“The termination of the leasing of the Aircraft is without prejudice to your continuing obligations under the Sub-Lease Agreement and the Head Lease Agreement. Furthermore, you are required to ground the Aircraft and redeliver it (which for the avoidance of doubt includes the Engines) in accordance with the Head Lease Agreement and the Sub-Lease Agreement.”
“The Basic Termination Amount (in the case of the NEO Sub-Lease Agreements) and the Termination Value A (in the case of the CEO Sub-Lease Agreements) corresponds to the amounts repayable by the Lessors (as Borrowers) to the NEO and CEO Lenders (as applicable) as at the Termination Date in respect of the Loans which (part) funded the acquisition of the Aircraft.”
“The A Termination Amount (in the case of the NEO Sub-Lease Agreements) and the Termination Value B (in the case of the CEO Sub-Lease Agreements) is attributable to the equity finance provided by the Japanese investors that was used to fund the purchase of the Aircraft and the investors’ bargained for return on that investment and/or compensation for early repayment.”
“The A Line Termination Value / Termination Value … reflects: (i) the liabilities the Lessor had assumed to the lenders and (ii) the expected distribution for equity that the Japanese investors had under the transaction at the date that it falls due.”
“The penalty rule is an interference with freedom of contract. It undermines the certainty which parties are entitled to expect of the law. Diplock LJ was neither the first nor the last to observe that ‘The court should not be astute to descry a “penalty clause”’: the Robophone case[1966] 1 WLR 1428 , 1447. As Lord Woolf said, speaking for the Privy Council in Philips Hong Kong Ltd v Attorney General of Hong Kong(1993) 61 BLR 41 , 59, ‘the court has to be careful not to set too stringent a standard and bear in mind that what the parties have agreed should normally be upheld’, not least because ‘[a]ny other approach will lead to undesirable uncertainty especially in commercial contracts’.”
“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”.This was the test as formulated by Lords Neuberger and Sumption at [32], Chitty commenting at paragraph 30-228 (in a footnote) that: “As Lord Carnwath and, on this point, Lord Clarke (see at [291]) agreed with Lords Neuberger and Sumption on this point, this statement may be taken as the authoritative statement of the penalty rule. Lord Mance and Lord Hodge, with both of whom Lord Toulson agreed on this issue (see at [292]), each gave slightly different accounts but it is not thought that the differences between the judgments on this issue are substantial.”
“The great majority of cases decided in England since Dunlop have concerned more or less standard damages clauses in consumer contracts, and Lord Dunedin’s four tests have proved perfectly adequate for dealing with those. … .”
“In our opinion, the law relating to penalties has become the prisoner of artificial categorisation, itself the result of unsatisfactory distinctions: between a penalty and genuine pre-estimate of loss, and between a genuine pre-estimate of loss and a deterrent. These distinctions originate in an over-literal reading of Lord Dunedin’s four tests and a tendency to treat them as almost immutable rules of general application which exhaust the field. In Legione v Hateley(1983) 152 CLR 406 , 445, Mason and Deane JJ defined a penalty as follows: ‘A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation ...’ All definition is treacherous as applied to such a protean concept. This one can fairly be said to be too wide in the sense that it appears to be apt to cover many provisions which would not be penalties (for example most, if not all, forfeiture clauses). However, in so far as it refers to ‘punishment’ and ‘an additional or different liability’ as opposed to ‘in terrorem’ and ‘genuine pre-estimate of loss’, this definition seems to us to get closer to the concept of a penalty than any other definition we have seen. The real question when a contractual provision is challenged as a penalty is whether it is penal, not whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive categories. A damages clause may be neither or both. The fact that the clause is not a pre-estimate of loss does not therefore, at any rate without more, mean that it is penal. To describe it as a deterrent (or, to use the Latin equivalent, in terrorem) does not add anything. A deterrent provision in a contract is simply one species of provision designed to influence the conduct of the party potentially affected. It is no different in this respect from a contractual inducement. Neither is it inherently penal or contrary to the policy of the law. The question whether it is enforceable should depend on whether the means by which the contracting party’s conduct is to be influenced are ‘unconscionable’ or (which will usually amount to the same thing) ‘extravagant’ by reference to some norm.”
