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Cases resulting from the pandemic continue to work their way through the English courts, and Peregrine Aviation Bravo Limited (the Lessor) and Laudamotion GmbH (the Lessee)1 is a recent decision that takes us back to the beginning of the shutdown of the airline industry due to the pandemic in 2020, when lessors and lessees were negotiating rent deferrals and rescheduling deliveries of aircraft.
The case is a useful exploration of the delivery process for used aircraft and will have interested parties in the industry examining the delivery provisions in their leases.
<h4>The facts</h4>
As part of a series of lease agreements between related parties, the Lessor and the Lessee contracted for the delivery of certain Airbus A320-200 aircraft (the Aircraft) to enter service with the Lessee beginning March 2020.  Typical with many aircraft leases, the leases for the Aircraft provided that:
<ul><li>(a) the Lessor would notify the Lessee of the time for delivery of the Aircraft to the Lessee “in a timely manner” and further, the Lessor agreed to “consult with the Lessee” prior to determining the exact date on which the Aircraft would be delivered to the Lessee, as well as to provide “Lessee with reasonable notice in respect of such date”;</li><li>(b) the Aircraft would be delivered at a maintenance facility where the Lessor was also to accept redelivery of the Aircraft from the prior operator of the Aircraft, flynas.  It was a condition of the delivery of the Aircraft to the Lessee that such redelivery had occurred from flynas;</li><li>(c) each lease contained detailed technical requirements relating to the condition of the Aircraft, including technical records, at delivery (the Delivery Condition Requirements).  If the Aircraft did not comply with any Delivery Condition Requirement in any material respect, the Lessee had the right to refuse to accept the Aircraft until such deviation was corrected, at the Lessor’s cost;</li><li>(d) if the delivery of the Aircraft had not occurred on or before a long-stop date for delivery (including as a result of the Aircraft not complying with the Delivery Condition Requirements), the leasing could be terminated by either party on 10 business days’ written notice;</li><li>(e) in addition to meeting the Delivery Condition Requirements, there were standard conditions precedent to the leasing of the Aircraft, including the provision by the Lessor of an Export Certificate of Airworthiness for the Aircraft; and</li><li>(f) any failure by the Lessee to accept delivery of the Aircraft within five business days of it being validly tendered would result in the occurrence of an event of default.</li>
</ul>
Preparations for delivery commenced several months ahead of the proposed delivery date for the first Aircraft in March 2020, with the Aircraft undergoing maintenance to ensure it complied with the Delivery Condition Requirements and the Lessee inspecting the technical records as they became available, as part of the delivery process (among other steps taken, including the exchange of some of the conditions precedent documentation).
As the effects of the pandemic reached Europe in mid-March 2020, the parties initially continued to work towards delivery of the Aircraft but then correspondence between the two parties turned to whether delivery should proceed and if the Lessor would accept rent reductions and/or deferrals.
At the end of March 2020, correspondence between the parties presented to the court suggested an understanding between the Lessor and the Lessee that delivery of the Aircraft would occur during June 2020, pursuant to a global amendment agreement that was prepared (but not executed) in relation to the leases of the Aircraft.  
In late April 2020 however, the Lessee sent a letter to the Lessor notifying the Lessor that it would not accept delivery of the Aircraft – in court, the Lessee indicated that this was part of a negotiation strategy it was undertaking with all of its lessor counterparties.2  Additionally, the Lessee instructed its technical consultants that they should cease to work on the delivery of the Aircraft. 
In response to the letter from the Lessee, the Lessor served a notice on the Lessee on or around 1 May 2020 that said the date for delivery of the first Aircraft would be 7 May 2020 and the Aircraft was tendered for delivery by the Lessor to the Lessee on 7 May 2020.  However, the Lessee refused to accept delivery and the Lessor declared an event of default for failure to take delivery of the Aircraft when validly tendered.
The Lessee contested that the Aircraft had not been validly tendered on the basis that:
<ul><li>(a) the Lessor did not “consult with the Lessee” prior to the Lessor determining that the Aircraft would be delivered on 7 May 2020 and did not provide the Lessee with “reasonable notice” of the date on which the Aircraft would be delivered; and</li><li>(b) the Aircraft did not meet the Delivery Condition Requirements when it had been tendered, including the failure by the Lessor to provide an Export Certificate of Airworthiness for the Aircraft.</li>
