Pindell Ltd and Another v Airasia Berhad
| Jurisdiction | England & Wales |
| Judge | Lord Justice Tomlinson,The Hon. Mr Justice Tomlinson |
| Judgment Date | 09 December 2010 |
| Neutral Citation | [2010] EWHC 3238 (Comm),[2010] EWHC 2516 (Comm) |
| Docket Number | Case No: 2008 Folio 1330 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 09 December 2010 |
[2010] EWHC 2516 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Before: The Hon. Mr Justice Tomlinson
Case No: 2008 Folio 1330
John Taylor (instructed by Messrs White & Case LLP) for the Claimants
Akhil Shah QC (instructed by Stephenson Harwood) for the Defendant
Hearing dates: 04–07 May, 10–14 & 17 May 2010
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.
The Hon. Mr Justice Tomlinson :
This is a dispute about aircraft leasing. The lessors say that the aircraft, a Boeing 737–300, was re-delivered late at the conclusion of a five year operating lease. The lessors say that in consequence they were unable to complete a sale of the aircraft which they had finally concluded some four and a half months before the (alleged) contractual redelivery date, although the major terms of the deal had been agreed in outline and enshrined in a letter of intent two months earlier. They claim damages in respect of the lost sale. The lessees deny that they were in breach of contract and deny that the lessors can in any event recover damages or compensation by reference to the lost sale. The case raises, or at any rate is said to raise, for consideration again the effect of the decision of the House of Lords in Transfield Shipping Inc v Mercator Shipping Inc, “The Achilleas” [2009] 1 AC 61.
The Claimants “Pindell” and “BBAM” are both companies within the Babcock & Brown group, which carries on business acquiring, leasing and selling aircraft. Companies within the group own around 270 commercial aircraft. Babcock & Brown does not operate aircraft.
The defendant “AirAsia” is an airline operator based in Malaysia. Together with its affiliate companies AirAsia Thailand and AirAsia Indonesia it is the largest “low-cost” carrier in Asia, with a fleet of almost 80 aircraft. The co-founder and a driving force behind AirAsia is Mr Conor McCarthy who between 1996 and 2000 as Director of Group Operations for Ryanair successfully implemented a large expansion of Ryanair's low cost operation in Europe. AirAsia pursues the same business model. One feature of the business model is typically the lease or purchase of a single type of aircraft, thereby reducing training and servicing costs and eliminating the complexity caused by operating multiple aircraft types. In 2001 AirAsia selected the Boeing 737–300 as its aircraft type. Boeing had ceased production of the 737–300 in 1999.
On 16 June 2003 BBAM leased one 1987-built Boeing 737–300 aircraft having manufacturer's serial number (“MSN”) 23808 from Intec Leasing Inc, a Japanese company, for a term of five years (“the Head Lease”).
On the same day AirAsia sub-leased the aircraft from BBAM pursuant to a sub-lease which is in all material respects identical to and thus back-to-back with the Head Lease.
The aircraft was delivered to AirAsia on 17 June 2003.
By 2007 the aircraft was twenty years old. Twenty years is a watershed in the life of a commercial jet aircraft. Some civil aviation authorities, notably those in India, China and Indonesia, do not allow the import into their jurisdiction of aircraft over twenty years old. Aircraft over twenty years old are also inevitably overtaken by technological advances, the launch of new models, improvements in fuel efficiency and improvements in quiet operation enabling compliance with increasingly stringent noise restrictions.
In 2005/6 AirAsia took the decision to phase out the Boeing 737–300 and to replace it with the Airbus A320 aircraft. Thereafter their strategy was to return their 28 leased 737–300s and to sell their seven owned 737–300s as soon as possible. To that end AirAsia raised with BBAM the possibility of early redelivery.
At the end of August/beginning of September 2007 the aircraft went into a scheduled “C check” at AirAsia's principal maintenance repair and overhaul provider, ST Aerospace Engineering, “ST Aero”, at its facility in Singapore. C checks are of different magnitude, scope and expense depending on the stage reached in the maintenance cycle of the airframe and engines. This C check took longer than expected because of spares related delays.
On 21 November 2007 Intec sold the aircraft to Pindell for US$5.76 million pursuant to a larger agreement whereby Intec sold five aircraft to companies in the Babcock & Brown group. Intec, BBAM and Pindell entered into a deed of novation whereby Pindell became lessor under the Head Lease. AirAsia was served with notice of assignment and duly acknowledged that Pindell had become the “owner” to which reference is made in the sub-lease and to whom various rights and benefits are accorded therein.
