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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Jet2.com Ltd v SC Compania Nationala De Transporturi Aeriene Romane Tarom SA [2012] EWHC 622 (Comm) (15 March 2012) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2012/622.html Cite as: [2012] EWHC 622 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
(Sitting as a Judge of the High Court)
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JET2.COM LIMITED |
Claimant |
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- and - |
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S C COMPANIA NATIONALA DE TRANSPORTURI AERIENE ROMANE TAROM S.A. |
Defendant |
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Mr Bajul Shah (instructed by Clyde&Co LLP) for the Defendant
Hearing dates: 23 January to 1 February 2012
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Crown Copyright ©
HH JUDGE MACKIE QC:
The Background
The Agreement
""Aircraft" / "Aircraft Fleet"– in essence, any Boeing 737 operated by Jet2, in respect of which Tarom might be asked to perform Work pursuant to an RFS.
"RFS"– a Request for Service, defined by the example appended to the Agreement.
"Term"– 3 years, but extendable under Article 16, which gave Jet2 a unilateral option to extend for a further 3 years on the same terms unless the parties agreed variations before the end of the first 3 years;
"Work" – services requested by Jet2 under an RFS or otherwise carried out under the Agreement. In practice this was base maintenance work, known as or carried out during the course of C-Checks;
"Work Commencement Slots" – called by the parties "slots" or "WCSs", but defined as dates set out in Appendix F and in respect of which an RFS is delivered.
"Working Day" included Saturday mornings and excluded any day which was a public holiday in Bucharest.
"12.1 This Agreement shall subsist for the Term and the terms and conditions of this Agreement shall apply to all Work carried out (or which should in accordance with this Agreement and/or any applicable RFS have been carried out) during the Term. This Agreement may be terminated as follows:
b) notwithstanding the above provisions, by notice from the Contractor to the Customer having immediate effect, when the Customer is in default in the punctual payment of any sum due to Contractor and, following receipt of written notice of default from the Contractor, fails to cure the default within twenty (20) business days after the receipt of such notice.
12.3 This Agreement may be terminated or cancelled at any time by mutual written consent of the Parties.
12.4 In the event of this Agreement being terminated by notice or otherwise, such termination shall be without prejudice to any rights and liabilities accrued prior to the termination.
12.6 Any termination by a Party by reason of the other Party's default or by reason of insolvency or similar circumstances affecting the other will be without prejudice to all the other rights and remedies of such Party by reason of the other's default."
"13.9 Nothing in this Agreement is to be construed as imposing on the Customer any obligation to have any services performed by Contractor on any of its Aircraft Fleet or any part thereof, unless and until the Customer in its discretion issues an RFS in respect of services on the particular Aircraft therein specified. Notwithstanding the foregoing Customer agrees that it will not during the Term have scheduled maintenance of the nature described in this Agreement carried out by any other contractor unless either (i) Customer has reasonably determined that Contractor is likely to be unable to complete such scheduled maintenance by the due date required by Customer or (ii) in relation to any Aircraft on which Contractor shall have previously completed Work under this Agreement Contractor has failed to complete such Work by its Scheduled Completion Date (as the same may have been extended by Article 4.2)."
a. By 1 December each year, Jet2 had to notify Tarom of the maintenance slots ('Work Commencement Slots' or 'WCS' or just 'slots') it required in the year beginning on 1 September of the following year.. In practice, this took the form of a broad statement of how many maintenance bays (or lines) would be required, and when (e.g. 2 lines for the winter).
b. The December notification was subject to alteration and confirmation by 1 June the following year. By that date Jet2 would provide Tarom with a maintenance plan showing the dates of each proposed WCS, by aircraft and C-Check type (e.g. C1 or C2 or C6).
c. By 1 June Jet2 would pay Tarom slot deposits of US$10,000 or US$20,000 (depending on the type of C-Check) to secure the slots requested (Art. 2.4).
d. In practice the scheduling plan continued to be subject to adjustments, including the switching of aircraft. Tarom were accommodating and allowed Jet2 to re-allocate deposits where necessary.
e. In relation to each aircraft, Jet2 would prepare a draft Request for Services ('RFS') (in the form of Attachment No. 1 to the Agreement). In accordance with Art. 2.1, Jet2 would send Tarom this draft RFS setting out (in a 'workscope') the tasks required for a given aircraft, with a calculation of the "Aircraft Down Time", according to Appendices H & I, and a corresponding Scheduled Completion Date.
