Neutral Citation Number: [2010] EWHC 185 (Comm)

Case No: 2009 - FOLIO 1352

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 11/02/2010

Before :

MR JUSTICE HAMBLEN
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Between :

CELESTIAL AVIATION TRADING 71 LIMITED Claimant

- and -
PARAMOUNT AIRWAYS PRIVATE LTD Defendant

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Mr Timothy Saloman QC and Mr Nicholas Craig (instructed by Allen & Overy LLP) for
the Claimant
Mr Stephen Cogley (instructed by Andrew Jackson Solicitors) for the Defendant

Hearing dates: 28th& 29th January, 1st & 2nd February, 2010

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Judgment
Mr Justice Hamblen :

INTRODUCTION AND BACKGROUND

1. The general background to these proceedings is set out in the judgment of

Teare J of 4 December 2009 whereby he gave judgment for the Claimant
(“Celestial”), the owner of three Embraer 175 aircraft (“the Aircraft”) leased to the
Defendant (“Paramount”) under three aircraft specific lease agreements each dated
29 July 2005 (“the ASLAs”), against Paramount on its application for summary
judgment in respect of Celestial’s claim for monies due under the ASLAs. He
gave judgment in the sum of US$791,944.54. Further, he ordered, without
prejudice to Paramount’s contention that the ASLAs had been validly terminated
on 14 October 2009, that various payments be made to Celestial by Paramount on
an ongoing basis on various dates each month. He also ordered Paramount to
permit Celestial to inspect the Aircraft (including records) by 18 December 2009;
this was on account of, amongst other things, Celestial’s concerns over the
maintenance of the Aircraft.

2. On its application for summary judgment Celestial had also sought delivery
up of the Aircraft leased under the ASLAs (and various declarations including a
declaration that the ASLAs had been validly terminated). However, shortly before
the hearing of Celestial’s application on 24 November 2009 Paramount contended
that it should have relief from forfeiture. Teare J decided that this question was
arguable and gave directions for an expedited trial. At a further hearing before me
on 19 January 2010 I gave further directions including an order, in light of the fact
that disputes had arisen about whether Celestial had been given a proper
opportunity to inspect the Aircraft, that issues relating to the maintenance and
operation of the Aircraft be left to be determined, if necessary, at a further trial (to
commence on 19 April 2010). The present trial concerns whether Paramount is
entitled to relief against forfeiture on the basis that the only breach giving rise to
the right to terminate is the failure to pay monies due as held by Teare J.

THE ISSUES

3. There are essentially two issues for determination, namely:

(1) Whether the Court has jurisdiction to grant relief from forfeiture in
relation to an aircraft operating lease of the type and on the terms of those
before the Court; and

(2) If so, whether it is appropriate for the Court, in the exercise of its
discretion, to grant such relief.

THE WITNESS EVIDENCE

4. At the trial I heard oral evidence from four witnesses of fact, namely:

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 (1) Mr M Thiagarajan – the Managing Director of Paramount (by video
link);

(2) Mr Dermot Manifold – the Vice President in Marketing Operations for

General Electric Capital Aviation Services (“GECAS” – the owner of
Celestial, which is a leasing vehicle) who monitors the availability of aircraft
within the GECAS fleet and identifies potential customers for aircraft;

(3) Mr Adam Law – a Senior Vice President and Counsel of GECAS who
was involved in the decision making processes of GECAS with respect to
Paramount; and

(4) Ms Leona Drennan – an operations associate within GECAS who was

from July 2009 responsible for managing the Paramount account.

5. Celestial also served a statement from Mr Kuber Dewan – a lawyer in India

who was involved in the application for deregistration lodged with the DGCA in
November 2009 by GECAS, who was not required to be called.

6. Both sides also served expert reports on the effect of the Foreign Exchange
Management Act 1999 in the context of the operating leases of commercial
aircraft from Indian lawyers, Ms Fereshte Sethna for Celestial and Mr Rahul
Balaji for Paramount. There was a large measure of agreement between the
experts and it was considered unnecessary that they be called, although both sides
reserved the right to comment on the other’s expert evidence.

THE TERMS OF THE ASLAS

7. On 29 July 2005 GECAS concluded an Aircraft Lease Common Terms

Agreement with Paramount (“the CTA”). The CTA was concluded in anticipation
of Paramount concluding a number of leases with GECAS or one or more of its
subsidiaries which were to be concluded on the terms of an Aircraft Specific Lease
Agreement.

8. On the same day Celestial concluded the ASLAs with Paramount. The
ASLAs are all, save for the scheduled delivery dates, in materially identical terms
and each one expressly incorporates the terms of the CTA. The term of each of
the ASLAs is 8 years from the date of delivery of each of the Aircraft.

The payments required to be made by Paramount to Celestial: clause 5

9. Clause 5 of the CTA which was incorporated into each of the ASLAs defines
the payment obligations of Paramount. There are essentially 3 types of payment
that are required to be made by Paramount, namely (1) rent, being the monies paid
to lease the aircraft, (2) supplemental rent, being monies to be paid by Paramount
on account of the maintenance costs associated with the aircraft and (3) deposit,
being monies paid as security for all of Paramount’s obligations under each of the
ASLAs. (There is also an obligation to indemnify Celestial in respect of any
expenses incurred by it in and about enforcing or preserving its rights under the
particular ASLA or in respect of repossession of the aircraft).

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10. As regards (1), rent, by clause 5.3 Paramount is required to pay “Rent” (being
the amount agreed in each ASLA) in advance on each “Rent Date” (which is the
first day of each “Rental Period”. Each Rental Period is of one calendar month
duration; the first such period starts on the date that the relevant aircraft is offered
for delivery to Paramount. By sub-clause (a), “Lessor must receive value for the
payment on the Rent Date.” In essence, by this clause Paramount is required to
ensure that Celestial receives rent in advance on a monthly basis on the same date
each month for each aircraft. Rent is due to Celestial pursuant to the terms of the
CTA as incorporated into the ASLAs as follows:

(1) for the aircraft with registration number MSN 17000126 VT-PAD by the
latest the 9th day of each month (earlier if such was a non-business day;
the Rent due being US$217,768.30);

(2) for the aircraft with registration number MSN 17000137 VT- PAE by
the latest the 4th day of each month (earlier if such was a non-business
day; the Rent due being US$215,315); and

(3) for the aircraft with registration number MSN 17000147 VT-PAF by the
latest the 27th day of each month (earlier if such was a non-business day;
the Rent due being US$219,670.65).

11. As regards (2), supplemental rent, by clause 5.4 Paramount is required to pay
“Supplemental Rent” by the 15th day of each calendar month on account of the
usage of the particular aircraft in the preceding calendar month.

12. In relation to (3), deposits, by clause 5.1 Paramount is required to pay

Celestial any deposit specified in each ASLA. Further,

(1) by clause 5.13 if Paramount fails to comply with any term of any of the
ASLAs (“Other Agreements” being any ASLA concluded with
Paramount by Celestial) Celestial is entitled to apply part or all of the
deposit against obligations owed by Paramount to Celestial (or its
affiliates). Insofar as such right is exercised Paramount is required,
following a demand in writing from Celestial, to restore the deposit to
the level at which it previously stood.

(2) by clause 5.14 if Paramount is required or elects to provide Celestial

with a letter of credit in the place of a cash deposit as security for all of
Paramount’s obligations, such is (at the option of Celestial) to be
confirmed at Paramount’s expense by the London or New York branch
of a major international bank which is acceptable to Celestial (in its sole
discretion). Further

(i) by sub-clause (b), the Letter of Credit so provided can, if Celestial

agrees, expire before the end of the term of the ASLA; however, if it does
it is required to be “renewed, extended or reissued and delivered to
[Celestial] not later than six (6) months prior to its expiry”.

(ii) by sub-clause (d), on the occurrence of an Event of Default

Celestial is entitled on demand to draw down on the Letter of Credit.

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 13. Common to all of the types of payment that are to be made by Paramount to
Celestial (viz. (1), (2) and (3)) are:

(1) by clause 5.5 all payments made by Paramount to Celestial “will be

made for value on the due date in Dollars and in immediately available
funds…by wire transfer to: BNP Paribas, London…”

(2) by clause 5.3(c) it is agreed that,

“all payments to be made by [Paramount] to [Celestial] under Lease

shall be made without prior demand to [Celestial]. Without prejudice
to such right of [Celestial], for facilitation purposes only before the
Exchange Control Authority of India, [Celestial] agrees to remit
invoices for the payments of Rent under the Lease no later than 10 days
before the Rent Date. Either the non-remittance or non-receipt of any
such invoice by Lessor shall not excuse or release [Paramount] of its
obligation to pay Rent, which [Paramount] acknowledge and agree are
absolute and unconditional obligations.”

(3) by clause 5.16 Paramount is liable, on demand from Celestial, to pay

interest at a rate of six month LIBOR plus 5% (see the definition in
Schedule 1 of the CTA) if it fails to pay any amount due to it on time.

