Credit Suisse A.G. v Arabian Aircraft & Equipment Leasing Company EC and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Moore-Bick,Lord Justice Lloyd,Lord Justice Mummery |
| Judgment Date | 02 October 2013 |
| Neutral Citation | [2013] EWCA Civ 1169 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2013/1319 |
| Date | 02 October 2013 |
[2013] EWCA Civ 1169
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(His Honour Judge Mackie C.B.E., Q.C.)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Lloyd
and
Lord Justice Moore-Bick
Case No: A3/2013/1319
Mr. Philip Shepherd Q.C. and Mr. Jonathan Moss (instructed by Gowlings (UK) LLP) for the appellants
Mr. Andrew Lydiard Q.C. (instructed by Ince & Co LLP) for the respondent
Hearing date : 29 th July 2013
Approved Judgment
This is an appeal by the defendants, Arabian Aircraft & Equipment Leasing Co E.C. ("AA"), Mr. Mansour Al-Tassan and Bahrain Executive Air Services Co (BEXAIR) W.L.L. ("Bexair"), against an order made in the Commercial Court by His Honour Judge Mackie C.B.E., Q.C. requiring them to pay into court the sum of US$2,563,000 as a condition of defending the claim brought against them by Crédit Suisse AG ("the Bank").
The Bank's claim arises out of an agreement with AA dated 15 th March 2004 under which it leased a Canadair Challenger aircraft to AA with a view to its being sub-leased to, and operated by, Bexair. On 14 th November 2003 AA had entered into an agreement with a Canadian company, Bombardier Aerospace Corporation ("Bombardier"), to buy the aircraft for the sum of US$13,055,000, but had subsequently obtained financing from the Bank, which took an assignment of the benefit of the purchase contract in order to enable it to lease the aircraft to AA. The lease was guaranteed by Mr. Mansour, who is a shareholder in, and a director of, both AA and Bexair and was supported by an assignment by Bexair of the benefit of insurances and other agreements which it had entered into as operator of the aircraft. The assignment included a covenant on the part of Bexair to discharge the obligations of AA under the lease. The initial term of the lease was eight years from the delivery of the aircraft.
The aircraft was delivered in March 2004. For some time AA made monthly payments under the lease in accordance with its terms, but in early 2009 it encountered financial difficulties and failed to make the payments due in April, May and June that year. By clause 18.1(A) of the lease the failure to make payments promptly when due constituted an event of default, the consequences of which are set out in the following parts of clause 18. In view of their importance to this appeal it is necessary to refer in detail to some of those provisions.
The material parts of clause 18.2 provided as follows:
" Rights of Lessor on an Event of Default
(A) An Event of Default shall constitute a material breach of a condition of and a repudiation by the lessee of its obligations under this Agreement.
(B) If an Event of Default shall occur and be continuing during the Term, the Lessor shall be entitled, without prejudice to any of its other rights under this Agreement, by notice in writing to the Lessee:
(i) to require the Lessee to surrender possession of the Aircraft Package to the Lessor (without terminating the leasing of the Aircraft Package under this Agreement) … ; and/or
(ii) to accept such repudiation, to terminate the leasing of the Aircraft Package under this Agreement and to require the Lessee to redeliver the Aircraft Package to the Lessor …"
"Aircraft package" was the expression used to denote the aircraft and its technical and operational documents.
The material parts of clause 18.3 provided as follows:
" Payments on termination during the Term
On the termination during the Term of the leasing of the Aircraft Package to the Lessee as a result of an Event of Default and whether or not the Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under clause 18.2, the Lessee shall pay to the Lessor (by way of agreed compensation for loss of bargain and without prejudice to any right to damages of the Lessor) on demand of the Lessor the amount notified by the Lessor to be the aggregate of:
(A) all arrears of Rent … ;
(B) any loss, damage, expense, cost or liability which the Lessor may sustain or incur as a consequence of the occurrence of any Default or Event of Default and/or any such termination including:
(i) any amount of interest, fees or other sums whatsoever paid or payable on account of funds borrowed in order to carry any unpaid amount;
(ii) any loss, premium, penalty or expense incurred by the Lessor in prepaying funds raised to finance the Aircraft Package … ;
(iii) all costs and expenses incurred in recovering possession of the Aircraft Package and in carrying out any works required to bring the Aircraft Package up to the condition required pursuant to this agreement; and
(iv) any loss suffered by the Lessor as a result of the Lessor's inability to place the Aircraft Package on lease with another lessee on terms as favourable to the Lessor as the terms hereof … "
Clause 18.4 provided as follows:
" Further Rights of the Lessor
In the alternative to the Lessor's other rights under the preceding provisions of this clause 18 and whether or not the Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under clause 18.2, but without prejudice to any right of damages that may otherwise be available to it, the Lessor may, if it considers in its absolute discretion that the other remedies herein provided do not adequately or sufficiently quickly compensate it for any loss it might suffer on, or at any time after, any termination of its obligation to lease the Aircraft Package or any termination of the leasing of the Aircraft Package …, require the Lessee to pay to the Lessor on the demand of the Lessor by way of agreed further compensation and not as a penalty an amount equal to the aggregate of:
(A) all arrears of Rent and any other sums … accrued by the Lessee in favour of the Lessor up until the date of such termination … ;
(B) any loss, damage, expense, cost or liability which the Lessee may sustain or incur as a consequence of the occurrence of any Event of Default … ;
(C) all amounts of Rent which would have fallen to be paid under this Agreement from the date of such termination up until the Initial expiry Date … discounted over the notional balance of the Term at the Discount Rate applicable on the date of such termination;
(D) the Residual Book Value; and
(E) the value (as reasonably estimated by the Lessor) of all services, covenants and other obligations which would have fallen to be performed by the Lessee but for the termination of the leasing of the Aircraft Package,
less the aggregate of the Fair Market Value of the Aircraft on the date of such termination."
"Fair Market Value" was defined for these purposes as an amount equal to the average of the amounts assessed by three independent valuers of recognised international reputation and experience as being the amount that could reasonably be expected to be received on an arm's length sale of the aircraft in the circumstances at the time of determination and under no unusual pressure for a prompt sale.
On 3 rd June 2009 the Bank wrote to AA notifying it that events of default had occurred and demanding that they be cured immediately. It also required AA to surrender possession of the aircraft under clause 18.2(B)(i). By the date of that letter the aircraft had been in the possession of Bombardier at its premises at Windsor Locks, Connecticut, for about a year, having been sent there by Bexair in June 2008 for inspection and repair with a view to re-sale under a trade-in purchase agreement between AA and Bombardier. For reasons that remain unclear the aircraft had not been held under approved storage conditions. Its equipment, in particular the engines, had not been powered up during that period and it had been allowed to stand on the tarmac exposed to the weather. As a result it had already suffered a certain amount of deterioration. Bombardier was exercising a lien on it pending payment of an outstanding amount of US$1,104,137.35 which it claimed to be due for work it had carried out.
On 4 th June 2009 the Bank wrote to Bombardier to inform it that AA was in default under the lease and that it had demanded the return of the aircraft pending the remedying of that default. It asked Bombardier to confirm the extent of the work that had been carried out on the aircraft, whether any sum was outstanding in respect of it and whether the aircraft was airworthy. Bombardier replied on 15 th June 2009 saying that extensive work had been done on the aircraft, that there was an outstanding bill for over US$1 million and that it...
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