Has the 'Hell or High Water' Clause Lost its Appeal?

Zohar Zik considers the decision of ACG Acquisition XX LLC v Olympic Airlines SA, where the court refused to grant summary judgment on a claim for unpaid rent in respect of a leased aircraft where it was arguable that ACG Acquisition XX LLC ("ACG"), the lessor, had breached the lease agreement and failed to provide Olympic Airlines SA ("Olympic"), the lessee, an aircraft in an airworthy condition. He also examines the continuing effectiveness of "Hell or High Water"* clauses in light of this decision.

ACG applied for summary judgment in respect of its claim for payment of rent due under the lease of its Boeing 737 aircraft to Olympic and in respect of Olympic's counterclaim for damages for the alleged breach of the lease by ACG. The lease was for a period of five years and required that Olympic pay a monthly rent to ACG.

It was a term of the agreement that ACG should deliver the aircraft in an "airworthy" condition and ACG was obliged to perform a number of tasks including inspections and a C-check. A key provision stated that a signed certificate of delivery was conclusive proof of acceptance of the aircraft.

ACG delivered the aircraft to Olympic who, in turn, signed the certificate of delivery and put the aircraft into use. However, due to the discovery of various defects, the aircraft was taken out of service 14 days later and subsequently had its certificate of airworthiness withdrawn by the Greek Aviation Authority. Olympic stopped paying rent and withheld the maintenance reserves payment for accrued utilisation. ACG issued proceedings for recovery of rent and damages. Olympic counterclaimed, alleging that ACG had breached the lease agreement and claiming damages. ACG argued that Olympic was precluded from maintaining a claim against ACG as Olympic had signed the certificate of delivery which prevented it from relying on any breach.

The court refused the summary judgment application and rejected ACG's argument. It was held that Olympic's acceptance of the aircraft was only a conclusive proof that it had accepted and investigated the aircraft and that it had ascertained that the necessary documents were satisfactory. The lease agreement did not exclude ACG's liability to comply with its positive obligation under schedule 2 to provide an airworthy aircraft, as fully as it could have. Accordingly, Olympic was entitled to maintain its claim.

Further, ACG's failure to provide an aircraft in an airworthy condition was fundamental and Olympic...