- Compact Contract
Arrest of helicopter for unpaid tax did not frustrate contract
14 September 2021
If a contract allocates the risk of a given event, it is unlikely that event will give rise to a defence of frustration.
Elitaliana leased a helicopter from Iris Helicopter. The helicopter was imported from Switzerland to Italy to fulfil a government contract for air ambulance and rescue services.
Elitaliana became involved in a dispute with Italian authorities over whether import tax was payable on the helicopter. This dispute ultimately led to arrest of the aircraft for unpaid taxes, at which time Elitaliana was significantly behind on rent. Iris later served notice of default and, it argued, the lease consequently came to an end.
Iris sought summary judgment for sums unpaid, principally rent and interest. Elitaliana argued that the helicopter seizure frustrated the contract.
The court quoted the leading authority, The Sea Angel, in particular, noting "there has to be a break in identity between the contract as provided for and contemplated and its performance in the new circumstances."
The lease required Elitaliana to import the aircraft into Italy and to indemnify Iris against all importation taxes. The lease also allocated to Elitaliana the risk of any unavailability of the aircraft for any reason, including restrictions against use, operation or possession and any seizure.
The court held that the risk of the alleged frustrating event arising was clearly allocated to Elitaliana and to apply the doctrine of frustration would result in a reversal of that contractual risk allocation. The court therefore granted summary judgment to Iris.
Judgment: Iris Helicopter v Elitaliana (Westlaw)