On 27 February, the Commercial Court's Judgment in Nas Air Co v Genesis Aviation Trading 3 Ltd was handed down. It is notable for two features. First, there are very helpful summaries, in the commercial aircraft leasing context, of the current law as to principles of contractual construction, the significance of the commercial "context" known to the parties at the time of contracting and the implication of terms. Second, the Court considered the question of whether an "entire agreements" clause operates to exclude pleas of estoppel.

The contract in question was an agreed extension of a long lease of an Airbus A320 214 with CFM56-5B4/P engines, operated by Flynas, Saudi Arabia's budget airline. As was known at the time of the extension agreement, the engines were scheduled for major overhauls, by way of "performance restorations" during the extension period, costing $12m. This is a familiar problem when extensions of long leases are contemplated. The airline could have avoided the cost of the performance restorations by declining the extension and handing back the aircraft.

The core dispute is about the meaning of a bespoke provision in the extension agreement providing an option for the provision of substitute engines, with enough life to see out the extension period, so as to avoid the performance restorations of the original engines. The airline says that the relevant term, allowing it to "offer to provide" alternative engines, entitled it to lease in and fit such engines and avoid the cost of the performance restoration. The lessor says that the provision gave it an absolute discretion to refuse substitute engines and to insist that the engines go into the shop for the restorations.

The Court was faced with a reverse partial summary judgment application by the lessor seeking the dismissal of the Claimant's claims. HHJ Pelling QC rejected the application so far as it related to the issue of "offer" above, accepting the airline's submission that it was "realistically arguable" that the lessor's construction "makes no commercial sense". He did however hold that the "entire agreements" clause did preclude the Claimant from running an alternative case on estoppel based on the lessor's pre-contract expressions of its consent to substitute engines provided by the airline.

There is now an appeal on a separate point. The Judge identified and answered, in his Judgment, another point of construction of the relevant clause, a point which had not been raised by either of the parties. The appeal therefore raises interesting issues of principle as to what steps a judge must take to ensure procedural fairness when a new point of construction occurs to him, and what weight he ought to give to concessions by the parties, especially where (as here) the parties have a special knowledge of the aircraft leasing context.

Matthew acted for the Airline, instructed by Robin Springthorpe and Emma Humphries at Norton Rose Fulbright

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