fibula air travel s.r.l

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Some early clues about the interpretation of force majeure clauses in the context of COVID-19

The High Court's recent judgment in Fibula Air Travel s.r.l. v Just-Us Air s.r.l. [2020] EWHC 3048 provides some early clues about how force majeure clauses might be interpreted where parties seek to rely on them as a result of difficulties associated with the COVID-19 pandemic (the " Pandemic ").

Although the parties' arguments on the application of the clause were only considered briefly at this stage of the litigation, the judgment reiterates some fundamental principles concerning the application of force majeure clauses and provides a useful case study for those in the air travel industry.

Case background

Decision and analysis, now reading.

The claimant, Fibula Air Travel s.r.l. (" Fibula "), chartered an aircraft from the defendant, Just-Us Air s.r.l. (" Just-Us "), pursuant to the terms of a wet lease agreement dated 9 December 2019 (the " Lease "). Fibula paid a security deposit to Just-Us under the terms of the Lease. It appears that the parties intended that the aircraft would fly between Romania and Turkey.

On 18 March 2020, Fibula was due to pay its first instalment under the Lease to Just-Us. However, one day before that payment was due, Fibula purported to terminate the Lease, relying on a force majeure provision in the Lease stating that parties would not be liable for " any failure or delay in the performance of any obligations under this agreement due to force majeure ", and that the parties could terminate the Lease " in the event of a force majeure situation continuing for a period of ten days or longer ".

Fibula argued that problems associated with the Pandemic constituted the relevant force majeure situation. Having purported to terminate the Lease for that reason, Fibula sought a notification injunction (which is similar to a freezing injunction in its effect) in respect of the security deposit it had paid to Just-Us, requiring Just-Us to notify any intention to deal with the security deposit. Fibula's principal argument for obtaining the injunction was that, owing to its termination of the Lease, it was entitled to the return of the security deposit, and that it could be inferred from Just-Us's refusal to give back or preserve the security deposit that there was a risk of the security deposit being dissipated pending a final judgment. It was the question of whether to grant the injunction that was before the court.

The court refused to grant the injunction. The court held that it could not infer a risk of dissipation purely from Just-Us's refusal to give back or preserve the security deposit, on the basis that it had " perfectly reasonable arguments " to retain the deposit. There therefore did not appear to be any improper conduct on the part of Just-Us for the purposes of the risk of dissipation test, and there was no other basis on which to find such a risk for the purposes of granting the injunction.

As a result, the court did not need to go on to consider whether one of the other tests to be met when seeking a notification injunction, namely whether Fibula had a good arguable case that the security deposit should be returned, was satisfied. However, in dealing with the risk of dissipation argument, the court did briefly consider the relative strengths of the parties' positions as to whether Fibula could rely on the force majeure clause to terminate the Lease. The following points are of interest:

• In determining if and when a force majeure event might have arisen, there was much focus on the impact of the Pandemic upon flights between Romania and Turkey (which appears to have been the intended route for the aircraft). The judge noted that, as at 17 March 2020 (i.e. the date that Fibula sought to terminate the Lease), flights between Romania and Turkey had not been suspended (Turkey appears only to have announced a suspension on 28 March 2020, with Romania announcing an equivalent suspension in early April). If the Lease only covered travel between Romania and Turkey, this strongly calls into question whether a force majeure event can be said to have occurred as at 17 March 2020 (some days before the relevant flight suspensions). If the Lease was intended to cover a wider range of routes, then the analysis might have been different.
• As far as Fibula's obligations were concerned, on 18 March 2020 Fibula was required to pay its first instalment under the Lease (one day after it terminated the Lease). There was no evidence that anything had happened, as at that date, that would impede performance of that specific obligation. Indeed (and putting to one side Just-Us's obligations for present purposes), it could potentially be said that even a suspension of flights prior to 17 March 2020 would not have impeded the performance of the obligation to pay a sum of money – although that point was not made explicitly by the judge and may depend upon the evidence.
• As far as Just-Us's obligations were concerned, Just-Us was not required under the Lease to start flying until 1 April 2020. There is therefore a question as to how the difficulties associated with air travel resulting from the Pandemic could have constituted a force majeure event before 1 April 2020 given that, until that date, there was no obligation on Just-Us to fly that could have been disrupted. In addition, Just-Us's obligation to fly was conditional upon Fibula making its payments under the Lease (which it did not do).
• The parties were only entitled to terminate the Lease " [in] the event of a force majeure situation continuing for a period of ten days or longer" . As such, even if a force majeure event could be said to have occurred on 28 March 2020 when Turkey suspended flights, Fibula could only elect to terminate the Lease ten days later. The judge noted that Fibula would therefore have not only been required to pay the first instalment due under the Lease on 18 March 2020, but also a second instalment due on 1 April 2020. This in turn gave Just-Us a strong argument in favour of retaining the security deposit (i.e. to set off the unpaid instalments). This was ultimately why the application for the injunction failed.

Although it remains to be seen whether the parties' arguments will be the subject of more detailed assessment at a final trial, the court's view at this stage was that Just-Us had " strong arguments" that no force majeure event had come into existence as at 17 March 2020, despite the severe difficulties that the air travel industry was likely to face at that point.

The judgment reiterates that the English courts will closely scrutinise both the specific events that a party relies on when claiming that a force majeure event has arisen, as well as the precise wording of the force majeure clause and the broader agreement. Although force majeure clauses differ from contract to contract, they are generally drafted to relieve parties from their contractual obligations when the performance of such obligations is prevented, hindered or delayed by events beyond their control. As such, unless the drafting of the clause promotes a different approach, the court will likely scrutinise the impact that the alleged force majeure event has had on the parties' obligations. Simply pointing to the general difficulties associated with the Pandemic as a reason for being able to rely on the clause is unlikely to be sufficient. Other types of clauses, such as material adverse effect clauses, may provide alternative relief (see our recent briefing on this topic here ), and other common law remedies (such as those in frustration and restitution) may also be available to parties who encounter difficulties.

