Blue Sky One (Ltd) v Blue Airways LLC
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE BEATSON,Mr Justice Beatson |
| Judgment Date | 01 February 2010 |
| Neutral Citation | [2010] EWHC 128 (Comm),[2009] EWHC 3314 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 Folios 36 and 551,Case No: 2009 FOLIO 36 & 2009 FOLIO 551 |
| Date | 01 February 2010 |
[2009] EWHC 3314 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: The Honourable Mr Justice Beatson
Case No: 2009 FOLIO 36 & 2009 FOLIO 551
MR P. SHEPHERD QC and MR B. SHAH (instructed by Norton Rose LLP) for the Balli Parties
MR M. CRANE 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: 7–31 July, 8–9 October 2009
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
| I Introduction | 1 |
| II Procedural history | 16 |
| III The position of Blue Airways | 23 |
| IV Applications to amend the pleadings | 25 |
| V Witnesses |
|
| (a) Factual evidence | 37 |
| (b) Expert witnesses | 50 |
| VI Findings |
|
| (a) Background to the transactions | 54 |
| (b) The Executive Instruction and the FERF Resolution | 70 |
| (c) The initial meeting about the Package 1 aircraft | 77 |
| (d) Developments between 18 January and the signing of the contracts | 86 |
| (e) The meetings in Düsseldorf on 24 and 25 February 2006 | 101 |
| (f) Developments after the Düsseldorf meetings | 113 |
| (g) The leases with BAW | 116 |
| (h) The Package 2 aircraft and the mortgages | 135 |
| (i) The May 2007 Dubai meetings and the agreements | 159 |
| (j) The background to meetings in Düsseldorf on 30 and 31 August 2007 | 170 |
| (k) The meetings in Düsseldorf on 30 and 31 August 2007 | 180 |
| (l) Provision and use of the Bills of Sale | 183 |
| (m) The interest of the US authorities | 190 |
| (n) Exchanges in February – March 2008 | 194 |
| (o) The imposition of the TDO | 199 |
| (p) Steps taken in the light of the TDO | 200 |
| (q) The July 2008 Memorandum of Understanding | 217 |
| (r) August – November 2008 | 219 |
| (s) Execution of the Bills of Sale & registration of aircraft in Iran | 227 |
| VII Discussion | 242 |
| (a) Trust | 243 |
| (i) Express Trust | 244 |
| (ii) Purchase Money Resulting Trust | 255 |
| (iii) Trust arising from the other arrangements | 258 |
| (b) Were the leases to BAW shams? | 263 |
| (c) Was title to the aircraft transferred by the Bills of Sale? | 268 |
| (d) The counterclaim | 284 |
| (i) The first contractual claim for repayment | 289 |
| (ii) The alternative contractual claim for repayment | 297 |
| (iii) The restitutionary claims for repayment | 299 |
| (e) Remedies |
|
| (i) Delivery up or damages? | 302 |
| (ii) Assessment of damages | 324 |
| VIII Conclusion | 327 |
Mr Justice Beatson:
I Introduction:
This dispute concerns the ownership and right to possession of three Boeing 747- 422 aircraft (“the Package 1 aircraft”), previously operated by United Airlines but sold during its Chapter 11 bankruptcy proceedings. The main protagonists are Balli Group plc, a company founded by an Iranian family, the Alaghbands, after they left Iran in 1978, and other companies owned or controlled by it (“the Balli parties”); Mahan Air (“Mahan”), a private Iranian airline, which began operations in 1992, and Blue Sky Aviation Co. FZE (“FZE”), an Ajman company owned or controlled by Mahan. Balli Group plc is at the apex of a substantial international commodity trading group. The group's turnover in 2008 was over US$ 1 billion. Prior to the transactions which are the subject of these proceedings, the Balli group was not involved in the aviation industry. Mahan, Iran's first private airline, is owned by the Mol-Al-Movahedin Credit Union. It has grown significantly since 1992, and now carries some 3 million passengers a year. Its turnover at the material times was approximately US$ 125 million.
The dispute arises as a result of a complicated series of transactions which were 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. Two of the Package 1 aircraft were made available to Mahan during 2006. There is, however, no documentary evidence which shows the second aircraft arriving in Iran on any date. The third aircraft was made available to Mahan in May 2007.