14. Clause 5.12 states as follows:

“The Lease is a net lease. [Paramount’s] obligations to pay Rent and to

perform all of its other obligations is absolute and unconditional no
matter what happens and no matter how fundamental or unforeseen the
event. [Paramount] shall not regard its obligations as ended, suspended
or altered in any way because of any defence, set-off, counterclaim,
recoupment or other right of any kind or of any other circumstance.”

15. In addition, clause 15.6 provides as follows:

“The time stipulated in the Lease for all payments payable by

[Paramount] and the prompt, punctual performance of [Paramount’s]
obligations under the Lease are of the essence of the Lease.”

Celestial’s covenants: clause 7

16. By clause 7 of the CTA Celestial makes two covenants with Paramount which
are both expressly conditional on the fact that “no Event of Default has occurred
and is continuing.”

(1) clause 7.1 provides: “So long as no Event of Default has occurred and
is continuing, [Celestial] will not interfere with [Paramount’s] right to
quiet use and possession of the Aircraft during the Term.”

(2) by clause 7.2 Celestial agrees (in circumstances where Supplemental

Rent is due) “provided no Event of Default has occurred and is
continuing, [Celestial] will pay the following amounts to [Paramount]
by way of contribution to the cost of maintenance of the Aircraft…”

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 Such payment from Celestial is only due upon receipt by it of an invoice
with supporting documentation evidencing performance of the specified
work by the Maintenance Performer (being a person who is (i) approved
and internationally recognised by the FAA or JAA to perform
maintenance/modification services on commercial aircraft and (ii)
agreed by both Celestial and Paramount: see the definition in Schedule
1 to the CTA).

Paramount’s covenants: clause 8

17. Paramount gives a number of undertakings or covenants to Celestial under

clause 8 of the CTA. In particular:

18. By clause 8.2 it agrees to provide certain information to Celestial including,

amongst other things:

(1) at 8.2(a), to provide Celestial with a Technical Report (meaning a

monthly report of the Flight Hours, Cycles, Engine Flight Hours and
Engine Cycles operated by the Airframe and Engines for each calendar
month: see Schedule 1 to the CTA) within 10 days of the end of each
calendar month. It was on the basis of this report that Celestial could
calculate the amount of Supplemental Rent due for the preceding
month. This Supplemental Rent became expressly due and payable on
the 15th day of each month.

(2) at 8.2(b), promptly to provide Celestial with Financial Information

(meaning (i) if requested by Celestial the consolidated management
accounts of Paramount for the most recent financial quarter and (ii)
Paramount’s audited balance sheet and profit and loss statement for
each year of the particular ASLA within 120 days of such year end: see
Schedule 1 of the CTA).

(3) at 8.2(d), to notify Celestial of any Default (meaning any Event of

Default: see Schedule 1 of the CTA).

(4) at 8.2(f), to provide Celestial with any information about the location,
condition use and operation of the aircraft or concerning the business or
financial affairs of Paramount as Celestial might from time to time
request.

19. By clause 8.5 Paramount agrees to permit Celestial’s representatives access to

the aircraft (including the documentary records) at any reasonable time.

20. By clause 8.10 Paramount agrees to maintain, overhaul and repair the aircraft
so as, amongst other things, to ensure that it is kept in as good operating condition
and repair as on delivery (subject to fair wear and tear).

21. By clause 8.11 Paramount agrees, amongst other things

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 (1) by sub-clause (c) not to install an engine or part from an aircraft leased
under an ASLA on another aircraft owned or leased by it where an
Event of Default has occurred and is continuing.

(2) by sub-clause (d) not to install any engine or part on any aircraft leased
under an ASLA if an Event of Default has occurred and is continuing.

Default: clause 13
22. Clause 13.1 provides as follows:

“The occurrence of any of the Events of Default will constitute a

repudiation (but not a termination) of the Lease by [Paramount] (whether
the occurrence of any such Event of Default is voluntary or involuntary or
occurs by operation of Law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of
any Government Entity.”

23. The Events of Default themselves are set out in Schedule 9 to the CTA and
include:

(1) a failure to make scheduled payments within 2 business days of the due
date or non-scheduled payments within 5 days of the due date (a).

(2) Paramount fails to renew any Letter of Credit within the timeframe
required by clause 5.14 (m(iv)).

(3) any authorisation required by Paramount to obtain and transfer freely

US dollars is “modified in a manner unacceptable to Lessor or is
withheld or is revoked, suspended, cancelled, withdrawn, terminated or
not renewed, or otherwise ceases to be in full force” (f).

(4) some event occurs which Celestial, in its reasonable opinion, believes
might have a material adverse effect on the financial condition or
operations of Paramount or on the ability of Paramount to comply with
its obligations under the particular ASLA (l).

(5) Paramount challenges the rights of Celestial as owner or lessor of the

aircraft (i).

(6) an event of default occurs under any other agreement between Celestial
and Paramount (partly, (e)).

(7) a failure to remedy any failure of any other provision not specifically
identified in schedule 9 within 10 days of being asked to do so by
Celestial (b).

24. Upon the occurrence of an Event of Default, clause 13.2 provides:

“[Celestial] may at its option (and without prejudice to any of its other
rights under the Lease and/or otherwise), at any time thereafter (without
notice to [Paramount] except as required under applicable Law):

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 (a) accept such repudiation and by notice to [Paramount] and with
immediate effect terminate the leasing of the Aircraft (but without
prejudice to the continuing obligations of [Paramount] under the
Lease), whereupon all rights of [Paramount] under the Lease shall
cease; and/or

(b) proceed by appropriate court action or actions to enforce

performance of the Lease or to recover damages for the breach of the
Lease; and/or

(c) either:

(i) take possession of the Aircraft…

(ii) by serving notice require [Paramount] to redeliver the

Aircraft to Celestial at the Redelivery Location (or such other
location as [Celestial] may require.”

THE OUTLINE FACTUAL HISTORY

25. The Aircraft were delivered to Paramount by Celestial as follows:

(1) Aircraft 126 was delivered on 9 August 2006;

(2) Aircraft 137 was delivered on 4 October 2006; and

(3) Aircraft 147 was delivered on 27 October 2006.

26. Celestial contended that from soon after delivery of each of the Aircraft
Paramount became late in its payments of Rent and Supplemental Rent. This led
Celestial to send to Paramount a number of Notices of Default on account of its
payment defaults. The history of defaults/Notices of Default will be addressed
further below. For the present I shall focus on the immediate history leading up to
the defaults giving rise to the exercise of the right to terminate in October 2009.

27. On 10 July 2009 Celestial sent Paramount a Default Notice by reason of the
fact that as at that date a total of US$821,213.42 was due and owing. This non-
payment was not remedied and, accordingly, on 20 July 2009 Celestial sent a
Grounding Notice to Paramount.

28. These monies were finally paid late and in breach of contract. However,
Paramount then failed to pay rent due on 27 July 2009 (for Aircraft 147) and 4
August, 2009 (for Aircraft 137) in addition to supplemental rent which should
have been paid on 15 July 2009. Accordingly, on 5 August 2009 Celestial sent
Paramount a further Default Notice, there being due and owing a total of
US$624,995.65 at that time (as set out in the Appendix to the Notice).

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29. Paramount eventually paid this sum (with late payment interest), but then
failed to pay rent due for Aircraft 147 when due on 27 August 2009 in the sum of
US$219,670.65.

30. On 2 September 2009 Celestial sent another Default Notice. This was not
paid and the debt due to Celestial increased to US$653,681.91 by 9 September
2009.

31. Thereafter Celestial sent:

(1) A Notice of Continuing Default and Final Warning on 10 September

2009 for the continued non-payment of rent and supplemental rent
amounting to US$653,681.91.

(2) a Grounding Notice on 16 September because, in continued breach of

contract, Paramount failed to pay the monies due.

(3) a further Default Notice on 17 September (on account of the failure on

the part of Paramount to maintain Aircraft 137 in good operating
condition).

(4) a further Grounding Notice on 24 September 2009 because the monies

due remained outstanding.

(5) a reiteration of the Grounding Notice and Warning on 25 September

2009. This Notice made clear that US$215,540.18 remained
outstanding (some payment having been made by Paramount), that no
response had been received to the Default Notice of 17 September and
that there had been a failure to pay Supplemental Rent (which had been
invoiced on 23 September 2009).

(6) a Notice of Continuing Event of Default and Warning on 5 October

2009 on account of the continuing failure of Paramount to pay
Supplemental Rent (totalling US$136,951.27) due on 15 September and
rent for Aircraft 147 on 25 September in the sum of US$219,670.65 and
for Aircraft 137 on 2 October in the sum of US$215,325, as set out in
Appendices A and B to the Notice. These sums remained due and
owing at the time of the Termination Notice.

32. Finally, on 14 October 2009 Celestial served a Termination Notice on

Paramount.

33. In the period running up to the 14 October 2009 Termination Notice

Paramount was also in default in relation to the letters of credit required to be
provided.

