England and Wales High Court (Commercial Court) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/11/2015

Mr Justice Knowles:

Introduction

1. The Defendant provides aircraft maintenance and repair services. The Claimant is the owner of a business jet aircraft of the BAe125/800A model ("the Aircraft").
2. When the Claimant purchased the Aircraft it was already about 20 years old. On 4 May 2009 the Claimant delivered the Aircraft to the Defendant in order that work could be done to it.
3. This dispute concerns the question whether the Defendant met its responsibilities while the Aircraft was with it, and whether the Claimant owes substantial further sums for work done. As a matter of record the Aircraft is still, today, with the Defendant. Before these proceedings the Defendant asserted a lien to justify retaining possession of the Aircraft whilst (on the Defendant's case) the Claimant did not pay what was due. The Claimant has now said it does not want the Aircraft back.

Common Ground

4. The following matters are among those that are common ground:

a. On 23 April 2009, the Defendant made a written proposal to the Claimant for work to the Aircraft including replacement of corroded wing bolts, routine maintenance and repainting. The Claimant accepted the proposal.

b. Shortly after the delivery in May 2009, work on the Aircraft was suspended because of proceedings brought by a third party. These proceedings (the "ownership proceedings") put the ownership of the Aircraft into question.

c. Within the ownership proceedings, a consent order was signed on 15 July 2009 ("the Consent Order") under which the Defendant was to provide (and be paid for) hangarage, full systems checks, engine runs and weekly visual inspections. The Defendant did not keep the Aircraft in a hangar at all times but for some periods kept it outside.

d. In June 2010 the ownership proceedings were settled and the Claimant was confirmed as the owner of the Aircraft.

e. On 13 July 2010, the Defendant made a further written proposal to the Claimant for the completion of the work that had been suspended, various inspections and maintenance. The proposal provided that certain works were to be proposed under a Contract Change Order (CCO) process. The proposal set out terms and conditions for the conduct of the work.

f. On 13 July 2010, the 2010 proposal was signed by Mr Sam Iwuajoku (the Claimant's CEO) for the Claimant and Mr Paul Williams for the Defendant. From July 2010, the Defendant worked on the Aircraft under the 2010 proposal.

g. The Defendant told the Claimant that the work was substantially complete in February 2012, and then conducted test flights. During the course of the work to that point, the Defendant issued around 77 CCOs, all but 10 of which were signed by the Claimant.

5. It is common ground that the Claimant has made payments on account towards the work. The Defendant claims a far larger sum as the price for the work done up to February 2012 plus a further sum for work done since February 2012 (post test flight rectification), plus further charges for ongoing storage and maintenance since the completion of the work. In all the Defendant says more than £1 million is still outstanding and unpaid.

