Vietjet Aviation Joint Stock Company v FW Aviation (Holdings) 1 Limited

An unqualified security assignment of a lessor’s rights may entitle a security trustee to terminate a lease for a lease default before an enforcement event under the financing agreement. A separate enforcement clause, directed to realising security and the equity of redemption, does not restrict that assigned termination right unless the contract clearly says so.

In professionally drafted loan documentation using standard wording, financial institution bears its settled broad meaning: a legally recognised entity carrying on commercial-finance business. Additional wording concerning trusts, funds and other entities creates alternative, non-exclusive routes for assignees.

A double-tax treaty must be construed internationally, as a combined exercise of text, context, object and purpose. Its anti-abuse provision does not deny treaty relief merely because a taxpayer obtains the treaty’s intended benefit.

Four Airbus aircraft were acquired through Japanese operating lease with call option financing. The aircraft were leased to VietJet. The owners assigned their lease rights by way of security to lenders’ security trustees.

After VietJet fell into rent arrears, the security trustees served termination notices. FitzWalter Capital Partners (Financial Trading) Ltd subsequently acquired the loans and became security trustee. FW Aviation claimed possession of the aircraft and sums due under the arrangements.

Picken J found for FW Aviation on liability in the Commercial Court: [2024] EWHC 1946 (Comm). VietJet appealed, challenging the validity of the termination notices, the assignee’s status as a financial institution, its entitlement to benefits under the United Kingdom–Japan double-tax treaty, and one finding concerning shareholder proceedings.

The central issues were the contractual scope of the security assignment, the meaning of financial institution, the treaty’s limitation-on-benefits provisions, and whether an appeal may challenge reasons without challenging the resulting order.

1. Appeal dismissed. The court unanimously upheld Picken J’s liability decision.

2. The Security Assignment expressly assigned the lessor’s right to terminate the leases for non-payment. Clause 7, which conferred powers to enforce and realise the security after an Enforcement Event, did not qualify that assignment. Its wording was expressly without prejudice to other contractual rights. The two clauses addressed different matters: clause 3 transferred rights by way of security, whereas clause 7 provided powers to realise security and affect the borrower’s equity of redemption. The co-extensive-rights regime also showed that the security trustee could exercise assigned rights during the ordinary operation of the leases. The termination notices were therefore valid.

3. Following The Argo Fund Ltd v Essar Steel Ltd, [2006] EWCA Civ 241, a financial institution is a legally recognised entity carrying on commercial-finance business. The standard-form wording did not make the categories of bank, financial institution, and trust, fund or other entity mutually exclusive. FitzWalter Capital Partners (Financial Trading) Ltd was incorporated to acquire and realise the loans and qualified as a financial institution when assigned the loans and appointed security trustee.

4. The United Kingdom–Japan double-tax treaty had to be interpreted under the international and purposive approach required by the Vienna Convention. Under article 22.5(a), the exclusion for a business of making or managing investments on its own account did not encompass the assignee’s trading activity of acquiring defaulted loans and realising their value through enforcement of security. It was accordingly an exempt resident for the relevant treaty benefit.

5. Article 11.7 was an anti-abuse provision. Taking advantage of article 11 meant obtaining a benefit contrary to the treaty’s object and purpose, not simply receiving the tax treatment which article 11 contemplated. The relevant purpose was the assignee’s purpose in taking the assignment, not the earlier purpose in incorporating it in England. The provision did not disqualify the assignee.

6. The court lacked jurisdiction over ground 5. Under section 16 of the Senior Courts Act 1981, an appeal lies from a decision or order, not from reasons alone. VietJet did not challenge the decision refusing relief from forfeiture. No declaration had been sought, and the challenged findings had no legal consequences in the pending contempt proceedings.

• Court of Appeal (Civil Division): VietJet’s appeal was dismissed: [2025] EWCA Civ 783.
• High Court, Commercial Court: Picken J determined liability in favour of FW Aviation: [2024] EWHC 1946 (Comm).