ACG Acquisition XX LLC v Olympic Airlines SA

Acceptance of leased goods does not necessarily prevent a claim for damages or total failure of consideration arising from breach of an express delivery obligation. Clear wording is required before a certificate of acceptance will operate as a complete contractual estoppel against such claims. A fundamental failure to provide the bargained-for benefit may support total failure of consideration, even where the claimant obtained limited initial use. A closely connected damages claim may impeach a claim for rent by equitable set-off. In exceptional circumstances, execution may be stayed despite a no-set-off clause. Summary judgment is inappropriate where the defence has a real prospect of success or a fuller factual investigation may affect the outcome.

The claimant lessor leased a Boeing 737 aircraft to the defendant for five years. The aircraft was accepted and entered service, but was grounded after 14 days when serious defects were discovered and its Certificate of Airworthiness was withdrawn. The defendant alleged that the aircraft had not complied with the contractual delivery requirements and counterclaimed damages.

The lessor sought summary judgment for unpaid rent and maintenance reserves, and on the counterclaim. It relied on the certificate of acceptance, exclusion and waiver clauses, a conclusive-proof clause, and a no-set-off provision. It also sought security for costs and judgment on an amended delivery-up claim. The central issues were whether the defendant had a real prospect of establishing breach and total failure of consideration, whether its claim could resist the rent claim, and whether security for costs was appropriate.

1. Summary judgment. Under CPR Part 24, the question was whether the defence and counterclaim had a real prospect of success, not whether they were probable. The court should not conduct a mini-trial and should hesitate before finally deciding an issue where fuller investigation might affect the result, as illustrated by Three Rivers District Council v Bank of England No. 3 [2001] 2 AllER 153, Swain v Hillman [2001] 1 AllER 91 and Doncaster Pharmaceutical Co Ltd v Bolton Pharmaceutical Co Ltd [2006] EWCA Civ 661.
2. The certificate of acceptance conclusively established that the aircraft had been examined, that it and its documents were satisfactory on the information available, and that it had been accepted for lease. It did not clearly establish contractual compliance with the delivery obligations or exclude claims for damages or total failure of consideration. The exclusion and waiver clauses were expressly subject to the contract’s express terms. The reasoning was supported by the approach in Tor Line AB v Alltrans Group of Canada (The TFL Prosperity) [1984] 1 WLR 48.
3. On the defendant’s evidence, delivery of an aircraft incapable of being made airworthy without repairs exceeding its value could amount to a fundamental failure to provide the bargained-for benefit. The defendant therefore had a real prospect of establishing total failure of consideration, notwithstanding its two weeks’ initial use. The court also accepted the relevance of the contractual-performance approach stated in Stocznia Gdanska SA v Latvian Shipping Co [2002] EWCA Civ 889.
4. The damages claim went to the root of the rent obligation and could provide an equitable set-off. Alternatively, even if rent remained payable under the no-set-off clause, the circumstances justified a stay of execution. The lessor’s applications for summary judgment were dismissed.
5. Security for costs was refused. Although the liquidation established jurisdiction, the claim and counterclaim were inextricably linked and no separate issues requiring security were identified. The costs of the applications were summarily assessed at £44,000 excluding VAT.

First-instance decision. No prior appellate decision is stated in the judgment.