Olympic Airlines SA (in special liquidation) v Acg Acquisition XX Llc (Respondent/Claimant)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,Lord Justice Kitchin,Lord Justice Rix |
| Judgment Date | 17 April 2013 |
| Neutral Citation | [2013] EWCA Civ 369 |
| Docket Number | Case No: A3/2012/1559 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 April 2013 |
[2013] EWCA Civ 369
Lord Justice Rix
Lord Justice Tomlinson
and
Lord Justice Kitchin
Case No: A3/2012/1559
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Teare J
2009 Folios 1249 and 1252
Royal Courts of Justice
Strand, London, WC2A 2LL
Philip Shepherd QC and Edward Cumming (instructed by Fulbright & Jaworski International LLP) for the Appellant
Michael McLaren QC and Harriet Jones-Fenleigh (instructed by Simmons & Simmons LLP) for the Respondent
Hearing dates : 15 and 16 January 2013
This appeal is about aircraft leasing. Specifically, it concerns a "dry" lease of a 17 year old Boeing 737 entered into between the Appellant, "Olympic", as lessee, and the Respondent, "ACG", as lessor on 30 May 2008. The lease was to be for five years and the scheduled delivery date was 30 June 2008.
Olympic was at the time the well-known Greek flag carrier. It ceased trading on 2 October 2009, transferred its business and assets to other entities, and entered a creditors' special liquidation.
ACG is an aircraft lessor. Its business is asset finance. It does not itself either operate or maintain aircraft. In this it is typical of aircraft lessors.
Before being leased to Olympic the aircraft was leased through a subsidiary of ACG to AirAsia, a low-cost airline or budget carrier. Neither the parties nor the judge drew any relevant distinction between ACG and its subsidiary.
On 19 August 2008 Olympic accepted delivery of the aircraft from ACG. Acceptance of delivery was evidenced by lessor and lessee completing and signing a "Certificate of Acceptance" in a form prescribed by Exhibit A to the lease, Exhibit A being a proforma Certificate of Acceptance. Certificate of Acceptance is a term defined in the contract as meaning "a certificate in the form attached as Exhibit A to be completed and executed by Lessor and Lessee at the time of Delivery."
On the same day, 19 August 2008, having secured acceptance of delivery by Olympic, ACG accepted redelivery of the aircraft from AirAsia. By an amendment dated 12 May 2008 the redelivery conditions specified in the lease to AirAsia had been amended to mirror the delivery condition that was in due course to be agreed with Olympic.
The Certificate of Acceptance included the following, under the rubric "Lessee's Confirmation" –
"The Lease Property complied in all respects with the condition required at delivery under Section 4.2 and Schedule 2 of the Agreement, except for the items, if any, listed on the attached Annex 2 (the "Discrepancies"). Lessor and Lessee agree that the Discrepancies, if any, shall be corrected as set forth on the attached Annex 2."
The judge below, Teare J, sitting in the Commercial Court, found that, unbeknown to either Olympic or ACG, the aircraft was not in fact on delivery in the condition required by Schedule 2 of the lease. Indeed it was not in an airworthy condition or in a condition for safe operation. Between 23 August 2008 and 6 September 2008, the height of the summer season, the aircraft operated as part of Olympic's commercial passenger fleet. It flew 112 flights in that time. A pre-flight inspection at Athens on 6 September discovered a defect in one of the spoiler cables on the aircraft's left wing. The aircraft was grounded for repair and inspection work, during which further defects, both to spoiler cables and to other parts of the aircraft, were discovered. On 11 September 2008 the Greek Civil Aviation Authority suspended the aircraft's airworthiness certificate. For reasons which for the purposes of this appeal it is unnecessary to explore, Olympic did not before ceasing trading satisfactorily complete the work required in order to return the aircraft to service.
On 29 March 2010 ACG sent notice of termination of the lease, but for reasons which are again not presently material, the aircraft was not redelivered to ACG until 24 November 2010. The full history of what transpired between September 2008 and November 2010 can be found set out in the judgment of Teare J, [2012] EWHC 1070 (Comm).