Some in the air travel industry may at least be encouraged to see the court's indication that restrictions on travel may be capable of constituting force majeure events, in circumstances where the force majeure clause is silent on the types of event that might qualify (as was the case here). This is, however, a very short judgment dealing with an interim matter in the litigation. As similar cases arising out of the Pandemic continue to work their way through the courts, we can expect more detailed guidance on the interpretation of force majeure clauses in the months ahead, which will no doubt be eagerly awaited by those in the air travel industry.

Adam Bradley

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Fibula Air Travel Srl v Just-Us Air Srl

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[2023] EWHC 1049 (Comm)

Mrs Justice Dias DBE

Case No: LM-2022-000220

IN THE HIGH COURT OF JUSTICE

KING'S BENCH DIVISION

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

LONDON CIRCUIT COMMERCIAL COURT

Royal Courts of Justice, Rolls Building

Fetter Lane, London, WC4A 1NL

Mr Matthew Bradley KC and Ms Seohyung Kim (instructed by Hudson Morgan Williams Ltd) for the Claimant

Mr Jonathan Dawid and Ms Emilie Gonin (instructed by Consortium Legal) for the Defendant

Hearing date: 24 March 2023

This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 9:30am on Thursday 4 th May 2023.

Introduction

This is an application by the Claimant (“Fibula”) to amend its Reply and Defence to Amended Counterclaim.

The underlying claim was for the return of a security deposit paid by Fibula pursuant to an aircraft leasing agreement dated 9 December 2019 on the basis that the lease had been validly terminated for repudiatory breach, alternatively force majeure , alternatively that it had been frustrated. Although Fibula is not named as a party to the lease, it was nonetheless a signatory to the lease agreement and was referred to as the “Charterer”. It is therefore accepted by both parties that it is to be treated as being in the position of a lessee. The Defendant lessor (“Just-Us”) counterclaims for approximately €5 million allegedly due as the balance of the minimum fee payable under the lease by way of stage payments. As will therefore be obvious, the critical issue between the parties concerns the termination or otherwise of the lease.

Fibula issued the claim on 8 October 2020 seeking the return of the deposit on the sole ground that the lease had been terminated by force majeure on 17 March 2020. The Particulars of Claim were amended on 16 November 2020 to add further allegations (amongst others) of termination on grounds of repudiatory breach and frustration/illegality. A Defence and Counterclaim was served on 30 November 2020, followed by a Reply and Defence to Counterclaim on 21 December 2020. At this stage, the Counterclaim merely sought declarations that the lease had not been terminated and that Just-Us was entitled to retain the security deposit. However, Just-Us then served a Defence and Amended Counterclaim on 9 March 2021, claiming payment of the stage payments under the lease, to which Fibula responded with a Reply and Defence to Amended Counterclaim on 6 April 2021. The Defence to Amended Counterclaim essentially relied on the facts and matters asserted in the Particulars of Claim to assert that Just-Us had no entitlement to the sums claimed in circumstances where the lease had been validly terminated.

On 2 April 2021, Just-Us applied for reverse summary judgment seeking dismissal of the claim. The application came before HHJ Pelling on 1–2 March 2022, who dismissed the claim on all grounds. Permission to appeal to the Court of Appeal was refused by Males LJ on the basis that it would have no real prospect of success. Fibula's further application to adduce new evidence was also refused by him on the grounds that the criteria for admission of new evidence on appeal were not satisfied. In particular, it had not been shown that the evidence in question could not have been obtained for the hearing before HHJ Pelling.

The summary judgment application did not address the counterclaim at all and Fibula now seeks to amend its Reply and Defence to Amended Counterclaim to introduce new defences to the counterclaim relying, in part, on the new evidence which it unsuccessfully sought to adduce before the Court of Appeal in relation to the claim. Fibula admits and avers that the substance of the defences which it now seeks to raise would have prevented the summary dismissal of the claim. Indeed, it submits that they would have resulted in the claim succeeding. Just-Us objects to the proposed amendments on the grounds that they amount to a collateral attack on the judgment and that the defences raised are either res judicata by virtue of an issue estoppel or abusive on the principle stated in Henderson v Henderson (1843), 3 Hare 100 .

The Parties and the Lease

Fibula is a Romanian company which sells package holidays to various destinations, including Turkey, Bulgaria, Cyprus, Malta, the Seychelles and the UAE. Just-US is also a Romanian company which offers wet leases (i.e. aircraft, crew, maintenance and insurance) to commercial airlines wishing to increase their capacity.

The contract here was for the wet lease of an Airbus A320 aircraft by Just-Us to Fibula for a 6-month term from 1 April 2020 to 31 October 2020. It provided for Fibula to pay a security deposit of €765,000 on signing the lease followed by stage payments totalling a further €4,590,000. The stage payments corresponded to a minimum of 2,100 “block hours” which Fibula guaranteed to perform under the lease unless prevented due to default on the part of Just-Us. As appears from the Payments condition recited below, the obligation to make stage payments arose following “pre-agreed successful audit from lessee quality and compliance department to lessor” . This latter obligation was referred to in argument as the “Audit Condition”.

The lease also provided that it would come into force only “when Turkish and Romanian Civil Aviation Authorities' approvals obtained as well as Malta CAA. Lessor will provide Romanian CAA acceptance letter but not later than 30 days after agreement execution together with all requested dox for Turkish CAA Application.” This was referred to as the “Approvals Condition”.

