Court of Appeal finds Certificate of Acceptance decisive in leading aircraft leasing decision

The Court of Appeal handed down judgment on 17 April 2013 in Olympic Airlines SA (in special liquidation) v ACG Acquisition XX LLC [2013] EWCA Civ 369 – a decision which has been eagerly awaited by the aircraft leasing industry. The case is the first in which the Court of Appeal has examined in detail the typical structure and construction of aircraft operating leases.

Teare J had found at first instance ([2012] EWHC 1070 (Comm)) that:

1. Contrary to the terms of an English law operating lease, the Claimant (“ACG”) had delivered a Boeing 737-300 aircraft to the Defendant (“Olympic”) which was neither airworthy nor safe to fly and which “had not been properly maintained”.
2. Olympic’s signature of a ‘Certificate of Acceptance’ required by the lease immediately prior to delivery did not give rise to a ‘contractual estoppel’ preventing Olympic from arguing that the aircraft was not airworthy or otherwise in the required condition at delivery. On a proper construction of the lease the parties had not agreed that the ‘Certificate of Acceptance’ would be conclusive proof of such matters or that it would waive any right to damages for any breach by ACG of its obligation to deliver the aircraft in that condition.
3. An affiliated ACG entity had nevertheless relied on Olympic’s statement in the ‘Certificate of Acceptance’ that the aircraft “complied in all respects with the condition required at delivery” so as to be “absolutely certain that Olympic considered that the aircraft complied with the required condition”. Olympic was therefore estopped from resiling from that statement. As such ACG was entitled to rent and Olympic was estopped from pursuing its counterclaim for damages for breach of contract.

The Court of Appeal found that Teare J “came to the right conclusion but for the wrong reason.”

Tomlinson LJ, giving the leading judgment, accepted Olympic’s argument that, if the lease did not provide for delivery of the Certificate of Acceptance to be conclusive proof of compliance of the aircraft with the contractual documents, “it is not possible to regard the Certificate of Acceptance as nonetheless giving rise to an estoppel by representation to the same effect”.

His Lordship nevertheless adopted a different construction of the lease from that adopted by Teare J (and also, probably, Hamblen J on ACG’s earlier unsuccessful application for summary judgment ([2010] EWHC 923 (Comm)), finding that the parties had agreed that Olympic’s signature of the Certificate of Acceptance did give rise to a ‘contractual estoppel’ which prevented Olympic from arguing that the aircraft was not airworthy or otherwise in the required condition at delivery.

A copy of the judgment can be found here: Olympic Airlines SA (in special liquidation) v ACG Acquisition XX LLC [2013] EWCA Civ 369

Philip Shepherd QC and Edward Cumming acted for Olympic, instructed by Fulbright & Jaworski International LLP.