17 February 2012

6. It is further common ground that in July 2010, there was discussion between the parties about a rebate in the light of the alleged non-compliance by the Defendant with the terms of the Consent Order in the ownership proceedings. No agreement was reached at that point.
7. At a later meeting on 17 February 2012 the subject was revisited. Mr Solomon Iruafemi, who was present on behalf of the Claimant, discussed with various personnel of the Defendant a discount or rebate on the Defendant's charges. It is the Defendant's case that a discount or rebate and final settlement amount for the work to that point was agreed between the parties, but that is disputed by the Claimant.
8. I have heard evidence from a number of people who attended that meeting, and from Mr Iwuajoku who did not. With the assistance of that evidence, of the contemporaneous documents, and of the submissions of the parties, I make the findings set out in the following paragraphs.
9. Mr Iwuajoku is the person behind the Claimant. He is a businessman, with a range of business interests. He came across as a person who is concerned with major points and not with detail. And as a person who is very busy, who understandably relies on others to help him manage and address things. His recollection was not always accurate, but that is not a criticism of him; it is an understandable consequence of the number of things he is dealing with at any one time.
10. Mr Iwuajoku regularly turned to Mr Iruafemi for assistance in relation to the Aircraft. Mr Iruafemi is an engineer, and understandably proud of his long experience in aircraft. However in giving evidence he could apply a broad brush, and the strokes of that brush were often governed by opinions he has formed in this matter. He was not always careful to be as factually accurate and precise as he could be. Sometimes he sought to avoid a direct question he did not want to answer.
11. The meeting on 17 February 2012 followed a test flight on 13 February 2012. Some defects were detected on that test flight. However Mr Iruafemi's view, expressed by email, was that these were "expected of this type of Inspection of this magnitude". He sent his "Big Congratulations" and went on "I quite agree that a thorough job was done. Once again I say well done. In the next few days we shall be addressing the Finance …".
12. The meeting also followed Mr Iruafemi and Mr Iwuajoku receiving a headline statement of account, sent to them by the Defendant by email on 10 February 2012. This showed an outstanding balance of over £1 million. I accept the evidence of Mr Iruafemi that this was discussed between him and Mr Iwuajoku, although Mr Iwuajoku denied knowledge of the statement of account.
13. I am satisfied that for the purposes of the meeting Mr Iruafemi had also been provided with a quantity of invoices and supporting materials to bring the account up to date. Some of these replaced previous versions, and some brought into the overall account a large amount of more recent work. Mr Iruafemi said in evidence that he "was not given any paper". I find that he was, but I do accept that he chose not to study the paper he was given. His choice, and it is an objectively understandable one, was to approach the discussion with a broader brush.
14. I accept that some of the, more recently produced, paper had not been seen by Mr Iwuajoku. However I do not accept the Claimant's submission that it was unrealistic to think that the Defendant could have expected Mr Iwuajoku to agree settlement of an account that included invoices that had not been sent to him. They were provided to Mr Iruafemi, and Mr Iruafemi was, as appears below, to be in contact with Mr Iwuajoku during the day. It is that contact that is of defining importance.
15. At the meeting Mr Iruafemi's approach was, in his language, "let's go to the straight issue, the issue that is going to affect you, affect Mr Iwuajoku is money. Let's discuss money. I'm not interested in 'I did this. I did that', no." Moreover he had arrived for the meeting hoping to fly the Aircraft away (the captain and engineer were on hand), a scenario that would be realistic only if agreement could be reached.
16. An initial proposal of a £10,000 reduction to the account was made by the Defendant. As the meeting continued the Defendant increased the figure. It reached £100,000 and ultimately £130,000.
