SUNROCK AIRCRAFT CORPORATION LTD V SCANDINAVIAN AIRLINES SYSTEM DENMARK-NORWAY-SWEDEN

[2007] EWCA Civ 882, Court of Appeal, Lord Justice Ward, Lord Justice Thomas and Lord Justice Wall, 24 August 2007

Aircraft lease – Contract for sale and leaseback of aircraft – Proper construction of hirer’s redelivery obligations – Measure of damages

In January 1994, pursuant to an agreement entered into in December 1993, SAS sold two aircraft to Sunrock on terms that the aircraft would be leased back to SAS. The two leases were extended, and ultimately expired in November 2003 and February 2004. Prior to redelivery of the first aircraft, disputes arose as to the redelivery obligations of SAS under the lease in respect of components. The Court of Appeal held that, on the proper construction of the lease: (1) the obligation of the parties in respect of the engines, including limited life parts, was to make an adjustment for the difference in maintenance status by reference to a comparison between what was required at the next overhaul as at delivery and redelivery and the difference in the length of time as at delivery and redelivery to that overhaul – SAS was not required to pay Sunrock a sum calculated by reference to the proportion of the life of the limited life parts used during the period of the lease; (2) SAS was in breach of the lease by redelivering the aircraft frame with “scab patches” to the damaged part of the skin, but Sunrock was not entitled to damages representing the cost of making a flush repair to the damaged skin because the aircraft had been sold unrepaired and the value or marketability of the aircraft had not been affected; (3) Sunrock was entitled to damages for SAS’s failure to allow the dispute as to the scab patches to be referred to expert determination, as provided for in the contract, but only nominal damages would be awarded because an expert would have reached the same conclusion as the court – it would not have been open to the expert to make a finding that Sunrock was entitled to damages representing the cost of repairing the scab patches.