Further relevant terms of the lease were as follows:

“ WHEREAS :- … Lessee hereby declares that he has all rights and required authorizations, AOC and licenses to operate the Flights in accordance with the Flight schedule (as defined herein) and has obtained all approvals and authorizations, if needed, to enter into this Agreement and wet lease the Aircraft from Lessor . Subject to the conditions and pursuant to the terms of this Agreement and subject to any applicable approvals, lessor agrees to wet lease and operate the Aircraft with its own or cabin and cockpit crew for the Term on ACMI basis . … NOW IT IS HEREBY AGREED as follows: … Minimum Guaranteed BH (Guaranteed BH) for the Period – Means totally 2.100 Guaranteed Block hours for aircraft . For avoidance of doubt, Lessee guarantees the payment of the Guaranteed Block Hours during the lease period, even when during Term, not all Guaranteed Block Hours have been performed due to default of Lessee. In case of not all Guaranteed Block Hours have been performed due to default of lessor, all done payments and security deposit will be refund for non-performed hours after reconciliation . … Payments: — Charterer, following the pre agreed successful audit from Lessee quality And compliance department to lessor, shall unconditionally and without any set-off pay the following wet lease payments (the “Due Payment”) defined therein below, which shall be received by Lessor on its account on the following dates and amounts . … Confirmations: — Lessee confirms that all traffic rights, authorizations and clearances for entering into this Agreement and assuming obligations under this Agreement will be obtained. Lessee shall obtain and maintain in full force and effect all authorizations for the time being required by all applicable laws, including the laws or regulations of the state to which/from which Flights to be performed or any other applicable jurisdiction, to enable Lessor to perform its obligations under this Agreement. … Lessee Responsibilities: … — Lessee will perform technical, safety, security and operational checks or audits of the Aircraft and will inform Lessor about findings. Lessor prepare corrective action plan within 3 business days which shall be approved by the Lessee. … … Other conditions: … — Lessor will provide a statement from its own Civil Aviation regulatory which confirms all operational responsibilities will on Lessor account and all operational and technical surveillance will be done by themselves according to EASA/ICAO rules during the lease term Force Majeure — Lessor or Lessee shall not be liable for any failure or delay in the performance of any obligations under this Agreement due to Force majeure. In the event of a Force Majeure situation continuing for a period of ten (10) days or longer (during which time the parties shall use their best efforts to alleviate the effects of the Force Majeure situation), either party will be free immediately to terminate the leasing of the Aircraft under this Agreement by notice in writing to the other, provided always that any such termination shall be without prejudice to any obligations accrued at the date of termination and to any continuing obligations under this Agreement . …”

The judgment of HHJ Pelling

As at the date of the summary judgment application, Fibula's claim to recover the security deposit was based on the following facts and matters amongst others:

(a) Measures taken by the Romanian Government: (i) On 16 March 2020, Romania declared a state of emergency which prohibited people in Romania from travelling to airports and/or flying for the purposes of a holiday; (ii) On 21 March 2020, it was decreed that all but Romanian citizens would be prevented from entering the country as from 22 March 2020; (iii) On 23 March 2020, people were prohibited from leaving their residence except to purchase goods for basic needs or for medical assistance; (iv) On 4 April 2020, all flights between Romania and Turkey were prohibited as from 5 April 2020;

(b) Suspension by Turkish Airlines on 27 March ...

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Case Law Update: COVID-19, Force Majeure, and Aircraft Leases

As we enter the coronavirus (COVID-19) pandemic’s “second wave” and aspirations for a “back to normal levels” rebound in 2021 for the aviation industry look less likely, the financial pressure point is quickly spreading from airlines to those up and down their vertical supply chain, notably aviation lessors. Mainstream aircraft lessors have historically had a relatively stable balance sheet underpinned by a market where demand for quality narrow body and wide body aircraft outstripped demand. This allowed lessors to maintain a relatively stable income and, critically, the ability to redeploy aircraft assets in the event of a problem with a lessee.

COVID-19 has turned this market upside down. At the outset of COVID-19, many lessees sought payment holidays from lessors; this has, in many cases, now escalated to deep discounts, write offs, and extreme cases of returning aircraft regardless of default risk. In light of this, it has been critical for parties, particularly lessors, to understand their contractual rights and the strength of their ability to enforce leases and therefore, have some faith in their balance sheet, cash forecasts, and ultimately their ability to survive.

In light of the above, lessees have sought to understand their contractual remedies and whether COVID-19 constitutes force majeure. Several cases arising from the initial outbreak of COVID-19 are before the courts and provide some helpful guidance for lessees and airlines considering their contractual rights. The recent High Court decision in Fibula Air Travel Srl v Just-US Air Srl (2020) EWHC 3048 makes it clear that the courts will look specifically to the drafting of the force majeure clauses and the factual matrix, including the wider commercial understanding between parties.

The current case arose from a purported termination of a wet lease by the lessee, Fibula Air Travel (Fibula), who applied for a freezing order over a security deposit it had paid to the lessor, Just-US Air (Just-US). The lease, which was dated 9 December 2019, required Fibula to pay the first instalment on 18 March 2020 and a second instalment on 1 April 2020.

A force majeure clause allowed either party to terminate if a situation arose which caused “failure or delay in the performance of any obligations under this agreement” which continued for a period of ten days or longer. While not explicitly stated in the contract, there was a commercial understanding between the parties that the wet-leased aircraft would be used for commercial flights between Romania and Turkey.

On 17 March 2020, Fibula claimed that the lease was terminated by force majeure and withheld payment of both instalments. Fibula then requested the return of the security deposit which Just-US refused.

The court ultimately did not accept the arguments by Fibula that a force majeure situation occurred on the 17 March 2020 for two reasons: (1) at that point, there were no suspensions in flights between Romania and Turkey and (2) the force majeure clause specifically required the situation to continue for a period of ten days or longer.

In finding that there was no force majeure situation on the 17 March, the court focused strictly on prevention/interruption of performance of the contract. As the aircraft was not scheduled to fly before 1 April, performance under the wet-lease was not prevented by the COVID-19 pandemic.

While the court did not explicitly decide on whether Turkey’s or Romania’s suspension of flights constituted force majeure, the court did consider Turkey’s suspension of flight on 28 March to “potentially to be a force majeure event which might…enable a termination to take place pursuant to that clause”. This was despite the fact that the lease did not explicitly state the aircraft would be limited to flights between Turkey and Romania. The court indicated that flight restrictions between principal areas of operations, even if what was only within the commercial contemplation of parties, could arguably constitute a force majeure situation.