“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. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter’s primary obligations. … .”
“I therefore conclude that 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.”
“… A damages clause may properly be justified by some other consideration than the desire to recover compensation for a breach. This must depend on whether the innocent party has a legitimate interest in performance extending beyond the prospect of pecuniary compensation flowing directly from the breach in question.”
“The great majority of cases decided in England since Dunlop have concerned more or less standard damages clauses in consumer contracts, and Lord Dunedin’s four tests have proved perfectly adequate for dealing with those. More recently, however, the courts have returned to the possibility of a broader test in less straightforward cases, in the context of the supposed “commercial justification” for clauses which might otherwise be regarded as penal. An early example is the decision of the House of Lords in The ‘Scaptrade’, where at p 702, Lord Diplock, with whom the rest of the Appellate Committee agreed, observed that a right to withdraw a time-chartered vessel for non-payment of advance hire was not a penalty because its commercial purpose was to create a fund from which the cost of providing the chartered service could be funded.”
“… It seems likely that clause 5.6 was expected to influence the conduct of the Sellers after Cavendish’s acquisition of control in a way that would benefit the Company’s business and its proprietors during the period when they were yoked together. To that extent it may be described as a deterrent. But that is only objectionable if it is penal, ie if the object was to punish. But the price formula in clause 5.6 had a legitimate function which had nothing to do with punishment and everything to do with achieving Cavendish’s commercial objective in acquiring the business. And, like clause 5.1, it was part of a carefully constructed contract which had been the subject of detailed negotiations over many months between two sophisticated commercial parties, dealing with each other on an equal basis with specialist, experienced and expert legal advice.”
“There may be interests beyond the compensatory which justify the imposition on a party in breach of an additional financial burden. The maintenance of a system of trade, which only functions if all trading partners adhere to it (the Dunlop case), may itself be viewed in this light”
“In my opinion, the development of the law indicated by the authorities … is a sound one. It is most easily explained on the basis that the dichotomy between the compensatory and the penal is not exclusive. There may be interests beyond the compensatory which justify the imposition on a party in breach of an additional financial burden. … 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 … .”
“In a negotiated contract between properly advised parties of comparable bargaining power, the strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach.”
“They were matters for the parties, who were, on both sides, sophisticated, successful and experienced commercial people bargaining on equal terms over a long period with expert legal advice and were the best judges of the degree to which each of them should recognise the proper commercial interests of the other.”
“… In judging what is extravagant, exorbitant or unconscionable, I consider (despite contrary expressions of view) that the extent to which the parties were negotiating at arm’s length on the basis of legal advice and had every opportunity to appreciate what they were agreeing must at least be a relevant factor.”
“It has always been and remains my understanding of industry practice that, compared to a normal operating lease, the return conditions in a JOLCO agreement are onerous in that they require the lessee to refurbish the used aircraft to the condition effectively the same as those of a new aircraft. The JOLCO return condition is known in the industry as a security mechanism to avoid the circumstance where the lessee refuses to activate the purchase option.”
“The payment of those sums, which is a common feature of JOLCO transactions, was negotiated for the legitimate commercial purposes of incentivising VietJet to exercise its option to purchase the Aircraft and mitigating the risks of early termination of the transaction, which, for the Japanese investors, would have included the failure to obtain the intended tax benefits and the unexpected need to remarket and re-lease the Aircraft”
“… could quite easily be broken down into four separate sub-clauses, each dealing with the different factual situation (cancellation, disconnection, downwards migration and upgrading) without difficulty. It follows that it would make no sense for the court to ask whether the clause as a whole is penal, as opposed to asking whether the clause as it applies to each specified situation is penal, since if it is then it can be severed from the remainder of the clause.”
