De Havilland Aircraft of Canada Ltd v Spicejet Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Michael Burton GBE |
| Judgment Date | 23 February 2021 |
| Neutral Citation | [2021] EWHC 362 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2020-000079 |
| Date | 23 February 2021 |
[2021] EWHC 362 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice,
Rolls Building
Fetter Lane,
London, EC4A 1NL
Sir Michael Burton GBE
SITTING AS A HIGH COURT JUDGE
Case No: CL-2020-000079
Jasbir Dhillon QC and Tom Wood (instructed by Pinsent Masons LLP) for the Claimant
Akhil Shah QC and Laurentia De Bruyn (instructed by K & L Gates LLP) for the Defendant
Hearing dates: 8 – 9 February 2021
Approved Judgment
This has been the hearing of claims and cross-claims for summary judgment and/or strike out between the Claimant (De Havilland Aircraft of Canada Ltd) and the Defendant (SpiceJet Ltd), arising out of a Purchase Agreement (the PA) dated 8 September 2017 for the sale by the Claimant to the Defendant of 25 Q-400 series aircraft, governed by English law. The Claimant was represented by Jasbir Dhillon QC and Tom Wood, and the Defendant by Akhil Shah QC and Laurentia De Bruyn.
The Defendant paid for and accepted delivery of Aircraft 1 to 5, but failed to pay the pre-delivery payments (PDPs) in respect of Aircraft 6–20 and to take delivery of Aircraft 6 to 8. The Claimant served notices terminating the undelivered aircraft and the PA, and claims liquidated damages in respect of all the undelivered aircraft in the sum of US $42.95m, alternatively damages for breach of the PA.
The issues between the parties were as follows:
i) Were the Defendant's obligations in respect of making the PDPs for Aircraft 9–20 suspended by agreement of the parties? This depends upon the question of construction of one of the agreements amending the PA, Change Order 6, dated 15 April 2019 (CO6). Both parties invite me to decide this issue summarily in their favour. The Claimant says that CO6 did not suspend the obligation of the Defendant to make payment of the PDPs for Aircraft 9–20. On that basis, on non-payment of those PDPs it was entitled, after giving due notice, to terminate the PA in respect of Aircraft 9–20 and, since it was also entitled to terminate in respect of Aircraft 6 to 8 for non-payment, therefore, by virtue of Article 15.6 of the PA it was entitled (again after due notice) to terminate the PA in its entirety, because there was a breach of a total aggregate of (more than) 4 aircraft. Thus summary judgment. The Defendant submits that its obligation to pay the PDPs was suspended by the Claimant by CO6, and so it was not in default in respect of Aircraft 9–20: thus the Claimant was not entitled to terminate in respect of those aircraft, and was also not entitled, whatever the position in relation to Aircraft 6 to 8 (discussed below), to terminate the PA, since any default was only in respect of three aircraft, which was not enough to justify termination of the PA under Article 15.6. Hence summary judgment for the Defendant on that issue. There is no dispute as to the various notices, but the question depends wholly upon the construction of CO6 as to whether the Claimant was entitled to terminate. I shall call this “the CO6 issue”.
ii) The Defendant failed to make payment of the PDPs or take delivery in respect of Aircraft 6 to 8, and the Claimant seeks summary judgment, as there is no defence, both as to termination in respect of those aircraft, and, on the basis of the consequent impact of the issue above, by virtue of the Defendant's thus being in default in respect of (more than) four aircraft. The Defendant submits that it should be entitled to leave to defend on this issue, by reference to its case as to breach by the Claimant of its obligation, under a Letter Agreement of even date with the PA ( LA 13), to provide Assistance in Arranging Finance, as defined in LA 13. This alleged breach is asserted to be sufficient to amount to a defence, in that the Defendant's compliance with its obligations under the PA in respect of those aircraft was rendered impossible or prevented by the Claimant's alleged breach: alternatively it has a defence of set-off by reference to a counterclaim for damages for such breach. This is the “ LA 13 issue”.
iii) The third issue, although for obvious reasons it is a sub-issue of the second, is whether, if the Defendant is able to establish such a breach of LA 13 as would otherwise entitle it to a defence or to set-off a counterclaim, it is excluded by the “no set-off” Article at 5.6 of the PA (the “set-off issue”).
iv) The fourth issue is whether the Claimant is entitled to claim liquidated damages of US$42.95m, or whether Article 15.4(c) of the PA amounts to an unenforceable penalty, in accordance with the principles recently authoritatively addressed in Cavendish Square Holding v Makdessi [2016] AC 1172 (“ Cavendish”) (the “penalty issue”).
v) Finally, if such liquidated damages are not recoverable by the Claimant, can it recover damages at common law (“the common law damages issue”).
