Novus Aviation Ltd v Alubaf Arab International Bank BSC(c)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leggatt |
| Judgment Date | 30 June 2016 |
| Neutral Citation | [2016] EWHC 1575 (Comm) |
| Docket Number | Case No: CL-2013-000238 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 30 June 2016 |
[2016] EWHC 1575 (Comm)
Mr Justice Leggatt
Case No: CL-2013-000238
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Paul Sinclair (instructed by Wallace LLP) for the Claimant
Andrew Ayres QC & Narinder Jhittay (instructed by Eversheds LLP) for the Defendant
Hearing dates: 26–28 April and 3–5 May 2016
Introduction
The central question in this case is whether or not the claimant, Novus Aviation Limited ("Novus"), and the defendant, Alubaf Arab International Bank BSC(c) ("Alubaf"), made a contract under which Alubaf agreed to provide equity funding for the purchase of an aircraft to be leased to Malaysian Airlines. It is common ground that between April and June 2013 Novus and Alubaf discussed such a transaction and that Alubaf withdrew before the aircraft was purchased. Novus contends that Alubaf was thereby in repudiatory breach of contractual obligations contained in a commitment letter dated 6 May 2013 and a management agreement dated 15 May 2013. Alubaf denies on a number of grounds that these documents record any contractually binding obligation or, alternatively, any such obligation of which it was in breach.
The parties and their witnesses
Novus is a company which arranges finance for the acquisition and leasing of commercial aircraft. It is incorporated in the Bahamas and operates out of four offices in Europe, Asia and the Middle East. The CEO and President of Novus is Mr Safwan Kuzbari. His son, Mr Hani Kuzbari, is also a director and shareholder of Novus and was the principal point of contact with Alubaf. Mr Hani Kuzbari was the only witness of fact who gave evidence for Novus at the trial.
Alubaf is a bank incorporated and carrying on business in Bahrain. Three employees of Alubaf gave oral evidence: its Head of Treasury and Investments, Mr Ali Abdullah; its Head of Risk Management and Compliance, Mr Mohamed A Hameed A Qader; and the CEO of Alubaf, Mr Hassan Abulhasan. In addition, Alubaf relied as hearsay evidence on a witness statement from Mr Matthew Sandy, the former Head of its Investments Desk.
The dealings between the parties are well documented, mainly in email correspondence, and there are only a few significant disputes of fact. Where testimony given by witnesses based on their recollection of events was not consistent with documents created at the time or with inferences that can reasonably be drawn from such documents, I have based my conclusions on the contemporaneous record which I regard as much more reliable evidence of what occurred.
The court also received evidence from experts in aviation finance. Although, as I will explain later, that evidence did not establish the alleged market practice which was the reason for allowing it, the expert witnesses gave a helpful insight into the commercial background by explaining ways in which the purchase and leasing of aircraft are arranged and financed.
Genesis of the relationship
In late March 2013, Novus was contacted by Mr Sandy on behalf of Alubaf to express Alubaf's interest in investing with Novus in the acquisition/financing of passenger aircraft. Following a telephone conversation between them, Mr Hani Kuzbari outlined in an email to Mr Sandy on 27 March 2013 two investment opportunities. The first involved a new Airbus 330–200 aircraft due to be delivered in April 2013 to Garuda Indonesia Airlines ("Garuda"). As Mr Kuzbari told Mr Sandy, Novus had previously been proceeding with another prospective investor, which had pulled out at a late stage because of failure to get internal approval for the investment. The second opportunity involved a new Airbus 330–300 aircraft, due to be delivered to Malaysia Airlines ("MAS") in June/July 2013.
In each case Novus was looking for equity investment to finance the acquisition of the aircraft, in combination with bank borrowing. The aircraft would then be leased to the airline on a 12 year lease. The aim was that the rental payments under the lease would more than cover the cost of repaying the loan and other expenses, generating an attractive annual return for the equity investor. At the end of the lease (or possibly sooner) the aircraft would be sold, potentially enabling the equity investor to recoup the sum invested and make a profit.
Mr Sandy confirmed that Alubaf was interested in receiving more information about these investment opportunities.
