In Olympic Airlines v. ACG  EWCA Civ 369, the Court of Appeal ruled that Olympic’s signature of an acceptance certificate at delivery of a leased aircraft prevented Olympic from claiming damages from its lessor when the aircraft later turned out to have breached the conditions the lease imposed at delivery.
This was a very welcome decision in the aircraft finance and leasing industry - as the court's ruling reflects the views of most in the industry on a fundamental principle of aircraft leasing. This is that the parties should be free to agree that the lessee takes, or leaves, the aircraft "as is, where is". And if the lessee does take the aircraft on that basis, it does so irrevocably - so that it cannot later complain the aircraft did not comply with the lease. Almost as welcome, were the court's grasp of the realities of aircraft leasing and the wider application of this decision than the earlier High Court ruling in this case.
Aircraft leasing realities
In reaching its decision in this case, the court partly relied on its conclusion that it was desirable for parties to an aircraft lease to be able to agree on a simple, contractual mechanism to determine – finally and at delivery – whether the aircraft complied with the lease for all purposes. This was because the complexity of modern passenger aircraft was such that, without that mechanism, the parties might face years of uncertainty as to who was responsible for defects in the aircraft.
In the light of this conclusion, the court decided that the combined effect of the clauses in the lease designed to ensure that Olympic took the aircraft “as is, where is” – particularly a conclusive evidence clause that worked with the signed acceptance certificate – was indeed conclusively to determine that question between the parties to this lease.
An "as is, where is" lease
The judgment quotes most of the clauses in the lease designed to make the lease an “as is, where is” lease. However, it focuses in particular on the text of the acceptance certificate and on the conclusive evidence clause triggered when Olympic signed that certificate.
The key text in the acceptance certificate was:
“Lessee hereby confirms to Lessor that … Lessee irrevocably and unconditionally accepts and leases from Lessor, in accordance with the provisions of the Agreement, the Airframe, as more particularly defined in the Lease Agreement …”.
The key text in the conclusive evidence clause was:
“DELIVERY BY LESSEE TO LESSOR OF THE CERTIFICATE OF ACCEPTANCE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE HAS EXAMINED AND INVESTIGATED THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS ARE SATISFACTORY TO LESSEE AND THAT LESSEE HAS IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE AIRCRAFT FOR LEASE HEREUNDER WITHOUT ANY RESERVATIONS WHATSOEVER …”.
In the earlier High Court ruling, the judge had construed the conclusive evidence clause narrowly. He said it simply meant the aircraft's leasing had begun and that Olympic could not refuse to take delivery of the aircraft. The Court of Appeal said the clause went further and prevented Olympic from arguing the aircraft did not comply with the lease – thereby stopping Olympic from claiming damages from ACG for failing to deliver the aircraft in the condition required by the lease.
A simple, practical ruling of wide application
The simplicity and practicality of the Court of Appeal's approach contrasts with the High Court's ruling in this case. For, while the High Court also ruled in favour of the lessor, it did so on complex grounds that were of more limited application.
In Drafting Aircraft Leases and Managing Deliveries after ACG v. Olympic Airlines, we analysed at length the complexities of the High Court's decision and its potentially limited application. Part of the value of the Court of Appeal's decision is that that sort of lengthy analysis is no longer necessary. Now, so long as:
- the drafting is clear and follows the scheme of the acceptance certificate and conclusive clause quoted above; and
- the other elements of an "as is, where is" lease are in place,
an English court will usually enforce an acceptance certificate and conclusive evidence clause in an aircraft lease in accordance with their terms.