However, even if a force majeure event was deemed to occur on the 28 March, the court found the force majeure clause’s requirement that the situation persist for ten days meant that the second instalment would have remained payable on the 1 April. Therefore, the court found that Just-US had a strong argument that even if the lease were terminated by force majeure, both instalments remained payable. As such, the court ruled that Just-US is entitled to retain the security deposit against the amounts unpaid by the claimant.

The judgment therefore makes clear that, absent specific wording in a force majeure clause covering disease outbreaks, the courts will be unlikely to accept arguments that the mere existence of COVID-19 constitutes a qualifying event merely because it impedes performance of contractual obligations. This judgment makes clear that the party claiming force majeure must demonstrate the specific restrictions significantly restricts performance of its contractual obligations. Additionally, the judgment highlights the importance of attention to specific contractual terms on preconditions necessary to claim force majeure and the sequence of events surrounding potential termination.

However, the court also indicated they are willing to consider non expressly agreed factors, such as the commercial intentions of both parties. In closing the door on spurious general claims of COVID-19 as a force majeure event, the courts have left open the door on arguments that national restrictions imposed as a result of COVID-19 can constitute a force majeure event that restricts performance of the specific commercial objectives implicitly agreed.

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Major Disruption: how will the courts apply Force Majeure clauses in the age of Covid-19?

With businesses suffering considerable disruption because of the pandemic, the scope and application of force majeure (“FM”) clauses has been a question of great legal and commercial interest. Fortunately, in the recent case of Fibula Air Travel srl v Just-Us Air srl [2020] EWHC 3048, the High Court provided an initial indication of the likely approach judges will take to the interpretation of FM clauses going forward.

Force Majeure

Force Majeure clauses release a party from liability when an extraordinary event outside of their control makes the fulfilment of a contractual obligation impossible. The exact scope and meaning of an FM clause will depend upon how the contract is drafted (although wars, strikes and natural disasters are examples of commonly stipulated FM events).

Background to the Case

By way of a wet lease dated 9 December 2019, Fibula Air Travel srl (“Fibula”) chartered an aircraft from Just-Us Air srl (“Just-Us”). Under the terms of the lease, Fibula was required to pay Just-Us the first installment on 18 March 2020.

On 17 March, Fibula purportedly terminated the lease. Fibula relied on a Force Majeure clause allowing either party to terminate the lease if a “ force majeure situation ” arose that continued “ for a period of ten days or longer ”. Fibula argued that the pandemic amounted to a “ force majeure situation ”.

Fibula also withheld payment of the first instalment, asserting that a further clause in the lease provided that neither party would be liable for a “ failure or delay in the performance of any obligations under [the lease] due to force majeure ”.

The High Court’s Analysis

Although the extent to which Fibula could rely on the Force Majeure clause to withhold payment of the first installment and terminate the lease was not the principle issue in dispute (see conclusion below), the High Court made several important observations on this issue.

In analysing whether a “ force majeure situation ” had occurred, the Court gave considerable attention to the purpose of lease. The lease was intended to provide Fibula with an aircraft that would fly between Romania and Turkey. Given that neither Romania nor Turkey had suspended flights between the respective countries before Fibula had (purportedly) terminated the lease on 17 March, a “ force majeure situation ” was unlikely to have arisen. Had flights between Romania and Turkey been suspended due to the pandemic at the time of termination, Fibula’s reliance on the Force Majeure clause would have been better grounded (pun intended).

When relying on an Force Majeure clause, it is important to identify a link between the disruptive event and the specific contractual obligation one is unable to perform. Although Fibula were arguing that the pandemic was a “ force majeure situation ”, it was not clear why the pandemic actually prevented Fibula from paying the first installment on 18 March.

Under the terms of the lease, Just-Us were not obligated to start flying until 1 April 2020 (ie. after the dated on which the lease was terminated). Fundamentally, it makes little sense to say that the pandemic constituted a “ force majeure situation ” when – even if the pandemic had caused flight disruptions – Just-Us had no obligation to fly prior to payment of the first instalment.

Another timing issue concerned the date on which the lease was terminated. According to the Force Majeure clause, Fibula was only entitled to terminate the lease for a “ force majeure situation ” that lasted “ a period of ten days or longer ”. On 28 March 2020, Turkey suspended flights to Romania. Assuming that 28 March was the earliest conceivable “ force majeure situation ”, Fibula would only have been entitled to terminate the lease on 7 April 2020. Consequently, as the High Court observed, a “ force majeure situation ” on 28 March would not have released Fibula from its obligation to pay the first installment or the second, which was due on 1 April.

Although the principal issue in this case concerned Fibula’s application for a freezing order against Just-Us in respect of a security deposit, the High Court’s analysis of Fibula’s reliance on the Force Majeure clause is likely to reflect the robust approach that judges will be taking to future disputes based on pandemic-related business disruption. In particular, judges will carefully consider the particular wording used in an Force Majeure clause and the factual background underlying the dispute – including the parties’ commercial understanding of the contract’s purpose.

Mere financial difficulties or operational complications are unlikely to be deemed sufficient grounds for triggering a party’s rights under an Force Majeure clause. In these circumstances, alternative contractual provisions – like “material adverse effect” clauses – and common law remedies – like restitution (and perhaps frustration) – may be more plausible avenues for relief. Of course, this will need to be assessed on a case-by-case basis.

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Aircraft leasing in the time of covid-19 – case review .

13 April 2021

By Alex Sharples

One year on from the first UK lock down and as Europe has entered a 'third wave' of the Covid-19 pandemic, any plans on the part of the aviation sector for a "return to normal" by the summer of 2021 appear increasingly unlikely.

The crippling effect of the pandemic on carriers has been felt up and down the supply chain and particularly by lessors.

