KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
(Sitting as a Judge of the High Court)
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VS MSN 36118 CAV DESIGNATED ACTIVITY COMPANY |
Claimant |
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- and – |
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SPICEJET LIMITED |
Defendant |
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Thomas Munby KC (instructed by Dentons UK and Middle East LLP) for the Defendant
Hearing date: 5th May 2023
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Crown Copyright ©
CHARLES HOLLANDER KC :
The Lease
a. claims for accrued sums due
b. claims for future rentals said to have become due upon Events of Default.
These proceedings
Summary judgment
Accrued sums due
"Any certificate or determination by Lessor as to any rate of interest or as to any other amount payable under this Agreement shall, in the absence of manifest error, be presumed to be correct but reasonable details of any calculations shall be included in any such certificate or determination."
The Claimant's case on Future Rentals
"23.2.1
Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may, at its option and without notice to Lessee, declare this Agreement to be in default and Lessor may exercise one or more of the following remedies as Lessor in its sole discretion shall elect:
(i) demand that Lessee, and Lessee shall upon such demand of Lessor and at Lessee's expense, immediately return the Aircraft to Lessor at such location as may be directed by Lessor, in the manner specified in such notice, and such return shall not be delayed for purposes of complying with the Return Conditions (none of which conditions shall be deemed to affect Lessor's right to take possession of the Aircraft) or delayed for any other reason. Notwithstanding the foregoing, at Lessor's option, Lessee shall be required thereafter to take such actions, at Lessee's expense, as would be required by the provisions of this Agreement if the Aircraft were being returned at the end of the Lease Term. In addition, Lessor, at its option and to the extent permitted by applicable Law, may enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and, at Lessor's sole option, remove the same (and/or any engine which is not an Engine but which is installed on the Airframe, subject to the rights of the owner, lessor or any secured party thereof), all without liability accruing to Lessor for or by reason of such entry or taking of possession whether for the restoration of damage to property, or otherwise, caused by such entry or taking, except damage caused by the gross negligence or wilful misconduct of Lessor;
(ii) sell at private or public sale, as Lessor may determine, or hold, use, operate or lease to others the Aircraft as Lessor in its sole discretion may determine, all free and clear of any rights of Lessee;
(iii) proceed by appropriate court action or actions, either at Law or in equity, to enforce performance by Lessee of the applicable covenants of this Agreement and to recover damages for the breach thereof and to rescind this Agreement;
(iv) retain and / or liquidate the Security Deposit and apply the same to Lessee's obligations hereunder;
(v) terminate the leasing of the Aircraft under this Agreement by written notice to Lessee and/or repossess and in accordance with the Cape Town Convention, if applicable, procure the deregistration of the Aircraft and export of the Aircraft to a jurisdiction of Lessor's choice pursuant to the IDERA;
(vi) exercise any other remedy available under applicable Law.
(vii) retain and / or liquidate the Security Deposit and apply the same to Lessee's obligations hereunder;
(viii) terminate the leasing of the Aircraft under this Agreement by written notice to Lessee and/or repossess and in accordance with the Cape Town Convention, if applicable, procure the deregistration of the Aircraft and export of the Aircraft to a jurisdiction of Lessor's choice pursuant to the IDERA;
(ix) exercise any other remedy available under applicable Law.
23.2.2 In addition to the foregoing, Lessee shall be liable (x) for any and all unpaid Rent during the exercise of any of the aforementioned remedies, together with interest on such unpaid amounts at the Default Rate, and until satisfaction of all of Lessee's obligations to Lessor hereunder, (y) all remaining Rent due until the redelivery of the serviceable Aircraft shall become due and payable to Lessor and (z) for all legal fees and other costs and out-of-pocket expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all costs and expenses incurred in connection with the return of the Aircraft in accordance with the terms of Clause 22 hereof or in placing the Aircraft in the condition and with airworthiness certification as required by such Clause. Lessee shall pay to and indemnify Lessor demand against any amount of interest, fees or other sums whatsoever paid or payable on account of funds borrowed in order to carry any unpaid amount and amounts payable by Lessor to any Bank in respect of any loss, premium, penalty or expense that may be incurred in repaying funds raised to finance the Aircraft or in unwinding any swap, forward interest rate agreement or other financial instrument relating in whole or in part to Lessor's financing of the Aircraft. Further, upon the occurrence of any of the events specified in paragraphs (xii), (xiii), (xiv) or (xv) of Clause 23.1, the leasing of the Aircraft under this Agreement shall immediately terminate and Lessee shall forthwith, or shall require and instruct any such receiver or trustee to, return the Aircraft to Lessor in the condition required by and otherwise in accordance with Clause 22 hereof or (at Lessor's option) in its then current condition."
"all remaining Rent due until the redelivery of the serviceable Aircraft shall become due and payable to Lessor"
"10.2.1 Within five (5) Business Days after:
(i) redelivery of the Aircraft to Lessor in accordance with and in the condition required by this Agreement; or
(ii) payment to Lessor of the Agreed Value following a Total Loss after the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has irrevocably paid to Lessor all amounts which may then be outstanding or which may become payable under the Transaction Documents, Lessor shall (provided that no Event of Default has occurred and is continuing) pay to Lessee:
(a) an amount equal to the balance of the Security Payment paid by Lessee under this Agreement and then held by Lessor; and
(b) the amount of any Rent received in respect of any period falling after the Redelivery Date of the Aircraft in accordance with the terms of this Agreement or payment of the Agreed Value, as the case may be."
