Wilmington Trust Company+orix Aviation Systems Limited V. Rolls Royce Plc+iae International Aero Engines Ag
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2010] CSOH 157 |
| Year | 2010 |
| Published date | 25 November 2010 |
| Court | Court of Session |
| Date | 25 November 2010 |
| Docket Number | CA143/10 |
| OUTER HOUSE, COURT OF SESSION [2010] CSOH 157 | |
| CA143/10 | OPINION OF LORD HODGE in the cause WILMINGTON TRUST COMPANY and ORIX AVIATION SYSTEMS LIMITED Pursuers; against ROLLS ROYCE PLC and IAE INTERNATIONAL AERO ENGINES AG Defenders: ________________ |
Pursuer: Lake, Q.C., Watt; Maclay Murray & Spens LLP
Defender: Lindsay; Biggart Baillie LLP
25 November 2010
[1] The pursuers are respectively the legal and beneficial owners of certain Airbus A320-200 aircraft which they leased to Companía Mexicana de Aviación SA de CV ("Mexicana"). The aircraft comprise airframes and aero engines. The first pursuers leased two Airbus aircraft to Mexicana under leases which were extended to 31 March 2013. Mexicana got into financial difficulties and were unable to pay sums due under the leases; the first pursuers terminated the leases on 5 August 2010. On 7 September 2010 an administrator was appointed to Mexicana to allow it to restructure its debts.
[2] The pursuers aver that Mexicana had contracted with the second defenders ("IAE") for the repair and maintenance of the aero engines and IAE had subcontracted the work to the first defenders ("Rolls Royce"). On IAE's instructions, two aero engines were removed from the air frames, which remain in Mexico, and were shipped to East Kilbride where Rolls Royce repaired them. Rolls Royce has completed the work on the engines and has been paid therefor by IAE. Rolls Royce retains the engines in secure premises in East Kilbride on the instructions of IAE, who has asserted a lien over them in security for payment by Mexicana of the sums due to it for their repair. Each of the aero engines has a value of about $4 million.
[3] This action, which was raised against Rolls Royce only, was signetted on 27 October 2010. In a motion before calling on 3 November 2010 the pursuers sought an interim order under section 47 of the Court of Session Act 1988 ordering Rolls Royce to permit the first pursuers to uplift the two aero engines and related technical records. Counsel appeared on behalf of both IAE and Rolls Royce and tendered draft defences to the action and certain documents in support of their defence.
[4] Having heard counsel in a hearing which took up most of a court day, I refused the motion for the interim order in hoc statu. On 16 November 2010 the pursuers sought leave to reclaim my decision. They were not able to frame grounds of appeal until they received a written opinion but sought to renew their motion before the Inner House and intended to seek urgent disposal of the case. It seemed to me that it might be more expedient for the pursuers to renew their motion on the commercial roll once the defenders had had an opportunity to state their defence fully. But, having regard to the value of the property which is the subject matter of the action and the fact that the airframes were not capable of use without the engines, I granted leave to reclaim.
The contractual arrangements
(i) The Lease between the pursuers and Mexicana
[5] The leases between the first pursuers and Mexicana were governed by the laws of the State of New York, U.S.A. The leases provided that Mexicana was to pay the lessors regular sums as maintenance reserves to pay for the maintenance of, among other things, the aero engines. The leases named Rolls Royce as one of the approved maintenance engineers in respect of the aero engines. They contained the following provisions which were intended to restrict the right of Mexicana to allow liens to be asserted over the subjects of the leases. Clause 1.1 provided:
" 'Permitted Lien' means in respect of the Aircraft or any Engine:-
(a) the Mortgage and any other Encumbrance arising from the Head Lessor's, the Beneficiary's or the Lessor's own acts or defaults;
(b) any Encumbrance for Taxes either not yet assessed or, if assessed, not yet due and payable or being contested in good faith by appropriate proceedings (and for the payment of which adequate reserves have been set aside) so long as any such proceedings or the continued existence of such Encumbrance do not, in the Lessor's reasonable opinion, involve any likelihood of the sale, forfeiture or loss of, or of any interest in, the Aircraft or any Engine or Part;
(c) airport hangar keepers', mechanics', material men's, carriers', employees' or other similar Encumbrances arising in the ordinary course of business by statute or by operation of law in respect of obligations which are not overdue or which are being contested in good faith by appropriate proceedings (and for payment of which adequate reserves have been set aside) so long as any such proceedings or the continued existence of such Encumbrance do not, in the Lessor's reasonable opinion, involve any likelihood of the sale, forfeiture or loss of, or of any interest in, the Aircraft or any Engine;"
[6] Clause 11.3 of the leases provided:
"The Lessee further undertakes with the Lessor that it will:
(a) Disposal and Encumbrance of the Aircraft
not attempt or hold itself out as having any power to sell, charge, lease or otherwise encumber or dispose of the Aircraft (save as provided in Clause 12 (Sub-Leasing)), nor create, incur or suffer to exist any Encumbrance over the Aircraft (other than Permitted Liens which in the case of Permitted Liens of the type referred to in paragraphs (b) and (c) of the definition thereof set forth in Clause 1 which do not relate to items in respect of which maintenance reserves are applicable pursuant to Clause 13.4, do not, in aggregate, exceed at any particular time $1,000,000);
(b) Prevent of Arrest
not do, and will use its best endeavours to prevent, any act which could reasonably be expected to result in the Aircraft being arrested, confiscated, seized, taken in execution, impounded, forfeited, detained in exercise or purported exercise of any possessory lien or other claim or otherwise taken from the possession of the Lessee and, if any such arrest, confiscation, seizure, taking, impounding, forfeiture or detention occurs, the Lessee will give the Lessor immediate notice thereof and will procure the prompt release of the Aircraft; ..."
(ii) the Maintenance Agreement between Mexicana and IAE
[7] The defenders produced a redacted contract between Mexicana and IAE which was called a "Renewed Fleet Hour Agreement". The contract was governed by the laws of the...
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