In its judgment of 11 October 2011, the English Court of Appeal analysed the terms of an aircraft purchase agreement (the “Agreement”) entered into by Gesner and the aircraft manufacturer Bombardier. The Agreement was in Bombardier’s standard terms. Gesner, the purchaser, sought to terminate the agreement on the grounds that Bombardier had delayed in fulfilling its contractual obligations. Thereafter, Bombardier sought to retain certain monies as liquidated damages upon termination of the Agreement. Gesner challenged this retention.
The Agreement provided that (i) Bombardier would have the aircraft ready for inspection by a specified date and failure to do so where there was “non excusable delay” would mean Bombardier was liable for liquidated damages, calculated on a daily basis for up to 90 days; and (ii) Gesner was required to accept delivery of the aircraft within 10 days of the readiness date (with acceptance being assumed on day 10) unless a defect or discrepancy was revealed. At the time of acceptance the balance of the purchase price fell due. Bombardier was entitled to retain 10% of the purchase price if Gesner failed to pay within a specified time.
Events transpired as follows:-
- 11 January 2010:- Bombardier served notice of readiness (with aircraft scheduled for final inspection on 18 January 2010);
- 14 January 2010:- the 90 day liquidated damages clause expired;
- 14 January 2010:- Gesner gave notice to Bombardier terminating the agreement on the basis that the aircraft had not been made available for inspection on or before 14 January;
- 28 January 2010:- Bombardier wrote to Gesner claiming they were deemed to have accepted the aircraft, and requesting the balance of the purchase price (less the 90 day liquidated damages amount Bombardier were due to pay);
- Gesner failed to pay within the specified time so Bombardier returned the purchase price instalments paid to date, but retained approximately $4.4m (which amounted to 10% of the purchase price) as liquidated damages.
After analysing the relevant clauses of the Agreement regarding termination and delay, the Court of Appeal dismissed the claim. The judgment emphasises the importance for potential aircraft purchasers to carefully consider the terms of aircraft purchase agreements, particularly the wording of clauses related to termination in the event of delay on the part of the manufacturer.