England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice
		6th June 2003

MR. JUSTICE MORISON:

1. This is an application by Boeing (the claimant) for judgment in default of acknowledgment of service against both the first and second defendants ("WFB" and "Melissa", respectively). The underlying facts are these.
2. Boeing made a loan to Melissa of US$38m-odd to assist Melissa in the purchase of Boeing 737-79U jet aircraft serial no.29441 ("the aircraft"). Melissa conveyed its interest in the aircraft to WFB so that it could be registered on the United States aircraft register. The loan was secured partly by a mortgage of the aircraft, granted by WFB in favour of Boeing. Due to various events of default and following service of notice of default on Melissa, dated 7th March 2003, Melissa became obliged under the loan agreement to repay the whole of the outstanding loan, together with interest, immediately.
3. Immediately prior to the service of the notice of default on 5th March 2003, an injunction was obtained by Boeing in this jurisdiction, preventing the removal of the aircraft from out of this jurisdiction. As a result of negotiations between Melissa's ultimate owner, Mr. Kaleefer of Kaleefer Airways, a settlement agreement was reached whereby the injunction was lifted and the proceedings continued. Unfortunately, the terms of the settlement agreement were not performed by Kaleefer Airways and Boeing commenced these proceedings. Again an injunction was sought and granted, on 26th March 2003, restraining the removal of the aircraft from out of this jurisdiction and permission was given for these proceedings to be served out of the jurisdiction on both WFB and Melissa. The proceedings were, on the evidence, duly served on WFB on 3rd April 2003 in accordance with the law of Utah and, on 4th April 2003, on Melissa in accordance with the laws of Delaware. Neither of the two defendants acknowledged service within the 22-day period allowed. WFB have informed Boeing that they do not intend to oppose or defend the proceedings.
4. Until yesterday afternoon Melissa simply remained silent. They have emerged, at four o'clock yesterday afternoon, having instructed solicitors within the jurisdiction. I have had, therefore, the benefit of hearing Mr. Reeve of counsel who tells me that he is instructed on behalf of Melissa, no doubt through Mr. Kaleefer, who is the person behind Melissa. He told me (and I accept) that he cannot consent to this court's jurisdiction and therefore the submissions which he made to me were entirely without prejudice to any submission which his client might make in due course as to this court's jurisdiction.
5. He asked me to adjourn this application. He told me that there has been a late acknowledgment of service filed this morning on behalf of Melissa and that Melissa had issued an application for permission to file a late acknowledgment of service. He is unable to tell me why there has been a delay in acknowledgment of service. He himself was instructed only at about four o'clock yesterday afternoon and, despite staying in his chambers late, missed an email which had been sent, which I shall deal with in a moment.
6. One of the security documents involved in the arrangements between the parties was a pledge agreement in favour of Boeing whereby effectively the shares in Melissa were pledged to Boeing so that Boeing had access to control of Melissa in the event that there were defaults in the repayment of the loan or in any other respect. Melissa not having taken any part in the proceedings until yesterday, Boeing did not exercise any of its rights under the pledge agreement, no doubt on the basis that there was no need to do so; Melissa were lying doggo. But when they emerged, Boeing then purported to exercise its rights under the pledge agreement so as to instruct Melissa not to oppose Boeing's application for judgment in default in the English proceedings. As I say, that bombshell arrived with Mr. Reeve this morning rather than last night and he says that he needs an adjournment because he needs to investigate whether the rights under the pledge had been lawfully exercised (and that is a matter of Californian law) and in any event he wants an adjournment because he says that he would like to consider arguing that the settlement agreement, which was entered into between the parties, had an impact on the notice of default which had been served. He refers to Mr. Akhil Shah's skeleton argument which raises that as a potential issue to draw to the court's attention.