Historically, the leasing market has been comparatively robust, with aircraft supply outstripping demand.  The pandemic has changed this entirely and, notwithstanding strong government support, aircraft demand has plummeted. While many lessees initially requested payment holidays, this subsequently escalated to major discounts, write-offs, re-purposing of aircraft and ultimately events of default.  

It is therefore critical that all parties involved in the aviation leasing sector fully understand their contractual rights and potential enforcement options.  In 2020, a number of cases came before the English Courts testing whether the pandemic constitutes either an event of force majeure or frustration, thereby enabling a party to walkaway from their obligations.  These decisions provide useful guidance for the sector and their potential impact is discussed further below.

The risks of claiming force majeure

Fibula Air Travel Srl (Fibula) v Just-US Air Srl (Just-US) (2020) EWHC 3048

This dispute related to an ACMI lease under which Just-US had been due to undertake flights for Fibula between Romania and Turkey from 1 April 2020.

On 17 March 2020, Fibula sought termination of the lease on the grounds that the pandemic constituted an event of force majeure. It also sought to withhold several payments due to Just-US on 18 March and 1 April 2020 and the return of its security deposit.  Just-US refused and Fibula was forced to apply to the Court for a notification injunction (similar to a freezing order) over the security deposit. Fibula sought to argue that Just-US's refusal to return the security deposit indicated that there was a real risk of the funds being dissipated pending final judgment. The Court refused Fibula's application for an injunction and, more importantly from a sector-wide perspective, considered whether Fibula could rely on the force majeure clause to terminate the lease.

The force majeure clause in question allowed either party to terminate if a situation arose which caused "failure or delay in the performance of any obligations under this agreement" which persisted for ten days or more. The Court focussed on the commercial purpose of the lease i.e. the undertaking by Just-US on behalf of Fibula of various commercial flights between Romania and Turkey. The Court held that, as of 17 March 2020, neither Romania nor Turkey had grounded flights (full flight suspension did not occur until 28 March) and thus a "force majeure situation" had yet to arise.

The Court did indicate that, had such a suspension been in place at the date of purported termination of the lease, then Fibula’s reliance on the force majeure clause would have had more merit. However, even then, the force majeure event would only come into play 10 days after the suspension i.e. by 7 April 2020. Fibula would therefore have been required to meet both of the payments due in March and April 2020 respectively. This gave Just-US a strong argument in favour of retaining the security deposit (i.e. to cover unpaid instalments), and on that basis the application for the injunction was denied.

This judgment makes it clear that a lessee claiming force majeure must demonstrate that specific restrictions have significantly impacted upon performance of contractual obligations.  The Court's focus will be on the specific wording in the relevant force majeure clause and the factual matrix underlying the dispute, including agreed factors, such as the commercial intentions of both parties even if these are not expressly included in the contract.  In such circumstances, lessors and lessees should also be aware of alternative contractual provisions which may be available such as material adverse change or effect clauses (MAC clauses) and also common law remedies such as frustration (discussed further below) as alternative avenues for potential relief.

The law of frustration has limited application

Salam Air SAOC (Salam) v Latam Airlines Group SA (Latam ) [2020] EWHC 2414.

Salam (operating out of Muscat, Oman) entered into three identical aircraft leases with Latam.  Salam provided Latam with 3 standby letters of credit ( SBLCs ) in lieu of deposits, which Latam was entitled to draw on without notice in the event of default.

In March 2020, in response to the pandemic, the Omani CAA suspended all flights in or out of Oman (bar cargo flights). Salam stopped paying rent under the leases in March 2020 and redelivered the aircraft to Latam in June 2020. Salam subsequently gave notice to terminate the leases on the basis that they had been frustrated due to the travel restrictions introduced by the Omani CAA. Salam then applied for an injunction restraining Latam from calling on the SBLCs.  Salam's application asked the Court to determine: firstly, whether it should interfere with the operation of the SBLCs by granting the injunction and secondly, whether Salam could adequately demonstrate that the leases were frustrated by the effects of the pandemic.

Notwithstanding the fact that Salam's application was dismissed on the basis that it would only be appropriate for the Court to intervene and provide injunctive relief in relation to the operation of irrevocable letters of credit in "exceptional circumstances" (e.g.  where the letter of credit itself was invalid), the Court still went on to consider whether Salam could demonstrate frustration of the leases due to the pandemic.

The Court applied the test for frustration set out in  National Carriers v Panalpina  [1981] AC 675 :

"would outstanding performance in accordance with the literal terms of the contract differ so significantly from what the parties reasonably contemplated at the time of execution that it would be unjust to insist on compliance with those literal terms."

In applying this test, the Court also confirmed the position set out in Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage and Towage) Ltd ( The Sea Angel )  [2007] 1 CLC 876 - that the law of frustration has limited application and the likes of delay or additional expense will not be sufficient.

In this case, both parties agreed that rather that the pandemic rendering performance of the leases impossible, the issue was whether there had been a 'frustration of purpose'.  Considering the terms of the three leases, the Court held that there was nothing to indicate that Salam's intended use of the aircraft (i.e. to operate flights to and from Oman) was a shared purpose with Latam. Moreover, as is common in this sector, the terms of the leases placed the risk of any disruption to Salam's business solely on Salam. The leases had been drafted such that Salam's obligations as to payment of rent and maintenance continued in virtually all plausible circumstances (sometimes referred to as a "hell or highwater" basis).  Thus, Salam's case was “far too weak” to justify any interference with the operation of the SBLCs or to hold that there was a sufficiently arguable case of frustration.

Whilst these two cases show that the Courts have rejected an extension of the principle of frustration and will focus on the specific contractual wording/underlying matrix for each dispute rather than opening the floodgates to a raft of future pandemic fuelled force majeure claims, in rejecting what was a speculative claim in the Fibula case, it has left open the possibility to argue that lock downs and travel restrictions could, in principle, constitute an event of force majeure if such an event were to restrict the performance of the commercial objectives agreed between the parties.

