Certificates of acceptance

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It is commonplace for finance companies, for reasons such as not actually inspecting the funded equipment, to ask the lessee to provide written confirmation that the equipment subject to a lease agreement has been received and is altogether to the satisfaction of the lessee.

The Court of Appeal has confirmed the significance of such a document in ACG Acquisition XX LLC v. Olympic Airlines SA (in Special Liquidation) [2013] EWCA Viv 369.

The background

The Claimant leased a Boeing 737 aircraft to the Defendant for a period of 5 years pursuant to a leasing agreement. Prior to leasing the aircraft to the Defendant, the aircraft had been on lease to AirAsia. AirAsia was to redeliver the aircraft to the Claimant on the same day that the Claimant delivered the aircraft to the Defendant. Prior to such delivery, an inspection of the aircraft would be carried out on behalf of AirAsia, the Claimant and the Defendant after which the Defendant would be entitled to submit a list of any discrepancies in the various reports.

Acceptance and delivery of the aircraft was to be evidenced by the Claimant and Defendant signing a certificate of acceptance. The certificate of acceptance stated that the Defendant confirmed that the aircraft complied in all respects with the condition required for delivery. The Defendant completed the certificate of acceptance and the aircraft was delivered. After a number of flights, a defect was discovered and the Greek Civil Aviation Authority suspended the aircraft's airworthiness certificate.

The proceedings

The Claimant issued proceedings for payment of rent, maintenance reserves and damages for loss of rent of the aircraft and the Defendant counterclaimed for damages for breach of contract on the grounds that the Claimant had failed to deliver the aircraft in the contractual condition. At trial, the judge rejected the Claimant's argument that the contractual terms rendered the certificate of acceptance as conclusive proof that the aircraft had complied in all respects with the condition required at delivery; however, it was accepted that the statements made in the certificate of acceptance gave rise to an estoppel by representation on which the Claimant had reasonably relied on to its detriment in accepting redelivery of the aircraft from AirAsia that prevented the Defendant from alleging that the aircraft was not in the contractually required condition upon delivery.

The appeal

The Defendant's appeal was dismissed by the Court of Appeal. It was determined that the lease agreement contained extensive provisions to allow for the inspection of the aircraft before the Defendant was required to elect whether or not to accept delivery. The Court considered that the lease and certificate of acceptance created a position whereby finality was achieved both to the commencement of the lease term which then required the Defendant to pay the rental payments but also as to the compliance of the aircraft with the required delivery condition. Finally, the natural meaning of the provisions of the lease were clear in that the aircraft had been examined and investigated and was found to be in the condition required for delivery and therefore the certificate of acceptance had to give rise to an estoppel by representation.

Conclusion

In light of the numerous scenarios in which a lessor will rely upon the lessee's confirmation of its satisfaction with the delivery of equipment, this is a useful judgment to rely upon should the lessee subsequently attempt to avoid payment for the lease on grounds of the unsatisfactory condition of this equipment at delivery.