INTERNATIONAL LEASE FINANCE and BUZZ STANSTED Ltd
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Aikens,MR. JUSTICE AIKENS |
| Judgment Date | 17 February 2004 |
| Neutral Citation | [2004] EWHC 292 (Comm) |
| Docket Number | Case No: 2003/829 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 17 February 2004 |
[2004] EWHC 292 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr. Justice Aikens
Case No: 2003/829
Mr. M. Pelling QC for the Claimants.
Mr S. Auld QC for the Defendants.
Approved Judgment
Mr. Justice Aikens:
This is an application by, International Lease Finance Corporation ("ILFC"), for summary judgment under CPR Part 24.2. The claim is for arrears of rent, maintenance reserves and interest under six aircraft leases for Boeing 737�300 aircraft. The leases were originally made between ILFC and KLM (UK) Ltd. as lessees. The leases were novated so as to substitute the present Defendants, Buzz Stansted Ltd as lessees. I refer to the Claimant as ILFC and to the Defendant as "Buzz".
The total sums claimed by way of principal are Euros 266,130.85 and $945,000. Interest is also claimed on top of those figures. There is only one defence that is put forward by Buzz. It is that it is entitled to set off sums that are said to be due to it under side letters that went with the leases in the case of three of the six aircraft. It is accepted by Mr. Auld, Q.C., who appears for Buzz today, that even on the case of Buzz there are still substantial figures owing to ILFC. They are, as I understand it: (1) rent on the three aircraft not subject to the suggested set-off; that totals $204,000; and (2) supplemental rent on the three aircraft not subject to the suggested set-off. Those sums total U.S.$384,394.50.
The Parties
The Claimant is a California registered corporation whose business was and is to supply passenger carrying aircraft on aircraft leases. The Defendant is an English registered company which is a wholly owned subsidiary of the Irish Airline, Ryan Air Ltd. Buzz Stansted Ltd. came into existence in order that it could acquire the business of KLM (UK) Ltd., which was the subject of an asset purchase agreement between KLM (UK) Ltd., Buzz, KLM and Ryan Air Holdings Plc. The asset purchase agreement was concluded on 10th April 2003. Under that agreement the Defendants agreed to assume the responsibility as lessees of the six Boeing 737�300 aircraft that are at the centre of this dispute. I will come to the details of the circumstances in which Buzz took over the position of lessees in more detail later.
The Leases
All six leases for the aircraft were in exactly the same form. They are all dated 4th November 2002. They all provide that the aircraft will be delivered in December 2002 and that the leases will last for eight years. Three of the leases, on aircraft 26310, 26311 and 26321 provide that rent will be paid in U.S. dollars. The other three leases provide that rent will be paid in Euros. Those leases are in respect of aircraft numbers 26312, 26313 and 26314. All other sums payable under the leases are to be paid in U.S. dollars.
In Article 1.7 of each of the leases it provides that for the first twelve months of the lease the rent will be respectively (dollars or Euros) 117,000 per month. Each of the leases provides that for the remainder of the lease period after the first twelve months the rent is to be either U.S.$142,000 per month or Euros 142,000 per month, depending on the aircraft concerned. In each case rent is to be paid monthly in advance.
Article 1.8 of the leases provides that "reserves" are to be paid.
Article 5 of the leases deals with rent.
Article 5.3.2 provides that the first payment of rent was to be made not later than three business days prior to the scheduled delivery date, and each subsequent rental payment was and is to be paid monthly thereafter, no later than the same day of the month as the delivery date of the aircraft save where such day was not a business day when the rent would be due on the immediately preceding business day. Article 5.4.1 of the lease provides that the lessee would pay by way of supplemental rent certain reserves. Three are identified. They are air frame reserves, engine LLP reserves and landing gear reserves. Article 5.6 of the lease provides that where the lessee fails to pay any sum when due as supplemental rent there will become due interest at the rate of 3% above the prime rate in effect on the date when the sum due but unpaid fell due for payment. That amount will be payable for the period between the date when the sum unpaid fell due for payment to the date when the amount unpaid is received by ILFC's bank.