Those events gave rise to substantial claims on both sides:—
(i) ACG claims the payment of rent and maintenance reserves in the sum of about US$4.6 million for the period from delivery until November 2010, together with damages for the loss of rent in the sum of US$6.9 million from 24 November 2010 until the end of the intended term of the lease, giving credit for what it had earned in mitigation;
(ii) Olympic counterclaims damages for breach of contract by ACG in failing to deliver the aircraft in the contractual condition, namely €6.8 million in respect of the costs of hiring substitute aircraft and of attempting to make the aircraft airworthy.
The essential question which the judge had to decide is whether a claim for damages for defective delivery survives execution by the parties of the Certificate of Acceptance.
It was the contention of ACG that the contractual terms rendered the Certificate of Acceptance conclusive proof that the aircraft complied in all respects with the condition required at delivery.
The judge rejected this contention, but accepted ACG's alternative contention that statements made by Olympic in the Certificate of Acceptance gave rise to an estoppel by representation on which ACG had reasonably relied to its detriment in accepting redelivery from AirAsia which precluded Olympic from contending that the aircraft was not on delivery in the contractually required condition.
A further argument was in play before the judge, although it had not been pleaded, to the effect that the lease by clause 2.1(d) constituted the Certificate of Acceptance an independent binding agreement, enforceable against Olympic in accordance with its terms. By that contract Olympic agreed that the aircraft was on delivery in the contractually required condition. The judge did not consider this argument in his judgment, indeed he had no need to do so. The argument was resurrected on the appeal by Mr Michael McLaren QC for ACG. Mr Philip Shepherd QC for Olympic contended that had this argument been pleaded Olympic would have countered it with an argument to the effect that this independent contract was procured by misrepresentation by ACG as to the condition of the aircraft.
The upshot was that ACG's claim succeeded, subject to quantification of the damages to which it was entitled. Olympic's counterclaim failed.
Olympic appeals, essentially on the ground that the judge was wrong to find that a contractual machinery which was ineffective to give rise to a contractual estoppel was nonetheless effective to give rise to an estoppel by representation. ACG seeks to uphold the judge's judgment. The principal thrust of ACG's case before us was, however, that the judge should have decided the case in its favour on the basis of either its primary case, that the Certificate of Acceptance was agreed to be conclusive proof of delivery of the aircraft in the contractually required condition, or the allied albeit unpleaded analysis that the Certificate of Acceptance was an independent contract bringing about the same result.
The judge heard a 13-day trial with many contested issues of fact and of expert evidence. His careful factual findings are unchallenged. I need only put a little more flesh on the bare bones which I have already set out before turning to examine the contractual provisions on the true construction of which this appeal turns. In what follows I have borrowed heavily from the judge's judgment.
A pre-leasing survey of the aircraft was carried out in April 2008 in Kuching, Malaysia, by Olympic Airlines Services (OAS), the maintenance repair and overhaul (MRO) provider used by Olympic to service its aircraft. The purpose of this survey was to enable Olympic to decide whether or not to lease the aircraft. Following that inspection, Olympic was well aware that this 17-year old aircraft needed maintenance work.
Prior to redelivering the aircraft AirAsia was due to carry out a maintenance check known as a C check. A C check is a maintenance check designed for each type of aircraft by reference to the type of operations the aircraft will be performing and environmental considerations. The nature and intensity of the C check varies according to the stage in the operational and maintenance cycle which the aircraft has reached. The rationale for carrying out a C check prior to redelivery is to attempt to harmonise the condition of the aircraft on redelivery with the condition which will be acceptable for onward delivery to the next lessee. The new operator will thus be able to put the aircraft into operation immediately.
OAS recommended that before deciding to incorporate the aircraft into Olympic's fleet "during the next C check it must be inspected in detail … and any findings must be repaired. Additional openings may be required other than those provided for by the C check."
Following the inspection of the aircraft at Kuching, e-mails were exchanged on 15 and 16 April 2008 between Mr Ryan of ACG and Mr Dimitriadis of Olympic in which it was agreed that any "discrepancies" or "findings" could be addressed during the C check.
As I have already noted, on 12 May 2008 the lease between ACG and AirAsia was amended so that the required redelivery condition was brought into line with the delivery condition intended to be agreed between ACG and Olympic.
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