Durham Tees Valley Airport Ltd v Bmibaby Ltd & Anor

A commercial contract requiring an airline to establish and operate a two-aircraft base was enforceable although it did not prescribe a minimum number of flights. The court could determine on the facts whether the airline was genuinely operating the aircraft; token flights or a complete cessation would not satisfy the obligation. Detailed routing and flight-frequency decisions remained within the airline’s commercial discretion.

For repudiatory breach of a single contractual obligation performed with such discretion, damages are assessed by a factual inquiry into how the contract would probably have been performed. The court should assume lawful, commercially sensible performance in the defaulting party’s interests, rather than an artificially minimal performance.

Durham Tees Valley Airport Ltd, the airport operator, sued Bmibaby Ltd and its guarantor for damages after the airline withdrew its two-aircraft operation from the airport in November 2006.

The claim concerned a 2003 Base Agreement and a 2005 Novation and Variation Agreement. The airport contended that the agreements required the airline to establish and maintain a two-aircraft operation for the contractual term. The airline contended that the arrangements were permissive or, alternatively, void for uncertainty because they specified no minimum number of flights.

Davis J held that the agreements imposed an obligation to operate two aircraft, but dismissed the claim because the obligation was unenforceable and no suitable implied term could cure the uncertainty: [2009] EWHC 852 (Ch). The airport appealed.

1. Appeal allowed. The agreements imposed a positive contractual obligation on the airline to establish and maintain a two-aircraft operation flying commercially and exclusively from the airport. “Operating” encompassed flying the aircraft, not merely stationing them there. The surrounding charging, funding and route-exclusivity provisions reinforced that construction.

2. The Novation and Variation Agreement replaced the original deadline for the second aircraft with 30 April 2006. It waived or released the accrued claim based on the earlier deadline. The remaining claim was therefore confined to the period after the airline withdrew both aircraft in November 2006.

3. The obligation was not void for uncertainty. A contract is unenforceable only where it is legally or practically impossible to give it sensible content. The absence of a stipulated minimum number of flights left the detailed programme to the airline’s discretion; it did not remove the obligation to operate. On particular facts, the court could decide whether there had been genuine commercial operation. Technical grounding and similar operational matters fell within the airline’s permitted discretion.

4. Damages for repudiation were to be assessed by asking how the airline would probably have performed its single contractual obligation had it not repudiated it. The assessment must respect the contract and the airline’s commercial interests, but it must not assume an uncommercially minimal performance merely to reduce the airport’s recovery. The alternative-performance rule did not apply because the contract did not confer alternative obligations.

5. No implied term requiring operation in a manner reasonable in all the circumstances was needed. An assessment of damages was directed.

• Court of Appeal (Civil Division): Allowed the airport’s appeal and directed an assessment of damages: [2010] EWCA Civ 485.
• High Court (Chancery Division): Held that the agreements required a two-aircraft operation but dismissed the claim on the ground of uncertainty: [2009] EWHC 852 (Ch).