewhere defined as the Engine and certain documentation relating to it.)
There was an option in the Master Agreement to have an acceptance certificate as a condition precedent to delivery. That option was taken and delivery of the Engine Package was agreed to occur at the time and date shown on the Acceptance Certificate.
The Lease Agreement inserted a new Clause 2.4.5 into the Master Agreement. That Clause had two features. First, it recorded that the Engine was to be delivered to Onur “as is, where is” substantially in compliance with four delivery conditions (“the Delivery Conditions”).
Those Delivery Conditions were that the Engine would be (inter alia):
(1) Fresh from a “C” Check or equivalent level of inspection as pertaining to the Engine as required under the latest revision of Boeing or Airbus Maintenance Planning Document (“Delivery Condition 1”);
(2) Capable of certified, full rated performance without limitation throughout the entire operating envelope (“Delivery Condition 2”);
(3) Fresh from a hot and cold borescope (“Delivery Condition 3” – which is not relevant to the dispute before me);
(4) Free from any reduced interval repetitive inspection requirement and the Engine shall not be on watch (“Delivery Condition 4”).
The second part of Clause 2.4.5 then linked to the Acceptance Certificate, stating:
“[b]y signing the Acceptance Certificate, [Onur] confirms that [it] had the opportunity to fully inspect the Engine Package to its full satisfaction and to satisfy itself that the Engine Package is in accordance with the delivery conditions set out in this [Lease] on the date of delivery.”
The form of the Acceptance Certificate was prescribed and equated to the Acceptance Certificate in fact given. It stated (as set out above) that Onur had unconditionally accepted the Engine, it had inspected the Engine, that the Acceptance Certificate constituted conclusive proof that the Engine satisfied the conditions set forth in the Lease, and that Onur had no rights and/or claims against Aquila with respect to the delivery condition of the Engine. The signature of the Acceptance Certificate in this prescribed form was a condition precedent to delivery of the Engine Package and commencement of the term of the lease.
Other relevant clauses include the following:
i) Clause 4.6.1 of the Master Agreement provided that Onur was obliged to procure that routine scheduled, condition-monitored, and on-condition line maintenance was performed on the Engine Package, in accordance with applicable regulatory and industry standards;
ii) Under Clause 4.6.2 Onur was to be generally responsible for the costs of repairing damage to the Engine, and replacing Parts (as defined) and/or performing maintenance thereon, caused during the Term;;
iii) Under Clause 8 Onur was to maintain certain insurances, including insurance covering all risks of loss or damage to the Engine whilst flying and on the ground, and reinsurance;
iv) Under Clause 11 Onur was obliged to redeliver the Engine in the same conditions as are set out in relation to the Delivery Conditions and in as good operating and physical condition as when delivered (subject only to normal wear and tear from ordinary operation) (“the Redelivery Conditions”).
Clause 7 of the Master Agreement provided that, following acceptance of the Engine Package and commencement of the Term:
“7.1 Risk of Loss
Risk of loss or damage to the Engine Package during the Term resides with Lessee.
7.2 Partial Loss
7.2.1 In the event of Partial Loss to the Engine during the Term:
(i) Lessee shall be responsible for the cost of prompt...
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