Durham Tees Alley Airport Ltd and Another v BMI Baby Ltd and Another
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE DAVIS,Mr Justice Davis |
| Judgment Date | 30 April 2009 |
| Neutral Citation | [2009] EWHC 852 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: TLC 339/08 |
| Date | 30 April 2009 |
[2009] EWHC 852 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Davis
Case No: TLC 339/08
Mr Mr Mark Brealey QC and Mr Andrew Thomas (instructed by Hill Dickinson) for the Claimant
Akhil Shah (instructed by DLA Piper UK LLP) for the Defendants
Hearing dates: 17, 18, 19, 20, 23 and 24 March 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.
Mr Justice Davis:
Introduction
This case involves the interpretation of two written Agreements, one (“the Base Agreement”) dated 23 April 2003 and the other (“the Novation and Variation Agreement”) dated 23 December 2005.
In a nutshell the dispute comes to this. The claimant is the owner of Durham Tees Valley Airport (“DTVA”) sited near Darlington. The first defendant (“bmibaby”) is an airline company specialising in providing low cost carrier services. The second defendant is the parent company of bmibaby and guarantor of its obligations under the Novation and Variation Agreement. The claimant says that under the terms of the written Agreements bmibaby was legally obliged to base and fly two aircraft from DTVA for a period of 10 years on the terms of the Agreements. Bmibaby on the other hand says that it was under no legal obligation to base and fly two (or indeed any) aircraft at DTVA for a period of ten years; rather it had a permissive right to do so and was free at any time to withdraw from DTVA.
No commercial agreement can be interpreted in a vacuum. The context in which such agreement is made can be of considerable importance in assessing what the agreement means. In the present case, however, the amount of documentation put in (exceeding 15 folders) and the number of witnesses – three called on the part of the claimant and four on the part of the defendants, together with one aviation industry expert on each side – might have presaged proceedings involving claims of rectification or estoppel. But such claims are not pursued on the statements of case and were disclaimed in argument before me. Both sides also disclaimed any alternative argument of termination by reasonable notice. So the issue remains one of interpretation of the words used in the Agreements, set in context. I emphasise this because I formed the view at trial that, if it can be said that limited companies have feelings, then feelings have been running quite high here. But the legal approach is necessarily objective.
At trial the claimant was represented by Mr Mark Brealey QC and Mr Andrew Thomas. The defendants were represented by Mr Akhil Shah (it is accepted, I might add, that the second defendant as guarantor has no defence different from that of bmibaby). The presentation of the respective cases, both in written argument and in oral argument, was of a very high standard.
By agreement, the trial before me was confined to the issue of liability and to one limited factual issue of whether there was foreseeability of certain indirect losses sufficient to render them claimable as damages. It was agreed that an assessment of damages should follow at a later date, depending on my conclusion on liability.
The factual background leading up to the Base Agreement
The factual background is this.
An airport has been on the site in question for many years. It changed its name to Durham Tees Valley Airport in September 2004 (indeed that change of name was in consequence of the Base Agreement): immediately before then it was known as Teesside International Airport. It was and is licensed by the Civil Aviation Authority.
British Midland Airways is, of course, a well known and well established airline, with national and international operations. It had in fact operated flights from the airport to London Heathrow for many years. In early 2002 it was announced that it was setting up a low cost subsidiary, which came to be called bmibaby. It is not necessary to set out the features of such an operation. Putting it shortly, it was designed to be a “no frills” operation, broadly following – albeit of course with variations and with its own individual features – the successful methods of airlines such as easyJet and Ryanair.
There is no dispute but that, at least by 2000, the airport was in need of redevelopment and was ripe for expansion. I was told that it was at that time carrying some 700,000 passengers annually when it had capacity for at least 1.2 million passengers. Further the terminal, and other facilities, needed renovation. Local authorities, moreover, were keen to assist in the regeneration of the airport with a view to boosting the local economy.