34. Celestial had agreed that Paramount could provide it with confirmed letters of
credit on account of its deposit obligations under each of the ASLAs. The relevant
letters of credit (issued respectively on 24 September 2008 and 17 December
2008) were all confirmed by Deutsche Bank in March 2009; one was due to expire
on 24 September 2009 and the others on 17 December 2009.

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 35. On 5 August 2009 Ms Leona Drennan of GECAS advised Paramount that it
needed to renew the letter of credit it had provided in respect of Aircraft 126, such
being due to expire on 24 September 2009.

36. This request was then repeated on 10 August and 12 August with no response
from Paramount; on 13 August Mr Aashish Sonawala of GECAS sought
clarification from Paramount of, amongst other things, the renewal of the letter of
credit and was advised the same day that “It will be renewed as per agreement”.
Thereafter, Paramount was reminded of its obligation to renew on a number of
further occasions; it advised that it was under renewal, but a renewed letter of
credit was not received.

37. On 11 September 2009 Celestial again asked for an update on the extension,
advising that it would have to place the drawdown documentation with Deutsche
Bank.

38. On 16 September 2009 Leona Drennan received by email from Paramount a

swift message from Andhra Bank to Deutsche Bank (dated 15 September 2009) in
which it was stated that it had been approached by Paramount to extend the
validity period of the existing letter of credit and that it intended to do so on 20
September 2009. Nothing was received from Paramount on 20 September and
accordingly, Ms Drennan again asked for advice as to the status of the renewal.

39. In the absence of any response from Paramount and as the security was due,
imminently, to lapse, Celestial drew down on the letter of credit as it was entitled
to under the ASLA for Aircraft 126. By this time, Paramount had been in breach
of contract for almost 6 months.

40. On the evening of 24 September 2009 a further swift message was sent to
Deutsche Bank by Andhra Bank advising that the letter of credit had been renewed
to 22 September 2010, but for a lesser amount, as Paramount claimed the right to
reduce the amount. The audited accounts required to justify such a reduction had
not been provided and so, as the reduction had not been agreed, there was no
entitlement so to do. In addition, this letter of credit was not, in any event,
confirmed by Deutsche Bank as was required by Celestial.

JURISDICTION TO GRANT RELIEF AGAINST FORFEITURE

41. There was a major issue between the parties as to whether the Court has
jurisdiction to grant relief against forfeiture (“the relief jurisdiction”) in relation to
aircraft leases such as those in the present case. Celestial submitted that this
equitable jurisdiction had never previously been held to be exercisable in relation
to such leases, or any like agreements. Paramount submitted that the jurisdiction
should be held to be exercisable in relation to possessory leases such as these, and
relied in particular on the decision in The Jotunheim [2005] 1 Lloyd’s Rep 181 in
which it was held to be exercisable in relation to a bareboat charter.

42. The authorities indicate that in order to determine whether there is jurisdiction
to grant relief against forfeiture the following considerations are of particular
relevance:

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 (1) Whether the contract involves the transfer of proprietary or possessory
rights – see The Scaptrade [1983] AC 694.

(2) If so, whether:

(i) “it is possible to state that the object of the transaction and of the
insertion of the right to forfeit is essentially to secure the payment of
money”; and/or

(ii) “the primary object of the bargain is to secure a stated result

which can effectively be attained when the matter comes before the
Court, and where the forfeiture provision is added by way of security
for the production of that result.”

- see Shiloh Spinners Ltd v. Harding (HL) [1973] AC 691 per Lord
Wilberforce at p722B, 723G.

(3) If so, whether reasons of legal policy support the existence of such a
jurisdiction – see The Scaptrade per Lord Diplock at p703E.

43. Before considering each of these matters it is important to analyse the nature
of the ASLAs and to identify their most relevant features. In relation to whether
the relief jurisdiction exists I consider that the following features of particular
relevance:

(1) The leases involve transfer of possession of the Aircraft during their
term to Paramount. The stated term is eight years. During the term of the
leases the risks and rewards of possession and operation of the Aircraft rest
with Paramount. Paramount has to bear all costs and risks associated with
operating, repairing, insuring and returning the Aircraft.

(2) The Aircraft were to be returned to Celestial on completion of the 8 year

term, unless earlier terminated. The Aircraft have a useful economic life of at
least 20 years (on Paramount’s evidence); 25-30 years (on Celestial’s
evidence). The leases were therefore for only a proportion of the economic
life of the Aircraft and the residual value, reward and risk rested with Celestial.

(3) Ownership is not transferred to Paramount at the end of the term. There
is no right to purchase the Aircraft during or at the expiry of the leases.

(4) Paramount’s right to use and possession of the Aircraft is conditional in

that it is stated that Celestial will not interfere with it “so long as no Event of
Default has occurred and is continuing” (cl. 7.1 of the CTA).

(5) It is recognised in Schedule 6 of the CTA that a subsequent user of the

Aircraft might need to inspect it prior to redelivery and Paramount agreed “to
cooperate reasonably at all times during the Term with Lessor Owner and/or
such purchaser or such next operator in order to coordinate, assist and grant
access for such inspections and/or meetings as necessary.”

(6) Schedule 6 of the CTA sets out detailed terms governing the procedures
and operating condition of the Aircraft at redelivery.

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 (7) A number of clauses in the CTA indicate that redelivery and transfer back
was intended to happen immediately upon termination, such as clause 12.1;
13.2(a); 13.2(c) and 13.5.

(8) The ASLAs address in considerable detail, amongst other things, the
parties’ respective obligations; the time for performance of obligations; what
breaches will be classified as “Events of Default”; what an “Event of Default”
will entitle Celestial to do; how termination can be declared by Celestial and
what obligations its act of termination will thereupon impose upon the lessee.

(9) Time was stated to be of the essence for all Paramount’s payment
obligations (cl. 15.6).

44. The consideration provided for use of the aircraft was monthly Rent. This
was payable in advance (cl.5.3).

45. The Supplemental Rent was payable in order to build up a fund to be used to
cover major maintenance events for the aircraft such as an Airframe Structural
Check or Engine Refurbishment (cl.5.4; 7.2). This was payable on the basis of
past use according to rates based on the number of flight hours actually used.
When the qualifying maintenance work was carried out, Paramount was entitled to
be paid the costs of the work out of the accrued Supplemental Rent.

46. The required deposit was to be in a substantial amount (10 months Rent
reducing in certain circumstances to a minimum of 6 months Rent) (cl. 5.1). This
was meant to provide security for performance of Paramount’s obligations,
including its redelivery obligation. The evidence was that the cost of putting the
Aircraft into its required redelivery condition can be very substantial.

47. Paramount submitted that if one takes into account both Rent and
Supplemental Rent, over the 8 year term of the ASLAs they would be paying
Celestial more than the cost of the aircraft of about US$26 million. However, I do
not accept that it is appropriate to take Supplemental Rent into account. As
explained above, that was a fund to be used for major aircraft maintenance. It was
not directed at the cost of purchase of the Aircraft, nor did it include any profit. If
Rent alone is taken into account then the full term payments would be in the
region of US$21 million. In any event the US$26 figure million takes no account
of finance costs and the evidence was that about 84% of the cost of the Aircraft
would have been borrowed at commercial rates of interest. Nor does it include
any element of profit. In any event, I accept Mr Manifold’s evidence that, in
common with most aircraft operating leases, the Rent payable depended on the
prevailing supply and demand for aircraft of this type.

(1) Whether the contract involves the transfer of proprietary or possessory

rights.

48. The Scaptrade makes it clear that relief against forfeiture is generally limited
to contracts which involve the transfer of proprietary or possessory rights – see the
judgment Lord Diplock at p702C. That was a major reason why the House of
Lords held that the jurisdiction did not arise in respect of a contract of services
such as a time charter.

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49. In the present case the leases do not involve the transfer of any proprietary
rights. However, they do involve the transfer of possessory rights during their
term. In that regard the leases are analogous to bareboat charters and in The
Scaptrade the House of Lords expressly left open the question of the applicability
of relief against forfeiture to bareboat charters (p704G).

50. Celestial submitted that the right to bare possession of a chattel for a term was
insufficient to attract the relief jurisdiction. They stressed that the moveable
property cases in which the jurisdiction has been held to exist have involved not
merely a possessory right but also a proprietary or expectant proprietary right. For
example:

(1) In Goker v NWS Bank Plc (1 August 1990, CA) the dispute
concerned a “deferred purchase agreement” for a car.

(2) In Transag Haulage Ltd v Leyland DAF Finance plc [1994] 2

BCLC 88 the dispute concerned three hire purchase agreements each for
a single vehicle. There was a right to buy each vehicle for £5 at the end
of the intended 3 year period of the agreement.

(3) In On Demand Information plc v Michael Gerson (Finance) plc

[2003] 1 AC 368 the dispute concerned a finance lease agreements of
video and editing equipment pursuant to which the lessor recouped the
cost of the equipment with interest, costs and profit by the end of the
three year lease period. At the end of the lease period the lessee was
entitled to sell the equipment to a third party and retain 95% of the sale
proceeds.

