Boeing Capital Corporation v Wells Fargo Bank Northwest & Anor

A late acknowledgment of service does not automatically defeat an application for judgment in default. The court may permit late filing where it is a genuine preliminary step to a defence, but an adjournment is inappropriate where no credible defence is shown. A settlement agreement permitting continued possession of secured property may cease to protect the debtor when its conditions are not performed, allowing the secured creditor to rely on the original default. A freezing order does not create a security interest and does not displace an existing mortgage, although enforcement must not breach the order.

The claimant had lent approximately US$38 million to the second defendant for the purchase of an aircraft. The aircraft had been transferred to the first defendant for registration, and the claimant held a mortgage over it. Following defaults and a notice requiring immediate repayment, the claimant obtained permission to serve proceedings out of the jurisdiction and sought judgment in default, declarations and delivery up of the aircraft and related documents.

The defendants failed to acknowledge service within the permitted period. The second defendant appeared shortly before the hearing, filed a late acknowledgment and sought an adjournment, relying on possible issues concerning the settlement agreement and the claimant’s exercise of rights under a pledge. A separate freezing order had also been obtained over the aircraft.

1. Application granted. Judgment was entered in the claimant’s favour, subject to the terms of the order and the existing freezing order.
2. A late acknowledgment of service did not prevent judgment in default under r.12.3.1(a). The court rejected the argument that any acknowledgment filed before judgment automatically defeated the application. Although a late filing may be permitted where it is a genuine preliminary to a defence, that was not the position here because no credible defence had been identified.
3. The application for an adjournment was refused. The defendant had had ample time to acknowledge service and advance its arguments. The court considered the request to be an attempt to delay the proceedings rather than a response supported by an arguable defence.
4. The settlement agreement did not affect the effectiveness of the notice of default. Continued possession of the aircraft was conditional on performance of the settlement obligations. Their non-performance either withdrew that permission or, preferably characterised, amounted to repudiation, permitting the claimant to revert to its original causes of action and rights under the default notices.
5. The freezing order obtained by Jet Aviation did not prejudice the claimant’s mortgage rights. A freezing order does not create a security right, whereas the mortgage was a security right securing repayment of the loan. The claimant’s mortgage therefore prevailed over rights conferred by the freezing order, as explained by Flightline Limited v Edwards & Anor [2003] 1 W.L.R. 1200.
6. Delivery up and possession were not to be enforced in a way that breached the freezing order. The order was therefore made on the basis that enforcement would occur only after that order had been discharged or varied to permit possession. The claimant was awarded the costs of the action, subject to detailed assessment.