Alex Sharples

Managing Associate

Related Sectors

Related services.

• Practical Law

Fibula Air Travel Srl v Just-US Air Srl (30 October 2020)

Practical law case page d-105-2332  (approx. 1 page).

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• Content referring to this case
• [2020] 10 WLUK 415
• CL-2020-000659

David Baker

Barrister at essex court chambers.

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Professional practice

David has a diverse practice spanning the full breadth of Chambers’ profile and encompassing commercial chancery law, civil fraud, public international law (including investor-state arbitrations), and employment law.

Commercial dispute resolution and civil fraud are at the heart of David’s practice and the significant majority of his work has an international dimension. David is instructed by the claimant bank in JSC Commercial Bank PrivatBank v Kolomoisky , a US$1.9 billion fraud claim brought by the bank against its former shareholders. The case was listed as one of the Top 20 cases of 2022 by The Lawyer.

Further, David has substantial experience of international arbitration. For example, he has been instructed for over two years (during which he has appeared as sole counsel before the Tribunal) in a substantial DIFC-LCIA arbitration involving claims for breach of a shareholders’ agreement, articles of association and the DIFC Companies Law, and for relief from unfair prejudice, in connection with management of a multi- billion-euro tech company. David has also been instructed in a number of other commercial and investor-state arbitrations (ranging from small-scale shareholder claims to larger ‘bet the company’ disputes), together with related court proceedings (for example, seeking interim injunctive relief).

In addition to his commercial practice, David is a member of the Attorney General’s ‘Junior Juniors’ panel scheme, and acts regularly in employment matters, including appearing as sole counsel before the Employment Tribunal and Employment Appeal Tribunal. David also has a keen interest in disputes in the sports sector (including, in particular, anti-doping and disciplinary matters). David sits as a Disciplinary Committee member on a Football Association Regional Disciplinary Panel and is a panel member on the Sports Resolutions Pro Bono Panel.

David has been called to the bar in the British Virgin Islands and has full rights of audience within the DIFC Courts.

Gulfvin Investment Ltd v Tahrir Petrochemicals Corporation S.A.E. & ors [2022] EWHC 1040 (Comm) – David acted (led by Ciaran Keller) for the Egyptian and US defendants to claims in deceit and unjust enrichment on a successful challenge to the English court’s jurisdiction on the grounds that England was not clearly and distinctly the most appropriate forum in which to litigate the claims.

JSC Commercial Bank PrivatBank v Kolomoisky [2022] EWHC 775 (Ch), [2022] EWHC 868 (Ch) – David is acting (led by James Willan KC and Tim Akkouh KC) for the claimant, one of Ukraine’s largest banks, in a US$1.9 billion fraud claim brought against the bank’s former shareholders (on-going). The case was listed as one of the Top 20 cases of 2022 by The Lawyer.

Fibula Air Travel Srl v Just-Us Air Srl [2020] 10 WLUK 415 – David acted as junior counsel for the successful respondent in the first reported case in which the High Court has considered the impact of the COVID-19 pandemic on an aircraft wet lease agreement and, in particular, whether flight restrictions imposed in response to the pandemic engaged the force majeure clause in such agreement.

David has a broad arbitration practice. Having worked in the international arbitration team of a law firm with a leading international arbitration practice, and having acted on a number of substantial arbitrations since joining Chambers, David has gained considerable experience of arbitration and related court applications. Examples include:

• Acting in an LCIA arbitration for two shareholders in a technology company in claims for breaches of a shareholders’ agreement by a third shareholder in connection with the third shareholder’s purported exercise of a ‘drag along’ right. At the outset of the arbitration, David advised on the availability of urgent interim relief under the Arbitration Act 1996 and/or the LCIA Rules and, latterly, acted to successfully resist an application for expedited formation of the Arbitral Tribunal under Article 9A of the LCIA Rules 2020.
• Acting (led by Ciaran Keller) in a DIFC-LCIA arbitration for a minority shareholder in claims for breaches of a shareholders’ agreement, articles of association and the DIFC Companies Law, and for relief from unfair prejudice, in connection with management of a MENA-based technology company. During the course of the arbitration, which is ongoing, David has appeared as sole counsel before the Tribunal in hearings concerning procedural matters, in particular, the impact of UAE Decree No. 34 of 2021 (which abolished the DIFC Arbitration Institute).
• Acted in a putative LCIA arbitration for a shareholder in a claim for breaches of a shareholders’ agreement, articles of association and other associated contractual documentation arising out of the management of an investment fund company and the exercise of a warrant instrument. At the outset of the dispute, David advised on the availability of emergency injunctive relief from relevant courts (in the British Virgin Islands and Cayman Islands) and prepared documentation in connection with the same.
• Acted (led by Vernon Flynn KC) in an ICC arbitration acting for an aerospace company in relation to $228 million claim for alleged breach of an agreement for the design and development of a propulsion system.
• Assisted Jeremy Brier in a jurisdictional challenge to an arbitral award under Section 67 of the Arbitration Act 1996 ( Sonact Group Ltd v Premuda SpA [2018] EWHC 3820 (Comm)). The challenge concerned whether an arbitral tribunal had jurisdiction to determine a dispute arising from a settlement agreement, which did not have an arbitration clause, by virtue of the arbitration clause contained in the charterparty from which the settled dispute originated.
• Assisted two Members of Chambers in an LCIA arbitration concerning the enforcement of post-termination restrictive covenants in an employment contract, which included making an urgent application to court for an interim injunction.
• Assisted a Member of Chambers on an application for an urgent freezing order under Section 44 of the Arbitration Act 1996 in circumstances where an arbitral tribunal was unable to act effectively.
• Assisted a Member of Chambers in an ICC arbitration concerning a dispute arising out of an agreement for the supply of specialist telecoms equipment to a state entity.
• Assisted a Member of Chambers in an application to discharge an anti-suit injunction granted
• ex parte restraining the pursuit of foreign arbitration proceedings.
• Assisted a Member of Chambers in an LMAA arbitration concerning a claims and counterclaims arising out of an agreement for the sale and purchase of a luxury motor yacht, which included making an application for security for costs. The case largely turned on the application of force majeure
• Assisted two Members of Chambers in resisting an application for a final anti-suit injunction and continuation of an extant interim anti-suit injunction restraining pursuit of foreign court proceedings in favour of a London-seated arbitration. The application raised jurisdictional issues concerning application of the Rome I Regulation.

