Various Airfinance Leasing Companies (listed at Schedule A to the Claim Form) v Saudi Arabian Airlines Corporation

Hearing date: 23rd July 2021

Approved Judgment

Peter MacDonald Eggers QC:

Introduction

The Claimants and the Third Party (“the IAFC Parties”) apply for permission to amend their Particulars of Claim and their Reply and Defence to Counterclaim. The Defendant (“Saudia”) also applies for permission to amend its Defence and Counterclaim. The applications for permission to amend are made under CPR rule 17.1(2)(b). Each of the applications is resisted by the respondent to the application.

This action concerns the proper construction of certain provisions contained in Lease Agreements signed in 2015 relating to 50 Airbus aircraft, originally between the Third Party as Lessor and Saudia as Lessee. Twenty of the Lease Agreements relate to A330-300 Regional Aircraft (“A330”) and thirty of the Lease Agreements relate to Airbus A320-200 (“A320”).

The First Claimants are the current Lessors of the aircraft (to whom the leases were novated by the Third Party) and the Second Claimants are suing in their representative capacity as the parent portfolio companies of the Lessors.

Under clause 4(a)(i) of the Lease Agreements, Basic Rent is payable by Saudia at the rate of US$640,000 per month for the A330 aircraft and US$318,000 per month for the A320 aircraft (“the Basic Rent”).

The Basic Rent is subject to two escalation factors:

(1) The “ Airbus Escalation Formula Adjustment” (“the Airbus Escalation”), by which the Basic Rent would be escalated in accordance with the Airbus Price Revision Formula (“the APRF”) from January 2014 to the Delivery Date for each Aircraft (to produce “ the Airbus Escalated Rent”); and

(2) The “ LIBOR Escalation of Basic Rent” (“the LIBOR Escalation”), by which the then current Basic Rent as escalated in accordance with the Lease Agreements would be further escalated on the first Basic Rent Payment Date and each third Basic Rent Payment Date thereafter.

The parties' dispute concerns both the Airbus Escalation and the LIBOR Escalation.

The IAFC Parties' position is that the LIBOR Escalation creates a ratchet pegged to LIBOR, by which any positive amount generated pursuant to the escalation mechanism is added to the then current Basic Rent (as already escalated by the Airbus Escalation and any previous LIBOR Escalation), which then sets a new floor for the Basic Rent for the remainder of the Lease Agreements.

Saudia's position is that the LIBOR Escalation rises and falls with LIBOR.

At the time of the Reply and Defence to Counterclaim, the IAFC Parties calculated that on their case Saudia had underpaid US$38.7 million. The IAFC Parties maintain that the amount increases each month because the conditions for “ ratcheting up” are satisfied, and Saudia is now paying only what it says is due and not what the IAFC Parties say the Claimants are owed under the Lease Agreements.

Saudia's case is that it has overpaid US$21.9 million, but that amount does not change with time, because Saudia has elected to pay the Basic Rent on the basis of its own construction of the LIBOR Escalation.

The IAFC Parties contend that in the negotiations that in 2016 led to the Memorandum of Understanding dated 8th August 2016 (“the MOU”) agreed between the parties, Saudia had agreed (1) that the APRF would always be composed of the “ Airframe Price Revision Formula” rather than (as set out in the Lease Agreements) a combination of that formula and the “ Propulsion Systems Price Revision Formula”; and (2) to use the APRF for the month following the delivery month of each aircraft. The IAFC Parties contend that the applicable APRF was thereafter set out in each of the Notices of Assignment of Sub-Lease, each of the Acknowledgements of Assignment of Sub-Lease (the latter of which were signed, on all fifty occasions, by Saudia) and each of the Lease Supplements (signed on all fifty occasions by Saudia).

Saudia disagrees with the IAFC Parties' case. Saudia's case is that the only agreement was that (as it says was recorded in the MOU) the APRF for 2016 would be 1.053228, that the various documents signed at delivery do not provide as the IAFC Parties allege, and that from December 2017 it was signing those documents under protest. It says in consequence it has overpaid the Basic Rent, but that it does not know by how much.

The IAFC Parties' applications for permission to amend their statements of case relate to the LIBOR Escalation and the Airbus Escalation.

The principles applicable to the applications for permission to amend

Mr Tom Sprange QC, who appeared with Mr Kabir Bhalla on behalf of the IAFC Parties, outlined the principles to be applied by the Court in disposing of an application for permission to amend a statement of case. I did not understand Mr Charles Béar QC who appeared with Mr Giles Robertson on behalf of Saudia fundamentally to dispute these principles. I have borne these principles in mind in considering the parties' applications and expand upon them below.

In considering the applications, the following principles guide the Court in the exercise of its discretion whether or not to allow the proposed amendments, where the application is made, as here, prior to the commencement of the trial:

(1) The Court has a discretion to permit an amendment in accordance with the overriding objective to deal with cases justly and at proportionate cost. To this end, the Court will weigh the relative injustice to the applicant if the amendment is refused against any prejudice to the respondent if the amendment is permitted ( Quah Su-Ling v Goldman Sachs [2015] EWHC 759 (Comm), para. 38; Parris v Ajayi [2021] EWHC 285 (QB), para. 45).

(2) The proposed amendments should be properly and clearly formulated. By properly formulated, I take this to mean that the proposed amendment must be appropriately particularised and must disclose reasonable grounds for bringing or defending a claim or allegation and not constitute an abuse of process. By clearly formulated, I take this to mean that the proposed amendment must be readily understandable by the respondent in order to enable it to appreciate, evaluate and answer the case being advanced by the applicant. In Scott v Singh [2020] EWHC 1714 (Comm), at para. 18, His Honour Judge Eyre QC said:

“… the proposed amendment must be properly formulated in the sense of being comprehensible and setting out clearly the case which the other party is to meet. The proposed amendment must satisfy the requirements of the CPR in terms of the proper particularisation and pleading of any cause of action asserted in the amended pleading.”

(3) As regards particularisation of a plea which is sought to be introduced by way of an amendment, it is the absence of any particulars which is a cause for concern. The other extreme is a fully particularised plea. However, many pleas are not fully particularised, but provide some particulars to varying degrees. Where a proposed amendment is particularised, but perhaps not to the extent a purist would wish, the Court must decide whether the particularisation is adequate to allow the amendment. Where the particularisation is just adequate, but the particulars of the plea could be further developed, the solution which the Court could opt for is to allow the amendment, but on condition that further particulars will be provided by the applicant, or to permit the respondent to request further information as to the plea and to require the applicant to provide the further information as requested insofar as the information can be provided.

(4) If the amendment raises a substantive new claim or defence or other allegation, an applicant must demonstrate that the proposed new claim or defence or allegation has a real prospect of success (within the meaning adopted in CPR rule 24.2); the Court may reject an amendment seeking to advance a case which is “ inherently implausible or self-contradictory” or insupportable based on any evidence ( Quah Su-Ling v Goldman Sachs [2015] EWHC 759 (Comm), para. 36; Scott v Singh [2020] EWHC 1714 (Comm), para. 19).

(5) Particularly in complex litigation, it is not unusual for amendments to be made to the statements of case to reflect changes in the parties' understanding of the issues and the other party's case, the emergence of new evidence, or developments in the law. The parties may also wish to amend the statements of case to reflect the evidence that they have served for adduction at trial or to narrow or perhaps to reformulate the issues in the action. This is a consideration which the Court should take into account in deciding how to dispose of the application having regard to principles of active case management and the furtherance of the overriding objective. See Terre Neuve Sarl v Yewdale Ltd [2020] 7 WLUK 73, para. 16.

(6) A relevant factor to be...