(4) In The “Jotunheim” [2005] 1 Lloyd’s Rep 181 the dispute

concerned a bareboat charter which provided a hire purchase agreement
pursuant to which at the end of term of the charterparty the vessel would
belong to the charterers.

51. Paramount placed particular reliance upon the judgment of Robert Walker LJ
in the Court of Appeal judgment in On Demand Information plc v Michael Gerson
(Finance) plc [2001] 1 WLR 155. In his judgment at p170-171 it was stated as
follows:

‘‘I think that Knox J could have based his decision on Transag's possessory
rights during the currency of each of the hire-purchase agreements, as well as
on its option to purchase under clause 24 once the agreement had run its
course.
Those possessory rights arose under contracts but I cannot accept the
submission that those rights, or the rights of On Demand under the finance
leases, were purely contractual rights if that intensitive implies that they had
insufficient possessory character to meet the principles which emerge from
the authorities considered above.
What was said in Whiteley Ltd v Hilt seems to me to be well in line with
those principles. Whiteleys and Miss Nolan entered into a hire-purchase
agreement for the hire of a piano, which Miss Nolan purported to sell to the
defendant. Whiteleys sued the defendant for detinue or conversion, and the

13
 real issue was as to the measure of damages. Warrington LJ said [1918] 2 KB
308 , 819–820:
“The nature of the interest taken by the hirer under the agreement
appears to me to be this: First, a right to retain possession of the chattel
so long as she performed the conditions of the agreement. Secondly, an
option to purchase the chattel exercisable by payment of the instalments
provided for by the contract.”—The third right was a right of
reinstatement after default under a special provision of the contract—
“That, in my opinion, was the interest of the hirer. The general property
in the chattel no doubt remained in the plaintiffs, but that general
property in it was qualified and limited by the contractual interest
conferred by the agreement upon the hirer. Now, was that interest
assignable? In my opinion it clearly was.”
Contractual rights which entitle the hirer to indefinite possession of chattels
so long as the hire payments are duly made, and which qualify and limit the
owner's general property in the chattels, cannot aptly be described as purely
contractual rights.”

This part of the judgment was approved by Lord Millett in the House of Lords
judgment [2001] 1 WLR 155 at paragraph 29.

52. I accept that the On Demand case provides support for the proposition that the
relief jurisdiction may apply to contracts which transfer possessory rights only.
However, it is to be noted that both On Demand and Whiteley Ltd v Hilt were
treated as cases involving a right to “indefinite” possession of the chattels.

53. A contract which allows the hirer or lessee to keep possession of the chattel
indefinitely is analogous to one in which he ultimately acquires ownership. In
both cases the expectation is that the lessor will not get the chattel back and the
consideration payable will reflect that expectation. In the On Demand case, for
example, rent was payable for a primary period of 36 months at a rate designed to
recoup the lessor by the end of that period for the cost of the equipment with
interest together with other costs and profit. Thereafter the lessee was entitled to
indefinite possession for a nominal annual rent. In such circumstances the lessor’s
continuing interest in the chattel is essentially an economic one. Its interest is in
payment of the rent rather than the return of the chattel. In substance it is more of
a security interest than an ownership interest.

54. In the present case, by contrast, Paramount only has a right to possess the
Aircraft for a proportion of its economic life. As such Celestial retains a very real
interest in the Aircraft themselves, including their proper maintenance, the extent
of their use, their condition, and their rental and resale value. Possession of the
Aircraft will revert to it at a time when the bulk of their economic life is still to
run, and there are detailed terms addressing the return of the Aircraft and their
required redelivery condition. Celestial therefore retains many of the risks and
rewards of ownership. Moreover, Rent was not calculated on the basis of
recouping the cost of the Aircraft together with interest and profit. In such
circumstances Celestial’s general property in the Aircraft was not qualified or
limited in the way in which it was in the On Demand case.

14
 55. In this connection I was referred to the distinction between finance and
operating leases, which is also addressed in the On Demand case at p158 of
Robert Walker LJ’s judgment as follows:

“The deputy judge quoted a passage from a statement published by the

Institute of Chartered Accountants, SSAP 21, which provides a convenient
explanation of how a finance lease differs from an operating lease:
“Background Leases and hire-purchase contracts are means by which
companies obtain the right to use or purchase assets. In the UK there is
normally no provision in a lease contract for legal title to the leased
asset to pass to the lessee. A hire-purchase contract has similar features
to a lease except that under a hire-purchase contract the hirer may
acquire legal title by exercising an option to purchase the asset upon
fulfilment of certain conditions (normally the payment of an agreed
number of instalments). Current tax legislation provides that in the
normal situation capital allowances can be claimed by the lessor under a
lease contract but by the hirer under a hire-purchase contract.
“Forms of lease Leases can appropriately be classified into finance
leases and operating leases. The distinction between a finance lease and
an operating lease will usually be evident from the terms of the contract
between the lessor and the lessee. An operating lease involves the lessee
paying a rental for the hire of an asset for a period of time which is
normally substantially less than its useful economic life. The lessor
retains most of the risks and rewards of ownership of an asset in the
case of an operating lease. A finance lease usually involves payment by
a lessee to a lessor of the full cost of the asset together with a return on
the finance provided by the lessor. The lessee has substantially all the
risks and rewards associated with the ownership of the asset, other than
the legal title. In practice all leases transfer some of the risks and
rewards of ownership to the lessee, and the distinction between a
finance lease and an operating lease is essentially one of degree”

56. On the basis of these definitions, the leases in the On Demand case were
finance leases, whilst the leases in the present case are operating leases. In
particular the ASLAs involved rental for a period of time which was substantially
less than the aircraft’s useful economic life and thereby the retention by Celestial
of most of the risks and rewards of ownership.

57. In summary, whilst I accept that the ASLAs transfer possessory rights to
Paramount, for the relief jurisdiction to apply to contracts transferring a bare
possessory right for only a proportion of the economic life of the chattel would
represent a major extension of existing authority.

(2) Whether:

(i) “it is possible to state that the object of the transaction and of the
insertion of the right to forfeit is essentially to secure the payment of
money”; and/or

15
(ii) “the primary object of the bargain is to secure a stated result which can
effectively be attained when the matter comes before the Court, and
where the forfeiture provision is added by way of security for the
production of that result.”

58. Paramount submitted that the insertion of the right to terminate in respect of
defaults in payment was essentially to secure the payment of money.

59. In this connection reliance was placed in particular on the decision of Cooke J
in The Jotunheim.

60. That case concerned a bareboat charter on an amended Barecon 89 Form by

which the vessel Jotunheim was chartered for a period of 48 months. Part IV of
the charter provided for a Hire/Purchase Agreement under which the vessel would,
on expiry of the charter and provided that the charterers had fulfilled their
obligations under the charter, belong to the charterers. Hire was to be paid
monthly in advance at the rate of U.S.$15,104.17 discountless, and there was
provision for payment of a U.S.$25,000 deposit on signing the charter and for
lump sum deposits of U.S.$50,000 or U.S.$75,000 to be paid with the 6 months,
12 months and 16 months hire payments. Clause 32 of the charter provided a
right of withdrawal “in case of buyers' default for non-payment of hire monies due
to owner”. The owners withdrew the vessel for non-payment of hire. Each party
then applied for summary judgment. Cooke J held that the owners were entitled to
withdraw the vessel; that the court had jurisdiction to grant relief against
forfeiture, but that on the facts relief would not be granted.

61. In his judgment Cooke J stated as follows at p188-189:

“47. It is accepted by the owners that the Court is, in principle, entitled to
grant relief from forfeiture of a contract such as this, provided that the object
of the transaction and of the insertion of the right to forfeit for non-payment
of money is essentially to secure the payment of that money or is security for
the attainment of a specific result which can be achieved through the Courts.
If the contract provides for a right to retain possession of a chattel so long as
the conditions of the agreement are performed, together with the right to
purchase the chattel by payment of the instalments provided for by the
contract, relief from forfeiture is available provided that the right of forfeiture
is for either of these purposes.
….
50. Mr. Collett for the owners argued that there was no difference in principle
between the position under a time charter and a demise charter for material
purposes, since, as Lord Diplock said in The Scraptrade at p. 257, it was not
possible to say that the insertion of the withdrawal clause, let alone the
transaction itself, was to secure the payment of money. Hire was payable in
advance to provide a fund to which owners could have access to provide the
services they had contracted to provide to the charterers. Here, under this
demise charter, Mr. Collett argued, hire was payable in advance to provide a
fund for the owners to pay their mortgage. The key here, however, in my
judgment, is the provision of services in a time charter, whereas in a bareboat
charter which is also a hire/purchase agreement, the owners provide the ship
in anticipation that they will do nothing further after delivery. They receive