“the aggregate of the Basic Termination Amount and the A Termination Amount”.Given this, he submitted, if for any reason the A Line Termination Value is not recoverable in full under Clause 19.3(a), then, it should be open to FWA to recover the Basic Termination Amount independently by inviting the Court simply to remove from Clause 19.3 the reference to the A Termination Amount. Since it is not suggested by VietJet that the agreement in respect of the Basic Termination Amount is penal, it being the sum that is required to satisfy the Lessors’ liability to repay outstanding balance of the Loans which were accelerated upon termination of the leasing, Mr Shah’s submission was that there ought to be no bar to its recovery. All that is required, Mr Shah submitted, is what he described as the application of a blue pencil to Clause 1.1 in this way: “the aggregate of the Basic Termination Amount and the A Termination Amount”
“The difficulty about this approach was pointed out by Mason and Wilson JJ in the High Court of Australia in AMEV-UDC (1986) 162 CLR at pp 192-193: ‘At least since the advent of the Judicature system a penalty provision has been regarded as unenforceable or, perhaps void, ab initio: Citicorp Australia Ltd v Hendry (1985) 4 NSWLR 1. In all that time it has been thought that no action could be brought on such a clause, no doubt because the courts should not lend their aid to the enforcement in any way of a provision which is oppressive. However, this is not the only reason why the courts would refuse to lend their aid. In the majority of cases involving penalties, the courts, if called upon to assist in partial enforcement of the kind suggested by the appellant, would be required to undertake an unfamiliar role. They would need to rewrite the clause so as to permit the plaintiff to recover the loss he has actually sustained. Penalty clauses are not, generally speaking, so expressed as to entitle the plaintiff to recover his actual loss. Instead they prescribe the payment of a sum which is exorbitant or a sum to be ascertained by reference to a formula which is not an acceptable pre-estimate of damage. In either case the court, if it were to enforce the clause, would be performing a function very different from that which it undertakes when it severs or reads down an unenforceable covenant, such as a covenant in restraint of trade. In the ultimate analysis, in whatever form it be expressed, the appellant’s argument amounts to an invitation to the court to develop a new law of compensation, distinct from common law damages, which would govern the entitlement of plaintiffs who insist on the inclusion of penalty clauses in their contracts.’”
“Even if the course taken by the Court of Appeal in Jobson had been right, it would not be available to Mr Makdessi because clause 5.6 cannot sensibly be analysed as a mere security for the performance of the restrictive covenants. But in our opinion the analysis of Mason and Wilson JJ was correct, and so far as it related to the form of relief, Jobson was wrongly decided. In the first place, the treatment of a penalty clause as partly enforceable, although supported by some turns of phrase in old cases concerned with other issues, is contrary to consistent modern authority. So, with respect, is the treatment of its enforcement as discretionary according to the circumstances at the time of the breach. If, as the authorities show, the penal consequences of a contractual provision fall to be determined as at the time of the agreement, and a provision found to be a penalty is unenforceable, it is impossible to see how it can be enforceable on terms. Secondly, the Court of Appeal accepted that the court could not rewrite the parties’ contract by specifically enforcing the retransfer of the shares to the vendors at a higher price or enforcing the retransfer of some only of the shares: see p 1037 (Dillon LJ), p 1042 (Nicholls LJ). Yet that is in reality what they did, by refusing to enforce the retransfer unless the vendor agreed to vary its effect. Third, the Court of Appeal interpreted the provision for the retransfer of the shares as a ‘security’ for the payment of the outstanding instalments. They placed the word ‘security’ in inverted commas because the obligation was purely personal. But the Court of Appeal’s order treated it as if it was an equitable mortgage of the shares, which it manifestly was not. It appears to us that the Court of Appeal were, as a matter of legal analysis, treating the clause in question as a forfeiture and not a penalty, and granting relief from forfeiture on appropriate terms, although in doing so they purported to be treating it as a penalty clause, because they were constrained to do so in the light of the pleadings. So far as the relief granted in Jobson is concerned, the decision was entirely orthodox if it is treated as a forfeiture case, but it was wrong in principle if it is treated as a penalty case.”
