Blue Sky One Ltd v Blue Airways LLC
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE BEATSON,Mr Justice Beatson |
| Judgment Date | 25 March 2010 |
| Neutral Citation | [2010] EWHC 631 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 FOLIOS 36 & 551 |
| Date | 25 March 2010 |
Before: The Honourable Mr Justice Beatson
Case No: 2009 FOLIOS 36 & 551
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Birmingham Civil Justice Centre
33 Bull Street, Birmingham B4 6DS
MR P. SHEPHERD QC and MR B. SHAH (instructed by Norton Rose LLP)
for the Balli Parties
MR H. MALEK QC, MR J. KIMBELL and MISS G. MORGAN (instructed by Piper Smith Watton LLP) for the Defendants
MR S. MORIARTY QC and MR J. PASSMORE ( instructed by Clifford Chance LLP)
for PK Airfinance
Hearing dates: 1–5, 8–12 February 2010
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.
Index
| 1. Introduction | 1 |
| 2. The decision on contempt | 5 |
| 3. The evidence | |
| a) Factual evidence | 6 |
| b) Expert evidence | 7 |
| 4. Procedural issues | 14 |
| 5. Findings of fact | |
| a) Introduction | 15 |
| b) The background | 16 |
| c) Location of the second aircraft on 21 December 2006 | 20 |
| d) The risk of intervention by the United States authorities | 35 |
| e) The agreement to provide funding to repay PK's loan | 37 |
| f) Effect of the TDO on the funding agreement | 42 |
| g) The market value of the aircraft | 43 |
| h) The effect of the Option Agreement | 45 |
| i) Lease rates | 52 |
| j) Mesne profits/User damages | 57 |
| k) Consequential loss | 60 |
| l) Quantum in respect of the agreement to provide funding | 66 |
| 6. Findings as to foreign law | |
| a) Introduction | 71 |
| b) English, Armenian and Dutch law | 73 |
| c) Iranian law | 74 |
| 7. Discussion | |
| a) Quantum (1): The market value of the aircraft or nominal damages? | 97 |
| b) Quantum (2): Mesne profits/User damages | 133 |
| c) Quantum (3): Consequential loss in respect of the Package 1 aircraft | 136 |
| d) The obligation to provide funds to pay off PK's loan | 137 |
| e) Frustration | 138 |
| f) The Balli parties’ failure to obtain a loan from another lender | 144 |
| g) Set-off against the Mahan parties’ counterclaim | 149 |
| h) PK's direct claim—The private international law issues | 151 |
| 8. The sanction for the contempt of the Mahan parties | 186 |
| 9. Conclusions | 194 |
Mr Justice Beatson:
The background to this matter is set out in my judgment in Phase 1 of this dispute (“hereafter “PJ”), handed down on 21 December 2009: [2009] EWHC 3314 (Comm). In summary terms, the dispute arises out of transactions entered into in 2006 against the background of sanctions imposed by the United States which prevent the sale or lease of United States aircraft and aircraft containing significant components (for example engines) manufactured in the United States to Iranian individuals or companies. The parties are a number of companies owned or controlled by Balli Group plc (hereafter “the Balli parties”) and Mahan Air (“Mahan”), a private Iranian airline, and Blue Sky Aviation Co. FZE (“FZE”), an Ajman company owned or controlled by Mahan. The dispute concerns six Boeing 747- 422 aircraft. The aircraft were acquired by six English special purpose vehicle (“SPV”) companies. These companies are described as “Balli Companies” in the appendix to the Re-amended Reply, Defence to Counterclaim and Counterclaim by the Third Parties: see also PJ [4] and [6].
Three of the aircraft (the “Package 1 aircraft”) were leased to Blue Airways LLC (“BAW”), an Armenian company, entered on the Armenian Civil Aviation Registry, and chartered to Mahan. Two of the Package 1 aircraft (MSN 24383 and MSN 26879) were subsequently mortgaged to PK Airfinance US Inc. (hereafter “PK”) as part of a transaction whereby PK lent the Balli parties US $150 million to acquire a further three Boeing 747–422 aircraft (the “Package 2 aircraft”). The Package 2 aircraft did not go into service. In February 2008 the United States Department of Commerce, Bureau of Industry and Security (hereafter “BIS”) ordered Balli to redeliver them to the United States. In March the BIS issued a Temporary Denial Order (“TDO”) prohibiting the Balli parties, BAW, and Mahan from participating in any transaction involving any item subject to the Export Administration Regulations. On 16 October 2008 Mahan or FZE deregistered the Package 1 aircraft from the Armenian aviation registry and registered them in Iran: PJ [234]. The trial was split for the reasons set out at PJ [16] – [19].