17. At that point Mr Iruafemi left the room (and not for the first time). I accept the evidence called by the Defendant that he said he was doing so in order to speak to Mr Iwuajoku. I reject Mr Iruafemi's evidence that he instead spoke to the Aircraft's captain and engineer. It is implausible he should choose that point at which to do so, and it is not consistent with what he said when he returned. I find that he did indeed speak to Mr Iwuajoku. Mr Iwuajoku's recollection was uncertain in parts in this respect, but insofar as he recalls he was not called from the meeting, I cannot accept that his recollection is accurate.
18. Mr Iruafemi returned from speaking to Mr Iwuajoku to rejoin the Defendant's team. I accept the evidence of Mr McNeilis of the Defendant that Mr Iruafemi shook hands and acknowledged that agreement had been reached. I conclude that he did so because, in his call with Mr Iwuajoku, he had obtained Mr Iwuajoku's authority to acknowledge that agreement had been reached. The evidence of Mr McNeilis of the Defendant, which I accept, was that when Mr Iruafemi returned to the room "he was clearly more relaxed, he had a smile on his face and he put his hand out to me, shook my hand and said "Gentlemen, we have an agreement".
19. Was the agreement simply for a rebate of £130,000, leaving the rest of the account at large? In my judgment, no. The rebate was not simply a credit item to address a particular issue. It was an amount to calculate the total the parties were agreed would be charged by the Defendant and paid by the Claimant. Having heard the witnesses, I am clear the whole context of the meeting was to decide the overall amount of money which was due to the Defendant as at 17 February. The amount agreed was the account claimed, less the reduction. That settled what was due for work on the Aircraft up to that date, taking into account any responsibility on the part of the Defendant for the fact that the Consent Order had not been complied with. It did not however include charges for work after 17 February 2012, including post-test flight work.
20. Importantly, the agreement was not, as the Claimant has argued, subject to Mr Iwuajoku's confirmation. This is because he gave his confirmation at the time through Mr Iruafemi. Whatever Mr Iruafemi's authority at other points in the relationship between the Claimant and the Defendant, on this occasion he had the Claimant's actual authority to convey the fact of Mr Iwuajoku's agreement on behalf of the Claimant.
21. After the meeting Mr Jones sent an email to Mr Iruafemi. In this Mr Jones summarised that the Defendant had "agreed to a goodwill discount of £130,000 GBP to be deducted from the current statement balance", that "the outstanding amount after making this deduction will be paid by [the Claimant], a value of £932,577.21", that "the work continues on the post flight defects, and the final invoice for this and fuelling will be payable by [the Claimant]" and "any balance owing at the time of departure will be paid before departure of the aircraft". A statement was attached.
22. Considerable weight was attached by the Claimant to the fact that this email was not sent or copied by Mr Jones to Mr Iwuajoku. Mr John Passmore QC submitted on behalf of the Claimant that if Mr Jones had thought that Mr Iruafemi and Mr Iwuajoku had spoken during the meeting, and that Mr Iwuajoku had agreed something, Mr Jones would have sent the follow-up email, or at least the attached statement, to Mr Iwuajoku. However I find it unsurprising that Mr Jones should send the email and attached statement to Mr Iruafemi when Mr Iwuajoku had been content to speak through Mr Iruafemi at the meeting. And it was to Mr Iruafemi that Mr Jones had, at the conclusion of the meeting, said he would send the email. There was nothing to stop Mr Iruafemi sending it to Mr Iwuajoku if he thought that Mr Iwuajoku would wish to see it.
23. I consider Mr Iruafemi's response to Mr Jones' email consistent rather than inconsistent with the fact of an agreement having been reached at the 17 February. The response is as relevant for what it does not say as much as for what it does say: "My appreciation goes to all concerned regarding the day's deliberation. … We all had a gentleman['s] agreement so let it remain so nothing more nothing less. .. Once again thank you all for the understan[d]ing demonst[r]ated during our nego[t]iations.".