f. The workscope would include routine maintenance work according to the Boeing Maintenance Planning Document ('BMPD'), other maintenance required or recommended by Airworthiness Directives ('ADs') or Service Bulletins ('SBs'). Appendix G provided a formula for calculating the cost of such routine work, based upon the man hours in the BMPD / AD / SB documents multiplied by a factor of 1.8 for BMPD or 2 for AD/SB hours, at a rate of US$26 per man hour. The workscope might also include other optional work desired by Jet2 ('Customer Requests') – which was also to be priced at US$26 per man hour.
g. Tarom would then calculate the offered price of the requested maintenance according to the draft RFS, Art. 2.1 and Appendix G of the Agreement. As the hourly rate was set at US$26, the only negotiations would be in relation to the number of man hours which the optional requested tasks were expected to take.
h. Art. 2.1 provided for the finalised RFS for a given aircraft to be issued 60 days before the start of the WCS, the price having been agreed. In practice, it was common for an RFS to be finalised after this deadline.
i. Once the RFS was agreed and received, Tarom would invoice Jet2 half of the agreed price, less the deposit already paid, which invoice was due for payment on or before delivery of the aircraft (Art. 3.1(a)).
j. Upon delivery of the subject aircraft, the first third of the scheduled maintenance period was designated a Work Inspection Period during which Tarom might notify Jet2 of any extraordinary defects so as to enable the parties to agree any reasonable extension of the Scheduled Completion Date (Art. 4.2).
k. In the course of the C-Check, there would be "ground findings" of defects on the aircraft entailing extra work, done against Non Routine Cards ('NRCs'). Also, once the aircraft was inducted at Tarom, Jet2 might make additional requests for work (as permitted under Art. 11 and para G of Appx 1 to the RFS) ('Customer Requests'). Work over and above the RFS, i.e. NRCs and Customer Requests, was sometimes referred to generically as 'Additional Work'.
l. The agreed price for the RFS was calculated so as to include an allowance for a fixed number of hours and amount of materials to be spent on NRCs (Appendix G)
m. Tarom was required to engage working on a Jet2 aircraft in its facility at least 30 people at all times during the working day, 5½ days a week, and to take all possible action to complete the work in the time agreed in the RFS, working outside of normal working hours if necessary (Arts. 4.6, 4.9).
n. Art. 9 provided for a representative of Jet2 to be stationed at Tarom. Throughout the operation of the Agreement this was Mr Peter Lloyd. His role involved monitoring the maintenance work, authorising NRCs (under Art. 4.8), agreeing the price for Additional Work (usually by reference to the hours it should have taken), and liaising between Jet2 and Tarom. Upon completion of the work, Tarom would release the Aircraft to Jet2 (Art. 5). The Agreement envisaged payment against an invoice for the second 50% of the RFS price before release (Art. 3.1(b), 5.4), but in practice Tarom allowed credit on those invoices and many were paid after release of the aircraft.
o. After completion of the work on an aircraft, 'working papers' would be sent to Mr Lloyd detailing hours and materials spent on Additional Work and third parties / subcontractors (most importantly, Boeing). Mr Lloyd would negotiate and then approve these papers, from which the price for the Additional Work could be calculated at the hourly rate of $26 (Art. 3.1 and Appendix G, §3), taking account of the NRC Allowance.
p. Separate invoices for ground findings, Customer Requests and third party work would then be raised by Tarom. These invoices were payable within 30 days, if undisputed.
Facts Agreed or Not Greatly in Dispute
"With regard to your e-mail message of May 28, 2007 advising us about an amount transferred into our account we hereby inform you that in the absence of an answer from your side to the draft Amendment as you mentioned in your company's letter dated May 16, 2007, it is difficult for us to accept any amount for Work Commencement Slots. We consider it is premature at this time to agree upon Work Commencement Slots since we did not yet agree upon the terms governing an extension of the existing Agreement. We would have expected that your desired maintenance slots for the upcoming period to be discussed and agreed between the parties before JET2.COM making any payment for such slots.
