Pindell Ltd v AirAsia Bhd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Tomlinson J. |
| Judgment Date | 12 October 2010 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 12 October 2010 |
[2010] EWHC 2516 (Comm)
Queen's Bench Division (Commercial Court).
Tomlinson J.
John Taylor (instructed by White & Case LLP) for the claimants.
Akhil Shah QC (instructed by Stephenson Harwood) for the defendant.
The following cases were referred to in the judgment:
Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank LtdELR [1982] QB 84.
ASM Shipping Ltd of India v TTMI Ltd of England (The Amer Energy)UNK [2009] 1 Ll Rep 293.
Classic Maritime Inc v Lion Diversified Holdings Bhd [2010] 1 CLC 445.
Expert Clothing Service & Sales Ltd v Hillgate House LtdELR [1986] Ch 340.
Hadley v BaxendaleENR (1854) 9 Ex 341; 156 ER 145.
Supershield Ltd v Siemens Building Technologies FE Ltd [2010] 1 CLC 241.
Sylvia Shipping Co Ltd v Progress Bulk Carriers LtdUNK [2010] EWHC 542 (Comm); [2010] 1 CLC 470.
Total Liban SA v Vitol Energy SA [1999] CLC 1301; [2001] QB 643.
Total Transport Corp v Arcadia Petroleum Ltd (The Eurus) [1998] CLC 90.
Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] 2 CLC 1; [2009] 1 AC 61.
Aviation — Aircraft lease — Redelivery — Agreement for sale with delivery in six week window following termination date of lease — Aircraft redelivered late and sale lost — Extent of contractual redelivery obligation — Whether lessors estopped from asserting breach of contract — Whether lessors could claim compensation or damages in respect of loss of sale agreement either at common law or under contractual indemnity — Whether prospective purchaser would have terminated sale agreement in any event.
This was a claim by the lessors of an aircraft for damages in respect of a lost sale where the aircraft was redelivered late at the conclusion of a five-year operating lease.
The aircraft, a Boeing 737–300, was delivered to the defendant, AirAsia, in June 2003. By 2007 the aircraft was 20 years old. AirAsia had taken the decision to phase out its Boeing 737–300s and to replace them with Airbus A320s. Thereafter its strategy was to return its 28 leased 737–300s and to sell its 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 2007 the aircraft went into a scheduled “C check” at AirAsia's principal maintenance repair and overhaul provider in Singapore. Before the aircraft went into the C check, there were discussions concerning the possibility of early redelivery under the lease. The redelivery condition under the lease was that the aircraft should be fresh from a C check. It was not in the interests of AirAsia to operate the aircraft for only a few months after the C check before placing it into another C check in order to comply with the redelivery condition requirement.
In December 2007 the lessors concluded a letter of intent to sell the aircraft to a potential purchaser (NAC). AirAsia kept the C check open on the basis that there would be a sale or lease to a third party. In February 2008, a contract to sell the aircraft to NAC was concluded. The scheduled delivery date was 17 June 2008 with a final delivery date of 1 August 2008.
Repairs to the aircraft and its engines took longer than expected. The lessors claimed that AirAsia was in breach of the lease having failed to return the aircraft by 17 June 2008. They put AirAsia on notice that they would hold it responsible for the loss of the sale to NAC in the event that the aircraft was not returned by 1 August 2008 and NAC terminated its purchase agreement. The aircraft was not redelivered until 4 November 2008 and NAC terminated the purchase agreement.
The issues were whether there was a contractual obligation on AirAsia to redeliver the aircraft by 17 June; whether the lessors were estopped from asserting that AirAsia was in that regard in breach of contract; whether the lessors could claim compensation or damages in respect of the loss of the NAC sale agreement either at common law or under a contractual indemnity; whether NAC could and would have terminated the sale agreement in any event.
