FW Aviation (Holdings) 1 Limited v VietJet Aviation Joint Stock Company [2025] EWHC 928 (Comm)
On 17 April 2025, Mr Justice Picken handed down a further judgment in FWA v VietJet following a trial in January.
Background
The judgment is the latest in a long-running dispute between FWA and VietJet. The Aircraft were originally leased to VietJet under a Japanese Operating Lease with Call Option (‘JOLCO’) structure. Under the structure, the Aircraft were financed as to ~75% by way of loan and as to ~25% by way of equity provided by Japanese investors.
Following the outbreak of the Covid-19 pandemic, VietJet fell into arrears around October 2021 on rental payments due under the lease agreements. Termination notices were issued and FWA sought to acquire the security rights under the lease agreements by way of assignment.
In a judgment handed down on 31 July 2024, Mr Justice Picken found that: (i) the lease agreements were validly terminated, (ii) the relevant rights were validly assigned to FWA, and (iii) while relief from forfeiture was available in principle, in this case it was inappropriate to grant VietJet relief.
Issues in the recent judgment
In his latest judgment, Mr Justice Picken dealt with four issues that were the subject of the trial in January:
- Whether an obligation to pay termination sums (split into sums repayable to the borrowers and sums repayable to the Japanese investors), on top of returning the Aircraft, constituted a penalty;
- If the judge found that the obligation was a penalty, whether it would be possible to sever the obligation such that VietJet would be liable only for the sums repayable to the Japanese investors;
- Whether FWA is entitled to declaratory relief as to immediate possession and control of the Aircraft; and
- Whether an obligation to pay further rent post-termination constituted a liquidated damages clause.
Decision
In deciding the first issue, Mr Justice Picken had to apply the test set out in the leading authority on penalties, Makdessi v Cavendish Square Holdings [2015] UKSC 67, [32]. The judge also considered submissions on the effect of authorities pre-dating Makdessi.
The clause in question provided that payment of the termination sums, in addition to certain other amounts, within 30 days would have permitted VietJet to exercise an option to purchase the Aircraft. The option expired without payment being made and accordingly FW sought possession of the Aircraft in addition to payment of the termination sums.
The judge decided that the obligation was not a penalty, as there were ‘wider legitimate interests’ that clause supported, and the detriment imposed by the obligation was not ‘out of all proportion’ with those interests. Having regard to VietJet being a ‘sophisticated commercial actor’, the judge concluded that such legitimate interests include tax benefits for the Japanese investors, the preservation of a ‘system of trade’ and the lessors’ interest in ‘prompt payment’.
The decision on penalties sheds light on the interpretation and application of the test in Makdessi and raises interesting questions on the proper scope of ‘wider legitimate interests’.
In relation to issues (2) and (3), the judge dismissed FWA’s alternative case of severing the obligation, and found that FWA was entitled to declaratory relief. On the last issue, upon construction of the clause for rent post-termination, the judge found that it was a liquidated damages provision. A further third trial is listed in March 2026 to determine outstanding issues of quantum.
Steven Thompson KC and Erin Hitchens act with Sebastian Isaac KC, Alexander Milner KC, Giles Robertson (instructed by King & Spalding LLP) for the Defendant.
