Olympic Airlines SA v ACG Acquisition XX LLC

A certificate of acceptance may conclusively establish that leased property complied with its contractual delivery condition. Its effect depends on the natural meaning of the certificate and the lease read as a whole.

Where the agreement measures the lessee’s satisfaction solely by reference to a specified delivery condition, confirmation that the property is satisfactory constitutes confirmation of compliance with that condition. Such a mechanism does not dilute the lessor’s delivery obligation. It determines conclusively whether that obligation and the associated condition precedent are to be treated as satisfied.

An aircraft lessor delivered a Boeing 737 under a five-year dry lease. The lessee signed a Certificate of Acceptance confirming that the aircraft complied with the delivery requirements, although serious latent defects meant that it was neither airworthy nor safe to operate.

Teare J held in [2012] EWHC 1070 (Comm) that the certificate was not contractually conclusive as to delivery condition. He nevertheless held that the lessee was estopped by representation from alleging defective delivery. The lessor’s claim therefore succeeded and the lessee’s counterclaim failed.

The central issue on appeal was whether the lease and Certificate of Acceptance conclusively established compliance with the contractual delivery condition.

1. Appeal dismissed unanimously. The lease and Certificate of Acceptance, read together, made the certificate conclusive proof that the aircraft complied with the contractual delivery requirements. Teare J had therefore reached the correct result, although for the wrong reason.

2. Paragraph 2(e) of the certificate unambiguously confirmed compliance with clause 4.2 and Schedule 2, subject to listed discrepancies. Clause 7.9 made the certificate conclusive proof that the aircraft and its documents were satisfactory to the lessee. Compliance with Schedule 2 was the agreement’s only relevant measure of satisfaction. Clause 7.9 referred by clear implication to the delivery condition in clause 4.2(a) and Schedule 2.

3. The first limb of clause 7.9 concerned examination and investigation under clause 4.2(b). Its second limb concerned the aircraft’s compliance with the delivery condition under clause 4.2(a). Its final limb concerned acceptance for lease. Construing the second limb as referring only to the opportunity to inspect would deprive the elaborate conclusive-proof mechanism of substantial commercial value and expose the parties to continuing uncertainty over latent defects.

4. The mechanism did not dilute the lessor’s obligation to tender an aircraft in the required condition. Nor did it oblige the lessee to accept a non-compliant aircraft. Once the lessee signed the certificate, however, the lessor was conclusively treated as having satisfied both its delivery obligation and the condition precedent to acceptance.

5. Had clause 7.9 lacked this conclusive contractual effect, the certificate could not nevertheless have produced an estoppel by representation to the same effect. It was therefore unnecessary to examine the estoppel elements relied upon below.

6. Obiter, clause 2.1(d) also appeared to make the Certificate of Acceptance an independently enforceable agreement. The suggested answer in misrepresentation was unavailable because the certificate contained no representation by the lessor that the aircraft complied with the delivery condition. The lessee itself made that confirmation.

Rix and Kitchin LJJ agreed with Tomlinson LJ.

• Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court upheld the result below on the ground that the lease and Certificate of Acceptance conclusively established compliance with the required delivery condition.
• High Court, Commercial Court: In [2012] EWHC 1070 (Comm), Teare J rejected the lessor’s case that the certificate was contractually conclusive. He held instead that an estoppel by representation barred the lessee’s counterclaim. The lessor’s claim succeeded, subject to the assessment of damages.
• High Court, Commercial Court: In an earlier interlocutory decision, [2010] EWHC 923 (Comm), Hamblen J held only that the lessee had a real prospect of establishing that acceptance was conclusive as to rejection but not as to damages.