24. There was no rejection of Mr Jones' summary; no suggestion that only a rebate had been agreed; no suggestion that the outstanding amount was subject to further negotiation or was other than due. The reference to "gentleman's agreement" was not, in my assessment in the present case, an indication of any lack of intention to create a bargain that was legally binding. Rather, it was a reflection of the matter having been agreed, to Mr Iruafemi's mind, between gentlemen. Mr Cashin's understanding was that it referred to a matter that had been agreed, but agreed other than in the form of a written contract. I think that understanding reflects an objective assessment of the position.
25. In the weeks and months that immediately followed 17 February 2012 there was no request by Mr Iruafemi or Mr Iwuajoku to continue negotiations, or say that the £130,000 had been considered by Mr Iwuajoku and was unacceptable. This too supports the conclusion that matters had indeed reached agreement, between the Claimant and the Defendant, on 17 February 2012 and in the terms fairly summarised in Mr Jones' email of that day.
26. Mr Passmore QC presses for a different conclusion, submitting that from 20 February onwards "emails about the aircraft went back and forth between [the Defendant] and [Mr Iwuajoku], copied to Mr McNeilis and Mr Cashin amongst others, as if nothing at all had happened on [17 February]". However in my assessment the emails that followed were primarily about remaining work. They are consistent with the Defendant and Mr Iwuajoku having addressed the state of the account to date on 17 February; as a result that did not need to feature. Of course the financial position did not stand still, for the remaining work added to costs.
27. It was in that context that Mr Iruafemi wrote on 16 May 2012 (in an email that he did not copy to Mr Iwuajoku) to say that "finance is d [sic] next big issue". His email was not a sign that nothing had been agreed on 17 February. The email was copied within the Defendant under the crisp rubric "Gents, FYI". Mr Passmore QC argues that if there had been an agreement on 17 February then Mr Iruafemi's message would have been seen within the Defendant as an attempt to renege and it is likely that more comment would have been attached. With respect, I disagree. The crisp rubric is consistent with a Defendant that considered, even though they had an agreement on 17 February, they were not yet out of the woods in terms of actually getting paid. And with the further work since 17 February there was more to discuss.
28. After a short visit in late May, Mr Iwuajoku called the Defendant. After that call the Defendant sent a schedule to him on 30 May 2012 that detailed invoices that had been provided to Mr Iruafemi for the purposes of the 17 February 2012 meeting. In the schedule a £130,000 credit was described as "agreed". Mr Iwuajoku's reply was not one that said he had no knowledge of these invoices, and that nothing had been agreed. Instead he wrote "Please my original cost is £500,000 now the new cost is £1,427,000 due to improper caring of the aircraft which was paid for, I can only pay £732,000 full and final. Thanks." In round figures, £1,427,000 is the total shown by the schedule before allowance is given (as the schedule did give) for payments already made of around £348,000. With that allowance the schedule showed around £1,080,000 still due. As a matter of arithmetic, £732,000 is £1,080,000 less a second deduction of £348,000.
29. In full form the entry in the schedule for £130,000 is in these terms: "Credit Adjustment – Agreed with Solomon Iruafemi in meeting with SM, PC & GBJ". There is no statement, points out Mr Passmore QC, that "an agreement had been sanctioned by [Mr Iwuajoku]". I do not believe the entry is to be construed as though it was comprehensive. It simply describes the people physically present, and the fact of agreement. As I have pointed out above, Mr Iwuajoku's response to the schedule was not a response that rejected the fact of agreement.
30. In conclusion, as at 17 February 2012 the Claimant owed the Defendant £932,577.21 as detailed in the schedule. The Claimant is also liable for sums invoiced for work after 17 February 2012, and I return to these further below.
31. My conclusions on the 17 February 2012 agreement largely dispose of a number of specific issues between the parties on work done, aircraft hangarage, systems checks, engine runs, and costs estimation. However, so that the parties can be aware of the conclusions I would reach on these issues, with the benefit of the evidence and submissions I read and heard, I address these issues shortly in the course of the remaining sections of this judgment.

