Is the Pindell Case Manifestation of the Law of Unintended Consequences?

Zohar Zik1 considers the decision of Pindell Limited v AirAsia Berhad2, in which the court rejected a claim made by an aircraft lessor against the lessee for damages relating to the loss of the sale of the aircraft due to late redelivery by the lessee. In particular, he examines the implications of the decision on the leasing industry and offers some practical steps that parties to leasing transactions might wish to consider when attempting to mitigate them.

Facts

This claim concerned an aircraft which was owned by Pindell Limited (Pindell) but operated by AirAsia Berhad (AirAsia) under a sublease agreement which was granted in June 2003 for a five-year term by Pindell's lessee, BBAM Aircraft holdings 98 (Labuan) Ltd (BBAM).

By 2007, the aircraft was 20 years old, an age described as a "watershed" in the life of a commercial jet aircraft. In February 2008, BBAM, acting on Pindell's behalf, agreed to sell the aircraft to an unconnected leasing company by 1 August 2008 for a very attractive price. The sale agreement allowed the purchaser to terminate if Pindell failed to perform its obligations thereunder.

Due to significant mechanical problems, AirAsia failed to redeliver the aircraft at lease expiry and, in fact, the aircraft was only returned in November 2008. By then, aircraft values had plummeted and, consequently, the purchaser had exercised its option to terminate the sale agreement and walked away from the deal.

Issues

There were two key questions of law in this case: firstly, was AirAsia contractually obliged to redeliver the aircraft by the contractual expiry date of 17 June 2008 and, if so, was BBAM estopped from asserting that AirAsia was, in that regard, in breach of contract? Secondly, if BBAM was not estopped, could it claim in respect of the loss of the follow-on sale?

Attending to the first issue, the judge considered the redelivery provisions in the sublease and concluded that AirAsia was obliged – and had failed – to deliver the aircraft for technical inspection before 17 June 2008 and that, notwithstanding the fact that BBAM had, in practice, extended the lease period and the termination date, AirAsia was therefore in breach of contract. The judge also found that BBAM was not estopped from asserting that AirAsia was in breach. This was because there had not been the requisite common assumption between the parties that redelivery after the original expiry date would not be regarded as a breach of contract by AirAsia or that...