Blue Sky One Ltd & Ors v Blue Airways Llc & Ors

A detailed written transaction will ordinarily govern the parties’ rights where it records the structure adopted to comply with sanctions and does not provide for an immediate beneficial interest. Contractual restrictions on dealing with property do not, without more, create a trust. A purchase-money resulting trust may be rebutted by evidence that the transaction was intended to be a loan repayable with interest.

A document is not a sham merely because the parties later depart from some of its terms. The court must identify a common intention that the document should not create the rights and obligations it appears to create. Delivery up of ordinary commercial goods is discretionary and generally inappropriate where damages provide adequate compensation.

The Balli parties claimed ownership and possession of three Boeing 747 aircraft acquired through a complex series of companies, loans, leases and options against the background of United States sanctions affecting transactions involving Iranian entities. Mahan and FZE alleged that the arrangements made Balli a trustee, that the leases were shams, and that title was later transferred by Bills of Sale.

PK separately claimed enforcement of mortgages over two aircraft. Mahan and FZE counterclaimed for repayment of sums advanced in connection with further aircraft. The court determined the Phase 1 issues concerning trusts, sham leases, title, repayment in principle and the appropriate remedy for wrongful interference.

1. Trust. The written agreements, the Executive Instruction, the parties’ negotiations and the requirement to comply with United States sanctions were inconsistent with an immediate trust of the aircraft or the shares in the owning companies. The Option Agreement gave Mahan a contractual option exercisable only when legally permissible. Until then, beneficial ownership remained with the relevant SPV companies. Contractual restrictions on sale, pledging, leasing or distribution of income did not create an equitable proprietary interest.
2. A purchase-money resulting trust was rebutted by the evidence that the advances were loans, repayable with interest, supported by promissory notes and accompanied by a future option. The cash-in/cash-out analyses recorded expenditure under the loan arrangements and did not establish agency, an obligation to account or a trust.
3. Leases. The leases to BAW were not shams. Negotiations over their terms, demands for deposits and operating information, maintenance arrangements and the later set-off agreement were inconsistent with an original common intention that the leases should create no legal rights or obligations. Subsequent departure from contractual terms did not itself establish a sham.
4. Bills of Sale. English law governed the Bills of Sale. Their execution and transfer to FZE contravened the applicable sanctions restrictions and the Temporary Denial Order. Mr Mazaheri also acted outside the limited authority conferred by the Side Letter Agreement. The Bills were completed with a false date after the signatory had ceased to be a director, so they were false instruments under the Forgery and Counterfeiting Act 1981. Title therefore did not pass to FZE.
5. Repayment. Subject to set-off and the Phase 2 issues, Mahan and FZE were entitled to recover approximately US$57.8 million paid in relation to the Package 2 aircraft. The alternative contractual and restitutionary claims did not require determination.
6. Remedy. Mahan and FZE had wrongfully interfered with the aircraft. Under section 3(2)(b) of the Torts (Interference with Goods) Act 1977, the appropriate remedy was delivery up with the alternative of paying damages assessed by reference to value. Valuation, consequential damages, user damages and set-off were reserved for Phase 2.