Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Ltd

Hearing dates: 20 th, 21 st & 22 nd May 2025

Introduction

This appeal concerns the purchase in 2018 and 2019 of four Airbus 321 passenger aircraft, for operation by the appellant (‘VietJet’), a Vietnamese airline. Two were “New Engine Option” and have been referred to as ‘the NEOs’, being manufacturer serial numbers 8906 and 8937. Two were “Current Engine Option” and have been referred to as ‘the CEOs’, being manufacturer serial numbers 8577 and 8592. The respondent (‘FWA’) is a Jersey registered company and part of the FitzWalter Capital group, headquartered in the UK, which since 2021 has operated funds investing in distressed credit assets.

The aircraft were purchased under financing arrangements in a structure known as JOLCO (Japanese Operating Lease with Call Option). The financing was provided by a mixture of debt and equity. 75% was provided by syndicated loans from commercial banks, led by BNP Paris (‘BNP’) for the CEOs, and Natixis Singapore Branch (‘Natixis’) for the NEOs. The other 25% was provided by Japanese equity investors who under the JOLCO structure were entitled to tax advantages.

In these proceedings FWA claim a right to immediate possession, custody and control of the aircraft pursuant to assignments taken under the financing arrangements, and large sums allegedly due thereunder together with damages. VietJet disputes that FWA is entitled to the aircraft and disputes its monetary claims. Picken J heard a trial on issues of liability between 4 and 14 June 2024. He gave judgment in favour of FWA on 31 July 2024 and on the same day made an order reflecting the uncontroversial consequences of his decision. Following a consequentials hearing on 2 October 2024 he made a further order on 16 October 2024 (sealed 18 October 2024), including granting permission to appeal on five grounds. This is the appeal from his orders of 31 July and 16 October 2024 in respect of liability. Whilst this appeal was pending, he heard a quantum trial in January 2025 and gave judgment in FWA's favour for approximately US$181 million. There is to be a further quantum hearing next year.

The financing arrangements and relevant events in outline

The financing arrangements involved a separate set of documents for each aircraft, identical in structure, and in many respects materially identical in their terms (there were a few differences between the two for the CEOs and the two for the NEOs which are relevant to the issues in the appeal, which I identify below). Each aircraft was purchased from Airbus by a special purpose vehicle (‘SPV’), established under or recognised by Japanese law, which became the owner of the aircraft. The shareholders in the SPV were the Japanese 25% equity investors who thereby became the beneficial owners of the aircraft. The balance of the price was provided to the purchasing SPVs by the syndicated lenders (‘the Lenders’) under a loan facility agreement (‘the Loan Agreement(s)’). The Loan Agreement was drawn down in full at the outset and provided for repayment of capital and interest over its term of about 12 years by quarterly payments.

Each aircraft was leased to VietJet for the same period, with the lease payments calibrated to enable the SPVs to meet the loan repayment obligations; and with an option to purchase at expiry. The leasing to VietJet was accomplished by a lease and sub-lease, essentially on back to back terms, with the intermediate lessee/lessor being a special purpose vehicle owned by VietJet. The lease and sub-lease in each case is referred to as the Head Lease and the Sub-Lease. Non-payment of rent was an event of default under the Sub-Lease and Head Lease. In such eventuality, VietJet also had an option to purchase the aircraft, but if it were not exercised, VietJet would be obliged to return the aircraft in accordance with the return conditions set out in the Head Lease/Sub-Lease; and in addition, VietJet would be obliged to pay termination payments calculated in accordance with a detailed formula.

The purchasing SPVs are therefore referred to variously as the Owners, the Borrowers and the Head Lessors. The VietJet SPV subsidiaries are referred to as the Head Lessees and Sub-Lessors. VietJet is referred to as the Sub-Lessee.

