Saudi Arabian Airlines Corporation v Sprite Aviation No. 6 Designated Activity Company

A clearly drafted net lease clause making payment obligations absolute and unconditional, and providing that they are not altered by any defence or set-off, excludes both legal and equitable set-off. The construction of such commercial terms should not be distorted by strained arguments or speculative factual-matrix evidence.

Where a separate payment obligation incorporates selected lease terms but expressly excludes the net lease clause, exclusion of set-off requires separate clear words. Equitable set-off remains available where the claims are so closely connected that it would be manifestly unjust to enforce one without taking the other into account.

Sprite sought summary judgment against Saudia for outstanding aircraft-lease rent of $2,758,732.40 and a further $200,000 payable under a redelivery agreement in lieu of compliance with aircraft redelivery conditions.

The principal issues were whether clause 5.12 of the Common Terms Agreement excluded Saudia’s rights of legal and equitable set-off, whether that exclusion applied to the separate $200,000 obligation under the Redelivery Certificate, and whether execution of any judgment should be stayed pending Saudia’s larger cross-claim.

1. Rent claim. Clause 5.12 of the Common Terms Agreement was a net lease clause. Its provision that Saudia’s obligations were absolute and unconditional and were not to be altered by “any defence” or “any set off” clearly excluded both legal and equitable set-off. The clause was not confined to equitable set-off. That construction was reinforced by clause 5.20, which gave the lessor an express right of legal debt set-off.
2. The court rejected the contention that the clause’s wording merely prevented Saudia from treating its payment obligation as suspended while leaving a set-off defence available. That was a strained construction of carefully drafted commercial terms. Factual-matrix evidence could not realistically alter their meaning.
3. $200,000 claim. The Redelivery Certificate incorporated specified provisions of the Common Terms Agreement but expressly excluded clauses 5.11, 5.12 and 5.13. The parties’ deliberate selection of incorporated terms meant that the omitted net lease clause could not be relied upon. No other clear words excluded set-off in relation to the $200,000.
4. The equitable-set-off test was whether it would be manifestly unjust to enforce one claim without taking the cross-claim into account because the claims were so closely connected. Saudia’s maintenance claim concerned the same aircraft, the same lease and work required for the aircraft’s effective use. The requisite connection and manifest injustice were established, although the merits of Saudia’s claim remained for a preliminary issues hearing.
5. The court declined to extend the maritime rule in The Nanfri to this aircraft operating lease. In any event, the $200,000 was a redelivery payment, not hire under a time charter. Caution was required before applying specialised shipping rules in other commercial contexts.
6. The rent summary-judgment application was granted. The $200,000 summary-judgment application and the application for a stay of execution were refused. Saudia was ordered to pay Sprite’s costs relating to the rent claim; other costs orders were made as stated in the judgment.