Held , ruling accordingly:
1. The provision of a contractual redelivery date could have been made more explicit. There could be a real debate as to whether contractual compliance had been achieved where the aircraft was delivered for technical acceptance prior to the expiry date but leaving insufficient time for redelivery to the lessor at the return location to be achieved before the expiry date. However, the minimum content of the obligation cast on the lessee was to deliver the aircraft (and the aircraft documents) to the technical acceptance location prior to the termination date for the purpose of an inspection in order to verify that the condition of the aircraft complied with the required redelivery condition. In normal circumstances the lessee would only tender the aircraft for such inspection after completion of all such work as in good faith it believed necessary to achieve that compliance. In the present case there was no doubt that AirAsia did not comply with that obligation, and did not come close to complying with it. In the face of that breach the lessor had the option under the lease either to terminate and recover possession of the aircraft or to extend the term of the lease. In this case the lease and termination date were extended, but that did not relieve the lessee of its accrued liability for the breach which it had committed by failing to deliver the aircraft to the technical acceptance location prior to the original termination date. On the facts therefore AirAsia's failure to present the aircraft for technical acceptance prior to 17 June 2008 amounted to a breach of contract.
2. The estoppel argument failed on the facts. There was no relevant common assumption to the effect that redelivery after 17 June would not be regarded as amounting to a breach of contract by AirAsia or that the lessors would not seek to insist upon their legal rights. The pleaded assumption to the effect that in the circumstances it became clear that the aircraft would not be capable of redelivery by 17 June was not the same as an assumption that the lessors were not insisting on redelivery by that date.
3. The sale price to NAC was a very good price negotiated at the top of the market. The value of the aircraft went down by over 20 per cent between 17 June and 4 November 2008. It would be surprising if that loss was in principle recoverable under a standard form aircraft operating lease, particularly one in respect of an aircraft which on redelivery was over 20 years old. An aircraft operating lease was significantly different in character from a time charterparty. Furthermore, the sale to NAC was a transaction of which AirAsia had no knowledge when made and over the terms of which it had no influence. Had the redelivery window been two or three weeks or less, the claim for simple damages for breach of contract could not possibly have succeeded. That was because the evidence demonstrated that late redelivery of aircraft was common. It was obvious that the older the aircraft the more likely it was that unforeseen problems would delay delivery. Thus any lessor who concluded a sale or follow-on lease of a 20-year-old 737–300 which was dependent upon delivery being effected within two or three weeks of the scheduled redelivery from an existing long term lease would be taking an obvious risk. The loss of that contract, if it occurred, was not such as might reasonably be supposed to have been in the contemplation of the parties as the probable result of late redelivery. In the great multitude of aircraft leases, particularly of elderly aircraft, the loss of a sale or follow-on lease would not ordinarily occur in consequence of late redelivery from the lease. It would be surprising if a different result ensued where the redelivery window was six weeks.
4. The lease provided for payment of rent at 150% of the basic rent in the event of late redelivery, with a possible exception of the first 21 days overrun in the event that the lessee had made commercially reasonable efforts to satisfy its redelivery obligations. The latter exception was recognition that despite the exercise of commercially reasonable efforts late redelivery might occur. That of itself militated against a contractual allocation to the lessee of risk for market fluctuation consequent upon late redelivery. Reasonable contracting parties in the shoes of the lessors and lessee would not have had it in mind, when making the contract, that the loss of a follow-on sale or lease was likely to result from a failure by the lessee to effect timely redelivery. Also, on a proper interpretation of the contract against its commercial background, the loss of a follow-on lease or sale in the event of late redelivery was not loss of a type for which the lessee assumed responsibility. The lease expressly contemplated that there might be loss suffered by the lessor by reason of the delayed redelivery for which the lessee could be liable and for which holdover rent was not an exclusive remedy. Such loss did not, however, encompass the loss of a follow-on lease or sale. The loss suffered in this case was not the ordinary consequence of late redelivery but was rather caused by the extremely volatile market conditions in 2008. That conclusion precluded any recovery under the contractual indemnities in the lease. (The Achilleas [2008] 2 CLC 1 considered.)
5. AirAsia failed to show that NAC would in any event have terminated the sale agreement on account of the condition of the engines. The engines complied with the delivery conditions and that was acknowledged by NAC.
Tomlinson J:
1. 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...
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