Under the Loan Agreement the personal liability of the Owners/Borrowers to the Lenders is limited, with the Lenders' recourse primarily being to a security package which comprised:

(1) a mortgage over the aircraft granted by the Owners/Borrowers as a first priority security interest, governed by New York law;

(2) security assignments, which assigned most of the rights of the lessor under the Head Lease/Sub-Lease in certain eventualities; this was achieved by back to back security assignments comprising:

(a) a ‘Security Assignment (Lessee)’ by which the VietJet subsidiaries assigned their rights under the Sub-Lease to the Head Lessors (i.e. the Owners/Borrowers); and

(b) a ‘Security Assignment (Lessor)’ by which the Owners/Borrowers assigned their rights under the Head Lease, and the assigned rights of the Sub-Lessor under the Sub-Lease, to a security trustee representing the interests of the Lenders.

VietJet acknowledged each of these by Assignment Acknowledgments.

(3) an Irrevocable Deregistration and Export Request Authorisation (IDERA) in favour of BNP and Natixis respectively, filed with the Civil Aviation Authority of Vietnam (‘The CAAV’).

The mortgages and security assignments were granted to BNP in respect of the CEOs, and Natixis in respect of the NEOs, as trustees/agents for the Lenders. In this capacity BNP and Natixis are referred to as ‘the Security Trustee’ (although the language used in the CEO Loan Agreements was Security Agent rather than Security Trustee).

Registrations were made in respect of ‘International Interests’ and assignments of ‘International Interests’ on the international registry under the Cape Town Convention on International Interests in Mobile Equipment (‘the Convention’) and its associated Protocol on Matters Specific to Aircraft Equipment (‘the Protocol’). The Convention is implemented in the UK by the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (SI 2015/912) (‘the Regulations’). The ranking of those interests and the key features of the regime established by the Convention are described at [24] and [25] of the Judgment.

The CEO aircraft were delivered in November 2018 and the NEO aircraft in July and November 2019.

Covid restrictions in Vietnam operated between March and May 2020, and as a result of the Delta variant a hard lockdown was reimposed between 31 May and 30 September 2021. The CAAV suspended VietJet's operations between 19 July 2021 and 8 October 2021. VietJet fell behind in its rental payments and sought to negotiate deferrals of rent, those negotiations taking place with the Lenders rather than the Owner/Head Lessors, to reflect the reality of the financing documents. However, before those negotiations reached any conclusion, in October 2021 the Lenders resolved to sell their positions to FitzWalter. A special purpose English subsidiary was incorporated for this purpose, FitzWalter Capital Partners (Financial Trading) Limited (‘FWC’), on 24 September 2021. It is a subsidiary of FitzWalter Capital Partners (Master HoldCo) Limited, a Jersey company which holds the investments in FitzWalter's first fund.

At FWC's instigation, Natixis and BNP as Security Trustees served termination notices (on 18, 22 and 26 October 2021) (‘the Termination Notices’) purporting to terminate the Leases and Sub-Leases with immediate effect for arrears of rent pursuant to clause 19.1 of those leases. The arrears were between 48 and 118 days for the different aircraft, and totalled some US$8 million (see Judgment at [358]). The Judge subsequently determined, as indeed VietJet itself asserted, that VietJet was in a position at that time to pay the rent but chose not to do so (Judgment [359]). In his Judgment, the Judge addressed as Question 1 whether the Termination Notices validly terminated the leases and Sub-Leases pursuant to clause 19.1 and concluded that they did so. That conclusion is challenged in ground 1 of VietJet's appeal to this court. In the quantum trial the Judge determined that the termination payments due under the terms of the Head Leases and Subleases upon their valid termination totalled some US$181.5 million (in addition to sums which had fallen due prior to termination) and gave judgment in favour of FWA in those sums by his Order of 17 April 2025.

In addition to the Termination Notices, BNP and Natixis also served Mandatory Prepayment Notices on the Head Lessors/Borrowers under the Loan Agreements, which if valid would accelerate the obligation to repay the loan in full. It is common ground between the parties that if the Termination Notices were validly given, as the Judge decided they were, these were unnecessary because the termination of the leases/SubLeases automatically...