16
 the charterers' payments and, if all goes well, transfer the vessel to the
charterers on receipt of the final instalment.
51. So, although the parties differed as to whether or not the insertion of cl. 32
in the charter was essentially to secure the payment of money or the
production of a stated result which could effectively be obtained when the
matter came before the Court, in my judgment the demise charterers are right
on this point. The demise charterers are given contractual and possessory
rights in relation to the vessel during the four years of the charter, as is plain
from cll. 9(a) and (b). Whilst the agreement functions both as a demise charter
and as a sale agreement (see the heading to Part IV which refers to this as a
hire/purchase agreement) the demise charterers do have the right to have
ownership transferred to them at the end of the charter period, if there has
been compliance with the conditions of the charter.
52. The essential purpose, therefore, of the right to withdraw the vessel under
cl. 32 is to secure the payment of the hire for which the agreement provides
and also payment of the deposits; default in the latter respect is non-
performance of other agreed terms, which is covered by cl. 32. There is both a
requirement for an initial deposit payable at the outset, which is part of the
purchase price and security for the fulfilment of the contract (which has
nothing whatever to do with hire payments as such) and, as the contract goes
on further, deposits are payable at 6 months, 12 months and 16 months, which
will equally be lost to the demise charterers if the right of withdrawal is
exercised. Clause 32, therefore, acts in terrorem to ensure that payments are
properly made.
53. The need for availability of relief of the kind suggested here appears to be
stronger in the present case then in a hire purchase or financing purchase
agreement of the kind found in Gerson , relating to chattels, or even in leases
of land where there is, of course, a statutory regime. It is of little consequence
that the owners need a fund from the hire payments to discharge their
mortgage. They can always sue for hire due and recover it, whilst the right to
withdraw is there as a form of security to ensure performance.”

62. Paramount submitted the aircraft leases share many of the characteristics of
bareboat charters and that a similar analysis applies to the termination provisions
in this case. However, the “key” according to Cooke J was that:

“…in a bareboat charter which is also a hire/purchase agreement, the owners

provide the ship in anticipation that they will do nothing further after delivery.
They receive the charterers' payments and, if all goes well, transfer the vessel
to the charterers on receipt of the final instalment.”

63. Cooke J. therefore identified the fact that the charter was also a hire/purchase
agreement as a central consideration. As such, the anticipation was that the
owners would do nothing after delivery apart from receive payments and transfer
ownership of the vessel at the end of the charter. Their interest was therefore
essentially an economic one. However, in the present case Celestial have a very
real continuing interest in the Aircraft themselves, not just in the payment of rent.
Their anticipation was that they would receive the Aircraft back so as to be able to

17
 relet them or resell them and one of Paramount’s primary obligations under the
ASLAs was to redeliver the Aircraft in the appropriate condition upon
termination.

64. In such circumstances I do not consider that it can be said that the or the
essential purpose of the termination provisions in the ASLAs was as “security” for
the payment of rent. An essential purpose of the termination provisions was to
secure Celestial’s ability to be released from the ASLAs and to have the Aircraft
returned in circumstances where Paramount was in default. Moreover, security
under the ASLAs was provided by the requirement that a deposit be provided (in
cash or by letter of credit).

65. In contrast to The Jotenheim I therefore do not accept that this is a case where
the termination provision was inserted “essentially to secure the payment of
money” or that this was the “primary object of the bargain” with the termination
provision being inserted as “security for the production of that result”. If that is
correct then the authoritative guidance provided in the Shiloh Spinners case
strongly indicates that this is not a case in which the court has relief jurisdiction.

(3) Whether reasons of legal policy support the existence of such a jurisdiction.

66. It is clear in particular from the case of Sport International Bussum B.V. v
Inter-Footwear Ltd [1984] 1 WLR 776 that even if a case can be shown to come
within the principles set out in the Shiloh Spinners case it does not follow that the
relief jurisdiction is exercisable. As stated by Oliver LJ at p785:

“…Lord Wilberforce was contemplating that the jurisdiction exists in some

cases where the primary object of the forfeiture is to secure a stated result, but
he cannot, we think, have had it in mind that the jurisdiction was exercisable
wherever the stated condition existed. It is inherent in his statement of
principle that it applies only in “appropriate and limited cases” and, while it is
true that he went on to consider the conduct of the applicant for relief in order
to determine whether the case was an “appropriate” one, we cannot find in his
speech any suggestion that he was treating “appropriate” and “limited” as
synonyms…
Thus Shiloh Spinners Ltd. v. Harding [1973] A.C. 691, in our judgment,
establishes as a matter of decision no more than this: that one essential hall-
mark of the limited cases in which the equitable jurisdiction to relieve will be
exercisable is that the forfeiture clause has been inserted with the object
mentioned.”

67. As was made clear in the House of Lords decision in The Scaptrade, it is
necessary to consider whether “practical considerations of legal policy” support
the existence of the relief jurisdiction.

68. This point was reinforced by Oliver LJ in the Sport International case at
p783-789B and especially at 788C-F:

“The fact remains that the jurisdiction never was, and never has been
up to now, extended to ordinary commercial contracts unconnected

18
 with interests in land and, though it may be that there is no logical
reason why, by analogy with contracts creating interests in land, the
jurisdiction should not be extended to contracts creating interests in
other property, corporeal or incorporeal, there is, at the same time, no
compelling reason of policy that we can see why it should be. And the
fact is that the defendant in this case is seeking an extension by
analogy, and an extension not based on any pressing consideration of
legal policy but simply on an appeal to sympathy for what is
considered to be a hardship arising from strict adherence to a bargain
which is concluded with its eyes open. To quote again from Robert
Goff L.J. in Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera
Ecuatoriana [1983] Q.B. 529, 539:

"The question whether it should be so extended must be

considered on its merits, as a matter of policy, taking into account
the relatively slight assistance available to us from the authorities,
though the fact that the jurisdiction has never before been
extended to purely commercial transactions must surely cause us
to regard the extension, which we are now invited to make, with a
considerable degree of caution."

69. In his judgment in The Scaptrade at p703G Lord Diplock approved and
incorporated the practical and policy objections identified by Robert Goff LJ in his
judgment in that case.

70. In The “Scaptrade” [1983] QB 529 Robert Goff LJ stated as follows at 540:

“It is of the utmost importance in commercial transactions that, if any

particular event occurs which may affect the parties' respective rights
under a commercial contract, they should know where they stand. The
court should so far as possible desist from placing obstacles in the way
of either party ascertaining his legal position, if necessary with the aid
of advice from a qualified lawyer, because it may be commercially
desirable for action to be taken without delay, action which may be
irrevocable and which may have far-reaching consequences. It is for this
reason, of course, that the English courts have time and again asserted
the need for certainty in commercial transactions - for the simple reason
that the parties to such transactions are entitled to know where they
stand, and to act accordingly.”

71. A more recent authoritative statement to similar effect in the context of the
relief jurisdiction can be found in Lord Hoffman’s judgment in Union Eagle Ltd v
Golden Achievement Ltd [1997] AC 514 at 518H-519E and at 519F:

“The principle that equity will restrain the enforcement of legal rights
when it would be unconscionable to insist upon them has an attractive
breadth. But the reasons why the courts have rejected such
generalisations are founded not merely upon authority (see per Lord
Radcliffe in Campbell Discount Co. Ltd. v. Bridge [1962] A.C. 600,
626) but also upon practical considerations of business. These are, in

19
 summary, that in many forms of transaction it is of great importance that
if something happens for which the contract has made express
provision, the parties should know with certainty that the terms of the
contract will be enforced. The existence of an undefined discretion to
refuse to enforce the contract on the ground that this would be
"unconscionable" is sufficient to create uncertainty. Even if it is most
unlikely that a discretion to grant relief will be exercised, its mere
existence enables litigation to be employed as a negotiating tactic. The
realities of commercial life are that this may cause injustice which
cannot be fully compensated by the ultimate decision in the case.

The considerations of this nature, which led the House of Lords in The
Scaptrade [1983] 2 A.C. 694 to reject the existence of an equitable
jurisdiction to relieve against the withdrawal of a ship for late payment
of hire under a charterparty, are described in a passage from the
judgment of Robert Goff L.J. in the Court of Appeal [1983] Q.B. 529,
540-541, which was cited with approval by the House [1983] 2 A.C.
694, 703-704. Of course the same need for certainty is not present in all
transactions and the difficult cases have involved attempts to define the
jurisdiction in a way which will enable justice to be done in appropriate
cases without destabilising normal commercial relationships.”

72. I consider that the ASLAs are transactions in respect of which the need for
certainty is very much present. As Celestial submitted, commercial certainty is an
important consideration in respect of an operating lease of an aircraft in which the
lessor maintains a valuable reversionary interest. An aircraft is a valuable asset,
with high value components, which is of its very nature “moveable” and
depreciating, which is left in the hands of the other party in a foreign country
where it will be registered for the purpose of the lease (and need to be deregistered
to be operated elsewhere). The lessor, having a reversionary right to the asset,
needs to know and agree with precision with the lessee: (a) the obligations of each
party, (b) the events that will entitle to lessor to terminate the contract and recover
its asset and (c) provisions which will show how, as a matter of business
practicality, the contract will be terminated, the asset recovered and possession
returned by the lessee to the lessor.