Article 5.7 is central to the arguments that I have had to deal with on this hearing. I must read out the first part of that article in full. That provides:
"No deductions or withholdings. All payments by lessee under this Lease including the rent prepayment, rent reserves, default interest, fees, indemnities or any other item will be paid in full without any deduction or withholding whether in respect of set-off, counterclaim, duties or taxes (as defined in article 16) imposed in the state of registration or any jurisdiction from which such payments are made unless lessee is prohibited by law from doing so in which event lessee will gross up the payment amount such as the net payment received by lessor after any deduction or withholding equal to the amount called for under this Lease."
The clause then continues with some more details about what to do in circumstances where there is a legal obligation to make deductions or withholding. Those are not relevant to the present dispute.
Article 5.9.1 of the Lease terms is equally important. This provides as follows:
"Net Lease. This Lease is a Net Lease and lessee's obligation to pay rent and make other payments in accordance with this Lease will be absolute and unconditional under any and all circumstances and regardless of other events."
That paragraph then goes on to deal with what is the situation when the lessor is in breach of a covenant of quiet enjoyment. That does not apply in this case.
The other provision of the Lease that I ought to refer to is at Article 28.1.8. That is an "entire agreement" clause. It provides that "the operative documents" constitute the entire agreement between the parties in relation to the leasing of the aircraft by the lessor to the lessee, and that those supersede all other agreements. The phrase "operative documents" is a defined phrase and it includes within it the side letter terms. There was a side letter to each lease agreement. Each side letter is also dated 4th November 2002. The letter was between ILFC as lessor and the then lessee, that is to say KLM (UK) Ltd. Paragraph 2 of the side letter is fundamental to the argument put forward by Mr. Auld on behalf of Buzz. That provides:
"2. Boeing Credit. Subject to no default or event of default having occurred under the lease, lessor will cause to be provided to the lessee a manufacturer's credit memorandum in the amount of U.S. $175,000 for the aircraft ('the manufacturer credit'). The manufacturer credit will be provided to lessee on the delivery date of the aircraft and may be redeemed by lessee in order to procure manufacturer goods and services."
Paragraph 2 then goes on to deal with what will happen if there is a default or an event of default under the Lease. That is not relevant for present purposes.
The side agreement also has an Article 11 headed " Miscellaneous". Under Article 11(a) there is a prohibition against the lessee assigning any of its rights under this side letter. Under Article 11(b) there is the following provision:
"Lease in full force and effect. Except as set forth in this side letter all the terms and conditions of the leases remain unchanged and are in full force and effect and the parties hereby ratify the same. This side letter, the leases and other operative documents constitute the entire agreement between lessor and lessee concerning the matters set forth herein and therein and supersede and cancel all prior letters, agreements and correspondence with respect thereto."
Article 11(c) of the side letter provides that the governing law of the side letter is that of the State of California. That is also the governing law in respect of each of the leases. However, no point has been taken as to Californian law in the hearing before me.
When the business of KLM (UK) Ltd. was acquired by Buzz, novation agreements were concluded between ILFC, KLM (UK) Ltd. and Buzz. The object of the novation agreements was to release KLM (UK) Ltd. from the terms of the existing leases and to put Buzz in KLM (UK's) place. For present purpose the operative clauses of the novation agreement are at Article 3.1.
Subparagraph (a) of Article 3.1 provides that "the lessor", which is defined as being ILFC, "will release the existing lessees", that is defined as being KLM (UK) Ltd., "from its covenants, undertakings, obligations, duties and liabilities to the lessor as lessor under the lease which arise on or after the effective time, such a release being without prejudice to the liabilities and obligations of the new lessee to the lessor under the novated lease."
Subparagraph (b) is a reciprocal provision by which the existing lessee releases the lessor from its covenants and undertakings and so forth.
Subparagraph (c) provides that "the new lessee", defined as Buzz, "will assume and agree to assume absolutely all of the rights, covenants, undertakings, obligations, duties and liabilities of the lessee under the novated Lease and will perform the obligations of the Lease under the novated Lease and the new lessee agrees to be bound by the novated Lease in every way."
Subparagraph (d)...
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