The Defendant's case on Future Rentals
"the Expiry Date or the earlier date of termination of the leasing of the Aircraft in accordance with the terms of this Agreement".
Expiry Date was defined at 4.2:
"The Expiry Date shall be ninety six (96) months after the Delivery Date, subject to the following provisions:
(i) if Lessor, acting in accordance with the provisions of this Agreement, terminates the leasing of the Aircraft to Lessee under this Agreement, the date of such termination shall be the Expiry Date and Clause 23 shall apply;
(ii) if the Aircraft or Airframe suffers a Total Loss, the Expiry Date shall be the Total Loss Date;
(iii) if Clause 22.4 becomes applicable, the Expiry Date shall be extended to the date when any non-compliance referred to therein has been fully rectified and Lessor shall have accepted redelivery of the Aircraft;
(iv) if paragraph (d) of the definition of Total Loss becomes applicable, the Expiry Date shall be sixty (60) days after notice by Lessee to Lessor of Total Loss;
(v) if Clause 21.4 is applicable, the Expiry Date shall be at the end of the period described therein; and
(vi) if Clause 22.2 is applicable, the Expiry Date shall be the date upon which the Aircraft is redelivered in accordance with that Clause.
(vii) For the avoidance of doubt, the obligations of Lessee in respect of payment of Rent and all other obligations of Lessee shall continue (pro-rata) to be payable and valid in respect of those days prior to the Expiry Date. The obligations of Lessee and Lessor that were due to have been performed but have not been fully performed prior to the termination of this Agreement pursuant to this Clause 4.2, will survive the Expiry Date."
The Redelivery Date was not a fixed date and depended on whether one of the eventualities in 4.2 occurred. If (i) to (vi) applied, redelivery might occur on a different date to the end of the eight year lease period.
"If the Aircraft is not returned to Lessor in compliance with the provisions of this Agreement on or before the day that would, but for the provisions of this Clause 22.4, be the last day of the Lease Term, the Lease Term shall be deemed to be automatically extended, and Lessee's obligations hereunder shall continue until the Aircraft is returned to Lessor in a condition satisfying the requirements of this Agreement. Lessee shall pay Rent during any such extension period on written demand (pro rated on a daily basis) at the rate of (i) 100% of Rent for the period from but excluding the Expiry Date up to and including the date falling thirty (30) days thereafter; and (ii) 120% of Rent for any period falling thereafter….."
If the Aircraft was not redelivered in a serviceable condition, the Rent continued to be paid until the condition of the Aircraft satisfied the terms of the Lease.
"The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect that Lord Dunedin's four tests would usually be perfectly adequate to determine its validity.[[1]] But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter's primary obligations"
at [32] per Lord Neuberger PSC and Lord Sumption JSC (with whom Lord Carnwath JSC agreed);
"What is necessary in each case is to consider, first, whether any (and if so what) legitimate business interest is served and protected by the clause, and, second, whether, assuming such an interest to exist, the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconscionable." at [152] per Lord Mance JSC (with whom Lord Toulson JSC agreed in relevant part as may be seen at [292]);
"…the correct test for a penalty is whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party's interest in the performance of the contract. Where the test is to be applied to a clause fixing the level of damages to be paid on breach, an extravagant disproportion between the stipulated sum and the highest level of damages that could possibly arise from the breach would amount to a penalty and thus be unenforceable. In other circumstances the contractual provision that applies on breach is measured against the interest of the innocent party which is protected by the contract and the court asks whether the remedy is exorbitant or unconscionable"
at [255] per Lord Hodge JSC.
Discussion
"(vi) if Clause 22.2 is applicable, the Expiry Date shall be the date upon which the Aircraft is redelivered in accordance with that Clause.
For the avoidance of doubt, the obligations of Lessee in respect of payment of Rent and all other obligations of Lessee shall continue (pro-rata) to be payable and valid in respect of those days prior to the Expiry Date."
"the amount of any Rent received in respect of any period falling after the Redelivery Date of the Aircraft in accordance with the terms of this Agreement".
As indicated above, Redelivery Date is defined as
"the Expiry Date or the earlier date of termination of the leasing of the Aircraft in accordance with the terms of this Agreement;"
Conclusion
Note 1 The four tests set out by Lord Dunedin in Dunlop [1915] AC 79 at 87, treated for many years until Makdessi as the leading statement of the law on penalty. The four tests are summarised in Makdessi at [21] as follows:
“They were (a) that the provision would be penal if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach; (b) that the provision would be penal if the breach consisted only in the non-payment of money and it provided for the payment of a larger sum; (c) that there was a presumption (but no more) that it would be penal if it was payable in a number of events of varying gravity; and (d) that it would not be treated as penal by reason only of the impossibility of precisely pre-estimating the true loss.” [Back]