7. I refused his application for an adjournment. It seems to me, to put it bluntly, that Melissa are simply playing for time. There is no merit in their position. As far as I can see, they have had plenty of time to serve an acknowledgment of service in accordance with the rules and to present any argument which they felt appropriate in response to this application, had they chosen to do so. It is simply just not appropriate for me to grant an adjournment. I would willingly have done so if I thought that there was the hint of an arguable defence to this application.
8. The only additional matter which Mr. Reeve has relied upon is a technical (but none the worse for that) point on the interpretation of the rules. He says that if you look at r.12.3.1(a) and the practice direction 12.4.1(2), it is an essential condition of the giving of judgment for default of an acknowledgment of service that no acknowledgment of service has been filed at any time before the court gives judgment. So that, as it was put in a judgment to which I shall refer, by serving a late acknowledgment of service outside the time permitted, the defendant would be able to trump an application for judgment in default under r.12.3.
9. That argument seems to me to be hopeless. It cannot have been the intention of the rule-makers that such would be the position and I am happy to adopt entirely the judgment of Neuberger J. given on 21st November 2001 and in particular the passage beginning: "In my view ..." on p.6 of the transcript of that judgment. Of course when a court is faced with an application such as this and where a party has indicated, through the filing of a late acknowledgment of service, that it wishes to participate, the court will be likely to permit a late filing of the acknowledgment of service but only in circumstances where it considers that that acknowledgment of service is a genuine preliminary to a defence to the claim. That, in my view, is not the position here. There is no defence which can credibly be argued to the claim brought by Boeing.
10. I will therefore refuse the application for an adjournment and continue with the facts.
11. Because Boeing are not simply asking for a money judgment or for damages to be assessed, they have had to apply to this court for the orders which they seek; hence this present application. Essentially, Boeing are seeking to recover possession of the aircraft, its engines and documentation so that they may sell it or otherwise dispose of it in accordance with their rights as unsatisfied mortgagees. There is no defence to the claim for the relief sought in the draft order, which includes declarations and an order for delivery up of the aircraft and its papers and costs.
12. There are, however, two matters with which the court should deal before any such orders are made: firstly, a potential argument that the settlement agreement vitiated the effectiveness of the notice of default served on 7th March 2003 and, secondly, the fact that, on 28th May 2003, Jet Aviation obtained a freezing order in respect of the aircraft, which prevents WFB and Melissa from "disposing of, dealing with, diminishing in value, mortgage assign, charge or pledge the aircraft".
13. In my view, the settlement agreement has no legal effect upon the notice of default. Firstly, it may be that the settlement agreement was not made between Boeing and Melissa but, more importantly, the agreement makes clear that the right to continued possession of the aircraft was contingent on the due performance of the obligations under the agreement. By non- performance, that permission was withdrawn; or, as I would prefer, there was a repudiation of the settlement agreement, which thus permitted Boeing to revert to their original causes of action, including their rights under the notices of default.
14. The effect of the protective order obtained by Jet Aviation does not, in my judgment, impinge on Boeing's rights. The grant of a freezing order does not create a security right over the assets concerned, whereas the right created by the mortgage is for the purpose of securing due payment of the loan and is a security right (see Flightline Limited v. Edwards & Anor. [2003] 1 WLR 1200. Boeing's security right will prevail over such rights as were conferred by the freezing order. However, it would not be appropriate for Boeing under this order to take possession of the aircraft in circumstances which might involve a breach of the freezing order and they correctly appreciate that orders for delivery up and for Boeing to take possession of the aircraft are not to be enforced until after the injunction obtained by Jet Aviation has formally been discharged or varied so as to permit Boeing to take possession of the aircraft pursuant to the order which I make. In those circumstances, I make the order as asked.