“confirming FWA’s right to immediate possession, custody and control of the Aircraft under clause 19 of the Sub-Lease Agreements and/or reg. 21 of the Regulations and granting the Claimant such right;”
“FWA is entitled to possession of the Aircraft as against VietJet, pursuant to either clause 19.2 of the Sub-Lease Agreements or reg. 21.”
“FWA is entitled to possession of the Aircraft as against VietJet”
“Paragraph 66.6 is admitted. The effect of the sales was to extinguish the title of the Lessors in the Aircraft and (it follows) to extinguish any right of FWA (as the Lessors’ assignee) to the Aircraft (whether at common law or under the Cape Town Convention) (see further paragraph 33(2) below).”
“The Head Lease Agreements and the Sub-Lease Agreements were terminated by reason of and upon the sale of the Aircraft to the Trustee Owners.”
“In any event, FWA had no right to possession of the Aircraft: (a) At the date of Termination: (i) the Lessors had a reversionary right to the Aircraft, which they could have (but chose not to) exercise (in circumstances where, as set out above, the demand was for VietJet to redeliver the Aircraft in accordance with the contractual arrangements); and (ii) FWA had no relevant rights at all.”
“BY THIS BILL OF SALE, FW AVIATION (HOLDINGS) 8577 LIMITED (the Seller) does hereby with full title guarantee, sell, grant and transfer all its rights, title and interest in and to the Aircraft specified below to FW AVIATION (HOLDINGS) 1 LIMITED (the Buyer) for all good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Seller …”
“3. For the avoidance of doubt, with effect from the date hereof, the Trust Deed shall have no further force or effect and any and all rights, obligations, duties and liabilities of either party arising out of the Trust Deed shall also terminate other than i) those arising on or before the date hereof and ii) those expressly stated in the Trust Deed to survive termination. 4. We confirm, by signing and countersigning below, that both the Beneficial Owner and the Initial Trustee agree and hereby evidence in writing their existing historic agreement, that - at all relevant times for the duration of the Trust Deed (and without prejudice to the Beneficial Owner's separate contractual rights in respect of the Sublease Agreement and other documents) - the Beneficial Owner has been, and remains, entitled to possession of the Aircraft and entitled to enforce its right to demand and recover possession of the Aircraft from VietJet, which had unlawfully used and retained the Aircraft under the Sublease Agreement, as referred to in clause 3.3(c) of the Trust Deed.”
“For the purposes of the present case, I think that the principles in the cases can be summarised as follows: (1) the power of the court to grant declaratory relief is discretionary. (2) There must, in general, be a real and present dispute between the parties before the court as to the existence or extent of a legal right between them. However, the claimant does not need to have a present cause of action against the defendant. (3) Each party must, in general, be affected by the court’s determination of the issues concerning the legal right in question. (4) The fact that the claimant is not a party to the relevant contract in respect of which a declaration is sought is not fatal to an application for a declaration, provided that it is directly affected by the issue. (5) The court will be prepared to give declaratory relief in respect of a ‘friendly action’ or where there is an ‘academic question’ if all parties so wish, even on ‘private law’ issues. This may particularly be so if it is a ‘test case’, or it may affect a significant number of other cases, and it is in the public interest to decide the issue concerned. (6) However, the court must be satisfied that all sides of the argument will be fully and properly put. It must therefore ensure that all those affected are either before it or will have their arguments put before the court. (7) In all cases, assuming that the other tests are satisfied, the court must ask: is this the most effective way of resolving the issues raised. In answering that question it must consider the other options of resolving this issue.”