73. The consequence of the relief jurisdiction being exercisable in cases such as
the present is likely to be to make it open to any lessee of a commercial aircraft
under an English law operating lease such as the ASLAs to contend that relief
from forfeiture can be granted. As was borne out by Celestial’s evidence, there are
many such leases and this is likely to cause significant uncertainty in the aviation
sector: the lessor will not know when (or indeed whether) it can terminate a lease
and will be prevented from being able to rely timeously or at all on the clear and
detailed default and termination provisions of its leases.

74. In my judgment these constitute powerful practical and policy reasons why
there should be no relief jurisdiction in relation to leases such as the ASLAs.

75. Celestial stressed two further reasons why this was not one of those
“appropriate” and “limited” cases in which the relief jurisdiction should be
available. These were reasons of a juristic rather than a practical nature, namely:

20
 the fact that the parties made time of the essence and the fact that the termination
provision is not penal.

Time of the essence

76. Celestial submitted that equity does not intervene to relieve a party from the
termination of a contract for a failure by that party to perform an obligation by a
fixed date where the parties have made time of the essence expressly or by
necessary implication.

77. In this connection reliance was placed on a number of cases concerning

contracts for the sale of land and in particular:

(1) Stickney v Keeble [1915] AC 386 at 416 per Lord Parker:

“…this maxim [that the time fixed for completion in a contract for the
sale and purchase of real property] is not of the essence never had any
application to cases in which the stipulation as to time could not be
disregarded without injustice to the parties, when, for example, the
parties, for reasons best known to themselves, had stipulated that the
time fixed should be essential, or where there was something in the
nature of the property or the surrounding circumstances which would
render it inequitable to treat it as a non-essential term of the contract.”

(2) Steedman v Drinkle [1916] AC 275 at 279 per Viscount Haldane:

“As to the relief from forfeiture, their Lordships think that the Supreme
Court was right in holding, for the reasons assigned in the former
decision of this Board, that the stipulation in question was one for a
penalty, against which relief should be given on proper terms. But as
regards specific performance they are of opinion that the Supreme Court
was wrong in reversing the judgment of Newlands J. Courts of Equity,
which look at the substance as distinguished from the letter of
agreements, no doubt exercise an extensive jurisdiction which enables
them to decree specific performance in cases where justice requires it,
even though literal terms of stipulations as to time have not been
observed. But they never exercise this jurisdiction where the parties
have expressly intimated in their agreement that it is not to apply by
providing that time is to be of the essence of their bargain. If, indeed, the
parties, having originally so provided, have expressly or by implication
waived the provision made, the jurisdiction will again attach.”

78. These authorities were affirmed in the Union Eagle case in which Lord
Hoffman, giving the judgment of the Privy Council, reaffirmed the “principle that
in cases of rescission of an ordinary contract of sale for land for failure to comply
with an essential condition as to time, equity will not intervene” (at p523).

79. I accept that these cases make it clear that the relief jurisdiction is not
available in relation to contracts for the sale of land where time is made of the
essence. I also accept that the fact that the ASLAs made time of the essence of
payment supports the conclusion that there is no relief jurisdiction. However, I do

21
 not accept that the mere inclusion of a time of the essence provision necessarily
excludes the relief jurisdiction.

80. As Lord Hoffman stated at p722F of the Union Eagle case in relation to
mortgages “relief against forfeiture of the estate would ordinarily be granted as of
course despite an express term that time was of the essence”. Further, the Goker v
NWS Bank case involved a time of the essence provision and in The Jotunheim
Cooke J took the view that time had been made of the essence – see paragraph 33
of the judgment. In both those cases a jurisdiction to grant relief was recognised.

No forfeiture

81. Celestial submitted that clause 13.2 should not be regarded as a forfeiture
clause as it is not penal in nature and confers no windfall on them. In particular:

(1) Paramount never made any payment that can be described in a

legal or business sense as a part payment against the price of the
Aircraft. Accordingly, whenever (the ASLAs having come to their
end) Paramount has to return the Aircraft to Celestial, Paramount has
no continuing interest in the Aircraft. The termination and redelivery
of the Aircraft do not deprive Paramount of any such interest (which it
never bargained for). Paramount’s sole right under the ASLAs was
nothing more than a right to possession and use during the currency of
the ASLAs.

(2) This contractual scheme is borne out by clause 14.2 of the CTA.
Pursuant to this clause Celestial is permitted, without the consent of
Paramount, to transfer any of its rights or obligations under the ASLAs
or any of its rights, title or interest in the Aircraft pursuant to (amongst
other things) (i) a sale and leaseback, i.e. a situation in which Celestial
itself becomes a lessee; (ii) a novation of the particular ASLA together
with a sale of the Aircraft; and (iii) a secured loan financing. This
makes it clear that the reversionary interests were exclusively
Celestial’s and not Paramount’s.

(3) In these circumstances, under the ASLAs Celestial does not

receive any windfall on termination and Paramount is not penalised.
The only right that termination destroys is Paramount’s right to future
possession and use.

(4) Possession of the Aircraft was always going to be given back to

Celestial; if the ASLAs had run their course (without any default on the
part of Paramount) that would be upon the expiry of the 8 year term.
The only difference between termination for breach and termination by
virtue of the contracts coming naturally to their end is the timing at
which Paramount’s right to possession is at an end. That is not a
windfall for Celestial and nor is it a penalty for Paramount.

(5) The payments made by Paramount on account of rent and

supplemental rent represent the agreed rate for use of the aircraft up to
the point of termination (and no more). Paramount is not paying, for

22
 example, in addition to rent instalments against a purchase price to be
completed when the final instalment is paid and it does not “forfeit”
any monies on termination. It is the situation which is identical to that
pertaining in The “Scaptrade”; as Lord Diplock stated in that case at
702-3:

“Moneys paid by the charterer prior to the withdrawal

notice puts an end to the contract or services represent the agreed
rate of hire for services already rendered, and not a penny more.”

(6) Accordingly, there being no true “clause of forfeiture” or

“forfeiture in fact” there is no jurisdiction.

82. I accept that the fact that no significant advance payments, and in particular
advance payments for the purchase of the aircraft, are forfeited on termination is a
further reason for there being no relief jurisdiction. However, I do not accept that
in itself it means that there is no jurisdiction. The loss of the right to continued
possession of the aircraft for the substantial remaining term of the leases on a
single default in payment can be regarded as involving forfeiture. This is borne
out by the authorities which recognise that loss of a right of possession may be
sufficient to engage the forfeiture jurisdiction.

83. For all these reasons, even if this was a case which could be shown to come
within the principles set out in the Shiloh Spinners case, I am satisfied that reasons
of legal policy, and in particular the need for certainty, lead to the conclusion that
there is no relief jurisdiction in respect of aircraft leases such as the ASLAs.

Conclusion on jurisdiction

84. For the reasons outlined above I am not satisfied that this is one of those
“appropriate” and “limited” cases in which the Court should hold that there is a
jurisdiction to grant relief against forfeiture.

DISCRETION

85. If I am wrong in my conclusion on jurisdiction, the question which then arises

is whether as a matter of discretion relief against forfeiture should be granted.

86. In the Shiloh Spinners case at p723 Lord Wilberforce stated that whether it
was appropriate to grant relief involves:

“a consideration of the conduct of the applicant for relief, in particular

whether his default was wilful, of the gravity of the breaches and of the
disparity between the value of the property of which forfeiture is claimed as
compared with the damage caused by the breach.”

87. By way of examples of the manner in which the Courts have exercised their
jurisdiction in the context of commercial transactions involving moveable
property, I was referred in particular to The Jotunheim and the Transag cases, and
the first instance decisions of Lloyd J. in The “Scaptrade” [1981] 2 Lloyd’s Rep
425 at 430-431 and The “Afovos” [1980] 2 Lloyd’s Rep 469 at 480).

23
 The conduct of the applicant and the gravity of the breaches

88. An essential matter to be considered is the conduct of the applicant in relation

to the breaches which have given rise to the right of forfeiture and the gravity of
those breaches.

