In the case ACG Acquisition XX LLC v Olympic Airlines SA  All ER (D)128 (Apr), the claimant owner, ACG, agreed to lease a Boeing 737 (the aircraft) to the defendant, Olympic Airlines, for a period of five years. Prior to the lease being signed, Olympic inspected the aircraft externally; however it was refused an internal inspection. The aircraft was delivered with the required documents and Olympic signed a certificate of acceptance in accordance with the terms of the lease. The terms of the lease stipulated that the aircraft was to be delivered in an airworthy and safe condition for the immediate operation of commercial service. The aircraft went into immediate service and the relevant aviation authority issued a certificate of airworthiness. Fifteen days into service the aircraft was grounded. Whilst being repaired Olympic discovered fourteen defects. The certificate of airworthiness was withdrawn and even after months of extensive repair work was not re-issued. Olympic discovered that the cost of the work to make the aircraft operational would exceed the value of the aircraft. It concluded that the defects had to have been present when the aircraft was delivered in breach of the terms of the lease agreement. Olympic asserted that it had no obligation to pay rent as there had been a total failure of consideration. ACG refused to accept Olympic’s position contending that the certificate of acceptance precluded Olympic from making a claim. ACG issued proceedings against Olympic for the outstanding amount of rent due. Olympic counter-claimed for damages against ACG for breach of contract. Olympic went into liquidation and the liquidator of the company continued the claims. ACG applied for security for costs on Olympic’s counter-claim and applied for summary judgment.
The issues were, inter alia: (i) whether Olympic had a reasonable prospect of establishing a claim in respect of ACG’s failure to deliver the aircraft in a usable condition; and (ii) whether Olympic could defeat a claim for rent on the basis of its counter-claim.
The application for summary judgment was dismissed.
HELD, in the instant case, Olympic had a real prospect of establishing a claim for damages for total failure of consideration. The instant was not a case where repairs could put the aircraft into a usable condition, the aircraft had been delivered in a state in which it had been totally incapable of being used, however it took Olympic 14 days to discover that. Further Olympic had a reasonable prospect of defeating the claim for rent on the basis of the counter-claim. It was not appropriate for security for costs to be ordered.