“It is with these principles in mind that I approach this issue. Doing so, my conclusion, as I shall explain, is that Mr Lissack KC was right when he submitted that VietJet has conducted and orchestrated a campaign in Vietnam since it delivered the Aircraft to FWA pursuant to the various orders made by this Court that has been designed to interfere with FWA’s efforts to export the Aircraft from Vietnam and, in turn, both to permit VietJet to raise and maintain its claim to relief from forfeiture and to compel the re-leasing of the Aircraft to VietJet. This misconduct is not only so closely connected with VietJet's application for relief from forfeiture, but also so egregious, that VietJet should be precluded from the relief sought.”
“It seems to me that I have to have regard to reality here, and that reality involves an understandable concern on the part of the Claimants that VietJet should be dissuaded from suggesting, outside of this jurisdiction, that the position arrived at, as a result of my judgment, is anything other than (at least subject to the outcome of any proposed appeal) final and dispositive.”
“Non-Compliance If at the time of Final Inspection the Sub-Lessee has not fully complied with any of its obligations under this Agreement (including without limitation the Return Conditions), or the Sub-Lessee fails to make the Aircraft available to the Sub-Lessor on a timely basis for inspection and redelivery pursuant to Clause 20.1 (Return of Airframe and Engines) and the Return Conditions (whether such failure is due to any act or omission of the Sub-Lessee or any other circumstance whatsoever), the Lease Period shall be extended or if the Lease Period has already ended be deemed to be extended until the time when the Aircraft has been redelivered to the Sub-Lessor in full compliance with this Agreement, for the sole purpose of enabling such non-compliance or failure to be promptly rectified, and during such extension or deemed extension period: … (c) the Sub-Lessee shall pay the Sub-Lessor the Rental for such extension period on demand at the rate of one hundred and fifty per cent. (150%) of the Rental payable on the next scheduled Rental Payment Date or the Expiry Date (as applicable), calculated on a per diem basis. …. Without limiting the generality of the foregoing, the Sub-Lessee's Rental obligation under paragraph (c) above shall be without prejudice to the rights of the Sub-Lessor to terminate the leasing of the Aircraft, to indemnification and to receive any amounts in each case in accordance with the provisions of this Agreement. The Sub-Lessor may, at its sole discretion (and shall not be obliged to) elect (either on first tender of the Aircraft by the Sub-Lessee or at any time during the said extension or deemed extension period) to accept redelivery of the Aircraft notwithstanding noncompliance with Clause 20.1 (Return of Airframe and Engines) or the Return Conditions, in which case the Sub-Lessee will indemnify the Sub-Lessor in respect of the cost (as reasonably determined by the Sub-Lessor following consultation with the Sub-Lessee) of putting the Aircraft into the condition required by this Agreement.”
“Since hire purchase is in essence a contract of deferred purchase, and since the hirer clearly expects and bargains for the ultimate transmission of title, the law permits this variety of bailee to invoke the lack of property in the lessor as a defence against actions for payment and as a cause of action in its own right. Comparable rights are enjoyed by the bailee under a contract of hire. Such a bailee, while not someone to whom property is intended to pass under the contract, is entitled to redress if the lessor either lacks the right to hire the goods, or fails to confer quiet possession on him. A want of ownership in the lessor will probably represent the commonest cause of a breach of these obligations.”
“Where the lessor never had a right to transfer possession of the goods [to the bailee], the rentals paid by the hirer are likely to be recoverable on the ground of a total failure of consideration, even in the case where the hirer has enjoyed substantial use of the goods hired to him.”
“Throughout the Lease Period, title to the Aircraft shall remain vested in the Lessor subject to the Mortgage”
“I should have thought it was quite plain that if A purports to hire a car to B, and in fact delivers to B a car which belonged not to himself but to C, to which he had no right whatever in law, and during the currency of the agreement C intervenes and asserts his right to the car, and if, in those circumstances, B does not pay the hiring charges, A would have no possible claim for them…I cannot think that any court would direct B to pay A money for the use of somebody else’s car. I do not see here how the defendants, because they delivered to the plaintiff somebody else’s car, can claim any kind of money from him for the use of that car. That is, it seems to me, in plain English, what the claim comes to.”