The Garuda transaction
On 28 March 2013 Mr Kuzbari provided Mr Sandy and Mr Abdullah with a financial model and diagram of the transaction structure for the potential investment in the aircraft to be delivered to Garuda. The amount of equity required for this investment was US$47–48m and the estimated average annual yield was around 10%. In an email sent on 29 March 2013, Mr Sandy indicated that Alubaf was keen to look at all such opportunities and asked for similar information on the MAS transaction, which Mr Kuzbari sent. In the same email Mr Sandy confirmed that, if "fully satisfied with the deal, financials, structure, risk and the counter parties", Alubaf could action the Garuda transaction within the required period of one month. Similar statements were made by Mr Sandy in a telephone conversation with Mr Kuzbari on 1 April 2013, which Mr Kuzbari reported in an internal email sent to others at Novus.
On 2 April 2013 Mr Kuzbari outlined in an email to Mr Sandy a proposed timetable for the Garuda transaction, starting with a meeting in Bahrain on 7 April 2013 and leading to funding and closing of the transaction and delivery of the aircraft in the week commencing 22 April 2013. One of the "required steps" in the process was receipt of a commitment letter from Alubaf, which was scheduled for 14 April 2013. Mr Kuzbari said that he could send the standard draft commitment letter used by Novus which had been approved by previous investors. He also mentioned the need for signature of a management agreement between Novus and Alubaf and again said that he could send the standard draft which had been approved by previous investors.
On 7 April 2013 Mr Kuzbari travelled to Bahrain and met Mr Sandy and Mr Abdullah. As Mr Kuzbari recorded in an internal email sent immediately afterwards, the meeting went very well and Mr Sandy and Mr Abdullah said that Alubaf (including the Chairman, CEO and Head of Investment) were all very keen to do the Garuda deal. Mr Sandy and Mr Abdullah said that they needed formal approval before issuing a firm commitment letter. Mr Kuzbari asked for an initial comfort letter by close of business on that day. Such a letter, dated 7 April 2013 and signed by Mr Abdullah, was duly provided. The letter confirmed Alubaf's "indicative commitment" to invest approximately US$45m in conjunction with Novus to acquire a new A330–200 aircraft from Airbus to be delivered on or about 22 April 2013 and to be leased for a term of 12 years to Garuda. The letter further stated that "[t]his commitment is subject to completion of our due diligence procedures and obtaining all necessary internal approvals."
It soon transpired, however, that there was insufficient time to arrange the Garuda transaction. Mr Kuzbari notified Mr Sandy of this in an email sent on 10 April 2013, in which he explained that the timing would not work as Garuda and Airbus were looking for commitments that week. In these circumstances, attention now turned to the MAS transaction.
The MAS transaction
MAS had ordered from Airbus two A330–300 passenger aircraft, with scheduled delivery dates in July 2013 and January 2014. On 5 December 2012 Novus agreed a letter of intent with MAS outlining the terms on which Novus provisionally offered to finance the purchase of these aircraft at a price not exceeding US$107m per aircraft. The basic structure of the proposed transaction was that, for each aircraft purchase, a special purpose company (SPC) would be incorporated in a tax efficient jurisdiction which would take an assignment from MAS of the right to acquire ownership of the aircraft in return for paying the purchase price to Airbus. Upon acquisition, the aircraft would be leased to MAS for a term of 12 years. For tax and other legal reasons, the leasing arrangements would involve a chain of leases with the purchasing SPC as head lessor, two intermediate SPCs, and MAS as the ultimate sub-lessee.
By 12 April 2013, Mr Sandy had begun work on preparing an investment application to seek internal approval from Alubaf's investment committee to participate with Novus in the acquisition and lease to MAS of the aircraft due to be delivered in July 2013. Over the following days Mr Kuzbari provided further information and responded to queries from Mr Sandy about the proposed transaction. At the request of Novus, a non-disclosure agreement dated 15 April 2013 was signed under which Alubaf undertook to keep information confidential. Arrangements were also made for Mr Kuzbari to visit Bahrain to make a presentation to Alubaf's investment committee. The aim of the presentation was to pave the way for the investment application by introducing Novus and its business and providing general background about the aircraft leasing industry. The presentation took place on 17 April 2013 and touched briefly on the MAS deal.
The investment application (which was largely prepared by Mr Sandy) was a detailed document which sought approval to participate with Novus in the MAS transaction by investing 99% of the required equity in an amount of just under US$40m (with the other 1% of the equity to be contributed by Novus). The application recorded that the rest of the acquisition cost of the aircraft was to be funded by non-recourse debt financing of US$70m arranged by...
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