A series of three judgments in the English Commercial Court case FW Aviation (Holdings) 1 Limited v VietJet Aviation Joint Stock Company has established key legal principles in aircraft leasing disputes. The proceedings centered on whether four Airbus A321 aircraft leases could be terminated, the financial obligations following termination, and how damages—including detention and export delays—could be claimed.
Lease Structure and Financing Details
The dispute originated in 2018 and 2019, when VietJet received two Airbus A321-271 NEO and two A321-211 CEO aircraft under Japanese Operating Lease with Call Option (JOLCO) agreements. These arrangements involved Japanese equity investors covering roughly 25% of the acquisition cost, while the remaining 75% was provided as debt by syndicated lenders. Special purpose entities owned the aircraft and leased them to VietJet-controlled companies, which then sub-leased the planes to VietJet. The leases included purchase options for VietJet if exercised properly.
When the COVID-19 pandemic disrupted operations, VietJet failed to make rental payments. The debt for the NEO and CEO aircraft was managed separately by Natixis and BNP Paribas, who issued termination notices after unpaid rent reached approximately $8.1 million across all four aircraft. In October 2021, FitzWalter Capital Partners acquired the outstanding loans and transferred claims to FW Aviation (Holdings) 1 Limited (FWA), which later took possession of the aircraft.
VietJet contested both the terminations and the claim assignments, arguing that the termination consequences were disproportionate given the financing structure and purchase options. The English Court held that the leasing of the Aircraft had been validly terminated, and that FWA had taken valid assignment of rights, such that it had standing to bring the claim. The Court accepted that relief from forfeiture was available in principle but declined to grant any relief. The Court held that the termination consequences were part of the contractual bargain and emphasised the importance of commercial certainty in sophisticated aircraft leasing transactions.
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Termination Payments Deemed Legitimate
The second judgment focused on the financial impact of termination. The English Court held that the contractual termination amounts were payable for all four Aircraft. VietJet had argued these payments were penalties because they allowed FWA to recover both termination sums and the aircraft. The English Court rejected the argument holding that the termination payment protected legitimate interests created by the JOLCO financing structure, including the interests of the lenders as well as the investors, and were not out of all proportion to those interests.
The third and most recent ruling examined additional losses claimed by FWA, including repair costs, storage expenses, export delays, and conversion claims. A key issue was whether termination remedies in the leases excluded broader indemnity claims. The Court rejected the broad submission and held that specific termination remedies did not exclude remedies and indemnities expressly contemplated for different losses. At the same time, it emphasised that a general indemnity could not be used to enlarge a remedy which the contract had already fixed for the same loss. This allowed FWA to recover extra losses-such as those from export delays-if they were distinct from termination values.
Indemnity Scope for Export Delays
For the NEO aircraft, FWA held rights to pursue indemnities under the leases, including claims for putting the aircraft in return condition-a right it lacked for the CEO aircraft due to differences in assigned property rights. The English Court nevertheless held that evidence at the third trial did not show that those actions materially caused the period of export delay. Instead, the delays resulted from the aircraft’s condition, maintenance backlogs, engine-shop availability, and regulatory hurdles. Despite this, the court held that the broad indemnity language in the leases covered losses directly or indirectly tied to deregistration and export, even without proving a direct link to VietJet’s conduct.
The court also addressed recovery for return-condition breaches. It ruled that indemnities covered only actual incurred costs—not hypothetical repairs—and that FWA could claim either the cost of restoring the aircraft to lease condition or a diminution in value, provided expert evidence supported it. The latter was treated as an alternative measure, not an additional award for the same defects.
The third judgment further clarified the scope of conversion claims by FWA, which sought recovery for the period the aircraft remained in VietJet’s possession after termination but without rent payments. The court distinguished between detinue (wrongful retention) and conversion (asserting ownership over another’s property). It ruled that conversion claims could only succeed if FWA had established a proprietary interest in the aircraft at termination, a point already resolved in its favor. However, the court rejected FWA’s attempt to treat the entire post-termination possession as a single act of conversion, holding that each day of unauthorized use constituted a separate wrongful act. This required FWA to prove the aircraft’s value on each relevant date, a burden it had not met.
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Limits on Lost Rent Recovery
On lost rent, the court addressed whether FWA could recover rental income it would have earned had the aircraft been redeployed immediately after export. VietJet argued such claims were speculative. The court agreed, stating that lost rent claims were limited to periods where FWA had a contractual right to possession, only arising once the aircraft left Vietnam. For the NEO aircraft, this meant lost rent could be claimed from June 2024 onward, provided FWA demonstrated a reasonable expectation of redeployment. The court rejected claims for earlier periods, emphasizing that speculative losses, such as hypothetical charter revenue, were not recoverable under the indemnity provisions.
The court’s treatment of export-related losses depended on whether delays were directly attributable to VietJet’s actions or fell outside the indemnity’s scope. While the court found VietJet’s obstructive conduct did not cause the delays, it held that the indemnity covered losses from the deregistration and export process itself, regardless of fault. This included costs for regulatory compliance, customs clearance, and temporary storage. The key distinction was between foreseeable operational risks, covered by the indemnity, and unforeseeable external events, such as a sudden geopolitical embargo, which were not.
The court’s ruling on storage and handling expenses was partially upheld, but only for necessary and reasonable measures to preserve the aircraft. The court rejected inflated claims for premium storage, ruling that standard industry practices, such as secure hangaring, were sufficient. It also clarified that storage costs could not be claimed for periods where the aircraft was not actively prepared for export, such as during prolonged regulatory negotiations.
The court’s ruling on diminution in value claims introduced a critical limitation: such claims could only proceed with expert evidence demonstrating a measurable gap between the aircraft’s contractual return condition and its actual state. The court rejected broad depreciation estimates, insisting on specific, itemized defects linked to VietJet’s breach. For example, if an engine required overhaul due to VietJet’s failure to perform maintenance, the claim could include the cost of that overhaul minus any residual value. However, if the defect was pre-existing or unrelated to VietJet’s conduct, it could not be claimed. The judgment reinforced that alternative recovery measures, such as diminution, must be evidence-based and distinct from direct repair costs.