The Phase 1 hearing dealt with the ownership of the three Package 1 aircraft and whether Blue Sky One Ltd., Blue Sky Two Ltd., and Blue Sky Three Ltd. were entitled to an order for delivery up of the aircraft from the defendants, Mahan and FZE. There are four parts to my decision. The first is that I held (PJ [243] – [262]) that the Balli parties did not hold the three Package 1 aircraft or the shares in the claimant SPV companies on trust for Mahan or FZE. The second (PJ [268] – [283]) is that title to the Package 1 aircraft was not subsequently transferred to Mahan or FZE by the execution of Bills of Sale held by Mr Mazaheri. Thirdly (PJ [302] – [322]), I made an order under section 3(2)(b) of the Torts (Interference with Goods) Act 1977 for delivery of the aircraft, but giving Mahan and FZE the alternative of paying damages by reference to the value of the aircraft. Fourthly (PJ [284] – [295]), I held that subject to any defence of set-off, Mahan and FZE are entitled to the return of US$ 57.8 million (in round numbers) transferred to the Balli parties between September 2007 and March 2008 in relation to the Package 2 aircraft.
It was agreed that Phase 2 would deal with two broad matters. The first concerns the issues of quantum, set-off and account in relation to the claim by the Balli parties in respect of the Package 1 aircraft, and whether Mahan and FZE were in breach of an agreement to advance money for the Package 2 aircraft to enable Crypton, a Cayman Islands company, also described (see [1]) as a “Balli Company”, to discharge the debt owed to PK. The second is PK's separate claim for possession of the two Package 1 aircraft (MSN 24383 and MSN 26879) which had been mortgaged to it by Blue Sky Two and Blue Sky Three, and for damages. This gives rise to questions of the validity of the mortgage which in turn involves determining their applicable law and whether the English choice of law rule as to the determination of title to moveables refers to the domestic law of the relevant country or also to its private international law and its choice of law rules (the “renvoi” issue). It also involves considering whether, under Iranian law, PK can succeed in a claim for “Ghasb”, that is the tort of usurpation, and issues of quantum.
The decision on contempt:
At the time I handed down my judgment in Phase 1, I ordered the Mahan parties to ground the first and the third aircraft at Schiphol airport by 31 December and to deliver up the Bills of Sale forthwith. The orders were varied by Hickinbottom J on 29 December 2009 and by me on 12 January 2010, when I ordered that the time for compliance with the grounding order be extended to 18 January. On 25 January, shortly before the commencement of the Phase 2 hearing I heard and decided an application by the Balli parties, supported by PK, that Mahan and FZE be held in contempt of court for not complying with these orders, and that their statements of case be struck out and they be debarred from taking part in the Phase 2 hearing. I found them to be in contempt ( [2010] EWHC 128 (Comm)) but did not at that stage or when I revisited the matter at the commencement of the Phase 2 hearing debar them. The question of what, if any sanction, should be imposed was held over. I deal with this at [186] – [193] below.
The evidence:
(a) Factual evidence:
On 21 December 2009 I ordered that all evidence adduced in the Phase 1 trial was to stand as evidence in the Phase 2 trial. At the Phase 2 hearing oral evidence on behalf of the Balli parties was given by Hassan Alaghband. His first statement is dated 1 June 2009 and his second statement is dated 18 January 2010. Oral evidence on behalf of Mahan and FZE was given by Mr Hamid Sadeghi, Technical Deputy to Mahan's Managing Director, whose statement is dated 17 January 2010, and who gave his evidence via a video link, and Mr Moattar, a consultant to Mahan's President and in charge of its legal department. His first statement is dated 31 May 2009. He swore an affidavit concerning disclosure on 24 July 2009 and he has made 5 further statements on 22 and 25 January, and 1, 3 and 4 February 2010. The more recent statements also deal with the Balli parties’ successful application that Mahan be held in contempt of court, on which see [2010] EWHC 128 (Comm). No oral evidence was adduced on behalf of PK. There are two statements by Mr Beaubron, a Senior Vice President based in Luxembourg, dated 30 May 2009 and 18 January 2010. There are also two statements by Mr Glaister, a partner at Clifford Chance, dated 2 June and 2 July 2009, a statement by Per Waldelof, then an Executive Vice President of PK's French subsidiary, dated 31 May 2009, and one by Vahid Alaghband dated 9 June 2009.
(b) Expert evidence:
As well as the expert evidence that...
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