FTAI AirOpCo UK Limited v Olympus Airways SA

A novation takes effect at the time specified in an executed effective-time supplement where that document confirms satisfaction of the contractual conditions precedent. A termination notice remains effective where it identifies genuine events of default, even if a later notice contains inaccurate figures, subject to exceptional circumstances in which the debtor was materially misled about what had to be paid.

Where a lease provides that rent and maintenance obligations continue until the contractual termination date, those obligations are not ended merely because the lessor has terminated the lessee’s right to use the asset. Contractual rent payable until termination is a debt and is not subject to mitigation. A contractual indemnity for diminution in value may be assessed by comparing the value in the required return condition with the actual value when possession and control were recovered.

The claimant, the novated lessor of an Airbus A319 aircraft, claimed unpaid rent, enforcement costs and diminution in value after terminating the defendant operator’s lease for non-payment. The lease had originally been granted by ALS Leasing UK Ltd and was novated to the claimant on 5 October 2018.

The principal disputes concerned the effective time of the novation, the validity and effect of default and termination notices, the contractual termination date, the aircraft’s return condition, continuing maintenance and maintenance-rent obligations, mitigation, recoverable enforcement costs and the measure of diminution in value.

1. Novation. The Effective Time Supplement expressly confirmed that the conditions precedent had been satisfied and fixed the effective time at 11.30 am local Greek time on 5 October 2018. The claimant could recover rent falling due after that time, but not Maintenance Rent for August 2018, which had crystallised before novation and was not transferred by Article 2.1.4 of the Novation Agreement (paras 211–218).
2. Termination notices. The 26 October default notice correctly identified failures to pay Base Rent and Maintenance Rent. The defendant did not cure those defaults. The 1 November termination notice therefore validly terminated the leasing under Article 25.3(b). Inaccuracy in the later 2 November notice did not invalidate a termination already effected. ED&F Man v Fluxo-Cane and Sucden Financial v Fluxo-Cane were applied. Lombard North Central plc v European Skyjets Ltd was distinguished because it concerned an arguable defence on unusual facts and pleaded construction or estoppel arguments absent here (paras 219–230).
3. Termination date and return condition. Termination required the lessor to recover possession and control under Article 4.3.4. The defendant continued to assert control, use the aircraft for cabin-crew training and retain documentation. The claimant did not obtain possession and control until it applied to disassemble the aircraft on 6 March 2020. That was the termination date. The aircraft was not in the Article 23 Return Condition on 1 November 2018. The defendant could not replace admissible expert evidence with unpermitted technical opinion from lay witnesses (paras 231–246).
4. Continuing obligations. Articles 12, 13, 5.5 and 23.14 required the defendant to maintain the aircraft and pay Maintenance Rent until 6 March 2020. The Security Deposit and Maintenance Reserve did not impose an obligation on the claimant to fund maintenance or apply those sums against rent. Maintenance Rent was additional rent, not a payment conditional on actual operation of the aircraft (paras 247–255).
5. Relief. The claimant recovered Base Rent and Maintenance Rent falling due after novation, rent until 6 March 2020, qualifying enforcement costs, and $1,802,000 for diminution in value. The rent claim was a debt and attracted no duty to mitigate. Diminution was measured by the value of the aircraft in Return Condition in March 2020 less its actual value at that date, subject in principle to credit for any Maintenance Contribution that would have been payable, although no evidence permitted a further deduction (paras 256–278).