VS MSN 36118 CAV Designated Activity Company v Spicejet Limited

An acceleration clause in a commercial lease may make future rent immediately due following an event of default, even where the drafting is inelegant. The court should construe the clause in its contractual context, including provisions requiring repayment of rent received for periods after redelivery. A provision is not a penalty merely because it has a severe financial effect. Where accelerated sums are potentially repayable and the clause protects a legitimate commercial interest, immediate payment of future rent is not, without more, extravagant, exorbitant or unconscionable.

The claimant leased a Boeing 737 aircraft to the defendant under a 96-month lease. Following payment defaults, the claimant sought summary judgment for accrued rent and maintenance reserves and for future rentals under clause 23.2.2(y), which provided that remaining rent until redelivery of the serviceable aircraft would become due and payable after an event of default.

The defendant argued that the clause was grammatically defective, uncertain, commercially extraordinary and arguably penal. The central issues were whether clause 23.2.2(y) operated as an acceleration clause and, if so, whether it was unenforceable as a penalty.

1. Summary judgment granted. The claimant was entitled to judgment for the accrued sums and the future rentals claimed, subject to any unresolved issue concerning interest and calculations.
2. Clause 23.2.2(y), read with clause 23.2.1, imposed an automatic consequence of an event of default. It was an acceleration clause: the words that rent “shall become due” operated to make sums not yet payable immediately due and payable.
3. The clause should not be construed as merely confirming that rent remained payable until redelivery, since that would make it redundant. Its reference to rent due until redelivery of the serviceable aircraft was an inelegant reference to the prima facie expiry date of 3 May 2026, subject to any proper extension. It did not extend acceleration to an unknowable earlier redelivery date or to rent accruing after the contractual expiry date.
4. Clause 10.2.1 supported that construction. It contemplated repayment of rent received for a period after the redelivery date once the aircraft had been redelivered and the lessee’s outstanding obligations had been paid. Although clause 10.2.1 applied only while no event of default was continuing, the lease contemplated that a remedied default would cease to be continuing.
5. The acceleration provision was not a penalty. In light of the potential repayment mechanism, the clause accelerated payment of sums subsequently due rather than imposing an extravagant, exorbitant or unconscionable detriment. Requiring a commercial party to pay the full remaining lease amount immediately upon non-compliance with the lease was not, in principle, objectionable.

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