The Articles in the PA which were in issue are as follows (the references to Bombardier are to the Claimant's predecessor in title):
“ ARTICLE 1 — INTERPRETATION
1.3 “Scheduled Delivery Month” means the month as set out in Appendix II (as may be modified from time to time in accordance with this Agreement) in which each Aircraft shall be offered to Buyer for ground inspection and acceptance flight;
ARTICLE 5 — PAYMENT
5.1 Payments
5.1.1 Bombardier acknowledges having received from Buyer a payment in the amount of $50,000 USD to be applied pro rata (that is $2,000 USD against each of the 25 Firm Aircraft) against the balance of the Aircraft Purchase Price in accordance with Article 5.1.2(e).
5.1.2 Buyer shall make further payments or cause payment to be made for each Aircraft as follows:
(a) $2,500,000 On execution of the Agreement (to be returned or netted off the Aircraft Purchase Price, at Buyer's option on a pro rata basis at delivery of 21 st Aircraft through 25 th Aircraft);
(b) $2,500,000 On December 15 th, 2017 (to be returned or netted off the Aircraft Purchase Price, at Buyer's option on a pro rata basis at delivery of 21 st Aircraft through 25 th Aircraft);
(c) 10% of the estimated relevant Net Configured Price for 1 st Aircraft through 5 th Aircraft 8 months prior to its Scheduled Delivery Month;
(d) 10% of the estimated relevant Net Configured Price for 6 th Aircraft through 25 th Aircraft 12 months prior to its Scheduled Delivery Month;
(e) the Aircraft Purchase Price (less the $1,000 USD payment received against such Aircraft as referenced in Article 5.1.1 and the amounts paid or applied as set out in (a), (b), (c) or (d) above, as applicable) on or before the Delivery Date of the relevant Aircraft.
All payments referred to in paragraphs (c) and (d) above are to be made on the first day of the applicable month….
5.2 Failure to Pay
5.2.1 If Buyer fails to pay when due any amount payable by it under this Agreement, Buyer shall pay Bombardier, immediately upon demand, interest on such late payment, from the last day of the cure period prescribed in Article 15.6 up to and including the day of payment, at the applicable three-month LIBOR rate plus two hundred (200) basis points. Bombardier's right to receive such interest is in addition to any other right or remedy Bombardier has under this Agreement as a result of Buyer's failure to make payments when due including the right to terminate this Agreement in accordance with Article 15.6 subject always to Article 5.2.2 below. Without limiting the foregoing, in the event that Buyer fails to pay, within the cure period prescribed in Article 15.6, any amount payable by it under Article 5.1.2, Bombardier shall have an automatic right to defer the Scheduled Delivery Month of the applicable Aircraft in accordance with Article 15.6. Upon receipt of all amounts then owed under Article 5.1.2 in respect of such Aircraft (together with interest thereon due under this Article 5.2.1, unless such interest is waived by Bombardier) and provided Bombardier has not exercised its right of termination under Article 15.6, Bombardier shall confirm to Buyer the revised Scheduled Delivery Month for such Aircraft, as determined by Bombardier acting reasonably within three (3) Business Days of receipt of such amounts. The parties shall execute a Change Order to reflect such new Scheduled Delivery Month for such Aircraft.
5.2.2 Notwithstanding 5.2.1 above, for as long as Bombardier has not exercised its right to terminate this Agreement, in whole or in part, in accordance with Article 15.6 and Buyer cures its payment default by sending to Bombardier all amounts then due and payable under 5.1.2 in respect of such Aircraft (together with interest thereon due under Article 5.2.1), then Bombardier shall no longer be entitled to exercise any right or remedy under Article 15.6, excluding the right to automatic deferral in Article 5.2.1.
5.3 Buyer shall make all payments due under this Agreement in immediately available funds by deposit on or before the due date to Bombardier's account detailed below or such other bank account as Bombardier may notify to Buyer from time to time:
….
Buyer acknowledges that all payments made by Buyer under this Agreement, including all payments specified in Article 5.1 herein, are unconditional payments by Buyer to Bombardier for the purchase of Aircraft and such payments will be applied by Bombardier against the balance of the Aircraft Purchase Price due on or before the Delivery Date for the relevant Aircraft.
5.4 All other amounts due from Buyer, including any Taxes then due and payable, with respect to each Aircraft shall be paid on or prior to the Delivery Date of the respective Aircraft.
5.5 …
5.6 Buyer shall make all payments hereunder without set-off, deduction or counter claim of any kind and Buyer shall have no legal, equitable or reversionary...
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