David has an interest in banking and financial services related litigation and has acted on a number of matters. Examples include:

• During the course of pupillage, David assisted a Member of Chambers in a dispute between an investor and an investment manager operating an algorithmic trading strategy concerning allegations of misrepresentation and breach of contract.

David has a particular interest in civil fraud and significant number of David’s cases concern allegations of fraud or occur within the context of the same. Examples include:

• Acting (led by James Willan KC and Tim Akkouh KC) for the claimant bank in JSC Commercial Bank PrivatBank v Kolomoisky , a US$1.9 billion fraud claim brought by the bank against its former shareholders. The case was listed as one of the Top 20 cases of 2022 by The Lawyer.
• Acted (led by Ciaran Keller) for the Egyptian and US defendants to claims in deceit and unjust enrichment in Gulfvin Investment Ltd v Tahrir Petrochemicals Corporation S.A.E. & ors [2022] EWHC 1040 (Comm) on a successful challenge to the English court’s jurisdiction on the grounds that England was not clearly and distinctly the most appropriate forum in which to litigate the claims.
• Acting (led by Ciaran Keller) in a LCIA-DIFC arbitration for a minority shareholder bringing a claim for relief from unfair prejudice. The case involves allegations of deceit made by the majority shareholder arising out of the alleged fraudulent conduct of the minority.

Commercial dispute resolution forms the backbone of David’s practice and the significant majority of David’s cases, both led and unled, involve commercial dispute resolution (whether through arbitration, or through court). Examples include:

• Acted for the successful respondent in Fibula Air Travel Srl v Just-Us Air Srl [2020] EWHC 3048 (Comm), the first reported case in which the High Court has considered the impact of the COVID-19 pandemic on an aircraft wet lease agreement and, in particular, whether flight restrictions imposed in response to the pandemic engaged the force majeure clause in such agreement.

Assisted two Members of Chambers in a dispute concerning the transfer of operatorship of a number of oil and gas fields in the United Kingdom Continental Shelf, which included making an application for an expedited trial.

• Assisted a Member of Chambers in a dispute concerning the enforcement of a guarantee given in respect of the construction of a ship-repair yard. The case raised a number of complex issues surrounding the law of guarantees, the doctrine of marshalling and the rule against reflective loss.

David has a keen interest in commercial chancery disputes and has gained significant experience in such disputes during the course of his practice. Examples include:

• Acting (led by Ciaran Keller) in a DIFC-LCIA arbitration acting for a minority shareholder in claims for breaches of a shareholders’ agreement, articles of association and the DIFC Companies Law, and for relief from unfair prejudice, in connection with management of a tech During the course of the arbitration, David has appeared as sole counsel before the Tribunal in hearings concerning procedural matters, in particular, the impact of UAE Decree No. 34 of 2021 (which abolished the DIFC Arbitration Institute).

David has a keen interest in company law and has gained particular experience in shareholder disputes. Examples include:

• Acting (led by Ciaran Keller) in a DIFC-LCIA arbitration for a minority shareholder in claims for breaches of a shareholders’ agreement, articles of association and the DIFC Companies Law, and for relief from unfair prejudice, in connection with management of a tech During the course of the arbitration, David has appeared as sole counsel before the Tribunal in hearings concerning procedural matters, in particular, the impact of UAE Decree No. 34 of 2021 (which abolished the DIFC Arbitration Institute).

A large part of David’s practice has an international focus and the disputes in which David acts regularly involve jurisdictional issues. Examples include:

• Acted (led by Ciaran Keller) for the Egyptian and US defendants to claims in deceit and unjust enrichment in Gulfvin Investment Ltd v Tahrir Petrochemicals Corporation S.A.E. & ors [2022] EWHC 1040 (Comm) on a successful challenge to the English court’s jurisdiction on the grounds that England was not clearly and distinctly the most appropriate forum in which to litigate the claims. The challenge gave rise to issues as to the governing law to be applied to the claims.
• Acting (led by Ciaran Keller) in a DIFC-LCIA arbitration acting for a minority shareholder in claims for breaches of a shareholders’ agreement, articles of association and the DIFC Companies Act, and for relief from unfair prejudice, in connection with management of a tech company. The case raised issues surrounding determination of the seat of the arbitration and applicable law of an arbitration agreement. During the course of the arbitration, David has appeared as sole counsel before the Tribunal in hearings concerning procedural matters, in particular, the impact of UAE Decree No. 34 of 2021 (which abolished the DIFC Arbitration Institute).
• Assisted two Members of Chambers in resisting an application for a final anti-suit injunction and continuation of an extant interim anti-suit injunction restraining pursuit of foreign court proceedings in favour of a London-seated arbitration. The application raised difficult jurisdictional issues concerning application of the Rome I Regulation.
• Assisted two Members of Chambers in a dispute arising out of an allegedly fraudulent withholding tax scheme. The case raised a complex conflict of laws issue regarding the application of the revenue rule.