89. The financial defaults in respect of which the Termination Notices were
served and which Teare J held to be established were as follows:

Aircraft 126
Date Due Description Amount due
15-Sep-09 Supplemental Rent: 01 August 2009 to
31 August 2009 $71,698.57
30-Sep-09 Late Payment Interest 31-Aug-09 to
30th Sep-09 $550.16
09-Oct-09 Rent 9-Oct-09 to 08-Nov-09 $217,768.30

Aircraft 137
Date due Description Amount due
02-Oct-09 Rent: 4 October 2009 to 3 November
2009 $215,325.00
30-Sep-09 Late Payment Interest 31-Aug-09 to
30th Sept-09 $654.35

Aircraft 147
Date due Description Amount due
15-Sep-09 Supplemental Rent: 01 August 2009
to $65,252.70
31 August 2009
25-Sep-09 Rent: 27 September 2009 t0 26
October $219,670.65
2009
30-Sep-09 Late Payment Interest 31-Aug-09 to
30th Sept-09 $1,024.81

90. There were therefore significant sums due in respect of each Aircraft. In
respect of Aircraft 126 and Aircraft 127 there were outstanding sums due in
respect of both Rent and Supplemental Rent. By the time of the Termination
Notices the Rent for Aircraft 137 and Aircraft 147 had been due for about two
weeks, and the Supplemental Rent in respect of Aircraft 126 and Aircraft 147 had
been due for nearly a month. All these outstanding sums had been the subject of a

24
Notice of Continuing Event of Default and Warning on 5 October 2009. This
Notice included a warning in bold, large type as follows:

“HOWEVER, your continued and persistent defaults regarding payments and

the matters set out below are very alarming and we cannot continue to tolerate
this sort of delinquency and we hereby warn you that if they are not rectified
in full and as a matter of utmost urgency as soon as possible, we will be
forced to take further action which may include, without limitation,
termination of your right to lease the aircraft and/or court action.”

91. No proper explanation was given by Paramount as to how and why these
defaults occurred, notwithstanding the length of time that the sums had been
outstanding and the warnings which had been given. In his witness statement, Mr
Thiagarajan said that Paramount was trying its best to comply with the payment
terms of the lease but that Celestial was making it difficult. He referred to the fact
that on 24 September 2009 Celestial drew down on one of the letters of credit, but,
as set out earlier in the judgment, Paramount had ample warning of the need to
provide an appropriate replacement letter of credit. He also referred in his
statement and oral evidence to financial difficulties resulting from the fact that one
of the Aircraft had been grounded for a number of months due to engine problems,
Paramount’s lack of a spare engine and its inability to secure a replacement.
Paramount’s attempts to blame Celestial for these difficulties was considered and
dismissed by Teare J in his judgment at paragraphs 16 to 18.

92. This is not therefore a case where the default in question arose by surprise,
accident or ignorance. Paramount knew what its obligations were and knew that it
was going to default on those obligations.

93. In both The Afovos and The Scaptrade Lloyd J. regarded the fact that the
breach involved the fault of the applicant as being a telling factor against the grant
of relief. It is clear that wilful breaches will only exceptionally be relieved
against.

94. As Lord Wilberforce stated in the Shiloh Spinners case at p725:

“Established and, in my opinion sound principle requires that wilful

breaches should not, or at least should only in exceptional cases, be
relieved against, if only for the reason that the assignor should not be
compelled to remain in a relation of neighbourhood with a person in
deliberate breach of his obligations.”

95. Celestial submitted that “wilful breaches” are all those breaches which occur
not by surprise, accident or ignorance (see the recitation of the judgment of Lord
Erskine LC in Sanders v Pope (1806) 12 Ves.Jun. 282 per Lord Wilberforce at
722-723 in Shiloh Spinners discussing the effect of Hill v Barclay (1811) 18
Ves.Jun. 56).

96. The findings I have made as to the circumstances giving rise to the defaults
and the knowledge with which they were made are therefore powerful grounds for
denying relief.

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97. Moreover, Paramount’s conduct in relation to the defaults giving rise to the
Notice of Termination needs to be considered in context. That context includes a
long history of defaults. The immediate history of Default Notices has been set
out earlier in my judgment. However, there was also a prior history of such
defaults and Notices. In particular:

(1) A Notice of Continuing Default and Warning on 24 April 2007 on

account of the failure to pay the amounts demanded in the Notice of 13
April.

(2) A Grounding Notice on 9 May 2007 by reason of the continued

failure to make the payments previously demanded.

(3) A Notice of Rescindment and Final Warning on 14 May 2007

acknowledging the fact that Paramount had remitted US$974,870.09 and
giving Paramount 2 days grace for the monies to be received by Celestial.

(4) A Notice of Event of Default on 26 July 2007, there being a total

of US$513,909.50 overdue.

(5) A Notice of Continuing Event of Default and Warning on 1

August 2007 on account of the failure to pay the amounts demanded in the
Notice of 26 July and advising that the total amount outstanding was
US$737,656.24.

(6) A Notice of Event of Default on 23 August 2007, Paramount

having failed (a) to pay rent and supplemental rent when due, there being
US$498,816.06 overdue and (b) to renew the confirmed letters of credit
provided in respect of Aircraft 137 and Aircraft 147.

(7) A Warning Notice on 30 August 2007 on account of Paramount’s

failure (a) to pay the rent in the sum of US$217,768.30 for Aircraft 126
(due on 9 August 2007); and (b) to renew the confirmed letters of credit
for Aircraft 137 and Aircraft 147. It was made clear in this Notice that
Celestial reserved the right, given that these matters were Events of
Default under the relevant ASLAs, to draw down on the existing letters of
credit and to terminate the leases. Attached to this document was a copy
of Paramount’s “Delinquency Trend” over the previous 12 months which
document showed, “your payment record has been consistently poor and
has been getting worse.”

(8) A Default Notice on 18 September 2007, on account of

Paramount’s failures (a) to pay rent totalling US$433,120.30, (b) to
provide monthly utilisation reports (as required by clause 8.2(a) of the
CTA) and to pay estimated supplemental rent totalling US$150,000, (c) to
pay late payment interest in the sum of US$5,161.68 and (d) to renew the
confirmed letter of credit in respect of Aircraft 147.

(9) A Notice of Continuing Event of Default and Warning on 21

September 2007 on account of the failure to pay all of the amounts set out
in the notice dated 18 September 2007.

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 (10) A Warning Notice on 28 September 2007 advising that despite all
previous warnings Paramount continued to be delinquent in its payments
and advising that any further payment events of default would result in a
draw down on the letters of credit.

(11) A Notice of Event of Default on 19 October 2007, there being a

total of US$268,649.83 overdue.

(12) A Notice of Event of Default on 25 October 2007, there being a

total of US$208,458.50 overdue.

(13) A Notice of Event of Default on 1 November 2007, there being a

total of US$408,301.70 overdue.

(14) A Notice of Continuing Default and Warning on 5 November

2007 on account of the failure to pay all of the amounts set out in the
notice dated 1 November 2007 and further amounts becoming overdue.
The total amount which Paramount had failed to pay Celestial amounted
to US$624,736.54.

(15) A Grounding Notice on 7 November 2007 on account of the

failure of Paramount to pay in full the outstanding amounts owed to
Celestial.

(16) A Notice of Event of Default on 3 December 2007, there being a

total of US$465,881.74 overdue and Paramount having failed to provide
technical reports (in accordance with clause 8.2(a) of the CTA) by the 10 th
day of the month.

(17) A Notice of Event of Default on 12 December 2007, there being a

total of US$436,217.48 overdue.

(18) A Notice of Default and Warning on 7 January 2008, there being a

total of US$1,090,993.10 overdue.

(19) A Notice of Continuing Event of Default on 14 January 2008,

Paramount having failed to cure the defaults identified in the Notice of 7
January 2008 (a total of US$587,732.33 remaining due to be paid).

(20) A Further Notice of Continuing Event of Default and Warning on

21 January 2008, Paramount still having failed to pay all amounts overdue
(a total of US$519,964.03 remained due to be paid).

(21) An Event of Default Notice on 22 December 2008, there being a

total of US$721,160.82 overdue.

98. Further, as set out in the Schedules attached to Celestial’s Statement of Case,
since August 2008:

(1) Paramount had never paid Rent on time for any of the Aircraft.
This is notwithstanding the fact that it was provided in each case with

27
 an invoice prior to the due date under each of the ASLAs. Each
payment of rent was made on average almost 2 weeks (14 days) late.

(2) Paramount had never provided a Utilisation Report for any of the
Aircraft on time (i.e. by the 10th day of each calendar month).

(3) Paramount had never paid Supplemental Rent on time for any of
the Aircraft (save for a single occasion with respect to Aircraft 147).
The average delay in making this payment was more than 18 days.

99. The defaults giving rise to the Termination Notice have to be viewed against
this background of persistent default. Paramount stressed that all these historic
defaults were cured and that interest was paid on late payments, but that does not
explain or excuse the breaches. Paramount’s attitude, as borne out by this history
and by Mr Thiagarajan’s oral evidence, appears to have been that it does not much
matter if they are in default of their obligations, provided that they put that right
within a reasonable time. This involves a “cavalier disregard” of their contractual
obligations, and moreover of obligations which are stated to be of the essence
(cl.15.6) and to involve a repudiation if breached (cl.13.1).

