De Havilland Aircraft of Canada Ltd v Spicejet Ltd

On a summary judgment application, a contractual obligation which has already accrued remains enforceable unless clear contractual language removes or suspends it. A variation suspending scheduled delivery dates does not, without more, suspend accrued pre-delivery payment obligations.

An agreement to provide assistance in developing financing structures does not ordinarily amount to an obligation to procure finance. Any wider obligation must be sufficiently certain to enforce. The prevention principle cannot excuse performance where the alleged breach could not arguably satisfy that principle.

For a negotiated liquidated-damages clause, the question is whether the stipulated sum is exorbitant or unconscionable having regard to the innocent party’s legitimate interest in performance. The assessment is made when the contract was made, not by reference to actual loss at enforcement.

The claimant sought summary judgment arising from a purchase agreement for 25 aircraft. The defendant had accepted five aircraft but had failed to make pre-delivery payments for later aircraft and had not taken delivery of aircraft 6 to 8.

The principal issues were whether Change Order 6 suspended payment obligations for aircraft 9 to 20; whether an assistance-in-arranging-financing letter agreement gave rise to a defence, counterclaim or reliance on the prevention principle; whether contractual no-set-off provisions applied; whether liquidated damages were an unenforceable penalty; and whether common-law damages remained recoverable.

The court was required to determine whether the claimant was entitled to terminate the purchase agreement and recover stipulated liquidated damages.

1. CO6 issue. The claimant obtained summary judgment. Change Order 6 suspended the scheduled delivery months for aircraft 9 to 25, but did not suspend payment obligations for pre-delivery payments which had already accrued. The document expressly addressed payment obligations for aircraft 1 to 8, while preserving all other terms. Its proper construction therefore left the accrued debts payable. The defendant’s failure to pay entitled the claimant to rely on Article 15.6.
2. LA 13 issue. The letter agreement was contractual and contained an arguable obligation to provide limited assistance in developing third-party financing structures. It did not arguably require the claimant to work with financiers to procure finance, enter financing arrangements, or implement a financing facility. Any wider obligation would be uncertain and unenforceable.
3. The alleged breach could not support the prevention principle. That principle excuses contractual performance where performance is prevented and rendered impossible by the other party’s wrongful act, but the limited obligation capable of being derived from LA 13 could not arguably satisfy it. The pleaded counterclaim also lacked an arguable basis in breach or causation and was struck out.
4. The set-off issue did not arise because there was no arguable defence or counterclaim to which set-off could apply.
5. Penalty issue. Article 15.4(c) was enforceable. Applying Cavendish Square Holding v Makdessi [2016] AC 1172, the relevant question was whether the stipulated sum was exorbitant or unconscionable in relation to the innocent party’s legitimate interest in performance. The assessment concerned the contract when made. Sophisticated parties of comparable bargaining power had agreed the sum, which represented approximately 12.5 per cent of the aircraft price and was subject to credits for prior payments. The defendant had not raised an arguable case that the sum was extravagant or disproportionate.
6. The common-law damages issue was academic. If the stipulated sum had been an unenforceable penalty, the claimant would not thereby have lost all entitlement to compensation. The contractual exclusion did not amount to an irrevocable abandonment of common-law damages.
7. The claimant was entitled to terminate aircraft 6 to 8, aircraft 9 to 25 and the purchase agreement, and to recover the contractual liquidated damages. Judgment was entered for the claimant.