ACG Acquisition XX LLC v. Olympic Airlines SA [2010]
ACG Acquisition XX LLC (the “Lessor”) leased a Boeing 737 aircraft to Olympic Airlines SA (the “Lessee”) for a period of 5 years. Delivery of the aircraft was made to the Lessee on 19 August 2008 and the Lessor received a signed certificate of acceptance from the Lessee which, under the lease, was deemed to constitute delivery. The aircraft went into service on 23 August 2008 and the Hellenic Civil Aviation Authority (the “CAA”) granted the aircraft a Certificate of Airworthiness. The aircraft was grounded shortly thereafter due to an initial fault which in turn led to the unearthing of 14 separate categories of defects in the aircraft and then to the removal of the aircraft’s Certificate of Airworthiness by the CAA on 11 September 2008.
The Lessor applied to the court claiming outstanding payment of rent and maintenance reserves under the lease plus damages. They claimed that the Certificate of Acceptance signed by the Lessee on delivery precluded any claim on the condition of the aircraft at delivery. The Lessee resisted the claim by the Lessor on the grounds that (1) the Lessor failed to perform its obligations under the lease in terms of delivery condition and as such the Lessee was not obliged to pay rent, and (2) there had been a total failure of consideration. Alternatively, the Lessee argued that it would be entitled to counterclaim substantial damages.
The Court held that (1) the Lessee had a real prospect of establishing that it was entitled to make a claim founded on the Lessor’s failure to perform its obligations in terms of the delivery condition of the aircraft; (2) the Lessee had a “sufficiently arguable” case of total failure of consideration; and (3) that it would be inappropriate to order security for costs.
The case highlights the significance of the total failure of consideration argument and its ability to override approved contractual provisions in aircraft leasing documentation.
