In a new report, Norton Rose Fulbright said the July 2024 judgement, in which FW Aviation was successful in its claim against VietJet, “bolsters confidence” under English law in the enforceability of structured remedies found within Japanese operating leases with call option (JOLCO) leases, particularly where default leads to early termination.
“The English High Court has upheld freedom of contract under English law and has effectively defended the JOLCO market from an attempted challenge by an airline which might have had serious consequences for the market as a whole and triggered the termination of transactions for large numbers of aircraft around the world,” said Norton Rose Fulbright partner Duncan Batchelor.
The report said the case also had practical implications for lessees, stating: “Contractual notices should not be ignored, and advice should be sought particularly when there are time limited options or else there could be significant financial consequences.”
The judgement required VietJet to pay around $181.8 million, which included termination sums and post-termination ‘Rental’. The case involved four aircraft leased to Vietjet under JOLCO deals arranged in 2018 and 2019. The leases were terminated in 2021 following defaulted payments. Norton Rose said these termination sums protect the integrity of these structures. The court had affirmed that 'Rental' functioned as liquidated damaged as opposed to regular rental payments. The law firm said that ‘Rental’ is “simply a shorthand term describing what is payable as liquidated damages to achieve an appropriate level of compensation" for aircraft that is not “redelivery condition” upon termination.
“Lessors, lessees and financiers should be alive to the drafting of post-termination rental payments and consider whether they are likely to constitute liquidated damages, liability for which subsists post-termination and may even continue after a sale of the aircraft,” the law firm added.
The full report can be read here.