100.Further, Paramount was given ample warning of the consequences of

continuing default. Aside from the warnings given in Celestial’s various Notices,
including in particular the Notice of 5 October 2009, in a letter from Mr Sonawala
of GECAS on 13 August 2009 had set out the various points that needed to be
addressed by Paramount (including the need for prompt payment going forward
and the renewal of the letter of credit) and concluded,

“Mr Thiagarajan, as you can see we are at a very important juncture here
and we need your focus and commitment behind the Airline. The
continuous late payments to us and several of your vendors is concerning
and we need to be assured that in order to support [to] you there is
adequate commitment and equity being deployed to the Airline by its
promoters. There are many ways we can support you and help you to
grow. However, Paramount needs to ensure that fulfilment of its
obligations to GECAS in whatever respect are fulfilled on a timely basis
and within the timeframes set out in the Lease Agreements.”

101. This background of persistent default despite warnings makes the

defaults which led to Celestial’s Notice of Termination on 14 October 2009 all the
more difficult to justify and excuse and is a further compelling reason for refusing
relief.

102. In considering Paramount’s conduct it is also important to have regard

to what has happened since the operative defaults and whether they have been, can
be or will be cured. The fact of the matter is that those sums have still not been
paid, nor have any further sums due been paid, even though Paramount has had
continuing use of the Aircraft pursuant to the Order of Teare J and despite the
Court Order that further sums be paid.

103. Paramount contended that were it not for the draw down under the two
letters of credit issued by State Bank of India (confirmed Deutsche Bank AG) on

28
 the 15 of December 2009, Paramount would have paid the sums due. They said
that this drawdown resulted in Paramount’s bankers refusing to make payment of
the sums due on that date and thereafter payment cannot be made because of the
bank’s view of its obligations under the Foreign Exchange Management Act 1999.
This requires the bank to be satisfied that the payments can be made. The bank,
which is the certifying authority for exchange control purposes, is treating the
demand on the letter of credit as a discharge of the sums that would otherwise be
paid, and in any event refusing to make further lease payments as Celestial asserts
the leases have been terminated.

104. Further, the bank has confirmed that it would make the payments, and
reconstitute the letter of credits, if the drawdown sums were returned, but Celestial
has indicated that it would not return the drawdown sums. They submitted that
the evidence therefore demonstrates that Paramount had sufficient funds,
notwithstanding the drawdown of the letters of credit, to make the payments and
that it is prevented from doing so by virtue of the position taken by the bank and
Celestial’s unwillingness to help break the logjam.

105. I accept that the evidence shows that Paramount did have sufficient
funds to make the payments and that, since the drawdown sums exceed the sums
outstanding, if Celestial co-operated a means could be found whereby those
payments are made. However, Celestial is under no obligation so to do. It is
standing on its strict contractual rights, as it is entitled to do, and might reasonably
be expected to do in the adversarial situation which now exists between the
parties.

106. Moreover, the difficulty in which Paramount now finds itself could have
been avoided had it not left arrangements for making the payments until the very
end, the evidence of Mr Thiagarajan being that it was left to 15 December 2009.
Further, the risk of being unable to make payment due to lack of bank authorisaton
is not only a risk which Paramount assumed under the ASLAs but the failure to
obtain the requisite authorisation is itself an Event of Default (Schedule 9 (f)(i)).

107. Although this further breach was not intentional it does therefore
involve both fault on the part of Paramount and an inability to perform for reasons
for which they are contractually responsible. This further breach, and the fact that
it involves a breach of the Court Order, is a further reason for refusing relief.

Disparity

108. Paramount’s essential point in relation to the exercise of discretion is the

disparity between the damage caused by their breach and the damage which
termination will cause.

109. Lord Wilberforce’s description of the relevant disparity to be considered

focuses on the value of the proprietary and/or possessory rights which will be lost,
rather than the factual consequences of their loss. However, I am prepared to have
regard to these wider considerations, as Knox J did in the Transag case (p102 at
(g)).

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110.Paramount’s evidence was that the loss of the Aircraft would be catastrophic
for them. The Aircraft comprise 3/5 of its fleet. There are no replacements
available in the market. It would lose its DGCA licence as its number of aircraft
would fall below the minimum number required. This would result in the aircraft
being grounded, significant inconvenience to thousands of passengers who have
bookings with Paramount and the crippling of the air transportation system in
Southern India in which Paramount is a market leader. Paramount itself would be
unlikely to survive and may well go into liquidation. That would mean the jobs of
2,200 direct and indirect employees being threatened.

111.This evidence was not sought to be challenged and I accept that there is a real
risk of very serious consequences for Paramount, its employees and its customers
if they lose the Aircraft. There was an issue as to how long it would take to find
replacements but it would appear that these specialised aircraft cannot be easily or
speedily replaced.

112.Paramount submitted that that is to be contrasted with the lack of prejudice

which will be suffered by Celestial if relief is given. Celestial will get paid the
outstanding amounts due and Paramount is willing and able to perform the ASLAs
going forwards. Further, on Celestial’s own evidence the replacement leases that
it has conditionally arranged are on less favourable Rent terms.

113.Paramount further submitted that Celestial would receive a windfall unless

relief was given as they would keep all the Rent and Supplemental Rent so far
paid under the ASLAs, which amounts to about US$9 million and US$4.5 million
respectively which is close to 50% of the capital cost of the Aircraft.

114.As already explained, I do not accept that any windfall is involved. The Rent
was agreed based on market considerations and reflects the agreed consideration
for Paramount’s use to date of the Aircraft. The Supplemental Rent is to a fund to
cover major maintenance costs and does not involve a profit or windfall.

115.Nor do I accept that the prejudice to Celestial in being held bound to continue
with the ALSAs is negligible, as Paramount submitted. The background of
persistent default by Paramount suggests that the claim made of compliant
performance hereafter should be approached with some scepticism. Whilst
Paramount says it presently has the financial resources to perform, past history
indicates that that is no guarantee of performance. Further, the financial
difficulties which it claims it suffered through loss of the use of one Aircraft
suggests shallow financial foundations which could again be shaken if anything
similar recurs.

116.It is clear that Celestial has run out of patience with Paramount’s persistent
defaults and is determined, if it can, to recover its Aircraft and let them out to
more reliable contractual partners. This is borne out by the fact that it would
prefer to let the Aircraft out to another party at an appreciably lower Rent than
continue with the ASLAs.

117.Given that this is Celestial’s preferred course of action, and given

Paramount’s history of default, I consider that the most likely outcome if relief is
granted is that the parties will be back in Court in a few months time arguing

30
 about relief again in the context of different defaults. Indeed such a hearing is
already scheduled to take place in April at which Paramount’s alleged defaults in
relation to the operation and maintenance of the Aircraft will be addressed.

118.This is not one of those cases where performance of the contract is essentially
complete and all that is required is an identified further payment or payments.
The ASLAs have four more years to run and I consider that there is a very real
prejudice to Celestial in granting relief which obliges them to carry on in a long
term contract with a contractual partner who they do not, with good reason, trust
to perform and with whom they wish to sever relations, in accordance with the
agreed contract terms.

119.As stated in the Goker case in which Lloyd LJ approved the following
passage from the first instance judgment as follows (at p3):

“Indeed, even if as at today the Plaintiff's past failures to make the

payments due under his agreement could be compensated sufficiently as a
condition of obtaining relief by the payment now of principal, interest and
costs, that fails to take into account the full extent of any future risk -- a
risk which has been demonstrated already by the Plaintiff's unreliability
and poor financial circumstances, and which depends for security upon
such a chattel as a car which, as contrasted with land, is easily moved,
easily concealed and easily sold, is liable to rapid depreciation and may
require considerable expenditure to maintain. Thus, as it was put by Sir
Godfray, when a hirer has shown himself to be a defaulter, to oblige the
owner of goods to forego his contractual rights and to return the goods to
the hirer, would be to oblige the owner to accept a risk far greater than that
contemplated when the contract was made.”

120. Many of those comments are at least as applicable here, and an aircraft
is a chattel of much greater sophistication and value than a car, and one in respect
of which continual maintenance of a high standard is required.

Conclusion on discretion

121. I have reached the clear conclusion that, notwithstanding the serious
consequences which Paramount may suffer if the Aircraft are redelivered to
Celestial, this is not an appropriate case for relief. In particular, the operative
defaults were knowingly committed and there is no excuse or even explanation for
them. They were committed against a background of persistent defaults
evidencing a cavalier disregard by Paramount for its contractual obligations and
despite clear warnings of the consequences of continuing default. The defaults
have still not been cured and Paramount has been in further default as well as in
breach of a Court Order. There is real prejudice to Celestial if relief is given and
they are compelled to carry on with the ASLAs.

122. Even if the exercise of discretion was finely balanced, which it is not, it
is well established that considerations of commercial certainty are relevant to the
exercise of the Court’s discretion and those considerations would lead me to the
conclusion that relief should not be granted.

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 CONCLUSION

123. I refuse the equitable relief sought by Paramount on both jurisdictional

and discretionary grounds. I shall hear the parties as to the terms of the relief to
which Celestial is entitled in the light of that conclusion.

1.

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