Saudi Arabian Airlines Corporation v Sprite Aviation No. 6 Designated Activity Company
| Jurisdiction | England & Wales |
| Judge | Mr Justice Foxton |
| Judgment Date | 16 June 2023 |
| Neutral Citation | [2023] EWHC 1758 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2022-000384 |
[2023] EWHC 1758 (Comm)
Mr Justice Foxton
Case No: CL-2022-000384
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane
London, EC4A 1NL
Mr S Thompson KC and Mr T Stewart Coats (instructed by Norton Rose Fulbright) appeared on behalf of the Claimant.
Mr E. Cumming KC and Ms C Hartston (instructed by Pillsbury Winthrop Shaw Pittman LLP) appeared on behalf of the Defendant.
( via Microsoft Team)
This is an application by the defendant, Sprite Aviation No.6 (“Sprite”), for summary judgment against the claimant, Saudi Arabian Airline (“Saudia”) for sums allegedly due in connection with the operating lease of an aircraft, pursuant to which Saudia was the lessee and Sprite the lessor. Judgment is sought in respect of two amounts: first, a claim for outstanding rent of $2,758,732.40 (alleged to be rent rather than supplemental rent), and said to be due under clause 12.2(c) of the Common Terms Agreement (“ CTA”); and, second, a debt of $200,000, which it was agreed would be paid by Saudia in lieu of performance of the obligation it would otherwise have had to redeliver the aircraft in compliance with certain delivery conditions.
The matter first came before me last week, on 9 June, at which stage Sprite was seeking judgment on admissions in respect of these amounts under CPR r.14.3. As I observed on that occasion, it was clear that Saudia did not dispute that Sprite was entitled to credits in those sums, but, whilst its Reply was not ideally expressed, I am satisfied that Saudia was denying Sprite's entitlement to judgment in those amounts because it asserted a right to set them off against Saudia's larger claim. Thus, paragraph 4 of the Reply says that the only reason that those sums have not been paid to Sprite is because they fall to be set off against the larger sum due from Saudia to Sprite as claimed in the Particulars of Claim. Paragraph 6 of the Reply then expressed the mathematical effect of such a netting off.
I am also satisfied that, coming into that hearing, Sprite understood Saudia's answer to its claim to be one of set off, because its skeleton argument made extensive submissions as to why no defence of set off was available. Saudia, for its part, advanced argument in its skeleton as to why there was an entitlement to set off. In the face of the clear understanding of both parties, I am not persuaded that any alleged deficiencies in the pleading (which it has not been necessary for me to explore) provided a realistic basis for Sprite seeking judgment on admissions.
In its skeleton argument for that hearing, it would appear that Sprite had come to the same view because the principal emphasis of its application for judgment was by reference to the absence of a legal right to set off, either because that right was excluded by contract or because it was not available in law. That point having been raised, I identified two authorities which I thought could be relevant to the legal argument to come and notified the parties the day before that I would welcome submissions on them.
At the hearing, Mr Thompson KC for Saudia took the procedural objection that no claim for summary judgment had been issued and he suggested that he or his client would be in a position of difficulty in responding at that hearing to such an application or, indeed, any application other than one seeking judgment on an admission. It is fair to say that I was somewhat sceptical of that assertion, but given Sprite's failure to seek summary judgment and the fact that certain authorities had been identified at a late stage by the court, I adjourned the hearing for seven days and required Sprite to issue an application for summary judgment. That has now been done.
The principal question debated at this hearing was whether rights of set off were excluded by the aircraft lease and, if so, whether that exclusion extended to all rights of set off or only some. Sprite relies on clause 5.12 of the CTA, a clause of a kind commonly found in aircraft leases and usually described as a “net lease clause”. This provides:
“The Lease is a net lease. Lessee's obligation to pay Rent and to perform all of its other obligations is absolute and unconditional. Lessee shall not regard its obligations as ended, suspended or altered in any way because of any defence, set-off, counterclaim, recoupment or other right of any kind or of any other circumstance”.
Sprite also points to the fact that clause 5.20 confers an express right of set off in relation to debts due between the parties on Sprite but not on Saudia.
What does Saudia say now? There is extensive complaint in its skeleton to the fact that Sprite has been extremely slow in taking the point, and that clause 5.12 has not been pleaded by Sprite. It is fair to say that an argument by reference to a no set-off clause has emerged rather later in the history of aircraft lease litigation concerned with outstanding rent than the court is accustomed to see. However, no legal reason has been identified as to why the delay in taking the point should preclude Sprite from relying on it, nor was there a realistic suggestion that Saudia could not deal with the argument at this hearing. To the extent that the point is taken that the clause is not pleaded, I am not satisfied that that is a reason for me not to take it into account in considering whether there is an arguable defence to the claim, but, in any event, if necessary I grant permission to serve the late Reply to Defence to Counterclaim provided last night which squarely raises the clause.
Turning to the merits, Saudia contends that the third sentence of clause 5.12 only prevents Saudia regarding its obligation to pay as being ended, suspended or altered in any way because of any defence, set off, etc., and that the language is not strong enough to prevent such a defence arising in fact. With respect to Mr Thompson, that is an utterly hopeless contention, which only has to be articulated to be rejected. That kind of tortured and strained construction is to be deprecated in the context of what was clearly a carefully drafted commercial contract between two commercial parties, such as the CTA.
In International Lease Finance v. Buzz Stansted Limited [2004] EWHC 292 (Comm), Aikens J had to consider whether a right of set off had been excluded under an aircraft lease. In that case, two clauses in the lease were relied upon as excluding the right of set off. The first, Article 5(7) was, I accept a particularly clear no set-off clause. It provided:
“No deductions or withholdings or payments by a lessee under this lease, including the rent repayment, rent reserves, default interest, fees, indemnities or any other item, will be paid in full without any deduction or withholding whether into set off, counterclaim, duties or taxes.”
The second clause which Aitkens J described as “equally important” was Article 5.9(1). This provided:
“Net Lease
This lease is a net lease and lessee's obligation to pay rent and make other payments in accordance with the lease shall be absolute and unconditional under any and all circumstances and regardless of or events.”
Aitkens J held that, reading those clauses together, the right of set off asserted in that case was excluded. At [29], he noted that the terms of Article 5.7 were very wide and “could not be plainer”, but he then continued:
“… but if that were not enough Article 5.9.1 stipulates that the lease is a net lease and the lessee's obligation to pay rent and make other payments in accordance with the lease will be ‘absolute...
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