Durham Tees Alley Airport Ltd and Another v BMI Baby Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Toulson,Lord Justice Mummery |
| Judgment Date | 05 May 2010 |
| Neutral Citation | [2010] EWCA Civ 485 |
| Docket Number | Case No: A3/2009/1063 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 May 2010 |
[2010] EWCA Civ 485
The Hon Mr Justice Davis
Before: Lord Justice Mummery
Lord Justice Toulson
and
Lord Justice Patten
Case No: A3/2009/1063
C08C00806
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
Mark Brealey QC and Andrew Thomas (instructed by Hill Dickinson LLP) for the Appellant
Michael Crane QC and Akhil Shah (instructed by DLA Piper UK LLP) for the Respondent
Hearing dates: 26 th and 27 th January 2010
Lord Justice Patten:
Introduction
The first defendant, bmibaby Limited (“BMIB”), is the well-known airline which operates low cost carrier services to various European destinations. It is a subsidiary of the second defendant, British Midland Airways Limited (“BM”). The claimant, Durham Tees Valley Airport Limited (“DTVAL”), is, as its name suggests, the owner of Durham Tees Valley Airport (“the Airport”) (formerly known as Teesside International Airport) near Darlington. Until it changed its name in line with the change of name of the Airport the company was called Teesside International Airport Limited (“TIAL”).
On 23rd April 2003 TIAL entered into what has become known as the Base Agreement. The other party was British Midland Regional Limited (“BMRL”) which traded as bmibaby until the subsequent incorporation of BMIB. The Base Agreement was the culmination of discussions and subsequently negotiations which took place throughout 2002. When they began TIAL was owned by local authority shareholders who were keen to re-generate and develop the Airport in order to boost the local economy. As of 2000 the Airport carried about 700,000 passengers per annum but had capacity for at least 1-2 million passengers. The local authorities were, however, limited in what they could afford to invest both by the financial constraints imposed upon them and by the difficulties involved in obtaining commercial loans. To overcome these problems they decided to seek new investment by offering for sale a controlling 75% interest in TIAL. Offers were invited and, after protracted negotiations, the successful bidder was Peel Airports Limited (“Peel”).
Peel was the owner and operator of two other regional airports; Liverpool (John Lennon) Airport and Robin Hood Airport near Doncaster. In both cases it had successfully increased the turnover and profitability of the airports by increasing passenger volumes. This was due in large measure to being able to attract low cost carriers to use the airports. The evidence was that Peel's approach to airport operation was what was described as long-term and that it had been successful in persuading easyJet to enter into a 20 year contract to use Liverpool Airport.
Davis J (in a typically careful and detailed judgment [2009] EWHC 852 (Ch)) has set out the history of the negotiations which led ultimately to Peel entering into a Subscription and Shareholders' Agreement with the local authority shareholders on 1 st April 2003 and then to the Base Agreement between TIAL and BMRL. For the purposes of this appeal I need do no more than outline the judge's principal findings.
BMRL first established a base for bmibaby at East Midlands Airport in February 2002. It was then looking to establish further bases at other regional airports in order to expand its operations. At the same time TIAL and Peel were keen to attract a low cost carrier with a based operation at the Airport. A based operation means one under which the airline keeps its aircraft at the airport overnight at the conclusion of its daytime operations. This enables the airport to present the airline as based at the airport and to enjoy the economic benefits of increased passenger throughput and income which the flight patterns (or “rotations”) of based aircraft bring.
TIAL was invited by BMRL to make a presentation to it on 1 st May 2002 with a view to the Airport becoming a base for bmibaby. It was asked to proceed on various assumptions including “up to two units for winter 2002” and “a minimum of three months for summer 2003”. In the judge's words BMRL held all the cards in relation to the negotiations. TIAL was extremely anxious to secure the Airport as a base for bmibaby and faced competition from other airports including Newcastle. The Airport did, however, have some advantages for bmibaby in its capacity for expansion and the lack of competition from any rival carriers.