“It is essential to the decision of that question to have in mind the legal nature of demurrage: both what it is and what it is not. I deal first with what demurrage is not. It is not money payable by a charterer as the consideration for the exercise by him of a right to detain a chartered ship beyond the stipulated lay days. If demurrage were that, it would be a liability sounding in debt. I deal next with what demurrage is. It is a liability in damages to which a charterer becomes subject because, by detaining the chartered ship beyond the stipulated lay days, he is in breach of his contract. Most, if not all, voyage charters contain a demurrage clause, which prescribes a daily rate at which the damages for such detention are to be quantified. The effect of such a clause is to liquidate the damages payable: it does not alter the nature of the charterer's liability, which is and remains a liability for damages, albeit liquidated damages. In the absence of any provision to the contrary in the charter the charterer's liability for demurrage accrues de die in diem from the moment when, after the lay days have expired, the detention of the ship by him begins. . .”
“General principle Where a benefit has been transferred pursuant to a contract which remains open, or has been discharged by performance, no claim in unjust enrichment will generally lie. The principle is based on the fundamental premise that the law should give effect to the parties’ own allocations of risk and valuations, as expressed in the contract, and should not permit the law of unjust enrichment to be used to overturn those allocations or valuations.”
“(1) This regulation applies in the event of default under a title reservation agreement or under a leasing agreement. (2) The conditional seller or the lessor, as the case may be, may – (a) subject to any declaration that may be made by the United Kingdom under Article 54 of the Cape Town Convention, terminate the agreement and take possession or control of any aircraft object to which the agreement relates; … .”
“Most legal systems have rules which in given conditions enable a non-owner who is lawfully in possession to pass a good title to an innocent buyer. A power to dispose thus exists whenever the transferor is able to transfer a better title than the transferor itself possesses. Exceptions to the principle nemo dat quod non habet may arise either under the applicable law or under the Convention itself as a consequence of its registration and priority rules. For example, under the applicable law (usually the lex situs): (1) the person making the disposition, though not having actual authority to do so, may have an agency power, such as apparent authority, which under many legal systems gives that person a power of disposal; (2) many legal systems protect the bona fide recipient of goods obtaining possession from a transferor who is himself lawfully in possession but has no power of disposal or exceeds his authority to do so. Even a debtor without a right to dispose under the applicable law must, if in possession of the object, be considered as having a power to dispose under the Convention itself, and thus to agree to grant a security interest, sell or sub-sell under a title reservation agreement or grant a lease or a sub-lease, for if the position were otherwise there would be little point in making the interest of the (head) chargee, conditional seller or lessor registrable as an international interest, given (a) that it is the debtor in possession who is usually in the best position to grant a competing interest and (b) that Article 29(2) makes knowledge of an earlier unregistered interest irrelevant to the priority of the first to register. Most legal systems, even those that adopt the possession vaut titre principle, limit the protection of the buyer to one who acquires in good faith and without knowledge of the prior interest. Accordingly if "power to dispose" were limited to dispositions under national law Article 29(2) would in most cases be deprived of effect and Article 29(1) would be redundant. It is therefore implicit in Article 29(2) that the debtor has a power to dispose derived from the Convention itself. It may be noted that a person lacking a right to dispose will not have a power to have under the applicable law. …”
“An international interest in an object terminates when (a) the agreement creating or providing for it comes to an end (whether under the Convention or under the applicable law) and (b) the creditor has been paid in full or has recovered possession or control of the object and/or any proceeds and has exhausted all other default remedies conferred on it by the Convention in relation to the object (see paragraph 2.97). Only then is any other interested person entitled to apply for registration of the international interest to be discharged (see paragraph 2.97). Rules of the applicable law may also come into play so far as these are consistent with the mandatory provisions set out in Article 15 and do not restrict the right of termination of a title reservation agreement or leasing agreement given by Article 10.”