Technical

Quantum matters – Win for Cessna in aircraft lease dispute

Ben Kenny Ben Kenny

On 7 May 2019, an award was made public whereby an International Criminal Court (ICC) Tribunal ordered a lease guarantor to pay $41.2 million plus interest to Cessna Finance Corporation in respect of three private jets.

Background

In December 2007 and June 2008, Prestige Jet Rental LLC (Prestige) signed lease agreements with Cessna Finance Corporation (CFC) for three executive jet aircraft (the Lease Agreements). Al Ghaith Holding Company PJSC (AGH) guaranteed to CFC the timely and full payment of amounts owed to it by Prestige under the Lease Agreements.

Prestige defaulted on its monthly lease payments in early 2009 and then made erratic payments until December 2009. CFC applied Prestige’s security deposit against the outstanding amounts in January 2010 and only received one further payment in February 2010.

In April 2010, CFC issued a final Event of Default Payment Notice requesting the payment of US$48.0 million. By June 2010, CFC had repossessed all three aircraft. After making the necessary repairs, CFC sold the aircraft for a total of US$29.9 million.

CFC (the Claimant) filed a Request for Arbitration on 15 April 2013 against Prestige and AGH. CFC later withdrew its claim against Prestige as it had reasons to believe that Prestige was defunct.

The Tribunal found that the arbitration agreements were valid, that it had jurisdiction over the matter and that AGH (the Respondent) was liable under the guarantee. This article focuses on quantum.

Claimant’s approach

CFC claimed the amounts outstanding under the Lease Agreements less the net proceeds from the sale of the aircraft. This amounted to $41.2 million at August 2014, including contractual interest. CFC also claimed pre- and post-award interest at the contractual rate of 1.5% per month.

CFC’s damages and interest calculation was carried out by its chief credit officer, who explained his approach in his witness statement and testified at the hearing.

To evidence the amounts outstanding under the Lease Agreements, CFC submitted a witness statement from its manager of accounting, who also testified at the hearing.

The net proceeds from the sale of the aircraft included the price obtained less the cost of repossessing the jets, maintaining and repairing them before the sale as well as marketing and brokerage expenses. In support of this part of the claim, CFC produced a report from an industry expert who concluded that the marketing process CFC employed complied with industry standard methods and that CFC sold all three aircraft at, or higher than, market value at the time. CFC’s chief credit officer set out the aircraft’s maintenance and repair costs in his witness statement.

Respondent’s approach

The Respondent did not advance an alternative quantum calculation and called on the Claimant to prove it was owed the amounts claimed. The Respondent did not submit any expert evidence.

Approach taken by the Tribunal

The Tribunal stated that in the absence of an alternative case on quantum from the Respondent, it would “consider the Claimant’s evidence in this respect and determine whether it [was] satisfactory in view of the standard of balance of probabilities.”

The Tribunal considered the Claimant’s witnesses and its expert to be “highly competent professionals” and their testimonies were unrebutted by the Respondent during the hearing. Consequently, the Tribunal accepted their evidence and awarded US$41.2 million to CFC. It awarded simple interest at a rate of 1.5% per month until payment in full for consistency with the interest contractually agreed.

Conclusion

Interestingly, the Claimant did not engage a quantum expert to prove its damages claim in this case and relied on testimony from its in-house finance professionals instead. It appears that damages calculations were treated as a fact-based exercise reflecting the wording of the Lease Agreements and as such did not require an expert opinion. Expert evidence was only sought to prove that the aircraft had been sold for at least their market value following a standard marketing process. This case also illustrates the approach taken by Tribunals to assess evidence before them when the Respondent has not submitted its own case on quantum.

Case information

Claimant: Cessna Finance Corporation (USA)

Respondent: Al Ghaith Holding Company PJSC (United Arab Emirates)

Case ref: ICSID Case No. 19397/AGF/ZF/RD

Tribunal:

Members of the Tribunal

The Hon. L. Yves Fortier, OC, CC, QC (President)

The Hon. Richard J. Holwell

Dr. Fathi Kemicha

Assistant to the Tribunal

Ms Annie Lespérance

 

For further information, please contact Ben Kenny.

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