In the recent case of Helice Leasing SAS v PT Garuda Indonesia (Persero) Tbk ([2021] EWHC 99 (Comm)), the Commercial Court decided that the claimant, aircraft leasing company Helice, must arbitrate its claim against airline Garuda for more than $5,150,000 in unpaid lease rent under London Court of International Arbitration (LCIA) rules instead of proceeding by court action.
The court upheld the parties' arbitration agreement pursuant to the lease agreement terms despite conflicting references therein which stated that the lessor could "proceed by appropriate court action" following an event of default.(1) The court endorsed the 'one-stop shop' principle established by the House of Lords in Fiona Trust & Holding Corp v Privalov ([2007] UKHL 40), which holds that the parties to a contract are likely to have intended for any disputes arising from that contract to be decided in the same forum.
Helice brought a claim for unpaid lease rent in respect of a Boeing 737-800 aircraft against Garuda following Garuda's consistent failure to make monthly rent payments when due between January and October 2020, resulting in an outstanding amount of more than $5,150,000 plus interest.
Garuda responded to Helice's claim by applying to the High Court to:
- set aside the service of the claim form on the basis that it had not been validly served on Garuda's place of business in the United Kingdom at the time;
- stay proceedings in favour of arbitration as the proceedings breached the parties' arbitration agreement pursuant to the lease agreement; and
- stay proceedings on the basis that Indonesia was the most appropriate forum for the dispute.
This article briefly considers the first and third points before focusing on the second point in more detail.
Service of claim form
The claim form was served in mid-July 2020 on Garuda's address in Hammersmith, London, which was Garuda's place of business in the United Kingdom at that time according to the Companies House website. In its application to set aside the service, Garuda stated that from 1 February 2020, its place of business in the United Kingdom had been an address in Hounslow but, due to the COVID-19 pandemic, it had not filed the address change with Companies House until the beginning of July 2020, resulting in its updated address not appearing on the Companies House website before August 2020.
The judge held that the claim form had been validly served, deciding that:
- there could be no doubt that the claim form's contents had been communicated to Garuda, given that it had acknowledged service thereof; and
- the risk of delay in an address change being published on the Companies House website should be borne by the company rather than the public as the public must be able to rely on the information published on the Companies House website as a matter of public record.
Appropriate dispute forum
The court concluded that Garuda had failed to discharge its burden of proof to show that Indonesia was clearly or distinctly the more appropriate forum, a high burden for Garuda to prove, dismissing factors such as the state of registration and habitual base and current location of the aircraft in Indonesia as irrelevant. Instead, the court highlighted that:
- Garuda had a place of business in the United Kingdom, whereas Helice had no place of business in Indonesia;
- the lease agreement and other operative documents were in English and governed by English law;
- both parties could communicate in English, whereas no one representing Helice could speak Bahasa; and
- the English courts could resolve disputes despite any further lockdowns given their ability to operate remotely, whereas no evidence had been adduced as to the operation of the Indonesian courts during the pandemic.
Arbitration versus court proceedings
Garuda argued that the court proceedings should be stayed and the matter referred to arbitration on the basis of Clause 15.2 of the lease agreement, pursuant to which the parties had agreed that:
any dispute arising out of or in connection with this Lease Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Rules of the London Court of International Arbitration.
Helice resisted the application and referred to Clause 13.2 of the lease agreement, which provided that following an event of default:
[the] Lessor may at its option (and without prejudice to any of its other rights under this Lease Agreement or that may arise by operation of Applicable Law), at any time thereafter…. proceed by appropriate court action or actions to enforce performance of this Lease Agreement or to recover damages for the breach of this Lease Agreement.
Helice contended that this provision constituted a carve out to the arbitration agreement and provided the lessor with additional rights, given that they were granted "without prejudice". Further, Helice argued that the references to "court" and "action" indicated court litigation, not arbitration.
While accepting that Clause 13.2 of the lease agreement was "not happily worded",(2) the judge dismissed Helice's arguments and granted the stay of proceedings, finding that the parties had objectively intended to refer any dispute to arbitration:
in clause 13.2, they were intending to confirm that in the case of an Event of Default, [Helice] would have all of the rights set out in that clause, which included proceeding to arbitration to enforce performance of the lease or to recover damages, and that would not prevent it from seeking the other items of relief listed in clause 13.2.(3)
The judge also noted that if the parties had intended for Clause 13.2 to constitute a carve out to Clause 15.2 in giving the lessor the right to take certain disputes to court, it would have been expected that Clause 15.2 would have been made subject to Clause 13.2, particularly as the carve out was extensive and would have applied to any event of default.
The court noted that to give the contract a "business common sense construction",(4) the parties must reasonably have intended the reference to "court action" in Clause 13.2 to mean action before the LCIA. The court further stated that support for its interpretation could also be found in Garuda's representation pursuant to the lease agreement that the lessee's submission "to the non-exclusive jurisdiction of the courts as set out in section 15.2 [is] valid and binding" given that the court identified in Clause 15.2 was the LCIA.
Further, the judge noted that Helice's interpretation of Clause 13.2 was "likely a recipe for confusion, cost and delay"(5) if certain disputes relating to the lease agreement were to be resolved via arbitration and others were to be decided in court. The interpretation was also contrary to the one-stop shop construction of jurisdiction clauses established by the House of Lords in Fiona Trust & Holding Corp v Privalov.
Lastly, the court considered the issue of whether there was a dispute to be referred to arbitration, given that Garuda had never put forward any defence to the claim for unpaid lease rent and admitted in correspondence with Helice that monies were due and owing by it. Applying previous authorities, the judge concluded that Garuda's failure to pay the outstanding amount was sufficient to constitute a dispute.
This decision is a good example of contract interpretation under English law and illustrates that the court's paramount consideration will always be the parties' objective intention with regard to both the language of a provision and the commercial context in which it was drafted.
The case also upholds the one-stop shop principle established by the House of Lords in Fiona Trust & Holding Corp v Privalov, which provides that the construction of a jurisdiction clause should be based on the presumption that the parties are likely to have intended for any dispute arising out of their contractual relationship to be decided in the same forum. The case illustrates the courts' inclination to promote one-stop adjudication to avoid unnecessary delay, costs and procedural complexities.
Endnotes
(1) The non-payment of lease rent constituted an event of default under the lease agreement between Helice and Garuda.
(2) Paragraphs 65 and 72, Helice Leasing SAS v PT Garuda Indonesia (Persero) Tbk.