However, based on the attached statement of accounts, your company is owing us USD80,902.74 (overdue) and there is also an amount of USD110,172.12 due on or before June 10, 2007. Considering the above we deem appropriate that, out of the USD 170,000.00 we apply the sum of USD80,902.74 in order to zero the balance of overdue amounts and the remaining USD89,097.26 being applied against the amount due June 10, 2007. In these circumstances please instruct your bank to take actions in order to pay us also the due balance of USD21,074.86 not later than June 10, 2007 so that all outstanding invoices issued under the Agreement to be settled until that date.
As regards the slots for maintenance, in order to allow both parties to start discussions for the works to be performed on certain aircraft over the winter 2007/2008 we would appreciate to receive your acceptance on the wording of the Amendment on or before the end of this week. We are confident that you will expedite the matter in due course, as the draft Amendment was sent to you on May 04, 2007 and your Chief Executive Officer assured us by his letter dated May 16, 2007 that JET2.COM will send the answer in a timely manner."
"Dear Sir,
I hereby inform you that the Agreement dated 26 July 2004 terminates by effect of the contractual terms stipulated in art.12.1.b as follows:
According to art.12.1.b of the Agreement, the contract terminates when the Customer does not perform his essential obligation, of making the punctual payment of any sum due to Contractor corresponding to the invoices issued by the Contractor.
Based on the attached statement of accounts, your company owes us the amount of USD191,080.86.
Your company was noticed of default, in writing, regarding its unpaid debts since the 31st of May 2007. By that notice you were informed that you have several unpaid invoices and you were specifically asked to perform your contractual obligation in due time. According to the same notice, we proposed you to compensate the amount of USD169,993.97 – transferred, in advance, for the reservation of work slots – in order to perform your obligation of payment of due invoices, but you informed us several days later that you do not agree such compensation.
As a consequence of your contractual behavior and due to the fact that you failed to cure the default in due time, according to the provisions of art.12.1.b of the Agreement, we are forced to terminate the contractual relations.
The amount of USD169,993.97, paid in advance for the reservation of work slots and the amount of USD74,427.29, paid for the aircraft that did not arrive in Bucharest as scheduled, will be returned to you, as soon as you will make the payment of all your debts, We hereby remind you that according to art.12.5 of the Agreement, in case of termination of the Agreement under art.12, that your company is obliged to make the payment for all work performed to this date."
"Thank you for your letter dated 10 September 2007. We agree that our agreement has come to an end, although we must disagree with your assertion as to the basis for it so doing. It is our position that our agreement terminated in April 2007 when you made it clear that you would (for both commercial and practical reasons) be unable to continue to perform the agreement on its current terms. Following the exercise of our contractual option to extend, this was contrary to Article 16.
In circumstances where, as you agree in your letter, you owe Jet2.com Limited substantially more that we owe you, we are not prepared to first send further monies to you before reimbursement of the sums due to us. Please now deduct the sum of US191,080.86 from the US244,421.36 owed to us and forward the outstanding amount of US53,340.40 by return. Our rights are fully reserved."
The Claims of the Parties
Evidence
"I was the chief commercial officer of the company. I am not at the moment now actually. We have appointed a new chief commercial officer. I am still chief executive. I was chief commercial officer. $26 an hour was mega mega attractive. We were having a very bad year. The accounts show a loss of 17 million, okay. I really would have loved to have used Tarom, okay. On the other hand, I have to think about safety and practicalities. So whatever this says, whatever the words say, I would love to have used Tarom. However, I had to set my staff on a course to arrange maintenance and do all the other organisation necessary at their level of middle management with other companies because we could be well up whatever creek it is."
"I knew in this world, where you don't get any communication they were going to jack us in. And they did send us a termination letter and thank goodness I had the foresight to go ahead and get it organised, or where would I have been in September? I don't know. As you see in previous emails, JAT said to me first come first served. I had to do something. … We were still hoping that Tarom would come up with the goods at $26 an hour as we had discussed. And come up with the labour to do the work on the aeroplanes. But again, it is to do something about it. I had no other option but to get a back stop."
Did Tarom validly terminate the agreement under Article 12.1(b) of the Agreement?
Did Tarom have a common law right to terminate the Agreement by reason of Jet2's admitted failure to pay by 10 September 2007 US$110,172.12 under invoices for aircraft G-CELP
Renunciation
"It is established law that, where one party to a contract has repudiated it, the other may validly accept that repudiation by bringing the contract to an end, even if he gives a wrong reason for doing so or no reason at all".
Was the Agreement terminated by mutual written consent?
