Celestial Aviation Trading 71 Ltd v Paramount Airways Private Ltd

The equitable jurisdiction to relieve against forfeiture is confined to appropriate and limited cases. It generally requires a transfer of proprietary or possessory rights and a forfeiture provision directed essentially to securing payment or a stated result. Practical considerations of legal policy, especially commercial certainty, remain decisive.

An operating lease of aircraft for only part of the aircraft’s economic life, under which the lessor retains substantial ownership risks and a valuable reversionary interest, does not ordinarily attract the jurisdiction. Persistent and wilful payment defaults, further breaches and the real prejudice caused by compelling continuation of a long-term commercial relationship justify refusal of relief in any event.

The claimant owned three aircraft leased to the defendant under three aircraft-specific operating leases. The leases required advance rent, supplemental rent and security, made time of the essence, and entitled the claimant to terminate and recover the aircraft following specified defaults.

Teare J had entered summary judgment for the claimant for unpaid sums and directed continuing payments, without deciding the defendant’s contention that the leases had been validly terminated. The present trial concerned the defendant’s application for relief against forfeiture. The central issues were whether the court had jurisdiction to grant relief in relation to the aircraft operating leases and, if so, whether relief should be granted.

1. Jurisdiction. The leases transferred possessory rights, but not proprietary rights. They were operating leases for eight years, substantially less than the aircraft’s useful economic lives. The claimant retained significant risks and rewards of ownership, including the reversionary value, maintenance concerns and the right to receive the aircraft back in a specified condition.
2. The cases concerning finance leases, hire-purchase agreements and bareboat charters with a hire-purchase element did not establish that relief was available for a bare possessory right under an operating lease. The essential purpose of the termination provisions was not merely to secure payment of rent. It also secured the claimant’s release from the leases and recovery of the aircraft. Security for performance was separately provided by deposits and letters of credit.
3. Even if the principles in Shiloh Spinners Ltd v Harding [1973] AC 691 were engaged, the policy requirement identified in The “Scaptrade” [1983] AC 694 was not satisfied. Certainty was particularly important for aircraft operating leases because the aircraft were valuable, mobile and depreciating assets, often registered abroad, and the lessor needed to know when it could terminate and recover them. The court therefore had no relief jurisdiction.
4. The express provision making time of the essence supported that conclusion but did not, by itself, exclude relief in every type of contract. Likewise, the absence of forfeited purchase payments or a windfall did not itself determine jurisdiction, although it was a further reason against relief.
5. Discretion. If jurisdiction existed, relief would still be refused. The relevant considerations were the applicant’s conduct, the gravity of the breaches and the disparity between the value of the rights lost and the damage caused. The defaults were knowingly committed, persistent, substantial and inadequately explained. They continued despite repeated warnings, remained uncured, and were followed by further contractual defaults and breach of a court order.
6. The serious consequences for the defendant, its employees and passengers did not outweigh the claimant’s legitimate interest in ending a long-term relationship with a lessee whose history showed a cavalier disregard of essential payment obligations. Commercial certainty also weighed against relief.

Relief against forfeiture was refused on both jurisdictional and discretionary grounds. The parties were to be heard on the consequential relief to which the claimant was entitled.

Not an appeal. The judgment followed an earlier summary judgment by Teare J on the claimant’s claim for sums due under the leases. The present judgment determined the defendant’s application for relief against forfeiture.