Although TIAL was invited to make a further presentation on 9 th September, Manchester was in fact selected as the third base for bmibaby's operations. But BMRL remained interested in the Airport as a potential base in the North East. Its internal financial evaluation recommended the Airport in preference to Newcastle as being potentially more profitable. On the assumption that two aircraft would be based there, a net operating profit of £378,000 was projected for 2003; £2.145 million for 2004 and £1.792 million for 2005.
By this time Peel had been identified by TIAL as a potential investor and was promoted as part of its negotiations with BMRL. At a meeting with representatives of BMRL in October 2002 TIAL were told that the airline required a commitment to re-brand the Airport and for additional funding to be made available for the development of the terminal. They were also looking for £750,000 in marketing support and for funding for training support. TIAL said that, in return, they were looking for what they described as a long-term deal.
By November 2002 all parties were proceeding on the assumption that Peel would take control of TIAL as and when an agreement was concluded with BMRL. On 28 th March 2003 Peel sent to BMRL a letter which was intended to form a collateral agreement to its acquisition of a majority stake in TIAL. So far as material it stated:—
“In the event that Peel Airports Limited (“Peel”) acquires a shareholding in Teesside International Airport Limited (“TIAL”) or otherwise acquires operational control of Teesside International Airport (“the Airport”), then in consideration of British Midland Regional Limited trading as bmibaby (“bmibaby”) entering into an agreement with TIAL for the operation of services by bmibaby from the Airport no later than 31 October 2003 in the form annexed to this letter (or with such further amendments as are agreed by us), Peel agrees and undertakes as follows:—
1. Peel will pay to bmibaby the sum of £500,000 in the form of 9 monthly instalments to commence on or before 7 April 2003, or if later, within 7 days of acquisition of such shareholding or control as a contribution to route support and costs associated with bmibaby setting up its operation at the Airport. The first instalment will be £100,000 followed by 8 monthly payments of £50,000 over the period from May to December 2003.
In the event, however, that bmibaby fails to commence based operations in accordance with the contract with TIAL or alternatively, withdraws services from the Airport within twelve months of the date of commencement of services, then in either scenario, Peel shall be entitled to recover such monies paid to bmibaby under this letter (as shall not have been spent on marketing and launch costs by bmibaby) should bmibaby fail to prove the use of reasonable commercial endeavours in the development of the base operation at the Airport. Additionally, if such withdrawal occurs prior to all payments having been made, then for the avoidance of doubt, no further payments remain due and owing from Peel to bmibaby.”
On 1 st April 2003 Peel entered into the Subscription and Shareholders' Agreement and thereby acquired a controlling interest in TIAL. On 23 rd April the Base Agreement was signed. The judge set out the material parts of the Agreement and his construction of certain key terms at paragraphs 24-31 of his judgment:—
“24. The Base Agreement, self-evidently, is not what one might style a lawyers' agreement (I was told that it was drafted by the business people concerned, albeit reviewed by in-house legal departments). It is nevertheless detailed and, on its face, a formal contract. The named parties are TIAL and British Midland Regional Limited. Somewhat inconveniently it has no numbered clauses.
25. The opening provisions are these:—
“Date: 23 April 2003
Airline: British Midland Regional Limited trading as bmibaby
Operation: Initial 'lead-in' flying programme (to an agreed number of destinations) to commence no later than 31 October 2003 to support the establishment of a minimum x 2 based aircraft operation (initially B737) operating exclusively from TIAL by Summer 2004.
Capacity: Capacity will be determined by the relevant route network delivered in consultation with TIAL.
Duration: 10 years from the establishment of the based aircraft operation as defined above. …”
26. There are then further provisions, including some quite technical details on charging structure. The charging structure, geared to load factor, involved low passenger charges in the early years, rising thereafter steadily up to year 7, with increases thereafter to year 10 to reflect the Retail Price Index. Under the heading “Marketing: Base Establishment – Initial 2 based aircraft operation” this was provided:—
“TIAL will pay to bmibaby the sum of £850k in the form of marketing support on the condition that bmibaby establish a 2 based aircraft operation at TIAL by Summer 2004. Delivery of this funding will be made via the Airport as a payment to bmibaby in the form of a contribution towards an approved Marketing Plan supplied by the airline,...
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