Aircraft Leasing: Commercial Court Decisions

Author:Ms Hilary Pullum
Profession:Barlow Lyde & Gilbert

Two recent decisions relating to breach of aircraft leases, demonstrate how much the choice of English law or jurisdiction, to which many aerospace businesses subject their contracts, gives worldwide influence to the Commercial Court in London.

Protea Leasing Limited v

(1) Royal Air Cambodge Company

(2) Malaysian Airline System Berhad

(3) Naluri Berhad Commercial Court, 12 December 2002

In 1994 the Royal Air Cambodge Company ("RAC") was established as the sole air carrier in Cambodia. RAC leased three aircraft from the Claimant and two from the Second Defendant, Malaysian Airline System Berhad ("MAS"). RAC entered into a shareholders' agreement with the third defendant which provided that RAC would be managed by MAS in accordance with the terms of a management agreement, whereby MAS would second some of its employees to RAC.

The Claimant was a subsidiary of Avions de Transport Regional GIE ("ATR"), which had been established for the purposes of leasing aircraft.

After a coup d'tat in 1997 RAC's monopoly status was revoked and this, in addition to the fall in tourist revenues, had a detrimental effect on RAC's finances such that it was unable to make the payments under the leases.

The Claimant terminated the leases and brought a claim against RAC for the outstanding rent and termination payments due. The Claimant joined MAS to the proceedings alleging that MAS, acting through its seconded employees, failed to manage RAC in its best interests and thereby induced RAC to breach the leases. The Claimant further alleged that MAS had preferred its own interests to that of RAC by causing funds which should have been used to satisfy RAC's debt to the Claimant to be used to satisfy RAC's debt to MAS. The Claimant made a similar claim against the third defendant but this was resolved before trial.

RAC effectively ceased trading in October 2001 and was not represented at the hearing. The Court acknowledged that the Claimant was unlikely to recover a significant amount from RAC.

The Claimant alleged that MAS had committed a tortious wrong, but as none of the events giving rise to the tort occurred in England, English law states that the applicable law is the law of the country in which the most significant elements of the tort took place, in this instance Cambodia. Therefore whilst the claim against RAC was decided under English law, the case against MAS was decided under Cambodian law.

It was held that MAS' employees did not have the final control of...

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