Charges made for work done and materials supplied

32. Mr Brian Walton, an expert called by the Defendant, made an assessment of items that should not be charged. These produce in total a sum of between £35,565 and £40,965.20 (subject to any final argument over arithmetic). His assessment seemed to me reasonably arrived at.
33. Having heard the evidence at trial and considered the documents and submissions, I am otherwise satisfied, that (leaving aside services the subject of the Consent Order) the work charged for by the Defendant was done, that the materials charged for were supplied, and that the sums charged for that work and those materials were reasonable.
34. Mr Malcolm Cox was called as an expert by the Claimant. His challenges to work done and services supplied were not reliable. My confidence in his evidence generally was badly undermined by the presence of errors and weak assumptions in his detailed work to compile a major schedule, the fact that most of these were in the Claimant's favour, and the fact that he took no initiative to correct those errors. I also found some of his answers came from a place of defending the Claimant's argument rather than of neutrality.
35. The conclusions above apply equally to work and materials (including fuel) provided after 17 February 2012. I am quite satisfied that the sums invoiced for the period after the 17 February agreement were properly invoiced for what was provided. I found the (limited) challenges in this respect from the Claimant unconvincing. They were again largely based on evidence from Mr Iruafemi and Mr Cox that I did not consider reliable.

Hangarage, systems checks and engine runs

36. As mentioned, it was common ground that the Defendant did not keep the Aircraft in a hangar during the ownership proceedings but for some periods kept it outside.
37. The evidence pointed plainly to this being the result of an internal failure of communication within the Defendant. When the Defendant realised the position it hoped initially that this would simply not become known to the Claimant. This initial approach does the Defendant no credit, especially given that it had been raising charges on the basis that hangarage was being provided.
38. It is not possible to say reliably for how long the Aircraft was left outside. There was, perhaps obviously, evidence that aircraft of this type are designed to be outside but that evidence mostly addresses an operational context. At the same time, there is the real possibility that some of the suggested difficulty with the period of the ownership proceedings may lie with the fact that the Aircraft was left standing, rather than that it was inside or outside. It is not the Defendant's fault that the Aircraft was left standing.
39. There was internal contemporaneous acknowledgement within the Defendant that leaving the Aircraft outside would cause "an element of airframe condition deterioration". Mr McNeilis recognised when giving evidence that "the period of time the aircraft was outside would have had some contribution to further enhance" existing wing bolt corrosion.
40. A detailed walk-round inspection was carried out after the resolution of the ownership proceedings. I reject what I understood to be a line of argument by the Claimant that this inspection was directed simply or mainly to matters resulting from the Aircraft being outside. It was a detailed inspection to establish, as far as possible, what work needed to be done to the Aircraft at this stage of its life, of which the delay caused by the ownership proceedings was one part.
41. The Claimant contends that the Defendant's failure to hangar the Aircraft caused material galvanic corrosion, especially to the wings. This is different to the wing bolt corrosion referred to above, and includes areas between bolts. I am persuaded, on the particular factual and expert evidence available to me in this case, that the cause of the corrosion lay elsewhere than from a failure of the Defendant to hangar.
42. During a paint strip in 2006 – several years before the Aircraft was delivered by the Claimant to the Defendant to be worked on - a mechanical sander had been used, causing abrasion to wing (and fuselage) surfaces and contact between aluminium and steel. On the evidence an electrolyte would also be required for galvanic corrosion to occur. The evidence did not give a clear picture of precisely how or what electrolyte was at work. But I preferred and accept the evidence of Mr Walton that after 2006:

"It has had two years of flying in all sorts of conditions, different heat applied to the aeroplane going from very high temperatures in Africa to altitude and, you know, you have got different coefficients of expansion to the steel bolts to the wing skin alloys, you're going to get movement, particularly in an old aeroplane, and water will get in. If it's present, it will get in, as will moisture …"

43. Although there were imperfections in his evidence I found Mr Walton an expert with practical wisdom borne of years of experience. He had seen this type of corrosion before. He recognised that not all the answers on the subject of corrosion in the context of aircraft are clear or certain. I also accept the evidence of Mr Walton that hangarage would not necessarily have meant that galvanic corrosion would not commence or progress.
44. Galvanic corrosion was not detected at sample sites in the course of a G check in December 2008 and January 2009 but, even though there were more than 50 areas sampled, I am not persuaded that that means galvanic corrosion was not present. The sampled areas comprised the bolts and the immediately surrounding areas to the bolts. Even in those areas, and under 10x magnification and non-destructive testing, the problem would not necessarily be detected. Mr Walton emphasised how difficult it was to predict how long it would take for galvanic corrosion to show in the form of pitting.
45. The Claimant submitted that by keeping the Aircraft outside the Defendant "subjected it to frequent rain and condensation, combined with constant or very frequent salt and/or environmental contamination". The evidence did not bear out the submission of "constant or very frequent salt and/or environmental contamination". Of course there would have been rain, and perhaps condensation, but the origins of the corrosion lay before the time the Defendant kept the Aircraft outside, and that period was not material to the progress of the corrosion compared to the period between 2006 and 2009.
46. I do not accept Mr Cox's evidence that the only credible explanation of work required on avionics to this Aircraft was damp in electrical components caused by storage outside. His approach in other areas – including the cockpit, the cabin, the escape hatch and fuel leaks – was not satisfactory; he repeatedly sought to ascribe problems to the period of outside storage without considering the full history and the available detail.
47. The Consent Order also required systems checks and monthly engine runs. Here the Defendant did not satisfy me that it carried out all the systems checks or monthly engine runs. But the Defendant did satisfy me that there was not deterioration of the Aircraft due to its failure.
48. Historically the engines of the Aircraft had been covered by a form of insurance programme by Honeywell. Unfortunately, the policy document has not been disclosed by the Claimant. Doing the best I can with the limited material that is available, it appears the Claimant fell behind in payment of premiums to Honeywell. In 2011 a reinstatement fee of US$103,000 was sought by Honeywell, and the Claimant did not pay that. By 2012 Honeywell was looking for US$570,000 as a sense of uncertainty about the engines compounded. I am satisfied that the Defendant's failure to carry out engine runs was not the cause of the problem here. Rather, there was the Claimant's failure to pay premiums. And there was also, on the, impressive and independent expert evidence of Mr Douglas Kelly, the fact that it would not be an absence of log book runs that mattered but rather documents relating to the last shop visit.