David has a particular interest in employment law and is developing a broad practice covering matters in the Employment Tribunal and Employment Appeal Tribunal (in both of which David has appeared as sole counsel) and the High Court. Examples include:

• Acting for a defendant which had successfully defended claims for disability discrimination which had been made subject to deposit orders in bringing a claim against the claimant for costs.
• Acted for a defendant to claims for disability, race, sex and age discrimination claims in bringing an application for strike out of the claimant’s claims on the grounds that such claims had no reason prospect of success (or, in the alternative, for deposit orders in respect of such claims). The case settled following service of the defendant’s skeleton argument.
• Acted for a defendant to claims for disability discrimination in bringing an application for strike out of the claimant’s claims on the grounds that such claims have no reasonable prospect of     success (alternatively for deposit orders in respect of the same). One of the claims was struck out and three of the remaining four claims were made subject to deposit orders.
• Acted in an appeal before the Employment Appeal Tribunal on behalf of a claimant appealing against the refusal of an application to amend by way of adding individual named respondents.
• Acted in an appeal before the Employment Appeal Tribunal on behalf of a claimant appealing against the strike out of a disability discrimination claim ( Mrs M Itulu v London Fire Commissioner : UKEAT/0298/18/BA).
• Assisted a Member of Chambers on an application for urgent interim injunctive relief against a number of defendants to enforce obligations of non-competition, confidentiality and post- termination restrictions and for ancillary relief for delivery up.

Prior to joining Essex Court Chambers, spent 18 months as an Associate in the International Arbitration team at Allen & Overy LLP. Gained experience in a number of international commercial arbitrations, particularly in the construction, infrastructure, and energy and natural resources sectors. In particular:

• Acted for an energy company in a dispute with a contractor over the construction of a significant trans-continental gas infrastructure project.
• Advised an energy company in a dispute with a contractor over the construction of an ‘Energy from Waste’ plant.
• Acted for an energy company in a dispute over the supply of fuel for a nuclear power plant.

David has extensive experience of both applying for, and resisting applications for, injunctive relief. Such applications are often in support of arbitral proceedings and, in a number of instances, are made on an emergency basis. Examples include:

• Advised on the availability of urgent interim relief under the Arbitration Act 1996 and/or the LCIA 2020 Rules at the outset of an LCIA arbitration for two shareholders in a technology company in claims for breaches of a shareholders’ agreement by a third shareholder in connection with the third shareholder’s purported exercise of a ‘drag along’ right.
• Advised on the availability of emergency injunctive relief from relevant courts (in the British Virgin Islands and Cayman Islands) and prepared documentation in connection with the same in connection with a putative LCIA arbitration involving claims for breaches of a shareholders’ agreement, articles of association and other associated contractual documentation.
• Acted for the Respondent in Fibula Air Travel Srl v Just-Us Air Srl [2020] EWHC 3048 (Comm), the first case in which the High Court has considered the impact of the COVID-19 pandemic on aircraft wet leasing In that case, the Court rejected an application for a notification injunction in respect of a security deposit paid under an aircraft wet lease agreement, holding that even if the applicant charterer could rely on a force majeure clause and restrictions arising from the COVID-19 pandemic to contend that the wet lease agreement had terminated, there were strong arguments the respondent lessor was nevertheless entitled to retain the security deposit.
• Assisted a Member of Chambers in an application to discharge an anti-suit injunction granted ex parte restraining the pursuit of foreign arbitration
• Assisted two Members of Chambers in resisting an application for a final anti-suit injunction and continuation of an extant interim anti-suit injunction restraining pursuit of foreign court proceedings in favour of a London-seated The application raised jurisdictional issues concerning application of the Rome I Regulation.
• Assisted two Members of Chambers in an LCIA arbitration concerning the enforcement of post- termination restrictive covenants in an employment contract, which included making an urgent application to court for an interim injunction.

Assisting a Member of Chambers in a dispute arising out of a refusal to pay a claim made under a hull and machinery policy following the sinking of a vessel. The case concerned allegations of scuttling.

David has a keen interest in investment treaty disputes and is building a broad practice in this area. Having worked in the international arbitration team of a law firm with a leading investment treaty arbitration practice, and having acted on a number of substantial investment treaty arbitrations since joining Chambers, David has gained considerable experience of investment treaty arbitration. Examples include:

• Assisted in preparing a response to an annulment application made by the respondent State in a €440 million Energy Charter Treaty arbitration relating to a failed energy project.
• Acted for a UK investor in the real estate sector in Dalal v United Arab Emirates (ICSID Case No. ARB/19/10), an arbitration commenced under the UK-UAE BIT (instructed by Shardul Amarchand Mangaldas & Co).
• Assisted in a claim by a Dutch investor in an ICSID arbitration against a Central American State alleging various breaches of a bilateral investment treaty in relation to State measures in the financial services sector.

Whilst an Associate in the International Arbitration team at Allen & Overy LLP, acted for an investment fund in an Energy Charter Treaty claim arising out of renewable energy subsidies; acted for a state in an ICSID arbitration arising out of the construction of LPG terminal; and acted for a state in World Trade Organisation proceedings relating to mandatory product packaging requirements.

David has a particular interest in public international law, having studied both International Law and Armed Conflict and International Law of the Sea whilst reading for the BCL at the University of Oxford. During his studies, David worked as a research assistant for the legal team representing The African Union in the ICJ Advisory Proceedings concerning the Legal Consequences of the Separation of the Chagos Archipelago from Mauritius in 1965. During pupillage, David assisted a Member of Chambers in a dispute involving issues of state immunity.

David has a keen interest in disputes in the sports sector (including, in particular, anti-doping and disciplinary matters). David sits as a Disciplinary Committee member on a Football Association Regional Disciplinary Panel and is a panel member on the Sports Resolutions Pro Bono Panel.

2022: Called to the Bar of the British Virgin Islands

2019 : Tenant at Essex Court Chambers

2018-19 : Pupillage at Essex Court Chambers

2016-2017 : Associate (International Arbitration) at Allen & Overy LLP

2014-2016 : Trainee Solicitor at Allen & Overy LLP

2017-2018 : BCL (Oxon), Christ Church, University of Oxford (Distinction)

2010-2013 : LLB (Hons), University of Exeter (First Class)

2013 : University of Exeter School of Law Prize; Dean’s Commendation

2018 Primetime Emmy & James Beard Award Winner

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