Before the aircraft went into C check discussions began between BBAM and AirAsia concerning the possibility of early redelivery under the sub-lease. The discussions were conducted on the basis that it might be to the mutual benefit of both BBAM and AirAsia for the aircraft to be re-delivered early so as to enable BBAM either to sell the aircraft or to enter into a new lease and AirAsia to pursue its policy of replacing the 737–300 fleet with A320s. The required redelivery condition under the sub-lease was that the aircraft should be fresh from a C check. Once the aircraft was undergoing the C check, it would have made little sense for the aircraft to be taken out of C check and/or returned to service if there remained a realistic prospect of an early redelivery. Once the aircraft came out of C check it would be impossible to comply with the standard “fresh out of C check” redelivery condition. It was not in the interests of AirAsia to operate the aircraft for only four months before placing it into another C check in order to comply with the redelivery condition requirement.
On 14 December 2007 BBAM on behalf of Pindell concluded with NAC Nordic Aviation Contractor A/S, a Norwegian aircraft leasing company to which I will refer as “NAC”, a Letter of Intent pursuant to which NAC would purchase the aircraft from Pindell for US$12 million. No contractual commitment to purchase was made at this stage but a deposit of US$500,000 was paid by NAC to BBAM. The price of US$12 million is not directly comparable with that paid by Pindell to Intec because it presupposed the aircraft and particularly the engines being on delivery in a superior condition. Furthermore the sale by Intec to Pindell was part of a larger transaction. However on any showing this represented a very significant potential profit for Pindell.
The Letter of Intent provided:
“Seller will use commercially reasonable efforts to deliver the Aircraft to Purchaser on or about February 28, 2008 (if the current lessee, AirAsia SDN BHD (the 'Prior Lessee'), elects to re-deliver the Aircraft prior to June 17, 2008) or on or about June 17, 2008, it being understood and agreed that the Aircraft will be delivered to Purchaser as soon as practicable following its return by the Prior Lessee.”
On 19 December 2007 AirAsia informed BBAM that the C check would be completed by Saturday 22 December 2007. They asked for an update on the proposed early return, pointing out that they would obviously hold the aircraft in C check if the proposed early redelivery was to go ahead as tentatively planned but that otherwise the aircraft would be returned to service that weekend. As Mr McCarthy explained in evidence it would probably have been put into reserve.
On the same day, 19 December 2007, BBAM indicated to AirAsia that they remained willing to consider an early return but that they would need the aircraft to be re-delivered fresh from a C check. They told AirAsia that it seemed that “the interested party” would request an inspection just after 15 January 2008 and they asked for how long AirAsia could hold open the C check. They continued:
“Once we have agreed the commercial terms, and assuming a satisfactory inspection, we expect a quick closing.”
AirAsia kept the C check open. On 8 January 2008 Mr McCarthy expressed his concern to his opposite numbers at BBAM that whilst AirAsia had kept the aircraft “in check” and was ready to re-deliver it to BBAM, there was as yet no agreement to an early redelivery.
On 15 January 2008 NAC's technical representative Mr De Lessio inspected the aircraft at the ST Aero facility. He was accompanied by BBAM's Mr Keith Addison.
On 25 January 2008 BBAM's Mr Howard Dugger told Mr McCarthy of AirAsia that the opportunity which BBAM had been pursuing which would have “included the early redelivery” of the aircraft had evaporated. It was therefore necessary to plan for a redelivery as scheduled in the Lease Agreement, by which he meant and Mr McCarthy understood a date in June 2008. This was disappointing for AirAsia who had by now kept the aircraft in C check and idle for over a month. Since the inspection the aircraft had been kept in “preservation”, which as I understand it involves the aircraft being parked outside the hangar but still technically undergoing C check.
On 29 January 2008 NAC informed BBAM of the outcome of their inspection. They were not satisfied with 22 items, which included the number of cycles remaining before certain life limited parts (“LLP”) on the two engines would require to be replaced. Significantly, they also pointed out that “the Dent and Buckle report is not up-to-date and is incomplete”.
“Dent and Buckle” mapping of the airframe is perhaps self-explanatory. As I understood the evidence it is to some extent a continuous process,...
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