</ul>
The court considered each of these points in turn:
<h4>The requirement to consult and provide reasonable notice</h4>
The court found that the Lessor was obliged to consult with the Lessee regarding the date for delivery of the Aircraft and to provide reasonable notice of the delivery to the Lessee, and that the Lessor had not done so.  This decision is interesting given the Lessee appeared to disengage from the delivery process, had ceased to cooperate in the delivery process for the Aircraft and had informed the Lessor that it did not intend to take delivery of the Aircraft. 
The court was persuaded that the Aircraft having been ready for delivery in March was irrelevant and no constructive notice could be constituted that would have dispensed with the requirement for reasonable notice. Further, the Lessee was under no duty to cooperate pursuant to the terms of the lease, and such a duty could not be implied by the court. 
<h4>Failure to meet the Delivery Condition Requirements</h4>
The court found that the failure to provide the Export Certificate of Airworthiness for the Aircraft meant the Delivery Condition Requirements were not satisfied by the Lessor and therefore, the Lessor could not be said to have validly tendered the Aircraft for delivery on 7 May 2020.3  
The court rejected the Lessor’s contention that the Export Certificate of Airworthiness would have been provided at delivery if the Lessee had been cooperative – this appears to be correct as otherwise the Lessee could have been forced to accept an aircraft which does not comply with a material Delivery Condition Requirement on the basis that the Lessee was uncooperative (noting the court had found that the Lessee was under no duty to be cooperative).
<h4>Additional considerations</h4>
The court dismissed the Lessor’s principal claim, but did consider two additional matters that are of note:4
<ul><li>(a) the Lessee sought to claim that as the Aircraft was still on lease to flynas at the time the Aircraft was tendered for delivery to the Lessee, the Aircraft could not have been validly tendered – this was rejected by the court on the basis that the lease with flynas was readily terminable by the Lessor.  Indeed, the Aircraft had only been kept on lease with flynas to ensure its maintenance, storage and insurance pending delivery to the Lessee; and</li><li>(b) the Lessee sought to claim that it was able to reject the Aircraft if it “was able to demonstrate” a material deviation from the Delivery Condition Requirements, which it contended meant that the deviations existed and it was capable of demonstrating the deviations, even if it had not actually demonstrated they existed – this was rejected by the court as well.  The Lessee would have needed to provide details of the material deviations in order to allow the Lessor to rectify them.</li>
</ul>
<h4> </h4>
<h4>Delivery provision considerations</h4>
It remains to be seen if the decision will be successfully appealed, but lessors may wish to consider tweaks to their delivery provisions to guard against some of the issues arising here:
<ul><li>including or enhancing any cooperation obligations on a lessee in relation to the delivery process to ensure such lessee cannot avoid accepting a tendered aircraft by virtue of it having failed to engage in the process;</li><li>including fixed timelines for any notice provision in relation to delivery, rather than have “reasonable” notice periods; and</li><li>clarifying “failure to take delivery”-type events of default to include instances of the lessee stating it will not accept delivery.</li>
</ul>
<hr />
 
(1) Peregrine Aviation Bravo Ltd & Ors v Laudamotion GmbH & Anor [2023] EWHC 48 (Comm). 
(2) The court also considered if a letter from the Lessee to the Lessor stating that the Lessee would not make payments would constitute an Event of Default on the basis that it had “threaten[ed] in writing to suspend payments with respect to all of any of Lessee’s debts or other payment obligations” but found that this provision could not be broadly construed, that the Lessee’s statements were not unequivocal and the Lessor had ignored the statements ahead of tendering the Aircraft for delivery in May 2020. 
(3) The Export Certificate of Airworthiness for the Aircraft was only issued on 12 May 2020 (and seems never to have been delivered to the Lessee, in any event). 
(4) It should be noted that because these matters did not fall for consideration within the main claim, which was dismissed, these matters are obiter dicta.



March 9, 2023

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Missed Delivery: Peregrine Aviation v Laudamotion

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