Djinn Issuer Designated Activity Company & Anor v Vietjet Aviation Joint Stock Company

Where a contractual rent-deferral arrangement remains valid only while no continuing event of default exists, the deferral does not end automatically on the occurrence of a default. The default must still be continuing when the lessor exercises the contractual right. Once that right is exercised, however, the lessor may accelerate all deferred amounts, whether or not they have fallen due for repayment.

Interest on accelerated deferred sums is governed by the deferral agreement where it takes precedence over the underlying lease. Contractual maintenance reimbursements may be unavailable during a continuing event of default, particularly where the lease excludes set-off and makes reimbursement conditional on the absence of default.

The claimants sought summary judgment concerning sums allegedly due under two aircraft leases and related relief concerning aircraft 5295 and 6936. During the Covid-19 disruption, the parties entered into materially identical deferral letters postponing payment of certain basic and supplemental rent, with repayment by instalments and interest at 4%.

The defendant later failed to pay supplemental rent when due. The claimants served grounding notices and demanded accelerated payment of the deferred rental. The defendant disputed the construction of the deferral validity clauses, challenged the interest claimed, and sought credit for maintenance costs said to be reimbursable under the leases.

The court therefore considered the effect of a continuing event of default, the applicable interest rate, the availability of maintenance reimbursements as an offset, and the appropriate declaratory and injunctive relief.

1. Acceleration. The deferral validity clauses did not cause the deferral arrangements to end automatically upon the occurrence of an event of default. Meaning had to be given to the words “that is continuing”. The relevant default had to remain continuing when the lessor exercised its rights under the clause. The defendant therefore had a limited opportunity to cure the default before enforcement.
2. Because the admitted defaults remained uncured when the grounding notices were served, the claimants were entitled to demand accelerated payment of the entire deferred amounts, except for sums already paid. The commercial purpose of the arrangement was forbearance conditional on strict compliance with the deferral letters and leases.
3. Interest. The deferral letters took precedence over the leases. Interest on accelerated deferred amounts was therefore limited to 4%, calculated under paragraphs 1 and 3 of the letters. The claimants could continue to claim LIBOR plus 3% for other amounts outstanding under the leases.
4. Maintenance payments and set-off. The defendant could not deploy its maintenance claims as an offset. Clause 12.3(a) made rent payable without set-off or withholding, while clause 9.4(c) excluded reimbursement where an event of default was continuing at the date of reimbursement. Clause 4 of the deferral letters did not create an obligation where none remained under the leases. The defendant’s failure to submit maintenance claims promptly under clause 9.4(e) also contributed to the position.
5. Relief. The claimants were entitled to a declaration that they could require grounding under clause 24.2. An injunction was refused because both aircraft were already grounded and the defendant offered an undertaking to keep them grounded. Future questions concerning permission to fly were left open.

Not stated in the judgment.