MR. SHAH: Would you just hear me on the terms of the order, my Lord? There is quite a wide order for delivery up of documents, which amounts to an order for disclosure, I think. It requires the delivery up of all documents relating to the aircraft, as I understand it.

MR. JUSTICE MORISON: It is all the --?

MR. SHAH: It is the documents necessary, I think, required by FAA for operating the aircraft.

MR. REEVE: It is all the maintenance records and ----

MR. JUSTICE MORISON: It is the maintenance records, the log books. You probably can identify them better than me.

MR. SHAH: My Lord, the mortgage defines them as the documents which are required by the FAA to be maintained in respect of the aircraft.

MR. REEVE: And those are the aircraft logs, the engine logs, the maintenance records.

MR. JUSTICE MORISON: Will you adjust the order to take that into account?

MR. SHAH: To take what into account?

MR. JUSTICE MORISON: That the documents should be identified by reference to the documents defined in the agreement.

MR. SHAH: Yes, there is a draft order at the smaller of the two bundles and it is behind tab 2. Your Lordship will see that, at para.2, the documents there are defined by reference to what is set out in the mortgage.

MR. REEVE: I do not think it is. The parenthesis, I think, is in relation to the mortgage, but I think the phrase "all other documentation of whatever description relating thereto" goes further. I think what my learned friend wants is the documentation identified in the parenthesis.

MR. SHAH: That is what we want.

MR. JUSTICE MORISON: Unless you tell me to the contrary, it looks to me as though you do not need the wider claim; you need to go straight into the bracket. But I do not want there to be any difficulty about this because I have known a case - you may be aware of a case which is going on in this jurisdiction about documents belonging to aircraft - Uzbekistan, if I remember rightly.

MR. SHAH: It is fiendishly difficult to give a comprehensive description, which is why one has that ----

MR. JUSTICE MORISON: I have not got the mortgage agreement or the loan agreement in front of me.

MR. SHAH: I can hand up to your Lordship a copy or a I can read it out.

MR. JUSTICE MORISON: Yes, what does it define them as?

MR. SHAH: Aircraft documentation means with respect to the aircraft ...[reading to the words]... records, logs, data ..." So in fact it is what is in parenthesis, so I probably do not need ----

MR. JUSTICE MORISON: No, then I think that that is a reasonable point for Mr. Reeve to make, even though he is not really here.

MR. SHAH: Yes, I will make that adjustment. In terms of this order, we will also make the adjustment to reflect the variation of the jet injunction as well because this order was drafted before ----

MR. JUSTICE MORISON: Quite.

MR. SHAH: And we ask for an order for costs.

MR. JUSTICE MORISON: Yes, can you deal with costs?

MR. REEVE: My Lord, I do not know enough about this history of matter really. No, my Lord, I do not think I can.

MR. JUSTICE MORISON: No, thank you. Very well, I think you should have your costs. Have you produced your schedule?

MR. SHAH: My Lord, we have not because we seek the costs of the action and we did not think a schedule was going to be appropriate for that. We can produce one if that is what your Lordship requires.

MR. JUSTICE MORISON: If there has to be another hearing about costs then you will have to pay for that. Maybe you are right that it is not just the costs of this application.

MR. SHAH: No, it is the costs of the action. MR. JUSTICE MORISON: Costs of the action.

MR. SHAH: That is right, that is what we seek. The usual order for costs of the action.

MR. JUSTICE MORISON: Yes, then you can have costs of the action, with a detailed assessment.

MR. SHAH: I am grateful. I will amend this order.

MR. REEVE: There is one other matter. I hope I did not mislead the court. I noticed that, during the judgment, it was indicated that the acknowledgment of service was entered yesterday. I am sorry to say it was not; it was this morning.

MR. JUSTICE MORISON: I thought yesterday it was lodged and this morning it was an application to do it out of time.

MR. REEVE: No, my Lord, they were both issued this morning. MR. JUSTICE MORISON: Thank you for telling me.

MR. REEVE: I am sorry if I may have led to that misapprehension.

MR. JUSTICE MORISON: I did not say, in the judgment, Mr. Akhil Shah has told you, and you know in any event that presumably you can apply to set the judgment aside if you were so minded to do it.

MR. REEVE: My Lord, yes.

MR. JUSTICE MORISON: But no doubt you would need to be better equipped than you have been able to be for this morning. I should like to thank you and your solicitor for appearing, thank you very much indeed.