Assessment, planning and estimating

49. It is common ground that it was implied in the 2010 Proposal that the Defendant would carry out the work to the Aircraft and the services which it provided (including planning and estimating in advance) with reasonable care and skill.
50. I am satisfied that the Defendant inspected the Aircraft and assessed the work to be done, planned the work and estimated time and cost (and informed the Claimant in advance of such estimates), and carried out the work, with reasonable skill and care.
51. As indicated above, it was common ground that some items were stated in the 2010 Proposal "To be covered by CCO Process". This process, referring to Contract Change Orders prepared by the Defendant for signature by the Claimant, enabled the Defendant and the Claimant to confirm advance (and sometimes retrospective) permission to undertake work, to be charged at the Defendant's usual rates. In overall terms, the process was in my judgment properly undertaken and all work and charges meet the standards of reasonableness. But even where there was no CCO, or entry in a proposal, I am satisfied that the work done by the Defendant was within the scope of the work that the Claimant had asked and intended that the Defendant should do.
52. In relation to planning, estimating and reporting work and costs the Claimant suggests that had it known what work and cost would have been involved it would have proceeded differently. I completely reject that suggestion. The Claimant was well aware that an aircraft of this age might have quite a number of things to be rectified, and that what was termed "emergent work" would occur.
53. The 2010 Proposal in July 2010 allowed £109,000 for replacing wing fasteners but this was before the full state of the wing was known, and it was made clear that there would be further work that was not costed at that point. Mr Rawcliffe told Mr Iwuajoku in terms by email on 7 August 2010 that the repairs and remedial work to the wing would prove costly "and will run a lot of man hours". An email from Mr Earl of the Defendant to Mr Iwuajoku and Mr Iruafemi referred to "the huge potential for a large amount of rectification work". A warning that "the costs will escalate very quickly" came on 14 September 2010. These are simply examples. The Claimant was content to continue.
54. The cost of work on wing corrosion ultimately exceeded £450,000. The Claimant submits that the cost of a new wing was about £360,000 and that it was obvious that repair of the wing was uneconomic. It did not raise this idea at any point in the CCO process. Taking the Aircraft as a whole it is arguable that the Claimant was already prepared to spend a sum on its repair that represented at least a high proportion of its value, and possibly more than its value. This will be among the choices that are made by those with an older aircraft.
55. It was also suggested that if it had had a proper estimate the Claimant would have pressed for agreement by way of indemnity from the company involved in the 2006 paint strip. There was no convincing evidence it would have done that, or has done that.

Lien, conversion and final matters

56. On the facts of the case there was no error in the Defendant's assertion of a lien until its charges were agreed and paid. The Claimant has no claim in damages for conversion.
57. I will hear further argument from the parties, in light of this judgment, on what should happen to the Aircraft now, the Claimant having decided it no longer wants the Aircraft back.
58. The parties may wish to review the final details on the figures in light of this judgment, and I will resolve any outstanding argument on those and any other details so that all matters are up to date and a final order can be made.