The airport attracted the attention of a company called Peel Airports Limited (“Peel”), part of the Peel Holdings Group. By 2002 Peel had become owner and operator of two regional airports, Liverpool Airport and Robin Hood Airport, near Sheffield. The evidence shows that Peel had considerable success in turning round the fortunes of those airports. Thus, as explained by Mr Pakey, now Deputy Chief Executive of Peel, passenger volumes at Liverpool Airport were substantially built up, against a background of very significant investment by Peel, in particular by attracting low cost carriers such as easyJet, which entered into a long term contractual relationship with Peel for Liverpool Airport in 1998. Corresponding success, by broadly similar means, was achieved at Robin Hood Airport. As explained by Mr Pakey and by Mr Hough, the Chairman of Peel, the approach of Peel to its airport operations is long-term in nature: and it also involves maintaining a close relationship with airlines operating out of its airports.
As Mr Pakey also put it, the airport and airlines would seek to operate on a reciprocal basis: the airport would provide the facilities to enable the airlines to fly to and from the airport; in return the airlines would provide “the critical mass of passengers” to provide, as Mr Pakey put it, both “aeronautical and non-aeronautical income streams”. Those connote income both in the form of rates payable by the airline to the airport for each individual passenger and also in the form of expenditure by passengers whilst at the airport: for example, by way of car-parking charges and expenditure at retail and catering operations – in respect of the latter of which an airport would conventionally charge the concessionaire a percentage of turnover. (In this regard, I was also told in evidence that longer flights to international destinations potentially could generate more commercial income to the airport than shorter internal flights, in the form of greater customer spend at the terminal on parking facilities, restaurants and so on.) In addition, it was assessed that there were potential commercial property and hotel development possibilities for Peel arising from an acquisition of DTVA.
By 2002, therefore, Peel had had experience and success in operating regional airports. At that time DTVA was owned, through a limited liability company, then called Teesside International Airport Limited (“TIAL”), by local authority shareholders. Because of financial constraints on local authorities, and difficulties they had in accessing commercial loans needed to help develop the airport, they resolved to seek new investment by selling a 75% shareholding in the company. Offers were invited. The ultimately successful bidder was Peel, the negotiations being protracted.
The purchase was effected by a Subscription and Shareholders' Agreement dated 1 April 2003. That involved Peel acquiring from local authority shareholders 7.425 million A ordinary shares of £1 each and 4.950 million B ordinary shares of £1 each. In addition, however, the Agreement required Peel to subscribe for 7.5 million new A ordinary shares of £1 each: and it was an expressly stated intention of the Agreement, by clause 9, that the additional sum of £7.5 million so subscribed should be applied towards development of the terminal and airport facilities in the way illustrated in Schedule 2 to the Agreement. This is an indication of the amount of investment Peel was proposing to put into DTVA (along with further investment it has in fact since made) and, really, operates to confirm the long-term nature of its investment.
However, the negotiations between Peel and the local authority shareholders were not going on in isolation: because at the same time negotiations were already going on between TIAL and the British Midland Group with a view to bmibaby, its new low cost carrier operation, operating from DTVA.
The practical reality was that, although Peel had not yet formally concluded an agreement with the local authority shareholders, there were firm expectations all round many months before the Subscription and Shareholders' Agreement of 1 April 2003 was formally signed off that the deal would go through. Peel itself was accordingly interested in discussions with airlines with a view to enhancing the prospects for DTVA prior to the Agreement being signed. As explained by Mr Pakey, it was noted that DTVA had no long term agreements in place with any airlines: which did not accord with Peel's preferred approach, as illustrated by its operations at Liverpool and Sheffield. Moreover, Peel (as had previously TIAL) had identified low cost carriers as now a key sector in the aviation industry and was keen to attract such carriers. What Peel, and TIAL, were in particular looking for was a low cost carrier which would have a based operation at DTVA....
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