On 21 December 2006 two of the Package 1 aircraft were mortgaged to PK Airfinance US Inc. (hereafter “PK”), a company which is part of the General Electric group to finance the acquisition of three other Boeing 747s (“the Package 2 aircraft”). The breakdown in the relationship between Balli and Mahan occurred after the United States Department of Commerce issued a Temporary Denial Order on the Balli parties and Mahan for what it said were violations of the United States Export Administration Regulations by exporting the Package 1 aircraft to Iran. In October 2008 title to all three aircraft was purportedly transferred to FZE by way of three Bills of Sale.
There are two claims before me which Flaux J ordered to be expedited and to be heard together but not to be joined. The claimants in the first claim (the main action) are Blue Sky One Ltd., Blue Sky Two Ltd., and Blue Sky Three Ltd., three English special purchase vehicle companies owned or controlled by Balli Group plc (“the SPV companies”). The claimants and Balli (hereafter “the Balli parties”) seek delivery up of the three Package 1 aircraft (MSN 24363, 24383, and 26879 and original registration N172UA, N176UA and N190UA) and damages for breach of contract, conversion and unlawful interference with property from Mahan (the second defendant), and FZE (the third defendant). They say that, while the purpose of the transaction was to enable the Package 1 aircraft to be deployed for Mahan's use and benefit on its chosen routes in and out of Iran, it was carefully structured not to violate United States sanctions and that Mahan and FZE acquired no beneficial interest in the aircraft either initially or on the execution of the Bills of Sale.
Blue Airways LLC (“BAW”), an Armenian company formed in 2005, to whom the Balli parties leased the aircraft, is named as the first defendant in the first claim. BAW was, however, wound up and ceased to exist on or about 23 March 2009, about two months after these proceedings were launched, but before service of the Amended Defence and Counterclaim. The Balli parties were not informed of the winding up until 1 July, only five days before the start of the trial. At the beginning of the trial I indicated that the claim against Blue Airways would be struck out and made the order on 31 July. I adjourned any consequential applications until after this judgment.
The claimant in the second claim is PK. It agreed to lend Balli US$ 150 million to finance the acquisition of the Package 2 aircraft if it was granted security over two of the three Package 1 aircraft which it was told were owned by SPV companies within the Balli group. On 21 December 2006 Blue Sky Two and Blue Sky Three mortgaged two of the aircraft (MSN 24383 and 26879) to PK. In January 2007 the mortgages were registered at Companies House and with the UK Civil Aviation Authority pursuant to the relevant legislation. On 6 April 2009 PK served notice on Blue Sky Two and Blue Sky Three, Balli Group plc, Mahan, and FZE demanding possession of the mortgaged aircraft. The Balli parties do not dispute PK's right to possession but Mahan and FZE do.
The Package 1 aircraft were respectively 17, 16 and 13 years old in 2006. The Balli parties and PK claim that each of the claimants acquired one of the aircraft on 28 September 2006, and on 12 October 2006 leased that aircraft to BAW which registered the aircraft in Armenia and chartered it to Mahan. The first two aircraft were registered in Armenia on 20 November 2006. The first aircraft arrived in Iran in December 2006. The second aircraft was made available to Mahan in 2006. Its ferry flight from Holland to Fujairah in the UAE was on 10 November 2006. Mahan's case is that it first arrived in Iran on 17 December 2006 but Balli and PK do not accept this. No witness had independent recollection of this and there is no documentary evidence of the date on which it first landed in Iran. The third aircraft was registered in Armenia on 26 April 2007 and arrived in Iran on 12 May 2007.
The case of the Balli parties and PK is that the leases and charters were made pursuant to a series of agreements by Balli and Mahan in Düsseldorf on 25 February 2006. They say that it was originally envisaged that the aircraft would be owned by three Cayman Islands SPVs (“the Cayman SPVs”) companies originally incorporated by Mr Insley, Mahan's solicitor, and the shares in the Cayman SPVs would be owned by Blue Sky Aviation Ltd (“BSA”), a Cayman company affiliated to Balli.
The Düsseldorf agreements included agreements by FZE to lend some US$ 138.5 million to Balli and BSA to be used to acquire the aircraft and pay for the heavy maintenance work (D-checks) needed to put them into operational...
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