Before the Commercial Court in De Havilland Aircraft of Canada Limited v SpiceJet Limited [2021] EWHC 362 (Comm), each of De Havilland Aircraft of Canada Limited (DHC) and SpiceJet Limited (SpiceJet) sought summary judgment against the other in relation to non-performance by the other under a purchase agreement dated 8 September 2017 (the Purchase Agreement) for the delivery of 25 Q400 aircraft (the Aircraft) by DHC to SpiceJet. The decision of the Court provides a useful reminder of the English courts' approach to interpreting contracts and when disputes may be settled on a summary basis.

Background

In addition to setting out the scheduled delivery months for delivery of the Aircraft (the SDMs), the Purchase Agreement set out the arrangements for payments to be made by SpiceJet for the Aircraft, including pre-delivery payments (PDPs) that SpiceJet was required to pay to secure delivery of the Aircraft, and provided that if SpiceJet defaulted on its obligations to make the PDPs then DHC could terminate the Purchase Agreement in respect of the affected Aircraft and claim liquidated damages. Further, if four or more Aircraft were affected, DHC could terminate the Purchase Agreement in its entirety.

The first five Aircraft were paid for and delivered in accordance with the terms of the Purchase Agreement, but after delivery of the fifth Aircraft, SpiceJet ceased paying PDPs that fell due in relation to the next fifteen Aircraft and failed to take delivery of the sixth, seventh and eighth Aircraft that were scheduled for delivery prior to the commencement of the contractual dispute proceedings between DHC and SpiceJet.

As a result of SpiceJet’s failure to pay the PDPs and failure to accept delivery of the Aircraft, DHC served notice on SpiceJet, terminating DHC’s obligation to deliver the undelivered Aircraft pursuant to the Purchase Agreement and seeking liquidated damages of $42.95 million in accordance with the terms of the Purchase Agreement or, alternatively, damages for breach of contract.

Before the Commercial Court, DHC sought summary judgment in relation to its claim for liquidated damages whilst SpiceJet sought summary judgment that:

• it was not obliged to pay the PDPs in accordance with the terms of a Change Order 6 relating to the Purchase Agreement dated 15 April 2019 (CO6);
• DHC had failed to provide sufficient assistance relating to the financing of the Aircraft in accordance with the terms of Letter Agreement 13 relating to the Purchase Agreement (LA13); and
• the claimed amount of liquidated damages is an unenforceable penalty.

Issues

(1) CO6

Pursuant to the terms of CO6, the SDMs for certain of the Aircraft were amended to extend the periods for delivery that had originally been agreed in the Purchase Agreement in respect of the first eight Aircraft. For the remaining seventeen Aircraft, CO6 stated that the SDMs were "suspended and that [the parties] shall make good faith efforts to find an amicable solution to revised terms and conditions for such Aircraft."

SpiceJet argued that this suspension of the SDMs for those seventeen Aircraft relieved them of their obligation to pay the PDPs for those Aircraft and, accordingly, it had not defaulted on four or more Aircraft (having only failed to take delivery of the sixth, seventh and eighth Aircraft).

The Court found that whilst the SDMs may have been suspended, there was no agreement to suspend or terminate the payment of the PDPs where the invoices had been rendered and the debts incurred at the time of CO6. In particular, the Court noted that it was persuaded particularly by the argument that DHC remained obliged to manufacture and deliver the remaining Aircraft, as there was a long stop date for delivery of the Aircraft by August 2023, and there was no evidence that the parties intended to change the PDP obligations, and it was perfectly commercial for them to leave them as they were.

(2) LA13

As a counterclaim to DHC's claim, SpiceJet argued that DHC breached its obligations pursuant to LA13 to provide assistance in arranging finance for the Aircraft and that this failure prevented SpiceJet from making its PDP payments.

LA13 provided that Bombardier "shall provide the following Financing Assistance. Bombardier would be pleased to assist Buyer in developing, in consultation with Buyer and its aircraft finance specialists, third party financing structures for the financing of Buyer's acquisition of the Aircraft. . . "

SpiceJet argued that DHC failed to assist in the arrangement of financing for the Aircraft in accordance with the terms of LA13 and, in particular, breached its obligations in relation to the proposed financing of certain of the Aircraft by Chorus Aviation Capital and TrueNoord.

The Court found that whilst LA13 did impose obligations on DHC to assist with the financing of the Aircraft, the obligation did not amount to a requirement for DHC to “work with SpiceJet and its financiers and/or other guarantors to procure finance.” Accordingly, the Court found that SpiceJet did not have an arguable case and summarily dismissed the counterclaim.

(3) Damages

In the event of a default on its obligations under the Purchase Agreement in respect of an Aircraft, SpiceJet was required to pay DHC US$2.5 million. As the Purchase Agreement was terminated in relation to twenty Aircraft, DHC claimed US$42.95 million (accounting for certain payments that SpiceJet had already made). SpiceJet claimed that this amounted to an unenforceable penalty, and that this issue could not be determined as part of a summary judgment.

The Court rejected SpiceJet's arguments noting that each of DHC and SpiceJet were substantial commercial operators, with comparable bargaining power and were advised by experienced and sophisticated lawyers and that SpiceJet had agreed, in the Purchase Agreement, that “such liquidated damages do not constitute a penalty.”

Further, SpiceJet couldn't require a full trial to establish DHC's actual loss precisely because it had agreed to pay liquidated damages to “avoid the expense and time incurred in calculating the actual extent of loss”.

The Court continued that the amount of liquidated damages, which represented 12.5% of the stated purchase price of each Aircraft, appeared to be a genuine pre-estimate of loss and that SpiceJet had "neither in evidence nor through counsel made any attempt to cast doubt on the realistic nature of this estimate."

Conclusion

The case is interesting in that several substantial issues were decided on a summary basis – the Court was clear that this was permitted where "there is a short point of law or construction, [. . .] it has before it all the evidence necessary for the proper determination of the question and [. . .] the parties have had an adequate opportunity to address [the Court] in argument.”

It is clear that the Court was minded that it would interpret each contract on the basis of what was written in the contract – this was true of CO6, which the Court found related only to the SDMs and not the PDPs, true of LA13, which didn't impose an obligation on DHC other than to assist SpiceJet with financing opportunities for the Aircraft, and true of the Purchase Agreement itself, which clearly set out the requirement for the payment of liquidated damages.

The judge was clear that when interpreting the contracts: “I must look at the whole agreement; I must apply an objective test; I must take into account that the agreement was handled, negotiated and prepared by skilled professionals; particularly in the event of any ambiguity I should apply a commercial approach to it, but always subject to bearing in mind the possibility that one side may have agreed to something which with hindsight did not serve its interest.”

SpiceJet sought to appeal the judgment but failed to pay amounts to the Courts Fund Office to sustain its appeal and as a result its notice of appeal was struck out, and a subsequent application for extension of time by SpiceJet was also refused¹.

¹Spicejet Ltd v De Havilland Aircraft of Canada Ltd [2021] EWCA Civ 1834

April 2022 Newsletter