Did Tarom's representations after March 2007 evince an intention not to go on with the Agreement after the summer of 2007?
Affirmation – Jet2's Response
"where the conduct of the promisor is such as to lead a reasonable person to the conclusion that he does not intend to fulfil his obligations under the contract when the time for performance arrives, the promisee may treat this as a renunciation of the contract and sue for damages forthwith" Chitty (vol.1, §24-026);
"[87] In my judgment, there is of course a middle ground between acceptance of repudiation and affirmation of the contract, and that is the period when the innocent party is making up his mind what to do. If he does nothing for too long, there may come a time when the law will treat him as having affirmed. If he maintains the contract in being for the moment, while reserving his right to treat it as repudiated if his contract partner persists in his repudiation, then he has not yet elected. As long as the contract remains alive, the innocent party runs the risk that a merely anticipatory repudiatory breach, a thing 'writ in water' until acceptance can be overtaken by another event which prejudices the innocent party's rights under the contract – such as frustration or even his own breach. He also runs the risk, if that is the right word, that the party in repudiation will resume performance of the contract and thus end any continuing right in the innocent party to elect to accept the former repudiation as terminating the contract." Latco per Rix LJ (at [87]);
"this contract, especially during the winter break between two racing seasons, did not present the typical case where mere delay may demonstrate a decision to affirm... The present case concerns a complex and medium term relationship, which a takeover has destabilised, and where it necessarily and legitimately takes time for the consequences to become clearer and for the innocent party to consider his position. That is the middle ground between acceptance of a repudiation and affirmation of a contract which I discussed in the earlier Stocznia case" Force India Formula One Team v Etihad Airways [2010] EWCA Civ 1051 per Rix LJ (at [122]).
"The Court should not adopt an unduly technical approach to deciding whether the injured party has affirmed the contract and should not be willing to hold that the contract has been affirmed without very clear evidence that the injured party has indeed chosen to go with the contract notwithstanding the other party's repudiation....the Court should generally be slow to accept that the injured party has committed himself irrevocably to continuing with the contract in the knowledge that if, without finally committing himself, the injured party has made an unequivocal statement of some kind on which the party in repudiation has relied, the doctrine of estoppel is likely to prevent any injustice being done.
"Considerations of this kind are perhaps most likely to arise when the injured party's initial response to the renunciation of the contract has been to call on the other to change his mind, accept his obligations and perform the contract. That is often the most natural response and one which, in my view, the court should do nothing to discourage. It would be highly unsatisfactory if, by responding in that way, the injured party were to put himself at risk of being held to have irrevocably affirmed the contract whatever the other's reaction might be, and in my judgment he does not do so. The law does not require an injured party to snatch at repudiation and he does not automatically lose his right to treat the contract as discharged merely by calling on the other to reconsider his position and recognize his obligations." Moore-Bick J, as he then was, in Yukong Line v Rendsburg Investments Corp [1996] 2 Lloyds Law Rep 604, 608 first col.
Was there a renunciation and no affirmation?
"No, we were not. We wanted this agreement to continue. We wanted to pay $26 an hour for the many hundreds of thousands of man hours we would incur over the next three years".
It is clear this remained Jet2's position until Tarom purported to terminate on 10 September. It was not waiting to make up its mind
, it was determined to hold Tarom to its bargain. The questions of renunciation and affirmation are inextricably linked when a period of frequent dealing between the parties is being examined. There may well have been times in the months relied on by Jet2 when it could have treated acts or omissions by Tarom as being repudiatory but for good business reasons it did not wish to do so. To the extent that there was repudiatory conduct by Tarom it was affirmed by Jet2 who wanted the Agreement to continue.
Jet2's Claim for Damages
"The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind."
Counterclaim
Conclusion
POSTSCRIPT.
At Paragraph 76 I should have made explicit what I thought, perhaps wrongly, was implicit. After the developments in the summer a showdown of some kind was imminent and inevitable. It came in the form of Tarom's attempt to terminate rather than in some initiative from Jet2. However a company like Jet2 was not going to sit by and incur additional costs for servicing its fleet in the coming season without holding Tarom to its bargain in some way or another. I say this in a postscript, rather than correct the text, because it has occurred to me only having read the pre judgment notes of Counsel.
Note 1 with whom Toulson and Mummery LJJ expressly agreed, see [147] and [150] respectively [Back]