Victory (again) for aircraft lessors in Olympic Airlines versus ACG case

Matthew Harvey and Sarah Dyke of SNR Denton look at the latest lessons from the Olympic Airlines vs. ACG case.

On 17 April 2013, the Court of Appeal ruled that Olympic Airlines’ signature of an acceptance certificate at delivery of an aircraft under an operating lease prevented Olympic from claiming damages from its lessor when the aircraft later turned out not to have complied with the delivery conditions in the lease. 

The court decided that:

• It was desirable for parties to an aircraft lease to be able to agree on a simple contractual mechanism to determine – finally and at delivery – whether the aircraft complied with the lease for all purposes.  This was because the complexity of modern passenger aircraft was such that, without that mechanism, the parties might face years of uncertainty as to who was responsible for defects in the aircraft; and
• The combined effect of the clauses in the lease designed to ensure that Olympic took the aircraft “as is, where is” – particularly a conclusive evidence clause that worked with the signed acceptance certificate – was indeed conclusively to determine that question between the parties to this lease.

The judgment quotes most of the clauses in the lease designed to make the lease an “as is, where is” lease.  However, it focuses in particular on the text of the acceptance certificate and on the conclusive evidence clause triggered when Olympic signed that certificate.

The key text in the acceptance certificate was:

“Lessee hereby confirms to Lessor that … Lessee irrevocably and unconditionally accepts and leases from Lessor, in accordance with the provisions of the Agreement, the Airframe, as more particularly defined in the Lease Agreement…”

The key text in the conclusive evidence clause was:

“DELIVERY BY LESSEE TO LESSOR OF THE CERTIFICATE OF ACCEPTANCE WILL BE CONCLUSIVE PROOF AS BETWEEN LESSOR AND LESSEE THAT LESSEE HAS EXAMINED AND INVESTIGATED THE AIRCRAFT, THAT THE AIRCRAFT AND THE AIRCRAFT DOCUMENTS ARE SATISFACTORY TO LESSEE AND THAT LESSEE HAS IRREVOCABLY AND UNCONDITIONALLY ACCEPTED THE AIRCRAFT FOR LEASE HEREUNDER WITHOUT ANY RESERVATIONS WHATSOEVER…”

In the earlier High Court ruling, the judge had construed the conclusive evidence clause narrowly.  He said it simply meant that the leasing of the aircraft had begun and that Olympic could not refuse to take delivery of the aircraft. 

Taking a more commercial approach, the Court of Appeal said the clause went further and prevented Olympic from arguing the aircraft did not comply with the lease – thereby stopping Olympic from claiming damages from ACG for failing to deliver the aircraft in the condition required by the lease.

This is a very welcome decision as the court has given effect to the understanding of most people in the aircraft finance and leasing industry as to how this clause should be interpreted.