COVID: no cure for claims of frustration or force majeure
30 March 2021
The English Court has twice rejected claims by aircraft lessees who wanted the return of their security deposits because of the COVID-19 pandemic: Salam Air v Latam Airlines and Fibula Air v Just-US Air. [Ed: the cases are interesting beyond aircraft finance since, for the moment, there's still not much case law discussing COVID.]
In Salam Air v Latam, Salam Air claimed the leases had been frustrated by the imposition of a flight ban by the Omani Government in March 2019. The judge held that Salam Air’s frustration case was weak and that “a dry aircraft lease [ie without a crew, etc] is a challenging context to establish frustration”. In reaching this conclusion, the judge paid particular attention to the "hell or high water" clause in the leases (an obligation to pay rent in almost any conceivable circumstances) and held that COVID and the risk of a travel ban were risks that had been assumed by Salam Air under the terms of the leases.
In Fibula v Just-US, Fibula sought a notification injunction, requiring Just-US to inform them of any intention to deal with the security deposit they had paid to Just-US. In December 2019, the parties had entered into a wet lease (ie with the crew, maintenance, insurance, etc) for one aircraft, which was to be used for charter flights between Turkey and Romania. Under the lease, payments were due from Fibula on 18 March 2020 and 1 April 2020. However, on 17 March 2020, Fibula terminated the lease, citing COVID as a force majeure event that fell within the scope of the contractual force majeure clause contained in the lease, despite the fact that flights between Turkey and Romania were not suspended due to COVID until 28 March 2020.
The judge in this case declined to grant the injunction because, among other things, as at the date of termination of the lease no relevant force majeure event had arisen which prevented Fibula’s performance of its contractual payment obligations. Just-US therefore had a strong case for retaining the security deposit and applying it to the sums due under the lease.