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

The Court of Appeal dismissed the appellant's challenge to Mr Justice Picken’s liability findings. The court held that the Security Assignment (Lessor) (clause 3) unambiguously assigned to the Security Trustee rights including the right to terminate the Head Lease/Sub-Lease for non-payment of rent, and clause 7 did not operate to qualify or limit those assigned rights to situations after an Enforcement Event. The court endorsed the trial judge’s construction of the Co-Extensive Rights regime as evidencing an intention that the Security Trustee should be able to exercise assigned rights during the operational currency of the leases.

The court further held that the term "financial institution" in the loan agreements bore the established meaning given in Argo Fund Ltd v Essar Steel Ltd (a legally constituted entity carrying on commercial finance), and that FWC fell within that meaning both as assignee of the NEO loans and as successor Security Trustee. In respect of the NEOs, the court also rejected VietJet’s challenges to the judge’s conclusions on the application of the United Kingdom–Japan double tax treaty (DTT): FWC qualified as an exempt resident under Article 22.5 and was not disentitled under Article 11.7 because that anti‑abuse provision targets abusive use contrary to the object and purpose of the treaty and, in any event, FWC’s position at the time of assignment did not involve the receipt of treaty‑protected interest.

Finally the court declined to entertain the appellant’s attempt to appeal a single aspect of the judge’s reasoning about attribution of shareholder conduct in Vietnam, holding that the appellant could not attack a piece of reasoning that did not alter the operative decision (appeal jurisdiction and Lake/Noga principles).

This appeal concerned financing arrangements for four Airbus A321 aircraft acquired under Japanese JOLCO structures and leased to VietJet. The respondent (FWA) asserted rights to immediate possession and large monetary sums following assignments and enforcement steps taken after VietJet fell into arrears.

The factual and procedural background:

• Each aircraft was owned by a Japanese special purpose vehicle (Owner/Borrower) under loan facilities secured by mortgages, security assignments of Head Lease/Sub-Lease rights and IDERAs; BNP and Natixis acted as Security Trustees for the CEOs and NEOs respectively.
• Following Covid lockdowns VietJet defaulted on rent; BNP/Natixis issued Termination Notices in October 2021 and Mandatory Prepayment Notices; the lenders sold to FitzWalter entities, which culminated in FWC taking assignments and becoming Security Trustee and later FWA enforcing security and selling the aircraft to affiliated Trustee Owners.
• Picken J (Commercial Court) tried liability issues (June 2024), held for FWA on 31 July 2024 and made consequential orders; permission to appeal was granted on five grounds; a separate quantum trial (January 2025) resulted in judgment for FWA for approximately US$181 million.

The issues before the Court of Appeal were:

• Ground 1: Whether the Termination Notices were validly given by BNP/Natixis in their capacity as (successor) Security Trustee or whether the Security Assignment and clause 7 required an Enforcement Event before such rights could be exercised.
• Ground 2: Whether FWC qualified as a permitted assignee and as a permitted successor Security Trustee because it was a "financial institution" within the loan documentation.
• Grounds 3 and 4: For the NEO loans, whether FWC benefited from the United Kingdom–Japan double tax treaty (DTT) such that it met the Qualifying Lender definition, and whether Article 11.7 disentitled FWC because taking the assignment was (in whole or part) for the purpose of obtaining treaty benefits.
• Ground 5: Whether the judge erred in attributing conduct of certain VietJet shareholders to VietJet itself in the context of the Shareholder Proceedings.

Reasoning and disposition:

• On clause interpretation the court agreed with Picken J that clause 3 effected an unqualified security assignment of rights (including termination rights) and clause 7 conferred further enforcement powers exercisable on or after an Enforcement Event but did not curtail the earlier-assigned rights; the Co-Extensive Rights provisions supported a construction allowing the Security Trustee to exercise many rights during the operational period.
• On the meaning of "financial institution" the court followed the approach in Argo v Essar: a broad test of an entity of a legally recognised form carrying on commercial finance; the LMA-derived wording and surrounding clauses indicated the parties intended that meaning; FWC’s activities met it.
• On the DTT, the court applied treaty interpretation principles (Vienna Convention / OECD material) and concluded that Article 22.5 distinguishes carrying on trading business from ‘‘making or managing investments’’; FWC’s activities in acquiring and enforcing the loans were trading in nature (not the excluded category of mere investment management) so it qualified under Article 22.5 and Article 11.7 (an anti‑abuse clause) did not apply because it targets abusive conduct contrary to the treaty’s object and purpose and, in any event, FWC took the assignment at a time when interest payments were not in prospect.
• On ground 5 the court declined to permit an appeal attacking part of reasoning that did not affect the operative order, applying Lake and Cie Noga principles and distinguishing In Re W on the facts; there was no jurisdiction to permit the narrow challenge.

Result: Appeal dismissed on all grounds.

Appeal dismissed. The Court of Appeal agreed with the trial judge that (1) the Security Assignment unambiguously conveyed to the Security Trustee the lessor’s rights under the leases (including termination for non-payment) and clause 7 did not qualify those assigned rights so as to require an Enforcement Event before termination could be validly effected; (2) the term "financial institution" bears the broad meaning applied in Argo v Essar and FWC fell within it as assignee and successor Security Trustee; (3) under the United Kingdom–Japan DTT FWC qualified as an exempt resident under Article 22.5 and Article 11.7 did not disentitle it because that provision targets abusive conduct and, in any event, FWC took the assignment after acceleration so treaty-protected interest was not in prospect; and (4) there was no jurisdiction to appeal a discrete piece of the judge’s reasoning about attribution which did not alter the operative decision.

This is an appeal from the Commercial Court (Picken J) where liability issues were tried (4–14 June 2024) and judgment was given for the respondent on 31 July 2024 ([2024] EWHC 1946 (Comm)). Consequential orders were made, and permission to appeal was granted on five grounds; the present appeal was heard 20–22 May 2025 before the Court of Appeal which dismissed the appeal on 24 June 2025. While the appeal was pending a quantum trial (January 2025) resulted in an additional judgment for the respondent of about US$181 million (order 17 April 2025); further quantum proceedings are listed for the future.